Author: Contrarian Marketplace

Deja vu?


Interesting chart from ZeroHedge pointing out the similarities in two equity market corrections that we’ve seen in the past – 1929 and 1987 – vs today. Gluskin Sheff Chief Economist Dave Rosenberg tweeted at the start of March 2018,

Hmmm. Let’s see. Tariffs. Sharp bond selloff. Weak dollar policy. Massive twin deficits. New Fed Chairman. Cyclical inflationary pressures. Overvalued stock markets. Heightened volatility. Sounds eerily familiar (from someone who started his career on October 19th, 1987!).”

Several weeks ago CM wrote,

Perhaps the scariest claim in his report is a survey that showed 75% of asset managers have not experienced the tech bubble collapse in 2000. So their only reference point is one where central banks manipulated the outcome in 2007/8. S&P fell around 56% peak to trough.

“…Hickey cites an interview with Paul Tudor Jones who said that the new Fed Chairman Powell has a situation not unlike “General George Custer before the battle of the Little Bighorn” (aka Custer’s Last Stand). He spoke of $1.5 trillion in US Treasuries requiring refinancing this year. CM wrote that $8.4 trillion required refinancing in 4 years. In any event, with the Fed tapering (i.e. selling their bonds) couple with China and Japan feeling less willing to step up to the plate he conservatively sees 10yr rates hit 3.75% (now 2.8%) and 30 years rise above 4.5%. Now if we tally the $65 trillion public, private and corporate (worst average credit ratings in a decade) debt load in America and overlay that with a rising interest rate market things will get nasty. Not to mention the $9 trillion shortfall in public pensions…

Look at the state of delinquencies in consumer debt among all commercial banks. $36.4 billion or 2.79% of the $13 trillion in outstanding consumer debt.


Last week CM wrote on the blow up in credit card delinquency,

The St Louis Fed shows delinquency rates on credit cards among the smaller banks (above). Presumably the smaller banks have to chase less credit worthy customers because they lack the ultimate battleship marketing cannons of the bigger financial instititutions. We’re back at times worse than the highest levels seen during GFC. Among all banks, we are still away off the $40bn of delinqient credit card debts we’re back at levels higher than those before Lehman’s brought financial markets to a grinding halt.


It looks as though index options look dirt cheap relative to other asset classes. Out of the money short dated put options are trading at cents in the dollar. CM has invested in these products in recent months. With a market looking sicker by the day, risk on has yet to rattle cages of the option markets. A lot of cheap pick up in buying put options providing an easy way to short the market. Gold is also waking up.

Steve Smith should resign. If not he should be sacked


Cheating is cheating. Gaining an advantage outside the rules is cheating. Money and match fees are such nowadays that players seemingly will do anything to win. Cricket was so much better when it was an amateur sport. When a bad decision from an umpire couldn’t be reviewed. It was just part of the game. Sometimes it went with you and others against you. Cricket hasn’t often been about the “spirit” of the game. Not any more.

Of course modern technology can provide instant feedback on the correct decision but I’ve always viewed it as wrong to challenge authority when it suits. Really, what message do we send young kids who grow up to think they can protest any decision they disagree with? What lessons or values get taught? TV cameras are everywhere. How do these sportsmen think they’ll get away with claiming a catch they didn’t take? Now this.

While a full inquiry hasn’t commenced it is clear that the player caught tampering was the one fighting hardest to keep his seat, Cameron Bancroft. However team captain Steve Smith admitted he knew in the press conference. While adamant he won’t step down as captain because it will never happen again (Scout’s honour), if he is found implicated in this mess he should be sacked. Period. So should the coach Darren Lehman. I absolutely admire Smith’s crazy talent as a batsman but find such lapses in judgement no excuse and even less worthy of having the honour of leading a national team. If found guilty he should face a lengthy suspension.

Any board would call on their CEO in the corporate world to resign if he/she hadn’t already volunteered it. Yet sports stars, much like politicians, believe hollow promises that the incident won’t happen again should be punishment enough. Qantas should fly these cheats back economy.

Which brings about the ethics of the game. As Smith is the highest ranked batsman in the world will the authorities go weak and impose lighter sentencing to keep the turnstiles ticking? What message does that send? If Smith is in charge he should take the fall for this shocking behaviour and be fined in the $100,000s.

Australia already has a shocking record for bad sportsmanship most infamously with the underarm delivery against NZ in 1981. This test series has been disgusting in many levels. Players mocking other players about the sexual antics of their wives and so on. Australia should forfeit the match and lose their fees. Cricket Australia should be forced to compensate the fans for this debacle and the players responsible fired. Just because Bancroft was fighting to save his career doesn’t excuse him from wrong doing. Sure, playing for one’s country is the highest accolade but any fan wants to see players reach and stay at the top through their hard efforts not through cheating.

What it does tell us is how terrible the governance is within the Australian team. Where were the whistleblowers?  Or do the millions they earn each year somehow cloud their judgement? How could the coach condone it? He was on TV admonishing fans for sledging players walking up the race after being dismissed. What a hypocrite if he knew what the team was up to. No excuse. South African Captain Hansie Cronje received a life ban for match fixing. While ball tampering is not quite as severe as throwing matches it is still cheating.

Fans will be judging the response by the authorities and Cricket Australia. Will CEO James Sutherland issue an apology and some harsh words to really clamp down on this? Or will he gloss over the sordid tour, hope time will heal and think of dollar signs only because  fans can be treated as mugs.

Ethics? A sign in society today of how little it means.



Fantastic film. Finally got around to watching it 5 years late. Here is the trailer.


Citi – your “thought (control) partner”


What is it with corporate virtue signaling? Citi is now telling its clients that in order to keep doing business they must accept certain types of gun sales restrictions despite no constitutional right to enforce it. It certainly makes a mockery of it claiming to be a “thought partner” when it dictates to the same people that stumped up $45bn to save it from bankruptcy.  Short memories. Perhaps Citi should disarm guards at its branches.

Just how far behind the curve is the Fed?

As the Fed raised its Fed Funds Rate to 1.5~1.75% overnight, one has to question just how far behind is it? 3M Libor rates have surged from 0.5% in 2016, c.1% at the start of 2017 to 2.27% today, the highest levels since 2008.  Normally Libor minus Overnight Index Swap (OIS) rates don’t diverge so much without causing a credit issue. The gap is effectively the market price over and above the risk free rate. At the time of the GFC, the Libor-OIS spread hit 3.5%, with 1% being the detonator level. While it is currently at 0.54% spread, it has risen consecutively for the last 32 sessions.


As Libor drives corporate credit recycling, with corporate debt piles approaching record highs and average credit ratings the worst they’ve been in over a decade (chart below depicts Top tier as AAA and bottom tier as BBB-) we could see the Libor-OIS spread keep expanding.


What could be causing this? If we think logically the US Treasury has to refinance $1.5 trillion over the next 12 months and $8.4 trillion over the next 4 years. Add to that a Fed looking at quantative tapering and a less eager Japan and China as buyers of US$ federal debt then the corporate will undoubtedly get crowded out. The demands for refinancing are not being met with the supply of funds.


Of note, the St Louis Fed reports the YoY increase in inflation reported by the CPI in the US in Feb 2018 was 2.3%. The 10yr breakeven inflation rate is around 2.08%. CPI ex food items is still at 1.9%. In any event the US remains in a negative real yield environment.


The Fed can bang on all it wants about healthy growth, full employment but the depth of problems stored up is getting worse. $9 trillion in unfunded public pension liabilities, $67 trillion in combined public, private and corporate debt…

…many are recently talking of the huge pent-up profit boost to banks which have had such compressed spreads for so long. Indeed that all makes absolute sense from a theoretical (and to date practical) reasoning but banks like those in Australia up to their gills in mortgage debt, rising spreads have far nastier implications for blowing up balance sheets than boosting P&L accounts.

In a sense it is almost futile to call central banks as being behind the curve. The failure to take the harsh medicine of almost two decades ago is gathering momentum in so far as there is not much can left to kick down the road.

Trudeau pushes for more compelled speech


You can’t make this stuff up. The Trudeau government plans to ban front-line public service workers from saying Mr., Mrs., Mother, and Father. In what can only be seen as another push toward more compelled speech legislation,  the majority have to put up with more political correct nonsense for the benefit of peoplekind.

Seriously though, if someone is going to be so irreparably mentally damaged by the misuse of a pronoun that it requires legislation to protect he/she/xie, the victim has far bigger issues that require immediate help. How fragile can one be?

The beauty is that for the 99% of us that identity with our biological make-up must make way for the 1% of which it’s actually only 1% of that who would benefit from this legislation. Take the same sex marriage debate in Australia. The 2015 Census showed that only 0.03% of all couples identified as a traditional marriage and same sex. It isn’t questioning equal rights but most campaigners had next to no idea how many it truly impacted. Yet don’t step in the way, else be shot down as a bigot or homophobe.

To put the shoe on the other foot, shouldn’t our rights to be addressed Mr. or Mrs. be equal to that of those who don’t?  Like Bill C-16 the apparatchiks in charge of introducing these laws are by far and away the least appropriate people to enforce it. What are civil rights if legislation only applies in favour of certain groups? Surely Canada’s social service systems can field and burn in requests on which people wish to be called what without having to blanket ban language.

The laughable fact with respect to Bill-16 (which is designed to protect gender identity and expression), is that the Trudeau government did not consult transgender people widely. The sheer fact that they clump all transgender people as “one” distinct group just shows how ignorant Trudeau’s cabinet is. There aren’t individuals within the trans community who think differently from other trans? Who’d had thought?

Yet the left see that such legislation is all about positive outcomes which judged by the complaints by the transgender community show the opposite. Many transgender people do not want to have their identity widely advertised. Yet this legislation seeks to disrupt others into compelled speech many trans people aren’t calling for.

Welcome to the slippery slope. At least one thing is for sure, if the polls are right and  Trudeau gets booted in the 2019 election, Qantas will happily put him in charge of the political correctness department so as to make sure all of the aircraft safety videos address gender equality over the more important safety aspects.

Alternative for Sweden (AfS) is established


It seems that several members of the conservative anti-immigrant Sweden Democrats (SD) have splintered to form the Alternative for Sweden (AfS) (video here). The party was founded a few weeks ago by Gustav Kasselstrand, a former member of the SD which saw its support slip to 14.8% in November 2017, compared to 18.4% percent in June, according to the Swedish Statistics Office. Although in March 2018, Sentio poll has the SD at 23% (from 21.9%), a Demoskop poll at 18.6% (15.4% in Feb) and SiFo poll at 15.9%.

The government, comprised of the Social Democrats and Greens, had a 36.4% approval rating, compared with 35.6% in the June poll. The AfS thinks that the SD has become too compromising and see the fall in the polls as reason to break away and follow in the footsteps of the rise and rise of Germany’s AfD.

SD party leader Jimmie Åkesson said in Feb 2018 that the party is its own worst enemy…“Our biggest problem is that we have not been able to build real credibility...”
going on to say it was uncertain whether SD would benefit from “…moving further to the right on immigration issues because parties like the Social Democrats and Moderates have snatched our politics within the area [just like Rutte in The Netherlands adopting policies of Geert Wilder’s Freedom Party at the Dutch election last year]…The next term of office will be crucial for us to establish ourselves as a government alternative…We must compromise and be pragmatic

Even at its current level of support, the Sweden Democrats would still have enough seats to block either the centre-left or centre-right blocs from forming government after the upcoming September 2018 election.

The SD saw surging support several years ago on what they saw was politically correct limp-wristed responses to growing migrant crime. In Malmo, Deputy Police Commissioner Mats Karlsson said in response to multiple explosions that occur in the city on a regular basis, “Our dilemma is that we can never guarantee anything for sure. Evidently there are individuals who have hand grenades and they often resort to violence over things that may seem very banal to you or I – a conflict over an ex-girlfriend or a little brother wanting to outperform his big brother…It’s bad enough when they use guns, because they’ve got such poor aim, but grenades are really worrying. They have a 360-degree reach.”

As CM has made the point for years, whether one likes the direction of right wing politics or not, yet more nationalist parties are feeling the seeds of discontent within their own constituencies and offering a platform to parties that don’t seem to be listening. On Sept 9th, Swedes will get their democratic say. Austria, Germany, Holland, Italy, The Netherlands and France have all seen large shifts toward anti-immigrant/eurosceptic parties in recent elections. It isn’t a coincidence with the EU at the helm.