23 Companies With The Most Buyback ‘Success’…

By Heisenberg

And 23 That Will Be The Most ‘Successful’ Going Forward

Ahhhh, buybacks. The equity-linked-compensation-inflating music to soothe a savage market beast.

Buybacks have of course been at the top of investors’ minds in 2018, as the windfall from the Trump tax cuts is generally expected to be plowed into shareholder-friendly initiatives (as opposed to, say, wage increases) thus putting between $600 billion and $840 billion (depending on whose estimates you’re inclined to believe) worth of plunge protection under the market at a time when geopolitical jitters and other concerns have conspired to weigh on sentiment.


We (and everyone else) have covered this exhaustively. Earlier this month, we highlighted a Bloomberg interview with SocGen’s Andrew Lapthorne, who regular readers know is no fan of companies borrowing money to repurchase their own inflated shares, an exercise he has variously characterized as “clearly nonsense”. Here’s the money quote from a note out last year:

Continue reading 23 Companies With The Most Buyback ‘Success’…

FBI Sucker Punches Russian Hackers, Steals Their Lunch Money, And Follows Them Home

By Dominic Gwinn

Yesterday the DOJ announced that the FBI had taken control of a major server in a Kremlin-linked Russian botnet that has infected 500,000 home and office routers in 54 countries. Computer nerds and authorities believe this to be one of the missing pieces in the 2016 DNC hacking puzzle, and are urging people to reset both their home and office routers.

TLDR: G-Men sucker-punched Putin’s computer geeks, stole their lunch money, and followed them home.

Known as “VPNFilter,” the malware infected routers from Linksys, MikroTik, NETGEAR, and TP-Link. (Yep, one of those is your router!) Once installed, the malware could quietly download add-ons that allow attackers to spy on incoming and outgoing Internet traffic, steal website credentials, and brick (AKA: kill) any infected hardware.

via Cisco’s Talos group

Continue reading FBI Sucker Punches Russian Hackers, Steals Their Lunch Money, And Follows Them Home

A Fresh Look at Lumber and Housing Stocks

By Tom McClellan

Lumber leads housing stocks
May 24, 2018

For a few years now, I have been employing lumber prices as a leading indicator for what the homebuilding sector of the stock market would do, and it has worked pretty well.  But lately the correlation is broken, with housing stock prices falling even as lumber said they were supposed to continue trending higher.  So it’s time to reevaluate the hypothesis about lumber giving a leading indication.

In the past, I have found that a lag time of just over a year worked to show how the HGX’s movements tended to match the earlier ones in lumber.  That is the correlation which has broken down recently.  So I decided to see if perhaps the lag time had changed, or perhaps something else is going on.

Playing around with different lag times, I came up with this week’s chart shown above.  It features a lag time of only 55 trading days, which is about 2-1/2 months.  For most of the period shown in this chart, this relationship seems to work, although the alignments of the highs and lows in each plot are not perfect.  Sometimes it seems like a longer lag time would work better, sometimes a shorter one.  55 trading days seems to get the best overall fit.

That is, up until February 2018, when the relationship breaks down.  That was the point for the HGX plot that is equivalent to when lumber futures prices went up above $450, and that seems to be what “broke” the correlation.

Continue reading A Fresh Look at Lumber and Housing Stocks

COT Black: Diverging Like ’13?

By Jeffrey Snider

During the week of February 21, 2017, Money Managers (MGR) in the WTI futures market went all the way for higher oil prices. The CFTC Commitment of Traders (COT) report showed a then-record 405k net to the long side. For whatever reason(s), oil prices didn’t necessarily follow at least not in the same nearly direct manner as they had in the past. The intensity of MGR’s net long position alone had up until the “rising dollar” determined the domestic benchmark oil price.

A week after, the final one in February last year, MGR’s started to back off. Oil prices did, too, though to a lesser degree like on the way up. After just four weeks, the long position had been pared back by almost half. WTI that had climbed to a rebound high of $54.48 on February 23, 2017, declined back to $47 in late March.

The process has repeated in 2018 with a few notable exceptions. MGR positions hit a new record long the week of January 30 – the same week that global liquidations swept across stock markets. Since, managers have cooled in their enthusiasm, though not quite in the same repositioning as 2017. The net long as of the latest estimates (for the week of May 15) has only fallen back below 400k.

Continue reading COT Black: Diverging Like ’13?

In Dodd We Trust

By Tim Knight

What is it with Texas politicians and the banking industry?

I thought Texans were supposed to be all about cattle and oil. Yet over the decades it seems like they are first in line, shoving themselves even in front of New Yorkers, to provide whatever aid, assistance, and comfort that big banks require. It’s bizarre.

The most famous example, of course, being the Gramm–Leach–Bliley Act in 1999, championed by this genius:

When public “servants” are whoring themselves out to any particular industry, they couch it in the mask of freedom and progress. This was no exception, as Senator Gramm said at the time:

Continue reading In Dodd We Trust

Do Bond Investors Have to Take Duration Risk?

By Charlie Bilello

Duration giveth, and duration taketh away.

For much of the past 35 years, while interest rates were in a secular decline, duration (a measure of a bond’s sensitivity to changes in interest rates) was the best friend of bond investors. In 2018, it has become their worst enemy.

At one end of the spectrum, you have short-term Treasury bills (BIL) with a duration of 0.1 and a total return of 0.6% year-to-date. At the other end of the spectrum, you have long-term zero-coupon bonds (ZROZ) with a duration of 27.3 and a total return of -10.0%.

The correlation between duration and year-to-date returns in the table of popular bond ETFs below? -0.86.

Data Source: YCharts

While 10-Year Treasury yields have risen from 2.4% to 3.06% in 2018, the largest bond ETF (AGG) is down 2.81% and the largest bond mutual fund (VBTLX) is down 2.84%. The duration on both instruments is roughly 6 years.

Continue reading Do Bond Investors Have to Take Duration Risk?

No Nuance in the Bond Market

By Kevin Muir

It’s now cool to be bearish bonds. A couple of years ago you were labeled a pariah for even suggesting inflation might pick up. The few of us that argued locking in 10-year money at 1.4% wasn’t a good risk reward supposedly didn’t understand the overwhelming three Ds – debt, demographics and deflation. Yeah, ok…

However, given the recent bond bear market, nowadays the tide has turned to the point where anyone suggesting we might see a bounce in bonds is equally chastised for not fully grasping the atrocious fundamentals surrounding the US debt market.

Here is a great chart I lifted from a Bloomberg article titled “Corporate Bonds Sink Fast in One of Worst Tumbles Since 2000 by Cecile Gutscher that shows the rolling 100-day return of the JPMorgan bond index.

Funny how prices make opinions and not the other way round.

Continue reading No Nuance in the Bond Market

NFTRH 500, Free for the Taking


An offer you can’t refuse (something for nothing). This will be the last freebie probably forever. No info collected. Just you getting a free report and considering it (and associated in-week updates) for your needs going forward.

I just finished revamping the NFTRH Premium landing page and updated the sample report to this week’s NFTRH 500 milestone edition. You can go get it if you’d like. It will show you why I (and many NFTRH subscribers) think it’s only a part of the best all around service out there. It’s more than worth its price as a stand-alone weekly, let alone the included real time updates and trade highlights at the site.

Click the NFTRH Premium link above, download and read this easy to digest report and think about joining the service at some point. This is going to sound a little stuck up, but when I see what is available out there at higher prices I just shake my head.

Not everything you read in NFTRH 500 will prove to have been correct with the test of time, but you will know it was honestly produced and upon finishing it you will feel well armed about today’s financial markets. We don’t predict markets, we stay in tune with them… at all times.

“Congrats on the milestone [NFTRH 500] Gary. Not the volume that is impressive but the consistent quality.”  –Frederick L  5.21.18

“Gary, Congratulations on reaching your 500th edition. Have only been with you for about half that journey, but appreciate the quality and honesty of the content/analysis. Gradual and progressive improvement is the assured quality approach. Please keep up the good work.”  –Andrew C  5.21.18

“On the occasion of your 2.5 millionth word, I’d like to compliment you on the quality and style of your newsletter. It is extraordinarily well-written and readable, qualities that seem to be in short-supply among newsletter writers these days. As the former executive editor of my law school’s law review, and later an occasional editor of the [omitted by request, but very notable], I value good writing, and thank you heartily for yours.”  –James S  5.20.18

You can review NFTRH’s Terms & Conditions here.

Central Banking Tragedy: The Case of Japan

By Michael Ashton

Today I want to talk about one of the real tragedies of monetary policy and inflation: Japan.

The tragedy is that the mystery of the deflation in Japan is no mystery at all. The cure also was no mystery. So the tragedy is that these were both treated as mysteries by the central bank, which stumbled on the right response and then stumbled right back out of it again.

The chart below shows the money supply and core inflation history of Japan going back into the 1990s. Core inflation is in red (I’ve interpolated through the sales-tax-induced spike) and M2 growth is in blue. The cause of the disinflation is pretty plain: between 1998 and 2013, year/year money growth in Japan never exceeded 4%. From 1999 to 2013, Japanese M2 rose 38% in aggregate; in the US it rose 138% over the same period. It is very hard to get inflation, especially in an environment of declining interest rates, if the money supply is increasing at or somewhat less than the rate of potential GDP growth.

However, in the middle of 2013 Japanese Prime Minister Shinzo Abe persuaded Bank of Japan governor Haruhiko Kuroda to promise to double the money supply in two years, by pursuing massive QE. Although that turned out to be an exaggeration, M2 growth did peek out from behind 4%, and inflation started to perk up as well. It wasn’t a lot, but inflation in 2013 reached new 14-year highs and the economy was officially out of deflation. While QE made very little sense, at least the QE2 and later versions, in the US where inflation was positive and money growth was adequate, it made a ton of sense in Japan. In fact, if Japan had been the only country pursuing QE, I can make the argument that the yen would have likely depreciated substantially and caused inflation in that country.

Continue reading Central Banking Tragedy: The Case of Japan

Pulling the Punchbowl When the Espresso Is Hot and the Economy Is Cooling

By Heisenberg

You can count me skeptical when it comes to whether € credit is going to be able to accept the wind down of CSPP with relative alacrity.

I know some of my more sophisticated readers would tell me I’m preaching to the choir when I say that, but there’s still a sizable contingent out there that seems to think it’s somehow going to be possible to remove that ongoing bullish technical from a market that, broadly speaking, is priced to perfection without everyone suddenly deciding to take a closer look at whether they’re being compensated adequately for bearing credit risk.

I’ve obviously talked about this a ton in these pages, but I was thinking about it over the weekend in the context of Italy and I think one thing that’s worth considering is whether the potential exists for a kind of “double whammy” scenario where the relative weighting of Italian credits at the index level ends up causing problems at a time when spreads are set to lose the technical tailwind from CSPP.

I’m just going to excerpt the post in which I laid this out because I don’t want anyone to miss it in case it turns out to be some semblance of important later on down the road:

Continue reading Pulling the Punchbowl When the Espresso Is Hot and the Economy Is Cooling

Chart Of The Week: EM Sovereign CDS

By Callum Thomas

This week it’s Emerging Markets sovereign CDS (Credit Default Swaps).  The reason why I think this chart is really worth paying attention to is that after reaching a record low in mid-January, there has been a swift reassessment of risk in Emerging Markets.  Typically when EM sovereign CDS turns up from a low point like this, it will tend to keep going, and the logical conclusion of that could even be some sort of emerging markets financial crisis.

The chart appeared in a recent report on the tactical risk outlook for emerging markets, it tracks the median 5-year sovereign credit default swap premium across 14 different emerging market countries.  Basically this indicator shows the perceived risk of default, or market pricing of sovereign credit risk, across EM.  The fact that it has turned up through the 200-day moving average is also a trigger point to put EM on watch.

Continue reading Chart Of The Week: EM Sovereign CDS