Novogratz Delays Crypto Hedge Fund Launch, Warns Of Drop To $8,000 But "Bull Market" Isn"t Over

Last week, Mike Novogratz surprised more than a few market participants by telling CNBC"s Fast Money that he was bringing forward the launch date of his crypto hedge fund; today he killed those plans.

On December 12th, Novogratz said he thinks bitcoin could hit $40,000 in 2-3 months. The Galaxy Fund was supposed to launch of December 15th.

The man who called the bitcoin rally sees this for litecoin from CNBC.

Today, Novogratz has shelved plans to laucnh his fund, warning that "we didn"t like market conditions."

 

Novogratz tweeted...

Looks to me like a short term top is in. My hunch is we consolidate between 10-16k for a while. Extreme would be 8k. Bull market isn’t over. Just pausing.

— Michael Novogratz (@novogratz) December 22, 2017

Adding that...

When insiders sell it always is important. @SatoshiLite

— Michael Novogratz (@novogratz) December 22, 2017

Warning traders that Bitcoin may drop as low as $8,000 in the near-term.

David Stockman Lashes Out At Mainstream Media"s "Peak Fantasy Time"

Authored by David Stockman via Contra Corner blog,

If you want to know why both Wall Street and Washington are so delusional about America"s baleful economic predicament, just consider this morsel from yesterday"s Wall Street Journal on the purportedly awesome November jobs report.

Wages rose just 2.5% from a year earlier in November - near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November.... November marked the 86th straight month employers added to payrolls.

Whoopee!

Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the "jobs" counted by the BLS establishment survey. In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level.

The reason isn"t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually.

In other words, the ballyhooed headline averages are essentially meaningless noise because the BLS counts all jobs equal----that is, a 10-hour per week gig at the minimum wage at McDonald"s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

When the line is trending inexorably from the upper left to the lower right, of course, it means there are more of the former and fewer of the latter. Six more minutes of continuing worse----is still bad.

 

As a matter of fact, the November report showed 20.199 million goods-producing jobs in manufacturing, construction and energy/mining, which did represent about a 2% improvement from prior year.

The real story, however is not about the short-term monthly or annual deltas being generating by an economy barely crawling forward. Rather, at 102 months, the current business cycle is exceedingly long in the tooth by historic standards (the longest expansion was just 118 months under the far more propitious circumstances of the 1990s).

In fact, what has been the weakest expansion in history by far may now be finally running out of gas.

During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply---and it is ultimately Uncle Sam"s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL---meaning they are not likely to be recovered before the next recession hits.

Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed,  we are still not even close to the  24.6 million figure which was posted  at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the "Bread and Circuses Economy" keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total.

Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers or 2.4X the four decade ago level.

Yes, there is nothing wrong with these jobs or the workers who hold them, but the fact that they constitute a rapidly increasing share of the mix is powerful proof that the job market is not nearly as awesome as it is cracked up to be; and that the monthly BLS report is surely no measure at all of a rising standard of living in Flyover America.

The larger point is that the monthly jobs report is really neither a report on true labor market conditions or a proxy for genuine economic growth. The fact is, without sustained growth of  full-time, full-pay "breadwinner" jobs there is no real economic recovery or progress.

And we literally mean, no progress. With an update for November"s results, the chart below would show 72.8 million "breadwinner jobs" in goods production, the white collar professions, business management and support, transportation and distribution, FIRE (finance insurance and real estate) and full-time government jobs outside of schools.

As it happens, that is virtually the same number posted by the BLS back in January 2001 when Bill Clinton was packing his bags to vacate the Oval office. In short, three presidents later---all of whom have claimed undying devotion to good jobs and rising living standards---and there is hardly a single new breadwinner job.

The above chart does not bring the concept of awesome to mind. In fact, it reminds of the same kind of stagnation that is evident in all the key metrics for real economic progress. For instance, an economy flat-out can not grow without steady gains in industrial production, which includes energy extraction and all facets of goods manufacturing from automobiles to furniture clothes, shoes and canned soup.

But like in the case of "breadwinner jobs", this so-called recovery has generated none of it. The index of industrial production stands at exactly the level of the pre-crisis peak a full decade ago.

There is a whole raft of these statistics,  but the following graph leaves little to the imagination.

Notwithstanding the Fed"s whacko claim that it hasn"t generated enough inflation in recent years, the truth is that even by the BLS" faulty measuring stick every single dollar of median household income gain has been eaten up by CPI inflation. Accordingly, there has been zero gain in real median household income for the entirety of this century!

What does our latest Oval Office occupant plan to do about this? Why nothing less than borrow $1.8 trillion from future taxpayers in order to enable corporations and other business to crank-out even bigger financial engineering distributions to shareholders in the form of dividends, stock buybacks and M&A deals.

This isn"t even "disruption" as per the Donald"s real job. It"s just dumb and fiscally irresponsible beyond measure - a message we have once again taken to the mainstream media in recent days.

The Truth About Wall Street Analysis

Authored by Lance Roberts via RealInvestmentAdvice.com,

Turn on financial television or pick up a financially related magazine or newspaper and you will hear, or read, about what an analyst from some major Wall Street brokerage has to say about the markets or a particular company. For the average person, and for most financial advisors, this information as taken as “fact” and is used as a basis for portfolio investment decisions.

But why wouldn’t you?

After all, Carl Gugasian of Dewey, Cheatham & Howe just rated Bianchi Corp. a “Strong Buy.” That rating is surely something that you can “take to the bank”, right?

Maybe not.

For many years, I have been counseling individuals to disregard mainstream analysts, Wall Street recommendations, and even MorningStar ratings, due to the inherent conflict of interest between the firms and their particular clientèle. Here is the point:

• YOU, are NOT Wall Street’s client.


• YOU are the CONSUMER of the products sold FOR Wall Street’s clients.

Major brokerage firms are big business. I mean REALLY big business. As in $1.5 Trillion a year in revenue big. The table below shows the annual revenue of 32 of the largest financial firms in the S&P 500.

(The combined revenue of the 32 largest firms last year was in excess of $1 Trillion with the revenue of the 97 financial firms in the S&P 500 bringing in $1.5 Trillion.)

As such, like all businesses, these companies are driven by the needs of increasing corporate profitability on an annual basis regardless of market conditions.

This is where the conflict of interest arises.

When it comes to Wall Street profitability the most lucrative transactions are not coming from servicing “Mom and Pop” retail clients trying to work their way towards retirement. Wall Street is not “invested” along with you, but rather “use you” to make income.

This is why “buy and hold” investment strategies are so widely promoted. As long as your dollars are invested the mutual funds, stocks, ETF’s, etc, brokerage firms collect fees regardless of what happens in the market. These strategies are certainly in their best interest – they are not necessarily in yours.

But those retail management fees are simply a sideline to the really big money.

Wall Street’s real clients are multi-million, and billion, dollar investment banking transactions, such as public offerings, mergers, acquisitions and bond offerings which generate hundreds of millions to billions of dollars in fees for Wall Street each year.

In order for a firm to “win” that business, Wall Street firms must cater to those prospective clients. In this respect, it is extremely difficult for the firm to gain investment banking business from a company they have a “sell” rating on. This is why “hold” is so widely used rather than “sell” as it does not disparage the end client. To see how prevalent the use of the “hold” rating is I have compiled a chart of 4625 stocks ranked by the number of “Buy”, “Hold” or “Sell.”

See the problem here. There are just 2.8% of all stocks with a “sell” rating.

Do you actually believe that out of 4625 stocks only 124 should be “sold?”

You shouldn’t.  But for Wall Street, a “sell” rating is simply not good for business.

The conflict doesn’t end just at Wall Street’s pocketbook. Companies depend on their stock prices rising as it is a huge part of executive compensation packages.

Corporations apply pressure on Wall Street firms, and their analysts, to ensure positive research reports on their companies with the threat that they will take their business to another “friendlier” firm.  This is also why up to 40% of corporate earnings reports are “fudged” to produce better outcomes.

Earnings Magic Exposed, an article written by Michael Lebowitz last year, provides details on the games played on Wall Street when it comes to forecasting corporate earnings. He summarized the article as follows:

Consider the ploy that companies and Wall Street are using to fool the investing public.

• First, they grossly overestimate earnings for the upcoming year. By overestimating earnings, they tout financial ratios based upon inaccurate expected earnings and sell investors on a bright future. How many times have analysts claimed that forward looking price to earnings ratios are constructive for price gains? How “constructive” would they be if the expectations were reconciled to reality and lowered by 75%?


• Second, they progressively lower expectations prior to the earnings release so that financial results are effectively underestimated. The same analysts that peddled double digit earnings growth a year earlier somehow can now claim that earnings are better than they expected.

If actual earnings varied somewhat randomly from above expectations to below expectations, we would likely fault the analysts and corporations with being poor forecasters. But when such one-directional forecasting errors routinely and consistently occur, it is more than bad forecasting. At best one can accuse Wall Street analysts and the companies that feed them information of incompetence. At worst this is another pure and simple case of institutions gaming the system through a fraud designed to prop up stock prices.  Take your pick, but in either case it is advisable to ignore the spin that accompanies earnings releases and apply the rigor of doing your own analysis to get at the veracity of corporate earnings.

Wall Street Needs You To Sell Product To

When Wall Street wants to do a stock offering for a new company they have to sell that stock to someone in order to provide their client, a company, with the funds they need. The Wall Street firm also makes a very nice commission from the transaction.

Generally, these publicly offered shares are sold to the firm’s biggest clients such as hedge funds, mutual funds, and other institutional clients. But where do those firms get their money? From you.

Whether it is the money you invested in your mutual funds, 401k plan, pension fund or insurance annuity – at the bottom of the money grabbing frenzy is you. Much like a pyramid scheme – all the players above you are making their money…from you.

In a study by Lawrence Brown, Andrew Call, Michael Clement and Nathan Sharp it is clear that Wall Street analysts are clearly not that interested in you. The study surveyed analysts from the major Wall Street firms to try and understand what went on behind closed doors when research reports were being put together. In an interview with the researchers John Reeves and Llan Moscovitz wrote:

“Countless studies have shown that the forecasts and stock recommendations of sell-side analysts are of questionable value to investors. As it turns out, Wall Street sell-side analysts aren’t primarily interested in making accurate stock picks and earnings forecasts. Despite the attention lavished on their forecasts and recommendations, predictive accuracy just isn’t their main job.”

The chart below is from the survey conducted by the researchers which shows the main factors that play into analysts compensation.  It is quite clear that what analysts are “paid” to do is quite different than what retail investors “think” they do.

“Sharp and Call told us that ordinary investors, who may be relying on analysts’ stock recommendations to make decisions, need to know that accuracy in these areas is ‘not a priority.’ One analyst told the researchers:

 

‘The part to me that’s shocking about the industry is that I came into the industry thinking [success] would be based on how well my stock picks do. But a lot of it ends up being “What are your broker votes?”‘

 

A ‘broker vote’ is an internal process whereby clients of the sell-side analysts’ firms assess the value of their research and decide which firms’ services they wish to buy. This process is crucial to analysts because good broker votes result in revenue for their firm. One analyst noted that broker votes ‘directly impact my compensation and directly impact the compensation of my firm."”

The question really becomes then “If the retail client is not the focus of the firm then who is?”  The survey table below clearly answers that question.

Not surprisingly you are at the bottom of the list. The incestuous relationship between companies, institutional clients, and Wall Street is the root cause of the ongoing problems within the financial system.  It is a closed loop that is portrayed to be a fair and functional system; however, in reality, it has become a “money grab” that has corrupted not only the system but the regulatory agencies that are supposed to oversee it.

Why You Need Independence

So, where can you go to get “real investment advice” and a true consideration of the value of YOUR money?

Thankfully, starting at the turn of the century, the rise of independent, fee-only, financial advisors, private investment analysts, research and rating firms began to infiltrate the system. 

Here is an example of the difference.

As an independent money manager, I use valuation analysis to determine what equities should be bought, sold or held in client’s portfolios. While there are many measures of valuation, two of my favorites are Price to Sales and the Piotroski f-score among others. I took the same 4625 stocks as above and ranked them by these two measures.

See the difference. Not surprisingly, there are far fewer “buy” rated, and far more “sell” rated, companies than what is suggested by Wall Street analysts.

Here is something even more alarming.

Just after the “dot.com” bust, I wrote a valuation article quoting Scott McNeely, who was the CEO of Sun Microsystems at the time. At its peak the stock was trading at 10x its sales. (Price-to-Sales ratio) In a Bloomberg interview Scott made the following point.

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees.That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

How many of the following “Buy” rated companies do you currently own that are currently carrying price-to-sales valuations in excess of 10x?

So, what are you thinking?

As more and more “baby boomers” head into retirement the need for firms that can do organic research, analysis and make investment decisions free from “conflict,” and in the client’s best interest, will continue to be in high demand in the years to come.

This is particularly the case when the next downturn occurs and the dangers of passive ETF indexing and robo-advisors are readily exposed.

Independent advice can help remove those emotional biases from the investing process that lead to poor investment outcomes over time. There are a raft of advisors with the the right team, tools and data, who can spend the time necessary to manage portfolios, monitor trends, adjust allocations and protect capital through risk management.

The next time someone tells you that you can’t “risk manage” your portfolio and just have to “ride things out,” just remember, you don’t.

You, and your money, deserve better.

Fourth Turning"s Neil Howe: Why Millennials Aren"t So Unique

Authored by Marianne Brunet via AdvisorPerspectives.com,

The conventional wisdom is that Millennials are a generation with unique needs and buying habits, but Neil Howe says that they are very similar to the Greatest Generation.

Howe, who coined the term “Millennial,” says that both generations are highly risk-averse, a characteristic brought on by their shared parenting environment.

In a talk last week, Howe explained how we can use generational patterns and historical economic trends to better understand the future of the global economy.

He also cautioned investors about the impact global aging trends will have on future economic development and financial market conditions.

Howe spoke on November 2 at a National Association for Business Economics luncheon in Boston.

He is an authority on social change in America, and an acclaimed bestselling author. He is also a leading researcher at Hedgeye Risk Management and a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C.

How aging populations will impact the fiscal future

Howe has spent his career researching demography within the context of economic history. But in his talk last week, he revealed that he recently shifted his focus to a new area of study.

“Political demography is a whole new budding field,” Howe said. “And it will never go away, not for the rest of our lifetimes.”

According to Howe, “Political demography is premised on the fact that in the next century, we are going to see a greater divergence of demographic trajectories, more than we’ve ever seen before in human history.”

This divergence is based on two global aging trends.

On the one hand, “there are places in the world today whose demographics are essentially the same as in pre-modern times,” Howe said. “These are high-mortality, high-fertility societies – I’m talking about a lot of South Asia and Sub-Saharan Africa.”

“And then you have other areas of the world with extreme low-fertility and low morality societies,” Howe explained.

“Look at South Korea,” Howe said. “According to the United Nations constant-fertility scenario, by the year 2035 there will be more people turning age 90 every year than being born every year.”

“We’ve never in human history seen this situation amongst different societies around the world,” according to Howe.

This divergence will undoubtedly drive significant changes in the future global economic landscape. “What are the implications for the direction of capital flows? What are the implications for labor productivity and competitiveness?” Howe asked.

He urged economists to consider societies whose working-age population is shrinking. “Every year their normal growth is declining faster than their normal productivity is growing,” he said. “Which means that even in a ‘normal’ non-recession year, they have negative GDP growth.”

“What’s the impact on investment, savings and competitiveness?” Howe asked rhetorically.

Howe theorized that one possible response to a decline in economic growth driven by shrinking population is for nations to become much more anti-competitive.

He predicted that nations “will actually move towards cartelizing market and carving them up, rather than competing.”

As a historical example of this sociological response to a loss in competitiveness, Howe pointed to the 1930s, “a decade of cartels and measures to keep productive institutions going.”

Howe highlighted one concern in particular – the future global standing of developed nations with demographic concerns.

“There’s a lot there, not just in terms of its impact on the economy, but demography’s impact on geopolitics,” Howe said.

 

“What happens to societies whose populations are declining every year versus those that are rising? Does this impact geopolitics and does it have to do with the rise and fall of empires?”

Circling back to the example of the 1930s, Howe highlighted that declines in the competitiveness of certain nations has marked historic global shifts. He explained that Britain, which had been a super-power on the international stage, experienced a dramatic shift in its economic and geopolitical standing culminating in World War II.

Part of Howe’s research has focused on measuring risk and publishing aging vulnerability indices. This tool can be used to consider “the affordability and sustainability of pension funds around the world,” according to Howe.

“In the late 1990s, one of our big stories was on Australia,” he said. “Australia always got ‘first place’ because it has the mandatory superannuation fund,” he explained, “a required defined-contribution plan, which is fueling tremendous savings in Australia.”

“Perhaps not coincidentally, Australia is the only country that has had no recession over the last 25 years,” Howe said with a smirk.

How generations impact economic development

Howe focused his presentation on how population growth rates will drive change in the global economy. However, he also spoke about another demographic factor that will significantly impact the future of international markets – generational shifts.

According to Howe, to consider the future of the global economy, we also need to understand “differences in how generations think and the strengths they bring to political power.”

Howe’s research has focused on the archetypal differences between generations, and what they bring to the table.

“What we found was that each generation looks at the world differently even though they experience many of the same events, because of course they had a different location in history.”

Howe used Boomers and their parents to explain this in a real-world context. “We had Woodstock, they had D-day,” Howe said.

Boomers prided themselves on how different they were from than parents. “They were building battleships, while we were discovering ourselves,” he added comically.

They prided themselves on having differing perspectives, but Boomers eventually went on to occupy the same societal roles as their parents, just at different points in history and with different views.

“Looking generationally at social change allows you to see into the future in a way that a lot of people don’t appreciate,” according to Howe.

“No one applies this perspective,” according to Howe.

“For instance, if I go into a consumer retail company that sells cosmetics to people in their forties and ask them about their future market,” Howe said, “They will tell me: ‘I know everything about 40-year olds, we know everything about them, we studied 40-year olds throughout history and we just extrapolate that forward’.”

But Howe argues this is the wrong approach. “I would look at today’s 20- and 30-year olds instead,” Howe said.

With this approach as a basis for his analysis, Howe went on to discuss the future of the American economy.

Howe explained that we can use the traits of generations to understand how they will lead when they occupy influential societal roles. According to Howe, we can understand the traits of Millennials as a generation by examining the impact their parents had on them during their formative years.

For instance, according to Howe, because Millennials were sheltered by their parents they are now very risk-averse.

Are Millennials like the G.I. Generation?

In his research, Howe found that there are predictable cycles when generational personalities oppose their immediate predecessors, but share significant traits with groups they may never meet.

That is, although both Millennials and Boomers don’t share traits with their parents, they do resemble other previous generations.

“When people ask me to draw parallels like ‘what decade does this last decade most resemble?’” Howe said, “I tell them the 30s.”

According to Howe, we can predict trends about the future of the Millennial generation by examining the G.I. generation (also known as The Greatest Generation), which is made up of people born between 1900 and the mid-1920s.

Both the Millennial and G.I. generations grew up with similar parenting and similar historical conditions, according to Howe.

In terms of social and cultural similarities, “One of the trends we saw in the 1930s was declining fertility, a rise in multi-generational households, a decline in home ownership and a decline in youth violence,” according to Howe.

He urged economists to compare that to today’s environment and Millennial behavior.

“I would argue that in the last 10 years we have seen a personal turning away in risk-taking,” Howe said. “If you look at 200 youth-risk indicators the CDC keeps, almost all of them are hugely down.”

According to Howe, this is because “their parents assured them from the time they were born they were special, that they’re precious to the world, and that they should take care of themselves.”

“This is why this generation does not take risks,” Howe argued, “Why they’re not starting business, why they think stocks are really dangerous things.”

He went on to explain how this risk-averse mentality emerged for both the G.I. and Millennial generations from an economic perspective.

“Both the current generation and the G.I. generation grew in the shadow of a massive financial crisis,” Howe explained.

 

“Both have been characterized by a disappointing employment of labor and capital, low standard of living gains, low productivity growth, negative real interest rates, the failure of monetary policy and competitive devaluation.”

Looking forward, Howe inferred, much like the G.I.’s, Millennials will have to deal with a great conflict, but theirs will be a culture war.

Ron Paul: We Are Reaching A Point Of No Return

Authored by Adam Taggart via PeakProsperity.com,

Dr. Ron Paul has long been a leading voice for limited constitutional government, low taxes, free markets, sound money, civil liberty, and non-interventionist foreign policies.

Dr. Paul served as the US Representative for Texas’s 27^th Congressional District from 1976 to 1985. He then represented the 14^th district from 1977 to 2013. He ran for the office of US President, three times, most recently in the 2012 Republican primaries. Dr. Paul also had a long career as an OBGYN over which he delivered more than 4,000 babies.

The recent author of the book, The Revolution At Ten Years, Dr. Paul looks ahead at the future of the movement he helped launch -- tackling central planning, the military empire, cultural Marxism, the surveillance state, the deep state, and the real threats from these institutions to our civil liberties.

As a multi-term member of Congress, Dr. Paul knows the players and policies responsible for the growing unfairness and inequality now rampant in society. He does not expect the offenders will reform willingly. Instead, he predicts the system will collapse under its own unsustainability -- offering a rare and valuable chance then for more sound and fair solutions to prevail:

Wealth doesn’t come from the creation of money, especially a fiat system. With too much fiat money and all this credit, eventually the economy becomes exhausted and engulfed with debt and mal-investments. The treatment for this is a correction; you have to allow the debt to be liquidated. You have to get rid of the mal-investment and you have and to allow real economic growth to start all over again. But that wasn’t permitted in ’08 and ’09, which is why there’s been stagnation. It"s hard to believe that today we have negative interest rates -- real rates are negative and people still aren’t grabbing them up! A shortage of money isn"t the problem here; rather, it’s a shortage of understanding market conditions.

 

We’re over-taxed and over-regulated. This is resulting in a destructive system that has divided the country into two groups: those who haven’t recovered from the Great Financial Crisis versus those who are getting very rich because they"re on the receiving end of the new money created by the Federal Reserve. The people who get to create the credit get to distribute the credit, which always results in a situation where money becomes unfairly distributed, as its allocation is no longer dependent on productivity.

 

We haven’t changed anything. We still have a system where we encourage people to borrow money, that debt doesn’t matter, and we’re not going to cut taxes, and we’re not even going to admit that we spend too much money. Nobody can cut anything -- that’s why Washington is at a stalemate. A lot of people don’t like Obamacare, but there’s enough people who do like it. Once it has been implemented, it’s very hard to get rid of a program. I also don"t think that the proposed tax reforms will actually lower taxes. They never do.  Our politicians won’t admit where the real problem lies: overspending, monetizing the debt, taking over the whole world through the monetary system, financing wars, financing welfare and the military industrial complex. It’s going to continue until this whole thing comes apart.

 

The eventual event will be driven by the marketplace. When it comes undone, they will no longer be able to prop things up just by printing more money. If we have a sharp downturn and they decide, "Well, QE didn’t work because it wasn’t enough." and they double QE, there’ll be a point of no return and all confidence will be lost. We’ll dump the dollar. Interest rates will go up instead of down. That will make all the difference in the world because it will be unsustainable and create real challenges for the dollar remaining the reserve currency. When the dollar no longer serves as the world"s key currency, that’s when the ballgame will be over.

Click the play button below to listen to Chris" interview with Dr. Ron Paul (29m:56s).

How To Survive And Thrive In A "Zlatan Ibrahimovic" Market

Authored by Daniel Nevins via FFWiley.com,

 

REPORTER: “Who will win the World Cup playoff?”

ZLATAN: “Only God knows who will go through.”

REPORTER: “It’s hard to ask him.”

ZLATAN: “You’re talking to him.” 

REPORTER: “What did you get your wife for her birthday?”

ZLATAN: “Nothing. She already has Zlatan.” 

ZLATAN: “I can’t help but laugh at how perfect I am.”

In case you don’t pay attention to soccer, here are three things to know about Zlatan Ibrahimovic:

1. He’s an excellent player.


2. His ego, as you can see, is large.


3. He doesn’t appear to have much in common with Yale University’s Robert Shiller.

I’ll start with the third point and the insightful Shiller, in particular. (I’ll get back to “Ibra” in just a moment.) Shiller wrote an article last week warning of the potential hazards of equity investment. As he often does, he shared a chart showing his cyclically-adjusted price-to-earnings (CAPE) ratio. He reminded us that the CAPE ratio is “somewhat effective at predicting real returns over a ten-year period.” But this particular article had little to do with ten-year forecasts. Here’s the conclusion (with my emphasis):

In short, the US stock market today looks a lot like it did at the peaks before most of the country’s 13 previous bear markets. This is not to say that a bear market is guaranteed: such episodes are difficult to anticipate, and the next one may still be a long way off...

But my analysis should serve as a warning against complacency. Investors who allow faulty impressions of history to lead them to assume too much stock-market risk today may be inviting considerable losses.

He likens today’s market to 1929, 2000, 2007 and other scary market peaks of the past, while pointing to characteristics he considers typical of market peaks. A high CAPE ratio stands at the top of his list, although he also mentions strong earnings and low volatility. Effectively, he says those three indicators should cause us to worry that a bear market could be right around the corner. And he makes useful observations about the CAPE ratio typically being high, earnings growth also somewhat high, and volatility low (although only slightly below average) just before bear markets begin.

With all due respect, though, I think Shiller’s pivot from long-term returns to a short-term outlook was incomplete. Sure, strong earnings and low volatility aren’t necessarily bullish - I get that - but I find it hard to call them bearish, either. My bigger objection, though, is with the CAPE ratio being part of a market-timing argument. (I applaud the “no guarantee” disclaimer, but still.) As a researcher and asset manager, I’ve never found valuation ratios useful for short-term horizons, nor have I found other researchers having much success using them as short-term indicators. From that experience, I would have recommended one more disclaimer for Shiller’s article - that valuation ratios stink for market timing. And I think my disclaimer is more than just a nitpick, for three reasons that I’ll explain with increasing “Ibra-ness.”

“A World Cup without me is nothing to watch, so it is not worthwhile to wait for the World Cup.”

—Ibrahimovic after Sweden failed to qualify for the 2014 World Cup finals

First, certain other indicators actually have helped foretell major market turning points. Nearly all of the past 13 bear markets, for example, were explained partly by some combination of sharply rising inflation, high interest rates, poor credit conditions or economic depression. I state that with conviction, but you can judge it yourself by reading our article “Riding the ‘Slide’: Is This What the Next Bear Market Looks Like.” Our research suggests that the most common bear-market conditions are mostly absent today. It uses Shiller’s data, by the way, although it covers bear-market conditions he didn’t consider in his article. Without being as bombastic as Ibra but being self-serving nonetheless, I recommend reading our research alongside Shiller’s for a more complete picture than either article offers on its own. (And while you’re at it, I highly recommend Eric Parnell’s latest for a third perspective.)

“I didn’t injure you on purpose and you know that. If you accuse me again I’ll break both your legs, and that time it will be on purpose.”

—Ibrahimovic responding to an accusation from Rafael van der Vaart

Second, the market’s current valuation is like Ibra’s ego - both are inflated. But if you’re Rafael van der Vaart or Pep Guardiola or Lucas Moura and hoping for Ibra to change, you’ll probably be disappointed. He’s not likely to become modest tomorrow just because he’s egotistical today, as if one state triggers the other. And the market won’t become a bear tomorrow just because it’s an expensive bull today. When Ibra’s skills finally erode, though, that’ll be a different story. That’ll be a change in the conditions that feed his ego, just as market forecasters should be concerned with the conditions that feed bulls and bears. In other words, market conditions (such as those mentioned in the preceding paragraph) seem more likely to predict the next bear than indicators calculated from market prices (such as the CAPE ratio).

“First I went left, he did too. Then I went right and he did too. Then I went left again and he went to buy a hot dog.”

—Ibrahimovic on how he dribbled around Liverpool defender Stephane Henchoz

Third, the market can be just as tricky as Ibra is with a ball at his feet, which is why you should choose your defenses carefully. In the big picture, your team (portfolio) should have an appropriate balance between attacking and defending elements. When you’re in the moment, though, I would suggest reading short-term outlooks with a degree of skepticism. If you’re prone to biting on feints and head fakes (overtrading), relying on the CAPE ratio for market timing might make it easier for your opponent to dribble around you. And where would that leave you? Apparently, you’d be found somewhere near the hot dog stand.

Conclusions

Like Robert Shiller, we would advise equity investors to have modest expectations for long-term returns (as we advised here). We also advocate diversifying across major asset classes to reduce the damage that could occur in a bear market. But having realistic expectations and diversifying won’t protect against the greatest risk many investors face - the risk of overtrading. Investors tend to sell risky assets at lower prices than they later repurchase them, suggesting that it’s important to build safeguards against overtrading. At a minimum, bullish and bearish indicators should be weighed carefully. By studying which indicators are most likely to predict bulls and bears, investors can build defenses against rash decisions. And that should be especially helpful today, as investors confront an unusually inflated and tricky mark... no, make that a Zlatan Ibrahimovic market.

Author’s note: Shiller’s article caught my attention because he wrote about 13 bear markets shortly after we, too, published an article about 13 bear markets. To identify bear markets, we used Shiller’s data, which he graciously includes on his website. But our 13 bears aren’t exactly the same as his 13 bears, because we defined them differently. If anyone would like to know the differences, just ask and I’ll discuss them in the comments when I have some free time. Also, I took the Ibrahimovic quotes from various websites, such as here, here and here.

Riding The ‘Slide’: Is This What the Next Bear Market Looks Like?

Submitted by ffwiley.com

Even as the Fed’s decision makers are beginning to worry less about recession and more about bubbly stock prices, we’re not yet moved by their attempts to curb the market’s enthusiasm. After all, the fed funds rate sits barely above 1%, which not too long ago qualified as a five-decade low. And other indicators, besides interest rates, aren’t exactly predicting the next bear, either. Inflation is subdued, credit spreads are tight, banks are mostly lending freely and the economy is growing, albeit slowly. It just doesn’t feel as though we’re close to a major market peak.

All that being said, we’re not so much about feelings as we are about delving into history (nerds that we are) and seeing if there’s anything we can learn. Let’s look at the last 90 years to see if any bear markets began under similar conditions to those today.

We’ll consider thirteen bears, as listed in the table below. (Our list may be different to yours, mainly because we use Robert Shiller’s monthly average S&P 500 prices, instead of daily prices, but also because we reset the cycle whenever the market falls 20% from a peak or rises 20% from a trough.)

Next we narrow the list by excluding bears that began during recessions, because we don’t think the economy is recessing as I write this (or recessing imminently—see here.) That removes the first three bears—those that began in 1929, 1930 and 1932. Every other bear began as the economy was expanding, which explains why market peaks are so difficult to predict.

We also exclude the bear that crossed the 20% threshold in June 1940 and can’t be separated from geopolitics. Hopefully, modern geopolitical risks won’t explode as they did then, but we can always return to the “WWII bear” if WWIII breaks out (presuming we’re alive and blogging).

After the exclusions, nine bears remain. We examine each one to determine how many were predicted by rising inflation, one of the strongest bear-market indicators. Rising inflation erodes purchasing power, invites monetary restraint and unsettles both lenders and investors. Judging by the next chart, it helped trigger at least seven of the nine bears:

The chart shows seven bears emerging from an inflation “shock” of 3% or more (referring to an increase from twelve months before a market peak to when stocks reached the bear market threshold of –20%). In each of those cases, it seems pointless to attempt to draw parallels to today. Inflation is currently below 2% and down almost a percent from January. Without an inflation shock in sight, we shouldn’t rely on the seven “inflation bears” to predict the future.

That leaves two bears we haven’t yet considered. In one of the two—the bear that began in August 2000—inflation contributed to the market’s reversal, but monetary policy and credit conditions were more telling. Policy rates rose, credit spreads widened and bank lending standards tightened—all before the market peak. Market conditions at that time were quite different to those today, as shown in the table below (which also includes the October 2007 peak for added context):

In other words, twelve of the original thirteen bears emerged from some combination of recession, inflation, world war, monetary tightening, and troubles in credit markets. In each case, market conditions were uglier than they appear now. The twelve bears tell us to be optimistic—they’ll continue to hibernate until conditions worsen. But we’ve yet to consider the 1962 bear, which finally supplies a potential match for today.

The lead-up to the 1962 bear looks eerily similar to 2017. Commentators called it the Kennedy Slide. Before the Slide, the market hadn’t fallen 20% on a month-average basis since 1946. And the bull gathered speed after JFK won the presidency. Sound familiar? Here’s a chart comparing the S&P 500 (SPY) in the three years after Kennedy’s election to the first ten months after Donald Trump’s election (there’s a joke somewhere in the respective trajectories, but we would like to keep our G rating):

Conclusions

The Kennedy Slide offers a reasonable guide to how a future bear could develop if key indicators remain benign. Consider that the Slide defied four fundamentals you wouldn’t normally associate with falling stock prices:

• Inflation was subdued, peaking at 1.3%.


• Monetary policy was close to neutral, with the discount rate at 3%.


• Growth was strong, reaching 7.4% in Q1 1962 and 4.4% in Q2, after Q4/Q4 growth of 6.4% in 1961.


• Credit spreads were testing 18-month lows of just above 1% (for the Moody’s Baa Corporate versus the 10-year Treasury).

Surely those cozy fundamentals explain the market’s rocket-fast recovery. Stocks reached a new all-time high in September 1963, just 21 months after the prior high. That’s the shortest period on record from one all-time high through a bear market to the next all-time high—faster even than the recovery from the 1987 crash.

And what might 1962 tell us about the future?

Well, as of now, inflation, monetary policy, growth and credit are only marginally less cozy than they were then. If that continues, we would bet on a rapid recovery from a Trump Slide, should one occur. But it’s important for inflation, monetary policy, growth and credit to remain nonthreatening. Any of those fundamentals could change rapidly, and they tend to correlate. (We expect monetary policy to be a particular risk within a couple of years, as discussed here.) Should the four fundamentals deteriorate, we would ignore the 1962 bear and turn to other bears for clues about what happens next. Considering the unprecedented period of monetary stimulus, we would then expect an ill-tempered bear, one that might resemble the bears that began in 1930, 2000 and 2007.

When we pass the next market peak, in other words, four key fundamentals should tell us whether we’ll “ride the slide” or experience something much worse.

Howard Marks Unveils The 6 Options For Investing In Today's "Low-Return World"

Via Seabreeze Partners" Doug Kass,

In late July, Oaktree Capital Management co-chairman Howard Marks issued several market warnings in "There They Go Again ... Again," which I extensively highlighted in my Diary.

"There is plenty more food for thought in this must-read 22 pages of observations. Howard closes his musings with this advice:

"If you refuse to fall into line in carefree markets like today"s, it"s likely that, for a while, you"ll (a) lag in terms of return and (b) look like an old fogey. But neither of those is much of a price to pay if it means keeping your head (and capital) when others eventually lose theirs. In my experience, times of laxness have always been followed eventually by corrections in which penalties are imposed.

It may not happen this time, but I"ll take that risk. In the meantime, Oaktree and its people will continue to apply the standards that have served us so well over the last [thirty] years."

From my perch, greed reigns today.

As Howard relates, investors make the most -- and safest -- money when they do things that other people don"t want to do. But when most investors are unworried and taking unusually high risks, asset prices are typically elevated, risk premiums are low and markets are risky.

It"s what happens when there is too much money and too little fear."

--Kass Diary, "There They Go Again ... Again," July 27, 2017

In that July memo Howard made these principal points in evaluating current conditions:

* The market uncertainties are unusual in terms of number, scale and insolubility.

* In the vast majority of asset sectors, prospective returns are about the lowest they have ever been.

* Asset prices are high and almost nothing can be purchased at a discount to intrinsic value. In general, the best we can do is find asset classes that are less overvalued than others.

* Pro-risk behavior is commonplace as most investors are embracing increased risk.

In the commentary Howard admitted he was likely issuing a premature warning because it is better to be cautious too early than to be too late in evaluating opportunities and conditions.

Howard is no stranger to cautionary memoranda. Back in 2005, in "There We Go Again," he shared some non-consensus concerns that were most prescient, as they would precede the worst economic contraction since The Great Depression. Reading that memo would have saved an investor a boatload of money.

I find most of Howard"s commentaries as extraordinarily important in understanding market conditions and reward versus risk. His body of work always makes me think and it is invariably logical in argument and characterized by a heavy dose of analytical dissection.

Fast forward to yesterday"s newest (and another value-added) memorandum from Howard Marks, "Yet Again?"

Howard starts his latest commentary with the following introduction:

"There They Go Again . . . Again" of July 26 has generated the most response in the 28 years I"ve been writing memos, with comments coming from Oaktree clients, other readers, the print media and TV. I also understand my comments regarding digital currencies have been the subject of extensive - and critical - comments on social media, but my primitiveness in this regard has kept me from seeing them.

The responses and the time that has elapsed have given me the opportunity to listen, learn and think. Thus I"ve decided to share some of those reflections here."

--Howard Marks, "Yet Again?"

The body of Howard"s memo deals with the media"s reaction to his July memo and a further discussion of his views on bitcoin (and other cryptocurrencies), FANG, the ramifications of passive investing, investing in a low-return world and, of course, evaluating the state of the capital markets.

The State of the Market

There has been a lot of discussion about how elevated I think the market is.  I’ve pushed back strongly against people who describe me as “super-bearish.”  In short, as I wrote in the memo, I believe the market is “not a nonsensical bubble – just high and therefore risky.” 

I wouldn’t use the word “bubble” to describe today’s general investment environment.  It happens that our last two experiences were bubble-crash (1998-2002) and bubble-crash (2005-09).  But that doesn’t mean every advance will become a bubble, or that by definition it will be followed by a crash.

Current psychology cannot be described as “euphoric” or “over-the-moon.”

Most people seem to be aware of the uncertainties that are present and of the fact that the good times won’t roll on forever.

Since there hasn’t been an economic boom in this recovery, there doesn’t have to be a major bust.

Leverage at the banks is a fraction of the levels reached in 2007, and it was those levels that gave rise to the meltdowns we witnessed.

Importantly, sub-prime mortgages and sub-prime-based mortgage backed securities were the key ingredient whose failure directly caused the Global Financial Crisis, and I see no analog to them today, either in magnitude or degree of dubiousness.

It’s time for caution, as I wrote in the memo, not a full-scale exodus.  There is absolutely no reason to expect a crash.  There may be a painful correction, or in theory the markets could simply drift down to more reasonable levels – or stay flat as earnings increase – over a long period (although most of the time, as my partner Sheldon Stone says, “the air goes out of the balloon much faster than it went in”).

Howard concludes his latest memo with the following:

"A lot of the questions I"ve gotten on the memo are one form or another of "So what should I do?" Thus I"ve realized the memo was diagnostic but not sufficiently prescriptive. I should have spent more time on the subject of what behavior is right for the environment I think we"re in.

In the low-return world I described in the memo, the options are limited:

1. Invest as you always have and expect your historic returns.

2. Invest as you always have and settle for today"s low returns.

3. Reduce risk to prepare for a correction and accept still-lower returns.

4. Go to cash at a near-zero return and wait for a better environment.

5. Increase risk in pursuit of higher returns.

6. Put more into special niches and special investment managers.

It would be sheer folly to expect to earn traditional returns today from investing like you"ve done traditionally (#1). With the risk-free rate of interest near zero and the returns on all other investments scaled based on that, I dare say few if any asset classes will return in the next few years what they"ve delivered historically.

Thus one of the sensible courses of action is to invest as you did in the past but accept that returns will be lower. Sensible, but not highly satisfactory. No one wants to make less than they used to, and the return needs of institutions such as pension funds and endowments are little changed. Thus #2 is difficult.

If you believe what I said in the memo about the presence of risk today, you might want to opt for #3. In the future people may demand higher prospective returns or increased prospective risk compensation, and the way investments would provide them would be through a correction that lowers their prices. If you think a correction is coming, reducing your risk makes sense. But what if it takes years for it to arrive? Since Treasurys currently offer 1-2% and high yield bonds offer 5-6%, for example, fleeing to the safety of Treasurys would cost you about 4% per year. What if it takes years to be proved right?

Going to cash (#4) is the extreme example of risk reduction. Are you willing to accept a return of zero as the price for being assured of avoiding a possible correction? Most investors can"t or won"t voluntarily sign on for zero returns.

All the above leads to #5: increasing risk as the way to earn high returns in a low-return world. But if the presence of elevated risk in the environment truly means a correction lies ahead at some point, risk should be increased only with care. As I said in the memo, every investment decision can be implemented in high-risk or low-risk ways, and in risk-conscious or risk-oblivious ways. High risk does not assure higher returns. It means accepting greater uncertainty with the goal of higher returns and the possibility of substantially lower (or negative) returns. I"m convinced that at this juncture it should be done with great care, if at all.

And that leaves #6. "Special niches and special people," if they can be identified, can deliver higher returns without proportionally more risk. That"s what "special" means to me, and it seems like the ideal solution. But it"s not easy. Pursuing this tack has to be based on the belief that (a) there are inefficient markets and (b) you or your managers have the exceptional skill needed to exploit them. Simply put, this can"t be done without risk, as one"s choice of market or manager can easily backfire.

As I mentioned above, none of these possibilities is attractive or a sure thing. But there are no others. What would I do? For me the answer lies in a combination of numbers 2, 3 and 6.

Expecting normal returns from normal activities (#1) is out in my book, as are settling for zero in cash (#4) and amping up risk in the hope of draws from the favorable part of the probability distribution (#5) (our current position in the elevated part of the cycle decreases the likelihood that outcomes will be favorable).

Thus I would mostly do the things I always have done and accept that returns will be lower than they traditionally have been (#2). While doing the usual, I would increase the caution with which I do it (#3), even at the cost of a reduction in expected return. And I would emphasize "alpha markets" where hard work and skill might add to returns (#6), since there are no "beta markets" that offer generous returns today.

These things are all embodied in our implementation of the mantra that has guided Oaktree in recent years: "move forward, but with caution."" 

*  *  *

Run, don"t walk, to read Howard Marks" newest commentary.

Move forward, but with caution.

Restoration Hardware Shorts Annihilated After Company Announces 50% Of Stock Repurchased

Restoration Hardware shorts had it too good for too long.

After reporting abysmal numbers in Q3 2016, Q1 2016, Q4 2015 - when the company went so far to blame its own crashing stock price for poor earnings - RH stock more than doubled after its better than expected Q4 2016 numbers as long-suffering investors (not to mentioned squeezed shorts) assumed that that was finally it: that the company has finally turned the corner. It all came crashing again last quarter, when as we reported "Restoration Hardware Imploded After Terrible Guidance, Bizarre Disclosures."

Sadly for the shorts, who doubled down on their efforts to slam the stock, it all ended last night with a bank, not a whimper, when the company reported better than expected Q3 ESP and revenue and lifted its sales and profit forecasts for the year. On the subsequent analyst call, CEO Gary Friedman said he expects that RH, which has faced concerns about its high debt level, would generate about $400 million in free cash flow in 2017, once again reverting to the company"s infamous optimistic posture. That “should address any concerns about our balance sheet and debt ratios,” he said.

More importantly, the company also unveiled a full blown war with shorts, when in its press release it announced that since the beginning of the year, the company had repurchased an unprecedented 49.5% of its shares outstanding, spending a record $1 billlion on buybacks in the 6 months ended July 2017. To wit:

We have reinvested the $282 million of free cash flow generated in the first half, and the $263 million of cash and investments on our balance sheet at the beginning of the year towards the repurchase of our stock, which we believe is an excellent allocation of capital for the long-term benefit of our shareholders. We have repurchased 20.2 million shares to date in 2017, or 49.5% of the shares outstanding at the beginning of the year. Outside of the convertible notes that are due in June 2019 and June 2020, we had aggregate debt of approximately $504 million at the end of the second quarter, including a $100 million second lien bridge loan that we expect to repay in full by year end.

And here is what may be the most amazing cash flow statement we have ever seen: the company borrowed $460 million in 2017, and used virtually all of its available cash and working capital to repurchase stock.

The company also said that "we believe that our shares remain undervalued, and we will continue to evaluate further share repurchases based upon market conditions and our capital allocation priorities"even if it means conducting half a management buyout of the company just to punish the shorts.

That is all the panicked shorts needed to hear, and as of this morning, a historic short covering squeeze has ensued, with RH stock exploding higher by over 40%, on pace for its best day since the company went public nearly five years ago.

And speaking of short pain, there is plenty of it to go around: there was roughly $528 million in RH short interest at last check, and following today"s mauling, shorts are poised to take $231 million in paper losses if the share price closes at these levels, according to S3 Partners, quoted by the WSJ. That’s likely to encourage some shorts to get out of the trade, according to Ihor Dusaniwsky, head of research at the financial analytics firm.

Until today, RH was the second most heavily shorted stock among home furnishings brands, behind only Williams-Sonoma, although perhaps sensing the turn, the value of the short interest had declined rapidly since July, when short interest was at roughly $1 billion.

That"s eased up the cost of borrowing, which had been as high as 71% of the share price on an annualized basis but has since dropped to about 12%, according to S3 Partners. Still, that fee for most stocks is below 1%.

While the chart below shows now-dated information, management"s plan was clear: buyback as much stock as possible, and crush as many shorts as possible before reporting modestly good numbers and a sterling outlook. For now, it appears to have achieved its mission.

Still, the war between longs and shorts is far from over: between the end of last year and July 19, when the stock hit its highest closing level of 2017, shares climbed more than 150% as the company executed a share repurchase program. That was right around the time that short interest peaked, and the stock subsequently dropped 36% through Wednesday.

Naturally, chasing price, the WSJ reports that some analysts said they’re finding a lot to like in the stock after the earnings report. Bradley Thomas and Sameet Desai, analysts at KeyBanc Capital Markets, said in a note to clients that, “while our July downgrade to Sector Weight was predicated on valuation and leverage, we find ourselves increasingly positive on RH.”

And so, here come the sellside upgrades, dutifully following the surge in the price, just in time for the company to massively disappoint again in three months when it once again misses its wildly optimistic forecast, sending the stock crashing yet again and resetting this rather entertaining (if not for the shorts today) cycle.

Meanwhile, one question that has emerged: with RH repurchasing half of its outstanding stock, will there be naked shorts who are physically unable to cover their bearish bets, in the process prompting speculation of yet another Volkswagen-type event, as a scramble begins to cover at any price?

Hurricane Harvey Looters Targeting Fuel Tanks As Google Searches For "How To Siphon Gas" Soar

Texas resident Joe Roan woke up to a rather unpleasant surprise yesterday morning as he discovered the remnants of a would-be thief attempting to steal gasoline from his Jeep Wrangler tank.  Unfortunately, as a local CBS affiliate pointed out last night, with refinery outages resulting in growing gasoline shortages, this is becoming a rather common occurrence for Texas residents.

Joe Roan didn’t witness the crime, but he found the evidence in his driveway.

“I came outside this morning and found this water hose was sticking out,” he said, holding the hose a thief left hanging out of his Jeep’s tank.

On the ground sat a gas tank.

“Instantly I knew someone was trying to steal my gas,” he said. “Maybe a car drove by when they were doing it and they ran? I don’t know.”

Roan said the thief didn’t even manage to get any fuel.

Meanwhile, Google searches for "how to siphon gas" have soared as criminals have been forced to hone their skills before taking to the streets.

Of course, the rampant onset of gasoline thieves is the result of fuel shortages which are often exacerbated by the pure panic of people trying to keep their tanks topped off. As we"ve reported several times in recent days, long lines at gas stations have become a common sight from the Texas shores up to Dallas.

Flooding from Harvey has caused a temporary gas shortage, creating long lines and price hikes at gas stations in Texas. pic.twitter.com/azLD5hZOZE

— ABC World News Now (@abcWNN) September 1, 2017

Watch live: Lines at gas pumps growing longer in North Texas --> https://t.co/oHTLanM0ec#Harvey pic.twitter.com/7XcZN1JGXO

— NBC DFW (@NBCDFW) August 31, 2017

Meanwhile, one seasoned energy trader warned this is "only just beginning" as the hangover from Hurricane Harvey flows downstream to retail gas prices...

As Bloomberg notes, Harvey impact currently includes:

• Colonial says it’ll commingle Rbob and conventional gasoline


• Explorer Pipeline planning to start lines Saturday, Sunday


• Logjam grows to 29 oil tankers as 11 ports remain closed


• Total Port Arthur is said facing extended shutdown on power loss


• Texas storm bucks N.Y. traders with wild gasoline expiry swings


• NHC issues final advisory on Harvey; losing tropical character

Which has left retail gas prices at the pump at their highest in 2 years...

And, judging by their usual lagged response to RBOB, they are set to go dramatically higher in the next few weeks...

All of which has resulted in the predictable onslaught of price gouging, with the Dallas News reporting sightings of gas prices ranging from $2.99 a gallon to $8....

There were multiple reports of gas stations charging anywhere from $2.99 to $8 for a gallon of regular gas.

At the 76 gas station in Garland, the fuel-price display unit outside showed $8 for a gallon. The station was swamped with calls from angry customers after a photo was posted on social media, according to Robert Fernandez, who works there.

There have been numerous complaints about high gas prices, according to Kayleigh Lovvorn, spokeswoman for the office of Texas Attorney General.

“When evaluating whether a business is engaging in price gouging in the sale of fuel, we look to see if they are charging excessive or exorbitant prices,” Lovvorn said in an emailed statement. “We recognize that certain market conditions, such as decreased production and closed refineries, might cause market fluctuations.”

The attorney general’s office is looking into 984 complaints filed between August 25 and Thursday afternoon. On Thursday alone, its Consumer Protection Division received more than 500 complaints, “many of which involve allegations of high fuel prices in Dallas, including amounts ranging from $6 to $8 dollars per gallon.”

...which is still pretty cheap compared to what Best Buy is charging for water.

FX Week Ahead - Fast Money Algos Stretch The Limits Again, Time For Redress

Submitted by Shant Movsesian and Rajan Dhall MSTA from fxdaily.co.uk

FX Week Ahead - Fast money algos stretch the limits again, time for redress

A common feature of the currency markets these days is to push the established themes and narratives as far they can be, and at a time when the USD is suffering on all fronts, fast money accounts are using thin market conditions to their advantage.  Friday"s price action emphasised this completely, as all it took was the absence of policy talk from Fed chair Yellen at Jackson Hole to set off another hit on the USD, pushing the index (DXY) back to the recent lows.  

Naturally, EUR/USD has been leading the way, and for all the talk that the market has overrun the response to the unavoidable adjustment in current ECB policy measures to come, we continue to push higher again with an unrelenting quest to get to 1.2000.  When the ECB minutes revealed the governing council"s view on the FX "overshoot". we saw a sharp hit down to 1.1660, but since then, the bid tone has been strong as ever.  We hit levels a little shy of 1.1940 late Friday, with president Draghi also refusing to speak on matters policy or market related.   

Will we see 1.2000 next week?  More to the point; would we stay up here for long? Yield differentials have seen little change in recent weeks, with Bunds and Treasuries moving largely in tandem of late, largely to the broader challenges on risk sentiment

Elsewhere, we saw USD/JPY pulled back towards 109.00 again, but there is a clear reluctance to push back into the mid 108.00"s given the strong demand seen here.  We continue to see the tight correlations with equities here, but despite concurring with the view that stocks are vastly overpriced, yield seekers will buy the dip here as they do on the Dow and S&P.  

However, irrespective of what the central bankers say or don"t say, we can focus on the data next week, with a plethora of US stats to work through.  The odds of another hike in the Fed funds rate this year have dropped to a little shy of 35%, which is not too different to what we saw at the start of last week, but we are looking for this to re-calibrate back to 50% and pull the USD up a little (again) with it.  

The highlight of the week will be the payrolls report on the Friday, but what is different this time is that the ISM manufacturing PMIs are released later that day. The employment index has been offering up a good indication of how the headline number will play out, with the midweek ADP survey too erratic to base projections on.  ADPs will pale into insignificance anyway, with Q2 GDP on the agenda at the usual 08.30 slot (NY time) that day. Wages are in focus as ever, so the income and spending numbers on Thursday along with the PCE will also draw reaction.  

In Europe, we can mention yet more inflation readings including the EU wide number, but along with French GDP, German unemployment and EU sentiment indices, we can see little to dampen sentiment in the single currency region until the next ECB meeting, which is now some 10 days or so away (7 Sep).  

There is still room for EUR/CHF to benefit from this positive sentiment, and this would fit in with what we expect to play out in the USD next week. USD/CHF broke lower, taking out the weekly range base, but holding off the recent lows, a fresh recovery process remains on cards - data permitting. 

In the commodity currencies, focus on USD/CAD as we push back into the mid 1.2400"s again, but just as we have seen the EUR appreciating at an aggressive pace, the CAD has gained all of 10% in the space of 10 weeks, so the corrective moves may not be over.  Longer term, we expect to see 1.2000 and below in this pair, but as is a familiar theme in these reports, there seems to be little consideration for time-frame, and indeed concurrent markets.  

This is less so the case here with Oil arguably at more comfortable levels - in relative terms, but we are also looking at some of the rate pricing for the BoC to be reined in a little, with the market carried away with the bullish stance at the central bank.  They meet again on Wednesday week (04 Sep), so we"ll see if they maintain the same level of positivity in their rhetoric.  Q2 GDP is the data focus for the week to come, with Canadian payrolls not released until the following Friday.  Until then, we watch 1.2410-15. If this does not hold, 1.2330-00 is the next support zone of note.

If the USD does push up off this level, then we may be looking at some interesting levels for USD bulls against the AUD and NZD.  Industrial metals have taken off aggressively, with Copper prices rally to $3.00 on fresh anticipated demand out of China.  Not quite sure where this sudden optimism has come from, but we will get some reaction to the China PMIs midweek - the official survey on Wednesday and Caixin on Thursday.

In Australia, the CapEx data for Q2 on Wednesday is the stand out release of note, while we also get the Q2 construction stats which will all set the tone for the GDP release.  AIG manufacturing PMIs are also due out for.  For NZ, the Q2 terms of trade lone data focus ahead.  AUD in the driving seat now that the cross rate has broken higher, but ahead of 1.1000, there are more risks for longs to contend with in the week ahead.  

Little of note in the UK apart from the August bank holiday on Monday, but for the Pound, much will depend on how EUR/GBP continues to perform at these heady heights.  Now that the market is back "in tune" with Brexit uncertainty - and it took the BoE to remind traders of this (!), GBP is a sell on rallies.  Though it is hard to argue against this, we see better opportunities against the USD than the EUR at these levels, though we do not discount a push up towards 1.3000 again perhaps even a little higher with the UK Brexit papers suggesting a little more give on from the PM May"s team.  

Manufacturing PMIs are out on Friday in the UK, but services are the major focal point here.  The manufacturing surveys get more attention in Norway and Sweden, with we get the August results at the end of the week.  Still no breakout in NOK/SEK, but we are starting to see the NOK threatening a little more.