Monday, November 20, 2017



We have written many times about the fact... and it is a fact... that the Swiss National Bank has effectively become both the nation’s central bank and one of the largest, if not indeed the very largest, hedge funds in the world. The process began several years ago when the SNB swore that it would do what it could and using what methods were available to it to weaken the Swiss franc relative to the EUR and to the US dollar. It has succeeded, until recently, creating Swiss francs out of the thinnest of air, and selling those Francs vs. the EUR and the dollar, and then taking those EURs and dollars to buy European and US equities and debt securities.


The SNB’s balance sheet is a CHf 813 billion (and given that the CHf and the US dollar are effectively at parity one with the other that CHf 813 billion is the same as $813 billion) and this is very nearly 125% of the Swiss GDP. By comparison, the Fed’s balance sheet of $4.5 trillion is but 25% of the US GDP. In other words, if the Fed is taken to task for being expansionary, the SNB is truly explosive!


Of the CHf 813 billion on the Bank’s balance sheet, 760 billion of it is the form of securities, of which 90 billion are in equities. The other 670 billion are held in EUR and US debt securities.


Thus far this has been a huge, stunning, almost unimaginable profit for the SNB and theoretically for the people of Switzerland. However, the problem is that the SNB will have enormous difficulty in liquidating this massive portfolio, for once the news leaks out that the Bank is selling the bids will disappear; the CHf will soar in price while debt and equity markets melt away.


What the SNB has done here is stunning; some have even called it nearly “criminal” in nature. We suggest that there is nothing at all criminal in what the SNB’s leaders have done and that they are well within their legal guidelines; however, what they have done is optically and philosophically wrong and very badly so. This is QE gone very badly wrong, rivaled only by the same actions taken by the Bank of Japan that openly deals in the forex, debt and equity markets in Tokyo, buying ETFs on a very regular basis and becoming one of Japan’s largest public shareholders. This is central banking gone very, very badly awry. It will be stopped when equity prices collapse.



The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).


They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.


Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.


Switzerland is now the eighth-largest public holder of US stocks. And apparently they are concentrating on the largest of the large-cap stocks. The own 19 million shares of Apple (as of March 31). That is roughly 3% of the current market.

I’m in Switzerland as you read this, so I am personally experiencing the reality of currency strength. Have you ever paid $12 for a Diet Coke? (Seriously!) No wonder the SNB is worried about the valuation of their currency.

I will be speaking at a conference in Lugano on Monday. The conference sponsors have asked me to give them three questions to ask the attendees during my speech. One of those questions is, do you think the Swiss National Bank will eventually hold $1 trillion in assets? And do you agree with that policy? I will be asking some of the larger asset managers what they will do and how they will react. Hedging? How do you do that in that environment?

Gartman is right: How can the SNB sell? The Swiss franc would levitate almost instantly, which is the one thing they are desperate to avoid. As long as people keep trying to convert their money into Swiss francs (at -0.75 basis points!), the natural direction for the franc will be up unless the SNB continues to intervene in foreign markets. My bet is that they will do so – and that this will not end well. Or maybe they’ll get lucky and their even more massive bond portfolio will offset their losses.



Tuesday, November 7, 2017

Investors need to be concerned that the U.S. Stock Market is well beyond bubble territory as it has now entered into the final stage of a Super-Charged Tulip Mania.  Not only are stock prices inflated well above anything we have ever seen before, but valuations are also reaching heights that are totally unsustainable.  Unfortunately, these highly inflated share prices and insane valuations seem normal to investors who are suffering from brain damage as years of mainstream propaganda have turned the soft tissue in their skulls to mush.

Also, we are way beyond “Boiling Frogs” now.  Yes, we passed that stage a while back.  Today, the typical U.S. investor has been fried to death.   Investors now resemble a super-crisp chicken-wing with very little meat on it but at least will offer, one hell of a crunch.  Please realize I don’t mean to be harsh about my fellow investor.  However, when I look around and see what 99% of the market is doing, it reminds me of a famous line from the movie Aliens.  The star of the movie, after being found lost in deep space for many years, said the following in a meeting, “Did IQ’s drop sharply while I was away?”

We find out in the rest of the movie that the so-called Mainstream experts were totally wrong about their assessment of the situation.  However, billions of dollars were still spent and many lives lost because high-level individuals infected with stupidity (in the Aliens Movie) still controlled the shots.  No different than today.

Regardless, the U.S. Stock Market has entered into the last stage, which I call the Super-Charged Tulip Mania.  In this stage, it wouldn’t matter if the North Koreans launched a nuclear missile and declared war on the rest of the world, the universe and all Aliens floating around in space.  By God, the Dow Jones Index would look at these as a catalyst to reach the next important psychological level of 25,000 points.  Reaching that new level wouldn’t really be that hard as the Fed would just need to hire a few dozen more trading geeks and provide them with an endless supply of Hot Pockets and Starbucks.  Easy-peasy.

Okay… it’s time to get serious.  Here are a group of charts that show just how insane the markets and valuations have become today.


Today at CNBC land, there’s nothing but BIG SMILES and BACK SLAPS.  Everyone is wondering when the Dow Jones will finally reach the 25,000 level.  I gather all it would take to get us there would be the following three incidents; 1) A war with North Korean, 2) A Saudi Arabia Royal Government Coup and, 3) A tidal wave that floods New York City.


he Dow Jones Index chart below shows how one index can become a Super-Charged Tulip Mania while the other index can be driven down to bottom-basement cesspool levels:

First, can you imagine owning the Dow Jones Index trading at a measly 850 points in 1981?  It took the Dow nearly a century to reach 850 points in 1981, but it was able to increase 850 points in the past two months.  Amazing things can happen to market prices and valuations when we have massive Central Bank money printing, Mainstream propaganda and societal brain damage.

Second, as the Dow Jones Index reached 23,500 points, the VIX Index (volatility) fell to a new record low of 9.14 (shown at the bottom right-hand side of chart).  Think of these two indexes as an oversized stretched rubber band.  At some point, the rubber band will snap back, and the fun will begin.


This next market crash will not resemble anything similar to what took place during the 2008-2009 U.S. banking and housing market collapse.  When the markets cracked in 2008, EVERYTHING went down together.  Instead this time around, as the markets tank the precious metals will surge to new highs.  We must remember, there really isn’t much in the way of safe assets to move into during the next market crash.  So, as investors flee from bloated STOCKS, BONDS, and REAL ESTATE, to the tiny gold and silver market, fundamentals won’t matter either… LOL.  Yeah… we could see some ridiculous high gold and silver prices as investors finally receive precious metals religion.



Saturday, October 21, 2017

Cats have 9 Lives, the Dow has 99.


As you guys know, normally I share interesting ideas and articles that I find on the internet. This one is a “TFM original. I hope you enjoy it.


First of all I want to explain where I am coming from, I have always been a contrarian trader, done very well for the past 11 years. But something happened in June 2016, right after Brexit, the pricing mechanism of the market got broken. People started buying assets (homes, and stocks) for only one main reason, that prices were rising. Making it a pure momentum market not based on any fundamentals.


Here are some of the most common reasons you hear on why “this time is different”:

·      Record Low Interest Rates, nowhere else to put your money.

·      Central Bankers have our backs, the famous fed put, were at the any sign of trouble central bankers come out with some BS phrase, like “whatever it takes” to stop the panic.

·      1st ever worldwide coordinated recovery, US, Europe, EM, all doing great at the same time.

·      Government’s pushing de-regulation, lower taxes, and infrastructure spending.

·      Best ever earnings growth of companies reporting results, justifying the sky-high prices.

·      Rising interest rates, are still very accommodative.

·      All bear markets come during recessions not expansions like now.

·      It’s a healthy market, rotating from sector to sector.

·      People will buy due to “FOMO” (fear of missing out)

·      BTFD, Buy every F++ng dip, why the f++k not, it has worked for the last 8 years.


These are all created to give everyone a sense of calm, and to stay the course.


Here are of the things that smart and reasonable people think why “this time is NOT different” and we should not be at the high levels we are now:

·      Record High valuations using every metric, PE, P2Book, Equity Cap 2 GDP, Price 2 Sales, etc., etc.

·      Rising Interest rates, that don’t seem to worry anyone.

·      Central banker’s reductions of their balances sheets. In 2018 there will be around 1.5 trillion USD reduction just between the USA and Europe.

·      Market cycles are normally 4 or 8 years in length.

·      Record low levels of complacency and record low volatility.

·      Exogenous Risks like, International conflict, trade wars, etc. have no effect in the market.

·      Endogenous Risks like, real inflation, or fake company earnings due to buy backs fueled by huge debt to repurchase stocks and pump up EPS.

·      Record Company Debt

·      Record Government Debt

·      Record Consumer Debt

·      Record low cash balances on both individual and institutional investors.

·      Record margin debt on brokerage accounts.

·      We are in an everything bubble world now.

·      A smaller and smaller number of stocks helping to keep the indices sky high.

·      European JUNK BOND yields are lower than 10-year Treasury yields.

·      EM (Emerging Market) Volatility is lower now than Nasdaq volatility.



All these reasons have made me experience the worst ever trading period of my life, it has been so bad that I even capitulated on Friday and went all to cash. I stopped fighting it. Everyone knows markets can stay irrational longer that I can stay solvent, so I decided to stay solvent, I am staying solvent even after experiencing a significant draw down, but luckily I am still standing and ready to go when “it” happens.


We are all amazed specially at Record Low Volatility, we all see it every day, how every single spike up in vol. is immediately sold into, and it reverts to its new-found comfort level between 9 and 10 on the $VIX. Intraday volatility has been outlawed. Trading algorithms are programed to buy every single F. dip, making every new dip last less and less. We have gone from few days of market weakness, to now when dips only last a few minutes.


There has been a huge shift from active investing to passive investing, risk is now in the hands of people that don’t know how to take risk. Algos and Investors are just buying ETFs with disregard of each of their individual components. The Russell 2000 has 33% of its companies losing money and carries a 75 price to earnings ratio, yes, a 75 P/E.


There is a “lack of personal accountability” from the people causing this bubble. TheCentral Bankers buying assets won’t be held responsible in an individual way when we crash, company board members wont also, even though they voted to enact the greatest stock buy-back initiative in history, Financial Advisors incredibly are forced to keep buying in order to keep their customers’ accounts, and won’t be accountable when we crash, because individually they had nothing to do with the problem when it comes. So, as you can see, these market participants will continue to buy assets because they are not personally liable for the consequences.


Like with drug addicts, market bubbles require more and more dosage every time. If we look at historical normal interest rates levels, every time central bankers try to normalize from a low rate period, the level at which the rates go up after each tightening cycle has given us a lower high and a lower high every time. Soon they won’t even be able to get rates to 2%, as it is happening now. What will happen when the patient overdoses on the drug because its no longer giving him or her the high it used to.


Asset bubbles create also some security and political risks also, the only people benefiting from this asset bubble, are people that own assets. Poor people are becoming poorer as their dream of buying a home (or any asset) is further and further away. The rich get richer and the poor get poorer. Savers and retirees relying on interest income to live have to take asset risk in order to have money to survive. This situation could bring social unrest from the HAVE NOTS against the HAVES.


We all know the story that Cats have 9 lives, this relentless upside market seems to have used many of its 99 allowed lives in order to stay strong.  Here is my list of the 12 “lives” that the DOW may still use to stop a down move.


1.     Senate Passes Tax Reform.

2.     House Passes Tax Reform.

3.     Both houses approve Tax Reform in reconciliation.

4.     POTUS signs Tax bill.

5.     BREXIT successful negotiation between UK and Europe.

6.     Infrastructure Bill passes.

7.     Repatriation Bill passes.

8.     New Fed Chair is appointed.

9.     Health Care reform is passed to increase tax cuts.

10.  Central Bank final jawboning to prep up the markets after a 3% dip.

11.  North Korea accepts to stop producing weapons.

12.  Dovish rate hike in December.


I am not saying we will have a huge market crash now, even though it could happen. The drums beats are playing louder and louder. I am just pointing out that during the end of cycle people should take less risk not more. The final stages of a bull market, just like sex feel really great, until it ends.


If we see a 10% correction and the FED comes in and saves the day, it will probably mean it was just another BTFD opportunity and we should all pile in. I believe that the “final end of this bull” will happen when we see all assets come down together, stocks and bond primarily.


Valuations are so high now that a return to $SPX 1850 where we were in June of last year is a whopping 30% down move. Many people think that they can buy puts or sell futures when the move finally comes. How will passive investors do that?, how will ETF forced selling affect liquidity?, those are some interesting questions will know the answers soon.


Remember cash, is also and investment strategy, now its looked as a bad strategy because it reduces returns, pretty soon it will be the opposite.


Thank You for reading, stay safe and good luck trading to all AMIGOS !

Saturday, October 7, 2017

Da bulls have pushed the S&P:VIX price into uncharted territory this year.

The REAL test for sustained market euphoria is now occurring, as the ratio probes a two decade ascending diagonal (red) line responsible for past market tops.

After 8-9 years of a central bank induced bull market, and pushing +2803% gains from lows, investors are making the fatal decision to get back in, as the final stages are here explained in the ratio.



*  *  *

And for some more color, here are some bonus charts...

On a reward-to-risk basis, investors have not been this 'offside' since 1994...


And remember VIX speculators have never been more short...

And, uncertainty about VIX (VVIX) has never been higher relative to the uber-complacent level of VIX...



And finally, one wonders why, as Small Caps are bid to the moon on the heels of tax-reform-hype, investors are buying protection with both hands and feet...



Is time up?


And all this is happening as the one main driver of global financial markets is dropping the most in a year...

Which does not bode well for stocks...

But then again, it's probably different this time.




Thursday, September 28, 2017


It appears that "subdued volatility" is hurting not only bank trading revenues. Two years after CNBC announced that it would no longer rely on Nielsen ratings to measure its daytime audience (just after we reported its viewership had tumbled the most on record), turning to rival Cogent Reports instead, the latest data reveals that the decline for the financial channel has continued, and in the past quarter CNBC delivered 152,000 total daily viewers, its lowest viewership since 1991 for the 28-year-old network.

At the time when CNBC switched away from Nielsen, it complained that the media tracking company failed to track "out of home" viewing in locations such as airports, gyms, restaurants and offices. Well, with all viewers taken into account, the picture, pardon the pun, deteriorated further, and in the past quarter, CNBC delivered its lowest rated quarter since 1991, and in total viewers, had its lowest rated quarter in 22 years, dating back to 1995

And while the reason for CNBC's ongoing decline is unclear, an unexpected winner has emerged in Fox Business News, which continued its winning streak against CNBC by drawing more viewers for the fourth consecutive quarter, and in the last quarter average 187,000 total viewers across the business day (9:30am-5pm), up 26%, while the same category at CNBC saw a 14% decline to 152,000 total viewers. For the month of September, FBN averaged 195,000 total Business Day viewers, 23% higher than CNBC, which had 158,000 total viewers, which was its second lowest rated month ever.


It may come as a surprise to some, but "Lou Dobbs Tonight" continues to be the top-rated program on business television in both total viewers and in the 25–54-year-old demographic. Furthermore  Dobbs, a longtime CNN anchor before jumping to Fox Business in 2011, has led the way in total viewers on business TV for 57 straight weeks.

With markets hitting new record ignoring natural disasters like Hurricanes Harvey and Irma, and rising tensions with North Korea, FBN closed out the month of September with its 11th monthly win over CNBC. Curiously, CNBC remains the only business channel showing yearly declines, while all other networks have double-digit gains across the board for the year, notably down 14% in Business Day viewers over their performance last year, with 177,000 total viewers.