The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

We have not seen a "leadership reversal", a "Hindenburg Omen" and a "Titanic Syndrome signal" all appear simultaneously since just before the last financial crisis. Does this mean that a stock market crash is imminent? Not necessarily, but as I have been writing about quite a bit recently, the markets are certainly primed for one. On Wednesday, the Dow fell another 138 points, and that represented the largest single day decline that we have seen since September. Much more importantly, the downward trend that has been developing over the past week appears to be accelerating. Just take a look at this chart. Could we be right on the precipice of a major move to the downside?

John Hussman certainly seems to think so. He is the one that pointed out that we have not seen this sort of a threefold sell signal since just before the last financial crisis. The following comes from B. Insider…

On Tuesday, the number of New York Stock Exchange companies setting new 52-week lows climbed above the number hitting new highs, representing a "leadership reversal" that Hussman says highlights the deterioration of market internals. Stocks also received confirmation of two bearish market-breadth readings known as the Hindenburg Omen and the Titanic Syndrome.

Hussman says these three readings haven't occurred simultaneously since 2007, when the financial crisis was getting underway. It happened before that in 1999, right before the dot-com crash. That's not very welcome company.

In fact, every time we have seen these three signals appear all at once there has been a market crash. Will things be different this time? 

We shall see.

If you are not familiar with a "Hindenburg Omen" or "the Titanic Syndrome", here are a couple of pretty good concise definitions…

Hindenburg Omen: A sell signal that occurs when NYSE new highs and new lows each exceed 2.8% of advances plus declines on the same day. On Tuesday, they totaled more than 3%.

Titanic Syndrome: A sell signal triggered when NYSE 52-week lows outnumber 52-week highs within seven days of an all-time high in equities. Stocks most recently hit a record on November 8.

You can see the other times in recent decades when these three signals have appeared simultaneously on this chart right here.

Once again, past patterns do not guarantee that the same thing will happen in the future, but if the market does crash it should not surprise anyone.

10 days ago, I published an article entitled "The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History". I pointed out that this stock market bubble was created by unprecedented central bank intervention, and now global central banks are reversing the process that created the bubble in unison. There is no possible way that stock prices can stay at these absolutely absurd levels without central bank help, and if global central banks stay on the sidelines a market decline would seem to be virtually inevitable.

Meanwhile, we are also witnessing a very alarming flattening of the yield curve…

Hogan said the market is nervous about the "flattening" difference between the 2-year yield and the 10-year Treasury yield, which have been moving closer together. The curve dipped to 68 basis points Tuesday, a 10-year low. Hogan said 70 has become a line in the sand, and when it falls below that traders get nervous.

A flattening curve can signal that the curve will invert, which historically means a recession is on the horizon.

If the yield curve does end up inverting, that will be a major red flag.

But the experts assure us that we have nothing to worry about.

For example, just check out what Karyn Cavanaugh of Voya Financial is saying…

"Now that the earnings season is wrapped up, markets are more beholden to macro data. Weakness in oil prices and skepticism about the passing of the tax bill are also weighing on sentiment," said Karyn Cavanaugh, senior market strategist at Voya Financial.

Despite the drop on the day, major indexes remain within 1.5 percentage points of record levels.

"Any pullback at this stage should be viewed as an opportunity to buy, however. Earnings outlook for U.S. stocks, especially with the synchronized global growth environment is still good," Cavanaugh said.

And U.S. consumers continue to pile on more debt as if there is no tomorrow. This week we learned that U.S. household debt has almost reached the 13 trillion dollar threshold…

Americans' debt level rose during the third quarter, driven by an increase in mortgage loans, according to a Federal Reserve Bank of New York report published on Tuesday.

Total U.S. household debt was $12.96 trillion in the three months to September, up $116 billion from the prior three months. Debt levels were $605 billion higher than during the third quarter of 2016.

The fundamentals do not support this kind of irrational optimism.

What the fundamentals have been telling us is that in the absence of central bank support we should see the markets start to decline, and that it is quite likely that a painful recession is on the horizon.

As the next crisis erupts, the mainstream media is going to respond with shock and horror. But the only real surprise is that this ridiculous bubble lasted for as long as it did.

The truth is that a market decline is way overdue. If central banks had not pumped trillions upon trillions of dollars into the global financial system, there is no possible way that stock prices would have ever gotten so high, and now that the central banks are removing the artificial life support we shall see how the markets do on their own.

H. Dent: Now Just Weeks Away From An 80% Stock Market Crash

A Harvard trained economist just issued a warning. Here's the details…

Interesting email worth sharing, because rarely do we get time and amount in a forecast. Many analysts and traders offer time or amount in forecasts, sometimes, but H. Dent has a new forecast that incorporates both.

In fact: Time (weeks away) and amount (Dow 5500) are something that Harry has done over the years with his cycles work.

Harry has also recently made the claim (as he has for years now) that gold is on the way to $700

H. Dent: Warning: 80% stock crash just weeks away

Virtually NO ONE sees it coming, but make no mistake…

An 80%-plus crash in the U.S. stock market could begin in a matter of MONTHS … if not WEEKS!

Here's the Dow in a classic "megaphone" pattern, with the last three bubbles making new highs, only to be followed by lower lows.

Which means the next "lower low" should be around 5,500… BELOW the post-crash low of 6,470 in March of 2009!

And if it returns to its bubble origin of 3,800 in late 1994, which is the most likely scenario…

It would mean an 83% loss.

We're talking blood in the streets! But it doesn't have to be YOUR blood.

Editor's Note: We wouldn't go about selling that stack just yet. Harry used to say $400 gold. Now he's saying $700 gold. If next year he's saying gold will crash to $1,000, then it's probably safe to say that gold will be $300 higher than where it is today. Stack accordingly…

J.Rickards: There’s Physical Gold SHORTAGES And There’s WAITING LISTS At Refiners

Jim says physical gold shortages are popping up from Switzerland to Shanghai, and fundamentals are now taking over the market. Here's why…

When the Fed raised interest rates last December, many believed gold would plunge. But it didn't happen.

Gold bottomed the day after the rate hike, but then started moving higher again.

Incidentally, the same thing happened after the Fed tightened in December 2015. Gold had one of its best quarters in 20 years in the first quarter of 2016. So it was very interesting to see gold going up despite headwinds from the Fed.

Meanwhile, gold has more than held its own this year.

Normally when rates go up, the dollar strengthens and gold weakens. They usually move in opposite directions. So how could gold have gone up when the Fed was tightening and the dollar was strong?

That tells me that there's more to the story, that there's more going on behind the scenes that's been driving the gold price higher.

It means you can't just look at the dollar. The dollar's an important driver of the gold price, no doubt. But so are basic fundamentals like supply and demand in the physical gold market.

I travel constantly, and I was in Shanghai meeting with the largest gold dealers in China. I was also in Switzerland not too long ago, meeting with gold refiners and gold dealers.

I've heard the same stories from Switzerland to Shanghai and everywhere in between, that there are physical gold shortages popping up, and that refiners are having trouble sourcing gold. Refiners have waiting lists of buyers, and they can't find the gold they need to maintain their refining operations.

And new gold discoveries are few and far between, so demand is outstripping supply. That's why some of the opportunities we've uncovered in gold miners are so attractive right now. One good find can make investors fortunes.

My point is that physical shortages have become an issue. That is an important driver of gold prices.

There's another reason to believe that gold could be in a long-term trend right now.

To understand why, let's first look at the long decline in gold prices from 2011 to 2015. The best explanation I've heard came from legendary commodities investor J. Rogers. He personally believes that gold will end up in the $10,000 per ounce range, which I have also predicted.

Gold bottomed at $255 per ounce in August 1999. From there, it turned decisively higher and rose 650% until it peaked near $1,900 in September 2011.But Rogers makes the point that no commodity ever goes from a secular bottom to top without a 50% retracement along the way.

So gold rose $1,643 per ounce from August 1999 to September 2011.

A 50% retracement of that rally would take $821 per ounce off the price, putting gold at $1,077 when the retracement finished. That's almost exactly where gold ended up on Nov. 27, 2015 ($1,058 per ounce).

This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.

Why should investors believe gold won't just get slammed again?

The answer is that there's an important distinction between the 2011–15 price action and what's going on now.

The four-year decline exhibited a pattern called "lower highs and lower lows." While gold rallied and fell back, each peak was lower than the one before and each valley was lower than the one before also.

Since December 2016, it appears that this bear market pattern has reversed. We now see "higher highs and higher lows" as part of an overall uptrend.

The Feb. 24, 2017, high of $1,256 per ounce was higher than the prior Jan. 23, 2017, high of $1,217 per ounce.

The May 10 low of $1,218 per ounce was higher than the prior March 14 low of $1,198 per ounce.

The Sept. 7 high of $1,353 was higher than the June 6 high of $1,296. And the Oct. 5 low of $1,271 was higher than the July 7 low of $1,212.

Of course, this new trend is less than a year old and is not deterministic. Still, it is an encouraging sign when considered alongside other bullish factors for gold.

But more importantly, gold has held its own despite higher interest rates and threats of more.

That tells me we're seeing a flight to quality, meaning people are losing confidence in central banks all over the world. They realize the banks are out of bullets. They've been printing money for eight years and keeping rates close to zero or negative. But it still hasn't worked to stimulate the economy the way they want.

So gold has been moving up in what I would consider a challenging environment of higher rates.

The question is, where does gold go from here?

The market is currently giving close to 100% odds that the Fed will raise rates next month.

I disagree. I'm skeptical of that because of the weak inflation data. There will be one more PCE core data release before the Dec. 13 meeting. That release is due out on Nov. 30.

If the number is hot, say, 1.6% or higher, that will validate Yellen's view that the inflation weakness was "transitory" and will justify the Fed in raising rates in December.

On the other hand, if that number is weak, say, 1.3% or less, there's a good chance the Fed will not raise rates in December. In that case, investors should expect a swift and violent reversal of recent trends.

Markets have priced a strong dollar and weaker gold and bond prices based on the expectation of a rate hike in December. If that rate hike doesn't happen because of weak inflation data, look for sharp rallies in bonds and gold.

Now, the last time gold sold off dramatically was on election night, when Stan Druckenmiller, a famous gold investor, sold all his gold. It's only natural that when someone dumps the amount of gold he deals in, the price will go down.

That move reflected a change in sentiment.

What Stan said at the time was very interesting. He said, "All the reasons that I own gold in the first place have gone away because Trump was elected president."

In other words, he was buying into the story that Hillary Clinton would be bad for the economy but Donald Trump's policies would be beneficial. If we were going to have strong economic growth with a Trump presidency, maybe you didn't need gold for protection. So he sold his gold and bought stocks on the assumption that the economy would grow under Trump.

But earlier this year, Stan has said he's buying gold again. What that means is that people are finally reconsidering the reflation trade. Tax reform is still a big question mark. And when's the last time you heard a word about infrastructure spending?

Investors will once again flock into gold once reality sets in. Mix in rising geopolitical tensions in Asia and the Middle East, and gold's future looks bright.

Fund Manager: Real GDP Is NEGATIVE And The Fed’s Balance Sheet Is Growing Not Shrinking

D. Kranzler of Investment Research Dynamics interviewed says "Prices are rising faster than the government reported inflation rate.

If GDP was adjusted for the true rate of inflation, GDP would be negative, meaning the economy is shrinking!"

Kranzler also reveals the Fed is lying. Since balance sheet "normalization" was announced, the Fed's balance sheet has increased, not decreased.

There's also discussion of topics such as the stock market bubble, the housing market, the bond market, and precious metals mining sector.

Leonardo Painting Sells For A Record $450 Million (Or 62,500 Bitcoin)

Leonardo da Vinci's masterpiece Salvator Mundi

Deutsche: The Swings In The Market Are About To Get Bigger And Bigger

One week ago, on November 9 something snapped in the Nikkei, which in the span of just over an one hour (from 13:20 to 14:30) crashed more than 800 points (before closing almost unchanged) at the same time as it was revealed that foreigners had just bought a record amount of Japanese stocks the previous month.

As expected, numerous theories emerged shortly after the wild plunge, with explanation from the mundane, i.e., foreigners dumping as the upward momentum abruptly ended, to the "Greek", as gamma and vega stops were hit by various vol-targeting (CTAs, systemic, variable annutities and risk parity) funds. One such explanation came from Deutsche Bank, which attributed the move to a volatility shock, as "heightened volatility appears to have triggered program trades to reduce risk", and catalyzed by a rare swoon in both stocks and bonds, which led to a surge in Nikkei volatility...

... and forced highly leveraged risk parity funds and their peers to quickly delever. As DB's Masao Muraki explained at the time:

[the] increase in stock (or stock and bond) volatility might trigger position cutbacks when hedge funds, CTAs, and others engage in trading with higher leverage. In fact, stocks and bonds weakened from about 13:20 in the Japanese market on 9 November

The involvement of risk-parity funds in the Nikkrash was hardly a surprise, because as we noted in "Global Stock, Bond Selloff Accelerates Amid Risk-Parity Rumblings" risk parity proxies had just suffered their worst day since July:

Risk Parity not having a good day

In good news for "market stability targeting" central banks around the globe, that moment of sheer risk-parity turmoil was confined to that day, and in a follow up note released today Muraki writes that Japanese equities "have broadly returned to our model as of the 15th (there was a small volatility shock on that day as well)."

This is also confirmed by the performance of risk parity funds, which have rapidly "normalized" in the past few days.

There were some not so good news too, and as the Deutsche strategist wrote, "we will be closely monitoring whether the Japanese stock market returns to moving in tune with US equities, interest rates, and forex, or again diverges." Why? Because with volatility already at or near record lows across most asset classes, vol spikes - recall the beta of spot VIX is now over 19 - will become increasingly greater, leading to even more aggressive "buy the dip" reversals, largely as a result of retail investors entering the vol-selling space:

We have noted a historical pattern of moderate volatility decline followed by sudden dramatic increase (normalization) in volatility. There is possibility of greater volatility amplitude than in the past because of the participation of less experienced retail investors along with hedge funds as the traditional sellers of volatility.

And the punchline:

Funds with volatility targeting strategy are growing to the largest ever. If the influence of such funds expands, the buying pressure on risk assets would increase in low volatility phase, and the selling pressure would increase in high volatility phase.

The conditional framing of that statement was redundant, because as DB also shows both Var. Annuity and CTA funds have been growing by leaps and bounds in recent years, and while there is no definitive size for the risk parity universe, we do know that roughly half of the world's biggest hedge fund is one giant risk-parity strategy. It is not alone. In other words, the "influence" of vol-targeting funds has never been greater, and it continues to grow with every passing day.

Meanwhile, even more troubling, the leverage of an indicative vol-targeting fund (with a 12% vol target) likewise continues to grow, meaning that any vol spike could have devastating consequences for the fund, and the market, as it would be virtually impossible to deleverage in time.

Which means that as the DB thesis plays out, the swings in the market will continue to get increasingly bigger.

And while in the good old days one would be able to at least hedge partially by buying VIX futs or calls, now it is the vol complex itself that is suppressed, making hedging not only impossible but assuring that future vol surge episodes will be even sharper, faster and more acute.

10 Reasons To Worry

One of the oldest market sayings is: "markets climb a wall of worry" - needless to say, it is sometimes good to be cautious.

We listed some of our worries recently but the action in the S&P 500 Index over the past year—and so far in November—has that list growing.

Here are 10 reasons to worry (in no particular order):

On a total return basis, the S&P 500 has been up 12 months in a row.

The S&P 500 has only pulled back (from peak to trough) 2.8% over the past year.

Junk bonds have weakened relative to equities over the past few weeks, and historically this has been a warning for equities.

The yield curve is the flattest it has been since 2007.

The S&P 500 hasn't closed lower by 0.5% or more for 50 consecutive trading days, the longest streak since 1968.

The S&P 500 hasn't finished red three days in a row for more than three months, the longest streak in seven years.

The S&P 500 hasn't corrected 3% from its all-time high for over a year, the longest streak ever.

The average daily change (absolute value) for the S&P 500 in 2017 is only 0.30%, the second smallest range on record behind 1964.

Transports have been very weak recently, a historical indicator of weakness under the surface.

November is historically one of the strongest months going back to 1950, but over the past 10 years the second half of the month has been weak.

Per R. Detrick, Senior Market Strategist,

"It has been a long time since we've seen some volatility. Many small cracks are starting to form, and we wouldn't be surprised if this opens the door for a modest correction. The good news is that with the global economy as strong as it is, this would likely be a nice chance to add to positions."

UBS Reveals The Stunning Reason Behind The 2017 Stock Market Rally

It's 2018 forecast time for the big banks. With Goldman unveiling its seven Top Trades for 2018 earlier, overnight it was also UBS' turn to reveal its price targets for the S&P in the coming year, and not surprisingly, the largest Swiss bank was extremely bullish, so much so in fact that its base case is roughly where Goldman expects the S&P to be some time in the 2020s (at least until David Kostin revises his price forecast shortly). So what does UBS expect? The bank's S&P "base case" is 2900, and notes that its upside target of 3,300 assumes a tax cut is passed, while its downside forecast of 2,200 assumes Fed hikes in the face of slowing growth:

We target 2900 for the S&P 500 at 2018 YE, based on EPS of $141 (+8%) and modest P/E expansion to 20.6x.

Our upside case of S&P 500 at 3300 assumes EPS gets a further 10% boost driven by a 25% tax rate (+6.5%), repatriation (+2%) and a GDP lift (+1.6%), while the P/E rises by 1.0x. Downside of 2200 assumes the Fed hikes as growth slows, the P/E contracts by 3x and EPS falls 3%. Congress is motivated to act before midterm elections while the Fed usually reacts to slower growth; so we think our upside case is more likely.

Why is UBS' base case so much higher than what most other banks forecast? According to strategist Keith Parker, the reason is a "Valuation disconnect": Higher rates are priced in, while higher expected growth is not. He explains:

We model the S&P 500 P/E based on select macro drivers. The S&P P/E is 5x below the model implied level, which points to solid returns. More specifically, the 2.8% Fed rate target is priced in (worth 1.3x) but higher analyst expected 3-5yr growth is not (worth 3.7x). The P/E has been 2-4x above the implied level at the end of each bull market and the model has been a good signal for forward S&P returns (20-25% correlation). High-growth (most expensive) and deep-value (cheapest) stocks are cheap on a relative basis; the price for perceived safety is high. We focus on risk-adjusted growth + yield.

On the earnings side, this is how UBS bridges its 2018 rise to 141:

Following the 2014-16 earnings recession, S&P 500 EPS returned to growth in 2017 on the back of improved economic momentum globally, a commodity recovery, and rising margins. While a tax plan would significantly impact our growth assumptions, our base case EPS forecast excludes any tax upside given the degree of legislative uncertainty.

For 2018, we expect the earnings recovery to continue and forecast 8.3% EPS growth, driven by solid economic growth, offsetting margin drivers and higher interest rates. To control for the volatility and different drivers for certain sectors, we model financials and energy separately, with a buyback tailwind applied at the index level (1% assumed in 2018). 

We forecast S&P ex Financials & Energy earnings to grow 7% in 2018. Top-line growth is a function of 2.2% US real GDP and 3.8% RoW GDP growth, a relatively stable USD, and slightly higher growth in intellectual property products ("IPP" or tech) plus business equipment spending (less structures spending). Margins are adversely impacted by rising unit labor costs of 1.9% and boosted by a 1% improvement in productivity, with a negative net effect. Finally, flat US GDP growth means that earnings do not benefit much from operating leverage.

We expect Financials earnings to grow 7%, with return on assets improving on the back of a rising 3m Libor rate to 2.2% by YE 2018, two Fed hikes in 2018, a stable financing spread (delta between total bond market and Financials OAS spreads) and no rise in delinquencies (modelled using change in unemployment). Asset growth is estimated using a beta of 1.35 to US real GDP growth.

We expect Energy sector earnings to continue to rebound, growing 28%. Energy accounts for less than 4% of total projected S&P 500 net income. Given the inherent volatility in earnings over recent years, we model sales growth as a function of oil and natural gas, which explains 97% of the sector's top-line growth. We assume that margins recover as D&A and other overhead is leveraged

Einhorn: "None Of The Problems From The Financial Crisis Have Been Solved"

A month ago, a downbeat David Einhorn exclaimed "will this market cycle never turn?"

Despite solid Q3 performance, Einhorn admitted that "the market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, 'it will turn when it turns'."

Such an open-ended answer, however, is a problem for a fund which famously opened a basket of "internet shorts" several years prior, and which have continued to rip ever higher, detracting from Greenlight's overall performance.

This, in turn, has prompted Einhorn to consider the unthinkable alternative: "Might the cycle never turn?" In other words, is the market now permanently broken.

While the Greenlight founder did not explicitly answer the question, in a speech yesterday at The Oxford Union in England, Einhorn made it extremely clear just how farcical he believes this market, and world, has become, pointing out that the problems that caused the global financial crisis a decade ago still haven't been resolved.

"Have we learned our lesson? It depends what the lesson was," Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday.

Infamous for his value investing style and bet against Lehman Brothers that paid off in the crisis, Bloomberg reports that Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail.

The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market "could have been dealt with differently," and in the "so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued."

"If you took all of the obvious problems from the financial crisis, we kind of solved none of them," Einhorn said to a packed room at Oxford University's 194-year-old debating society.

Instead, the world "went the bailout route."

"We sweep as much under the rug as we can and move on as quickly as we can," he said.

Einhorn didn't avoid discussing his underperformance, citing several failed bets that companies' stocks would decline. He didn't name the stocks he was shorting, but insisted that none of the companies are "viable businesses."

Value investing has worked over time, but "it's not working at all right now," and in fact "the opposite seems to be working," he said.

Greenlight remains focused on developed markets, and has no plans to change that, he said.

Which reminds us of his exasperated conclusions from the latest Greenlight letter to investors:

Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company's ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss?

It's clear that a number of companies provide products and services to customers that come with a subsidy from equity holders. And yet, on a mark-to-market basis, the equity holders are doing just fine.

Ah yes, the Fed-funded "deflation trade" which lowers prices for goods and services courtesy of ravenous investors who will throw money at any "growth" idea, without considerations for return or profit, because - well - more such investors will emerge tomorrow. After all, in this day and age of ZIRP, what else will they do with their money.

Venezuela, PDVSA CDS Triggered: ISDA Says Credit Event Has Occured

In a long overdue, and not exactly surprising decision, moments ago the ISDA Determination Committee decided, after punting for three days in a row, that a Failure to Pay Credit Event has occured with respect to both the Bolivarian Republic of Venezuela as well as Petroleos de Venezuela, S.A.

Specifically, in today's determination, in response to the question whether a "Failure to Pay Credit Event occurred with respect to Petroleos de Venezuela, S.A.?" ISDA said that the Determinations Committee voted 15 to 0 that a failure to pay credit event had occurred with respect to PDVSA.

ISDA said the DC also voted 15 to 0 that date of credit event was Nov. 13 and that the potential failure to pay occurred on Oct. 12. ISDA also announced that the DC agreed to reconvene Nov. 20 to continue talks regarding the CDS auction, now that the Credit Default Swaps have been triggered.

Over the past week, all three rating agencies, with Fitch Ratings most recently, declared PDVSA in default, citing the state oil company's repeated payment delays. The oil company failed to pay yet another $80 million in interest that was due in mid-October on bonds maturing in 2027, and whose buffer period expired over the weekend. Venezuela was declared in default by S&P Global ratings for a similar issue. According to Bloomberg, Fitch said that it expects PDVSA's creditors to recover as little as 31 percent on their investment.

The panel will now meet next week to discuss whether to hold an auction to set the rate at which the CDS will pay out. When credit swaps are triggered, buyers of the contracts have their losses covered by the counterparties that sold them the insurance-like derivatives.

As recently as last month, traders had bought a net $250 million of default protection through the swaps market, according to the ISDA. Of course, with the PDVSA CDS already trading at a price which implied 100% certainty of default, none of this will be a surprise.

* * *

And moments after declaring PDVSA CDS triggered by a failure to pay event, the ISDA Americas DC also found that an identical Failure to Pay Credit Event had occurred with respect to Bolivarian Republic of Venezuela. The Determinations Committee voted 15 to 0 that a failure to pay credit event had occurred with respect to Venezuela, and added that the Determinations Committee voted 15 to 0 to reconvene Nov. 20 to continue talks on an auction.

Just like with PDVSA, the CDS triggering has been fully priced in.

The only question now is when the CDS auction will be, whether it will proceed smoothly and who is revealed as the biggest seller of Venezuela and PDVSA CDS.