AS WE START A NEW DAY ON WALL STREET …. MAY THE INVESTMENT GOD’S BE WITH YOU ………          NEWS FLASH … ……………..   NEWS OF INTEREST:    Gross domestic product (GDP) has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted from 51.5% in 1970 to its current 42.5%, and is in a 47-year downtrend ……….  In an interesting twist, the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price. (U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.) Once the Treasury revalues the gold, the Treasury can issue new “gold certificates” to the Fed and demand newly printed money in the Treasury’s account under the Gold Reserve Act of 1934.   Since this money comes from gold revaluation, it does not increase the national debt and no debt ceiling legislation is required……   According to Coin Schedule,  Initial Coin Offerings (ICO’s) have raised $1.25 billion this year, which has now outpaced all global Angel & Seed stage Internet VC funding………….   Soda consumption in the United States fell to a 31-year low in 2016, according to statistics at Beverage-Digest, and the decline can mainly be attributed to waning demand among health-conscious consumers, what a difference 31 years makes. But in an interesting twist, Coca-Cola’s stock price is sitting at an all time record!  …….  Personal savings rates are falling sharply… According to newly revised government data, Bloomberg reports that American households scaled back their pace of savings to the lowest level in nine years at the end of 2016 as the growth of their wages and salaries slowed and Obama care health related expenses climbed dramatically ……..Credit Suisse is out with a report saying “one of the major features of the U.S. equity market since the low in 2009 is that the U.S. corporate sector has bought 18% of the overall market cap, while institutions have sold 7% of the market cap! What this means is that there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history  …………..  Has SILVER production peaked! 2016 was the first year in more than a decade that saw SILVER production decrease year over year. Add to that SILVER has also been trading at a physical deficit to demand for the last 4 years and 5 of the last 6 years and is expected to continue at a deficit again in 2017…. Even more interesting – 70% of SILVER is produced as a byproduct of Copper mining and Lead/Zinc mining operations meaning that there is real scarcity once demand picks up…. Howmuch.net recently released a report showing that the top 5 states in the U S contributed to 40% of the total U S GDP. The leading state was California at $2.11 trillion or 13% of total U S GDP, second was Texas at $1.46 trillion or 9.5% of GDP and third was New York at $1.28 trillion or 8.4%. Ranked number 4 and 5 were Florida at $769 billion or 4.8% and Illinois at $680 billion or 6.3% …….         NEWS OF INTEREST: The U.S. marriage rate has dropped from 8.2 per 1,000 in year 2000 – to its lowest rate ever at 6.8 per 1,000 based on most resent statistics ……..      NEWS OF INTEREST: The Buffett Indicator which measures corporate equities as a percent of GDP shows that the stock markets are now at their second highest valuation point in history – 127.17% of GDP.  The record stands at 153.62% of  GDP,  and was reached at the top of the market back in 2000.   Stocks are now over 2 standard deviations above the mean of approximately 74% of GDP ……….       Census         News:    The U.S. Census Bureau Homeownership Data.  It Confirmed That The Homeownership Rate Continued To Fall To A New Multi Year Low, Coming In At 63.5%, Which Is Just Off The Lowest Reading Since The First Quarter Of 1967.   The All Time Record Home-ownership Low Stands Just Below That At 62.9%, And Was reached 50 Years Ago In 1965 At 62.95%   ……….               NEWS OF INTEREST:    Meet BRAEBURN CAPITAL, The Worlds Largest “Hedge Fund”, Managing $203 Billion …….. Braeburn Capital is the worlds largest hedge fund, and is more than $30 billion larger then what was previously thought to be the largest hedge fund in the world, that being Ray Dallio’s Bridgewater. But the question of the day is – has anybody ever heard of Braeburn Capital? Hint …… Braeburn’s headquartered in Reno Nevada, and it’s mother company is a Cupertino-based company that got its start in a garage many years ago. Still wondering, well here’s a second hint….The company is named after a fruit of which the old saying goes, one _ _ _ _ _ a day is said to keep the doctor away! Got it …. Yes, If you guessed Apple you’re right. Apple is the owner of Braeburn Capital of Reno Nevada and Braeburn’s job is to manage all of Apples cash. And as you can tell by now, Apple has a big stash of cash to invest!                     NEWS OF INTEREST: A recently Released USA TODAY/ PEW RESEARCH Poll Shows That 75% Of Americans See Politicians As Corrupt; 2-to-1 Now Distrust The Police ……….       New Flash ……. Bloomberg:  The CEOs of 350 Standard & Poor’s 500 companies made 331 times more than their employees in 2012, up from a ratio of 46-to-1 in 1983 …. Technology News Flash ….. Did You Know That BlackBerry Has Recently Released The Worlds Most Private Super Secure Tablet, Using IBM Confidential Data Software and in Collaboration with Samsung …. Question: Is The BlackBerry SecuTablet Uncrackable? The German Government Thinks So, And Have Already Placed Their Order!           News Of Interest …. Former SEC Director John Ramsay Admits: The Markets Are Rigged, SEC Director of Trading & Markets, John Ramsay tells Bloomberg he ”had red tape over his mouth,” but now he is ”uncorked.” He says the current markets of today are built to favor insiders and that the system is broken! Ramsay goes on to say, “The current market ecosystem is not sustainable, and significant changes are coming one way or another,” ………. .DATELINE 2015:        The Census Bureau Announced That Home-Ownership Continues On A Downward Slide And Is Now Back To 1994 Ownership Levels Of 64%. Accordingly, 2014 Was The Largest Decline In Home-Ownership Rates Ever!            DATELINE NEWS …… Bond Guru JEFF GUNDLACH of DOUBLE LINE CAPITAL said today that he thinks ALL of the job creation since 2007 has been oil fracking related. As proof, he says that if you extract the data from Texas and North Dakota, you will see no growth in what remains. GUNDLACH thinks this may present a real problem for the Fed and the economy!       DATELINE NEWS: DEBT …… Total Credit Market Debt has grow at an exponential clip of 8% per annum over the last 6 decades. Chris Martinson says we are now in the servicing of our debt ”business” which enriches no one. Even worse, nobody knows how to fix it!         DATELINE NEWS OF INTEREST…… Charity Group Oxfam Research said in a report published recently, that the share of world wealth owned by the top 1% has increased from 44% in 2009 to 48% in 2014 and is expected to reach 50% next year, while the least well-off 80% currently own just 5.5% of world wealth! The scale of global inequity is simply staggering! It is the widest wealth gap ever seen in world history.       DATELINE NEWS: California is set to become the 7th largest economy in the world by surpassing Russia, Italy and very soon Brazil. Interestingly Brazil’s population is five times larger then California’s! California leads the United States in agriculture, technology and manufacturing revenue and has more S&P 500 companies headquartered there than any other state! But there is room for improvement as California has the highest poverty rate in the nation at close to 25%.         DATELINE 2015….. Records are made to be broken, but not this one … The S&P 500 did not drop more than two consecutive days during the entire year of 2014, this is a new all-time record, and one that will probably never again be broken ……

Gold vs Bitcoin

Gold vs Bitcoin

Gold and Bitcoin are going in the opposite direction….but… Goldman says “The market cap of bitcoin is c.$275 billion versus gold at $8.3 trillion. Even all of the cryptocurrencies combined have a market cap less than $500 billion. While the lack of liquidity and increased volatility may keep bitcoin interesting, it is unlikely to convince investors looking for the kind of diversification and hedging benefits which gold has proven to possess over its long history.”

There is still room to go but almost everyone is in the pool and we’re less than 6 percentage points away from the bubble highs of 2000.

Systemic Risk In A Nut Shell

Systemic Risk In A Nut Shell

Looking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), leads us to the eminent role played by banks in both.  It then comes as little surprise that the banking sector captures all the attention. However, what remains to be looked into, and perhaps more worrying in today’s environment, is the role of prolonged periods of uptrend and low-vol on the asset management industry. This is where the risk builds…as everybody gets overly comfortable and ultimately concentrates in the same investments.

In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks, published a consultation paper asking whether fund managers might need to be designated as “global systemically important financial institution” or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.

The reason for asking the question is evident: (i) sheer size, as the AM industry ballooned in the last few years, to now represent over 15trn for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in 1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds ‘breaking the buck’ in 2008 amongst others.

But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above and the resulting concentration of bets in one single global pot, life-dependent on infinite momentum/trend and ever-falling volatility. Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever, they morph market risks in systemic risks.

Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy is not the art of “whether or not it will happen” but of “what happens if”, it is hard not to see this as a blind spot for policymakers nowadays.

Current ETF Fund Inflows and Outflows

Current ETF Fund Inflows and Outflows

Generally speaking, large positive net flows lead to higher prices. But the presence of these flows is only possible due to the way ETFs are constructed. As explained here:

ETF shares are created when an “authorized participant” deposits a daily “creation basket” (or cash) with the ETF.

ETF shares may be redeemed through the reverse of the creation process. That is, an authorized participant presents the specified number of ETF shares to the ETF in exchange for a “redemption basket” of securities, cash, or both, which typically mirrors the creation basket.

This creation and redemption creates traceable flows, but this process is not repeated in other instruments such as Bitcoin. There are some Bitcoin ETFs planned, but even when we have flow data for them, the flow data does not always correlate to price.