December 2024 DDD

[ducati916]

Tether: https://www.404media.co/tether-has-...g-tool-for-mexican-drug-traffickers-feds-say/

Private Equity: https://www.bloomberg.com/graphics/...9.DBu2iS9T2u70t25htHRjdn9iceSjPIKmbXkJV1Ww_I4

So as we enter the last month of the year, markets are having a good year.

Financials leading the pack.

The Fed:



Massive unrealised losses



Not helping the Treasury.

And of course the banks were benefitted again via BTFP as of course the banks were regulated into holding huge amounts of UST, which have declined precipitously.

House of cards.

jog on
duc

 

[ducati916]

About as low as they have been for 30yrs.





Bond market:



Problem?



Obviously not a problem until it becomes a problem.

Strongest economy ever.

jog on
duc

 

[Sean K]

Missed my daily dose of DDD today. :-(

 

[qldfrog]

Missed my daily dose of DDD today. :-(

Me too but Wednesday is a busy day in NZ.
I wonder what's the mess in S Korea.not good Trump is still not in power.a lot of **** can happen , the Biden puppeteers do not even care..see pardon....

 

[ducati916]

Afternoon, busy, busy before Christmas:

Oil News:

US President-elect Donald Trump threatened to slap a 100% tariff on BRICS if the respective countries decide to create a new currency alternative to the dollar, promising to block them from the ’wonderful US economy’.

- China has already been trading Iranian crude in Chinese yuan, whilst Brazil’s President Lula da Silva proposed creating a common currency in South America last year to reduce reliance on the US dollar.

- The US dollar still accounts for approximately 88% of all trades in the $7.5 trillion-per-day foreign exchange market, with the greenback’s share in global foreign exchange reserves dipping below 60% lately.

- BRICS members control north of 40% of central bank reserves globally, account for approximately 25% of global oil demand, and have been increasingly interdependent in commodity trading as sanctions pushed Russian flows to India.

Market Movers

- US oil major ExxonMobil (NYSE:XOM) is reportedly seeking to sell its retail business in Singapore worth some $1 billion, only months after it sold its Malaysian oil and gas assets to Petronas.

- French energy major TotalEnergies (NYSE:TTE) is finalizing the acquisition of renewable energy developer VSB Group for approximately $2.1 billion, adding wind and solar generation capacity.

- Spanish oil major Repsol (BME:REP) has agreed to sell all its oil and gas production assets in Colombia to Geopark for $530 million, as part of its drive to garner $4 billion to fund renewable investments.

Tuesday, December 03, 2024

Anticipating an extension of OPEC+ output cuts into 2025, oil prices have recouped their previous losses and ICE Brent edged closer to $73 per barrel. A slight improvement in Chinese imports, rising to a 5-month high on the back of stronger Russian and Iraqi imports, will also boost the spirits somewhat. Liquidity in futures trading remains thin, suggesting real action would only start after the OPEC+ meeting.

OPEC+ Expected to Roll Over Targets. As Saudi Arabia’s Crown Prince Mohammed bin Salman visited the UAE for the first time in three years, OPEC+ seems to be aligning on the extension of its output cuts until the end of Q1 2025, citing high non-OPEC supply and demand concerns.

Threat of Iran Sanctions Disrupts China Trade. A widening of US sanctions on Iranian shipping and the looming threat of tighter enforcement under Donald Trump has notably slowed down trade in Iranian cargoes to China, with NIOC offering fewer cargoes, albeit at a higher price of -$2 per barrel to Brent.

Libya Production Reaches 11-Year High. Bouncing back from a debilitating oil blockade that ended in October, crude and condensate output as reported by Libya’s national oil country rose to 1.4 million b/d across the country, the highest since March 2013, as the country aims to add another 100,000 b/d by year-end.

Norway Cancels Deep-Sea Mining Licensing. The Norwegian government has called off its first deep sea licensing round ever in the first half of 2025 after a left-wing environmentalist party demanded it in return for support for the Labour Party’s next-year budget, although it is likely to be revived soon.

Brazil Kickstarts Huge Exploration Drive. Brazil has announced that it will be offering 91 oil blocks across the country’s main producing basins in its upcoming 2025 licensing round, providing oil drillers with 11 new prospects in the country’s most coveted pre-salt basin.

German Electricity Output Plunges. Dragged lower by a protracted wind lull, Germany’s power generation decreased to its lowest in 7 years last month, averaging 52.3 GW and dropping more than 10 GW compared to the 5-year average, with the country remaining a net importer of electricity.

Namibia Outlook Turns Even Sweeter on Mopane. An appraisal well of Portugal’s state-controlled oil firm Galp Energia (ELI:GALP) confirmed the presence of high-quality light oil and gas condensate in the huge Mopane discovery in offshore Namibia, boosting the company’s upstream outlook.

US Gas Stocks Stand In Contrast to Europe. The US ended its natural gas injection season with the highest level of inventories since 2016, with stocks in the lower 48 states totaling 3,922 Bcf or some 6% above the 2019-2023 five-year average, despite injections being below-average for most of 2024.

US Crude Output Falls Again. According to EIA data, US crude oil production fell by 157,000 b/d month-over-month in September, the largest monthly decline since January largely due to hurricane effects as Hurricanes Francine and Helene prompted offshore producers to shut in production.

Trump to Play Hardball on Crude Imports. As Canada’s Prime Minister Justin Trudeau flew to Mar-a-Lago, media reports have been confirming that US president-elect Donald Trump does not intend to walk back on his promise to slap a 25% import tariff on Canadian oil, some 4.5 million b/d in volume.

China Bans Key Mineral Exports to US. China has banned exports of gallium, germanium, antimony, and superhard minerals to the United States in anticipation of Donald Trump’s tariffs, citing a new Beijing directive on dual-use items that are both for military and civilian use.

India Cancels Windfall Tax on Oil and Products. Implemented since July 2022, the Indian government has canceled its windfall tax on domestic crude production, as well as on exports of jet fuel, petrol, and diesel, saying that lower global oil prices meant there’s little justification for it.

Japan’s US Steel Takeover Looks Ever Less Likely. US President-elect Donald Trump has reiterated his opposition to the planned 15 billion takeover of US Steel (NYSE:X) by Japan’s Nippon Steel, saying that a series of tax incentives and tariffs will reinvigorate domestic steel production.



The crypto chaps are crowing over their outperformance vs gold. The true test is yet to come.

jog on
duc

 

[ducati916]

Expanding manufacturing in the US is based on the principle that industrial robots cost the same in the US as in China, or anywhere, that manual labor is a much smaller cost component in modern automated manufacturing, and that transportation costs (which spiked during the pandemic), the loss of Intellectual Property (IP), which is a given in China, and other risks and costs have to be added to cost equation.

It’s all focused on complicated key high-value products, such as motor vehicles and components, semiconductors, batteries, electrical and electronic equipment, heavy components and equipment, etc. This isn’t about manufacturing low-value products in sweatshop settings, such as T-shirts.




Of course, adding to the BTC move higher. Liquidity in BTC is VERY low.

On BTC and Silver:

The observance that the entire board of directors of Blackrock Inc. and CEO Larry Fink visited Keir Starmer London on November 21, 2024 continues to resonate given the strange appearance of such a mass meeting.

This recent meeting of Fink & Starmer following their prior meeting on September 25, 2024 starts to give the appearance that they may be meeting to address a matter of some urgency.

​

Given the fact that there is an estimated 4.2 billion (B) to 6.4B oz. of silver sold short into the London cash/spot silver market it should be no surprise that we should start to see parties who may hold a material portion of such a large short visiting ground zero. These spot/cash silver contracts in London allow for immediate delivery on demand so things can change very, very quickly during a time of silver shortage. Like now.

The question remains that, if Blackrock is short silver, as to exactly how large a portion of the ~5B oz. London cash silver position is held by Blackrock that manages its SLV silver ETF - the world’s largest silver ETF.

The global silver supply deficit, pressuring those who have promised delivery of silver bars on demand, is in its sixth year running and is increasing with the 2024 global silver deficit estimated at 265 million (M) oz in an annual silver market of 1,219M oz.

One strategy to alleviate pressure on silver demand would be to start other investment vehicles that shunt investor capital away from finite physical safe haven assets outside of the financial system, such as silver, into digital vehicles within the financial system whose value can be inflated without limit. Something from nothing.

Well, in January 2024 Blackrock floated its iShares Bitcoin Trust ETF (‘IBIT’) that now already holds more than 500,000 bitcoin (BTC) of the total 19.9M bitcoin in existence. The current BTC ‘mining’ rate is 325,000 per year so the torrid pace of BTC acquisition by the Blackrock ETF is notable and likely material.

To be sure, Blackrock is generating headlines and interest from retail investors:

​

​

John Paulson’s observations have not stopped Larry from creating this virtual repository of apparent wealth however he may be in real need of finding methods of alleviating pressure on the silver shorts, some of whom may be in his own building, who have dug a hole of which they can’t get out.

With $11.5T of assets under management, Blackrock swings a big bat. However, even Blackrock’s big bat can’t create physical silver from nothing. And therein lies the root of the problem.

Today, BTC stands at $96,000 up from $44,000 in February 2024. While some investors may be happy to exchange their currency deposits with banking system risk for digital investments backed by ETF assets with no intrinsic value exposed to banking and financial system risk similar to Treasury ETFs, there is a welter of demand coming for physical gold and silver. Imagine the urgency of the tidal wave scene in Interstellar.


Much of the global silver demand is from industrial applications unaffected by ETF investment promotions.

As Joe Sixpack retail investors increasingly start to awaken to having been fleeced over the past decades by central banks and the financial industry, there is a demand mania coming to the physical gold and silver markets that cannot be met with virtual instruments.


The Return:



jog on
duc

 

[ducati916]

Despite international curbs on Chinese EV exports, driven by concerns about potential unfair advantages from government subsidies, domestic EV sales have continued to expand. The upper pane reveals that BEVs remain the biggest contributor to China’s EV sales volume, though PHEVs are playing an increasingly significant role. China's share of the global EV market has risen to 76%, reinforcing its position as a global leader in EV adoption.

However, the YoY growth rates have moderated over time, largely due to a slowdown in BEV sales, as the lower pane indicates. This deceleration reflects a maturing market and potential saturation in domestic demand for BEVs.



Tungsten, also known as Wolfram, is a critical metal used in aerospace, defense and electronics applications, making it a strategic commodity in US-China trade relations. The US has historically relied heavily on China for its tungsten supply, creating potential supply chain security vulnerabilities.

Since the 2018 US-China trade war, the US has actively worked to diversify its tungsten imports. This effort is reflected in the chart, which shows declining import shares from China and rising contributions from alternative suppliers such as Canada and Germany.

Trade tensions have also influenced tungsten markets, with the US imposing tariffs on Chinese imports and China restricting tungsten exports to the US. A tungsten mine reopening in South Korea, reported to have secured a long-term supply contract with the US, could help alleviate the situation.



China remains one of Europe's top trading partners, with China being the EU's third-largest export destination and the EU holding the largest trade deficit with the country. A strengthening Chinese economy could boost demand for European imports, potentially lifting EURUSD. However, current economic conditions in China introduce uncertainties.

This chart reveals a recent slowdown in China’s credit growth, with banks being the primary contributors while non-bank lending remains subdued. These developments may put downward pressure on EURUSD.



The ongoing rally in the “Magnificent 7” group – led by companies such as Tesla and Nvidia – has positioned the Information Technology sector as the most volatile relative to the broader market, represented by the S&P 500. This heightened volatility mirrors patterns seen during the dotcom bubble of 1998–2001, though it is still too early to confirm similar systemic risks.

In contrast, the Financials sector appears to have tempered its volatility, now exhibiting a beta lower than 1.0. This suggests a divergence in market dynamics: while high-growth tech stocks are dominating market movements, financial stocks remain relatively stable, reflecting subdued volatility and a focus on steady performance amidst changing market conditions.



EM foreign exchange (FX) rates are typically shaped by a combination of capital flows, policy rate differentials and global risk appetite. However, international trade activity could also play a significant role. This chart indicates a positive trend over the past year between cumulative goods trade balances with the US and EM currency performance against the USD. However, the expected direct link between trade balance surpluses and FX appreciation has been muted, probably due to the Federal Reserve’s hawkish monetary stance, which bolstered USD strength and overshadowed trade-driven currency adjustments. The inclusion of a 95% confidence band further emphasizes that while a trend exists, significant variability arises from other factors impacting EM currencies, such as shifts in risk sentiment or local economic challenges.

Looking into 2025 and beyond, the interplay between monetary policy normalization and broader geopolitical and trade dynamics may redefine this relationship. Should the Fed pivot toward monetary accommodation, EM currencies could experience reduced pressure from a strong USD. Additionally, lingering impacts of tariffs introduced during the new Trump administration may continue to impact EM trade balances and FX trends.


Oil News:

In a widely anticipated move, OPEC+ postponed its planned supply increases by another quarter, now pledging to start unwinding output cuts from April 2025 onwards. This, however, was not enough to convince oil markets of a bullish narrative lurking out there, not even the postponement of the UAE’s baseline quota increase could stop ICE Brent from dipping back below $72 per barrel.

OPEC+ Delays Unwinding of Cuts Until April. OPEC+ countries agreed to postpone the start of oil production increases by three months until April 2025, simultaneously extending the full unwinding of output cuts by a year until end-2026 as the oil group confronts rising non-OPEC production.

Colombia Confirms Giant Natural Gas Find. Brazil’s state-controlled oil firm Petrobras (NYSEBR) said its Sirius-2 exploration well in offshore Colombia confirmed the single largest gas discovery in Colombia’s history, with the 6 TCf find boosting the country’s gas reserves by a hefty 200%.

North Sea Giants Pool Assets Together. Norway’s state-controlled major Equinor (NYSE:EQNR) and London-based major Shell (LON:SHEL) announced they would merge their UK offshore oil and gas assets into a joint venture, owned equally by both companies, aiming to complete the spin-off by end-2025.

Oilfield Services Poised for Consolidation Drive. Following widespread consolidation of upstream assets in the Permian Basin, a report by Deloitte foresees intensified M&A activity in the segment of US oilfield services, due to the fragmented nature of the market and improved regulatory outlook under Trump.

White House Finalizes Clean Energy Tax Credits. The US Treasury Department issued its final guidelines on federal tax credits for clean energy generation under the Inflation Reduction Act, making the incentive technology agnostic after years of prioritizing solar, setting the base rate at 6%.

France Is Losing Its Uranium Assets in Niger. France’s nuclear firm Orano warned that the government in Niger has taken over its Somair uranium mine, aggravating French supply concerns as Niger used to account for 15% of Orano’s production, prompting it to ramp up operations in Canada and Kazakhstan.

Mali Goes After Mining Company Executives. Tensions between the African nation of Mali and mining majors have been running high after the former issued an arrest warrant for the CEO of top gold miner Barrick Gold (TSO:ABX), accusing him of money laundering and violation of financial regulations.

Denmark’s Wind Ambitions Face Reality Check. Denmark’s latest offshore wind farm tender failed to attract any bids, dealing a painful blow to the country’s renewable ambitions after the government offered six sites with a combined capacity of 10 GW but no subsidies to sweeten the deal.

Libya to Start Licensing After 17-Year Hiatus. Aiming to lift oil production to 2 million b/d in the medium term, Libya has announced that it plans to launch its 5th licensing round, the first auction since 2007, over the upcoming months, offering blocks in at least one offshore and two onshore basins.

Jamaica Set to Become an LNG Hotspot. Global energy trading houses Glencore (LON:GLEN) and Vitol have been vying to purchase the Jamaican LNG assets of New Fortress Energy after the gas developer sought to divest Caribbean assets on the back of its recent refinancing of $2 billion worth of debt.

Hungary Wants Waiver for Russia Gas Payments. The government of Hungary has asked the United States to exempt Gazprombank from sanctions after the White House imposed new sanctions on Russia’s leading bank for energy transactions, citing its need to pay for pipeline gas imports.

Chinese Buyers Slash Canadian Canola Imports. As canola has become a prime target for Chinese retaliatory anti-dumping duties in a looming tariff war with the US and Canada, China’s importers have only bought 250,000 metric tonnes from Canada for December shipment, a third of October volumes.

India Ramps Up Steel Imports from China. India’s statistics for the first seven months of the current financial year show that the country’s steel imports from China soared to an all-time high of 1.7 million metric tonnes, a 35% year-over-year increase, as Chinese mills outcompete India’s own producers.





jog on
duc

 

[ducati916]

MSTR:

In this case, MicroStrategy has essentially created a financial instrument that’s part loan, part lottery ticket. How could it raise $3bn at a zero-per cent coupon and a conversion price of $672.40 per share when the stock was trading at $433? The answer lies in the stock’s explosive volatility, driven by and magnified through its bitcoin holdings. This volatility significantly enhances the value of the embedded call option in the bond, which, in turn, offsets the cost of the bond itself.

As a result, the company is able to borrow at rates far below those of conventional debt. And volatile it is. MicroStrategy’s stock moves like a hyperactive toddler let loose in a candy store, ricocheting from aisle to aisle with boundless, chaotic energy. Its 252-day historic volatility is currently 106 per cent (implying an average move of 6.6 per cent per day!). The implied volatility of 30-day options in its stock is 2.5 times more than similar duration options in bitcoin itself. And MicroStrategy is unembarrassed by this: in its third-quarter earnings presentation, management crowed about MicroStrategy options trading a higher implied volatility than any S&P 500 stock.





This sheds light on one of the paradoxes around the MicroStrategy story: why does co-founder Michael Saylor relentlessly hype bitcoin while his company is buying it? Most people would talk down an asset they’re accumulating. But for MicroStrategy, volatility is the real currency. Saylor’s bombastic interviews, grandiose predictions, and relentless social media posting aren’t just noise — they’re the fuel for the financial fire. There’s never a dull moment with the guy.

The crazier the stock, the better the terms for the next convertible. MicroStrategy has effectively engineered its own volatility — and reaped the rewards. Before August 2020, the company’s stock exhibited both realised and implied volatilities in the low 30s. But once MicroStrategy reinvented itself as a binge-buyer of bitcoin, volatility skyrocketed, first surpassing 70 per cent and later breaching 100 per cent. The dynamic is self-reinforcing: acquiring more bitcoin amplifies share price volatility, allowing MicroStrategy to issue convertible bonds on increasingly favourable terms, which it then uses to buy even more bitcoin — further fuelling the volatility. And so the cycle continues.



Another looming risk is that MicroStrategy’s five previous convertible bonds — now deeply in the money, with conversion prices between $143.25 and $232.72 — might ultimately not convert if bitcoin’s price (and, by extension, MicroStrategy’s stock price) plummets. What happens then? How would MicroStrategy manage up to $6.2bn in bond repayments if the tide turns and the principal on the bonds comes due at maturity?The company’s options would be stark. Its lossmaking software business generates no cash, and its treasure chest of 402,100 bitcoins, currently valued at $39bn, would offer little solace.

Selling bitcoin to raise cash would likely be a last resort, but by then, the price of bitcoin would presumably have dropped significantly, exacerbated by the impact of any sales themselves. While convertible bondholders hold a senior claim to these bitcoin assets over stockholders in the event of bankruptcy, the actual “coverage” may prove far thinner than it appears.And don’t assume the stock can’t tumble below the conversion prices — it was trading below $130 as recently as three months ago. For context, the spot-price value of MicroStrategy’s bitcoin holdings translates to $166 per share.

Until February 2024, the stock traded more or less in line with the net asset value (NAV) of its bitcoin. It’s only the hefty premium to NAV that has kept most of these convertible bonds so comfortably in the money.Anyhow, mitigating this credit risk isn’t straightforward for investors.One approach is to keep a short position even when the convertible is well out of the money, hedging against the possibility of (or even likelihood that) the company’s creditworthiness deteriorates alongside its share price. But this creates its own challenges. Instead of buying into a falling market (as for gamma trading), investors may find themselves selling shares as the price is tumbling. Depending on size and liquidity, selling into weakness risks being self-defeating; it is not an easy trade to execute.Nevertheless, for now, the strategy is working wonders. By weaponising its stock’s volatility, MicroStrategy has created a seemingly self-perpetuating loop: cheap funding buys bitcoin, which boosts the stock’s volatility, which secures even better bond terms to buy more bitcoin. The investors? They may or may not be bitcoin believers or Saylor groupies; many are just thrill-seekers riding the wave. As long as the stock keeps zigzagging, the show goes on. But like any high-wire act, there’s always the danger of a fall.





So what is the bond market telling us, factoring in that Trump and his team are taking over in January? Some of the high profile appointees: Bessant to Treasury is the absolute killer appointee.



This is the chap tasked with saving the US and MAGA.

So the bond market with rising rates is saying: we see a weaker USD. A weaker USD is absolutely critical to rebalancing world capital accounts.

Bessent (as indicated used to work with Soros) is a currency guy. He understands capital flows. He has stated that 2/3 of a tariff ends up in the currency. Which in this case is a stronger USD. Trump is promising tariffs against those that abandon the US camp. Trump needs a LOWER USD.

Trump wants to reshore manufacturing to the US.

Trump has also stated that BTC = (the new) Oil. Where in the 1970's oil was managed 400% higher by Kissenger.

By allowing both gold and BTC to rise, you effectively devalue the USD.

Watch for another Sunday night revaluation.

jog on
duc

 

[ducati916]

Speculative 'melt up' a la 1999




Chase that leverage!

jog on
duc

 

[ducati916]

Full: https://www.kitco.com/news/article/...-back-gold-market-buying-five-tonnes-november



Last week:




Coming next year.




Euphoric?

Not yet.

But getting there.

Apparently Blackrock put out a research paper stating: a permanently high plateau and new paradigm (which echoes Fisher in 1929). Are these chaps ignorant of history?

Without doubt the market is in melt-up mode. Speculation is rife. Speculation can turn around very quickly. Sure the Fed will employ the now expected Fed Put, will it be enough this time?



Full: https://www.apolloacademy.com/no-plaza-accord-today/

The USD issue will become increasingly important. The US NEEDS a lower USD. More on this through the week.

Tariffs: https://reason.com/2024/12/06/trump-vs-cleveland-a-tale-of-two-tariff-strategies/

Tariffs are going to be another (major) issue moving forward. About 2/3 of a tariff manifests as an increase in the currency, which is the USD. A problem if you need a lower USD.

AI written books: https://www.honest-broker.com/p/why-are-huge-tech-companies-getting

United Health Care murder: https://thehill.com/opinion/5026570-unitedhealthcare-ceo-killed-criticism/

jog on
duc

 

[ducati916]

Oil News:

Expectations for a weaker dollar in 2025-2026 are being gradually reconsidered as Donald Trump’s re-election and the prospect of stronger-than-expected US economic performance improved the outlook of the greenback.

- Institutional investors have halved their net short dollar positions to just 2 billion in the week to December 3, the least in more than seven years, according to data aggregated by the Commodity Futures Trading Commission.

- The upcoming Federal Reserve meeting might also add to the strength of the US dollar, with St. Louis Fed President Alberto Musalem suggesting that interest-rate cuts could be already paused at the Fed’s December 17-18 meeting.

- The failed presidential takeover in South Korea and the collapse of the French government have concurrently boosted the US dollar’s safe haven appeal, leading to a narrowing in bullish bets on the EU’s euro and the US dollar.

Market Movers

- US shale producer Crescent Energy (NYSE:CRGY) said it would acquire PE-backed Ridgemar Energy’s assets in the Eagle Ford basin of Texas in a cash-and-stock deal valued at $905 million, with the deal expected to close in Q1 2025.

- UK energy major BP (NYSE:BP) is reportedly looking to sell up to 49% of its US pipeline gas business in a bid to generate some $3 billion as the company seeks to reduce its net debt.

- ADNOC, the national oil company of the UAE, has signed a 15-year sales and purchase agreement to provide 1 mtpa of LNG to Malaysia’s Petronas, also a gas producer, with deliveries from Ruwais LNG starting in 2028.

Tuesday, December 10, 2024

The collapse of the Syrian government prompted the oil markets to look at Middle Eastern geopolitical risks again, but the relatively small volumes directly at risk in Syria means the impact on prices has been limited. ICE Brent continues to linger below $72 per barrel while WTI is trading below $68.59. Low trading liquidity and a lack of tradable fundamental events would most probably steer the markets’ attention to monetary policy, ahead of the US Federal Reserve’s meeting next week.

Saudi Arabia Defends OPEC+ Caution. Saudi Arabia’s Energy Minister Abdulaziz bin Salman defended the ‘flexibility’ of OPEC+ in deferring the unwinding of production cuts, adding that the group understood Q1 2025 would not be a good quarter to bring back volumes.

Iran’s Nuclear Programme Accelerates. According to the IAEA, Iran has started to ‘dramatically’ accelerate its enrichment of uranium to up to 60% of purity, reportedly having enough enriched material to be able to make four nuclear weapons soon, just as Iran-EU talks have collapsed.

Still No Clarity on Trump’s Venezuela Policy. US oil major Chevron (NYSE:CVX) confirmed it had not held any discussions with the incoming Trump administration on its Venezuelan operations, having ramped up production above 200,000 b/d in recent months, almost 25% of the country’s total.

White House Lets Trump Decide on Oil Leases. The outgoing Biden administration launched the first offshore lease sale in the Gulf of Mexico since December 2023, offering a 45-day commenting period on a draft environmental review, however it would be Trump deciding on how much federal acreage would be put on offer.

Oil Majors Eye Argentina’s Shale Upside. Leading oil majors Chevron (NYSE:CVX) and Shell (LON:SHEL) are reportedly in negotiations with Argentina’s leading oil firm YPF (NYSE:YPF) to take equity stakes in the 3 billion Vaca Muerta Sur pipeline, sending 500,000 b/d of shale oil to exports.

China Pins Hopes on Car Sales Boom. Chinese automobile sales have risen by almost 17% year-over-year in November, reaching 2.45 million units at their fastest pace since the beginning of the year, as the trade-in opportunities for EVs and hybrids subsidized by the China’s government gather steam.

Russia Hits Full Capacity with Power of Siberia 1. The last previously unused section of the Power of Siberia 1 gas pipeline began commercial operations this month, allowing midstream firm PipeChina to surpass throughput levels of 31.5 bcm per year and reach the conduits’ designed capacity.

Australia Rejects Nuclear on Scientific Grounds. Australia’s national science agency ruled that nuclear energy would not be a cost-effective solution for the country’s energy mix as it takes too long to build, arguing that in the short term solar and wind would be cheaper.

Chile Expands Lithium Auctions. The government of Chile has designated six more sites where private miners would be eligible to extract lithium, in addition to the six already announced, seeking to boost output from the Antofagasta region to complement its efforts via state-owned Codelco.

Bad Weather Delays Key Field Launch. Norway’s national oil company Equinor (NYSE:EQNR) decided to postpone the start-up of its 220,000 b/d Johan Castberg oil field to January-February 2025 from the end of this year due to adverse weather conditions in the Barents Sea.

US Diesel Production Hits 5-Year High. Production of ultra-low sulfur diesel soared to 5.153 million b/d in the last weekly data published by the US Energy Information Administration, marking the highest weekly output since January 2019 as diesel cracks remained robust around 15-16 per barrel.

Fall of Syria Fails to Impact Oil Prices. The end of the Assad family’s 53-year rule in Syria has had only minor ramifications on the oil markets, with production in government-controlled regions averaging only 15,000 b/d with most of the country’s output taking place in Kurdish lands.

Airlines Hope for A Better 2025. The International Air Transport Association expected the global aviation industry to generate $36.6 billion next year, up from $31.5 billion in 2024, with newer aircraft offering 10-15% efficiency gains on consumption and lower jet fuel prices easing margin pressures.



Which is interesting as Trump and the US need a lower USD.



Yet by implementing tariffs, Trump will strengthen the USD.

What if?

Trump is actually trying to force a re-valuation of USD v Gold through BRICS? BRICS force gold as the reserve asset, the USD is the dirtiest of dirty shirts and Trump revalues USD LOWER over the weekend (as usual).

jog on
duc

 

[divs4ever]

Australia Rejects Nuclear on Scientific Grounds. Australia’s national science agency ruled that nuclear energy would not be a cost-effective solution for the country’s energy mix as it takes too long to build, arguing that in the short term solar and wind would be cheaper.

with scientists like that , i am glad i hold several coal miners

gee i wonder if we can still grow bananas with consultants like that

 

[ducati916]

From Zero Hedge:

East Vs. West: A Global Dollar Dump Is Inevitable And The US Must Prepare​

BY TYLER DURDEN
WEDNESDAY, DEC 11, 2024 - 05:25 PM
Authored by Brandon Smith via Alt-Market.us,
In October of 2024, Russia hosted the annual BRICS Summit in the city of Kazan with the intent to show unity among developing nations and general eastern interests. The Kremlin, a target of severe NATO sanctions since the start of the war in Ukraine, has been effective in solidifying economic guarantees from BRICS partners and circumventing western economic controls.


Despite being removed from the SWIFT banking network and being cut off from a large percentage of global trade, Russia has continued to garner solid export revenues. We certainly aren’t seeing the total collapse of the Russian economy that so many media “experts” predicted. The reason? Russia is resource rich and in an inflationary environment countries that are heavy in commodities sold at lower prices are always sought after. The BRICS event this year was a reminder that the west’s financial influence is in decline.

At that same meeting, Putin called for an alternative international payment system and passed around a mock-up of what he called a BRICS “bank note”. The paper note was purely symbolic, but it’s presence at the summit started an uproar within the establishment media. Pundits were quick to “fact check” the story and declare that this was not a real unified currency announcement. As far as I know, no one said it was. What we did say, however, is that a real multilateral currency system cutting out the dollar is MUCH CLOSER than most people realize.

Putin flashed that banknote around because this is something the BRICS have been working on for well over a decade. Those cynics that think such a thing is impossible are living in denial, or, they have an agenda to peddle.

Donald Trump in particular seems to understand quite well that the BRICS currency concept is not a bluff or a joke. In a recent social media post, Trump threatened to increase tariffs for any nation that tries to diminish or replace the dollar’s world reserve status (the dollar is the premier currency used in the vast majority of international transactions). Putin responded with a warning that Trump’s efforts to reinforce the dollar would backfire.

Overall, Putin is right. Any move to force the dollar onto developing nations as a reserve currency will only result in them dumping it faster. Tariffs act as leverage for short term adjustments to trade imbalances, but they aren’t going to be effective in preventing other countries from using alternative currencies.

The problem with the dollar reserve system is its foundation. Officially established with the Bretton Woods Agreement in 1944 as we neared the end of WWII, the unspoken deal underlying the dollar was that the US would get the economic benefits of reserve status, but in exchange America would be required to carry the bulk of military defense obligations for allies around the globe.

Five years later in 1949 NATO would be founded, the dollar was made the common currency denominator for all members and the US would end up paying 60% or more of all funding for the alliance for decades to come. The economic trade off was established – The US dollar gets the advantages of reserve status and the rest of the western world gets military protection from the US.

However, as far as eastern nations and the BRICS are concerned today, NATO is not an ally. There’s no agreement or unspoken doctrine which convinces the developing nations to maintain the dollar’s reserve status; only precarious import/export arrangements that can fall apart quickly if conflict arises.

And let’s be honest, the sparks of wider conflict are everywhere. At my current count, there are at least three regional proxy wars going on simultaneously that have the potential to kick off WWIII – Ukraine, Israel and Syria. Then there’s Taiwan, North Korea, and Georgia (Eastern Europe); regions that are constantly on the verge of going hot.

On top of that, there’s the steady decline of Western Europe, with Germany and France now in governmental limbo, not to mention the UK turning into an Orwellian police state. Americans are so insulated from the global crisis that’s unfolding that I worry millions will be caught completely off guard when it finally arrives on our doorstep.

To be sure, the US has its share of instability. The stagflation crisis is in its third year (officially) and prices don’t look like they will be coming down on most necessities any time soon. The illegal immigration crisis is about to come to a crescendo and we’re all waiting to see if the Trump Administration follows through on his promise of mass deportations. Then there’s the incredible debt crisis – Our government has added $6 trillion to the national debt in the past two years alone. We are creating over $1 trillion in new debt every 3-4 months and our debt to GDP ratio is 124%. This is unsustainable.

That said, we haven’t experienced any catastrophic economic disruptions yet. The loss of the dollar’s reserve status would bring historically devastating consequences, at least in the short term, and that’s only if our country devises a plan to weather the storm.
Conflicts between east and west are only going to grow given the existing conditions, and the calls for a dollar alternative are going to continue. There’s not much Trump can do about that. We also have to keep in mind that there are globalist institutions like the IMF and BIS that are, as I write this, getting ready to introduce CBDCs and cashless systems that would limit the dollar’s global influence by default.

When globalists pontificated endlessly about a “Great Reset” during the pandemic era, what they were talking about was primarily an economic reset and a currency reset. Klaus Schwab of the WEF stated ‘Now is the time for a great reset of capitalism’, and this event was supposed to precede a global shift into a cashless system.

There can’t be a global currency reset without the dollar being demoted. There can’t be a reset without a reversal of the old Bretton Woods system. They know it, and they aren’t going to warn the rest of the public about the consequences.
Everything is working against the dollar right now, and there’s a lot of people out there that question if it’s even worth saving. The Federal Reserve has been the source of considerable corruption within our government and I have often referred to central bankers as economic suicide bombers. But, the dollar is all we have until a tangible safety net can be established.
Instead of focusing on trying to intimidate the BRICS into sticking with the dollar, Trump should be drafting a plan to backstop our currency system with hard commodities to prevent greater inflation and ensuring that the US has the capacity to manufacture all our necessities domestically.

There is a chance this could be done under Trump; there was zero chance it would have been done under Kamala Harris. So, at least there’s hope.
At bottom, it’s impossible to keep the dollar in a position of global dominance when every element of geopolitics is working against it and the very globalist organizations that helped create the Bretton Woods system are now trying to dismantle it. It’s time to localize, build redundancies and get ready for the greater crisis at hand., because one way or another difficult changes are coming.
* * *



jog on
duc

 

[ducati916]

BTD was firmly reinforced.



Headlines:



Data.

But remember, data only deals in probabilities, not facts.



Very bullish environment currently.



Has issues re. USD.



LOL. If they have been wrong about everything else, what then accounts for the 'price'? Luck?

The thing with the BTC crowd is that they are largely zealots. As we have seen their prophet, Mr Saylor, was simply a degenerate gambler going bankrupt with nothing to lose who put it all on 21.

None discuss what could go wrong and a plan for that. You know, an exit strategy.



This is a big chunk of change. How will DOGE deal with this, Elon not requiring medicare currently?

jog on
duc

 

[ducati916]

“Whoever controls the volume of money in our country is absolute master of all industry and commerce...when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

President James A. Garfield

---

For the second time in two months, the Bank of Canada has lowered interest rates by 0.5% with a target policy rate now at 3.25%. On December 18, 2024, the Fed is expected to similarly lower interest rates again.

For the heavily indebted working class and corporations, lower rates cannot come soon enough.

The Fed Has Stuck Citizen Heads In A Vice​

After 35 years of blowing sequentially bigger debt-leveraged bubbles with sequentially lower interest rates and higher debt levels, the Fed has now maneuvered the country into an intolerable bind.

1. On One Side: Higher Cost of Living Driven By Fed Monetary Debasement​

The Fed is now loosening monetary policy (once again) however this time it is doing so into the teeth of high consumer goods price inflation. While the Fed’s opiated measure of inflation, the CPI-U, shows goods price inflation relatively stable at 2.7%, other more detailed cost of living measures are telling a different story.

The Truflation CPI index tracks 13 million prices on a daily basis and it is already showing, once again, a sharply increasing cost of living rate as the Fed loosens monetary policy / debases the currency through lowering interest rates.

​

Figure 1 - Truflation CPI Index; source: Truflation.com Dec. 11, 2024

The Fed claims that price inflation is due to shortages however goods price inflation operates on an 18+ month lag to monetary debasement and the Fed is once again loosening the money supply as can be seen below.

​

Figure 2 - Rate of Change YoY of Money Supply (TMS=True Money Supply: blue; M2 = M2 Money Supply: gray); source: Mises.org / Ryan McMaken

2. On The Other Side Of The Vice: Crushing Debt​

As noted previously, current small bank consumer credit delinquency rates and current as well as projected default rates for leveraged corporate borrowers is pointing toward what may be a disruptive credit market event. This should not be a surprise as the Fed recently steered interest rates to 0% for the better part of a decade followed by a snap rate rise to 5%.

While debt relief is needed, many have already seen an intolerable rise in their cost of living and are unable to go another round with the Fed.

Now Things Are About To Get Wild​

A further issue with loosening monetary policy now is that national financial conditions are already very loose.

The Chicago Fed National Financial Conditions Index, where zero represents average financial conditions since 1971 and a negative value indicates loosening financial conditions, shows that market financial conditions are already very loose.

By further loosening at this point, the Fed is going to drive financial markets wild - until they inevitably crash back down again.

​

Figure 3 - Chicago Fed National Financial Conditions Index; source: Chicago Fed

The US Treasury bond market seems to sense something is amiss with yields generally rising since the Fed’s September 18, 2024 0.5% rate cut.

This makes sense if Treasury traders are sensing increasing goods price inflation (degraded currency buying power) is coming and will put the bond market directly at loggerheads with the Fed.

​

Figure 4 - US 2, 10 and 30 Year Treasury Yields; source: tradingview.com

Next Comes QE - And A Currency Crisis​

This is all heading toward the Fed once again implementing Quantitative Easing (QE) printing currency and buying bonds and financial assets to fake financial market prices - and ultimately a currency crisis where grossly inflated financial capital pursues real assets triggering rapid onset of extraordinary goods price inflation.

Did you know there is a Chinese equivalent for all the top tech companies in the United States?

They do not import our technologies like most countries. They ban them. Then, they copy and recreate them with new names.

I love this clip from Silicon Valley, an old HBO show that poked fun at this. It was spot-on about a lot of things.

For purposes of this discussion, I ask you to forget any of your feelings on intellectual property theft and the general geopolitical concerns about Chinese technology. This has nothing to do with any of that.

This post is about making money on an emerging area of the international equities market.

There is a brand new bull market shaping up over in China. This is one of the largest and fastest-growing economies in the world. It is also home to some of the most innovative technology companies outside of America.

Interestingly enough, many of these Chinese tech leaders are also massive. They dominate the Chinese stock market, much like the Magnificent Seven dominates in the US.

In building exposure to China, my strategy has been to start with large anchor positions in these technology behemoths.

I did the same thing with the mega-cap growth stocks in the US two years ago. They were the early leaders. I don’t think China will be any different.

Allow me to introduce the FANGhai Composite Custom Index:


This is the same pattern we’ve been buying this entire cycle. It is a textbook rounding bottom, and it is just now completing - indicating a new uptrend is underway.

I have marked up the three phases of a market cycle in both the price and momentum chart.

You can see the downward-sloping 200-day moving average and bearish momentum regime on the left-hand side of the chart.

Then, the transition to a trendless state, characterized by a sideways moving average and neutral momentum regime.

And now, over the past few quarters, we can see a new uptrend forming. This is indicated by the rising moving average and bullish momentum regime.

A bullish momentum regime means RSI-14 is getting overbought on rally phases… and not getting oversold on corrective phases. This has been the case since April.

We should probably mention the historic momentum thrusts from September/October as well. They suggest the initiation of a new uptrend.

And how about the sentiment around China!? It’s exactly what you want to see at a major market bottom.

Long story short, the chart of this custom index tells us China’s largest and most dominant growth companies are completing trend reversals.

We want to own a lot of them. So, we’ll be doing deep dives into each one individually over the coming days and weeks.

For now, here’s a little on each of the seven components:

Alibaba Group (BABA): Leading global e-commerce and cloud services giant, often compared to Amazon. This is truly the "Amazon of China,” with a heavy footprint in e-commerce and digital services.

Pinduoduo (PDD): E-commerce platform rapidly growing through its group-buying model. Think of this one as the discount online marketplace of China, focusing on social commerce and price-conscious consumers.

Baidu (BIDU): China's top search engine and a leader in AI development, particularly autonomous driving and voice recognition. Think of this one as the "Google of China,” with a strong emphasis on AI and search.

BYD Co. Ltd. (BYDDF): A major manufacturer of electric vehicles (EVs) and batteries. This is the "Tesla of China.” It even trades more like Tesla than it does Chinese Stocks.

Xiaomi Corp (XIACY): A leading Chinese electronics manufacturer known for its smartphones, smart home devices, and plans for electric vehicles (EVs). This one is emerging as the “Apple of China,” or at least one of them. Their phones & electronics have a huge presence in Asia & Latin America.

JD.com (JD): Another e-commerce retailer in China. JD is actually the largest by sales and has become a leader in logistics with a robust ecosystem of physical and digital stores. Think of this one as a Chinese hybrid of Walmart and Amazon. JD’s subsidiary, JD Health, is the largest online healthcare platform in China.

Tencent (TCEHY): A global leader in social media (WeChat), gaming (Riot Games), and digital payments and services. This is basically the “Facebook of China.”

I am building positions in these industry leaders, and they will be my anchor investments for the new China bull market theme.

However, I like some a lot more than others.

Nike Signs Michael Saylor (Microstrategy) to a Bitcoin 'Just Do It' Campaign​

Be Like Mike (Mike Saylor)​

Howard Lindzon
December 10, 2024
https://www.facebook.com/sharer/sha...icrostrategy-to-a-bitcoin-just-do-it-campaign
https://twitter.com/intent/tweet?te...bitcoin-just-do-it-campaign&via=howardlindzon
https://www.threads.net/intent/post...icrostrategy-to-a-bitcoin-just-do-it-campaign
https://www.linkedin.com/sharing/sh...icrostrategy-to-a-bitcoin-just-do-it-campaign
Be like Mike…

The new be like Mike is Michael Saylor of Microstrategy.

He is enjoying his moment.

If your business is buying Bitcoin and borrowing to buy more Bitcoin you have a lot of free time to do other stuff…like be on Barstool Sports telling Dave’s degenerates to buy Bitcoin while making bad sports analogies:

If you do not know Michael Saylor or who/what Microstrategy is or does here is Michael Batnick’s great piece again titled ‘What Is Michael Saylor Doing…How Bitcoin’s Biggest Champion is Winning’. The gist:

MicroStrategy started buying Bitcoin on August 10, 2020. BTC is up 720% since then. MSTR is up 3,313% over the same time. Needless to say, no stock in the S&P 500 has come close to matching those returns. So how did he do it?

“Intelligent leverage” is what they’re calling it.

In the first nine months of the year, their diluted shares outstanding rose 13.2%. Their total Bitcoin holdings rose 33.3% over the same time. Here’s how they described their strategy on their most recent earnings call:

“Our objective continues to be to accumulate Bitcoin holdings at a faster rate than we issue shares, and we have demonstrated a solid track record of doing so. To assess our performance in achieving this strategic objective, we introduced a new key performance indicator last quarter, which we refer to as BTC Yield. To reiterate again, we define BTC Yield as a period-to-period percentage change in the ratio of our total bitcoin holdings to our assumed diluted shares outstanding.”

That’s it. That’s the whole game. And right now, they’re winning 28-3 (I kid).

The stock is up 3,313% since they started buying bitcoin, but the market cap is up 7,820% over the same time. Wait, what? How? Isn’t diluting existing shareholders bad? Yes, almost always. Unless you’re using the fresh capital as leverage to buy an asset that has explosive growth. Here’s Saylor describing it:

“The more capital that we gather, the more powerful we become and the more we enrich our own shareholders. This is -- it's totally counterintuitive because everybody else in the world thinks if you sell equity, you dilute the shareholders. That's true if you don't have a use of proceeds that grows faster and yields more than the S&P 500 Index. The cost of capital is the S&P 500.”

MicroStrategy holds 331,200 Bitcoin with a current market value of ~$32 billion. The market cap is $94 billion. I’d say his game plan is working, and then some. The question is, what are the limits of this strategy? How long will it keep working? If the 264% growth in its market cap over the last three months continues, it will cross $1 trillion by the end of April. It would blow past where the largest stock is today (Nvidia) in July.

I guess anything’s possible, but this would be the craziest thing to ever happen in the history of financial markets.

Michael ponders…’What are the limits to the strategy?’

Here is the good and bad news to Micahel’s timely question…WE ARE ABOUT TO FIND OUT!

I have been making my calls and getting the calls…every company has to have a ‘Bitcoin Reserve’ and be like Mike strategy for their stock or even startup.

Credit to the early Bitcoin maximalists. I am good friends with a few.

There is Bitcoin envy though right now everywhere.

Back in October I shared on Stocktwits.com that I bought some Square (Now Block - $SQ) as more of a fintech ‘catch up play and baby Microstrategy:

Jack Dorsey the CEO has long been a Bitcoin maximalist. I just sold it the other day but in writing this post I have Microstrategy/Bitcoin envy again myself and may just buy some back as ‘baby Microstrategy shmuck insurance’.

I do own some Bitcoin, Rachel owns Bitcoin, my dog Lindzee probably owns Bitcoin and I am not sure who is left to buy Bitcoin, it’s just a matter of how much Bitcoin now gets bought because in a world of millions of billionaires, the only cool thing left is cornering the market.

Please be careful at the moment as the copycat model feels too hot and the math seems too easy.

Three Things I Think I Think – Strategic Reserves and Stuff​

Sorry for the brief hiatus. I’ve had my head down working on my new book which is due in a few weeks here. I am having a blast writing it which is either indicative of my own delusions or something readers will really enjoy. Perhaps both. Anyhow, here are some things I am thinking about in addition to my book:

1) The Strategic Bitcoin Reserve. There’s increasing chatter about the US government starting a “strategic Bitcoin reserve”. I will be blunt about this – I have no idea why any government would want to do this. When the world was on a true gold standard it made sense to have reserves of gold because you needed gold to support the money supply. Today’s system is not a fixed money supply system. The value of the money we create is only as good as the goods and services denominated in that currency. It has nothing to do with gold or any fixed monetary unit, not even central bank “reserves”! So governments don’t need to hold reserves of Bitcoin or gold. In fact, the government doesn’t need to save money at all because it has a printing press.

The government needs us to produce real resources, but it doesn’t need to save money to be able to spend money. And that’s my major problem with the idea of a strategic Bitcoin reserve. In theory, this reserve would protect us from potential currency devaluation, right? But you’re telling me that we should print fiat money to buy an asset that protects us from printing fiat money? That doesn’t even make sense. If we’re going to print money to protect the value of our currency then we should be strategically investing that money in endeavors that create real resources or are accretive to economic value in the future.

At times in the past I’ve expressed my interest in some sort of a strategic investment fund that would harness the printing press to create more venture capital style funding for entities that needed it. It’s controversial to have the government do that, but if we’re going to print money to protect the currency you want to do that in the process of innovation and mobilizing real resources, not buying rocks or digital rocks. Printing money to buy rocks makes no sense and should do nothing but create inflation and make the problem worse!
Anyhow, Bloomberg had a good editorial opinion on this. They call the idea a “scam” which is probably going a little too far, but I think it’s fair to say this is a very poor use of taxpayer dollars.

2) Exploding US Market Capitalization
I was updating a section of my new book and I was mind blown by this statistic – the USA is now 63.5% of all global market cap. Up from 60.5% at the start of the year. In fact, it should rebalance to almost 65% at some point in the next quarter since that’s where the FTSE All World Index now sits.

The US stock market has been the only game in town for years now. The last 3 years have been especially bad as global developed stocks have generated just 2.7% per year while US stocks have generated over 10.5%. If your benchmark is global financial assets well, the last 3 years have been pretty dreadful unless you’ve been massively overweight US.

The most amazing part of this data is that the next closest market is Japan at just 5.6%. No other country comes remotely close to competing with the US dominance in global market valuations. Sure, China is closer on a full cap basis, but over 55% of Chinese stocks aren’t investable so even China is small in comparison. And their market has been decimated in the last few years.

It’s wild stuff. The rah rah USA part of me is super happy about this. But the asset allocator in me looks at this and wonders “how is this not a huge potential risk for US investors”? It comes down to the old debate about momentum versus mean reversion. If you believe in mean reversion you think this trend has to reverse at some point. But if you’re the momentum investor you think the USA will just eat the world. Personally, I don’t think you have to pick one or the other and that’s kind of the beauty of holding the whole world allocation. But man it’s hard to look at those international allocations and not wonder if they’ll ever play catch up….

3) Invisible Independents


I was laughing at the online discourse last week after the U Michigan sentiment survey was updated and the figures predictably flipped after the election. Republicans are now optimistic and Democrats are now pessimistic. The data set that barely budged was Independents. And yet the discourse online was all about how the data is useless because the two extreme sides are so volatile. But what about those Independents? Why do they always get ignored?

It’s an interesting piece of the data because when you view the economy thru the lens of Independents things look just okay. Not bad, not great. Which I would say is pretty accurate. And my guess is that most people in this country, despite being forced to pick a side in most battles, probably overlap in numerous ways that make them more Independent than they are categorized as. But instead of the Independents dominating the narratives we tend to hear mostly from the two polar opposite parties.

Anyhow, nothing surprising there, but it drives me nuts how people don’t spend more time thinking about the many overlaps we have here and instead focus on the extremist ways in which our politics disagree. It seems to be getting worse as I get older. We’re all getting increasingly trapped in our little political silos and ignoring everyone else. The naively hopeful optimist in me still thinks it will get better before it gets worse, but I’m not so sure anymore….mean reversion isn’t a very popular thing these days, in markets or politics.

The Hawk Tuah Memecoin Rug Pull Is The Apotheosis Of Bag Culture | Defector

I can’t ease you into this one, so: Haliey Welch, colloquially known as the “Hawk Tuah girl,” launched a bespoke cryptocurrency token called HAWK last Wednesday, the same day she told Fortune it was “not just a cash grab” and her manager cut off a question in the same interview about its...

defector.com

LOL anyone that buys this shite deserves all they lose.





So the above chart is quite interesting: the candle chart = Log of SPX/money supply.

Outside of 1929, market is at a potential turning point.

I think however that we will replicate the 1929 experience because we are actually also (again for the second time in 100yrs) caught up in a Sovereign debt bubble.

We are seeing massive speculation. Off the charts currently. Who the f*ck buys some tart's crypto coin. WTF. Which is just to say, stocks will continue into this melt-up far higher than anyone can believe.

jog on
duc

 

[ducati916]

Here comes the psycho-babble:


12/12/24 - All good work on improving ourselves increases our capacity to sustain work on ourselves. Just as in a gym, our workouts build our ability to sustain work: when we grow our trading, we grow ourselves, and that is growth of our free will: our capacity to grow.

12/11/24 - Here is a formula for making positive changes going into the new year: Think big, implement small. What that means is that it's important to have a vision and mission that inspires and energizes you, but it's equally important to implement that vision with concrete activities, goals, and plans every single day. Add one positive action to your routine each day that implements your big picture vision. Incorporate that new action every single day in the same way for a month and then add another positive action in the same way. Step by step, you move toward your ideal. Change requires inspiration; change requires consistency. What you do shapes your mindset. Each day, be a little more of the person you're ultimately meant to be.

As we get to the end of the year and you review your performance, here are three tough questions to ask yourself (and answer!):



1) If a basketball or football team prepared for its next opponent with the intensity and thoroughness that I bring to my daily preparation for trading, how well would they do?

2) If I entered an elevator and saw a famous venture capitalist riding with me, what pitch would I make for my trading business and how likely would it be that he/she would invest in my trading?

3) What have I been truly successful at prior to my trading career and how, specifically, do I leverage that talent in my current trading to achieve positive and unique returns?

Mindset will never, by itself, make you a successful trader. What you do to pursue your distinctive trading success empowers your mindset.

Further Reading:

Three Questions to Ask About Your Positive Trading Psychology


Listen, everyone struggles.

Your struggles are most certainly different than mine. It follows that they are different from your neighbors, work colleagues, friends, and even family members.

They may be better or worse. It doesn't matter. What does matter is that you have struggles, they are yours, and to varying degrees, these struggles affect your mental health and put you at risk of entering a self-fulfilling spiral that you can't escape from until you've lost everything.

I believe traders and finance professionals don't talk enough about their struggles. I know I personally do not.

There is a pervasive, institutionalized, and incentivized culture in our industry to project calm and confidence at all cost.

Everything is great! We're making a ton of money! Nobody is better than us! Let us manage your money for you!

I'm calling bull**** on that because the costs are greater than we can imagine.

The sooner we talk about it, the better we can tackle problems with effective solutions, and the likelier we are to achieve desirable results.

If any of this resonates with you, I encourage you to make time to join me and licensed clinical psychologist Andrew Menaker (@Andrew_Menaker) tomorrow at 2pm ET on twitter/X Spaces where we will attempt to begin an ongoing dialogue about struggles, symptoms, and remedies to point us all towards peak performance.

If for whatever reason you cannot attend live, you'll be able to listen to a recording of the conversation. Click here to book the conversation and put it on your calendar.

Sean McLaughlin | Chief Options Strategist, All Star Charts


What you need is a REAL EDGE.

jog on
duc

 

[ducati916]

This is post #1 of 5

Simply cannot post all the charts in one post, very annoying.


Oil News:

Oil prices have finally outgrown the pains of the OPEC+ meeting, with the potential threat of sanctions now front and center this week. New G7 sanctions on Russia’s shadow fleet, Chinese concerns about buying Iranian crude with Trump coming into office, and looming nuclear sanctions on Tehran have added some geopolitical risk premium to oil, lifting Brent back to $74 per barrel, posting the first weekly gain since mid-November.

OPEC Adapts to New Bearish Realities. OPEC has revised its global oil demand forecasts for 2024 and 2025 for the fifth consecutive time, seeing next year’s growth outlook at 1.45 million b/d with the changes almost entirely driven by a downgrade of consumption growth across the Middle East.

EU Agrees on 15th Russia Sanctions Package. European Union countries have aligned on the 15th package of energy sanctions on Russia over its war against Ukraine, targeting over 30 entities and 45 tankers for their involvement in facilitating Russia’s so-called shadow fleet trade.

ExxonMobil Doubles Down on Oil. US oil major ExxonMobil (NYSE:XOM) has boosted its upstream spending from $27-29 billion in 2025 to $28-33 billion in 2026, eyeing a lift in total production to 5.4 million boe/d by 2030 following the Pioneer acquisition, up 18% from current output levels.

Mexico’s Output Plunges Even Deeper. Recent budget cuts are squeezing Mexican oil production to multi-decade lows, with the most recently reported month of October seeing crude output at 1.42 million b/d, as huge arrears to drilling firms are expected to push production to 1.3 million b/d by now.

Iran Agrees to Tougher Nuclear Oversight. Iran has agreed to more stringent monitoring by the International Atomic Energy Agency at its underground Fordow site, only a couple of days after reports started surfacing about Tehran being able to enrich uranium up to 60% purity, easing tensions.

Canada Wants to Stand Up to Trump. Several Canadian premiers have urged Prime Minister Trudeau to deliver a robust response to Donald Trump’s threat of placing a 25% import tariff on Canadian goods, with Ontario Premier even suggesting exports of both crude and electricity to the US could be halted.

India’s Top Refiner Signs 10-Year Deal with Russia. India’s largest private refiner Reliance (NSE:RELI) signed the biggest ever crude oil supply deal with Russia’s state oil firm Rosneft, agreeing to buy some 500,000 b/d of Russian oil over the upcoming 10 years, with an option to extend for another 10 years.

Shell Tries Its Luck with the Black Sea. Despite a relatively tense geopolitical situation in the Black Sea region, UK-based energy major Shell (LON:SHEL) signed a deal to develop an offshore exploration block in Bulgaria, covering more than 4,000 km2 and abutting Turkey’s giant Sakarya gas discovery.

Chinese Battery Producers Move to Europe. The world’s largest EV battery maker CATL signed a $4.3 billion deal with European carmaker Stellantis to build a large-scale lithium iron phosphate (LFP) battery factory at the latter’s Zaragoza plant in northeastern Spain, the Chinese firm’s third plant in Europe.

Austria Terminates Gazprom Supply Deal. Austrian oil firm OMV (VIE:OMV) terminated its pipeline gas supply contract with Russia’s Gazprom, a symbolic move as Austria was the first Western European country to receive Russian gas in the 1960s, after the two fell out over a $240 million arbitration case.

Asian Demand for Saudi Oil Jumps in January. Following Saudi Aramco’s (TADAWUL:2222) consecutive price cuts to formula prices that led to OSPs being at a 4-year low, Chinese refiners ramped up their nominations of Saudi crude to 46 million barrels, up 25% compared to this month’s 36 million barrels.

Europe’s Leading Trading Firm Sheds Refining. Geneva-based trading firm Gunvor has decided to mothball its 75,000 b/d Rotterdam refinery and will operate the site as a trading terminal, citing escalating operational costs amidst high power prices and elevated inflation rates and weak margins.

Tullow Oil Becomes an Acquisition Target. Following the departure of Tullow Oil (LON:TLW) chief executive Rahul Dhir last week, the Africa-focused producer has been in disarray, with upstream peer Kosmos Energy reportedly weighing an all-share acquisition, potentially doubling its production.


Is this an (actual) edge?

My family has always been a healthcare family - I’m the son of a nurse and a pharmacist. When I was 15, they turned their passion for healthcare into an entrepreneurial venture, starting our community’s only locally-owned pharmacy. I spent many weekends helping out with whatever needed to be done, and gained knowledge of the pharmaceutical industry while other kids were playing Fortnite. Seeing the intersection between science and retail was fascinating, from the lab to the pharmacy shelf. I witnessed first-hand the approval and widespread adoption of Novo Nordisk’s Ozempic and how much it costs to order a refrigerator full of it (it’s a lot!). I was born in 2002, so while I was being conceived, the NYSE Biotechnology Index bottomed and entered a 2,000% secular uptrend. What’s more, Humira, the biggest blockbuster drug of all time, was launched days after I was born. I’m fortunate to have been born at the time I was! Biotechnology at an index level has been dead money for a decade, but I think that’s about to change:

​

JC has been pounding the table on sector rotation into Consumer Discretionary and Technology, but I think he’s not paying enough attention to biotechnology. This industry made investors fortunes earlier this century, but most investors suffer from recency bias and want nothing to do with them. Before the legendary visionary Steve Jobs passed away over a decade ago, he said, “I think the biggest innovations of the 21st century will be at the intersection of biology and technology. A new era is beginning.” Who am I to argue with Steve Jobs? I’m here to profit from companies on innovation's bleeding edge. Every day, I’m monitoring this list of up & coming biotech stocks:

​

My universe contains biotech stocks between $1-$10B in market capitalization or about 20% of all investable biotech stocks. That’s the sweet spot for me. I’ll leave the speculating on phase 3 readouts to the science nerds. I’m no scientist. I’m looking for companies that recently won FDA approval and are in the early stages of marketing to the masses. This is often accompanied by primary trend reversals and base breakouts, which allow me to define my risk without capping my upside. You can join the waiting list for my new weekly column, Bio-technical Analysis, focused on identifying the biotech industry's most asymmetric risk vs. reward setups. Also, we recently published a free report highlighting the best stocks in the Baker Bros. portfolio. This hedge fund is on another level when it comes to identifying companies in the biotech industry with science that makes money for shareholders.

This heatmap visualizes US Consumer Price Index (CPI) inflation trends over the past year, broken down by key categories and subcategories. Using a colour gradient based on Z-scores, it highlights the relative intensity of price changes within each category. Darker shades of red signal higher inflation compared to historical observations, while blue denotes easing pressures.

In November, inflation rose to 2.7% year-over-year, continuing its upward trajectory since the Federal Reserve began cutting interest rates in September in response to cooling prices. Key drivers of this uptick were surging prices in food categories – particularly meats and non-alcoholic beverages – and increased costs for apparel and public transportation. While shelter remains a significant contributor to overall inflation, its rate of increase moderated slightly, declining from 4.9% in October to 4.7% in November. These shifts underline persistent price pressures despite recent monetary easing.



This chart highlights the annual performance of 14 distinct asset classes over the past decade, ranking them from best to worst for each year. Each asset class is represented by the same colour, making it easy to track trends over time. The percentage figures beneath each asset class indicate its total annual return for the respective year, providing a quantitative measure of performance. This chart helps investors identify performance patterns, spot resilient assets and assess long-term relative returns.

Bitcoin has emerged as the top-performing asset in 2024, driven by a surge following Trump’s election victory. True to its reputation as a volatile and “binary” asset, Bitcoin claimed either the top or bottom spot in annual rankings throughout the past decade – it was the worst performer in 2022. This year’s strong performance highlights its high-risk, high-reward nature, maintaining its appeal as a speculative and growth-focused investment.



This chart compares the S&P 500's 2024 year-to-date (YTD) performance, best YTD performance, and historical maximum drawdowns (DD) by industry group. The analysis is presented in two panes: one showing market-cap weighted results and the other showing equal-weighted results.

By the end of 2024, market-cap weighted indices reveal strong rallies in the communication services, IT and consumer discretionary sectors. These gains are driven by economic resilience and excitement surrounding AI advancements, which have concentrated returns within a few leading stocks in these cyclical sectors.

In contrast, the equal-weighted indices tell a different story. Here, financials, industrials and utilities demonstrate better overall performance, highlighting the benefits of diversification. The relatively lower returns in the equal-weighted analysis for the top-performing market-cap sectors suggest their dominance stems from the outsized influence of a few large-cap stocks rather than broad-based strength.

Looking forward, uncertainties from economic and political developments could necessitate a more decisive focus on selection and diversification strategies. Investors may need to balance exposure to high-performing, concentrated sectors with more broadly diversified investments to navigate potential volatility effectively.




This chart illustrates Bitcoin's cumulative returns and daily mining changes during each halving period. Halving events, which occur roughly every four years (most recently in April 2024), reduce the mining reward by 50% for validating a new block on the blockchain. These events are programmed into Bitcoin's code to control the supply of new coins, ensuring scarcity and mimicking the finite nature of precious metals like gold.

Bitcoin halvings are integral to preserving scarcity and promoting mining efficiency, but they also highlight a distinct pattern in cumulative returns. Historically, following halving, Bitcoin’s price surges for several months to more than a year, declines significantly, and then stabilizes at a level near the initial surge.

However, over the past three halving cycles, cumulative gross returns have steadily declined – from over 5,000% with a 202% compound annual growth rate (CAGR) during the first block, to around 700% with a 66% CAGR in the third. For the current cycle, which began in April 2024, the cumulative gross return stands at around 150% with a 90% CAGR. While the post-halving pattern suggests potential volatility and growth, the trend of diminishing returns underscores Bitcoin’s maturation as an asset.



On Edge: https://alphaarchitect.com/2024/12/portfolio-efficiency/

Trend Following Done Right

My last article, “The Trend Is Your Best Friend – Here Is Why”, showed how investors can benefit from applying trend following to all investment assets. This article will explain the best ways to do

www.optimalmomentum.com

jog on

duc

 

[ducati916]

Part deux:

Are you ready for some BRAIN DAMAGE?

Convert of Doom​

Microstrategy and the dark arts of 'volatility arbitrage'​

When you grow up in the projects, you tend to remember the first day you lost a million dollars.

I still remember it like it was yesterday. Technically I didn't lose the million - my boss Geoffroy did. A detail which didn't seem to matter to Rachid, the presumptive head of equities in Lehman London. When a guy goes on vacation, the guy who marks his book manages the book, so that day, I wasn't a 14-month-old junior prop trader, I was the guy managing a portfolio of $150m of exotic Tier 2 European financial convertible bonds.

"What's the damage today?"

"Well, erm, looks like we're down $1.7m"

"On what?!?"

"Those Fortis converts. Credit is gapping out again and we only hedged the delta. If I sell while he's out, Geoffroy will roast me alive."
[grumbles, stares into my soul for weakness]..."ok overhedge the delta for now and I'll talk to him when he gets back."
Within two weeks of returning from vacation, he was gone. Didn't matter that the group made $75m the previous year, half from convertible bonds. Losses were approaching $10m and management was on its third (of eight) rounds of firings.
Thanks for reading Campbell Ramble! Subscribe for free to receive new posts and support my work.



Today we're watching something similar play out with way more zeros. Michael Saylor has turned MicroStrategy into a $30B levered bet on bitcoin using convertible bonds, creating one of the most complex trades I've ever seen in public markets.

The World's Most Expensive Bitcoin Fund​

​

The simplest way to think of a convertible: a vanilla corporate bond packaged with equity options. Those of you in startups with SAFEs or preferred shares with liquidation preferences? You're trading converts without knowing it.

MSTR's newest converts are a masterclass in financial engineering:
For every $1000 bond:

• 0% interest for 5 years (yes, zero)
• Convertible into 1.48 shares at $672 price per share
• Current MSTR price: $450 at issuance ($380 as of writing)
• Current bitcoin per share: 0.002 BTC
• Premium to NAV: 110%

At 4% 5-year rates, $810 of your $1000 represents the zero-coupon bond component. The remaining $190 buys you 1.48 call options struck 50% above current prices on a stock already trading at more than 2x its asset value.


Keep in mind MSTR trades around 100-150% 'rich' to the present value of their bitcoin holdings.


Taking their 386k bitcoin at market value, MSTR should trade at $150 per share - yet it reached $470 last week.

Meaning to reach that $672 share price, we need bitcoin to go up a lot more than the premium goes down. More than 200% to make up for a premium coming back down to 0.

The Volatility Game​

​

This is where it gets interesting. Look at the volatility surface for MSTR:

Key observations:

• MSTR 5yr ATM options: 100% implied vol
• Bitcoin 5yr options: 75% vol
• IBIT 5yr options: ~73% vol

At first glance, MSTR options look expensive compared to bitcoin vol.


But looking at realized volatility tells a different story:


Saylor's leverage has transformed what was once a normal stock (32 vol) into something realizing in the 100s. This is where the Merton model becomes critical.

Merton Model Analytics​

​

The model says equity volatility should reflect asset volatility plus leverage effects. In simple terms:

If you have:

• $100 of assets at 10% vol
• $50 debt, $50 equity
• All vol reflected in equity

Then: $10 annual asset movement / $50 equity = 20% equity vol
For MSTR:

• Implied equity vol: 105%
• Translates to asset vol of ~75.6%
• Matches bitcoin's own implied vol

This has profound implications for convert pricing. The embedded options are being priced at high vols because:

1. The premium to NAV creates extra volatility
2. That vol gets priced into new converts
3. Which funds more bitcoin purchases
4. Creating a self-reinforcing cycle

Look for part trois​

jog on
duc

 

[ducati916]

Part trois:

The Premium Trap​

​

For these converts to make money:

1. Bitcoin moons while premium holds, or
2. Premium expands further

Let's put numbers on it:

• Current bitcoin: $95,000
• MSTR bitcoin/share: 0.002 BTC
• Raw bitcoin value/share: $156
• Current MSTR price: $450
• Convert strike: $672

If the premium normalizes to even 50% (still rich), bitcoin needs to hit $224,000 for these converts to break even on conversion.

Put another way

The Correlation Game​

​

The real complexity comes from correlation between bitcoin price and premium:

We get implied correlation of 0.55 between premium and bitcoin - historically high but crucial for pricing the converts. If you are betting on upside, you are also long correlation between the premium and the upside vol in the price of bitcoin. More of the same, basically.

The Regulatory Arbitrage​

​

This structure exists because:

1. Retail can't easily access bitcoin derivatives
2. Convert buyers need ISDA agreements
3. Futures contracts are too big ($300k) with high margins (50-100%)

Result: Retail buys MSTR shares at 150% premium while sophisticated investors arbitrage vol differentials and MSTR books the diff between all these trades as profitable transactions.

Here's the irony: We require hedge funds to register with the SEC, spend $50-500k annually on compliance, and limit themselves to accredited investors with millions in the bank. Yet retail investors can freely buy MSTR shares through Robinhood.

And therein lies all the difference. There’s nothing wrong with what MSTR is doing, but it’s a good example of the law of unintended consequences.

Regulators block retail from 'risky' hedge funds while inadvertently pushing them into something potentially more dangerous.
By restricting crypto access for years, regulators left retail investors few options. Bitcoin futures required $300k contracts with 50-100% margin. ETFs were obscure or nonexistent. So people bought MSTR instead - a far more complex and potentially risky vehicle.

In trying to protect retail investors, the SEC has inadvertently funneled them into a potentially much riskier product
Each new convert makes the structure more complex: bitcoin-per-share has fallen to 0.002 BTC through dilution. New issuance adds leverage while reducing bitcoin exposure, unless they buy more - but buying at higher prices raises their average cost basis. It's leverage on leverage.

Saylor himself made this argument on TV last week, boasting about arbitraging the volatility differential between MSTR stock and bitcoin.
Note these are two arguments which would NOT BE AVAILABLE to anyone managing a private investments vehicle. There’s a reason every investor letter is practically littered with the phrase ‘past performance does not indicate future results’: usually when mom and pop get ripped off it’s because, you guessed it, someone was promising that past returns are indicative of future results.

It's a basic lesson every trader learns: past performance doesn't predict future returns. 'Buy low, sell high' - not 'it went up yesterday, so it'll go up tomorrow.

Saylor crosses an implied redline here - not just by profiting from self-dealing (which he openly brags about), but by promising investors they can expect this to continue.

If MSTR is just a bitcoin holder, its shares should eventually converge to bitcoin's value. Whether through better retail bitcoin access, more liquid options markets, or lower volatility - these arbitrage opportunities will shrink. While profitable now, it's dangerous to promise this can continue forever.

The Lehman Lesson​

​

Remember Fortis? Their converts looked great too. European bank, solid credit, nice vol premium in the options. Until credit spreads blew out and that lovely vol premium became dead weight.

MSTR isn't a bank, but they have $5B in zero-interest convert debt. Sounds better, right?

Not exactly. When Fortis blew up, all that vol we thought was free money turned into pure downside. The same thing that makes MSTR options look reasonably priced - the premium-driven extra volatility - is exactly what can kill you in a down market.

Each new MSTR convert issuance further complicates the math: the effective Bitcoin-per-share ratio has fallen to 0.002 BTC, diluted by repeated capital raises.

The math can work: bitcoin moons, premium holds, converts print. But I've seen this movie - these are still bonds. Someone has to pay back that $5B: either bitcoin buyers, & premium traders push up the share price, or MSTR itself by selling coins at a loss to repay bondholders.

Sounds easy, bit harder than it looks.

Just ask Geoffroy.

Charts and data as of December 2024. Past performance does not predict future returns.

Appendix:​

​

Pricing the convert in Bloomberg (OVCV)
MSTR Convert Base Case:

• 400bp credit spread
• 75% vol
• $380 spot price → Prices to par

Sensitivity Analysis:

1. Credit Spread Effect
   • Reducing spread to curve (250bp)
   • Impact: +4% NAV
2. Volatility Effect
   • Increasing vol to 100%
   • Impact: +3 points

Day-of-Issue Pricing:

• 400bp spread
• 100% vol
• $433 stock price → $113 NAV

​

LOL. Wrap your brain cell around that.

So what's the takeaway?

I remember reading (not an exact quote) something that Benjamin Graham wrote: if it's not explainable with simple arithmetic, you're kidding yourself that you know what's going on. Now Graham was a polymath and could do the math if he wanted, but avoided the calculus so popular in 'hedge funds'.

Lehman, Long Term Capital Management, all the banks Goldman, etc. blew up using calculus and literal rocket scientists to do their math. Mr Saylor is an MIT grad (math) and is now very arrogant when speaking to your average dumb arse. Hubris is coming.


jog on
duc

 

[ducati916]

Part 4

At what point does all of the above come home to roost for Mr Saylor? What impact on BTC? On the copycats?

View attachment 189445

Full:https://www.wsj.com/finance/investi...a?st=GHRgJC&reflink=desktopwebshare_permalink

Where are retail playing?

Zero-day options have exploded in popularity in recent years, accounting for approximately half of S&P 500’s total options volume, a ten-fold increase from just 5% in 2016. Their flexibility, low premia and underlying leverage appeal to all market participants ranging from conservative investors hedging against intraday market volatility to aggressive traders speculating for quick profit generation. The rapid rise of zero-day options and the memory of a market stress episode known as ‘Volmageddon‘ raises concerns that zero-day options could lead to a similar event. There are differing views among participants on the perceived risks of zero-day options. This post aims to provide a balanced overview.


The rise of zero-day options

Zero-day options are options contracts that are set to expire at or before the end of the trading day. They can be used to take positions on intraday market movements, or to conduct targeted hedging with a greater degree of precision. Market participants write zero-day options or sell options on their last day to capture the remaining premium given the low likelihood of significant unexpected intraday market movement.

Two factors have contributed to this booming popularity – the longstanding efforts by Chicago Board Options Exchange (CBOE) to encourage greater retail participation in S&P 500 options and the increase in risk-taking behaviour especially among retail investors. To date, the increase in zero-day options trading has been mainly observed in CBOE options trade, since this is the largest global equity options market. It is yet to be seen whether similar developments will be observed in the UK or elsewhere.

Financial market expansion

In February 2021, CBOE activated the ‘Automated Improvement Mechanism‘ to incentivise greater participation in S&P 500 options by providing execution and price improvements for smaller order sizes. This also enhanced market liquidity as marker-makers generally prefer smaller order sizes due to their ease to hedge. In May 2022, CBOE expanded S&P 500 options expiration days from three to all five weekdays. Although this impacted all options, the effect on zero-day options trading is evident as can be seen in Figure 1. CBOE estimated that 49% of S&P 500 options trading today are using zero-day options.

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Figure 1: Total S&P 500 options trading volume by Time to Expiry (2016 to August 2023)


Source: CBOE article: The Evolution of Same Day Options Trading, 3 August 2023.

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The improved market conditions have encouraged both market participation and innovation. The first zero-day options exchange-traded fund was launched in September 2023, tracking the performance of the Nasdaq100 Index. Since then, multiple zero-day options-based products have come to the market tracking the price movement of stock indexes, commodities, and US treasury bond of different maturities. This trend suggests that more innovative zero-day options-based investment products could come to the market in the future.

Booming retail popularity

The trading boom since the meme stock craze and the leveraged nature of options have led to a surge in retail speculation. It is estimated that zero-day options represent over 75% of all retail S&P 500 options trade (see Figure 2 from Beckmeyer et al (2023)), and CBOE estimated over 30% of S&P 500’s total zero-day options volume is retail.

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Figure 2: Retail S&P 500 options monthly trading volume


Source: Beckmeyer et al (2023), Retail Traders Love 0DTE Options… But Should They?.

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The distinctive characteristics of zero-day options – a low nominal price, frequent expiration cycle and rapid outcome realisation – appeal to retail speculators who strongly prefer a high-risk and high-return lottery-like instrument. While trading zero-day options appear cheaper on paper, the cost could quickly accumulate. Beckmeyer et al (2023) estimated that approximately 60% of retail traders’ daily losses in zero-day options trading are due to transaction cost.

Potential risks with zero-day options

The surge in popularity, market speculators and related investment vehicles have raised concerns that zero-day options could create systemic risks by exacerbating market volatility. I briefly examine four risks introduced by zero-day options:

• Significant intraday movements would lead to market-makers making larger positional adjustments to neutralise their exposure. Due to their shorter time-to-expiration, zero-day options are highly sensitive to market movements. The hedging intensity necessitated to neutralise zero-day options exposure requires market-makers to constantly transact in the underlying market. The frequency of hedging required could exacerbate volatility of the underlying market and result in a loop that magnifies the initial market impact.
• 
  
• The risk of zero-day options may not be limited to just the underlying market associated with the contract. The asset holding and hedging strategy of financial institutions could cause volatilities in the zero-day options market to ripple-through other asset classes. For example, if financial institutions use a portfolio of short-term liquid assets as collateral against their options exposure, significant intraday movements could force the liquidation of these holdings and amplify the volatility and liquidity pressure in other markets.
• 
  
• Potential deficiencies in the current margining system, and the inability of risk management infrastructure to keep pace with new market developments. The current margining system for both centrally and non-centrally cleared derivatives typically operate on a daily cycle, with margins collected at least once per day based on end-of-day positioning. For centrally cleared derivatives, central counterparties can call for intraday collateral via either scheduled or ad-hoc calls, but since traders open and exit multiple zero-day option positions during the day, it’s unclear to which extent the current margining requirement captures these activities. In a market stress, the intraday accumulation of unrealised losses could expose financial institutions with insufficient margin protection. Additionally, risk management infrastructures are generally designed around the daily margining process, raising concerns about insufficient intraday risk management.
• 
  
• Intraday risks are not captured explicitly under the Pillar 1 market risk regime, and thus the Pillar 1 market risk capital requirement may not be sufficiently prudent for institutions engaging in zero-day options trading. The current Pillar 1 market risk regime uses end-of-day positioning to assess capital requirement, with potential deficiencies in risk assessment and capital shortfall addressed in the bank-specific Pillar 2 capital requirement. Since intraday risks are not explicitly assessed in Pillar 1 capital evaluations, relying solely on institutions to upgrade their risk management infrastructures without a prudential backstop may be insufficient to safeguard the financial system against future crisis.

Market’s concerns of zero-day options

There are concerns in the market that unforeseen risks in zero-day options could trigger the next financial crisis, but many do not share the same sentiment.

Potential imbalances between traders and market-makers and market-makers desire to maintain a neutral exposure could exacerbate market volatility. JP Morgan warned that the unwinding of zero-day options could generate sharp market swings and has the potential to transform a 5% S&P 500 intraday market decline into 25%. A recent academic study found that zero-day options trading has a significantly higher impact on intraday volatility than trading other options. A separate study also stated that increased zero-day options trading is associated with increased intraday volatility, but the current trading demand for zero-day options has resulted in market-makers hedging in the direction that mitigates market volatility. Therefore, if market-makers’ net zero-day options position is large enough, the attenuating effect can fully offset or even reverse the increase in market volatility caused by zero-day options trading.

Furthermore, since zero-day options have no overnight risk, market participants believe they are unlikely to accumulate systemic risks to the level that could cause significant market disruption. Also, institutions remain the main driver of zero-day options demand, and the netting effect of institutions’ multi-leg trades could also alleviate some of the impact that zero-day options trading may have on market volatility. In September 2023, CBOE reassured the market that despite the huge notional daily trading volume, the actual net exposure for zero-day options market-makers is fairly negligible, with average net gamma ranging from 0.04% to 0.17% of the daily S&P futures liquidity. Moreover, CBOE observed no discernible impact on market volatility from zero-day options trading.

During the rapid market sell-off on 5 August 2024, zero-day options’ trading volume declined significantly to 26% of S&P 500’s total options volume from a yearly average of 48%. A Bloomberg article quotes a note by Bank of America stating that the concerns of zero-day options contributing to the rise in equity volatility are ‘largely misguided or at minimum greatly overstated’. Market analysts believe pricing difficulties in a highly volatile market and the preference for longer-dated options to hedge against uncertain market or economic conditions led to traders refraining from trading zero-day options. As the market recovers, zero-day options subsequently returned to their usual volume.

Conclusion

Innovation will continue to shape the financial market and new risks will emerge as the market evolves. I recognize the concerns that these shorter-dated options have the potential to introduce unforeseen risks, but given that the market has only been experiencing zero-day options at a higher volume since 2022, a lack of data and history makes it difficult to assess the materiality of these risks. Institutions are responsible for adequately managing their risk exposure, but there may be a case for broader risk assessment in the future.


jog on
duc