Whiplash: Dow Travels Over 22,000 Points In Five Days Of Insane Trading

Following its worst week in two years, CNBC reports that the Dow has moved a cumulative 22,000 points over the last five trading days, when you add up each day’s trading range.

Stocks have plunged in the last week as traders worried about rising interest rates and inflation, bringing an end to more than a year of historically low volatility. On Monday, the S&P 500 broke its longest ever streak without a 5 percent drop from a recent high, according to Ryan Detrick, senior market strategist at LPL Financial.

The Dow suffered its worst daily point drop on record Monday, and briefly fell nearly 1,600 points intraday. The index recovered about half of Monday’s losses in a volatile Tuesday session, but has closed lower in each of the two days since. –CNBC

On Friday the Dow closed up 330 points higher, after initially jumping 349 points in the morning, falling 500 points in the afternoon, and then recovering. Meanwhile, the Cboe Volatility Index jumped above 50 Tuesday for the first time since August 2015 – trading near 29 late Tuesday afternoon.

Insane!

Insurance giant American International Group (AIG) posted a $6.7 billion fourth-quarter loss on Thursday after booking a giant charge connected to U.S. tax reform, as well as losses from global catastrophes such as the California wildfires.

Via Reuters:

“Excluding one-time items, adjusted fourth-quarter earnings were $526 million, or 57 cents per share, compared with an adjusted loss of $2.8 billion, or $2.72 per share, in the same period a year earlier.

Analysts were expecting earnings of 75 cents per share, on average, according to Thomson Reuters I/B/E/S.

AIG booked $762 million of catastrophe losses during the quarter, largely from wildfires that raged through California and caused significant damage to homes and businesses.

The quarter also reflected a “modest” reserve boost to cover future claims, driven by losses in its international commercial businesses.”

Despite tax-linked charges and catastrophes, AIG’s general insurance business posted $13 million in pre-tax income, vs. a $4.9 billion loss during the same quarter last year.

The insurer’s life and retirement business was affected by a major recalculation in the way AIG determines losses – booking a $90 million charge due for what the company called “modernization” of actuarial systems and models. Due to this, the retirement and life insurance segments declined 10% to $782 million vs. $866 million one year ago.

“U.S. tax reform has caused many financial services companies to book big one-time losses for earnings held overseas and also for an accounting oddity related to losses booked during the 2007-2009 financial crisis, even though lower corporate tax rates will help them in the long run.

Under Chief Executive Officer Brian Duperreault, who has been in the role for less than a year, AIG has been looking to acquire businesses and restructure itself to boost results, with a particular focus on technology.” –Reuters

AIG was mostly flat after hours.

The Dow sharted in its pantaloons to the tune of -1,032 points today (-4.15%), wiping out 2018’s gains and entering 10% “correction” territory along with the S&P 500. To be precise:

10% Correction Levels:

• Dow 23954 – Dow closed at 23860 is in correction
• S&P 2585 – S&P closed at 2581 in correction
• Nasdaq 6755 – Nasdaq closed at 6777, not in correction

YTD:

2018’s gonna be YUUUUUUGE!–uh oh…

Meanwhile, Treasury yield spiked after a weak auction and the implications of a budget deal implying more supply is on the way. As stocks were force-choked lower by darth maul, bonds ended up catching a tiny bid as credit spreads snapped wider and rate volatility spiked.

Portfolio rapist XIV cratered shortly after the open:

The greed? Where did it go? Is it still good?

Since the collapse of XIV, markets have also seen huge equity outflows from US ETFs:

Sad!

Wells Fargo head of equity strategy, Christopher Harvey, says that if the bitcoin bubble bursts, the stock market may be toast for a while.

Harvey says the two are correlated, noting on Wednesday’s edition of Fast Money “On Monday what we saw is all risk products sell off,” and that as investors lose confidence in one major investment, such as the market, “It sometimes adds fuel to the fire” as people panic out of other asset classes.

Meanwhile, RBC analys Chris Louney sees a “fledgling” negative correlation between bitcoin and gold.

As markets continued to break all-time highs in what looks like a parabolic on a 30-year chart, investors sought alternate asset classes such as cryptocurrencies for the next rocket to the moon. Thus, the euphoria of banking coin in correlated asset classes can consequently lead to despair in both once they begin to go sideways and/or sell off.

Point in case, Monday’s epic 1,175 point selloff in the Dow was accompanied by a devastating rout in Bitcoin, which traded down to $5,947 after hitting all time highs weeks earlier. (Pop!)

Wells Fargo raised its price target for equities, up about 10 percent over the next year. Its 2018 S&P 500 year-end target is 2,950, compared with the earlier target of 2,863. Cryptocurrencies and the market should trade in correlation over the next three to six months, it said.

“If we’re right and risk starts to be bid again, it wouldn’t surprise us to see a bid in some of the crypto markets,” he said.

Watch here:

Testifying in front of Congress on Tuesday, Uber CIO John Flynn said that there was “no justification” for the company covering up a massive 2016 breach by hackers from Canada and Florida which affected 57 million accounts.

“I think we made a misstep in not reporting to consumers, and I think we made a misstep in not reporting to law enforcement,” said Flynn.

The CIO also said that it was inappropriate to have paid one of the hackers $100,000 through a “bug bounty” program to destroy the stolen data. The bounty program offers financial rewards to anyone who identifies vulnerabilities.

Flynn confirmed the man who obtained data from Uber was in Florida and that his partner, who first contacted the company on Nov. 14, 2016, to demand a six-figure payment, was located in Canada. The company’s security team made contact with both people and received assurances the pilfered data had been destroyed before paying the intruders $100,000, Flynn said. –Reuters

“We recognize that the bug bounty program is not an appropriate vehicle for dealing with intruders who seek to extort funds from the company,” Flynn said in his written testimony. “The approach that these intruders took was separate and distinct from those of the researchers in the security community for whom bug bounty programs are designed.”

Of the 57 million user accounts were compromised last November, 25 million were located in the United States. Of those, 4.1 million were Uber drivers, according to Flynn’s testimony. The hackers were able to obtain names, addresses and drivers license numbers.

Lawmakers on the Senate Commerce consumer protection subcommittee railed against the company over how it handled the breach.

“The fact that the company took approximately a year to notify impacted users raises red flags within this Committee as to what systemic issues prevented such time-sensitive information from being made available to those left vulnerable,” said subcommittee chairman Sen. Jerry Moran (R-KS).

“There ought to be no question here that Uber’s payment of this blackmail without notifying consumers who were greatly at risk was morally wrong and legally reprehensible and violated not only the law but the norm of what should be expected,” added Sen. Richard Blumenthal (D-CT).

Blumenthal also noted that Uber was in the process of negotiating a settlement with the Federal Trade Commission over an earlier, smaller breach and charges of deceptive privacy claims – while covering up the giant breach from November 2016.

U.S. federal prosecutors want imprisoned former hedge fund manager and drug company exec Martin Shkreli to forfeit $7.4 million following his August conviction for securities fraud, reports Bloomberg. Prosecutors point to his stake in Vyera Pharmaceuticals, formerly known as Turing Pharmaceuticals, along with $5 million in a personal trading account, a Picasso, and a one-of-a-kind special edition Wu-Tang Clan album.

Prosecutors say Shkreli is worth over $27.1 million. 

Shkreli responded, saying that his only liquid asset is the trading account, and he owes state and federal taxes. While prosecutors say they won’t go after Shkreli’s assets until his appeals are exhausted, he does have consult with them before selling a portion of Vyera or any other asset.

“His net worth belies Shkreli’s prior representations to the court claiming undue financial hardship,” prosecutors said in a filing late Monday. “He appears to have sufficient assets to satisfy all of his debts.”

Last May the feds seized Skhreli’s WWII Enigma code machine, used by Germany to send secret messages. The machine fetched $65,000 at a Sotheby’s auction, according to a spokesman for the NY State Department of Taxation.

The Enigma machine’s seizure came seven months before federal prosecutors in Brooklyn, New York, listed it as an asset they wanted him to forfeit in connection with his criminal conviction. The seizure came four months before Shrekli was convicted in the fraud case.

Shkreli’s lawyer, Benjamin Brafman, first disclosed the Enigma machine’s seizure on Thursday in a letter filed in Brooklyn federal court that opposes a forfeiture request by prosecutors. –CNBC

According to CNBC, in a Vanity Fair magazine profile published that same year, Shkreli said he was “conflicted” about having purchased an Enigma machine “because it’s a Nazi relic.”

“It’s like owning a gas chamber — like, what the f—?— but it’s a constant reminder that we should use knowledge for good, even if the process is ugly,” Shkreli told the magazine. “From the Pythagorean theorem to Fermat’s theorem, the math is ugly, but if you hold your nose during the process of proving it, you get to the right place.”

Shkreli named his drug company after mathemetician and cryptoanalyst Alan Turing, who cracked the Enigma machine.

The feds also sold off three documents from Shkreli’s collection. One of them was “a rare, unpublished manuscript in Latin signed by Isaac Newton at the beginning of his chemical research,” which sold for $38,000, according to James Gazzale, the tax department spokesman.

US Futures are deeply in the red tonight following Monday’s massive route which saw the Dow retreat by a staggering 1,175 points, or –4.6%. Treasury yields are meanwhile tumbling as scared money heads for the land of no returns.

Following US markets, Asia is a bloodbath today, with the Nikkei down over 5% as of this writing.

Meanwhile the Crypto complex has virtually ZERO support – with Bitcoin crashing another 19.66% to $6522. Who would have thought that a currency backed by nothing and under active suppression from governments, banks and private companies would get crushed when volatility returned. WHO. COULD. HAVE. KNOWN?

Oh, and this may just be the beginning of VIX insanity…

Via Charlie McElligott, managing director of cross-asset strategy at Nomura (via ZeroHedge)

The ETNs are the “patient zero” of this current market meltdown.  It is estimated that there was anywhere from ~$125mm to $200mm of vega / VIX futs to BUY on the close from the two main “short VIX” ETNs that rebalance daily (XIV and SVXY).  As S&P traded -50 handles AFTER the cash close from 4:00pm to 4:15pm into the market’s anticipation of the massive rebalancing of volatility (buy to cover) on the close, XIV then saw a delayed and terrifying ~-87 PERCENT move after the close, as some who owned XIV puts as crash protection sniffed this potential and speculated liquidation from the ETN, which is set per a rules-based system to buy back short vega after an 80% “crash trigger”(which again isn’t a certainty because they use a blend of 1st and 2nd month).  The asset pool nonetheless was seemingly / largely wiped-out and the note is guaranteed to “pay out” to their shareholders as set per their prospectus.  It is likely that this thing has indeed been “triggered” and will be forced to liquidate.  SVXY doesn’t have the firm 80% “trigger” but too is seeing its NAV “wiped out” and is trading ~-80% post-close as well.

The issue NOW is the pile-on going-forward across assets, as the systematic “short vol” community’s models are now completely toast, and they too will be forced to cover remaining “short vol” positions that didn’t trade today—i.e. BE PREPARED FOR A MAJOR VIX FOLLOW-THROUGH TOMORROW. 

Enjoy your evening…

Lloyds has become the first UK banking giant to ban all cryptocurrency payments on its credit cards, echoing a similar move last week by Bank of America and JP Morgan. The Lloyds banking group, which includes Halifax, MBNA and Bank of Scotland, are all affected by the new restriction.

The Lloyds group has more than eight million credit card customers, and is concerned that it may end up footing the bill for defaulting debtors should the price of Bitcoin continue to fall.

The move follows a report by the Wall Street Journal reported that Capital One banned customers from using credit cards to purchase bitcoin or coins on the Ethereum blockchain, citing “limiting mainstream acceptance and the elevated risks of fraud, loss and volatility.” Discover Financial announced it would likewise block bitcoin transactions.

In January, over $400 million in cryptocurrency was stolen after Japanese crypto exchange Coincheck was hacked.

And in yet another attempt to make digital currencies less attractive, banks have started to process cryptocurrency payments as “cash advances,” which carry extremely high interest rates. As such, Coinbase customers were greeted to this message a few weeks ago:

Dear Coinbase Customer

We’re writing because you have a credit card on file and want to inform you of a recent change that may increase the cost of purchasing digital currency with a credit card.

Recently, the MCC code for digital currency purchases was changed by a number of the major credit card networks. The new code will allow banks and card issuers to charge additional “cash advance” fees. These fees are not charged or collected by Coinbase. These additional fees will show up as a separate line item on your card statement.

That said, credit card purchses account for just 18% of bitcoin purchases according to a poll by Lendedu:

As anyone with a computer, television or radio knows, the price of Bitcoin has been tumbling – from a December high of $20,000, to under $8,000 in overnight trade. Whether cause or effect – though we suspect the former – banks, governments, and private businsses have been cracking down on cryptocurrency speculators and suppressing demand over the last several months.

Last September, Bitcoin and other cryptocurrencies plunged as much as 20% after China banned Initial Coin Offerings (ICOs) and shuttered local Bitcoin exchanges. Chinese authorities pointed to Bitcoin’s ability to facilitate “illegal fund-raising and other types of illegal financial activities,” and “pyramid schemes, fraud and other issues.”

Last week, India said it would “take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

And on Sunday, China beefed up regulatory pressure – banning various cryptocurrency exchanges, and actively blocking crypto-related search results from search engine Baidu and social media microblog site Weibo – less than a week after Facebook created a new policy banning Bitcoin and ICO advertisements.

In December, the “Big Four” Australian banks reportedly froze the accounts of bitcoin users acording to the Sydney Morning Herald.

Bitcoin investors are claiming Australia’s banks are freezing their accounts and transfers to cryptocurrency exchanges, with a viral tweet slamming the big four and an exchange platform putting a restriction on Australian deposits.

So @NAB @CommBank @WestpacNZ and @ANZ_AU are all freezing customer accounts and transfers to @BTCMarkets @coinspotau @GetCoinJar @coinbase . #Banks can fight it, but people want control of their money #ausbiz #auspol

— Nugget’s News Australia (@nugget_alex) December 28, 2017

According to the Herald, cryptocurrency trader and Youtuber Alex Saunders called out National Australia Bank, ANZ, the Commonwealth Bank of Australia and Westpac Banking Corporation on Twitter for freezing customer accounts and transfers to four different bitcoin exchanges  – CoinJar, CoinSpot, CoinBase and BTC Markets.

That said, South Korea – which by some estimates constitutes 20% of the crypto trading market sent Bitcoin and the entire crypto sector tumbling over 10% in early January after the Ministry of Justice threatened a serious crackdown on cryptocurrency exchanges, South Korea’s Ministry of Strategy and Finance – a key member of the country’s cryptocurrency task force, said that it does not agree with the “premature statement” of the Ministry of Justice about a potential cryptocurrency trading ban.” This sent Bitcoin and its fickle peers surging.

“We do not share the same views as the Ministry of Justice on a potential cryptocurrency exchange ban,” MSF said according to the local Naver website.

Between the parabolic chart, banking rules, government regulations, hackers, and social media sites banning cryptocurrency ads and search results, one can hardly be shocked at the recent volatility in the crypto space.

Bitcoin fell below $8,000 this evening to a low of $7,861, erasing nearly three months of gains.

The Sunday night drop comes amid news that crypto-related advertisements have stopped appearing on Chinese search engine Baidu and social media platform Weibo, as part of sweeping crypto-crackdowns aimed at curbing speculative trading in the currency, according to cointelegraph.

Furthermore, the People’s Bank of China was told on Sunday that China will be ratcheting up regulatory pressure on cryptocurrency exchange sites and Initial Coin Offerings (ICOs), according to Chinese news outlet Sina.

In September 2017, China banned both ICOs and cryptocurrency exchanges. Some of those businesses responding by relocating off the mainland to Hong Kong. Now, Sina reports, Chinese government plans to mitigate that by banning domestic and foreign “virtual currency exchange websites.”

Meanwhile, the South China Morning Post news site reported that when the terms, in Chinese, “bitcoin,” “cryptocurrency,” and “ICO” were searched on Chinese search-engine Baidu and microblog Weibo, no obvious paid sponsored content came up alongside the expected organic results. –CoinTelegraph

Facebook similarly banned crytptocurrency advertisements last week, citing the giant number of fintech companies on the platform that are “not operating in good faith” –  a move which was received favorably on Reddit’s /r/Bitcoin forum, with users commenting on the large volume of scams they’ve seen floating around social media.

In reference to scam Facebook ads, user erisiamk wrote,

“Anyone who would actually buy because they were convinced by a Facebook ad will probably not research crypto properly and end up making more bad decisions and spreading more FUD.”

On the bright side this Sunday evening, Dow futures have recovered a bit, and are only down $186 as of this writing – having been down over $300 in earlier trade.

Shares of Wells Fargo plunged over 6 percent after hours following an announcement by the Federal Reserve ordering the bank to halt its growth until it can straighten out “systemic compliance problems” which have led to consumer abuses, “until it sufficiently improves its governance and controls.”

The country’s third-largest lender with $1.95 trillion in assets will also replace three current board members by April, and a fourth by the end of the year, according to the Fed – who did not name the individuals.

“Regulators have rarely intervened directly in a bank’s operations in the past, and it is unprecedented for the Fed to order a bank to stop growing altogether, officials said. The central bank said Wells Fargo’s aggressive business strategy prioritized growth over effective risk management, leading to serious compliance breakdowns,” reports Reuters.

The @federalreserve should remove every @wellsfargo Board member who served during this scandal. I don't know what they're waiting for.

— Elizabeth Warren (@SenWarren) August 31, 2017

Wells Fargo president and CEO, Timothy Sloan, said “We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” adding “It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress.”

Under the terms of the Fed order, Wells Fargo must maintain an average of $1.95 trillion in assets over any two-quarter period, which Fed officials say will allow the bank to continue its normal operations while halting expansion.

In order to comply with the Fed’s ruling, the bank must submit a plan within 60 days detailing how it plans to address the Fed’s concerns, and independent third parties will conduct a review by September in order to confirm that the bank is executing on its new roadmap.

The growth halt will be in place until this review, which will be led by the San Francisco Fed and top regulatory officials in Washington, has been completed to the Fed’s satisfaction, the Fed said. –Reuters

Wells Fargo agreed to pay $190 million in 2016 to settle charges that it created millions of fake customer accounts. Then in 2017, Wells Fargo uncovered up to 1.4 million more fraudulent accounts – bringing the total up to 3.5 million potentially fake bank and credit card accounts. The bank also discovered approximately 530,000 customers were enrolled in online bill pay without their authorization.

In the wake of the scandal, several top executives left Wells Fargo, including then-CEO John Stumpf.