Goldman Warns 67% Odds Of A 10% Market Decline In Next Year

by Tyler Durden

While quick to explain how next year will be better (even though he keeps his year-end 1900 target for the S&P 500), Goldman's chief US equity strategist David Kostin warns there is a good chance of a 10% drop sometime in the next 12 months. The recent 6% pullback (sparked by EM concerns) is only one-third of typical historical corrections and as Kostin notes, the market has gone way too long without a so-called correction (10% from peak to trough). It's been 22 months (and 50% gains) since the last 10% drop and, based on Kostin's quant work, there is a 67% probability that we'll see that correction - which would take the S&P to around 1700.

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Rains arrive in time for Brazil corn, but not soy

by Agrimoney.com

Brazil's weather improved last month in time to boost hopes for safrinha corn, but not to prevent further losses to soybean crops, US farm officials said, explaining revisions to their harvest estimates. The US Department of Agriculture, explaining a downgrade of 1.0m tonnes to 87.5m tonnes in its forecast for Brazilian soybean production in 2013-14, said that rains had not arrived in time to reverse drought damage to all crops in the drought-hit south. "Rains arrived by mid-February and rain have continued in March providing much needed relief, especially in Rio Grande do Sul," the USDA said, in a report which comes a day before Brazil's official Conab bureau is set to reveal its own revised forecasts. "In the other states, however, soybean yield potential did not recover." Conversely, in the western state of Mato Grosso, Brazil's top soybean producer, heavy rains had extended into March, "causing yield losses [and] some quality damage". 'Off to a good start' However, the recent rains had supported prospects for yields of safrinha corn – planted on land vacated by the soybean harvest - in all states, if delaying sowings in Mato Grosso, the USDA said, explaining a 2.0m-tonne increase to 72.0m tonne in its forecast for Brazil's overall corn output. "All areas have been receiving beneficial, above-average precipitation," the USDA said, adding that the safrinha crop had got "off to a good start". "Production is raised due to better yield potential for safrinha (second-crop) corn." The safrinha corn harvest - which is particularly sensitive to rival exporters as it is the main source of Brazilian export supplies – will nonetheless prove smaller than last year thanks to weaker sowings, with price differences driving farmers to soybeans instead, in many cases for the first time as a second crop. South Africa record The USDA also raised its estimate for the South African corn harvest, which it said would show a record yield of 4.38 tonnes per hectare "due to timely and well-above-average rainfall during February and March in the western and central Corn Belt when the crop was in the critical pollination and grain-filling stages". A field trip last month "observed good-to-excellent crop conditions, with interviewed farmers and traders reporting a bumper harvest expected for most regions", after drought had threatened crops early in 2014. Satellite imagery showed that yields should come in "well above-average in the central and western part of the country". The estimate for South African corn production was upgraded by 1.0m tonnes to a 23-year high of 14.0m tonnes, a rise of 1.6m tonnes year on year.

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Performance of 40 Futures Markets after Q1

by Attain Capital

Commodities continue to grab headlines this year, as stocks have took a tumble in April, forcing many to question whether 2014 is the year of “Commodity Sex Appeal?” We’re a little bit past the first quarter of the year, and there’s reason to believe in the appeal by the amount of green shimmering below. (Disclaimer: Past performance is not necessarily indicative of future results) Chart Courtesy: Finviz.com Here’s some of our thoughts: 31 out of 40 Futures markets are positive thus far this year. That’s an impressive 75% percentage, compared to a 50/50 split from all of last year. Softs & Ag markets are by in far outperforming other markets, holding the top 11 positions, while last year’s high performers, futures stock indices are in the red, or close to it. The so called “Dr. Copper” which many believe to be a predictor of turning points in economics, is the only metal down on the year. Not that it’s a shock by now, but Coffee remains to hold an unbelievable up trend, now standing at 78% YTD. Here’s Coffee by the numbers. The nasty hog virus sweeping the nation is causing a lack of supply, having a rippling effect on the Lean Hogs market. Natural Gas has all but erased its multiple instances of volatility explosion, while the Crude Oil Market is getting boring. As the situation in Ukraine continues, the Corn and Wheat markets could be impacted. What’s in store for the rest of the year? Is Coffee and Lean Hogs done with their uptrend? Will the Ag Markets be one of the top performers list for the full year? Are stocks going through a “correction” phase, or is the bull cycle over? From a managed futures perspective, CTAs don’t care about the headlines, the hype; they don’t even care if Commodities themselves are up or down. All they care about is a consistent prolonged trend in either direction. Although we will say the nice thing about up trends is there is no cap on how high they can go (in theory). In comparison short trades have a natural floor (cost of production) and can never go below zero. From a more broad perspective, after last weeks fall in stocks, we can only guess that there were more than a couple investors searching “Alternate Investment Opportunities.” So is it time to Google Alternative Investments, or is this just a blip before the stock market run continues? For those of you who think stocks will have another repeat year, ignore the last part. For those of you who might consider protecting your portfolio, do your due diligence about what alternative investments are out there, and what their return drivers are before taking your next step.

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5 rules for using the Internet after ‘Heartbleed’

By Priya Anand

You know the lock icon that pops up next to URLs to tell you a website will keep your information safe? It turns out it has actually left your private data unsecured for more than two years. Websites encrypt your information, like emails, passwords and credit card numbers, so if anyone tries to snoop, they get a gibberish code and your data stays between you and the people you want to send it to. At least that’s the way it’s supposed to work. This week, researchers found a hole in OpenSSL, the lock that an estimated two-thirds of websites use. They’re calling the bug “Heartbleed.” What’s more, any attacks let in due to the bug can’t be traced, experts say. This is a gaping security hole with “epic repercussions,” director of security firm AlienVault Labs Jaime Blasco says, even if you’re starting to become numb to all the data breaches of late. Here are 5 rules for using the Internet after Heartbleed. 1. Trust no one Run the websites you have accounts with through tools like the Heartbleed test to see if they’re vulnerable or if the security gap has been patched before logging on. The page is fielding about 4,000 searches a minute, Milan-based freelance developer Filippo Valsorda said. Download the Chrome browser extension, Chromebleed, to receive notifications when you land at a website that hasn’t fixed the problem yet. “In computer security, you never know when there’s going to be a vulnerability,” says Joost Bijl, marketing manager at the security firm Fox-IT. 2. Change your passwords and use two-step verification “Change your password” is a mantra consumers have heard for years. It sounds simple and experts say it’s still the first step users should take to protect themselves in case their communications were intercepted due to Heartbleed over the last two years. The safest move would be to change all your passwords, given the dominance of OpenSSL, the technology associated with the bug. Many companies, including Google /quotes/zigman/30194416/delayed/quotes/nls/goog GOOG +0.07%  , Facebook /quotes/zigman/9962609/delayed/quotes/nls/fb FB +0.27%  , Twitter and PayPal offer two-step authentication, asking users a security question or sending a code via text message when someone tries to log in from a new machine. “If someone lifts your password, then they still can’t log in,” Bijl says. 3. Be wary of public Wi-Fi networks Turn off the setting that autoconnects your smartphone to public Wi-Fi networks, which can be exploited by malicious hackers. Airport and hotel Wi-Fi connections are convenient, but experts say these unsecured connections leave you open to attacks. When you do use them, set up a virtual private network to secure your Internet traffic. There are some free VPN services, though many charge monthly rates. 4. Monitor recent account activity Some companies, like Google, offer email activity reports that show where and when an account was accessed. On Gmail, click on the small “details” button at the bottom of your inbox for a report complete with timestamps, maps and IP addresses. If a timestamp doesn’t match up with your usage, change your password (and remember rule No. 2, two-step verification). 5. Install all the annoying security updates and read the alerts Everyone’s guilty of snoozing the prompts to install a security update and reboot, or ignoring an alert message to get to a Web page. These updates guard your computer from malware and other threats, and also fix any security gaps that might have gone undetected when you first downloaded software. If a security alert pops up on a familiar website, users sometimes ignore the notice and hit accept to move on, but can get caught in what are known as “man in the middle” attacks where a hacker eavesdrops on communications. “Users really don’t care and usually they don’t read those messages,” Blasco says. “Please read the messages and try to understand what you’re doing before you really make a mistake and your data can be compromised.” Also see: ‘Heartbleed’ bug warning: ‘Time to change passwords everywhere’

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The Federal Reserve Under Fire

by sprout money

It is still unclear what kind of role the Fed played in the recent correction on Wall Street. Should we blame the Federal Reserve as the main culprit of the dive we experienced as tapering is taking its effect? Clifford Noreen, president at Babson Capital, fears that many investors did not realize the effect of tapering from the start. Most of them assumed that the Federal Reserve was bobbing along, but nothing is further from the truth of course. The Federal Reserve Is Draining The Markets At a rate of 10 billion dollars a month, the Federal Reserve is draining the markets, so investors should not have been so surprised about a correction. Because they are, however, Noreen believes it would be a smart move for the central bank to take a breather from tapering as it would give investors the opportunity to catch up mentally. Peter Boockvar, chief market strategist at Lindsey Group, agrees with his colleague as everything revolves around the Federal Reserve in his opinion. Many investors have underestimated the impact of tapering, and are now being confronted with reality: the rally of the last couple of years was indeed fueled by Bernanke’s printing press.

Ultimately it is not a coincidence that the markets are correcting at a time when the Fed is halfway in its tapering program. The central bank gave the high flyers of the stock market wings in recent years, but are knocking it out of them as we speak. A lot of investors are reaching for stable large cap stocks and gold once again as a consequence.

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Forget HFT: The 4 Greatest Risks To Investors Now

by Lance Roberts/Richard Rosso

The financial media discussions regarding high-frequency trading have reached a fevered pitch. No pun intended as the igniter of this public relations flame is famous author of “Money Ball” Michael Lewis who has been making the television circuit promoting his new book “Flash Boys.” Heated public discourse about how the stock market is “rigged” by the high-frequency traders has caught the attention of the Justice Department. So, you’re telling me this is a new condition? Please. Let’s provide some perspective to the argument. First, the market is not your friend. It’s not the focal point for the pervasive inequality rhetoric circulating through politics and the media today.  It’s regulated to the point of sublime, so that’s not it, either. “Greed” and “fear” are the oils that run the machine. Some possess more oil than others. That’s how it works. Get over it. Since you’re going about your daily business working a job, trying to provide for your family, making it to the kids’ soccer games, let us expand on the impact of HFT on you.  High-frequency traders utilize powerful technological tools to rapid-fire trade securities. Sophisticated computer models seek to exploit penny differences in prices of stock long before you as a retail investor even hit the enter key to electronically purchase 100 shares of Coca Cola. While many “experts” claim that HFT provides greater liquidity and transparency, the markets seemed to operate efficiently enough for the last 100+ years.  However, while technological advancements can be beneficial, they open the door to the many nefarious individuals which will choose to exploit it to their advantage by employing the following: Frontrunning: needs no explanation Subpennying: providing a "better" bid or offer in a fraction of a penny to force the underlying order to move up or down. Quote Stuffing: the HFT trader sends huge numbers of orders and cancels Layering: multiple, large orders are placed passively with the goal of “pushing” the book away Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it. This is clear manipulation of the prices to anyone who has a vague understanding of how financial markets operate. However, here some of the more insightful writings to help you gain clearer perspective on what HFT is, and isn’t. How to Unrig the Stock Market. HFT is no BFD for Buy/Holders. HFT all you need to know With this in mind here are some thoughts to consider. 1). Markets have and always will be “rigged” to some degree. C’mon we’re not that stupid – this shouldn’t be big news. We have the finest stock markets in the world, but guess what – there will always be someone faster than you, smarter than you and willing to spend the money and time to create algorithms to try to gain an edge. In the 1930's, it was a consortium of banks and wealthy families. Today it’s programmed traders who move like serpents in the underbelly of markets and nip at your wallet. Even Ray Dalio has stated that if you want to play in the markets you had better come to the table ready to beat him, his hundreds of financial professionals and billions of dollars in technology. If you don’t that – you should. However, this doesn’t mean you can’t be a long-term participant and take advantage of momentum. How can you attach to the stars of these HFT players and take advantage of what they do? Investors in the market since the bottom of March 2009, have benefitted by returns close to 200% (talk about a home run).  Change your perspective. Turn around your mindset. As Michael Corleone lamented in “The Godfather “keep your friends close but your enemies closer.”  You can make money in “rigged markets” but you can’t lose sight of reality. It’s a double-edged sword, obviously. While you can make money by riding the wave up, you can lose more when the trend changes.  Despite what the daily blathering of Wall Street analysts and financial professionals needing your money to create their profits, rising markets will end, and end badly.  They always have, they always will.  It is the cycle of life.  To profit alongside HFTraders, you can no longer be a "buy and hold" investor. If you work with a financial professional who believes your investments are set and forget, you need to move your legs, and accounts, out of there.  Ask your advisor today: What’s your sell discipline? You will like see them almost pass out in front of you. 2). Let’s reveal the TRUE market manipulator: The Federal Reserve –The biggest driver of asset prices over the last 5 years has been the direct monetary interventions of the Federal Reserve.  Over the last couple of years, we have updated our analysis of the correlation between the Federal Reserve’s monetary interventions and the S&P 500 (latest update here).  I have also projected the theoretical conclusion of the Fed's program by assuming a continued reduction in purchases of $10 billion at each of the future FOMC meetings. If the current pace of reductions continues it is reasonable to assume that the Fed will terminate the current QE program by the October meeting.  If we assume the current correlation remains intact, it projects an advance of the S&P 500 to roughly 2000 by the end of the year.  This would imply an 8% advance for the market for the entirety of 2014. Such an advance would correspond with an economy that is modestly expanding at a time where the Federal Reserve has begun tightening monetary policy. (Yes, Virginia, "tapering" is "tightening.) Historically speaking, such retractions of support from the financial markets have not fared well for investors as the ongoing “carry trade” is unwound.  The problem for most individuals will be understanding the difference between a “dip” and a full blown reversion, until it’s too late. 3). Investors rig themselves mentally for anemic returns. Investors are saddled with behavioral and cognitive biases. We sell our gainers too quickly Hold on to losers We trade too much We trade too little We chase performance We don’t understand our behavioral makeup We buy high We sell low We suffer from confirmation bias (we only research that which confirms our opinions) While the markets have rallied nearly 170% from the 2009 lows, most individuals did not garner those returns.  They were buying into the peak of 2008 because Wall Street told them that it was a “Goldilocks Economy”, they held on during the entire crash because Wall Street told them too, and they finally sold at the bottom when the losses were too great to bear.  Unfortunately, it took nearly four years from them to come back to the market, most likely very near the next major market peak. Wash, rinse, repeat. 4). Your broker may be rigging you. It’s ironic how financial services CEOs can exploit HFT for their own benefit to gain publicity and rail against it when they advocate their front-line sales forces to engage in HPST (high-pressure sales tactics) which are exponentially more detrimental to the wealth of retail investors.  I don’t recall these CEO's suggesting “don’t invest until HFT is fixed,” do you? Of course not. They tell you to “buy and hold”, purchase your full asset allocation to stocks regardless of valuations and they never share what could happen if you miss the 10 WORST market days, only if you miss the 10 BEST. (By the way, if you miss the 10 WORST trading days in the markets you will generate substantially greater returns than missing the 10 BEST.  You won’t get that information, however, because it means less invested in stocks, less trading and fee revenues for the brokerage firms.) So let’s get real, here. While HFT is a headline, a media grabber, it really has very little effect to your bottom line.  However, what has the most important effect on your long term financial prosperity is managing the risks of investing that can do long-term, irreparable damage to your financial health. As discussed recently, it makes little sense to focus only on what could go right. You can readily find that case being made in the mainstream media daily. However, finding an advisor that can understand the impact to portfolios when something goes "wrong" is inherently more important. However, an independent advisor can help level the playing field between Wall Street and you.  Provided they have the right team, tools and data they can spend the time necessary to manage portfolios, monitor trends, adjust allocations and protect capital through risk management. If the market rises, terrific. It is when markets decline that we truly understand the "risk" that we take. A missed opportunity is easily replaced.  However, a willful disregard of "risk" will inherently lead to the destruction of the two most precious and finite assets that all investors possess – capital and time.

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