Gundlach: “You Should Be Raising Cash Literally Today”

While there was nothing markedly new from Jeff Gundlach in his latest monthly webcast, it appeared that the DoubleLine CEO either had just read or otherwise agreed completely with JPM’s Marko Kolanovic, who as we noted earlier, warned that even a modest spike in vol coupled with a plunge in liquidity, could lead to “catastrophic losses” for the year’s best performing strategy: short convexity, or otherwise selling volatility. Recall what JPM said.

May 17th and similar events bring substantial risk for short volatility strategies. Given the low starting point of the VIX, these strategies are at risk of catastrophic losses. For some strategies, this would happen if the VIX increases from ~10 to only ~20 (not far from the historical average level for VIX). While historically such an increase never happened, we think that this time may be different and sudden increases of that magnitude are possible. One scenario would be of e.g. VIX increasing from ~10 to ~15, followed by a collapse in liquidity given the market’s knowledge that certain structures need to cover short positions.

A few hours later, in not so many words, Gundlach made the same warning during the webcast, in which he – like Gandalf – warned that “we’re on increasing watch for volatility,” Gundlach said, pointing out that “there is a massive amount of money that is being short VIX.”

“It’s a trade that’s made a lot of money and its very very crowded, which suggests to me the days of low volatility are numbered,” he said. We “probably won’t see it continue through year end.”

What does the above mean in trading terms? “If you’re a trader or a speculator I think you should be raising cash today literally today. If you’re an investor you can easily sit through a seasonally weak period,” Gundlach repeated that while he does not expect a recession any time soon, he does anticipate a summer correction in S&P.

Aside from an imminent vol spike, Gundlach also went off on a political tangent and summarized his views on the ongoing drama in DC, saying “the establishment: in Washington is trying to undermine Trump by running out the clock on his administration. “They’re really just trying to wait Trump out, trying to obstruct his agenda as much as possible,” Gundlach said quoted by Bloomberg. “Small change is what they’re looking for.”

Speaking during the Sessions testimony, he called the political charade taking place in DC “a sideshow or entertainment” and said the US political conflict is “rope-a-dope,” after the strategy used by Muhammad Ali to wear out opponents. It remains to be seen if the Democrats, or Trump, win this particular boxing match.

* * *

Finally for those who missed it, here is Gundlach’s full slideshow

Paul Craig Roberts Warns “Without Glass-Steagall, America Will Fail”

Authored by Paul Craig Roberts,

For 66 years the Glass-Steagall act reduced the risks in the banking system. Eight years after the act was repealed, the banking system blew up threatening the international economy. US taxpayers were forced to come up with $750 billion dollars, a sum much larger than the Pentagon’s budget, in order to bail out the banks. This huge sum was insufficient to do the job. The Federal Reserve had to step in and expand its balance sheet by $4 trillion in order to protect the solvency of banks declared “too big to fail.”

The enormous increase in the supply of dollars known as Quantitative Easing inflated financial asset prices instead of the consumer price index. This rise in bond and stock prices is a major cause of the worsening income and wealth distribution in the United States. The economic polarization has undercut the image and reality of the US as a land of opportunity and has introduced political and economic instability into the life of the country.

These are huge costs and for the benefit only of the rich who were already rich.

So, what we can say about the repeal of Glass-Steagall is that it turned a somewhat egalitarian democracy with a large middle class into the One Percent vs. the 99 percent. The repeal resulted in the destruction of the image of the United States as an open prosperous society. The electorate is very much aware of the decline in their economic situation, and this awareness expressed itself in the last presidential election.

Americans know that the nonsense from the US Bureau of Labor Statistics about a 4.3% unemploment rate and an abundance of new jobs is fake news. The BLS gets the low rate of unemployment by not counting the millions of discouraged workers who cannot find employment. If you haven’t looked for a job in the last 4 weeks, you are not considered unemployed. The birth/death model, a purely theoretical construct, accounts for a large percentage of the non-existent new jobs. The jobs are there by assumption. The jobs are not really there. Moreover, the replacement of full time jobs with part time jobs proceeds. Pension and health care benefits that once were a substantial part of the pay package are being terminated.

It makes perfect sense to separate commercial from investment banking. The taxpayer insured deposits of commercial banking should not serve as backing for investment banking’s creation of risky financial instruments, such as subprime and other derivatives. The US government understood that in 1933, but no longer did in 1999. This deterioration in government competence has cost America dearly.

By merging commercial banking with investment banking, the repeal of Glass-Steagall greatly increased the capability of the banking system to create risky financial instruments for which taxpayer backing was available. So, we have the extraordinary situation that the repeal of Glass-Steagall forced the 99 percent to bail out the One Percent.

The repeal of Glass-Steagall has turned the United States into an unstable economic, political, and social system. We have a situation in which millions of Americans who have lost full time employment with benefits to jobs offshoring, whose lower income employment in part time and contract employment leaves them no discretionary income after payment of interest and fees to the financial system (insurance on home and car, health insurance, credit card interest, car payment interest, student loan interest, home mortgage interest, bank charges for insufficient minimum balance, etc.), are on the hook for bailing out financial institutions that make foolish and risky investments.

This is not politically viable unless Congress and the President are going to resign and turn over the governance of America to Wall Street and the Big Banks. A growing cresendo of voices are saying that this has already happened.

So, where is there any democracy when the One Percent can cover their losses at the expense of the 99 Percent, which is what the repeal of Glass-Steagall guarantees?

Not only must Glass-Steagall be restored, but also the large banks must be reduced in size. That any corporation is too big to fail is a contradiction of the justification of capitalism. Capitalism’s justification is that those corporations that misuse resources and make losses go out of business, thus releasing the misused resources to those who can use them profitably. Capitalism is supposed to benefit society, not be dependent on society to bail it out.

I was present when George Champion, former CEO and Chairman of Chase Manhattan Bank testified before the Senate Banking Committee against national branch banking. Champion said that it would result in the banks becoming too large and that the branches would suck savings out of local communities for investment in traded financial assets. Consequently, local communities would be faced with a dearth of loanable funds, and local businesses would die or not be born from lack of loanable funds.

I covered the story for Business Week. But despite the facts as laid out by the pre-eminent banker of our time, the palms had been greased, and the folly proceeded.

As Assistant Secretary of the US Treasury in the Reagan Administration, I opposed all financial deregulation. Financial deregulation does nothing but open the gates to fraud and sharp dealing. It allows one institution, even one individual, to make a fortune by wrecking the lives of millions.

The American public is not sufficiently sophisticated to understand these matters, but they know when they are hurting. Few in the House and Senate are sufficiently sophisticated to understand these matters, but they do know that to understand them is not conducive to having their palms greased. So how do the elected representatives manage to represent those who vote them into office?

The answer is that they seldom do.

The question before Congress today is whether they will take the country down for the sake of campaign contributions and cushy jobs if they lose their seat, or will they take personal risks in order to save the country.

America cannot survive if excessive risks and financial fraud can be bailed out by taxpayers.

US Representatives Walter Jones and Marcy Kaptur and members of the House and staff on both sides of the aisle, along with former Goldman Sachs executive Nomi Prins and leaders of citizens’ groups,  have arranged a briefing in the House of Representatives on June 14 about the importance of Glass-Steagall to the economic, political, and social stability of the United States.  Let your representative know that you do not want the financial responsibility for the reckless financial practices of the big banks.  Let your representative know also that you do not want big banks that dominate the financial arena. Let them know that you want the return of Glass-Steagall.

The effort to reduce the financial risks arising from the commingling of commercial and investment banking by requiring stronger capital positions of financial corporations is futile. The 2007-08 financial crisis required the taxpayers and the printing press and an amount of money that exceeded any realistic capital and liquidity requirements for financial institutions.

If we don’t re-enact Glass-Steagall, the risks taken by financial greed will complete the economic destruction of America.

Congress must serve the people, not Mammon.

White House: “Trump Has No Intention” To Fire Mueller

Hopefully putting to rest another narrative in which the press went off on a wild goose chase, after the CEO of Newsmax Chris Ruddy first said in an interview on Monday that he thought Trump was considering firing the special prosecutor on the Russia investigation, Robert Mueller, and then the NYT boldly followed, the White House said late on Tuesday that President Trump has “no intention” to fire Mueller.

While the president has the right to, he has no intention to do so,” White House spokeswoman Sarah Huckabee Sanders (who earlier today was rumored would soon be replacing Sean Spicer) told reporters flying with Trump back to Washington from a day trip to Wisconsin.

Despite Trump’s lack of commentary on the matter – and Trump would have quickly made it very clear if he indeed wanted Mueller out in one of his morning tweetstorms – some rank-and-file Republicans on Tuesday, gripped by the media frenzy, voiced concerns that ousting Mueller a month after Trump fired FBI Director James Comey would appear as obstruction of justice. Somehow the fact that Trump originally conceded to the appointment of a special prosecutor was lost on most.

Mueller was appointed by the Justice Department to helm the investigation after Trump abruptly fired Comey – who was the one previously leading the Russia probe – in early May. Mueller’s hiring was meant to ensure the probe would be conducted without interference.

Meanwhile, not helping was Newt Gingrich, who said he spoke with Trump on Monday night and raised questions about the fairness of the Mueller-led probe. Gingrich noted that at least four members of Mueller’s team had donated to Democratic presidential campaigns and groups, saying it’s “time to rethink” Mueller’s role.

Earlier on Tuesday, Rod Rosenstein, the deputy attorney general who appointed Mueller and continues to oversee the investigation, promised lawmakers he would not permit Mueller to be dismissed without legitimate reason. “As long as I’m in this position, he’s not going to be fired without good cause,” Rosenstein said. “I’m not going to follow any orders unless I believe those are lawful and appropriate orders,” he said, emphasizing that the attorney general “actually does not know what we’re investigating.” He added, “Director Mueller is going to have the full independence he needs to conduct that investigation appropriately.”

And still the vortex of speculation grew.

Finally, also on Tuesday, the NYT elbowed its way into the NewsMax inspired media frenzy, and reported that “behind the scenes, the president began entertaining the idea of firing Mr. Mueller even as his staff tried to discourage him from something they believed would turn a bad situation into a catastrophe.”

Who were the NYT’s sources? The usual suspects: “several people with direct knowledge of Mr. Trump’s interactions” and “one longtime Trump associate who remains close to the White House.”

Houston Resorts To Selling Off City Streets To Try And Close $100 Million Budget Shortfall

With the US shale industry producing at near-record levels as oil prices languish around $50 a barrel, cities in oil-dependent states like Texas are resorting to increasingly creative means to compensate for the shortfall left by falling energy revenues, including selling off public assets, like Houston just did.

The city held what the Houston Chronicle described as “a yard sale of sorts” last week when the city council approved selling or swapping almost $2 million worth of city streets and utilities easements in a deal that will help close what’s expected to be a $100 million budget shortfall over the next five years.

Specifically, the council abandoned or sold several streets and easements on the east side of the city. The land is adjacent to an oil refinery owned by Valero Energy. The oil giant already owns the blocks immediately surrounding its facility, and the move will let the company assume the intersecting streets onto its land as part of a plan to build an office building, warehouse, security building and to add parking farther away from the central plant, the Chronicle reported.

The second example also comes from the east side, around Houston’s public Milby High School. The city agreed to abandon and sell parts of five streets and a sewer easement in and around the school campus for $431,000. But rather than pony up that cash, the school district is instead giving the city a 7.5-acre tract valued at $443,000 that used to be home to the now-defunct Clinton Park Elementary.

City officials have ramped up efforts to jettison useless easements and strips of city land in recent years amid repeated budget crunches. However, it’s somewhat less common for the dollar amounts to rise into the millions on the same meeting agenda. Councilman Robert Gallegos, whose district includes both sites, said he hopes the land swap can be beneficial for the neighborhood.

"Now that the city is taking over these 7.5 acres I hope this is a partnership that maybe the city and County Commissioner [Rodney] Ellis, we could work on hopefully making a community center," Gallegos said. "There's a desperate need for a community center in that community."

In another development that is draining the city’s tax base, Houston, one of the hardest hit markets from the collapse of oil prices, saw commercial vacancies rise to a 22-year high during the first quarter, according to a report by NAI Partners.

Unfortunately for Houston officials, there's little the city can do about the price of oil aside from praying that OPEC will come through with yet another production cut.

“Fire” in the Bond Market – Fed Raising Rates and US Issuing Ultra Long Bonds – by Michael Carino


The bond market is on fire and you are about to get
burned!!!  Bond yields are lower and interest
spreads as tight or tighter than that of the bond market crisis of 2008.  This will lead to a catastrophic financial
train wreck that can happen at any moment. 
Why do I feel like I’m the only one sounding the alarms?  Where is the media to help warn and prepare
the marketplace?  Why are investors going
along and playing in what seems to be a rigged and tragically destructive game?
 It reminds me of the story of a frog
jumping into a boiling pot of water. Once the frog hits the hot water, it jumps
right out.  But the frogs that is in the
pot when the water starts out cold slowly gets cooked.  The Fed has excessively accommodated financial
markets for almost a decade. This has been such a long, accommodative cycle,
investors can’t tell how close they are to getting cooked.


Some of the world’s largest and most sophisticated investors
who pride themselves on being some of the smartest individuals are taking some
of the most expensive risks with the worst payoff profiles of all time.  Obviously, most investors have short term
memories.  Longer-term government bonds
typically trade above the level of inflation by 2-3%. That should put the long
bond around 5-6%. However, when there is an asymmetric skew in the economic
data, like there is today, where growth and inflation has a higher probability
to surprise to the upside, the premium should be even higher.  Longer-term US Treasuries now yield 2-2.8%.  If the longest US Treasuries normalize, the market
losses could be as high as 50%!


Over the last couple of weeks, long dated US Treasuries
rallied 40 basis points. That may not seem like much, but this is days before
the Fed is going to raise rates another 25 bps.  What makes this move absurd is that the rally
happened not when rates are normal, but still priced for a recession or a
depression.  When factoring this 25 bp
hike in short term rates, that is a 65 bp compression in spreads – a huge move!
Why?  Was there a natural disaster?  Was there a financial catastrophe?  Both of these might be justification for a 25
or 30 bp spread tightening. But 65 bps? 65 bps is over 20% of the US Treasury long
bond yield!


What has come out over the last couple of weeks is that GDP
is running around 3%, CPI and PPI – core and headline inflation are running 2%,
the unemployment is at a cycle low of 4.3% and the Fed is hiking rates and going
to reduce their balance sheet.  This is
an environment where overpriced bonds should be getting decimated because current
yield levels are so low.  It is clear
that fundamentals have nothing to do with setting yields in the bond
market.  What has been setting yields is a
consortium of Treasury market investors that have been high volume trading
Treasuries aggressively during typically low volume periods and making the
market believe – through price action – that there is great demand for bonds.
This is nothing more than squeezing the bond market and giving it misinformation
in hopes of bluffing bond investors to not pull the ripcord and cash out of the
bond market. 


This is not a unique strategy.  This is the same strategy employed during 2006
and 2007 to coax longer term bonds into a low volatility state.  This flattened the yield curve with declining
long term yields as the Fed raised Fed Funds from the historically low 1% last
cycle.  And what did that lead to?  This high volume, volatility diminishing
trading of long term rates led to mispricing of all risks embedded in the bond
markets.  And when those risks eventually
were realized (when Fed Funds raised high enough to be a substitute for
overvalued bonds), the normalization process was rapid.  This market move confused investors that were
clueless as to what was setting yield levels before, during and after the
crisis.  The financial crisis of 2008 was
only a crisis because yields were mispriced too low due to the manipulation in
the Treasury market.  If rates were
normalized in 2008, there would have never been a crisis.  Yields and spreads would have only moved a
little bit higher instead of having to adjust so drastically that anyone with
leverage or a low risk tolerance was forced to sell.  This led to a lack of liquidity in the bond
market and the Fed having to step in to provide liquidity.  The Feds mistake is they provided the
liquidity then and still are today.  This
encourages reckless risk taking in the bond market and the insanity continues


To make this last paragraph a little clearer, monetary
policy in the last cycle was over accommodative. These conditions led to the
2008 financial crisis.  The Fed’s
response was to be even more accommodative for an even longer period of time.
They expect different results this time? (Definition of insanity!)  I fear with this next crisis congress will
place the blame squarely on the Fed.  The
result, most likely, will be a different mandate for the Fed – if the Fed
continues to exist at all.  But I


The Fed will raise interest rates in two days.  The US Treasury Secretary Mnuchin just repeated
he is looking into issuing ultra-long bonds (great timing).  The job market is tight and global economy
roaring.  In the US, you can’t find a
parking spot and homes are selling over asking price again.  This is not the recessionary or depressionary
conditions reflected in the bond market.


Congratulations to the Fed.  They saved us from the last financial crisis
by sowing the seeds of the next, never to be out done, even more spectacular
financial crisis.  The Fed has
manipulated the markets by buying 5 Trillion of bonds and a consortium of bond
investors are manipulating the markets, trading 1 trillion of government bonds in
the cash and futures markets daily.  If
you think fundamentals are setting prices in the bond market, your wrong.  Let’s be clear: when fundamentals matter in
the market place, yields and yield spreads will be double to triple of what
they are today.  So get ready to hop out
of the financial pot before the water gets too hot.  With the Fed hiking rates and reducing their
balance sheet and the bond market grossly overvalued, the pot may start to boil
faster than most expect.




by Michael Carino, 6/13/17


Michael Carino is the CEO of Greenwich Endeavors, a
financial service firm, and has been a fund manager and owner for more than 20
years.  He has positions that benefit
from a normalized bond market and higher yields.  Do you?


“Any Crisis Can Bring About Immediate Shortages” – Food Is A Weapon In The Hands Of The Powerful

Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces) via,

The U.S. has experienced some record droughts for the past several years, and now that the summer has begun, everyone is speculating on this year’s crop forecasts.  The Midwest has been struck by severe flooding and rainfall levels that are far above average, complicating startups of this year’s crops.  Another dry summer could push the prices up even higher, with an ever-growing demand that always exceeds the available supplies.

One of the problems in the overall food industry in the U.S. is not brought on by weather patterns and rainfall shortages.  The problem is inflation, the rise in the prices due to higher demand, lower supply, and less purchasing power with the fiat dollar; that problem is coupled with (and followed by) deflation, where the grocery industry is forced to lower prices to capture a declining consumer base, but to its own cost.

Wal-Mart’s sales of groceries and food supplies now account for more than 50% of its overall revenues.  That is a staggering fact, and it also outlines the way a large retailer not originally intending to enter the arena of food sales has staked out a claim for itself.  This claim has not been without its effects, however, as what Wal-Mart earns detracts from supermarkets and other concerns whose main bread-and-butter (no pun intended) is income from food sales.

The largest supermarket chain in the U.S. is the Kroger Company, and along with Wal-Mart taking a bite out of its business comes an increase in retail stores such as the Dollar Trees, Dollar General Stores, and others that are rapidly expanding their food sales and cutting a big slice out of that market where traditional grocery concerns have dominated in the past.  Foreign competitors, such as the German firms Aldi’s and Lidl are also posing a challenge to domestic supermarket concerns.

Eight years of Obamanomics has severely crippled the U.S. manufacturing base, and the food industry has not been immune to that destruction by a longshot.  The dramatic rise in entitlements expanded by Obama has also caused the prices of consumer goods to shoot up drastically: more handouts by the government places more money in the hands of the entitlement-society…at taxpayer expense.  This devalues the fiat currency even further and pushes up the prices of food.

The EBT is now looked upon by the sheeple as some sort of “necessity,” or a “status symbol” of some kind…a plethora laughing at the expense of the government, vis-à-vis the productive members of society who are forced to “contribute” to this fiasco in the form of taxes.  What is next?  The Platinum EBT card?  Producers are bearing the burdens of and paying for consumers, and worse: the consumers are parasitic, and their consumption only increases the prices of all goods consumed while decreasing the supply.

Food is also a weapon (as poignantly illustrated by that evil icon of globalism, Henry Kissinger) that can bring other countries or populations of a given country under control.  The prices rise, the supplies dip, and the populace suffers.  The government, remember, always has its warehouses stuffed to the gills with freeze-dried foods and shelf-stable supplies for when the seams on the U.S. come apart.  The politicians in power always have a place to run to in the event of a war or a crisis…on our dime…and you can bet that none of them will miss a meal when it all comes apart.

Raising the prices of food benefits the government, because the grocery stores, retail stores, and businesses then have extra income with the rising prices, providing extra tax income to the politiciansThe people suffer; nevertheless, they’ll pay: they must have the food, and will bear the extra cost or enter the ranks of those nonproductive eaters on the public dole.  The government and the politicians are the only ones who win in the end: endless “authority” and firearms with a smile, to tax and line their own pockets while their serfs labor endlessly to feed their elected feudal overlords.

It is all interrelated, and any crisis can bring about immediate food shortages.  Such a crisis not gone to waste (Rahm Emmanuel) or a crisis contrived?  No matter.  The end state plays into the dynamics of what those in power wish to achieve.  Please refer to an excellent article from a few years back When the Trucks Stop, America Will Stop to see one segment that can trigger the burst dam that overflows into a full-blown economic collapse and a dearth (and eventual complete cessation) in the food supply.  Food is a necessity, and is a weapon in the hands of the powerful…against us.

Watch an Unhinged Kamala Harris Instructed to Simmer Down Again


Content originally published at

Senator Kamala Harris will most likely be the DNC’s next Presidential candidate, since they’re all about identity politics. She’s a pitbull and very effective at rattling cages. A week ago, she was scolded by Senator Burr for attempting to steamroll Rod Rosenstein.

Today, she, indecorously, did the same thing to our acting AG, which drew the ire of Sessions. She asked ridiculous questions, like ‘did you meet with any Russian nationals?” Since when is it a crime to meet with people of Russian origin? I thought the left was obsessed with XENOPHOBIA? Or, does XENOPHOBIA only apply to people of color? Just asking.
Sen. Harris asked, “Did you have any communication with Russian businessmen or any Russian nationals?”
Sessions replied, “I don’t believe I had any conversations with Russian businessmen or Russian nationals.”
Harris filibustered, saying, “Are you aware of any communications…”
Sessions interrupted, “A lot of people were at the convention, it’s conceivable that somebody came…”
Harris filibustered again, “Sir, I have just a few minutes…”
Sessions, raising his voice said, “Will you let me qualify? If I don’t qualify, you’ll accuse me of lying, so I need to be correct as best I can. I am not able to be rushed this fast. It makes me nervous.”
Later on, she was scolded for interrupting Sessions — and cordially asked to simmer down.

Here was the full exchange.

On the issue of executive privilege, former Deputy AG under George H.W. Bush, George Terwilliger, said Sessions was correct.