Memories of 2007, Standard Life Investments Suspends Trading on £2.7bn Property Fund

From Fund Strategy:

The asset manager says it halted trading on the Standard Life Investments UK Real Estate Fund and its associated feeder funds at noon today. The suspension will last for at least 28 days and will remain in place until it is “practicable” to lift it, with the decision being reviewed at least every 28 days.

Our Best Ideas await you,  Get on the Bear Traps Report Today, click here

Surge in Redemptions

SLI said the move has been taken in response to a rise in redemption requests “as a result of uncertainty for the UK commercial real estate market following the EU referendum result”.

Stan Life

“The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio,” a spokesperson from SLI says.

Our Best Ideas await you,  Get on the Bear Traps Report Today, click here

The SLI fund has lower risk positioning, which should benefit investors, the spokesperson says. The fund had £2.9bn in assets at the end of May, with 13 per cent in cash. However, just as we saw in 2007, the liquidity mismatch between the fund and the assets it holds is leading to concerns.

Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

The Price of Lower for Longer

Our Best Ideas await you,  Get on the Bear Traps Report Today, click here

 

Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 2pm. 

In 2007, Larry led a team at Lehman Brothers to capture over $100m in bets against the subprime mortgage crisis.  Here’s what he has his eye on today.

“If we look at the Fed’s forecast of where they think their Fed Funds Rate will be at the end of 2016, it’s up at 1.625%.  That’s five 25bps hikes over the next year?  Look for this number to come down substantially, the US 10 Year note is heading below 1.50%.”

Bear Traps Report, September 2015

 

The Longest Runs with Rates Near Zero

1932-1953: 21 years

2008-2016: 8 years

2001-2004: 3 years

 

The U.S. has had near zero short-term interest rates before. The period of 1932 to 1953 was defined by rates that were between zero and 2.1%. The last time we hit the zero bound, we stayed very close to it for upwards of 21 years. This is not something you hear often from economists these days.

Lower yields for longer periods of time bring out the animal spirits in investors, the reach for reach for yield gets more excessive EVERY minute interest rates are kept at ridiculously low levels.

U.S. Speculative-Grade Corporate Default Rate Increased To 4.1% in May, highest since September 2010, which saw the rate at 4.2%.

 

U.S. Household Net Worth

Central Bankers Giveth, but they Will Take it Away

Household Net Worth
The main reason central banks raise and lower rates is to shift consumption around and smooth out periods of stagnation. The Fed’s dual mandate of non-accelerating inflation and full employment defines the characteristics of the smoothing that society wants to see.

 

The number of  U.S. corporate high-yield bonds on negative rating watch has risen 26 percent in the past year due to increasing leverage and a poor liquidity outlook.  As of June 30, 2015, the list of corporate high-yield bonds on negative watch by one of the three major rating companies as of that date was 119.  Today, this number has surged 26 percent to 149 bonds, even as yields have fallen.  Lower credit quality and lower yields is the evil side effect of modern central banking.

 

 U.S., Italy and Spain 10 Year Bonds

10 Year Bonds

In a powerful move, Spain’s 10 year bonds have plunged in yield.  Last week at 1.63% to 1.14% as of Friday’s close.  Mario Draghi and the ECB brought out the fire hose to contain markets.  Just a leaked story to the press over a possible “Capital Key” expansion had shorts running for cover and buyers stampeding in.  It’s amazing how regulators are putting stock market players in jail for trading on “inside information” while central bankers are creating their own every other week.  Expanding the capital key would allow the ECB to buy even more, low credit quality, periphery (Spain, Italy) debt.  Today, investors receive 0.30% more interest buying a U.S. 10 year bond over Spain’s 10 year.  Front running the ECB has become a national pastime in Europe.  As someone who sat on the deck of the Titanic that was Lehman Brothers, this is pure evil, central bank induced moral hazard gone rogue.

Since 2008, $33T of wealth has been created in the USA.  The Trillion Dollar question?  What is the U.S. ‘s aging population doing with all this money?  Buying bonds that have doubled in value?  Lending money to commodity companies (oil), financing more exploration and excess supply?   We have a global, aging population positioning capital in places it just shouldn’t be, all because of central bankers.

U.S.  Population 45-64

US Population 54-64

Demographics, the Fed and Wealth Destruction 

There are powerful dynamics hidden inside today’s bond and commodity bubbles that once again clueless central bankers are missing.  There are nearly 4m more Americans age 45-64 today than there were for years ago.  Where are these high net worth investors being forced to put there wealth?  Developed markets around the globe are experiencing the same problem.  Aging populations after years of wealth creation equal a lot of investors with limited choices, so they reach for yield. Investors are putting capital in places it just shouldn’t be and central bankers are holding the smoking gun. They successfully blamed Wall St. for the financial crisis and hid behind the shadow of a tragedy, they will not be so fortunate when markets turn on them again.

 

Everyday nearly 11,000 people in the USA Turn 65

% of Population Over 65 of Age

Japan: 28%

Germany: 22%

Spain: 22%

Italy: 22%

USA: 15%

Bloomberg

Low rates pull consumption and investment forward and allow projects to be undertaken that otherwise would have to wait. Some people call this stealing economic activity from the future, but we must keep our eye on the incentives created by Fed policy.

 

U.S. 30 Year Mortgage Yield vs. the S&P Case Shiller Average Home Price

US Mortgage Rates

This is a very interesting look at the S&P / Case Shiller U.S. Home Price Index vs the U.S. 30 Year Mortgage Rate. We must learn from financial history, clearly Fed policy had a heavy hand in inflating the U.S. housing bubble. What are their policies disrupting today? Over the years, each financial crisis experiences a metamorphosis into another serpent, another beast. We must prepare for what is coming at us.

On the other hand, higher rates make debt more expensive and push consumption and investment out. Over the last year, most economist have felt the Fed is looking to “tap the brakes” on the improving U.S. economy.   Wall St has been wrong yet again, they’re the gang that can’t shoot straight.

Fed Fund Rate and Bubbles

 

Our Best Ideas await you,  Get on the Bear Traps Report Today, click here

 

File_003 (8)

 

Excessive Debt: Handcuffs Or A Noose?

The other pressing issue is high debt levels. The Fed is in no hurry to hike rates with debt levels so high in the post-Lehman era. The U.S. hit its debt ceiling in March of 2015, at $18.1 trillion, but the devil is in the details, or what’s called interest costs as a percentage of federal spending. As you can see below, net interest outlays are on course to more than double by 2017 from 2005 levels. Interest costs on the staggering U.S. debt load, added together with government entitlement spending, is nearing 71% of Federal spending, compared to 26% in the early 1960s. Is this sustainable?

 

U.S. Government Net Interest Outlays

2017: $335B
2009: $190B
2005: $150B

*Data from CBO

 

USA National Debt 2009-16

National Debt
It’s pure comedy to listen to the national media in the U.S. talking up the risk of a Donald Trump Presidency to the National Debt.  Debt has exploded under Obama and Congressional policies since 2008.

 

Get our latest trade ideas heading into the 2016 election here;

Our Best Ideas await you,  Get on the Bear Traps Report Today, click here
Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

Why we were Buying Fear Monday near the Lows

Get on the Bear Traps Report Today, click here

“EU Banks are in a world of Brexit pain, we are taking advantage of fear. EU financials are a screaming capitulations Buy today. Our 7 factor capitulation model is giving us a very strong buy reading, even stronger than the one we had in February. The Jo Cox tragedy created a false reality, last week investors piled into buy the Pound and EU banks, a classic student body left. This has created an amazing short term buying opportunity for the brave investor who appreciates risk / reward.”

The Bear Traps Report, June 27, 2016

 

One of the more prominent reasons we were buying equities into Monday’s plunge was the fact that in recent years, as markets become stressed, central bankers float new creative ideas into their favorite media channels. The net result is a consistent and fairly predictable student body left, student body right market movements.

VIX Futures 3

The steepness of the VIX futures curve is one of our 21 Lehman Systemic Risk indicators. The speed of the steepening process is a key element to risk management. In all market panics, the front month VIX future trade rich to the outer months. As you can see above, on Monday of this week the VIX futures curve was flat, move into slight backwardation. We used this as a signal to bet long equities (see our Bear Traps Trade alert from Monday, June 27).

Get on the Bear Traps Report Today, click here

The CBOE Volatility Index is on pace for its biggest weekly decline in history as investor nerves settle following the U.K.’s decision to exit the European Union. Since the so-called S&P 500 fear gauge surged 49 percent last Friday, it’s slid in each of the last five days for a 42 percent decline in the period. The VIX is stabilizing after last week’s 33 percent increase, which was within the 97th percentile of gains for similar periods. – Bloomberg

VIX new 2On May 29th, we recommended clients get long volatility as complacent equity markets were not appreciating coming Brexit risk.

Lehman Memories

Over the last 10 days, the S&P 500 has moved 1.3% or more (up or down) 6 days in a row. Hasn’t hit 7 since Dec 2008.

Bloomberg

 

Get on the Bear Traps Report Today, click here
Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

S&P Futures Open on Friday’s Lows, Italy Pulls a Hank Paulson Bailout

Get on the Bear Traps Report Today, click here

Join our Larry McDonald on CNBC’s Halftime Report Friday at 12:30pm

“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

Get on the Bear Traps Report Today, click here

*ITALY SAID TO WEIGH $44 BILLION INJECTION IN BANKS AFTER BREXIT

Italy’s banks we’re substantial under-performers Friday, off nearly 20% over the last 3 trading sessions.  As we stressed last year to subscribers, zombie banks in Europe hold over $1T of bad debts, Italy’s stake of smelly loans is near $400B.

Italy is considering a 40 billion euros ($44 billion) bailout of it’s banking system. 

Fresh capital for the country’s banks, Il Fatto Quotidiano reported Monday, citing government and financial sources it doesn’t identify. – Bloomberg

The government would sell debt to fund the capital injections and is talks with the European Commission, Il Fatto said. Governments can provide funds directly to banks in exceptional circumstances of systemic stress, which Italy would cite as a reason for its intervention in the aftermath of Brexit, the Italian daily newspaper reported.

Italy’s lenders are over-loaded with 360 billion euros of bad debt, while profit is also squeezed by record-low interest rates and sluggish economic growth.

 

The plunging in financial markets continued Monday.

The pound extending its record one-day selloff after the U.K.’s vote to exit the European Union threw British politics into turmoil, fueling anxiety over the decision’s impact on the wider global economy.

– Wall St has gone from entirely Yen Bears to Bulls: the Yen Brexit Surge is Seen Testing 95 in Threat to BOJ Stimulus Goals.
– Brexit vote was like a ‘Black Swan event,’ PineBridge
– In panic mode, HSBC changes their year-end dollar-yen target to 95 from 115, Goldman had a 125 dollar yen target in December, she touched 100 on Friday.

 

Every 1 handle move in the yen’s stronger currency, costs companies in Japan nearly $15m, the Bank of Japan will be forced to act, yet again.

China weakened its currency fixing by the most since last August as global market turmoil spurred by Britain’s vote to leave the European Union sent the dollar surging.

The People’s Bank of China set the reference rate 0.9 percent weaker at 6.6375 a dollar. A gauge of the greenback’s strength jumped 2.4 percent in the past two days, the most since 2011, as the British pound and the euro tumbled. The yuan dropped 0.3 percent to 6.6473 as of 6:44 p.m. in Shanghai, heading for its weakest close since December 2010. – Bloomberg

LEVERAGE

Central Bank Bal Sheets

After levering up for 8 years, central banks have brought the world on the brink of recession.

Bank of Japan sets emergency meeting tonight.

Hillary Clinton, speaking in Indianopolis at Conference of Mayors, said U.S. will also recover “from all the other shocks that are in the system” after saying Americans lost about $100b from their 401ks following the U.K.’s Brexit vote.

Front Month VIX Futures surged up to 22.50 while 8 months out stand at 22.67, the curve is nearly inverted, a classic sign of severe panic.

S&P Futures

The rout in riskier assets picked up where it left off Friday, with the Australian dollar slipping with the euro as as U.S. and Japanese index futures fell with New Zealand shares. The Norwegian krone tumbled more than 2 percent as oil dropped a second day. Sterling sank beyond $1.35, extending losses near weakest level since 1985 as investors face months of uncertainty over Britain’s future amid turmoil within the two major political parties and Scotland agitating anew for independence. Angst boosted the yen and gold, amid demand for havens following the worst day for global stocks in almost five years.

Pick up our Brexit trade ideas playbook below, just click on this link:

Get on the Bear Traps Report Today, click here
Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

Unched

Get on the Bear Traps Report Today, click here

Join our Larry McDonald on CNBC’s Halftime Report Friday at 12:30pm

“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

Get on the Bear Traps Report Today, click here

The clowns, otherwise know as “stock market cheerleaders” are quick to remind us every time equities near record highs.  Over the last 2 years, we’ve heard countless times how “we’re breaking out into record territory.”

Its so disingenuous. We must all deal with the reality of what were up against.  Since the Federal Reserve started to taper their monetary goodie bag, stocks have gone no where, while a few names FANG (Facebook, Amazon, Netflix and Google) have hogged all the returns.

S&P 500

S&p 500 Flat

Facebook is up 51% since November 7, 2014 while the S&P 500 is unched.

Get on the Bear Traps Report Today, click here

Russell 2000

Russell

Amazon is up 98% since October 29, 2013 while the Russell 2000 is unched.

Get on the Bear Traps Report Today, click here

Dow Jones Industrial Average

DOW

Google is up 23% since October 30, 2014 while the Dow Jones Industrial Average is unched.

Get on the Bear Traps Report Today, click here
Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

Central Bankers and the Next Recession

Join our Larry McDonald on CNBC’s Halftime Report Friday at 12:30pm

“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

 

Chances of a July Rate Cut from the Bank of England

Get on the Bear Traps Report Today, click here

June 24: 41%

June 1: 9%

Bloomberg

Bank of England Governor Mark Carney responded to Britain’s decision to quit the European Union with a 250 billion-pound ($343 billion) pledge of funds to support the banking system. He also said policy makers will “assess economic conditions and will consider any additional policy responses.” That means more action may be forthcoming if market turmoil spills over into the economy, with investors increasing bets on an interest-rate cut by next month. – BN

Get on the Bear Traps Report Today, click here

Central Bank Bal Sheets

A year ago today, 88% of Wall St was calling for 5 Fed Rate Hikes (2015 into 16) before:

-A possible China currency devaluation

-Brexit vote

-US election

The Blind Squirrel

Wall St’s cluelessness over risk management and how it relates to Fed policy never ceases to amaze us.  They’re the gang that can’t shoot straight.

File_000 (18)Central Bankers have been bamboozling Wall St. for far too long.

A Meeting of the Gods

The world’s monetary Gods, our saviors, will meet at the Bank of International Settlements meeting in Basel over the weekend.  We have a list of 3 trades focused on their next move, just click on the green link below.

As you can see above, the explosion in their balance sheets have had the end result of bringing the global economy to the brink of recession.

We must have a plan for their next move, get on our Bear Traps Report:

Get on the Bear Traps Report Today, click here

 

Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

U.S. Dollar Surge, Gold Surge and 10 Brexit Side Effects

U.S. Dollar Surge, Gold Surge and 10 Brexit Side Effects

Join our Larry McDonald on CNBC’s Halftime Report Friday at 12:30pm

“Central banks around the world are having more and more influence on the markets. Many people are trading off of anticipated policy moves and the crowded trades are even more profound. However, the sentiment of investors making bets on the “great divergence” has reached a fever pitch.  Fed funds futures are expecting at 78% of a 25bps rate hike, far too many people are on one side of the boat.  We believe credit risk will veto the Fed policy path next year.  We do not see rate hikes coming in 2016. We implore you to buy the gold miners GDX and long U.S. Treasury bonds.”

The Bear Traps Report, December 9, 2015

Receive our top 3 Trade Ideas post Brexit, click here below:

Get on the Bear Traps Report Today, click here

Brexit Side Effects

  1. Spanish Yields Surging on Brexit Credit Risk Contagion

Prime Minister Rajoy’s People’s Party on track for 116-120 seats in Sunday’s election, according to a Gesop survey published by El Periodic d’Andorra.

• PP rises from 114-118 seats in Friday’s poll, BUT down from 123 seats in Dec. 20 election
• Left wing Podemos set for 90 seats vs 71 in December
• Socialists on 83-87 seats vs 90
• Ciudadanos 38-42 seats vs 40
• Poll based on 900 interviews conducted June 22-24
• Majority in Spanish parliament is 176 seats

Spain

  • 10-year yields jump most in 2016 Friday as U.K. chooses Brexit
  • Sunday’s election may once again be inconclusive, polls signal

Spanish government bonds may see more volatility next week after voters go to the polls Sunday to try to break a six-month political deadlock over who will govern the euro region’s fourth-largest economy.

The nation’s securities plunged on Friday, with the 10-year yield jumping the most this year, after Britain voted to quit the European Union. Riskier assets suffered as the decision threw uncertainty onto the political future of Europe, bolstering speculation other nations will move to hold similar referendums. – BN

Brexit Side Effects

2. European banks are off 47% from their 2016 highs, off 18% yesterday.

EU Banks new

Central banks are intervening globally in currency action, the Bank of Japan, S Korea, India and Denmark are all believed to have intervened overnight Thursday into Friday’s market price action.

The Eurostoxx 50 is fell 9%, that’s nearly 2000 Dow points.

3. Gold is a safe heaven once again, the media lectured us late last year that the metal had lost its security touch, wrong.

Get on the Bear Traps Report

Gold

4. S&P 500 FUTURES TUMBLED 5.1%, then closed 3.6% lower Friday.

S&P 500 1999

Get on the Bear Traps Report

5. We are witnessing a blow off top in panic bond buying, 0.15% for 30 years in Japan.

Japan 30 Year

 

6. The Fed once again is wearing the dunce hat. US markets are currently pricing out any chance of a tightening (rate hike) this year.  U.S. 2 year Treasuries’ yield plunged to 0.53%.

2 Year

7. Emerging Markets and Oil’s enemy, the global wrecking ball that is the U.S. dollar is back on the march higher.  WTI plunged 9.1% from its June high.

Friday

iShares MSCI Emerging Markets -6.2%

Brazil -2.8%

Mexico -2.7%

 

Get on the Bear Traps Report

Dollar Surge

 

8. The Pound is in Lehman Land

The pound slumped to the lowest level in 30 years on Friday, tumbling as much as 13%, as investors took fright at Britain’s shock.

HSBC and Standard Chartered Bank plunged 11%

Pound 5

We now have a Pound in Lehman land at 11;07ET

9. A Classic Trading Lesson, too Much was Priced in.  Too Many investors were on one side of the boat (Bremain) Thursday.

Get on the Bear Traps Report Today, click here

The 70 Handle Plunge

S&P Terror

Too much was priced into the Bremain trade.

Thursday, currency volatility plunged on the pound from 24 to 13, the biggest one day move in the post Lehman era.  The market was well priced in for a Bremain.

Next, Mr. Market did what he always does, “exerts the maximum amount of pain on all participants.”

Look at this incredible move:

Get on the Bear Traps Report

Pound Plunge

At one point this Thursday if you wanted to trade pound sterling the bid offer reached one big figure 1.49-1.50, she closed at 1.36 now!

Leading global currencies shouldn’t trade like biotech stocks, but in a Brexit world full of “over ego filled” central bankers, they do.

Brexit Side Effects and Trade Ideas, just click below:

 

Get on the Bear Traps Report Today, click here

 

 

Facebooktwittergoogle_plusredditlinkedintumblrmail

Facebooktwitterrssyoutube

Investment Newsletter

Show Buttons
Hide Buttons