Observations & Insight

Maureen Downs, Rosenthal Collins Group – Brutally Honest: The Role of the Mentor
MarketsWikiEducation.com

“Everyone wants to be on their team. They understand human nature, they bring people together, they know how to resolve conflict. That makes a great mentor.”

Maureen Downs never had a mentor, but she knows what it takes to be a good one. A mentor is not supposed to be your personal cheerleader, or a mommy figure, or a career navigator, and certainly not a fairy godmother who can wave a wand and make your career awesome. A mentor is a leader, one with energy, fresh ideas, a get-it-done attitude, and an ability to resolve conflict.

Downs offers a direct, insightful and sometimes brutally honest look at the role of the mentor, how to be a good mentee, and a few tips on how to manage crises, failures, and the “nasty people” we all encounter from time to time. She says it is OK to greet failure with anger or self pity, but only for one day. Then it is time to take the next positive step forward.

Words to live by.

Watch the video »

Lead Stories

Is This the Calm Before the Storm? A Look at VIX and Options Trends
Andrea Kramer – Schaeffer’s Research
Wall Street has been almost eerily quiet lately, despite Fed and political uncertainty. The S&P 500 Index (SPX) is in the midst of its longest streak without a big move since 2014, having failed to make a 1% move in either direction since July 8. Meanwhile, the CBOE Volatility Index (VIX) — also known as the market’s “fear gauge” — hit an annual low earlier this month, and triggered a signal not seen since the financial crisis, while U.S. listed options volume hit a 14-month low in July, after touching a 10-month high in June (courtesy of the “Brexit” vote), according to Tabb Group (subscription required). So, is this the calm before the storm? Or is there more smooth sailing ahead?
goo.gl/G2qACK

****SD: Calm is the theme of the newsletter of late — plenty more content on the calm/complacency/silence below.

Volatility Update: Home on the Average True Range in S&P 500
Frederic Ruffy – The Ticker Tape
There’s more than one way to skin a cat. That familiar (and somewhat troubling) adage is used when somebody wants to say that there’s more than one way to do something. I think it’s apropos for this period in the markets, and I want to point out that there’s more than one way to look at, and trade, this market, especially when it comes to volatility. One unique tool I’ll highlight in this article is called Average True Range, which has produced some interesting readings lately.
/goo.gl/KoYBvc

****SD: I don’t see any buffalo roaming though.

Market’s Tight Range Signals Sharp Move
Michael Kahn – Barron’s
Pundits are obsessing over the CBOE Volatility Index, saying its very low levels suggest the stock market is near a top. While the VIX is useful at finding market bottoms, it is not that good at finding tops. The indicator, in fact, has been even lower during rallies in the past and higher when the market actually did find its peaks.
goo.gl/bXkFwZ

****SD: Also see the South China Morning Post’s Eerie market calm could end with a bang and the Sydney Morning Herald’s Market calm leaves investors exposed to Brexit-style shocks. For good measure, here’s a Business Insider article on current complacency in the markets.

Scorching heat ripples through commodity markets
Gregory Meyer, Henry Sanderson and Anjli Raval – Financial Times
An odd thing happened in late July. US energy companies pulled natural gas from stockpiles in the first summer drawdown in a decade. They typically bank natural gas during the summer, injecting supplies underground week after week for use during chilly winter months. The move is a striking example of how scorching heat has rippled through commodity markets. The region where gas stocks fell most has felt like an oven for much of the past month, forcing residents to run air conditioners at full blast. US electric power plants have burnt record amounts of natural gas this summer, according to PIRA, a consultancy.
goo.gl/bF0hml

Optionality
Jared Dillian – Mauldin Economics
I started my career on an options trading floor. It’s weird to start learning about options before you know anything about stocks or bonds or anything else. When I interviewed, I didn’t even know what these people traded (early days of the Internet, you couldn’t look something like that up).
goo.gl/mLdzMB

****SD: Uhh, there are/were plenty of repositories of knowledge before the Internet — I hear tell there were these things called “libraries” full of “books.”

Bulls begin to face questions about further upside
Lawrence McMillan – MarketWatch
Stocks have continued to trade in a narrow range for over a month now. While there have been occasional probes to new all-time highs by the S&P 500 Index SPX, -0.04% Dow Jones Industrials DJIA, -0.15% and Nasdaq Composite COMP, +0.03% the progress has been slow. The SPX traded in a range roughly from 2160 to 2175 for the last half of July. Then new highs were registered after one strong unemployment report on Aug. 5. But there wasn’t much follow through, and the SPX has traded in a similar tight range since then, roughly from 2175 to 2190.
goo.gl/cR3PS8

****SD: “Begin to face questions?” Seems like bulls should have been questioning things waaay before now. I know the Chicago Bulls have been trying to figure out their upside what with an odd new roster of ball-dominant players and some unproven youngsters.

Announcement of Closure of AccuShares Spot CBOE VIX Fund (VXUP and VXDN) and AccuShares S&P(R) GSCI Crude Oil Excess Return Fund (OILU and OILD)
Press Release
AccuShares Investment Management (“AIM”), sponsor to the AccuShares Spot CBOE VIX Fund VXUP, -4.60% VXDN, -0.51% and the AccuShares S&P GSCI Crude Oil Excess Return Fund OILU, +4.00% OILD, +0.17% (each, a “Fund” and together, the “Funds”), on August 24, 2016, has determined to liquidate and terminate each Fund. Due to each Fund’s assets remaining small and the expectation that the assets of the Funds will not grow sufficiently in the foreseeable future, AIM believes that it is in the best interests of each Fund and its respective shareholders for the Fund’s business and operations not to continue.
goo.gl/8EBfMx

****SD: Reminds me of this Bloomberg story earlier this week — At BlackRock Even a 40% Gain Can’t Save ETFs From the Trash

Options Traders See More Pain for South Africa’s Rand: Chart
Bloomberg
The South African rand’s implied volatility versus the dollar, based on prices for options to buy and sell the currency, rose to the highest relative to actual price swings since June, indicating that traders are betting on wider price fluctuations in coming weeks.
goo.gl/5sqjWD

****SD: The uncertainty surrounding RSA’s FinMin Pravin Gordhan has a big, not-so-invisible hand in this.

Exchanges

CBOE to ramp up activity in London office
Julie Aelbrecht – FOW
The US equity options exchange has had a trading hub in London since 2013
The Chicago Board Options Exchange is set to ramp up activity out of London after opening its first international office last month. US options giant the Chicago Board Options Exchange is set to ramp up activity in its new London office, after opening the office in July. The official opening of the office, located on Leadenhall Street, will be on September 8.
goo.gl/Q5HRlR

****SD: John and Doug will be there for the ribbon cutting ceremony.

Deutsche Boerse, LSE submit merger to EU regulators for approval
Reuters
Deutsche Boerse and the London Stock Exchange Group have submitted their $29 billion merger deal to European Union competition regulators ahead of a Sept. 28 deadline for a preliminary review. The deal, which will create the world’s biggest exchange by revenue, is likely to face tough scrutiny because of the huge combined presence of the two companies in derivatives clearing.
goo.gl/KIGofm

German central bank sees clearing risk with DB-LSE
Luke Jeffs – FOW
Bundesbank board member is concerned about multiple clearers under one roof
The German central bank has become the latest to voice concerns about the proposed merger between Deutsche Boerse and the London Stock Exchange, citing the systemic risk of moving the exchanges’ clearers under one roof. Andres Dombret, a board member of the Frankfurt-based Bundesbank, told Reuters: “When several clearing houses come together in a single exchange operation, I see it with a certain amount of concern.” Deutsche Boerse and the LSE own the two largest clearing houses in Europe and Dombret said this is a potential cause for concern, adding: “It could also create new sources of contagion.”
goo.gl/31wo5n

Lords of the ring: Will the City say goodbye to open outcry?
Matt Clinch – CNBC
In a small room to the side of the trading “ring” of the London Metal Exchange, two young traders take a quick 10 minutes from their hectic days to play their favorite board game. The game of choice is backgammon, one of the world’s oldest games, and the two gleefully play it on an upturned box.
goo.gl/eDQbO3

LME relocation plan delayed to September
Luke Jeffs – FOW
LME’s building manager told the exchange repairs and checks are “set back”
The London Metal Exchange has suffered a minor setback in its efforts to relocate to its London headquarters after the building’s manager said necessary repairs have been delayed. The LME said in a statement late Wednesday: “The LME has been informed by the building manager of 10 Finsbury Square that the repairs and building checks scheduled for completion early in the week of August 22 have been set back to allow for further precautionary testing to be carried out.”
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Regulation & Enforcement

Ex-CEO Admits to Fraud After Decade on Lam in Africa
Patricia Hurtado – Bloomberg
The former chief executive of Comverse Technology Inc. who hid in Africa for a decade pleaded guilty to backdating stock options and was jailed immediately by a U.S. judge who said the defendant’s intelligence and guile meant he couldn’t be trusted to return to court. Jacob “Kobi” Alexander, 64, returned to New York Wednesday from Namibia to face federal charges originally filed in 2006. While he had faced 35 counts related to the backdating of stock options, Alexander pleaded guilty to one count of securities fraud and asked the judge to let him out on bail until his Dec. 16 sentencing.
goo.gl/2MGs3K

****SD: I didn’t realize Chuck Taylor was in so much trouble.

Technology

More than 20 global fintech hubs to form federation in innovation push
Jemima Kelly – Reuters
Financial technology groups from more than 20 cities across the world plan to form a federation of ‘fintech’ hubs this year in what would be the first attempt to coordinate and globalize web-based innovation transforming the financial industry. Fintech is under the global spotlight because of its promise – or threat – to ‘disrupt’ traditional financial activity. One of fintech’s fastest growing areas is the ‘blockchain’ protocol, which could enable the clearing and settlement of securities such as stocks and bonds without the need for intermediaries such as banks.
goo.gl/TQNVL9

World Federation of Exchanges Publishes Results of Distributed Ledger Technology Survey
WFE Release
The World Federation of Exchanges (“WFE”), which represents more than 200 market infrastructure providers including exchanges and CCPs, today published the results of a survey[1] of Financial Market Infrastructures (FMIs) regarding their use of, and perspectives on, Distributed Ledger Technologies (“DLT”), including blockchain.
goo.gl/u96ijs

What’s the Big Deal About Source Code (VIDEO)
Richard Gorelick, RGM Advisors – TABB Forum
At a Congressional hearing in July, members of the House Agriculture Committee sought feedback on the CFTC’s proposed regulation on automated trading (Reg AT). Witnesses, including Greg Wood of FIA and Richard Gorelick, a member of FIA PTG’s executive committee, discussed the value of risk controls, the need to approach the regulation in phases, and the importance of ensuring the regulation is not selectively applied.
goo.gl/95EK2d

Strategy

George Soros, Paul Tudor Jones are betting that shares poised for a tumble
Australian Financial Review
When two of the world’s best known investors place exactly the same bets, then maybe that’s good enough for amateur investors to do the same. If you think George Soros and Paul Tudor Jones know what they’re doing, then go short the sharemarket, because those two legendary investors think it’s about to take a tumble. Both have doubled up on their bet the S&P 500 will take a dive according to the latest quarterly 13F filings at the SEC. Paul Tudor Jones has bought more put options on the blue chip index with a notional value of $US1.7 billion ($2.2 billion), which represents almost 40 per cent of his $US4.7 billion ($6.2 billion) fund.
goo.gl/JJwX80

Buy Volatility Ahead of a Jam-Packed ‘Policy Month,’ Says BofAML
Luke Kawa and Blaise Robinson -Bloomberg
It’s time to position for the end of that peaceful, easy feeling that’s enveloped markets this summer ahead of a month fraught with event risk, says Bank of America Merrill Lynch.
“We remain ‘cynically bullish’ on financial asset prices,” writes a team led by Chief Investment Strategist Michael Hartnett. “Tactically, the 3P’s (Positioning, Policy, Profits) still argue for upside; but with risk assets up 15-20 percent since Feb, and Sep a big ‘policy month’ we once again recommend buying volatility.”
goo.gl/IKeUI5

Is The VIX Close To A Strong Reversal?
Seeking Alpha
VIX short positions are at historic lows. Valuation and VIX level extremes are seemingly being ignored by the market. The search for yield is the main cause of current market distortions. Cash VIX has been crushed since June’s Brexit result to sub-teen levels. And, as expected, the VIX futures curve has likewise shifted down. Traders in search of yield have been the main culprits driving the VIX to near historic lows through short selling and other strategies, justifying their actions mostly on technical levels that have been broken in the S&P 500 as it passed the 2,134 level.
goo.gl/6IDdzZ

Selling A Straddle To Profit From A Boring Market
Forbes
The S&P 500 Index has been very quiet in recent weeks. In fact, the broad-market benchmark hasn’t made a 1% daily move in either direction since July 8, the longest streak of its kind since May 2014. Fortunately, with options, there are multiple ways to profit from stagnation, one of which is the short straddle.
goo.gl/wIuljd

Events

CBOE to host Risk Management Conference Europe 2016 in Ireland
LeapRate
Chicago Board Options Exchange (CBOE) will host the 5th annual CBOE Risk Management Conference (RMC) Europe, Monday, September 26 through Wednesday, September 28, 2016, at the Powerscourt Hotel in County Wicklow, Ireland.
/goo.gl/3uqPAI

Miscellaneous

Opec: Cartel of collusion or an ouroboros?
Stephen Pope – TradingFloor
I feel I ought to explain my headline by describing what is meant by Opec: cartels and collusion.
The website of the Organisation of Petroleum Exporting Countries says that it is an intergovernmental organisation of 14 oil-exporting nations that coordinate and unify the petroleum policies of its member countries. That is not really true now, is it? Opec is dominated by the will of its leading member and oil producer, i.e. The Kingdom of Saudi Arabia.
/goo.gl/EAV7Is

Central Banks’ Endgame Not Good for Markets
Brian Singer – Barron’s
There’s a perception that central banks have had the market’s back by implementing easy monetary policies since the financial crisis. But we’ve seen that these kinds of central bank actions have historically ended poorly for the market.
goo.gl/B1or4s

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