Tuesday, September 16, 2014

Equities: "Helicopter Jon to the Rescue as S&P 500 Gains Most in Four Weeks"

From Barron's Stocks to Watch column:
It’s a bird! It’s a plane! It’s Jon Hilsenrath, doing his best Superman impersonation to lift the stock market on his back before the Fed announcement tomorrow.

The S&P 500 rose 0.8% to 1,998.98, its biggest gain in four weeks, while the Dow Jones Industrial Average gained 0.6% to 17,131.97. The Nasdaq Composite advanced 0.7% to 4,552.76 and the small-company Russell 2000 finished up 0.4% at 1,150.97.
Sure, there was economic data today–producer prices didn’t budge in August, a sign that inflation might not be a worry after all–but the market did little today until a video of the Wall Street Journal’s Jon Hilsenrath, who is often thought to be a mouthpiece for the Fed, hit the web. The resulting bounce caused the Lindsey Group’s Peter Boockvar to dub today’s move”Jon Hilsenrath” rally:
This is a Jon Hilsenrath stock market rally. In a webcast done on WSJ.com, Jon Hilsenrath (just a reporter but one who speaks to many Fed officials) is making the argument that since the economic data hasn’t changed much since the July meeting, the Fed will likely keep “significant underutilization” of labor market resources comment in the statement. On the “considerable time” wording, he thinks it stays in the statement but will be qualified as the Fed doesn’t want to send any signals on WHEN rates may go up. As I said this morning, a potential “considerable time” change in the wording is just semantics and focus more on whether “significant utilization” stays in or not.
Birinyi’s Rob Leiphart considers the possible changes and what their impact could be....MORE

A Quick Note on An Omission In the CalPERS Hedge Fund Announcement

Following up on "CalPERS Says Via Con Dios to Hedge Funds".
Do note the lack of a 10-year return value in the press release.
From CalPERS:

CalPERS Eliminates Hedge Fund Program in Effort to Reduce Complexity and Costs in Investment Portfolio

Decision not based on performance of program

SACRAMENTO, CA – The California Public Employees’ Retirement System (CalPERS) today announced that it will eliminate its hedge fund program, known internally as the Absolute Return Strategies (ARS) program, as part of an ongoing effort to reduce complexity and costs in its investment program.
The staff recommendation, supported by the Investment Committee, will exit 24 hedge funds and six hedge fund-of-funds valued at approximately $4 billion.

“We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals,” said Ted Eliopoulos, CalPERS Interim Chief Investment Officer. “Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at CalPERS’ size, the ARS program is no longer warranted.”

Following the 2008 global financial crisis, CalPERS began examining ways to ensure it was less susceptible to future large drawdowns. The System restructured its investment operations, improved its internal oversight and control functions, and refocused some of its investment programs. In February 2014, the CalPERS Board adopted a new asset allocation mix that reduces risk to the portfolio, while still being able to achieve its return goal of 7.5 percent. CalPERS earned 18.4 percent during the 2013-14 Fiscal Year and has averaged a 12.5 percent return for the past five years and an 8.4 percent return for the past 20 years....
The 5-year value catches pretty much the whole recovery in the equity market July 1, 2009-June 30 2014.
The June 30 FY is fortuitous.

The 20 year return number encompasses the downturn but also has the dot.bomb run-up.

The 10-year return number is a bit trickier to handle because, at 7.2%,  it is below the 7.5% return assumption the fund's financial soundness requires.
So they omit it.
-Source: CalPERS Facts at a Glance, September 2014, page 5.

And no, the fund did not actually say "Go with God" when they bid the hedgies goodbye.

Internet of Things: In Which Izabella Approaches Escape Velocity Edition

This is pretty good.
From FT Alphaville:

Cybersecurity dispatches: Managing the IoT poltergeist threat
Imagine the scene in the not too distant future.

An Uber self-driving electric car has just dropped you home. Your front door has recognised your face, and your fingerprint has authenticated that it’s definitely you. You get into your house, not a key in sight, kick off your shoes, and happily discover that the 3D printing feature in your fridge has already printed the food you plan to consume for dinner. All the appliances you need are on. And everything you don’t need is off, nice and efficiently saving power.

You decide to treat yourself to a quick 30-minute Netflix holographic update, only to get a nudge from your wearable tech that you’ve still got a 10 minute exercise deficit to meet your daily exercise quota. It’s a problem because you happen to have signed up to the extreme health management option which shuts down ApplePay access — without which Netflix won’t work — if you fail to meet your objectives. You quickly get busy on your smart-grid connected treadmill (which conveniently sells off the energy produced by your system back into the grid).

When all of a sudden… your utility door flings open and your iRobot Roomba begins singing Daisy, Daisy....MORE

But do you know why your Roomba is singing Daisy?
It's an homage to the first singing computer:
From Switched, November 2009:
...Rejoice! World Learns Why HAL Sang 'Daisy'

Morgan Stanley: Worst Beta-adjusted Period for Small-cap Stocks Since the Late 1990s

I know what you're thinking but don't. These kinds of trends take a while to play out and there's no need to be early. If you miss the first few points of a turn, so what?
From SafeHaven:

Patiently Waiting for Mean Reversion
So far this year, small-cap growth stocks have surprisingly been lackluster. After 2013, when it gained a scorching 38.8 percent, the Russell 2000 has delivered a tepid 0.62 percent year-to-date (YTD).
Russell 2000 Index's 2013 Total Return Compared to 2014 YTD
Performance has been so poor, in fact, that the spread, or bifurcation, between the 12-month return residuals of small and large caps is at its widest since the dotcom bubble of the late 1990s and early 2000s. This bifurcation is one of the largest since 1975.

According to Morgan Stanley, we're in the worst beta-adjusted period for small-cap stocks since the late 1990s. The 12-month return in August for small-caps was -9.7 percent, placing it in the bottom 6 percent of any 12-month period since the mid-1970s.
Small-Cap Bifurcation
The bifurcation is more than apparent when you compare the year-to-date (YTD) total returns of the big boys (those in the S&P 500 Index and Dow Jones Industrial Average) to their little brothers (those in the Russell 2000 and S&P SmallCap 600 Index). The Russell, though it led the other indices in March, has failed to reach a new record high, which the S&P 500 and Dow managed to achieve in the last couple of months....MUCH MORE

CalPERS Says Via Con Dios to Hedge Funds

It appears the pension behemoth did indeed "CalPERS Making Big Cuts to Hedge Fund Allocations".
For the last six or seven years we've chronicled* CalPERS' Adventures in Alt-land, often with barely disguised glee.
Here's the latest from FT Alphaville:
The message is starting to get through. Calpers, the largest US public pension fund, has said that it will stop investing in hedge funds.

It took a while. The $300bn California Public Employees’ Retirement System rejigged its portfolio of hedge funds at least three times since it became one of the first pension funds to embrace the fee structure in 2002. The previous decision had been to halve exposure, rather than elimininate it entirely.

Still, public pension fund trustees now have a very visible example to follow. If the largest and best resourced US pension system found the cost and complexity of investing in hedge funds too much to make it worth while, why should they think they can do better?


Here is the explanation for the decision to exit 24 hedge funds and 6 fund of funds, investments worth $4bn.
“We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals,” said Ted Eliopoulos, CalPERS Interim Chief Investment Officer. “Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at CalPERS’ size, the ARS program is no longer warranted.”
Cost is very much part of the calculation. When in 2013 we spoke to the late Joe Dear, then chief investment officer for Calpers, he told us that the pension fund paid about $1.2bn a year in fees to third party investment managers. Of that, $1bn went to “alternatives”, private equity and hedge funds, even though the assets represented less than 15 per cent of the portfolio. That disparity was the starting point for the decision Calpers has now come to.

Complexity deserves a bit of unpacking because, returning to John Lanchester’s theme of how finance reverses the meaning of words, it has been one of the supposed selling points for hedge funds — they can use complex trading strategies that slow moving investors couldn’t hope to do themselves....MORE
*There are so many posts that use of the search blog box is required. Here's one from 2009:
CalPERS appears to be a willing victim
Following up on "Calpers Sues Over Ratings of Securities":

...The security packages were so opaque that only the hedge funds that put them together — Sigma S.I.V. and Cheyne Capital Management in London, and Stanfield Capital Partners in New York — and the ratings agencies knew what the packages contained. Information about the securities in these packages was considered proprietary and not provided to the investors who bought them....MORE
Got that? We have a FIDUCIARY saying they bought stuff they didn't understand.
And weren't allowed to see.
"Hey Mister, I've got a magic box that will turn your dollar bills into C-notes!"
I'm pretty sure a smart young paralegal could draft the brief against CalPERS in about fifteen minutes....
Pension Funds Drive Growth Of Alternative Assets. And: CalPERS Up 68% on Commodities; Down 31% on Real Estate. Action, Baby, Action!

"Crisis Chronicles: The British Export Bubble of 1810 and Pegged versus Floating Exchange Rates"

From the Federal Reserve Bank of New York's Liberty Street Economics blog:
In the early 1800s, Napoleon’s plan to defeat Britain was to destroy its ability to trade. The plan, however, was initially foiled. After Britain helped the Portuguese government flee Napoleon in 1807, the Portuguese returned the favor by opening Brazil to British exports—a move that caused trade to boom. In addition, Britain was able to circumvent Napoleon’s continental blockade by means of a North Sea route through the Baltics, which provided continental Europe with a conduit for commodities from the Americas. But when Britain’s trade via the North Sea was interrupted in 1810, the boom ended in crisis. In this edition of Crisis Chronicles, we explore the British Export Bubble of 1810 and ask whether pegged or floating exchange rates are better for an economy.

The Credit of the Kingdom
As we noted in a previous post on the collapse of the French assignat, England had been at war with France since 1793. While public expenditures to finance the war mounted, revenue remained stagnant and, as the budget deficit widened, the pound began to depreciate. In 1797, the landing of a French frigate in a Welsh harbor caused a minor run on the Bank of England, and bullion reserves fell so low that by May of that year, the British government passed the Bank Restriction Act to exempt the Bank of England from having to convert banknotes into specie. The act was intended to “support the public and commercial credit of the kingdom” and was to be temporary—until June—but banknotes remained inconvertible for nearly twenty-five years.

     Reflecting on the French experiment with the assignat, Lord Lansdowne, one of the most influential Whig politicians of his time, prophesied, “the fall will be slow perhaps, and gradual for a time, but it will be certain.” And as we saw with the assignat, gold disappeared from circulation and silver was scarce. The Bank of England even resorted to stamping the King’s head on Spanish dollars to maintain a circulating medium, and received permission to print lower-denomination £5 notes (the law forbade issuing lower-denomination notes).
Before the suspension of convertibility, the quantity of gold on hand constrained the Bank of England’s issuance of banknotes. But after the suspension, the Bank of England remained prudent in its issuance of banknotes and the public accepted the conversion from specie to paper without disturbance or confusion. The Bank of Ireland followed the Bank of England’s lead, as did other country banks that issued notes. And public expenditure remained relatively in check through about 1810.

British Trade with the Americas
As Spain’s influence in the Americas waned, Britain was able to do more business there, importing raw materials and exporting British manufactured goods. Then, in 1807, Napoleon demanded that Portugal join the trade boycott against the British and declare war on England. When Portugal hesitated, Napoleon's ally, Spain, allowed French troops to pass through to Portugal, where the French captured Lisbon as Portugal's royal family fled to Brazil. In exchange for Britain’s help in enabling the royal family to escape, the Portuguese granted Britain trade privileges with Brazil. Low-cost British goods found a new market that had previously been dominated by local artisans. Trade with the Americas not only rescued Britain from Napoleon's continental boycott, but also helped the country achieve record exports from 1808 to 1810.

“Intercourse with the Continent”
Over time, however, the record exports led to speculation, and when trade between Holland and Britain was briefly interrupted as France’s attempts to blockade the North Sea ports intensified, access to the continental market was cut off and prices of colonial goods fell in England, even though they remained costly on the continent. The economic boom ended with a severe crisis in July and August 1810 as Britain experienced a number of commercial failures and merchant bankruptcies. The crisis spread to West Indian merchants, who then dragged down the bankers who had extended credit to them. As trade declined, West Indian docks remained stuffed with goods awaiting export. But by the summer of 1811, the crisis subsided. ...MORE

Market Anomalies: Can You Combine Value and Momentum?

From Optimal Momentum:
Value and Momentum Revisited
Most academic research on momentum deals with individual stocks. Most applications of momentum are also oriented toward individual stocks. The three largest publically offered momentum programs (AQR momentum mutual funds, PowerShares DWA Momentum ETFs, and iShares MSCI USA Momentum Factor ETF) all use individual stock momentum. The only widely-available public program using momentum applied to asset classes was the ALPS Goldman Sachs Momentum Builder that recently went out of business due to lack of interest.

Yet momentum applied to individual stocks is not the ideal way to use momentum. Transaction costs due to high turnover of stock portfolios can negate much of the benefit of momentum investing. Momentum applied to broad-based indexes or sectors, on the other hand, can capture high momentum profits with much lower transaction costs.

Here is a table from my new book Dual Momentum Investing: An Innovative Approach to Higher Returns with Less Risk. (The book can be pre-ordered now from Amazon.) This table shows the performance of the AQR Momentum Index composed of the top one-third of the 1000 highest capitalization U.S. stocks based on 12-month relative strength momentum with a one-month lag. AQR weights their index positions based on market capitalization and adjusts the positions quarterly. For comparison, we show the performance of applying absolute momentum to the Russell 1000 index by moving into aggregate bonds whenever 12-month absolute momentum is negative.


Table 9.2 AQR Momentum, Russell 1000, and Absolute Momentum 1980-2013
AQR Momentum Index[1]
Russell 1000 Index
Russell 1000 w/Abs Momentum
Annual Return
15.14
13.09
15.92
Annual Std Dev
18.27
15.51
12.57
Annual Sharpe
 0.51
 0.49
 0.80
Max Drawdown
              -51.02
            -51.13
             -23.41
These figures do not account for the .7% per year in additional transaction costs for the AQR Momentum Index, would have put it at a disadvantage to even the Russell 1000 index on a risk-adjusted basis. 

The next table shows the AQR Momentum Index, the Russell 1000 Value Index, and a 50/50 combination of value and momentum, which was advocated in the Asness et al. (2013) paper "Value and Momentum Everywhere." This combination is supposed to be desirable due to the negative correlation between value and momentum. We see that value combined with momentum does give a slightly higher Sharpe ratio than either value or momentum alone. However, there is little or no advantage with respect to maximum drawdown, and the results still pale in comparison to simple absolute momentum used with the Russell 1000 Index....MORE
HT: Abnormal Returns

See also:
Whoa! Has The Small-Cap Premium Disappeared? That Would Leave Only Momentum in the Tried-and-True Anomaly File!

Buy Argentina Now

And tango!
Marc Faber appears to have bought Argentine real estate after each default/crisis and if it's good enough for the old gloomster who am I to argue.
From Barron's Penta:
If your private banker’s “fresh” investment ideas are beginning to bore, and you are looking for some new angles, the New York City-based Bienville Capital Management might be worth a look. Since opening its doors in 2008, this tiny boutique with nearly $700 million in assets has made some smart plays, in gold during the 2011 rally, and off the 2013-2014 slowdown in the Chinese economy. It’s most recent bet: Argentine regime change.

Penta first heard of Bienville from wealth management consultant John Straus, a partner at FallLine Strategic Advisors. “Bienville caught my eye because it has a very good following of extremely sophisticated money managers, and the guys that run big hedge funds talk to them for their interesting perspectives,” Straus says. A Wall Street heavy himself, Straus previously headed up U.S. private wealth management at UBS, Morgan Stanley and JPMorgan.

Still, says Straus, “Bienville is small so they are not trying to be all things to everyone, but certain things they really understand and drill into.” The firm has a minimum account of $5 million and charges 1% but declines to 0.4% for accounts above $10 million.
The benefit of being small is that Bienville can also be nimble in creating investment opportunities for its clients. Consider Argentina. Since 2003, the Kirchners, late husband Nestor and wife Cristina, have held the presidency. Their populist policies have nationalized private industries, instated costly subsidies and meddled with the central bank’s independence. Some have estimated inflation is as high as 30%. In July, Argentina also defaulted on its debt payments and a consortium of hedge funds have sued for payment....MORE

Monday, September 15, 2014

The State of Innovation, 2014

So there I was at Forever21 thinking I need something that truly expresses my self-absorption...

From Mashable:
Acer's Selfie Hat Takes Wearables to Scary Place
Selfiethumb  
Image: Acer
Hats off to Acer. They just brought ridiculous selfie tech to a new level.

Last Monday, we were blessed with the Selfie Brush, and today the selfie gods have delivered once more with the Selfie Hat....MORE
 Screen Shot 2014-09-12 at 9.57.54 AM
Coup de chapeau (so to speak): Pulse 2.0

Did Hurricane Odile Just Trigger the MultiCat Mexico 2012 Cat Bond?

Major storm Odile visited Cabo this morning.
From Artemis:
Hurricane Odile made landfall in southern Baja California Sur, near Cabo San Lucas as a major storm with winds of 125mph and more importantly for catastrophe bond investors a minimum central pressure of 930mb, according to the NOAA.

We say more important as it looks to us, note we’re not risk modellers or actuaries, as if the landfall may have been at the right intensity and in the correct location to trigger the Class C tranche of notes of the World Bank arrange MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond.

The Class C notes require a hurricane with a minimum central pressure of a certain value to pass within a parametric zone, essentially an area drawn onto a map of Mexico.

In the case of the Class C notes it is possible for the cat bond to pay out either 50% of principal or 100%, depending on how intense the storm is as defined by how low its central pressure is. In this case it looks like investors may be at risk of losing 50% of their principal from the $100m tranche of MultiCat Mexico notes, as the central pressure appears to have been at the right level for such a loss to occur....MORE
And from Wunderblog:
Category 3 Odile the Strongest Hurricane on Record to Hit Baja
Destructive Hurricane Odile powered ashore at Cabo San Lucas on Mexico's Baja Peninsula near 12:45 am EDT Monday as a Category 3 storm with 125 mph winds. Odile was the strongest hurricane on record to hit the Baja Peninsula, tied with Hurricane Olivia of 1967. An Air Force hurricane hunter plane was in Odile Sunday afternoon, and measured a surface pressure of 922 mb. This pressure puts Odile in pretty select company--only two other Eastern Pacific hurricanes have had lower pressures measured in them by the Hurricane Hunters (though a total of eleven Eastern Pacific hurricanes have had lower pressures, if we include satellite-estimated pressures.)... 
...MORE 
Recently:
Hurricane Odile Hits Category 4 and "2014 Atlantic Hurricane Season Birdseye Discussion"

It appears the American Southwest is going to be getting a lot of rain, no help for California but a positive for the region:

Fashion: Wearable Computing on the Runway (AAPL)

From Kernal Magazine:
 Issue6_HighTechFashion-2000px
Is the runway ready for high-tech fashion? 
The fashion world’s entrance into the realm of high tech has been the digital equivalent of tripping on the runway.

Earlier this year, the iconic designer Diane von Furstenberg released her collaboration with Google Glass, DVF I Made for Glass, featuring five different shades of Google Glass. With its lofty ($1800) price tag and shades with names like “shiny elderberry” and “matte java,” DVF I Made for Glass was clearly intended to signal an aesthetic shift in the wearable tech market.
While Google Glass had been roundly derided since its release, DVF I Made for Glass sought to prove that smart eyewear could be sleek, sexy, and ultra-modern, rather than a piece of high-tech nerd hardware that’d be more at home in a 1950s sci-film than on someone’s face.
The DVF I Made for Glass
The DVF I Made for Glass
The DVF I Made for Glass Yet when the line was unveiled in June, fashion and tech bloggers alike were less than enthusiastic...
...
Valleywag’s Sam Biddle perhaps summed it up best: “What does it tell you that DVF—one of the most elegant, fashion-savvy style geniuses of our time, a woman with enough foresight to literally invent a new kind of dress—looks dumb with a face computer? It tells you that there’s probably a reason Google didn’t mention Glass a single time during its recent mega-conference, and that if high fashion can’t save high tech, the project is probably fucked.”

Following Diane von Furstenberg’s example, a number of other high-fashion brands have sought to collaborate with tech developers, to varying degrees of success. In the last month alone, Samsung released the Galaxy S smartwatch, including a version embedded with Swarovski crystals. (“Looks like a Dali-esque melted galaxy phone,” one reporter cracked on Twitter.) And Ralph Lauren released a line of performance-tracking smart polo shirts that premiered at the U.S. Open....MUCH MORE

"Corn Industry Leader Gets Candid on High Fructose Corn Syrup"

From Congressional Quarterly's Roll Call: Healthopolis:
One of the frequently cited causes of rising levels of obesity is the widespread use of high fructose corn syrup (HFCS) as an ingredient in many soft drinks. The direct connection between corn syrup and obesity has long been questioned by the corn industry but in an interview last week, the outgoing chief of the National Corn Growers Association, Rick Tolman, acknowledged that HFCS is probably a contributing factor although not the only cause. CQ Roll Call’s Philip Brasher reported on Tolman’s comments on HFCS:
There certainly is an obesity issue in America and in the world, there’s no question about that. Is HFCS a contributor – absolutely. Is it more of a contributor than sugar or anything else? Personally, I don’t believe so and I think most of the science shows that.

Barron's Interview--Equities: Go Big Or Go Home

This morning two of the issues we use to help determine investor's speculative appetite, Tesla and First Solar, are trading down: 2.78% for FSLR, 7.79% for TSLA which suits our views, ~5% decline in the S&P 500, just fine but which may be worrisome for the fully invested. Never Fear!
Following up on Aug. 27's "Return to Behemoth Stocks" we have another look at large caps.
From Barron's:
Kurt Feuerman: Why a Flexible Investor Likes Big U.S. Stocks
Kurt Feuerman is bullish on Verizon, American Express, and Wells Fargo. His recipe for EMC.
Kurt Feuerman has compiled an impressive record as an equity manager over the years at Morgan Stanley, Caxton Associates, and now AllianceBernstein. He started out on Wall Street in 1984 as an equity analyst covering food and tobacco at Drexel Burnham Lambert, and joined Morgan Stanley when Drexel collapsed in 1990. Within a few years, he persuaded Barton Biggs, then head of Morgan Stanley's asset-management arm, to let him run money. Feuerman delivered, as his fund, Morgan Stanley Aggressive Equity, topped a Barron's fund ranking in 1998. 

Following 13 years at Bruce Kovner's Caxton, a big hedge fund, Feuerman and his team joined AllianceBernstein in 2011. He runs the AllianceBernstein Select Equity Portfolios, which include separate accounts, a limited partnership, and two mutual funds, AllianceBernstein Select US Equity Portfolio (ticker: AUUAX) and AllianceBernstein US Select Long/Short Portfolio (ASLAX). Feuerman's long-only strategy has returned an average of 11.3% from its 2005 inception through August, versus a 7.6% annualized return for the Standard & Poor's 500. Feuerman's group now manages $14 billion, up from $1.4 billion when he joined AllianceBernstein. 

A flexible investor, Feuerman, 58, now favors high-quality companies with a domestic orientation like Wells Fargo (WFC) and Verizon Communications (VZ), given his bullish view on the U.S. economy. And he thinks it's time for EMC (EMC) to get serious about stock buybacks. 

Barron's: How would you describe your style?
Feuerman: We look for companies with great earnings power, solid growth potential, and shareholder-oriented managements. Although I tilt toward growth, my style is flexible. I'm always thinking about the downside, taking into account macro, sector, and valuation risk.

What's your view on the U.S. stock market?
It's still a decent time to be an owner of U.S. stocks despite the massive five-year bull market. The S&P is valued at around 17 times this year's earnings, but junk bonds are at 20 times, and investment-grade bonds are at 28 times [the inverse of junk and investment-grade yields].

What makes you bullish?
Credit conditions are very favorable. The U.S. economy is growing. The consumer is in great shape. Also, slower growth abroad is actually helping the U.S. via lower interest rates and lower commodity prices. Finally, corporate leverage is rising, but it's still very low versus history. So share buybacks, dividend growth, and mergers and acquisitions are enhancing shareholder value. I think the best opportunities are in megacaps generally. Although they've done better recently, megacaps still look cheap on a risk-adjusted basis.

How do you define megacaps?
Stocks trading with market caps of $75 billion and up. With the S&P at 17 times, many megacaps trade at 12 to 15 times, particularly in financials and legacy technology. One reason for this is the proliferation of hedge funds. These funds need to short something against their longs, and ETFs and megacaps don't have the event risk of a takeover. For example, there is perceived to be a low risk in being short Verizon. It is a relatively slow grower, and it's not going to be taken over. This is creating opportunity. 

Where do you find the best opportunities?
We're skewed to U.S.-centric companies. Our outlook for the U.S. economy is quite favorable. Many observers complain that consumer spending has been disappointing. But this is the wrong thing to focus on. In 2006, consumer spending was robust. But that was a bad signal because it was built on a shaky foundation of too much debt. The underlying foundation of the U.S. consumer now is the best it has been in decades. Household free cash flow is at a new high, and debt service relative to disposable income is the lowest in 30 years. Credit-card delinquencies and housing affordability also are favorable. These are all pointing to years of strong growth ahead. The recent strength in the U.S. dollar is positive for U.S. stocks....MUCH MORE
Kurt Feuerman: Why a Flexible Investor Likes Big U.S. Stocks
 
SPX 1980.45 down 5.09; DJIA 16995.28 up 7.77; Nasdaq Composite 4516.30 down 51.30.

See also:
Grantham Mayo Van Otterloo's 7-Year Return-vs-Volatility Investing Soufflé

"Up to a Point: A Free Scotland Would Be a Hilarious Disaster"

From the Daily Beast:. 
This coming Thursday the Scots will vote on whether to make Scotland an independent nation. And I hope they do because it will be a disaster.

I don’t say this as a prejudiced Irishman. Even though the thistle-arse sheep-shagger Scots swiped Ulster and sent a herd of Presbyterian proddy dogs and porridge wogs to squat on our land and won the Battle of the Boyne in 1690 by using unfair—indeed, unheard of —- organization, discipline, and tactics on an Irish battlefield. We Micks only hold a grudge about such things for 300 years or so.

Nor is Scottish independence a misery-loves-company moment for us Irish. True, Irish independence has been no bed of shamrocks, what with the Easter Rebellion, the black-and-tans, the civil war, the IRA, and the Celtic Tiger turning out to be a mangy barn cat drowned in the well....MORE
So Mr. O'Rourke, any thoughts on the English?

Major Reversal For Tesla's Stock, No News (TSLA)

Morningstar posted "Tesla's Future Charged With Uncertainty" this morning but for the cognoscenti it's a rehash. For those who don't follow things Elon quite so closely here's the latest.
The carmaker is a formidable disruption threat, but even its CEO says the stock price looks high.
Tesla Motors (TSLA) has the momentum and charging infrastructure to be the dominant electric vehicle firm, but we do not see it having mass-market volume for at least another decade. Tesla's product plans for now do not mean an EV for every consumer who wants one, because the price points are too high. We think the Model X crossover due in 2015 will start somewhere between $55,000 and $70,000, but will average higher as consumers add options. The Model 3 sedan will start at about $35,000, according to an interview with CEO Elon Musk earlier this year, and will start selling in 2017 or 2018. This price is before any tax credits, but the $7,500 U.S. federal tax credit only applies to the first 200,000 vehicles Tesla produces starting Jan. 1, 2010.

Tesla has said that when its gigafactory--a lithium-ion battery plant under construction in Nevada--is fully operational by 2020, it will be able to produce 500,000 vehicles a year at its sole assembly plant in Fremont, California. Without the gigafactory, Musk said on the July earnings call that the firm can make 200,000 vehicles "if you really push it." Even if demand exists for these vehicles, this quantity is quite small relative to total global auto production, which is likely to reach 100 million units in the next few years. Therefore, we think global mass adoption of pure electric vehicles is still a long way off. In the meantime, Tesla will have growing pains and perhaps more than one or two recessions to fight through before reaching mass-market volume. Even if industry forecasts of sub-1% market share for EVs prove far too conservative, it is important to keep the hype about Tesla in perspective relative to the company's very limited production capacity.

Tesla's mission is to make EVs increasingly more affordable in order to bring electric mobility to the world, which means more assembly plants must come on line to achieve annual unit delivery volume in the millions. This expansion will cost billions a year in capital spending and research and development and will need to be done even during downturns in the economic cycle....MORE
The stock is down $17.69 at $261.51 while StreetInsider says "Morgan Stanley Agrees with Elon Musk that Tesla (TSLA) Stock May Be Ahead of Itself":
Morgan Stanley analyst Adam Jonas weighed in on Tesla Motors (NASDAQ: TSLA) today, saying the stock may be up for the wrong reasons.
Jonas commented, "Recently when asked about Tesla's stock, Elon Musk admitted he felt the share price was a bit ahead of itself. We agree. We believe the shares are worth $320, but perhaps not so quickly and not for some of the reasons we believe are driving the market."

He added, "We are big believers in Tesla's strategy and stand firmly by our claim that it is the world's most important car company. Securing key gigafactory partners (both public and private) and upcoming Model X details provide an excellent runway for the story. These are genuinely historic times for the auto industry and Tesla is writing its own chapters at a furious pace. But we do not expect the stock to appreciate so consistently and one-directionally from here." He listed four sobering facts for investors to consider:
1. EVs are failing categorically on a global scale....MORE

Largest Landowner In the U.S. Is Buying Hotels In Ireland

Speaking of such things, what is the Queen going to do with Balmoral should the resolution split the Union?
B&B?
From ValueWalk:
John Malone goes on a property buying spree in Ireland
John Malone loves real estate. Malone is the largest property owner in the U.S., and he has recently gone on a hotel property buying spree in Ireland
John Malone
According to a September 13th article on news site Independent.ie, American billionaire John Malone is planning a major expansion of Dublin’s Trinity City Hotel (formerly the Trinity Capital Hotel). Malone purchased the hotel a few months ago for $35 million. The billionaire also recently purchased the Humewood Castle and estates in County Wicklow ($7.2 million), the Westin Hotel on Westmoreland ($65 million) and the Hilton Hotel on Charlemont Place in Dublin ($30 million).

John Malone: Details on planned expansion of Trinity City Hotel
The Independent.ie article says Trinity Leisure Holdings firm has petitioned the Dublin City Council for planning permission to extend the facility at the rear, adding 23 new rooms.The proposed addition extension will bring the total number of bedrooms at the four-star hotel to 218.

Of note, the Trinity City is already profitable, and is looking to take advantage of the robust hotel market in Dublin right now .The development plans filed also include the construction of a glazed terrace bar on the sixth floor of the property as well as a number of modifications to the former Tara Street fire station on the ground floor. The building has historical protection status....MORE
From our July 2012 post "The 100 Largest Landowners in America":
From The Land Report:

No. 1 John Malone
2,200,000 acres

John Malone, the 70-year-old chairman of Liberty Media, is famously reticent when it comes to discussing his business life. There is, however, one subject that makes the Denver businessman open up: his personal land holdings.
 
Recently, he’s had a lot more to talk about. In 2011, Malone became the largest private landowner in the U.S., wresting the top spot on The Land Report 100 from his friend and longtime business partner, Ted Turner. His decades-long rise to the top dates back to the 1990s, when Malone began acquiring land in Colorado, New Mexico, and Wyoming. His land grab kicked into overdrive in the summer of 2010 when he purchased New Mexico’s historic 290,100-acre Bell Ranch. In early 2011, he snapped up an additional 1 million acres of timberland in Maine and New Hampshire to become America’s leading land baron. Malone says his lust for land harkens back to his Irish genes: “A certain land hunger comes from being denied property ownership for so many generations.”...MORE 
THE FULL LIST: AMERICA’S TOP 100 LANDOWNERS 2011
  1. John Malone
  2. Ted Turner
  3. Archie Aldis Emmerson
  4. Brad Kelley
  5. Irving Family

Rob Arnott's Research Affiliates on Volatility

From Research Affiliates:

True Grit: The Durable Low Volatility Effect
One of the basic tenets of finance is that investors are compensated for taking risk. For equity markets, that means that high volatility stocks are expected to outperform low volatility stocks. But that hasn’t happened. Low-risk stocks have historically outperformed high-risk stocks.
 
Will this low volatility effect persist? Renewed interest in low volatility strategies has led to higher demand for low volatility stocks, and high demand for low volatility stocks could conceivably eradicate the return premium once and for all. Nonetheless, the effect has proven robust across time periods and markets, and, unless contrarian investing paradoxically becomes the norm, there is good reason to believe that it won’t go away anytime soon.
 
Historical Record
The low volatility effect has been known so long1 and studied so extensively that there is little danger it will be discredited as a statistical fluke or a by-product of incomplete or erroneous data. Low volatility stocks tend to trade at a discount to the broad market and, of course, to high volatility stocks; the magnitude of the discount is highly variable,2  but the low volatility effect has nonetheless been durable (see Table 1). The fact that simulated low volatility strategies have produced excess returns in many countries implies that the effect is deeply embedded in global capital markets.
 
The historical record, then, is reassuring. Nonetheless, we’ve all seen rapid, even cataclysmic, change in other situations. Institutional arrangements can break down, technological advances can disrupt the balance of power, regulatory reforms can impede capital flows or raise the cost of trading, and, in principle, people can learn from experience. Even if we resolutely assume that radical change is unlikely, we cannot offer an opinion on the continuance of the low volatility effect without understanding the conditions that have made it possible thus far.
 
Revisiting Risk and Return
Riskier assets have higher expected returns.

That statement might be considered too categorical in academic circles, but it is an article of faith in active portfolio management. Investors are rewarded by profits for risking their capital just as hourly workers are compensated by wages for committing their bodies and minds to economically productive activities. And, considering that wage-earners get more pay for putting in longer days, investors quite reasonably require higher rewards for taking on more risk. John Stuart Mill (1885, p. 107) vividly expressed the idea: “The profits of a gunpowder-manufacturer must be considerably greater than the average, to make up for the peculiar risks to which he and his property are constantly exposed.” Rates of return are a straightforward function of risk, and rational investors set their expectations accordingly.....MORE
HT: Abnormal Returns

Sunday, September 14, 2014

Oh Dear God: The IMF's Christine Lagarde Will Belly-dance to Achieve Her Goals

These depraved, power-drunk elitists will stop at nothing to implement their New World Order.
From the Financial Times' Lunch with the FT-Christine Lagarde:

The IMF’s chief talks about giving more power to non-western countries, bringing more women into the room and the ‘highly political’ decision of a French court to investigate her 
Christine Lagarde sits at a table in an Indian restaurant in the heart of Washington and smiles winningly at the waiter. She arrived barely a minute ago, precisely on time for our scheduled appointment, in a swirl of elegant cream: chic Chanel-style suit, matching shoes, silver filigree bracelet and shock of white hair.
But even before the waiter can wave a menu, she takes control. “Right, I know what I want! Spinach! Blackened cod! Quinoa! No sides! That’s all! Perfect!”

I feel tempted to say, “Me too”; she exudes such brisk authority and confidence, it feels hard to resist following in her wake. But I don’t want to seem like a groupie: as fast as I can, I order her spinach dish and some random curried okra.

“Oh, and water with bubbles, please!” Lagarde adds. She explains that she has chosen this restaurant for efficiency: it is next to her apartment in Washington and it is where she often orders take-out. “That’s all!” she tells the waiter. “Perfect! Thank you! Perfect!”

Lagarde and I are here because she recently celebrated an anniversary: just over three years ago she took over as managing director of the International Monetary Fund, the first woman to run the mighty $760bn organisation that is charged with promoting global financial and monetary stability. She arrived, however, amid great instability. The IMF’s former managing director, Dominique Strauss-Kahn, had just resigned after becoming entangled in a sordid sex scandal in a New York hotel. “It was a very bizarre time,” Lagarde drolly observes, stressing her words. The world outside the IMF was also experiencing its own, financial, crisis. 

So what would an IMF-style “review” of her own performance say? She pulls a face and chuckles. “Like most IMF programmes, I would say that there has been lots of progress – but there is still a lot more to do!” In 2011 her first priority was to restore the battered morale of the IMF. Oddly enough, the task felt somewhat familiar. Born in 1956 into a middle-class family, Lagarde attended school in Le Havre, France, and studied in America and Europe before joining Baker & McKenzie, the world’s largest law firm, in 1981. In 1999 she became its first female chairman. “I was elected when the firm was a complete mess. I had to deal with that,” she says. “But women often end up in charge to sort things out when everything goes wrong. Just think of Iceland or Central Africa. Or look at Japan.”
. . .

The waiter silently presents our starter: bowls of spinach with Indian spices sprinkled on top. Wine is not even discussed. “I stopped drinking more than 15 years ago,” she explains. “I realised that I just couldn’t do it all – travel and work and drink.”

She pokes her spinach and declares she has hit her first target: morale at the IMF is dramatically better. “That [scandal] is over! Nobody talks about it now.” But her next set of targets is far harder: the IMF’s own “corporate governance”, a euphemism for the bitter struggle that it faces in adapting to the modern world. Ever since its foundation in 1944, the fund – like the global economy – has been dominated by western nations. As part of that, Europeans, like Lagarde, have traditionally had the top job. “Although I think the fact that I was a woman helped to get this job,” she admits. “It would have been hard [after the scandal] to give it to another French man.” 

Lagarde knows this pattern is an anachronism in a world where the west is losing economic power. “The under-representation of countries such as China and other emerging markets is just not right. Not right!” she declares with passion. Thus she is backing reform plans to give more power to non-western countries. But the American Congress has failed to ratify these. “This is very frustrating,” she observes. “I spent a lot of time with members of Congress last year trying to show them how ridiculous it is to stand in the way of change. I will keep pushing and pushing on this – I will belly-dance if I have to, to get there.”

In the meantime, she says, “I am trying to mitigate this by having Chinese officials in big IMF jobs.”...MORE
Next up, Henry Kissinger.

NYT: From White Knight to Thief

From the New York Times:
In August 1941, Richard Whitney, the former financier and New York Stock Exchange president, emerged from prison at Sing Sing, on parole after serving three years of a five- to 10-year sentence for grand larceny.
Whitney had stolen from the New York Yacht Club and from Harvard (where, as a member of the class of 1911, he had rowed for the crew team); from his wife’s family estate; as well as from the widows and children who depended on the Stock Exchange Gratuity Fund, of which he was trustee.

Dick Whitney had once been hailed as a “Great White Knight” of Wall Street. At the start of the terrifying market plunge of October 1929, he had bravely helped shore up the market by parading around the exchange floor, placing bids for shares of U.S. Steel, as well as other blue-chip holdings.

In the early 1930s, the top-hatted Whitney had a reputation as a “perfect snob,” quietly blocking Jewish aspirants from reaching important positions in his exchange. With a thoroughbred-horse-and-cattle farm in Far Hills, N.J. — he was also president of the Essex Fox Hounds — and a five-story, red brick townhouse at 115 East 73rd Street, his lifestyle required a formidable cash flow. And soon he found himself in severe debt.

Evidently intrigued that his Harvard schoolmate Joseph P. Kennedy, who had followed him by a year, had made millions selling Gordon’s Dry Gin and Haig & Haig Scotch, Whitney tried to achieve a similar trick — while Prohibition was winking out in 1933 — with Jersey Lightning applejack and Canadian rye. But these and other more fly-by-night gambits failed, and Whitney started his secret life of crime.

Both Whitney and President Franklin D. Roosevelt, who was six years his senior, were born into the old American, Northeastern, Protestant, moneyed patriciate; both had attended Groton School and Harvard. This shared inheritance, however, didn’t keep Whitney from leading a fierce campaign, summoning his full throw-weight as chief of the New York Stock Exchange, to attack Roosevelt’s proposed Wall Street regulations.
At the White House, Whitney warned the president that such drastic change could ravage the American financial system, with the result that “grass will grow in Wall Street.” Defending his organization, Whitney told United States senators and their staff members: “You gentlemen are making a huge mistake. The exchange is a perfect institution.” But Congress approved Roosevelt’s reforms, which were enforced by Joseph P. Kennedy, then the chairman of the new Securities and Exchange Commission.

On Halloween 1936, three days before his landslide re-election, Roosevelt signaled his intention to crank up more pressure against Wall Street. At a huge, raucous rally at Madison Square Garden, the defiant president declared that “government by organized money is just as dangerous as government by organized mob.” Using language that sounds almost contemporary in 2014, he said the “forces of selfishness,” of “reckless banking” and “class antagonism” were “unanimous in their hate for me, and I welcome their hatred.”
With the crowd shrieking, Roosevelt went on to exclaim, “I should like to have it said of my second administration that, in it, these forces met their master!”

Then, 16 months later, the president was informed of Whitney’s indictment for grand larceny, and details of the embezzlement. The president’s strategist-speechwriter Thomas Corcoran — whom Roosevelt called Tommy the Cork — recalled to me decades later that, in response to the news, the shocked Roosevelt lowered his head and murmured: “Poor Groton. Poor Harvard. Poor Dick.”

As in recent times, an American president had to make a decision about how personal he should get about the transgressions of Wall Street titans. The revelations about Whitney seemed to hand Roosevelt a powerful foil. Some of his advisers encouraged him to exploit and dramatize the Whitney scandal, making the financier a national avatar of Wall Street misbehavior.

But to their surprise and dismay, Roosevelt, in public, never cited Whitney, his offenses or his downfall. Although so often derided by many of his social peers as a “traitor to his class,” Roosevelt refused to exploit Whitney’s troubles; he did not instruct his staff and political allies to ask friendly journalists and legislators to help them make the fallen financier into a demonic household name. This is one reason that Whitney’s name is so little known today....MORE
HT: Value Investing World

Virologist: Up to Five Million People Could Die From Ebola

D-W has extensively edited the following story to the point the current version has no estimate of the number of possible deaths.
The editing has been done without explanation.
Here is the current version:
Ebola threatens to destroy Sierra Leone and Liberia

And here is:
Virologist: Fight against Ebola in Sierra Leone and Liberia is lost
From Deutsche Welle, September 11, via the Internet Archive Wayback Machine:
The killer virus is spreading like wildfire, Liberia's defense minister said on Tuesday and pleaded help from the UN. Now a German Ebola expert goes one step further and comes up with a shocking assertion.
His statement might alarm many people.

But Jonas Schmidt-Chanasit of the Bernhard Nocht Institute for Tropical Medicine in Hamburg told DW that he and his colleagues are losing hope for Sierra Leone and Liberia, two of the countries worst hit by the recent Ebola epidemic.

"The right time to get this epidemic under control in these countries has been missed," he said. That time was May and June. "Now it is too late."
Schmidt-Chanasit expects the virus will "burn out itself" in this part of the world.

With other words: It will more or less infect everybody and half of the population - in total about five million people - could die.

Stop the virus from spilling over to other countries
Schmidt-Chanasit knows that it is a hard thing to say.
He stresses that he doesn't want international help to stop. Quite the contrary: He demands "massive help".
For Sierra Leone and Liberia, though, he thinks "it is far from reality to bring enough help there to get a grip on the epidemic."

According to the virologist, the most important thing to do now is to prevent the virus from spreading to other countries, "and to help where it is still possible, in Nigeria and Senegal for example."

Moreover, much more money has to be put into evaluating suitable vaccines, he added....MORE
...Angry reactions
In the headquarters of Welthungerhilfe, a German non-governmental aid organization that is engaged in helping with the Ebola epidemic, Schmidt-Chanasit's statement causes much contempt.
Such declarations "are not very constructive," a spokeswoman said.

Jochen Moninger, Sierra Leone based coordinator of Welthungerhilfe, told DW, Schmidt-Chanasit's statement is "dangerous and moreover, not correct."...
See also Wired Sept. 14, 2014:
The Mathematics of Ebola Trigger Stark Warnings: Act Now or Regret It
The Arizona Republic, Sept. 13:
ASU professor: Ebola spreading rapidly through West Africa
CNN Sept. 12 
Ebola in the air? A nightmare that could happen
Econometrics by Simulation Sept. 5
1.2 Millions Deaths by Ebola projected within Six Months? 

Feds Seize $100 Million In Los Angeles Fashion District Money Laundering Scheme

From Los Angeles Downtown :
About 1,000 federal agents and local law enforcement officers raided the Fashion District last week, seizing upwards of $100 million and arresting nine suspects in what federal prosecutors allege is a widespread money-laundering scheme tied to narcotics sold by international drug cartels, including from the Mexican state of Sinaloa.


“Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses,” Assistant United States District Attorney Robert E. Dugdale said in a prepared statement after the Wednesday, Sept. 9, action....MORE
From the U.S. Attorney's office: 

Large-Scale Law Enforcement Effort Targets Downtown Los Angeles Businesses Linked to Money Laundering for Drug Cartels
FOR IMMEDIATE RELEASE
September 10, 2014
Fashion District Store Using ‘Black Market Peso Exchange’ Scheme Allegedly Took Ransom Money for Hostage Being Held and Tortured by Sinaloa Drug Cartel
LOS ANGELES – Approximately 1,000 law enforcement officials this morning fanned out across the Fashion District in downtown Los Angeles to execute dozens of search warrants and arrest warrants linked to businesses suspected of using “Black Market Peso Exchange” schemes to launder narcotics proceeds for international drug cartels.

Authorities today arrested nine defendants and seized what is estimated to be at least $65 million in cash and from bank accounts around the world in relation to asset forfeiture actions filed as part of the ongoing investigations.

One case unsealed today alleges that the Sinaloa Drug Cartel used a Fashion District business to accept and launder ransom payments to secure the release of a United States citizen who was kidnapped by that narcotics organization, held hostage, and tortured at a ranch in Mexico.

Two other indictments also unsealed today involve alleged money laundering by other Fashion District stores using the Black Market Peso Exchange (BMPE) scheme. 

In a BMPE scheme, a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has currency in the United States that he needs to bring to a foreign country, such as Mexico, and convert into pesos. The peso broker finds business owners in the foreign country who buy goods from vendors in the United States and who need dollars to pay for those goods. The peso broker arranges for the illegally obtained dollars to be delivered to the United States-based vendors, such as the stores in the Fashion District, and these illegally obtained dollars are used to pay for the goods purchased by the foreign customers. Once the goods are shipped to the foreign country and sold by the foreign-based business owner in exchange for pesos, the pesos are turned over to the peso broker, who then pays the drug trafficker in the local currency of the foreign country, thus completing the laundering of the illegally obtained dollars.

This BMPE scheme – which is also known as Trade-Based Money Laundering – is often used by Mexico-based drug trafficking organizations to collect money from their drug sales in the United States without having to take the risk of smuggling bulk amounts of U.S. currency across the Mexican border and without having to convert and wire the U.S. currency through established financial institutions, which not only carries transaction fees, but also a threat their illegal activity will be detected....MORE
See also the Los Angeles Daily News:
Feds to seize Pasadena and Alhambra homes — including $8 million mansion — in L.A. Fashion District drug-money-laundering probe

Hurricane Odile Hits Category 4 and "2014 Atlantic Hurricane Season Birdseye Discussion"

The big story is Hurricane Odile off of Baja* but our focus is the Atlantic Basin.
From Weather Underground:
...SUNDAY SEPTEMBER 14 2014 1:25 PM EDT...
Edouard becomes the fourth hurricane of the 2014 Atlantic season...and has the potential to become a major hurricane (category 3 or greater) over the open ocean over the next couple of days. If it achieves this feat...it will be the first major hurricane in the Atlantic basin since Sandy in October 2012. See special feature section below for an update on Edouard. Visit www.nhc.noaa.gov for up to the minute latest information on Edouard.

Tropical wave Invest 93-L in the eastern tropical Atlantic has weakened in the last 36 hours. As Hurricane Edouard has lifted northward...it is no longer shielding this tropical wave from the dry Saharan air to the west seen in the thermodynamics chart below. Moreover the thermodynamics chart suggests a trowal of some dry Saharan air sneaking toward 93-L from the northeast. In addition upper vorticity from the south Greenland frontal cyclone system is merging with the 999 mb deep-layered low in the northeast Atlantic...with a portion of this upper vorticity expected to dive southwest around the southeast side of upper anticyclonic flow over Edouard and toward 93-L and hit 93-L with northerly shear as it moves into the central tropical Atlantic. Therefore this system is no longer expected to become a tropical cyclone and I have dropped it as a special feature on this blog.

Satellite imagery indicates that a vigorous tropical wave has entered the tropical waters southeast of the Cape Verde Islands after emerging from western Africa. Meanwhile upper vorticity from the south Greenland frontal cyclone system is merging with the 999 mb deep-layered low in the northeast Atlantic...with a portion of this upper vorticity expected to dive southwest around the southeast side of upper anticyclonic flow over Edouard and toward the central tropical Atlantic. Therefore this tropical wave will be encountering unfavorable southwesterly shear on the east side of this upper vorticity as it moves into the central tropical Atlantic by 96 hours...and therefore is not likely to develop into a tropical cyclone.

A western fracture of the large western Atlantic upper vortex has moved into the southern Gulf of Mexico. This fracture is stronger than anticipated...keeping the favorable southeastern upper ridge at bay to the north and resulting in upper convergence between the new southern Gulf upper vortex and south side of the upper ridge such that tropical low Invest 92-L has weakened into a remnant surface trough. Therefore this system is no longer expected to become a tropical cyclone and I have dropped it as a special feature on this blog.
...ATMOSPHERIC FEATURES BIRDSEYE CHART...

This chart is generated based on surface analysis from the National Hurricane Center TAFB at 1200Z and 1332Z-released WPC analysis.
Features boxed in green...if any...are mentioned in the National Hurricane Center (NHC) traditional 48-hour outlook and or are considered an "Invest" on the Naval Research Laboratory site of the US Navy at the time the chart was generated. I do not box features in green if they are only included in the NHC's longer term 5-day outlook....MORE
And from Wunderground's Wunderblog:
Dangerous Category 4 Odile Threatens Baja; Edouard Becomes a Hurricane
Hurricane Warnings are flying for Mexico's Baja Peninsula as dangerous Category 4 Hurricane Odile approaches. Odile put on an impressive burst of rapid intensification Saturday night, going from a Category 1 hurricane with 75 mph winds to a Category 4 storm with 135 mph winds in just 24 hours. Satellite loops show that Odile has likely topped out in strength, but the storm has a large area of very intense eyewall thunderstorms and a prominent eye. Odile's heavy rains have mostly remained offshore of Mexico, though an outer spiral band brushed the Southwest coast of Mainland Mexico on Saturday, bringing 0.31" of a rain and a wind gust of 32 mph to Manzanillo. Baja will not be so lucky....MORE
Here's the tracking map with the cone of uncertainty: