Blog: All posts by Matt Weber

Hal Snarr: Will the cocktails the policy mixologists keep serving result in the nastiest economic hangover ever?


When the economy begins to sink into recession, politicians, economists, policy wonks, and bureaucrats at the Federal Reserve (the Fed) start serving up cocktails of fiscal and monetary stimulus. Although history has shown that the cocktails that these mixologists concoct ultimately gives us a nasty economic hangover, it seems that they have not learned this lesson.

The graph below shows how inflationary monetary policy affects the Case-Shiller Home Price Index. In this diagram, quarterly home prices are plotted versus the M2 money stock from just over two years earlier. Since both variables are in log-scale, the red line in this graph implies that after the Fed raises the growth rate of M2 by 1%, the home prices rise by around 0.367%, nine quarters later. Since the average quarter-to-quarter change in the M2 growth rate is about 16% (this was the case between 1995 and 2004), the line it the graph implies that raising M2’s growth rate by 16% per quarter causes the growth in home prices to increase by 6% per quarter.

The compounding effect of a 16%-quarter-to-quarter rise in M2 has a substantial effect on home prices. For example, suppose the M2 growth rate is 2% (M2 growth rate was 1.7% in the third quarter of 1995) at a time when the Fed decides to set interest rates low for an extended period of time. After 12 consecutive quarters of compounding, the quarter-to-quarter M2 growth rate would accelerate up to 10% (the M2 growth rate was 10.2% in the second quarter of 1998). Further, suppose that the quarter-to-quarter home price growth rate is 12% nine quarters prior to the Fed commencing its inflation (the average growth rate in the home price index was 12% from 1997 to 2007). With home prices accelerating at 6% per quarter, the quarterly growth rate in home prices would reach 119% after 12 consecutive quarters of M2 growing at 16% per quarter.

The acceleration in an asset’s price is referred to as an asset bubble. These are popped after the Fed pokes bubbles with restrictive monetary policy. Poking asset bubbles usually pushes the economy into a recession. This seems obvious in the graph below. It shows that prior to every recession since the early 1980s, a rapid rise in the federal funds rate has resulted in a recession a few months later.

The graphs below illustrate how restrictive monetary policy slows economic growth. In these diagrams, quarterly economic growth rates are plotted versus the quarterly federal funds rate from the previous year. Since both variables are in log-scale, the red lines in these graphs imply that after the Fed raises the federal funds rate by 1%, the economic growth rate declines by 0.4% (0.37% for the earlier period and 0.46% for the latter period). Since the Fed’s average quarter-to-quarter adjustment of the federal funds is 23% (this was the case between 2009 and 2017), the two charts imply economic growth declines by 10% per quarter after the federal funds rate is raised by 23% from the previous quarter.

The compounding effect of a 23%-quarter-to-quarter increase in the federal funds rate is substantial. For example, suppose the Fed wants to normalize rates after it had set its target at 1% for an extended period to push economic growth back up to 3%. Further, suppose that 4.25% is considered “normal” for the federal funds rate. To raise the fed funds rate from 1% to 4.25%, the Fed has to boost its target by 23% a quarter for eight consecutive quarters. Doing this dampens economic growth by around 10% per quarter. After the dust settles and negative compounding kicks in over eight consecutive quarters, the economic growth slips to 1.43%, two years after it had recovered to 3%.

The chart below plots the average annual federal funds rate over time. It suggests that the monetary policy mixologists at the Fed have failed to learn the lesson that its policies cause the business cycle. The first part of this lesson, call it Lesson 1, is: Economic expansions, the white areas in the graph, begin after the Fed pushes the price of credit too low for too long. The second lesson, Lesson 2, is: Economic recessions, the shaded vertical bars in the graph, begin after the Fed pushes the price of credit well above the natural rate of interest.

Is it comforting that the tail end of the above graph, from 2009 and on, appears to show that the Fed has learned Lesson 2? The graph shows that the Fed has slowly pushed the federal funds rate from near zero to around 1 percent in the nine years following the 2008 financial crisis. Keeping the price of credit near zero for such a long time seems to show that the Fed has finally learned that normalizing interest rates from a very low rate triggers recession.

On the other hand, the right tail of this graph also suggests that the Fed has not learned Lesson 1. The last time it kept interest rates at around 1% for a few years resulted in the longest recession since the Fed was given the keys to the economy. Since 2008, the Fed has kept interest rates at an even lower level for nine years and counting. If Austrian Business Cycle Theory is correct, then the historic monetary stimulus party of the last nine years may trigger the most painful economic hangover ever.

 

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Frank Fahey: Market News for the Prepared Mind: 9.11-9.18.2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Millions saw the apple fall, but Newton was the one who asked why.” – Bernard Baruch

“Panic causes tunnel vision.” – Simon Sinek

“A stock operator has to fight a lot of expensive enemies within himself.” – Jesse Livermore

“Panic is a natural human response to danger, but it’s one that severely compounds the risk.” – David Ignatius 

 

The major indexes continue remain within easy striking distance of all-time highs. There is almost palpable disbelief among the financial cognoscenti that the indexes have not had a correction. Once again I have been reminded about the perils of ignoring a trend. The trend is bullish.

A characteristic of a bull market is the markets celebrate good news while ignoring bad news. Bad news sells. As a result, purveyors of news and opinion focus on the bad news as a means to market their product. The bad news last week was impressive. Natural disasters (Hurricanes Harvey, Irma, and Jose), gas shortages, weakness in the US dollar, and an H-Bomb test by North Korea dominated the news. The Republican Party received the worst news when Nancy Pelosi and Donald Trump cut a deal. The deal removed a potential debt ceiling crisis from the equation. The bad news was not totally ignored. This litany of bad news had only a minor effect on the market.

Here is an overview of the US market behavior last week and for 2017 YTD:

Index 8-Sep Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 21797.79 (189.77) -0.86% 10.30% 12.01% (VXD)
S&P 500 (SPX) 2461.43 (15.12) -0.61% 9.97% 12.12% (VIX)
NASDAQ 100 (NDX) 5913.67 15.77 0.27% 21.59% 16.07% (VXN)
Russell 2000 (RUT) 1399.42 (14.10) -1.00% 3.12% 15.49%(RVX)
S&P 100 (OEX) 1086.98 (8.27) -0.76% 9.64% 10.761%(VXO)
Dow Jones Transportation (TRAN) 4560.87 69.74 1.55% 12.57% NA
Crude Oil (CLV7) 47.56 0.21 0.44% -11.75% 29.49%(OVX)
Gold (GCZ7) 1351.20 21.30 1.60% 17.29% 13.77 (GVZ)
CBOE Volatility Index (VIX) 12.12 1.99 19.64% NA

Data Source: OptionVue8 

Negative news was ignored by the equity markets, but it was not ignored by the VIX and other volatility products. The CBOE Short-term Volatility Index (VXST) showed the greatest reaction to uncertainty by closing at 11.29. up 2.32 or 25.86%. The front month VIX future (VXU7) contango settled at 7.91% vs. Thursday’s contango of 9.75%. Narrowing of the contango percentage shows a greater relative concern for the front month versus the second month.

Here is an overview of last week for the VIX and related products:

Indexes Ticker 8-Sep 1-Sep Change % Change
CBOE Volatility Index VIX 12.12 11.28 0.84 7.45%
VIX September Future (9/20/2017) VXU7 13.275 13.075 0.20 1.53%
VIX October Future (10/18/2017) VXV7 14.325 14.025 0.30 2.14%
VIX November Future (11/15/2017) VXX7 14.875 14.425 0.45 3.12%
CBOE Short-term Volatility Index VXST 11.29 8.97 2.32 25.86%
CBOE 3 Month Volatility Index VXV 14.69 13.99 0.70 5.00%
CBOE Mid-term Volatility Index (6 month) VXMT 16.37 15.42 0.95 6.16%
VIX of VIX VVIX 100.12 93.53 6.59 7.05%
CBOE SKEW Index SKEW 135.39 130.16 5.23 4.02%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 31.83 30.88 0.95 3.08%
iPath S&P 500 VIX Short Term Futures ETN VXX 48.52 47.68 0.84 1.76%
ProShares VIX Short Term Futures ETF VIXY 40.26 39.63 0.63 1.59%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 22.47 21.86 0.61 2.79%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 76.33 77.96 (1.63) -2.09%
Daily Inverse VIX Short Term ETN XIV 79.70 73.89 5.81 7.86%

Data Source: OptionVue8 

The second week of September is light on economic reports. The only numbers of note will be on inflation and industrial production. The impact of the hurricanes may push Fed unwinding further out into the future.the future. The week winds up with consumer sentiment winds up Friday and will tally the psychological effects of both Harvey as well as Hurricane Irma. The wild cards remain North Korea and pull together a tax reform bill.

There are very few earnings announcements this week. The highlights include: United Natural Foods, Cracker Barrel, and Oracle. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“Ideas come and go, stories stay.” – Nassim Nicholas Taleb

“Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.” – John Templeton 

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“Don’t give me timing, give me time.” – Jesse Livermore

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre

 

Monday, September 11:

Listen to Frank Fahey on “Stocks and Jocks” Listen Live

Economic: No major announcements.

International: Japan Tertiary Index – 1:30AM.

Earnings: None meeting scan criteria.

 

Tuesday, September 12:

Economic: NFIB Small Business Optimism Index – 6:00, Redbook – 8:55, JOLTS – 10:00.

International: Great Britain CPI – 4:00 AM.

Earnings: None meeting scan criteria.


Wednesday, September 13:
Economic: MBA Mortgage Applications – 7:00, PPI – FD – 8:30, EIA Petroleum Status Report – 10:30

International Economic: Germany CPI – 3:15 AM, Great Britain Labour Market Report – 4:30 AM, Eurozone Industrial Production – 5:00 AM.

Earnings: None meeting scan criteria.

 

Thursday, September 14:

Economic: Weekly Jobless Claims – 8:30, Consumer Price Index – – 8:30, Bloomberg Consumer Comfort Index – 9:45, Quarterly Services Survey – 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International: Great Britain Retail Sales – 4:30 AM.

Other: Bank of England Announcement & Minutes – 7:00 AM.

Earnings: None meeting scan criteria.

 

Friday, September 15:

QUADRUPLE WITCHING

Economic: Retail Sales – 8:30, Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Business Inventories – 10:00, Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International: Eurozone Merchandise Trade – 5:00 AM.

Earnings: None meeting scan criteria.


Monday, September 18:

Economic: Housing Market Index – 10:00.

International: Eurozone HICP – 5:00 AM.

Earnings: None meeting scan criteria.

 

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Frank Fahey: Market News for the Prepared Mind: 9.4-9.11.2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Dreams come true; without that possibility, nature would not incite us to have them.” – John Updike

“Hurricane season brings a humbling reminder that, despite our technologies, most of nature remains unpredictable.” – Diane Ackerman

“The obvious rarely happens, the unexpected constantly occurs.” – Jesse Livermore

“There is a profound difference between information and meaning.” – Warren Bennis 

 

The end of the month was on Thursday last week. Pundits across financial media were focused on telling investors about the impact of the first losing month in four months. Time and energy were spent on what a losing month for the indexes would portend for the rest of the year. It turns out we were able to witness a monumental waste of time, energy and breath. The only major index with negative monthly performance was the small cap laden Russell 2000.

Here are the August results:

Index 31-Aug 31-Jul Aug Change August % 2017 YTD
Dow Jones Industrials (DJIA) 21948.10 21891.00 57.10 0.26% 11.06%
S&P 500 (SPX) 2471.65 2470.30 1.35 0.05% 10.43%
NASDAQ 100 (NDX) 5988.60 5880.30 108.30 1.84% 23.13%
Russell 2000 (RUT) 1405.28 1425.14 (19.86) -1.39% 3.55%
S&P 100 (OEX) 1093.78 1088.12 5.66 0.52% 10.32%
Dow Jones Transportation (TRAN) 4481.93 4490.36 (8.43) -0.19% 10.63%
Crude Oil (CLV7) 47.10 50.17 (3.07) -6.12% -12.60%
Gold (GCZ7) 1326.70 1275.30 51.40 4.03% 15.16%
CBOE Volatility Index (VIX) 10.59 10.26 0.33 3.22% NA

Data Source: OptionVue8 

The end-of-month and end-of-week market rallies were the result of a consensus that Hurricane Harvey as an impetus to force come to an agreement on the debt ceiling increase. This view put concerns about North Korea and a government shut down in the rear-view mirror. However, North Korea’s detonation of an H-Bomb may have removed some of the investor comfort zone.

Here is an overview of the US market behavior last week and for 2017 YTD:

Index 1-Sep Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 21987.56 173.89 0.80% 11.26% 10.62% (VXD)
S&P 500 (SPX) 2476.55 34.30 1.40% 10.64% 10.13% (VIX)
NASDAQ 100 (NDX) 5897.90 75.37 1.29% 21.27% 15.52% (VXN)
Russell 2000 (RUT) 1413.52 36.07 2.62% 4.15% 15.68% (RVX)
S&P 100 (OEX) 1095.25 15.23 1.41% 10.47% 12.91% (VXO)
Dow Jones Transportation (TRAN) 4491.13 90.92 2.07% 10.85% NA
Crude Oil (CLV7) 47.35 (0.51) -1.07% -12.14% 28.97%(OVX)
Gold (GCZ7) 1329.90 33.40 2.58% 15.44% 12.73 (GVZ)
CBOE Volatility Index (VIX) 10.13 (1.15) -10.20% NA
Data Source: OptionVue8 
I am still in a summer state of mind.  There was nothing particularly noteworthy about the behavior of the VIX and related products.  The S&P 500  went up while the VIX went down.
Here is an overview of last week for the VIX and related products:
Indexes Ticker 1-Sep 25-Aug Change % Change
CBOE Volatility Index VIX 10.13 11.28 (1.15) -10.20%
VIX September Future (9/20/2017) VXU7 12.625 13.075 (0.45) -3.44%
VIX October Future (10/18/2017) VXV7 13.775 14.025 (0.25) -1.78%
VIX November Future (11/15/2017) VXX7 14.250 14.425 (0.18) -1.21%
CBOE Short-term Volatility Index VXST 7.94 8.97 (1.03) -11.48%
CBOE 3 Month Volatility Index VXV 13.59 13.99 (0.40) -2.86%
CBOE Mid-term Volatility Index (6 month) VXMT 15.33 15.42 (0.09) -0.58%
VIX of VIX VVIX 93.60 93.53 0.07 0.07%
CBOE SKEW Index SKEW 130.53 130.16 0.37 0.28%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 28.94 30.88 (1.94) -6.28%
iPath S&P 500 VIX Short Term Futures ETN VXX 46.17 47.68 (1.51) -3.17%
ProShares VIX Short Term Futures ETF VIXY 38.35 39.63 (1.28) -3.23%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 21.65 21.86 (0.21) -0.96%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 80.31 77.96 2.35 3.01%
Daily Inverse VIX Short Term ETN XIV 83.72 73.89 9.83 13.30%

Data Source: OptionVue8

U.S. markets are closed in observance of Labor Day. The shortened trading week is quiet on economic reports. Factory orders, mortgage applications, and wholesale trade highlight the balance of the week. In Europe, the European Central Bank is expected to leave their policy unchanged. Merchandise trade and industrial production dominate the economic reports to be released.

The wild card remains North Korea. North Korea carried out its most powerful nuclear test this weekend. Off-hours trading on Sunday and Monday showed a muted response. S&P 500 futures were down 6.25 or 0.35%. September VIX futures were up 6.13% or 0.775.

This week earnings announcements slow down to a trickle this week. The highlights include: Dave&Buster’s, Hewlett Packard, Casey’s General Stores, Fred’s, G-III Apparel, Korn Ferry, Barnes&Noble, Brady, John Wiley&Sons, VeriFone, and Kroger. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“Ideas come and go, stories stay.” – Nassim Nicholas Taleb

“A paranoid is someone who knows a little of what’s going on. A psychotic is a guy who’s just found out what’s going on.” – William S. Burroughs

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“Don’t give me timing, give me time.” – Jesse Livermore

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre

 

Monday, September 4: 

U.S. Holiday: Labor Day – Markets Closed.

International: Eurozone PPI – 5:00AM.

 

Tuesday, September 5: 

Economic: Factory Orders – 10:00, Gallup US ECI – 2:00.

International: Germany PMI Composite – 3:55 AM, Eurozone PMI Composite – 4:00 AM, Eurozone GDP – 5:00 AM, Eurozone Retail Sales – 5:00 AM.

Other: Minneapolis Federal Reserve Bank President Neel Kashkari to speak at a moderated Q&A at the 1st Tuesday Speaker Series at Carlson School of Management in Minneapolis, with audience Q&A – 2:00PM, Dallas Federal Reserve Bank President Robert Kaplan to participate in a moderated Q&A session in Dallas, with audience and media Q&A – 7:00PM.

Earnings: None meeting scan criteria.

 

Wednesday, September 6: 

Economic: MBA Mortgage Applications – 7:00, International Trade – 8:30, Redbook – 8:66, PMI Services Index – 9:45, ISM Non-Manufacturing Index – 10:00, Beige Book – 2:00.

International Economic: Germany Manufacturers’ Orders – 2:00 AM.

Other: Federal Reserve Governor Jerome Powell will deliver a speech entitled “The Role of Boards at Large Financial Firms,” as the breakfast presentation during the Large-Bank Directors Conference hosted by the Federal Reserve Bank of Chicago, with audience and media Q&A, in Chicago – 9:15AM.

Earnings:

SYMBOL B/A 9/1 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
FRAN BMO $7.66 1,169,780 12.20% $7.50 $8.23
FRED BMO $6.07 1,582,650 8.04% $6.07 $6.45
HDS BMO $33.02 4,249,940 9.08% $31.73 $31.66
JKS BMO $28.52 1,099,190 6.52% $25.34 $26.44
DDC AMC $14.15 1,392,480 1.78% $14.11 $14.07
RH AMC $48.51 2,385,240 15.46% $46.53 $58.71

 

Thursday, September 7: 

Economic: Weekly Jobless Claims – 8:30, Productivity and Costs – 8:30, Bloomberg Consumer Comfort Index – 9:45, Quarterly Services Survey – 10:00, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report – 11:00 Money Supply – 4:30.

International: Germany Industrial Production – 2:00 AM, Japan GDP – 7:50 PM, China Merchandise Trade Balance – 10:00PM.

Other: European Central Bank Announcement – 7:45 – AM. President Federal Reserve Bank of New York William Dudley will speak about the U.S. economic outlook and implications for monetary policy at a Money Marketeers of New York University event, with audience and media Q&A, in New York – 7:00 PM, Atlanta Federal Reserve Bank President Raphael Bostic to participate in a moderated discussion on his views on the economy at An Evening with Raphael Bostic in Atlanta – 7:00 PM, Kansas City Federal Reserve Bank President Esther George to discuss the U.S. economic outlook at the Omaha Economic Forum in Omaha – 8:15 PM.

Earnings:

SYMBOL B/A 9/1 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
BKS BMO $7.50 1,342,960 7.69% $7.55 $7.60
DVMT BMO $74.76 1,235,420 1.39% $71.63 $68.90
FCEL BMO $1.60 1,051,880 1.06% $1.49 $1.49
HOV BMO $1.88 1,450,190 7.11% $1.90 $2.06
MBLY BMO $62.67 2,519,760 2.79% $63.01 $62.99
AOBC AMC $16.52 1,107,980 7.16% $17.46 $18.73
FNSR AMC $23.19 2,779,340 11.48% $24.26 $25.50
PAY AMC $19.58 1,674,920 8.65% $19.37 $19.26
RDFN AMC $23.60 1,863,690 None $24.69 $26.39
SGYP AMC $3.01 4,299,530 3.34% $3.01 $3.48
TLRD AMC $12.15 1,564,820 22.72% $11.54 $11.62

 

Friday, September 8: 

Economic: Motor Vehicle Sales, Employment Situation – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 110:00, Construction Spending – 10:00, Consumer Sentiment – 10:00 , Baker Hughes Rig Count – 1:00.

International: Germany Merchandise Trade – 2:00 A, France Industrial Production 2:45AM, Great Britain Merchandise Trade – 4:30 AM, China CPI & PPI – 9:30 PM.

Other: Philadelphia Federal Reserve Bank President Patrick Harker to speak on Consumer Finance Issues at New Perspectives on Consumer Behavior in Credit and Payments Markets Conference in Philadelphia – 8:45 AM.

Earnings: None meeting scan criteria.

 

Monday, September 11: 

Economic: No major announcements.

International: Japan Tertiary Index – 1:30AM.

Earnings: None meeting scan criteria.

 

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Frank Fahey: Market News for the Prepared Mind: 8.28-9.4.2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“Money is made by sitting, not trading.” – Jesse Livermore

“Hurricane season brings a humbling reminder that, despite our technologies, most of nature remains unpredictable.” – Diane Ackerman

“Computers have enabled people to make more mistakes faster than almost any invention in history, with the possible exception of tequila and handguns.” – Mitch Ratcliffe

“There is a profound difference between information and meaning.” – Warren Bennis

 

The truncated, end-of-summer, version of the Prepared Mind. The weekly numbers and economic calendar are here but without commentary.

Here is an overview of the US market behavior last week and for 2017 YTD:

Index 25-Aug Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 21813.67 139.16 0.64% 10.38% 11.19% (VXD)
S&P 500 (SPX) 2442.25 16.70 0.69% 9.11% 11.28% (VIX)
NASDAQ 100 (NDX) 5822.53 31.62 0.55% 19.72% 15.52% (VXN)
Russell 2000 (RUT) 1377.45 19.66 1.45% 1.50% 15.68% (RVX)
S&P 100 (OEX) 1080.02 6.50 0.61% 8.94% 12.91% (VXO)
Dow Jones Transportation (TRAN) 4400.21 18.31 0.42% 8.61% NA
Crude Oil (CLV7) 47.86 (1.04) -2.13% -11.19% 10.28%(OVX)
Gold (GCZ7) 1296.50 6.20 0.48% 12.54% 12.63 (GVZ)
CBOE Volatility Index (VIX) 11.28 (2.98) -20.90% NA

Data Source: OptionVue8

Here is an overview of last week for the VIX and related products:

Indexes Ticker 25-Aug 18-Aug Change % Change
CBOE Volatility Index VIX 11.28 14.26 (2.98) -20.90%
VIX September Future (9/20/2017) VXU7 13.075 14.975 (1.90) -12.69%
VIX October Future (10/18/2017) VXV7 14.025 15.125 (1.10) -7.27%
VIX November Future (11/15/2017) VXX7 14.425 15.375 (0.95) -6.18%
CBOE Short-term Volatility Index VXST 8.97 13.17 (4.20) -31.89%
CBOE 3 Month Volatility Index VXV 13.99 15.65 (1.66) -10.61%
CBOE Mid-term Volatility Index (6 month) VXMT 15.42 16.38 (0.96) -5.86%
VIX of VIX VVIX 93.53 114.39 (20.86) -18.24%
CBOE SKEW Index SKEW 130.16 128.86 1.30 1.01%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 30.88 38.97 (8.09) -20.76%
iPath S&P 500 VIX Short Term Futures ETN VXX 47.68 53.20 (5.52) -10.38%
ProShares VIX Short Term Futures ETF VIXY 39.63 44.19 (4.56) -10.32%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 21.86 22.51 (0.65) -2.89%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 77.96 70.66 7.30 10.33%
Daily Inverse VIX Short Term ETN XIV 81.32 73.89 7.43 10.06%
Velocity Shares Daily VIX Midterm ETN ZIV 71.57 69.68 1.89 2.71%

Data Source: OptionVue8

As August comes to a close, reports will be released for the S&P CoreLogic Case-Shiller Home Price Index, the second estimate of U.S. second-quarter GDP, motor vehicle sales, and the employment situation. Important inflation data includes PCE price indexes as part of Thursday’s personal income and outlays report. Other important data includes advance trade in goods on Monday and also home sales on Thursday. Consumer confidence on Tuesday and consumer sentiment on Friday, bring consumer psychology onto focus . Hurricane Harvey, North Korea, and the debt ceiling are in play as wild cards for the upcoming week.

This earnings season winds down this the week. The highlights include: G-III Apparel, Scansource, H&R Blockm Movado, Hain Celestial, Best Buy, Shoe Carnival, Dytech, Bob Evans Farms, Chico’s. Brown-Forman, Analog Devices, Vera Bradley, Campbell Soup, Dollar General, Oxford Industries, Genesco and Ciena. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

 

“A man without ethics is a wild beast loosed upon this world.” – Albert Camus

“The hurricane complicates things in that what would have been purely a business decision becomes a decision of the heart.” – Henry Cisneros

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“Don’t give me timing, give me time.” – Jesse Livermore

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre

 

Monday, August 28: 

Economic: International Trade in Goods – 8:30, Dallas Fed Manufacturing Survey 10:30.

International Economic: Japan Unemployment Rate – 7:30 PM.

Earnings:

SYMBOL B/A 8/25 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
PRXL AMC $87.70 1,079,620 7.32% $87.69 $87.52

 

Tuesday, August 29: 

Economic: Redbook – 8:55, S&P Corelogic Case-Shiller Home Price Index – 9:00, Consumer Confidence – 10:00, State Street Investor Confidence Index – 10:00.

International: France GDP – 2:45 AM.

Earnings:

SYMBOL B/A 8/25 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
BBY BMO $61.87 3,803,170 14.81% $60.80   $58.15
HAIN BMO $40.40 2,422,470 4.36% $42.08 $42.40

 

Wednesday, August 30:

Economic: MBA Mortgage Applications – 7:00, ADP Employment Report – 8:15, GDP = 8:30, Corporate Profits – 8:30, EIA Petroleum Status Report – 10:30.

International Economic: Eurozone Economic Sentiment – 5:00 AM, Germany CPI – 8:00 AM, Japan Industrial Production – 7:50 PM.

Other: Federal Reserve Governor Jerome Powell will deliver a speech entitled “The Role of Boards at Large Financial Firms,” as the breakfast presentation during the Large-Bank Directors Conference hosted by the Federal Reserve Bank of Chicago, with audience and media Q&A, in Chicago – 9:15 AM.

Earnings:

SYMBOL B/A 8/25 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
ADI BMO $78.97 3,333,630 2.84% $78.94 $78.86
CTRP AMC $52.48 3,795,810 4.54% $51.71 $54.83
FIVE AMC $50.34 1,080,210 5.57% $48.80 $48.63
KEYS AMC $39.82 1,108,750 1.90% $40.56 $41.28
WDAY AMC $103.57 1,414,370 7.63% $103.27 $101.79

 

Thursday. August 31: 

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Weekly Jobless Claims – 8:30, Personal Income and Outlays – 8:30, Chicago PMI – 9:45, Bloomberg Consumer Comfort Index – 9:45, Pending Home Sales Index – 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International: Germany Retail Sales – 2:00 AM, France PPI & CPI – 2:45 AM, Germany Unemployment Rate – 3:55 AM, Eurozone Unemployment Rate – 5:00 AM, China PMI Manufacturing Index – 9:45 PM.

Earnings:

SYMBOL B/A 8/25 CLOSE AVGVOL AVG MOVE SMA 10 50% FIB
CPB BMO $51.40 1,594,050 4.59% $53.51 $52.88
DG BMO $77.67 3,096,050 7.41% $75.37 $75.36
MBLY BMO $63.25 2,642,620 2.79% $63.23 $62.99
TD BMO $51.94 1,261,150 0.64% $50.98 $51.16
AMBA AMC $52.98 1,018,910 8.15% $51.52 $51.58
LULU AMC $60.21 2,548,280 15.14% $59.61 $60.73
PANW AMC $128.63 1,551,780 15.43% $131.05 $133.78
RH AMC $45.43 2,441,390 15.46% $49.38 $62.44

 

Friday, September 1: 

Economic: Motor Vehicle Sales, Employment Situation – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 110:00, Construction Spending – 10:00, Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International: Germany PMI Manufacturing Index – 3:55 AM, Eurozone PMI Manufacturing Index – 4:00 AM.

Earnings: None meeting scan criteria.

 

Monday, September 4: 

U.S. Holiday: Labor Day – Markets Closed. 

International: Eurozone PPI – 5:00 AM.

 

Tuesday, September 5: 

Economic: Factory Orders – 10:00, Gallup US ECI – 2:00.

International: Germany PMI Composite – 3:55AM, Eurozone PMI Composite – 4:00AM, Eurozone GDP – 5:00AM, Eurozone Retail Sales – 5:00AM.

Other: Minneapolis Federal Reserve Bank President Neel Kashkari to speak at a moderated Q&A at the 1st Tuesday Speaker Series at Carlson School of Management in Minneapolis, with audience Q&A – 2:00 PM, Dallas Federal Reserve Bank President Robert Kaplan to participate in a moderated Q&A session in Dallas, with audience and media Q&A – 7:00 PM.

Earnings: None meeting scan criteria.

 

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Frank Fahey: Market News for the Prepared Mind: 8.21-8.28.2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” – Jesse Livermore

“I love to talk about nothing. It’s the only thing I know anything about.” – Oscar Wilde

“Computers have enabled people to make more mistakes faster than almost any invention in history, with the possible exception of tequila and handguns.” – Mitch Ratcliffe

“There is a profound difference between information and meaning.” – Warren Bennis

 

I am posting a truncated version of the Prepared Mind. The weekly numbers and economic calendar are here, but without commentary.

Here is an overview of the US market behavior last week and for 2017 YTD:

Index 18-Aug Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 21674.51 (183.81) -0.84% 9.67% 13.28% (VXD)
S&P 500 (SPX) 2425.55 (15.77) -0.65% 8.37% 14.26% (VIX)
NASDAQ 100 (NDX) 5790.91 (40.62) -0.70% 19.07% 17.85% (VXN)
Russell 2000 (RUT) 1357.79 (16.44) -1.20% 0.05% 17.76% (RVX)
S&P 100 (OEX) 1073.52 (8.28) -0.77% 8.28% 12.91% (VXO)
Dow Jones Transportation (TRAN) 4381.90 (79.25) -1.78% 8.16% NA
Crude Oil (CLV7) 48.90 (0.01) -0.02% -9.26% 27.53%(OVX)
Gold (GCZ7) 1290.30 (5.40) -0.42% 12.01% 12.12 (GVZ)
CBOE Volatility Index (VIX) 14.26 (1.25) -8.06% NA

Data Source: OptionVue8

Here is an overview of last week for the VIX and related products:

Indexes Ticker 18-Aug 11-Aug Change % Change
CBOE Volatility Index VIX 14.26 15.51 (1.25) -8.06%
VIX September Future (9/20/2017) VXU7 14.975 15.275 (0.30) -1.96%
VIX October Future (10/18/2017) VXV7 15.125 15.525 (0.40) -2.58%
VIX November Future (11/15/2017) VXX7 15.375 15.525 (0.15) -0.97%
CBOE Short-term Volatility Index VXST 13.17 15.53 (2.36) -15.20%
CBOE 3 Month Volatility Index VXV 15.65 16.39 (0.74) -4.51%
CBOE Mid-term Volatility Index (6 month) VXMT 16.38 16.86 (0.48) -2.85%
VIX of VIX VVIX 114.39 127.43 (13.04) -10.23%
CBOE SKEW Index SKEW 128.86 136.48 (7.62) -5.58%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 38.97 43.09 (4.12) -9.56%
iPath S&P 500 VIX Short Term Futures ETN VXX 13.30 13.66 (0.36) -2.64%
ProShares VIX Short Term Futures ETF VIXY 44.19 45.50 (1.31) -2.88%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 22.51 23.20 (0.69) -2.97%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 70.66 71.88 (1.22) -1.70%
Daily Inverse VIX Short Term ETN XIV 73.89 74.58 (0.69) -0.93%

Data Source: OptionVue8

Janet Yellen’s Friday speech at the Jackson Hole Economic Policy Symposium will be the week’s most important event. The sector focus for the week will be Housing. FHFA House Price Index will be announced on Tuesday followed by New Home Sales on Wednesday and Existing Home Sales on Thursday. Durable Goods Orders will be will be announced on Friday prior to Janet Yellen’s speech.

This earnings season winds down this the week. The highlights include: Nordson, Toll Brothers, Cree, Medtronic, Salesforc.com, Eaton Vance, PVH, HP, Guess?, Williams Sonoma, Lowe’s, Sanderson Farms, Dollar Tree, Staples, Hormel Foods, JM Smucker, GameStop, GameStop, Ulta Beauty, Toro, and Big Lots, Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

 

Advice to stimulate your imagination:

“A man without ethics is a wild beast loosed upon this world.” – Albert Camus

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing.” -Jesse Livermore

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“What we learn from history is that people don’t learn from history.” – Warren Buffet

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre

 

Monday, August 21: 

Economic: Chicago Fed National Activity Index – 8:30.

International Economic: Japan All Industry Index – 12:30AM.

 

Tuesday, August 22: 

Economic: Redbook – 8:55, FHFA House Price Index – 10:00, Richmond Fed Manufacturing Index – 10:00.

International: Great Britain CBI Industrial Trends Survey – 6:00AM.

 

Wednesday, August 23: 

Economic: MBA Mortgage Applications – 7:00, New Home Sales – 10:00, EIA Petroleum Status Report – 10:30.

International Economic: No major announcements.

 

Thursday, August 24: 

Economic: Weekly Jobless Claims – 8:30, PMI Composite Flash – 9:45, Bloomberg Consumer Comfort Index – 9:45, Existing Home Sales – 10:00, EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00, Money Supply – 4:30.

International Economic: Germany PMI Composite Flash – 3:30AM, Eurozone PMI Composite Flash – 4:00AM, Great Britain GDP – 4:30AM.

Other: Jackson Hole Economic Symposium. The Federal Reserve Bank of Kansas City has hosted an annual economic policy symposium. The event is designed as a forum for central bankers, policy experts and academics to come together to focus on a topic that is not necessarily of immediate concern, but instead looks into the future at emerging issues and trends.

 

Friday, August 25: 

Economic: Durable Goods Orders – 8:30, Baker Hughes Rig Count – 1:00.
International Economic: Germany GDP – 2:00AM

Other: Jackson Hole Economic Symposium continues through Saturday. Federal Reserve Chair Janet Yellen to speak at Federal Reserve Bank of Kansas City Economic Symposium on Financial Stability in Jackson Hole.- 10:00AM.

 

Monday, August 28: 

Economic: International Trade in Goods – 8:30, Dallas Fed Manufacturing Survey 10:30.

International Economic: No major announcements.

 

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