David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Stocks Whipsawed as Quadruple Witching Spurs Bursts of Volume

    This article by Lu Wang for Bloomberg may be of interest to subscribers. Here is a section:

    One scenario on how Friday’s event may have boosted share prices was laid out by Charlie McElligott, a cross-asset strategist at Nomura. In a note earlier this week, he attributed buying to traders who sold bullish options on the S&P 500 at strike prices of 2,950.

    The muddling effect from quadruple witching may not be over this week, according to McElligott. As the market loses the buying “impulse” from options traders, stocks may fall next week, prompting a narrative that investors are starting to doubt the Fed and setting the stage for the S&P 500 to rally to 3,000, he said.

    “The market then risks ‘mis-reads’ this potential flow-centric weakness in equities next week as some sort of ‘fading the Fed’—when in fact it’s almost entirely mechanical in nature,” McElligott wrote. “This type of head-fake could in fact see more shorts added and sentiment purge, which then perversely is the fodder for a melt-up.”

    This section continues in the Subscriber's Area.

    Maldives Holidays and SUVs Are Badges of Shame Now: Chris Bryant

    This article by Chris Bryant for Bloomberg may be of interest to subscribers. Here is a section:

    The windshields of large cars parked in my Berlin neighborhood were plastered this week with angry
    messages on lurid orange stickers. The owners were told that: “Driving an SUV causes serious climate damage,” “SUVs harm your unborn child,” and “Driving an SUV causes impotence.” That last one may have been a joke.

    Sports utility vehicles have long been hated by the more civic-minded among us. They tend to consume more fuel, spew out more pollution and take up more parking space. It’s been suggested that their size and weight are also partly to blame for the rising number of pedestrian road deaths.

    This section continues in the Subscriber's Area.

    Solar Cycle Science

    The subject of solar minimums is starting to arise once more in popular media and this site, from a former NASA scientist, contains all of the relevant information. Here is a section:

    In the 1800s astronomers realized that the appearance of sunspots was cyclic, with a period averaging about 11 years. As new features of the Sun (solar flares, filaments, prominences, coronal loops and coronal mass ejections) were discovered, it was found that they too varied along with the frequency of sunspots. The sunspot number is now commonly accepted as a measure of solar activity. Solar activity itself has been linked to satellite failures, electrical power outages, and variations in Earth’s climate. The impact of solar activity on Earth and our technology has created a need for a better understanding of, and the ability to predict, solar activity.

    Sunspot activity over the last four hundred years has shown that the amplitude of the sunspot cycle varies from one cycle to the next. The average cycle has a peak sunspot number of about 150. At times, as in the period known as the Maunder Minimum between 1645 and 1715, solar activity can become so weak that it seems to disappear for several decades at a time.

    This section continues in the Subscriber's Area.

    Gold Achieves Liftoff as Prices Rocket Toward $1,400 an Ounce

    This article by Elena Mazneva and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

    Investors are pouring money into gold-backed ETFs again, following four months of outflows. Holdings tracked by Bloomberg have already seen the biggest monthly increase since January.

    Bullion producers are also catching an uplift. The $10 billion VanEck Vectors Gold Miners ETF, which tracks shares of gold mining companies, jumped to the highest in more than a year on Thursday. And a separate gauge of senior gold producers including Yamana Gold Inc. and Barrick Gold Corp. rallied to the highest since November 2016.

    Central Bank Buying
    In another bullish signal for gold, central banks are continuing to buy the metal as countries diversify their assets away from the U.S. dollar. China increased its reserves for a sixth straight month in May.

    Other countries have also been buying -- first-quarter purchases were the highest in six years, with Russia and China the largest buyers, according to the World Gold Council.

    This section continues in the Subscriber's Area.

    Currency war is the next phase of global conflict and Europe, the chief parasite, is defenceless

    This article by Ambrose Evans Pritchard for the Telegraph may be of interest to subscribers. Here is a section:

    The deflationary cancer is now so deeply lodged in the eurozone that it would take helicopter money or People's QE -- monetary financing of public works -- to fight off any future global slump. Such action would violate the Lisbon Treaty and would test to destruction Germany's political acquiescence in the euro project.

    In truth QE in Europe has always worked chiefly through devaluation. The euro's trade-weighted index fell 14 percent a year after Mr. Draghi first signalled in 2014 that bond purchases were coming. That was powerful stimulus. When the euro climbed back up the eurozone economy stalled.

    It takes permanent suppression of the exchange rate to keep euroland going. As the Japanese have discovered, it is very hard for an economy with near zero inflation and a structural trade surplus to stop its exchange rate from rising unless it resorts to overt currency warfare. That is exactly what Mr. Trump is not going to allow.

    Every avenue of monetary stimulus is cut off in the eurozone. Only fiscal stimulus a l'outrance -- 2 or 3 percent of GDP -- will be enough to weather a serious crisis. That too is blocked.

    “The ECB has masked the fragility over the last seven years and nobody knows when the hour of truth will come,” said Jean Pisani-Ferry, economic adviser to France's Emmanuel Macron and a fellow at the Bruegel think tank.

    “There is no common deposit scheme for banks. Cross-border investments are retreating. The vicious circle between banks and states could come return any moment,” he said.

    Mario Draghi's rhetorical coup in July 2012 worked only because he secured a partial approval from Germany for the ECB to act as lender-of-last resort for Italy's debt (under strict conditions). That immediately halted an artificial crisis. The situation today is entirely different. The threat is a deflationary slump. The ECB has no answer to this.

    Markets thought they heard a replay of "whatever it takes" in Mr. Draghi's speech and hit the buy button. But economists heard another note in Sintra: a plaintive appeal for EMU fiscal union before it is too late.

    The exhausted monetary warrior was telling us that the ECB cannot alone save the European project a second time.

    This section continues in the Subscriber's Area.

    Thucydides Trap and gold

    This article from aheadoftheherd.com may be of interest to subscribers. Here is a section:

    His main focus is to outline where the US and China are with respect to realpolitik, or practical considerations, and how to avoid war. The signs are not good.

    Writing in The Atlantic, Allison states that “Based on the current trajectory, war between the United States and China in the decades ahead is not just possible, but much more likely than recognized at the moment.” That was written in 2015, before the trade war started, so the case for war is even stronger now.

    According to Allison, events that could make two nations fall into the trap may be small, “business as usual” conflicts that, if they occurred in a different dynamic, would lead to nothing. For example, the assassination of archduke Ferdinand, a relatively obscure and minor figure, was the spark that lit a whole conflagration of events that plunged Germany, an ascendant maritime power, into war with Britain, whose Royal Navy ruled the seas for decades. Consider the current conflicts between the Chinese and US navies in the South China Sea and the Taiwan Strait. It would not take much - say a collision between two warships - to ignite the powder keg of war.

    However, for the threat to be taken seriously, the rising power must have the capability to take on the incumbent power. Henry Kissinger, the US former secretary of state, wrote that “once Germany achieved naval supremacy … this in itself - regardless of German intentions - would be an objective threat to Britain, and incompatible with the existence of the British Empire.”

    This section continues in the Subscriber's Area.