Merry Christmas and Happy New Year

Skyrocketing venture capital investments can also cause sleepless nights: a story of Uber, rising public ire, and the man trying to keep it all together

Venture capital fund Benchmark made an investment years ago in a startup that was disrupting the taxi industry. The name of the company was Uber and the investment was made at a $50 million valuation. Softbank - of Sprint fame - is currently undercutting recent funding valuations by offering to buy out a number of initial investors in Uber at a valuation of $48 BILLION. You can do the math. Benchmark made a fortune and is currently holding about $8 billion in Uber stock. And this is after the scandals that engulfed the company.

Bill Gurley is the man behind Benchmark's move into Uber, amid many other successful ventures. But Uber has far outperformed its other investments with massive, outsized, unrealized gains out of a fund that was initially "only" $425 million. Throughout 2017, Uber has gone through cataclysmic change, from the ousting of allegedly badly-behaved CEO Travis Kalanick to a complete overhaul of the company's bro culture.

Although investors may have dispassionately read disturbing headlines about the situation at Uber, Bill Gurley made the difficult decision to terminate the former CEO, hire his replacement, and work on repairing Uber's reputation. All the while, investors' calculus for evaluating Uber was shifting. Although the process was difficult, Softbank's current interest in Uber may be concrete evidence that he may just have been successful.

Read about Bill Gurley's year: https://www.cnbc.com/2017/12/14/bill-gurley-2017-profile-uber-stitchfix-snap.html

Congressional GOP tax bills cover plenty of ground

Congressional tax bills will have a direct impact on business profitability and potential business plans. Large tax credits that businesses are currently holding could become worthless (think Citigroup talking about taking a potential $20 billion writedown in deferred tax assets, repatriation of oversees profits). Amid the swirling last-minute negotiations currently on-going to reconcile the Senate and House tax bills, the main details of WHAT is being discussed is getting lost in the noise.

Below are some highlights from the Senate tax bill.

• Corporate tax rate. Tax rate from 35% to 20%. Repatriation of oversees cash at 14-14.5%.
• Individual tax brackets. Seven brackets with lower rates across all through 2026.
• State and Local tax deductions. Eliminated.
• Alternative Minimum Tax. Threshold raised.
• Standard Deduction and Child Tax Credit. Raised, but personal exemption eliminated.
• Most other deductions eliminated
• Graduate student tuition waiver and loan deduction unchanged
• Small business taxes reduced. Pass-through companies rates lower for companies with less than $250,000 in revenue.
• Individual Health Insurance Mandate. Eliminated

For more details, see
https://www.washingtonpost.com/news/wonk/wp/2017/11/30/what-is-in-the-senates-massive-tax-bill-and-what-could-change/? 


Several key differences between the Senate and House tax bills are

• Alternative minimum tax (AMT). The Senate wants a corporate AMT for more revenue; House eliminates both corporate and personal AMT
• Itemized deductions. The House eliminates most deductions; Senate does the opposite.
• Education (graduate student tuition waver, student loan interest deduction): House eliminates both deductions while the Senate keeps them. For The Ignorant Investor, this is a sticking point. Having been a graduate student himself, the author recommends that the US attempt to keep education as competitively priced as possible. It's already too expensive. Current graduate student deductions have no meaningful effect on debt or revenue and the advantages that international students studying in the United States bring to the United States for higher education is invaluable (many of these students return to their home countries to take positions of prominence in society).
• Individual income tax. Minor variations in the number and taxation of brackets.
• Estate Tax. House bill eliminates; Senate bill raises exemption level.
• Tax-Exempt Groups engaging in political activity. House eliminates; Senate keeps it.

For more details, see
https://www.nytimes.com/2017/12/06/business/house-senate-tax-bill-differences.html

Norways $1 trillion sovereign wealth fund may exit oil investments

Norway, home to the world's largest sovereign wealth fund at $1 trillion, has proposed dropping oil and gas investments in order to reduce the country's exposure to oil price fluctuations. Norges Bank Investment Management size is indeed massive, controlling roughly 1.5% of the world's total stocks.

Of course, the move itself is not as drastic as it sounds, since about 20% of Norway's economy is already based on oil and gas production. The fund previously divested itself of coal stocks in response to environmental concerns. Roughly 6%, or $37 billion, of the fund's equity index is currently invested in oil and gas stocks. Norway’s Finance Ministry will study the proposal and afterwards make a decision on the proposal. The entire process is expected to take years.

More details can be found below:
https://www.bloomberg.com/news/articles/2017-11-17/norway-idea-to-exit-oil-stocks-is-shot-heard-around-the-world

Saudi Arabia anti-corruption sweep

Over the weekend, Saudi Arabia launched a large anti-corruption sweep of the elite in a large-scale operation that saw many royal family members detained, including the powerful businessman Prince Al-Waleed of the Kingdom Holding Company. Detainees were held at the Ritz-Carlton hotel in Riyadh.

How the Ritz Carlton became a temporary prison: https://www.theguardian.com/world/2017/nov/06/how-saudi-elite-became-five-star-prisoners-at-the-riyadh-ritz-carlton

Experts had questioned whether corruption and potential internal opposition might slow Crown Prince Mohammed's economic modernization plan, Vision 2030. By consolidating power, the prince's ability to shape Saudi will be greatly strengthened in the extended term. In this scenario, Saudi will be better off and the news may be bullish for crude prices. Other analysts believe it may be bearish for crude prices, by delaying the kingdom in the near term as it would want more oil revenue to stabilize internal affairs (keeping generous subsidies for energy, food, and social services in place longer than originally planned).

While uncertainty remains in this issue, one things has become apparent. Saudi-led OPEC is not nearly as powerful as it once was. Thirty years ago, news of political upheaval like this could have send crude prices soaring. This week, we saw a jump on Monday that subsided into Tuesday, and again today. The emergence of North American shale oil has truly changed the calculus of the international oil markets.

For more details, see: https://www.washingtonpost.com/business/economy/what-the-royal-purge-means-for-saudi-arabia--and-its-oil/2017/11/06/9cba9142-c256-11e7-afe9-4f60b5a6c4a0_story.html

Information Technology, keep on trucking!

Occasionally it's helpful to just dive into those very messy details, so let's do just that. For the US stock market, the rally since President Trump's election has been driven by Financials (unsurprising since they've had great tailwinds from multiple sources) and... Information Technology, or the Fearsome Fivesome as I like to call them. You know who they are. Apple, Alphabet (ie "all-knowing" Google), Amazon, Microsoft, and Facebook, in no particular order.

For October, the Technology sector by far and wide outshone all other equity sectors, having its best month since 2016. As an investor, it's important to see where the so-called "smart money" is going, because when the tide is rising, all the boats are lifted! The opposite is also true of course, but why fight the tide? Sometimes going with the flow seems to work out best (which is why that, although I would never speculate in bitcoin - and, mind you, speculate is the right word here - neither would I short the stuff, assuming futures contracts will exist in the near future).

Zacks has some solid information on how and why technology performed so well, and some additional info on fund flows to boot! Link below.
https://www.zacks.com/stock/news/281258/5-red-hot-tech-stocks-that-sent-sampp-500-etf-higher

President Trump declares Fentanyl abuse a Public Health Emergency

Addressing an issue talked about for several days, President Trump yesterday declared fentanyl abuse a Public Health Emergency. Of note is that the Public Health Emergency status directs agencies to devote more of existing resources to the issue, as opposed to providing additional funding as would be the case of a National Emergency. Trump cited that FEMA funds are all but exhausted from dealing with hurricane effects in the Southeast over the last several months and left it to Congress to provide funding for fighting Fentanyl abuse.  

The New York Times has a brief overview and analysis of Trump's directive here. https://www.nytimes.com/2017/10/26/us/politics/trump-opioid-crisis.html

Deaths from opioid overdoses topped 64,000 last year, with studies suggesting slightly more than half of these deaths may be attributed to fentanyl, a synthetic drug that is 50-100x stronger than heroin and primarily used to treat late-stage cancer patients. See fentanyl and opioid overdose deaths as detailed by CBS.

The Pharmaceutical Sector was directly affected by these announcements, since some companies produce and market fentanyl in various forms. Coinciding with yesterday's announcement was the arrest of a billionaire former pharmaceutical executive on charges of bribing doctors to over-prescribe his company's fentanyl spray. Since this executive was also controlling shareholder of the pharmaceutical company, the company's stock crashed and was subsequently suspended by the exchange pending an information request sent to the company. Hopefully investors in the company did their due diligence prior to these events unfolding. The author also hopes any potential victims of these alleged practices get some degree of justice.

Arrest of former pharmaceutical executive: http://fortune.com/2017/10/26/john-kapoor-insys-therapeutics-arrested-net-worth/

Spinoff activity is picking up

Today, both Pfizer and Honeywell announced potential spinoffs. Investors tend to like this development since the independent companies often outperform the market and the parent as they focus on their core competencies and have better economies of scale. Pfizer is looking for alternatives for its consumer healthcare business, which generated $3.4 billion in revenue in 2016. Honeywell is looking to spinoff its Car Parts and Home Systems Businesses, which have combined sales of about $7.5 billion.

Looking beneath the hood at historic data, it can be seen that increases in spinoff activity can also signal market tops. When equity is fully valued and growth is sluggish, sometimes a spinoff is the best available option for large companies. So far, activity is below that seen in prior years, but these announcements show that interest is definitely picking up.

Article below details spinoff data with major market tops.
https://www.cnbc.com/2017/10/10/there-was-a-flurry-of-spinoff-announcements-tuesday.html

Tropical Storm Nate's a'coming!

Second time is definitely not the charm. Energy companies started shutting down their US Gulf Coast operations ahead of Tropical Storm Nate's landing, affecting about 1 million barrels per day of production and potentially reducing US crude exports. About half of US refining capacity is located in the region.

https://www.reuters.com/article/us-storm-nate-energy/more-u-s-gulf-oil-producers-halt-output-ahead-of-tropical-storm-nate-idUSKBN1CB24N

Saudi King Salman makes historic visit to Russia

Saudi King Salman made first official visit to Russia. Putin responded with an extravagant welcome ceremony. Both leaders spoke of strengthening ties and reaffirmed their country's commitment to oil production caps. The two countries signed a $1 billion joint energy fund among other deals.

President Putin unexpectedly discussed how OPEC and Russia's production caps could be extended well beyond the current March 2018 deadline. Saudi Arabia is also committed to keeping oil prices elevated ahead of a public offering of state oil company Saudi Aramco that is planned for sometime in 2018

US production has been rising in recent days although US inventories have still fallen sharply. This is potentially a sign of falling global inventories, in which case current OPEC and Russian production caps may be working.

https://www.wsj.com/articles/putin-saudi-king-explore-deeper-cooperation-1507224720

FDA launches publicly-searchable FAERS database

With the launch of the new publicly-searchable FDA Adverse Event Reporting System (FAERS) database yesterday, anyone can now search for and follow patient responsiveness to tests during phase trials. An unintended side-effect has been the selling off of several biotech companies as serious side effects, including patient deaths, were found with some studies. Analysts seem to expect the selloff to subside as the circumstances surrounding these side effects were not detailed.

The article below details questions and answers about the new FAERS system
https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm578105.htm

Did OPEC engineer the recent rise in oil prices?

Goldman Sachs has theorized that OPEC is trying to engineer crude prices in the USA into backwardation. US producers who are locking in oil prices through hedging as opposed to selling into the spot market are therefore penalized by accepting a lower price point.

The author of the article below, however, makes his case that oil prices are rising simply because of rising worldwide demand forecasts. Interesting food for thought.

https://www.forbes.com/sites/jimcollins/2017/09/27/rising-demand-will-continue-to-drive-the-rally-in-crude-oil-prices/#75b355e62749

The Fed will begin reducing its $4.5 Trillion balance sheet

Read all about it! A historic event is finally happening. First came the end of the era of quantitative easing; then the resumption of interest rate hikes; now - finally - the US Federal Reserve will begin to reduce the $4.5 trillion balance sheet it acquired since the 2008 financial crisis. The majority of the Fed's balance sheet consists of Treasuries and mortgage-backed securities accrued during quantitative easing. The Fed plans a very gradual draw-down, rising slowly to a final drawdown of $50 billion / month, or roughly in-line with analyst's expectations.

https://www.bloomberg.com/news/articles/2017-09-20/fed-asset-shrinking-to-start-next-month-rate-hike-seen-in-17

What have policy makers learned from the 2008 financial crisis?

There's no doubt that investors have been forced to move up the risk curve in search of yield amid the Fed's easy money policy. But with tightening, when will investors feel the need to move back down? Can policymakers actively force this move or merely respond to market conditions? What have policy makers learned?

Mohamed El-Erian discusses regulators, banks, and the financial crisis in a solid article for Financial News: https://www.fnlondon.com/articles/el-erian-the-lost-lesson-of-the-financial-crisis-20170818?

But what about Retailers?

Retail outlook has deteriorated for about five years now - a struggle longer than that of the commodities markets - with major retailers decreasing physical store presence amid fierce competition and the rising specter that haunts every company's conference calls: the Jeff Bezos-run behemoth Amazon.

Traditional retailers have been working on redesign of physical stores and an increase in their digital presence to maintain sales. Investor expectations for the sector remain quite low, with declining foot traffic that still exceeds estimates being cheered as a win. However, mall traffic appears to be picking up slightly.

Amid widespread short positions across the industry (outside of TJX Companies?), good news - or even just less bad news - from retailers could provide gains for investors who are willing to take a risk. Even so, the entire industry has much to prove, and sometimes during times of uncertainty, the best place for the investor is to sit on the sidelines, watching and waiting for the right moment to pounce.

Fairly in-depth discussion of the retail sector can be found here: https://www.nytimes.com/2017/08/11/business/dealbook/retail-wall-street-macys-jc-penney.html

Historic performance of hedge fund stars isn't always an indicator of future success

The Astenbeck Master Commodities Fund II, the flagship fund of renowned oil trader Andrew Hall, is closing down following an almost -30% loss recorded for the first half of 2017. Capitulation comes after Blackstone arranged to remove investments.

Many oil traders at respected institutions worldwide have been caught flat-footed and on the wrong side of the trade amid struggling oil prices. The thesis that the historic OPEC and Russian production cap deal would gradually drain the world of excess oil supplies was called into question following a sharp rise in North American shale production and rising output from Iraq, Libya, and Nigeria.

During the commodities boom years up into 2014, hedge funds focused in commodities made incredible, outsized gains as prices shot higher and remained elevated. Since the collapse of oil prices - and the more widespread collapse of various sectors of the commodities market - these same funds have mostly suffered from underperformance due to the concentrated, leveraged nature of their positions.

Read an in-depth overview of the closing down of the Astenbeck Hedge Fund here: https://www.wsj.com/articles/oil-trader-andrew-hall-is-closing-his-astenbeck-hedge-fund-1501776384

----
Past performance of wealth managers - sometimes the result of educated guesses that yielded wildly successful results - doesn't always guarantee that future investments will be successful.

Andrew Hall gained respect, fame, and wealth through his call of an oil bottom in 2003, in which he bought futures contracts years ahead that reaped a fortune as oil prices recovered.

John Paulson comes to mind. He personally gained almost $5 billion in profits by effectively betting against the U.S. subprime mortgage lending market just prior to the financial crisis, but has struggled attracting client funds and recently closed down an albeit smaller fund. Perhaps speaking to his contrarian investment successes, the closed fund specialized in shorting the current equity market.

John Paulson recently closed down a fund too https://www.bloomberg.com/news/articles/2017-07-27/paulson-winds-down-long-short-equity-fund-amid-strategy-refocus

In a somewhat related case, Eddie Lampert went from a rising hedge fund star to superstardom - and billionaire status - after he negotiated the takeover of a bankrupt K-mart and used the resulting company to acquire retail giant Sears, Roebuck and Co. Since that time, he has tried his hand at managing Sears Holdings, with very limited success to say the least.

The Street was very blunt in its assessment of struggling Sears Holdings https://www.thestreet.com/story/14232336/1/sears-is-still-headed-for-a-fiery-ugly-death-despite-200-million-gift-from-its-best-friend.html

Commentary on the VIX: S&P 500 volatility has hit lows last seen in 1993

Why is the VIX so very low? To understand this, one must understand exactly what the VIX represents. The VIX index is basically a measure of "S&P 500 stock index option prices" that is run by the Chicago Board Options Exchange. The VIX is not a tradable product and any exposure that investors desire to the VIX must be obtained in the futures market. The VIX index reading has, in the past, been a useful predictor for potential volatility in US equity markets and is susceptible to large swings to the upside if the S&P 500 experiences a significant decline and vice versa. Historic readings in the index has been useful for anticipating potential tops and bottoms in the equity market.

The world of the VIX is similar to Forex in many ways. Both are dominated by massive whales (institutional investors making huge bets as part of hedging strategies) and subject to very large swings from Black Swan events and the whims of the market.

The S&P 500 has been experiencing near-historic lows in volatility these past several months, with the index rarely moving outside of a daily +/- 1% window, which has caused the VIX to decline (as investors become complacent?) accordingly, hitting 8.84 on Wednesday. This is a very, very low reading to be sure, since the VIX typically stays around 12 during an average year.

With the emergence of ETNs that attempt to track the VIX, and leveraged ETNs that take leveraged  bullish and bearish positions on VIX futures, VIX trading has become a popular pastime among some retail investors. Additionally, as the number of investment instruments with exposure to VIX futures expands, some analysts are questioning whether or not the VIX has lost some of its usefulness as a market indicator.

Commentary on the VIX and recent fund moves can be read at Barrons: https://www.barrons.com/articles/how-to-profit-with-vix-at-1993-levels-1501181025

Republicans decide against the border adjustment tax

US retailers are breathing a sight of relief! In January, Republican lawmakers proposed a Border Adjustment Tax (BAT) that would basically levy potentially heavy fines on any goods that weren't made in America. This type of tax could also be thought of as a destination-based tax, since imported goods would be taxed, while US exporters would face no tax. President Trump, although holding a favorable view of made-in-America products and companies, had in recent months communicated a decidedly cooler view on the tax because of the complexities involved.

Retail leaders, meanwhile, were horrified at the potential of a near-doubling of current taxes and spoke up frequently and strongly against BAT at industry forums and before Congress. They had support from the energy industry as well, as oil refiners were another party that lobbied against the measure upon realization that the cross-border energy trade (oil imports) could also be considerably affected by BAT.

The elimination of BAT creates strong tailwinds for retailers as they enter into the holiday season and eliminates the small amount of uncertainty that had been overhanging refiners. Apparel retailers are potentially are the biggest winners here.

Relative overview of BAT can be seen here: http://www.latimes.com/business/la-fi-tax-reform-border-20170727-story.html

The Great, Big, Bad, Oil Bear is BACK!

WTI and Brent oil prices both fell more than 20% from their highs, officially entering bear market territory as crude prices continue to languish. WTI prices fell below $43/barrel despite some support in the currencies markets. Saudi Arabia has previous defended oil prices in the low $40 range.

Of paramount concern to investors these days is the rate at which US production has begun to rise, and whether or not OPEC can hold together its production cap in the face of potentially losing marketshare to North America. OPEC is currently dealing with difficulties from Libya and Nigeria

In-depth article on oil markets today. https://www.bloomberg.com/news/articles/2017-06-21/oil-holds-losses-in-bear-market-as-u-s-output-extends-advance

Unfortunately for investors, this is now the third time that oil has sold off a few months after appearing to have bottomed. Should OPEC hold output caps while maintaining cohesion among cartel members, then crude prices may not have that much more room to fall. But hey, who knows? The uncertainty is causing some investors to rethink and redesign their portfolios to avoid pitfalls from the energy sector.

--
Hurricane Cindy, in the meantime, is responsible for the shutdown of about 17% of crude production in the Texas / Gulf of Mexico region.

The Black Swan is an ugly if - just right now - cheap bird

If Black Swans are very negative market-moving events that are difficult to predict, then this must be a White Swan market where everything is hunkey dorey as we all hold hands and skip towards the sunset as the stock market climbs higher and higher. Okay, okay, that analogy did get a bit out of hand. On to the stuff of substance.

The cost for hedge funds to insure themselves against unexpectedly large drops in the stock market (Black Swan events) has never been cheaper. With the VIX continually hovering near all-time lows, the bet that the market WON'T decline by that 6-7% figure in the next month is somewhere around 25-to-1. While the author certainly doesn't bet against a market that continues to grind higher - especially with the potential for tax reform up ahead - these odds may be tempting for some funds. If nothing else, their hedging strategy keeps getting cheaper.

Read about the VIX and some recent hedge fund activity here https://www.ft.com/content/f9fef394-4e8d-11e7-bfb8-997009366969

Sell in May and go away

A ship in harbour is safe, but that is not what ships are built for." - John A Shedd. Phuket, Thailand.

Equity markets have seasons, too, and "Sell in May and Go Away" is supposedly helpful, from a historical perspective, since May - November tends to have high volatility with some underperformance for the broader market. However, equities don't always know their history, and life goes on in the corporate world whether or not the retail investor is sitting on a Phuket beach in southern Thailand while sipping a Mai Tai cocktail (eg The Ignorant Investor in this case, where the above photo was taken by yours truly) or in a dusty cubical peering over six computer screens while chatting on Bloomberg Terminal. Investors can really miss out on some good runs if they do sell everything during those summer months!

Just put a sign on my desk "gone fishing" as The Intelligent Investor is checking out for a few weeks of R&R.

Donald Trump said What?!? Former FBI Director Comey's memo

Another month, another situation. This time, now-fired FBI Director James Comey claims that President Trump tried to end the FBI's Russia probe into former aid Michael Flynn. Investors worry that as uncertainty rises over potential collusion between Trump's election team and the Russian government could threaten to sideline the much-promised and still looked-for tax reform, infrastructure development and deregulation initiatives.

See this article for details on the US market day: https://www.cbsnews.com/news/james-comey-memo-stock-market/

Betting against the VIX has been a winning game for most of the year, but occasionally investors do get rude, unexpected awakenings, like today with Comey's memo, in which he claims President Trump tried to intervene to end the FBI's probe of a former Trump aide. The VIX jumped about 20% on the news as the S&P 500 and other major indexes quickly declined to close lower for the day.

More information on the VIX: https://www.bloomberg.com/news/articles/2017-05-18/vix-surge-is-unwelcome-lesson-in-duplicity-of-volatility-wagers

Ransomware WannaCry strikes the world

More than 200,000 computer systems in more than 150 countries were hit by crippling ransomware program WannaCry (Wcrypt). Asia and Eastern Europe appeared hardest hit (through widespread use of pirated versions of Windows), with the attacks causing disruptions among hospitals and transportation systems.

In-depth article:  https://www.nytimes.com/2017/05/13/world/asia/cyberattacks-online-security-.html

The program is likely based off of a leaked NSA hacking tool EternalBlue that utilizes a vulnerability in unpatched and pirated Windows systems. Limiting the scope of damage in North America was the discovery of a website-based kill switch by a researcher, who bought the domain name and halted the spread of the ransomware.

Questions have been raised whether this attack was merely to cause damage rather than profit. One thing is for certain, the specter of cybercriminals potentially disrupting computer systems on a mass global scale has risen.

Later updates and economic considerations of WannaCry here: https://www.cbsnews.com/news/wannacry-ransomware-attacks-wannacry-virus-losses/

Conjecture
What if next time these hackers turn their attention to a digital financial exchange like those in New York or London (think of the "digital bomb" planted in the Nasdaq back in 2010)? The internet is both wonderful and dangerous, but this attack shows it may not take much to bring down the house.

News of WannaCry will most likely see the stock prices of cybersecurity firms bid sharply up as companies seek to protect themselves from digital attacks. Some months back I wasn't sure what to make of cybersecurity ETFs, but the author is sure that the creator of the ETF "HACK" has seen some reward around the uncertainty of ransomware.

WTI prices experienced a flash crash in overnight trading

By the time equity markets closed last night, traders probably thought oil prices had done their worst, plunging more than -7% through Thursday. Then, overnight, came the flash crash. But first, some more background. As oil prices fell these last several weeks, they passed right through some key technical levels, leaving market participants vulnerable to potential margin calls. Thursday the third-largest volume of WTI contracts on record traded hands.

In Friday's Asian trading hours, with western markets closed, WTI prices suddenly plunged through both the $45/barrel and the $44/barrel marks. WTI contract volume skyrocketed from the average of hundreds to the more than seven thousand in minutes as market participants were forced to liquidate positions. The exact cause of the sell-off is unknown although analysts and traders strongly suspect that recent events coupled with a blend of margin calls and algorithmic trading were to blame.

The rise of computer trading has brought significant scrutiny and publicity to what was eventually termed high frequency trading.  However, among the many flash crashes in commodities, equities, and currencies that have been observed over these last several years, usually some form of human error triggered a whale's (large market participant, say a hedge fund) algorithm to sell, which in turn led to other algorithms to sell. Flash crash bottoms usually form at circuit breakers or when human participants realize prices have reached irrational levels.

In-depth discussion with some technical details: https://www.bloomberg.com/news/articles/2017-05-05/five-charts-that-explain-crude-oil-s-sudden-nosedive-toward-45

President Trump's tax reform details are (partially) here!

President Trump's long-awaited and long-anticipated tax reform details are finally here! And they are, well, very lacking in details. However, the overview, a bullet point, one-page summary which looks something like an executive summary of a complex document does have a few numbers and guidelines.

Details include:

• a 15% corporate tax rate
• a territorial-based tax system
• a one-time tax on oversees cash stockpiles
• Eliminate special interests
• Simply individual tax code and repeal estate tax

Read summary of details on Trump's tax plan
https://www.vox.com/2017/4/26/15438404/trump-tax-plan-april-mnuchin-cohn-changes

President Trump's tax plan details include items that would potentially be of most benefit to small domestic businesses, which currently pay close to a 35% tax rate, and attempt to penalize corporations that stash trillions of dollars worth of cash in various tax abodes by taxing holdings.

Overall, businesses and shareholders would benefit under the system, although for large corporations the effect of the changes would be more minimal.

For individuals, President Trump plans on simplifying the system by eliminating deductions and reducing the number of tax brackets. The elimination of the estate ("death") tax is also given priority. Overall, most individuals - and especially high-net-worth individuals - stand to benefit the most.

In-depth: analysis of Trump's plan https://www.nytimes.com/2017/04/25/us/politics/tax-plan-trump.html

Volatility in the USA's S&P 500

The world of European geopolitics and USA equities collided hard today as a centrist politician won the majority of votes in a preliminary voting round in France. After the rise of anti-European Union voices and the surprise of the Brexit vote from last year, investors were relieved to see signs of unity within the European Union and what looks to be a solid win by a pro-business candidate like Emmanuel Macron.

The VIX fell sharply, down nearly -20%, to about 12 by the end of the day. Gold, US Treasuries also sold off. The Euro climbed and equity markets worldwide also rose sharply. Recent bullish positions for defensive investment instruments built up into the pre-election French vote, and today's movement may partially be due to the unwinding of some of these positions.

Read about why the VIX plunged below
http://www.businessinsider.com/vix-plunging-the-most-since-trumps-election-2017-4

British pound spikes higher after UK PM Theresa May surprises markets

The United Kingdom's PM Theresa May unexpectedly called for a general election in June. Just prior to the announcement the pound declined before moving sharply higher once the content was known. More uncertainty is welcome in this case, since a hard break with the European Union had been assumed in recent weeks.

Now let's jump on the topic of Forex Trading. The world of currencies is filled with monsters of all shapes and sizes, but for the most part, they're huge, scary, and unpredictable. The author's argument has always been that trading Forex as a retail investor (small or large) is little more than gambling unless it's employed as some sort of hedging strategy. Central Banks can be unpredictable too, subject to the whims of political parties or out of necessary in the face of developing situations (think of the day that wiped out many retail investors and also some exchanges when the Swiss Central Bank unexpectedly abandoned the Franc's peg to the Euro back in early days of 2015).

The ability to trade 24 hours / day can be appealing, but for the most part, Forex traders can do little more than hope and pray that an unexpected monster doesn't rise up to take them by surprise.

Read about the Pound's spike in the article below
http://www.telegraph.co.uk/business/2017/04/18/pound-touches-three-week-high-against-us-dollar-ftse-100-suffers/

The US Dollar was just talked down by the US President

So, these things happen in 2017. Markets and individual publicly-traded companies have learned over the past few months to adjust to unexpected criticism from President Trump's twitter account or off-the-cuff remarks.

Today, however, the US dollar saw a sharp -0.5% fall intraday after President Trump commented that the dollar was "getting too strong" and that the Fed should keep interest rates low. Apparently the currency markets are still adjusting to the new president's communication methods.

Read how the US dollar and several currency pairs have been reacting to recent news in this report by Bloomberg

Brexit: UK PM Theresa May triggered Article 50

Divorce is never easy. To start with, law in the United Kingdom has been a mixture of European Union laws and domestic laws. These now must be reconciled. And that's the easy part since it can all be done within England.

England must now navigate the tricky waters of negotiating with the EU on a host of issues including trade deals with the EU and trade deals with the rest of the world, since England is now a separate entity. This alone will be tedious and time-consuming.

Additionally, England will be negotiating regarding other matters ranging from immigration to asylum seekers to law enforcement.

The articles may have been triggered, but the process will take years to complete.


In the meantime, back in the business world, various companies will be deciding what they should do (article by Newsweek) and how Brexit will affect their long-term plans and places of work. 



In-depth questions and answers regarding the Brexit process can be found in this article by CNN

Up, up, and away! The Fed raises interest rates again

The Fed, citing a strengthening economy, raised the benchmark interest rate target to between 0.75% and 1% and indicated another two interest rate hikes could be expected for 2017. Following years of zero interest rate policy, the aggressive move to normalization signal the Fed has more confidence in the strength of the US recovery. The Financial Sector benefits the most as easy money is drained from the financial system.


Read about the Fed's decision here

To buy oil, or not to buy oil, that is the question

The horror show that has been crude prices since late 2014 seems to repeat itself in cycles. First is the watershed selling on the news of impending doom, then the cautious-turned-into-frenzied buying as investors assume the worst is over. We now appear to be on that downward slide into the abyss once again.

Another supply-side issue appears to have reared its ugly head, as relentlessly-rising USA commercial inventory levels become impossible to ignore. This last week, oil inventories rose to about 528M barrels, or levels last seen in 1982. The conclusion is that the world is awash in oil and there just aren't enough storage locations to put all of it.

Since OPEC - and Russia - surprised the markets with their decision to cap production back in November, crude prices have been largely bullish. IEA data that showed upwards of 90% of producer compliance with those production caps seemed even more so.

However, oil supply levels have been dropping more slowly than expected, while North American shale producers are pumping out even more crude (upwards of 9 million barrels per day most recently) as they nickel-and-dime their way into extracting oil more cheaply from shale deposits. Futures markets now seem to be quickly positioning themselves for the potential that oil prices will be remain subdued for longer than originally anticipated.

In-depth article on expanding US oil inventories and the futures market here

Protest camp at Dakota Access Pipeline site closed by authorities

Authorities arrested remaining occupants of the protest camp located near Cannonball, North Dakota, at a portion of the construction site for the Dakota Access Pipeline. The pipeline is nearly complete outside of a 1.25 mile stretch of pipeline near tribal land at Lake Oahe in North Dakota.

As one of his last moves in office, on December 4th, former President Obama halted completion of the pipeline by revoking permission for Energy Transfer Partners, the pipeline owner, to use Federal land there pending an Army Corps of Engineers assessment.

Upon assuming office, President Trump almost immediately reversed this and allowed construction of the $3.8 billion pipeline to continue. Oil is expected to flow through the pipeline by April.

This development is a huge boon to oil and gas producers in North Dakota and will greatly reduce the cost of bringing their oil to market, as shipping crude through pipelines is both safer and cheaper than by rail.

In-depth discussion on the pipeline is found here.

Vive la France! Frexit fears rise as global populism appears on the rise

Firstly, long, long ago - in the days of September 2014 - there was a referendum held to establish whether or not Scotland would secede from England. The Scots wanted their independence. What was first almost dismissed as a fantasy nearly became reality before some last minute diplomacy, lobbying, and concessions turned the tide again towards unity.

Next came Grexit, the fear that Greece would exit the EU to avoid the effects of a strong Euro. Greece ended up staying in the EU.

Then came Brexit -- but this time, the unexpected happened. The British people voted AGAINST the establishment and decided to leave the EU, primarily over immigration policies, and caused the collapse of the British government.

After this came Donald Trump, an anti-establishment candidate who almost single-handedly defeated the establishment in BOTH political parties to become President of the United States. He won primarily with an economic policy of protectionism.

Finally, comes Frexit. Over the past several weeks, the far-right leader Marine Le Pen has gained considerable political traction in the French election process. Ms. Pen promises the French people that she would leave the Eurozone in favor of a redonominated Franc, and restructure outstanding debt in favor of the new currency to boot. Investors, the ECB, and the EU are not pleased with these proposals, with investors responding by selling off French debt ahead of the elections later this April.

In-depth: The rise of Marine Le Pen is causing consternation among investors

With the stroke of a pen, Dodd-Frank is dead

While not directly repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act, President Trump signed a sweeping directive that gives the Treasury Department the ability to change the act's core provisions to mirror his administration's stance.

The financial industry strongly supported this move, saying regulations enacted since the 2008 financial crisis had become too burdensome, citing costs associated with large expansions in legal/compliance departments.

While the effect on the consumer may be uncertain, the moves President Trump made today are definitely a boon to the Financial industry. As expected, the S&P 500 Financial Sector outperformed today and recouped losses experienced earlier in the week. Tailwinds to the industry have definitely picked up, with the Fed in the process of normalizing interest rates and now the President loosening regulations.

Read about Trump's directive and the effects on the Dodd-Frank act and the Financial industry here

Keystone XL and the Dakota Access Pipeline are approved

Over bitter opposition from environmental activists, President Trump signed the approval of the Canadian-US Keystone XL pipeline and the Dakota Access Pipeline. When the Keystone pipeline was in its infancy, crude prices were upwards of $100/barrel and any relief was more than welcome. Then, as crude prices collapsed amid a growing worldwide oil glut, the project was sidelined by Obama in 2015.Now, in 2017, the Keystone XL pipeline may not have the same appeal to Canadian oil frackers as it once did.

In contrast to this, however, the completion of the Dakota Access Pipeline is considered a big boon to upstream producers (to say nothing of Energy Transfer Equity, the pipeline's primary owner) in North Dakota, as shipping crude via pipeline is cheaper than by rail.

https://www.nytimes.com/2017/01/24/us/politics/keystone-dakota-pipeline-trump.html

President Trump urges the Big Three US automakers to manufacture in the USA

During his first few months in office, President Trump has repeatedly demonstrated that he's not afraid to pull punches on his Twitter account to highlight the misdeeds of corporate America. Markets seem to be adjusting more to this "hands on" approach, with pullbacks and reactions becoming more muted over time.

In an hour-long meeting with GM, Ford, and Fiat Chrysler, Trump demanded that the companies continue to invest in American jobs. The President also promised deregulation and tax reform to create a more pro-business environment while asking what "domestic and trade" policies would be helpful. Earlier this month, Trump discussed potentially introducing a 35% tax on cars imported from abroad.

Read about Trump's meeting with the auto industry here: http://fortune.com/2017/01/24/donald-trump-ford-gm-fiat-autos-jobs/