The Grinch That Stole Christmas


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Merry Christmas everyone… except if you are long stocks in which case Santa most certainly put a lump of coal in your stocking making it the worst December in a very long time.

So, who is to blame? According to Mr. Trump, the Fed Chairman is guilty of “not understanding markets” and would love to boot him out as he did with more than a dozen other top officials in his administration. Needless to say, I strongly disagree; the Fed’s independence is crucial if the dollar is to remain the global reserve currency. Nevertheless, yes, the Fed is probably raising rates a bit too fast given the health of the global economy, which is not quite robust (Europe is struggling and China is ramping down its growth).

Then again, with US equity markets previously showing every sign of “irrational exuberance”, it was the Fed’s duty to take away the punch

Continue reading “The Grinch That Stole Christmas”

Populism, Explained


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Yellow Vests are storming the Bastille, Trump is playing to the discontent of the working poor, ditto the Brexiteers, Germans are voting down mainstream parties in record numbers, stocks around the globe are tumbling, ditto commodities.

IMHO they are all connected and explained by the chart below from a World Economic Forum publication.   (https://www.weforum.org/agenda/2016/01/3-charts-that-explain-global-inequality/)

The chart is from an Oxfam report on global inequality:  According to the report, 62 billionaires own the same amount of wealth as 3.5 billion people who make up the poorest half of the world’s population. In a dramatic widening of inequality, this number has fallen from 388 in 2010, and is set to become just a handful of super rich by 2020.

Apart from ethical, societal, etc concerns there is a “technical” story here, one that concerns stocks: the market has become very narrow, fewer people own a

Continue reading “Populism, Explained”

Backpedaling At Tour de France


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Faced with massive violent protests in Paris and across France President Macron has been forced to backpedal on his previously announced economic policies. Unfortunately, it’s too little, too late.  Leaders of the popular Yellow Vest uprising (revolt?) have already decided they are not satisfied;  it seems that only Macron’s resignation will do.

But France is only one hotspot of many.

There is a deep malaise in many EU countries: France, Great Britain, Italy, Belgium, Austria, Hungary, Greece, Poland, Slovakia are gripped in some form or another of reactionary populist politics.  The proximate issues may be varied but the root cause is the same: economic underperformance and slipping of living standards for the shrinking middle class.  Macron is the poster boy of a privileged urban yuppie who ignores the plight of the poor citoyens trying to make do in La France Profonde.

It is becoming increasingly clear that the response

Continue reading “Backpedaling At Tour de France”

Margin Debt As Percentage Of Wiltshire 5000


This post is by from Sudden Debt


Click here to view on the original site: Original Post




From Yardeni Research comes the following chart: margin debt as a percentage of total market value of Wiltshire 5000, the broadest equity  index in the US (data go up to October)

At 2.1% it is (surprisingly) at the lowest level since late 2006, just before the Debt Bubble blew out to great proportions. However, they are at the top end of the Dotcom Bubble.

Despite my blog’s title, these days I don’t see debt as a serious threat to markets.  Instead, I’m really worried about ugly populist politics around the world.

More on another post.

May You Live In Interesting Times


This post is by from Sudden Debt


Click here to view on the original site: Original Post




The post’s title is a well known Chinese curse.  For financial markets, the equivalent (and ambivalent) saying is “May you trade in volatile markets”. Remember, it’s a curse not a blessing.

Long term equity investors hate excitement and love to be bored. They buy, they hold, they prosper. For them “interesting” is synonymous with fundamentals and value;  their heroes are Graham, Dodd and – above all – Buffett.

Traders, on the other hand, love excitement – known as volatility in markets. They buy, they sell, they short, they cover, they scalp. For them “interesting” is the equivalent of precipitous declines followed by massive rallies, preferably within the same day.  Their heroes are the anonymous designers of black boxes and whoever can get their network nodes as close as possible to the exchanges’ transaction mainframes.

Up until the start of 2018 US markets were “boring” in the sense that buy

Continue reading “May You Live In Interesting Times”

Travails Of A Bond Blogger


This post is by from Sudden Debt


Click here to view on the original site: Original Post




What am I supposed to do, huh?

I mean, I am a blogger who specializes in writing about debt. You know, A Merchand Of Venice kind of deal… does “a pound of flesh” ring a bell? As in if you don’t repay your debts WITH INTEREST the lender will have your arm. Maybe your leg, too.

But, in the decade-long aftermath of the Big Dip the world of finance has gone topsy-turvy. You now have to PAY borrowers to lend them money. As in, here, please borrow my money and when you return it I’ll give you MY arm. Crazy stuff.

For example, Germany charges investors -0.589% annually for the (extremely dubious) privilege of holding their money for 2 years. Yup, you give the Germans 100 euro and two years later they give you 98 point something back, all is square. Sort of..

Germany 2-Year Government Bond Yield

Going Continue reading “Travails Of A Bond Blogger”

The EU: Beggining Of The End Or End Of The Beginning?


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Where to EU?  What started as a lofty and noble idea to establish an enduring  peace in the continent most guilty of global blood letting is turning into a low, cheap and acrimonious scuffle about Polish plumbers and Italian bravado.

Cheap it may be, but the current fight amongst member states is, nevertheless, dangerous.  And the reason is not what the fight is about, but because of what is missing at the very foundation of the EU. To wit, a common fiscal policy mechanism and a common defense structure.

What are the two most important elements of an empire?  A strong global currency and a strong military with global reach.  The EU seemingly has the first, but in the absence of a common fiscal policy structure it actually doesn’t, and has zero common military.

Therefore, if the EU is to survive and even thrive it urgently Continue reading “The EU: Beggining Of The End Or End Of The Beginning?”

Barrels, Boats, Bitcoins, Brexit, and Other Bubbles


This post is by from Sudden Debt


Click here to view on the original site: Original Post




This blog is founded on the premise that ALL bubbles burst, sooner or later.  The rule of thumb is pretty simple: to paraphrase the old Crazy Eddie TV ad, if prices are INSAAAAAANE then the bubble is to pop sooner rather than later.

And there is always some form of loony “fundamental” hype which pops up as “analysis” to goose things along and provide that last HURRAH that produces forced short position liquidation.

Cases in point:

  •  Peak Oil!,  the theory that global oil production was about to peak and head inexorably down.  A large number of innocents were caught up in this, even publishing thousands of articles in The Oil Drum, a site which propagated the scientific version of the hype.  Oil zoomed to $145 per barrel and then melted down to $35.

 Image result for crude oil prices chart

Merkel To Retire


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Following yesterday’s abysmal results for Merkel’s CDU in the regional Hesse elections (down 11% from previous polls) she is said to have declared her decision not to seek re-election as her party’s leader in its upcoming congress.

Austerity and fiscal propriety are eroding fast, the Greens and AfD are big winners.

Europe is changing fast.

and PS Bolsonaro won in Brazil.  Reactionary Populism is gaining all over the world… (sigh).

Italy – The Rise Of (Fiscal) Populism


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Bond and equity markets do not react well to overt signs of fiscal populism.  Case in point: Italy.

Italian 10 Year Government Bonds
The Italian government submitted its 2019 budget plan to the EU calling for a large deficit, unacceptable to the Commission.  A spat has ensued, causing bond yields to rise sharply.
Unlike the Greek “tragedy” of the last 10 (!) years, Italy is a very, very large economy and cannot the pushed aside and/or be blackmailed into submission.  A dogfight will eventually lead to tearing apart the entire EU structure, so an easing of the “German” fiscal probity model is likely in the cards, also given that Mrs. Merkel is now weaker than ever politically.

China Has To Grow Up


This post is by from Sudden Debt


Click here to view on the original site: Original Post




China has become the world’s second largest economy based largely on the ability to churn out cheap consumer goods in vast numbers. It could do so because of a) very low wages, b) cheap land and c) nearly zero regulatory costs (i.e. pollution and labor safety regs).  Couple that with an artificially low foreign exchange peg, and it’s no wonder that  low and medium value-added industries moved there en masse.

However, China is now very keen to move up towards more sophisticated, tech heavy industries like autos, aerospace and high end electronics, heretofore the domain of Western companies and institutions that have created a huge pool of proprietary R&D and the mechanisms to transform it into high-end products.

The problem of safeguarding such Intellectual Property has been around since at least the early 1990s and has never been addressed properly.  As the US economy moves more and more towards Continue reading “China Has To Grow Up”

Trade War Over Steel? Gimme A Break…


This post is by from Sudden Debt


Click here to view on the original site: Original Post




So Trump throws up this firecracker about import duties on steel (25%) and aluminum (10%).  It’s a non-issue folks, despite hot air from Brussels about retaliation via Levi’s, Harleys and Jack Daniels. (Notice that the Chinese haven’t said a word – and rightly so).

Fact is, the US hardly imports any steel from the EU or China, as you can see from the graphic below.

Now, if Mr. Trump starts talking about consumer electronics, that would be an issue.  But in an economy completely dominated by the likes of Apple, Google, Microsoft and Amazon imposing duties on their products would be plain suicide and it won’t happen.

Steel Duties, Seriously?


This post is by from Sudden Debt


Click here to view on the original site: Original Post




Imposing import duties on steel and aluminum is akin to protecting the horse buggy business when Ford set up his car production line… completely useless and meaningless.

The US economy is long past it’s heavy, metal-basing industrial era.  Trump is just playing up to his lowest common denominator electoral base, that’s all.

For proof, just look at the makeup of the DowJones Industrial Average in 1980 (even 2000) and today.  Unlike the past, the US economy today is all about Google, Amazon, Apple, Microsoft and a couple pharma companies.

Move on…

Yes, Virginia, There IS Volatility


This post is by from Sudden Debt


Click here to view on the original site: Original Post




What happened with US stocks?  Why did they tank so suddenly after months of steady gains?

No, there was no irrational exuberance, no massive leveraging, no pernicious balance sheet shenanigans at banks, no NINJA loans, no CDS/CMO/CDO (plain, squared or cubed) baloney. Valuations weren’t even that high, given forward P/Es around 18-16x.

There was, however, a sort of  “complacency bubble”, aka very, very low volatility. This in turn spawned a variety of listed and OTC trades that shorted volatility for profit.  It worked like a charm – until it didn’t.

The following chart makes things quite clear.  It’s the price of an ETF (exchange traded fund) that shorts VIX futures.  Yes, Virginia, there IS volatility!

In my opinion that’s all there was to it – the snap unwinding of short vol trades.