How Long Do You Think It Will Be?

[Randolph Kinney]

The secret trading strategy from the 1930s that hedge funders don't want you to know about

In the 1930s, legendary trader Richard Wyckoff wrote a manifesto that gained him a cult following on Wall Street. Here are the key takeaways


“The large operator does not, as a rule, go into a campaign unless he sees in prospect a movement of from 10 to 50 points. Livermore once told me he never touched anything unless there were at least 10 points in it according to his calculations.”

So writes Richard Wyckoff, the legendary trader who in the 1930s wrote a manifesto that gained him a cult following on Wall Street.

His 1931 book, “The Richard D. Wyckoff Method of Trading and Investing in Stocks – A Course of Instruction in Stock Market Science and Technique,” is somewhat difficult to find these days (not impossible), but even in 2013, hedge fund managers still swear by it.

One of the key takeaways from the book is that if you want to succeed, you have to learn to recognize the professionals and understand what they are doing. That’s what those who follow Wyckoff do — they watch the big operators.

Wyckoff walks us through the process of how a big operator will manipulate a stock up or down — so that next time one sees it unfolding on the screen before his or her own eyes, he or she can react accordingly.

https://business.financialpost.com/...hat-hedge-funders-dont-want-you-to-know-about

Joe, you don't understand or know what manipulation is. That's obvious.

 

[Joe Flacco]

Okay fine. You win. I don't know what I am talking about.

 

[Randolph Kinney]

What happens when the FED destroys money?

The Fed is now raising rates. They raised rates from 0% up to 2%. They're supposed to do it again in September/October. And again in December. That will be four hikes this year.

They are also selling assets, aka 'draining their balance sheet'. I say 'selling' because that's exactly what they have to do. Let's say the Fed is holding a 10-year note that's due: if they want to destroy that money, they say "OK, Treasury, give me the principal". The Treasury doesn't have any money so it has to go the public and raise money. Well, the Treasury will have to do that to the tune of $50 billion per month come October. Right now it's $30, it has to go in July to $40 billion a month then it goes to $50 billion. That's $600 billion a year added to the public supply of Treasurys they have to actually finance at a market rate. That's on top of the $1.2 trillion debt we're going to have in fiscal 2019.

So the Fed is tightening. But here's the problem: the spread between long-term rates and short-term rates is about as narrow as it can be without being inverted.

Why is that so important? Well, when the yield curve inverts it almost always brings about a recession. In fact, I can say pretty distinctly that in modern times, in this fiat currency regime, given the conditions today, it will definitely cause a recession. The reason is because the fuel for asset bubbles is monetary creation, a boosting booming money supply which we don't have any more. And the reason why the money supply gets shut off when the yield curve inverts is because banks' loans are earning less than their liabilities, which are deposits. So when your assets are earning less than your liabilities, you don't make any more loans. You don't want any more assets. That's a great way to make your bank insolvent.

So what happens is that the money supply gets completely shut off. You're not going to make a loan against a deposit -- you don't even want these deposits anymore. By the way, when there's a recession and there's a withdrawal of asset prices, there is a contraction in those prices. That is what usually causes causes a recession.

https://www.peakprosperity.com/podc...-curve-inverts-soon-next-recession-will-start

Asset based lending will decline leading to asset deflation as those that must sell drive prices down. Buyers of assets using credit are reduced and there are not enough cash buyers to sustain prices.

 

[Randolph Kinney]

What happens to the stock market on days of QT (Quantitative Tightening)?

Let’s update the table with the recent QT maturity days to have a peek at what it looks like now:

The streak is alive and well. QT days have been rather large down days for the S&P 500.

And this month’s maturity is another big one - over $30 billion.

This means that this month’s QT maturity day effect will occur on Monday - not Friday’s month end.

So mark it in your calendars - Monday July 2nd spooz should trade heavy if this QT theory holds true.

https://heisenbergreport.com/2018/06/27/one-trader-reminds-you-to-mark-your-calendar/

I suspect that volatility increases with time as more money is destroyed and the demand for more borrowed money causes the yield curve to contract eventually inverting. Hedge funds will be impacted and the markets will respond to hedges that are undone.

 

[Randolph Kinney]

Popular bank ETF, the XLF, is on track to notch a 13th straight decline

The retreat by XLF highlights the broader decline in financials, which have been beset by a number of geopolitical headwinds, including mounting global hostilities around trade, but has accelerated as the yield curve, which is closely watched for an early warning on potential recessions, comes into focus.

An environment in which yields on benchmark Treasurys, specifically the 10-year note, remain historically low, is a negative for banks that borrow on a short-term basis and lend on a longer-term basis.

But it is the yield curve that has rattled investors nerves and the appetite for bank stocks.

“Banks are a proxy for the economy because they finance the economy,” Harte said.

https://www.marketwatch.com/story/w...ogged-its-worst-losing-streak-ever-2018-06-27

Looks like hedge funds are unwinding their bets.

 

[Randolph Kinney]

Employment
Employment is the lifeblood of the economy. Individuals cannot consume goods and services if they do not have a job from which they can derive income. Therefore, in order for individuals to consume at a rate to provide for sustainable, organic (non-Fed supported), economic growth they must be employed at a level that provides a sustainable living wage above the poverty level. This means full-time employment that provides benefits and a livable wage. The chart below shows the number of full-time employees relative to the population. I have also overlaid jobless claims (inverted scale) which shows that when claims fall to current levels, it has generally marked the end of the employment cycle and preceded the onset of a recession.

 

[Randolph Kinney]

Fannie Mae and Freddie Mac, while still in conservatorship and with the blessing of the Federal Housing Finance Agency, are once again expanding into new products and programs with abandon.

Consider several recent examples, including integrated mortgage insurance, known as IMAGIN, lines of credit to nonbank services and the easing of combined loan-to-value and debt-to-income limits, among others.

Particularly troublesome for aspiring homebuyers is the GSEs’ statutory “affordable housing” mandate, which the FHFA has interpreted to require the undertaking of the procyclical easing of credit terms during unsustainable home price booms. This includes extreme easing of combined loan-to-value and debt-to-income limits. History has shown this makes entry-level housing less, not more affordable. And by moving out the risk curve in a boom market, banks and credit unions become less willing to originate for sale to the GSEs, largely leaving the market to nonbanks, furthering the boom.

Among new program initiatives, IMAGIN, a risk-sharing deal between Freddie Mac and Arch Capital, deserves particular focus. Twenty years ago, the GSEs tried to marginalize private mortgage insurers — and they are now at it again. The product is billed as an “innovation” in lender-paid mortgage insurance, a slice of the business that accounted for about 20% of all mortgage insurance written in 2017. IMAGIN is being touted as a new, less expensive form of risk-sharing and credit enhancement than traditional lender-paid insurance. History should have taught mortgage insurers two things: Beware of GSEs bearing gifts. IMAGIN once again crosses the line between the private sector and the GSEs’ secondary market activities.

There are also troubling questions about the product’s transparency, specifically Freddie’s pricing, coverage requirements and underwriting standards for IMAGIN. Although the initiative sounds like a “disrupter” and cost saver for the borrower in the short term, the deeper, longer-term outcome may be less private capital in the market, greater risk to taxpayers and harm to the mortgage insurance industry.

https://www.nationalmortgagenews.co...wsletter&eid=12a6d4d069cd56cfddaa391c24eb7042

The GSEs are loading up with subprime mortgages (lower credit rating, low down or no down payments, dubious mortgage insurance). When the economy turns down, mortgage default go up and the taxpayer is on the hook again.

 

[Randolph Kinney]

The flows into tech funds of late have been absolutely astounding if not totally surprising.

The FAANNG stocks have been the market darlings for quite some time now so it’s understandable investors would chase this performance just as they do during every bull market.

It’s not just tech-focused funds overweighting the FAANNG stocks. There is a huge number of non-tech-focused funds that own these stocks, as well, and in a significant way further supporting their popularity in the marketplace. You can find them represented in size today in everything from consumer discretionary, retail, media and entertainment to momentum, cloud computing, internet and social media. In fact, without Amazon and Netflix, the consumer discretionary sector would be down on the year rather than up.

What’s more, in many cases, the ownership of these companies in many funds appear to be clear violations of their implicit if not explicit mandates. To demonstrate, let’s just run through the FAANNG stocks by market cap beginning with the biggest: Apple. There are fully 92 ETFs, according to ETFdb.com, that not only own the stock but also have an overweight (relative to the S&P 500) allocation to the shares. So not only are Apple fans and traditional passive investors buying tons of Apple stock, these other ETF investors are even more aggressively acquiring shares.

Apple was found in both value and growth-focused ETFs. What is strange in Apple’s case, though, is that the stock now trades at its highest price-to-free cash flow in years. At the same time, the company’s 5-year average revenue growth is now the lowest in its history. Still, these systematic funds somehow find reason to not just own it but to overweight it as both a value stock and as a growth stock.

Next we have Google. Here we have over 100 different ETFs that see fit to overweight the stock in their portfolios.

Turning to Amazon, again we have over 100 different ETFs that have overweighted the stock.

Facebook also benefits by roughly 100 ETFs that have somehow tweaked their algorithms such that they can overweight the shares.

Netflix has a very curious holder of its own among the more than 100 ETFs that choose to overweight the shares. The stock currently pays no dividend and, to the best of my knowledge, never has. It might be difficult for the company to do so while it sustains losses in terms of free cash flow into the billions of dollars per year. Still, one “dividend advantage” fund not only owns Netflix shares but also in a size that is triple the index weighting.

Finally, Nvidia can be found as an overweight position in fully 140 different ETFs. By this measure it wins the popularity prize even if it isn’t an original FANG stock.

The point of all of this is simply to demonstrate the absurd extremes of the current mania in the stock market. The only way to explain any of it is to chalk it up to shameless performance chasing. Own these stocks in your ETF or suffer outflows that put its existence in jeopardy. Offer a dividend or a socially conscious or low volatility fund that beats the market via oversized FAANNG weightings and watch the inflows make you rich.

It’s the very same sort of insatiable greed on the part of Wall Street serving the insatiable greed on the part of investors that has driven every speculative mania throughout history. Only this time it comes in a brand new, shiny wrapper that people can use to call themselves 'passive investors'.

Hey Joe, the market is rigged, manipulated by ETFs. Wait until reality hits.

 

[djd09]

Yes, stocks are rigged and Fed is the biggest rigger

SAN LUIS OBISPO, Calif. (MarketWatch) — Rigged? Yes, the stock market’s rigged. No surprise. Everyone knows it. Always has been rigged. Always will be rigged. Started when 24 stock traders met under Wall Street’s Buttonwood Tree in 1792. Called their new auction system NYSE. Part contract, part monopoly, part conspiracy.

Wake up. Wall Street was rigged from Day 1 when those 24 stock traders agreed they would jointly control all buying and selling of your stocks.

Yes, the Fed, your government, is world’s biggest stock rigger
Yes, not only has the stock market been rigged since Wall Street’s 1792 Buttonwood Conspiracy, but the U.S. government is the biggest rigger of stocks. Think of the power and blunders of Fed Chairmen Alan Greenspan, Ben Bernanke and now Janet Yellen. Estimates tell us that our government insiders saw the 2008 crash coming, failed to act, and since the Fed has piled on more than $20 trillion in new debt to prop up our incompetent too-greedy-to-fail banks.

And they get away with it because the financial community spends billions on buying huge favors from hundreds of lobbyists, senators and representatives that help them all rig the stock markets by convincing the Fed, the White House and Washington’s regulators to favor them.

Here’s some classic examples of Washington rigging, manipulation: In the runup to the 2008 bank credit crash, even as the impending doom became obvious with the collapse of major financial institutions like Bear Stearns, Treasury Secretary Henry Paulson misled Fortune magazine: “This is far and away the strongest global economy I’ve seen in my business lifetime.” Bernanke also misled us: “I don’t anticipate any serious failures among large internationally active banks.”

https://www.marketwatch.com/story/flash-boys-forever-rigging-stocks-is-the-american-way-2014-04-09

 

[djd09]

"May 6, 2010 started off as a pretty boring day.

The most exciting stories from the morning’s newspapers were reviews of the upcoming Iron Man 2 film.

But all that changed at around 2:45pm when, without warning, the stock market crashed, and the Dow Jones Industrial Average dropped 1,000 points within minutes.

As it turned out, the reason behind the crash was that the investment banks’ fancy trading algorithms had gone completely haywire.

Several of the largest banks had developed autonomous software that was capable of trading billions of dollars without the need for human beings.

And at 2:45PM that day, their software started to fail… inexplicably selling stocks to the point that prices collapsed nearly 10% in minutes.

They called it the Flash Crash, and, even though stocks had largely recovered by the end of the day, the banks lost an enormous amount of money.

Then something interesting happened. Within a few days, the major exchanges announced that they would CANCEL many of the trades that took place during the Flash Crash window."

https://www.marketslant.com/article/day-i-found-out-it-was-all-rigged

hahahahaha