Negative interest rates have quite literally broken one of the pillars of modern finance. As economists and central bankers weigh the pros and cons of sub-zero rates and their impact on the world, traders have been contending with a rather more mundane, but fundamental issue: How to price risk on trillions of dollars of financial instruments like interest-rate swaps when their complex mathematical models simply don’t work with negative numbers. Read More.
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“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression. Read More.
It’s no secret that machines are taking up a bigger and bigger share of investing, but the extent of their influence is approaching shocking proportions. It is as high as 80%, according to one major investing firm.
Passive investments such as index funds and exchange-traded funds control about 60% of the equity assets, while quantitative funds, those which rely on trend-following models instead of fundamental research from humans, now account for 20% of the market share, according to estimates from J.P. Morgan. Read More.
What are the three elements of the perfect political and market storm I see coming together this fall?
The first is an effort by the Democratic House of Representatives to impeach President Trump. The second is the socialist-progressive tilt in the 2020 presidential election field. The third is the fallout from the Mueller report and the Russia collusion hoax — what I and others called “Spygate.” Read More.
This article explains why the US Government is ensnared in a debt trap from which there is no escape. Its finances are spiraling out of control. In the context of a rapidly slowing global economy, the budget deficit can only be financed by QE and bank credit expansion. Do not draw comfort from trade protectionism: it will not prevent the trade deficit increasing at the expense of domestic production, unless you believe there will be an unlikely resurgence in personal saving rates. We can now begin to see how the debt crisis will evolve, leading to the destruction of the dollar. Read More.
Those of us who closely follow the credit cycle should not be surprised by the current slide in equity markets. It was going to happen anyway. The timing had recently become apparent as well, and in early August I was able to write the following:
“The timing for the onset of the credit crisis looks like being any time from during the last quarter of 2018, only a few months away, to no later than mid-2019.” Read More.
Here is a list of infamous stock market crashes, economic bubbles and financial crises that have occurred throughout history. I am continuously writing about additional crises (including Enron, the mid-2000s housing bubble & the Stock Market Crash of 2008), so please keep checking back in the future. Read More.
12/05/18 – CNBC: Sell-offs could be down to machines that control 80% of the US stock market, fund manager says
Eighty percent of the daily moves in U.S. stocks are machine-led, a fund manager told CNBC on Wednesday.
The phenomenon, also called algorithm or algo trading, refers to market transactions that use advanced mathematical models to make high-speed trading decisions. Read More.
One of Wall Street’s most famous proverbs of this bull market is backfiring. “Buy the dip,” or picking up a stock or the whole market when they sell off, isn’t working for the first time in 16 years, according to analysis from Morgan Stanley. The investment bank looked at the average return for the S&P 500 if the previous week was negative and found that this year, there was no rebound. Read More.
Several months ago, I penned an article about the problems with “passive indexing” and specifically the problem of the “algorithms” that are driving roughly 80% of the trading in the markets. To wit:
“When the ‘robot trading algorithms’ begin to reverse (selling rallies rather than buying dips), it will not be a slow and methodical process, but rather a stampede with little regard to price, valuation, or fundamental measures as the exit will become very narrow.” Read More.
In this presentation, Clarity Financial’s economic analyst Jesse Colombo explains why the U.S. stock market is experiencing a dangerous bubble that is going to burst violently and cause serious damage to the underlying economy.
The S&P 500 hit another all-time high today and president Donald Trump tweeted, in his usual fashion, “S&P 500 HITS ALL-TIME HIGH Congratulations USA!” Though I am a conservative myself, president Trump’s stock market cheerleading angers me because he’s fanning the flames of a dangerous asset bubble (see my recent report on Forbes), which is extremely irresponsible. Read More.