Tag Archives: volatility

  • Blog

    The Year Of The Red Monkey: Volatility Reigns Supreme

    To preserve capital, you need to outsmart the monkey
    by charleshughsmith

    Friday, March 11, 2016, 7:16 PM


    In the lunar calendar that started February 8, this is the Year of the Red Monkey. I found this description of the Red Monkey quite apt:

    "According to Chinese Five Elements Horoscopes, Monkey contains Metal and Water. Metal is connected to gold. Water is connected to wisdom and danger. Therefore, we will deal with more financial events in the year of the Monkey. Monkey is a smart, naughty, wily and vigilant animal. If you want to have good return for your money investment, then you need to outsmart the Monkey. Metal is also connected to the Wind. That implies the status of events will be changing very quickly. Think twice before you leap when making changes for your finance, career, business relationship and people relationship."


    In other words, the financial world will be volatile. And few will have the agility and wile to outsmart the market-monkey.

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  • Insider

    Outsmarting The Monkey

    How to preserve capital through the coming volatility
    by charleshughsmith

    Friday, March 11, 2016, 7:16 PM


    Executive Summary

    • Beware of increasing financial Repression
    • Watch where the global flows of capital are heading
    • Expect further strengthening of the US dollar
    • Realize that cash is not a bad position in an extremely volatile market. Same with precious metals.
    • Why the best opportunities for capital preservation will be local

    If you have not yet read The Year of the Red Monkey: Volatility Reigns Supreme, available free to all readers, please click here to read it first.

    In Part 1, we looked at the ways fiscal and monetary authorities have attempted to stave off business-cycle washouts, i.e. recessions, and how the fixes have created a global Great Stagnation that is characterized by uncertainty  and volatility.

    Here in Part 2, we investigate whether the global economy slide into recession, or will new policies such as capital controls save the day? And more importantly, we look to the asset classes where investors can seek safety from the red monkey's antics.

    Capital Controls

    The latest fixes being rolled out by central banks and governments are capital controls—essentially, policies designed to force people to spend their saved-up capital in the home country or invest it in whatever the central bank/state deems supportive of the hoped-for exit from the Great Stagnation.

    Negative interest rates are a form of capital control: by charging interest on cash held in banks, governments hope to force people to spend their cash rather than “hoard” it.

    Since cash currency is a safe haven from this expropriation, governments are actively seeking to eliminate or limit cash.

    When private banks are revealed as insolvent, governments can recapitalize the banks by expropriating depositors’ cash held in the bank—“bail-ins.”

    Another expropriation idea making the rounds among “serious policymakers” is forcing everyone with retirement savings to put a percentage of this cash in government bonds—in effect, funding state deficit spending by force.

    All of these controls are forms of financial repression—limiting the freedom of people and their capital in order to prop up the privileges of a tiny financial and political elite at the top of the status quo.

    To the degree that capital controls inevitably spark blowback and unintended consequences, they add to volatility by…

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  • Insider
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    Buckle Up, The Ride Is Going To Get Wilder

    High probability of greater market turmoil ahead
    by Chris Martenson

    Tuesday, September 1, 2015, 9:01 PM


    The recent stock market and financial turbulence is going to get worse — possibly a lot worse. This will be true even in the 'core' countries (US, Europe, Japan), while peripheral countries are suffering unusual levels of turmoil.

    It’s nothing personal. This is simply how things were always destined to end.

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  • Insider

    What Happens Next Will Be Determined By One Thing: Capital Flows

    Follow the money
    by charleshughsmith

    Friday, August 28, 2015, 6:28 PM


    Executive Summary

    • Why global capital flows will determine everything
    • What impact euphoria and fear wil have on liquidation and valuation
    • The importance of debt denominated in other currencies
    • What's likely as capital shifts from Risk-On to Risk-Off assets

    If you have not yet read Part 1: Here's Why The Markets Have Suddenly Become So Turbulent available free to all readers, please click here to read it first.

    In Part 1, we listed five interlocking trends that will severely limit the scale and effectiveness of official responses to the next recession. In effect, the world will not be able to “borrow and spend” its way out of recession.

    In Part 2, we’ll examine the single most important dynamic in any asset value: capital flows.

    The Tidal Forces of Capital

    Let’s start with the most basic building blocks of supply and demand.

    Capital flowing into an assets class (buying) in excess of capital flowing out (selling) increases demand and pushes prices up.

    If supply increases even faster than demand, prices may decline despite rising demand.

    If capital flows out (selling) in excess of inflows (buying), prices will decline.

    Prices are set on the margin.  If 5 homes out of a neighborhood of 100 homes sell for 25% below the previous price level, the valuation of the other 95 homes also drops 25%.

    Risk on = seeking asset appreciation and taking on more risk in exchange for higher yields.

    Risk off = seeking capital preservation and accepting lower yields in exchange for reduced risk.

    Assets have two ways to appreciate/depreciate: the nominal price, and the underlying currency the asset is priced in.

    If a Mongolian bond yields 7%, the owner earned a nominal 7% on the capital. But if the currency the bond is denominated in dropped 20%, the owner suffered a 13% loss when the investment is priced in other currencies.

    The consequences of capital flows can be counter-intuitive.

    For example, if the Federal Reserve creates $1 trillion out of thin air, our initial expectation would be…

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  • Insider
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    Off The Cuff: A Financial Adviser’s View Of The Recent Market Turbulence

    New Harbor weighs in
    by Adam Taggart

    Friday, August 28, 2015, 6:26 AM


    In this week's Off The Cuff podcast, Chris and New Harbor Financial discuss the recent gyrations of the market.

    • Are we witnessing a secular trend reversal?
    • What's likely to happen next?
    • How can prudent investors position themselves now?
    • Where can shelter best be taken?
    • Is it time for risk-seekers to place bets?

    All these questions and more are addressed in this podcast. Needless to say, this is one of the most challenging times to protect capital in living memory. 

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  • Insider

    The Warning Indicators To Watch For Trouble In The Bond Market

    The signals that will tell when the rout is on
    by Chris Martenson

    Friday, June 19, 2015, 4:50 PM


    Executive Summary

    • Liquidity is drying up
    • Volatility is returning
    • HFT has dramatically increased crash risk
    • The key takeaways for investors

    If you have not yet read Part 1: Credit Market Warning available free to all readers, please click here to read it first.

    Financial assets are worth what someone will pay for them.  A corollary of this is that you’d much rather be trying to buy or sell in markets that are deep and liquid.  Thin markets provide bad prices at best, and no bids or offers at worst.

    Low trading volumes are worrisome because they are usually accompanied by higher volatility. And those two can easily become dance partners that whirl each other ever faster. 

    There are numerous warning signs coming from all asset markets, but especially from the bond markets.

    Low Liquidity

    The issue of low liquidity really jumped out at me roughly a year ago with the news that the utterly broken Japanese government bond (JGB) market had gone an entire 36 hours without a single trade(!!).

    Japan bond market liquidity dries up as BoJ holding crosses ¥200tn

    Arp 15, 2015

    The Bank of Japan’s massive purchases of government debt hit a milestone this week, sucking liquidity out of the market to such an extent that the benchmark 10-year bond went untraded for more than a day, the first time in 13 years.

    The current 10-year cash bonds saw its first trade of the week yesterday afternoon, having gone untraded for more than a day and a half.

    Trade volume in the benchmark cash bonds so far this month dropped to less than one trillion yen, down about 70% from the same period last year.


    Thus comes the law of unintended consequences.  The main reason for buying JGB’s by the Bank of Japan (BoJ) was to inject a lot of liquidity into ‘the system’ in hopes that the Japanese economy would take off.

    While that may have happened to some (slight) extent what also happened was that …

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  • Blog
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    4 Factors Signaling Volatility Will Return With A Vengeance

    Buckle up. It's going to get bumpy.
    by Nomi Prins

    Wednesday, May 20, 2015, 1:43 PM


    No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were – ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street.

    The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar – so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility.

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  • Insider

    Navigating Safely In The Coming Era Of Volatility

    To avoid them, you have to first understand all the risks
    by Nomi Prins

    Wednesday, May 20, 2015, 1:42 PM


    Executive Summary

    • Central planners are showing increasing signs of insecurity in their ability to maintain control
    • Credit default risk is on the rise
    • So are geo-political and economic risks
    • Manipulation continues to muddy price discovery
    • Crime & fraud have rotted the core our financial system
    • How to tread carefully in these markets

    If you have not yet read Part 1: 4 Factors Signaling Volatility Will Return With A Vengeance available free to all readers, please click here to read it first.

    When stock markets keep racking up records, it’s hard to imagine steep downturns.  Yet that’s precisely when caution is required, particularly when volatility is rising and risk factors are not subsiding.  What I’m about to say is not to scare, but to help prepare, you.

    Recall that two years after achieving a then historic high on October 9, 2007 of 14,164.53, the Dow plunged by more than half to a March 2009 12-year low of 6,547. The value of US stocks dropped from $22 trillion to $9 trillion. Why? Because of a confluence of risk-laden events pelting people and markets. From the housing market drop, to the failure of Bear Stearns and Lehman Brothers, to the unraveling of CDOs, to the obscene amounts of leverage and fraud everywhere, volatility escalated and liquidity and confidence dove. Banks entered self-defense mode, turning to governments and central banks for lifelines.

    The fix of subsidized private banking was in. It still is – seven years later. There’s nothing comforting about that. It took another five years, until March 5, 2013 for the Dow to top 2007 levels. If you’re an individual, say with a pension or college tuition to pay, you’ve got to have an iron stomach to deal with that kind of chaos. You’re going to want to protect your money from the possibility of a next time. Now is a good time to start.

    Today’s markets have not bubbled on organic or sustainable growth, they have been propped up by unprecedented, globally coordinated central bank policies that flooded the financial system with cheap money and like a giant financial vacuum cleaner hoovered up debt securities from big banks through massive (QE) easing programs.

    Market volatility, though low compared to 2008 days, has nonetheless been inching up. It will continue increasing due to…

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  • Insider
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    Off the Cuff: Pinball Markets

    Expect more volatility & price riccochets
    by Adam Taggart

    Thursday, March 26, 2015, 6:41 PM


    In this week's Off the Cuff podcast, Chris and Brian Pretti discuss:

    • Pinball Markets
      • Volatility & unpredictability is on the rise
    • Lack Of Liquidity
      • Becoming a top market concern
    • Capital Flows
      • May keep US markets better than the rest, but not forever
    • Watch The Bond Markets
      • When they fail, it will be ugly
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