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

    Trading Halts, Confusion From India to Indonesia on Manic Monday

    This article by Santanu Chakraborty, Ameya Karve and Yudith Ho for Bloomberg may be of interest to subscribers. Here is a section: 

    Ashish Shah, head of equities at Mumbai-based A.C. Choksi Share Brokers Pvt., said his firm placed orders for AU Small Finance Bank Ltd. on its first day of trading. As of 3:15 p.m. local time, he was still waiting to find out if his firm owned the stock, which rose 51 percent on its debut.

    “We punched in the trades and they are still pending, and we don’t know whether we got the shares,” said Shah. “Will they be scrapped, reversed or executed? The bourse could have done a better job at communicating as clarity reduces chaos.”

    The NSE handles about twice the stock volume of rival BSE Ltd. and controls about 80 percent of India’s derivatives market, which is among the world’s largest. The exchange company, which has filed for an initial public offering, has been embroiled in a probe into whether it allowed preferential access to some high-frequency traders. BSE saw its volume almost double over previous days, data compiled by Bloomberg show.

    “NSE deeply apologizes for the glitch,” it said in an emailed statement. “The matter is being examined by the internal technical team and external vendors, to analyze and identify the cause which led to the issue and to suggest solutions to prevent recurrence.” A Securities and Exchange Board of India spokesman declined to comment on the developments.


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    The Silver Flash Crash: What Might Have Been at Work

    This article by Matthew Ashley for investing.com highlights the surprise at today’s intraday volatility in silver. Here is a section:

    One slightly more plausible suggestion has been a sudden liquidity drain that sparked a bout of panic selling. Indeed, markets have been fairly thin over the 4th of July holiday period which could have compounded fears that silver was becoming illiquid in the wake of JP Morgan’s recent acquisitions. This being said, the extent to which JP Morgan has ‘rigged’ silver markets is constantly challenged and courts seem to be unable to agree on if the institution is breaking antitrust legislation.

    Stop loss orders have also been fingered as a cause for the sudden rout for all the usual reasons. Specifically, the hitting of numerous stop loss orders in rapid succession could have easily amplified the effects of a sell-off – even if they probably didn’t trigger the downtrend in the first place. Moreover, given that many traders may have been out of action due to the holiday’s in the US, it’s quite reasonable to expect more ‘set and forget’ trades to have been placed than is typical. This would have left the metal more exposed to this type of risk than we would usually expect.


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    Breakfast with Dave

    Thanks to a subscriber for David Rosenberg’s report for Gluskin Sheff dated yesterday. Here is a section:

    The Fed seems to have rose-colored glasses on regarding this experiment ahead in terms of even gradually unwinding the balance sheet and the impact on the same financial markets that are deemed at least those around the table (presumably the one with Bloomberg terminal) to be excessively exuberant. And at the same time, the view on the economic outlook seems quite rosy, then again, the central bank has overestimated economic growth consistently for the past seven years. Old habits die hard.

    But there are some at the Fed that share our views on many items. Here were a few new wrinkles:
    “Contacts at some large firms indicated that they had curtailed their capital spending, in part because of uncertainty about changes in fiscal and other government policies…”

    Reports regarding housing construction from District contacts were mixed.”

    District contacts reported that automobile sales had slowed recently; some contacts expected sales to slow further, while others believed that sales were leveling out”

    So here we have soft capex, soft housing and soft autos. But yet the consensus view is that the economy is doing just fine. A case of cognitive dissonance?


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    Musings from The Oil Patch July 6th 2017

    Thanks to a subscriber for this edition al Allen Brooks’ ever interesting report for PPHB. Here is a section:

    While U.S. production grew slightly in 1978, and then remained stable until 1983 before once again growing. The emergence of the North Sea as a significant new oil supply basin (UK and Norway) as well as Mexico’s offshore oil success demonstrated the power the sustained higher oil prices had on creating new supplies. The impact of new supplies contributed to OPEC’s collapse.

    At the same time oil supply outside of OPEC started growing, oil consumption in the developed world (OECD) fell, which is demonstrated by the United States and Europe consumption curves in Exhibit 13. Those two regions are the key part of the OECD. Non-OECD consumption continued growing. As the chart shows, the demand reduction was significant, and was key to crippling OPEC’s pricing power as was the growth in new oil supplies.

    As we look at the factors helping to reshape today’s oil market, environmental pressures, especially the potential impact of electric vehicles, coupled with the impact on oil demand growth that will come in response to efforts by countries to decarbonize their economies, can be considered the equivalent of the 1970s oil price shock to global oil demand. Demand will continue to grow for the foreseeable future, but the annual rate of growth is likely to continue to slow until it eventually goes negative. Lower demand is coming at the same time oil companies are reducing well breakeven prices insuring more supplies in the future. These improved E&P economics is broadly similar in impact to the opening of new oil supply basins that occurred in the 1970s and 1980s. Just as the opening of new supply basins had a long-term impact, the reduced well breakeven prices will also have a long lasting impact. We can argue about how long the impact will last, but it is likely to last much longer than we expect.

    History does not repeat, but it does rhyme, as suggested in the famous quote. In our view, the current oil industry downturn is rhyming more with the 1982-1986 cycle than with the 2008-2011 one. If that is true, then the industry may be looking at an extended period of low oil prices just as the industry experienced following the 1981 oil price peak. That span extended for 18 years as oil prices averaged below $45 a barrel, or the very long-term average of inflation adjusted oil prices, with the brief exceptions of the First Gulf War and 9/11. BP plc CEO (BP-NYSE) Robert Dudley’s comments in early 2015 that the industry needed to learn to live in a “lower for longer” environment seem to be proving accurate. That means the oil industry must continue adjusting its cost structure. The oil companies will need to keep their staffing lean, employ the best drilling and completion technologies available, and manage their balance sheets appropriately to succeed in the future. This environment doesn’t mean that there is no future for the oil industry. It means that corporate strategies must constantly be reassessed within a broader energy industry panorama subject to external pressures that will only grow in the future.


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    Email of the day on North Korea's ICBM:

    North Korea's recent launch WAS intercontinental by virtue of it reaching appx 1,000-mile apogee (height, elevation). That 1,000-mile height translates into many thousands of miles laterally. 
    NASA Engineer, Retired


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    Gundlach Says Bond Wipeout Just Beginning as Bulls Rush for Exit

    This article by Edward Bolingbroke, Liz Capo McCormick and John Gittelsohn for Bloomberg may be of interest to subscribers. Here is a section:

    With a Federal Reserve seemingly committed to raising interest rates a third time this year and speculation the European Central Bank could announce a tapering of bond purchases by the end of the year, the fundamentals aren’t encouraging. As yields are now approaching key technical marks that could trigger a fresh flush out of long-end bulls, the risk is building that Treasury yields go even higher.

    Ten-year Treasury yields are on course to move “toward 3 percent” this year, Gundlach said in an emailed response to questions. There has “been no justification for the divergent policies in the U.S. versus Europe given economic fundamentals,” he said - a point he has made previously.

    A 10-year yield at 3 percent would put Treasuries in “definitive” bear market territory, Gundlach added. The yield traded as high as 2.39 percent Thursday, just ahead of a key retracement level at 2.42 percent, coinciding with the May high.

    “People this year had been buying long-dated Treasuries and other sovereigns as the hedge to their equity portfolios and that’s why this unwind is so ugly,” said Peter Tchir, head of macro strategy at Brean Capital LLC. “They are losing money on both the equity and debt side now, and are bailing out of their long-dated Treasuries.”


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    Investment Principles & Checklists

    Thanks to a subscriber for this heavyweight 148-page compendium of investment maxims from such luminaries as Charlie Munger and Seth Klarman among others. Here is a section from Howard Marks:

    What is the pie worth? 
    How will it be split up among claimants? 
    How long will it take? 
    It is never over – the cycle continues; investors must understand the cyclical nature of markets and the economy 
    No good or bad investments – just bad timing and bad prices 
    Shortness of memory is an amazing feature of financial markets 
    Tenets of Oaktree Capital Management 

    1. The primacy of risk control 
    Superior investment performance is not our primary goal, but rather superior performance with less-than-commensurate risk. Above average gains in good times are not proof of a manager's skill; it takes superior performance in bad times to prove that those good-time gains were earned through skill, not simply the acceptance of above average risk. Thus, rather than merely searching for prospective profits, we place the highest priority on preventing losses. It is our overriding belief that, especially in the opportunistic markets in which we work, "if we avoid the losers, the winners will take care of themselves." 

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