Thursday, October 30, 2014

Oil: There's Bearish and There's Betting On $50/Barrel Bearish

As to an eventual bottom our models, apparently backdooring Goldman's, guess at $70. Did I say guess?
From Reuters:

Fund manager Andurand says US oil could fall to $50/bbl
Pierre Andurand, one of the most respected and successful fund managers in the oil industry, said he believed U.S. light crude oil could fall as low as $50 per barrel.

The U.S. benchmark oil price, also known as WTI, "will be volatile, but assuming no more supply disruptions, I think we can overshoot down to $50 a barrel," Andurand told Reuters on the sidelines of the Oil & Money conference on Wednesday.

"The move will mainly be in the front of the curve, but not just the first three months - the first six months or so," he said, adding that Brent would come down as well.

Andurand was co-founder of hedge fund BlueGold, which racked up record returns during the steep rise in oil prices in 2008 and the subsequent collapse in 2008-2009.

Bluegold's returns were lower in 2010, and the fund posted a loss the following year. Its co-founders eventually went their separate ways, and Andurand now runs a smaller hedge fund under his own name, which returned more than 25 percent last year and is up marginally year-to-date in 2014.

Andurand told the Oil and Money conference that he thought it unlikely that OPEC would cut production, even though current supply and demand trends suggested the market could be in a 2 million barrel-per-day surplus next year....MORE
See also:
Oct. 21
Oil Sell-off, the Goldman View (XLE; ERY)
Oct. 22
Oil: Goldman Lowers Forecast, Brent and WTI Both Down
Oct. 27 
Oil Shows Some Resiliance (today)
Oct. 28 
More Goldman on Oil and a Correction on the Stimulative Effects of Oil Price Declines
Oct. 29
Godfather of the Bakken: "There Is No Oil Glut" (CLR)

Bear Market: The Junior Gold Miners ETF Is Down 84.56% (GDXJ)

On Dec. 6, 2010 the Market Vectors Junior Gold Miners ETF traded at $179.44. Today it's at $27.70.

Not quite as bad as the 89% drop in the DJIA 1929-1932 but worse than Japan's 81.59% decline in the Nikkei, 1989-2008.

From Barron's:
The Federal Reserve’s move to end its long-running bond-purchase program is slamming gold prices and shares of companies that mine precious metals.

Wednesday’s 4.3% swoon to $19.64 in the Market Vectors Gold Miners ETF (GDX) drives the ETF under $20 a share for the first time since October 2008, during the depths of the financial crisis.
The Global X Silver Miners ETF (SIL), falls 3.5% to close at $9.67, its lowest finish since its launch in April 2010.

The Market Vectors Junior Gold Miners ETF (GDXJ) was battered for a loss of 7.2%.
Miner stocks and gold prices extended their losses after the Fed’s announcement that it will wind down its “QEIII” program at the end of the month.

The SPDR Gold Shares (GLD) dropped 1.4% to $116.41.
The Fed’s move, while expected, was paired with a more upbeat assessment of the U.S. labor market. Those factor at once damp gold’s appeal versus income-generating assets, as a hedge against inflation and as a haven from economic uncertainty....
...MORE

You Can Buy This Abandoned CT Town For Less Than A Brooklyn Apartment

From Gothamist:

Miss Patty's dance studio

This cute, abandoned town in Connecticut is basically Stars Hollow from Gilmore Girls, and it's currently being sold off at auction with a starting bid of $800,000. That's less than a brownstone in Brooklyn. That's less than some studio apartments here. It's a whole goddamn town! That's 62-acres, plus plenty of homes and General Store type structures that may or may not be haunted by cool, historic ghosts. Here's the deal:
"Why are they selling an entire town? Well, for starters, it’s been vacant for more than 20 years and through its history, has been abandoned not once, not twice, but three times Dating back to the 1830s, Johnsonville was once a thriving mill town and popular recreation spot set along the Moodus River, with amenities including a restaurant called the Red House Restaurant, a general store and a one-room schoolhouse.
Victorian and colonial-style houses with fireplaces and pillared porches were built by the families of the mill-owners where they lived contently up until the 1950s. All the historic buildings still remain. But then modernization crept up on the quaint community, work dried up and Johnsonville became a ghost town for the first time."
...MORE

Exposed--An Explicit Full Frontal View of What's Really Going On In Big Cities: Money, Sex and Power

I intro'd Sunday's "San Francisco Is Smarter Than You Are" with:
And probably more racist.
 Depending on the source, San Francisco's population is between 6.0 and 6.6% black vs. 14.2%  for the country as a whole. S.F. city and county use zoning laws to keep black folks out.
The same goes for Seattle and Portland. Someone should do a story on it....
And moved on about my business.
Well, there must be something in the air regarding the reality of big cities and a bit of honesty among journos writing about the current zeitgeist. There are some realities that should probably be faced.

On Monday we linked to "RIP, NYC's Middle Class: Why Families are Being Pushed Away From the City" by New Geography.

Yesterday The Atlantic published "Why Middle-Class Americans Can't Afford to Live in Liberal Cities" which we originally threw in the link-vault to use as background on another story but which I'll copy out here for the Trulia link:

Blue America has a problem: Even after adjusting for income, left-leaning metros tend to have worse income inequality and less affordable housing.
On April 2, 2014, a protester in Oakland, California, mounted a Yahoo bus, climbed to the front of the roof, and vomited onto the top of the windshield.
If not the year's most persuasive act of dissent, it was certainly one of the most memorable demonstrations in the Bay Area, where residents have marched, blockaded, and retched in protest of San Francisco's economic inequality and unaffordable housing. The city's gaps—between rich and poor, between housing need and housing supply—have been duly catalogued. Even among American tech hubs, San Francisco stands alone with both the most expensive real estate and the fewest new construction permits per unit since 1990.

But San Francisco's problem is bigger than San Francisco. Across the country, rich, dense cities are struggling with affordable housing, to the considerable anguish of their middle class families.
Among the 100 largest U.S. metros, 63 percent of homes are "within reach" for a middle-class family, according to Trulia. But among the 20 richest U.S. metros, just 47 percent of homes are affordable, including a national low of 14 percent in San Francisco. The firm defined "within reach" as a for-sale home with a total monthly payment (including mortgage and taxes) less than 31 percent of the metro's median household income.

If you line up the country's 100 richest metros from 1 to 100, household affordability falls as household income rises, even after you consider that middle class families in richer cities have more income. [The graph below considers only the 25 richest US metros to keep city names moderately legible within the computer screen.]

Rich Households = Unaffordable Houses?

The line isn't smooth—and there are exceptions—but the relationship is clear: In general, richer cities have less affordable housing.
But there's a second reason why San Francisco's problem is emblematic of a national story. Liberal cities seem to have the worst affordability crises, according to Trulia chief economist Jed Kolko.
In a recent article, Kolko divided the largest cities into 32 “red" metros where Romney got more votes than Obama in 2012 (e.g. Houston), 40 “light-blue” markets where Obama won by fewer than 20 points (e.g. Austin), and 28 “dark-blue” metros where Obama won by more than 20 points (e.g. L.A., SF, NYC). Although all three housing groups faced similar declines in the recession and similar bounce-backs in the recovery, affordability remains a bigger problem in the bluest cities....MORE
Finally, and probably of most interest to our readers, this morning's FT Alphaville post:

Affordable housing and the legit big-city whinge
When city-dwellers moan about their high cost of living, they often elicit the unsympathetic retort that they should shut up and praise the ghost of Jane Jacobs for the cultural vibrancy of their neighborhoods, the lucrative jobs, and the artisanal pizza.

Living in a great city is a consumption good, you whinging ninnies — you SHOULD have to pay for it! Why do you think you’re entitled to live wherever you want?

Hey, fair enough.

But there’s a difference between grumblings about $5 cinnamon macchiatos and the more useful outrage about meaningful troubles that can be solved — a difference between #firstworldproblems and the healthier expression of annoyed patriotism towards one’s habitat.

I like living here and want to keep living here, which is why the problems I complain about aren’t enough to push me out. I’d rather stick around and see the problems solved. But those problems suck, so let’s start doing something about them.
To complain that rents, for instance, could and should be lower isn’t always a sign of yuppie entitlement. Nor is it mutually exclusive with appreciating the wonderful aspects of city life. Sometimes the gripe really is legitimate.*

A doorstopping thud of a McKinsey report dropped last week, canvassing the issue of insufficient affordable housing in cities throughout the world.

The biggest contributing problem is idle land, which can be freed for development with fairly straightforward, but always politically intractable, ideas. Amend anti-density zoning regulations. Loosen bureaucratic restrictions on new construction. Allow more building on government-owned land, or privatise it. Eliminate rent controls where possible.

The report included a useful, brief case study of New York City that makes plain the effects of insufficient affordable housing on its workers, a problem shared by so many of the world’s biggest cities.
A few excerpts follow, and we’ve bolded the highlights if you want to race through it:

We estimate that half of New York households cannot afford basic housing using 30 percent of their income. In New York City, median household income is $51,000. If we define low-income households as those earning 80 percent of the median, 1.2 million households (of about 3.1 million) would be classified low- income. …

We estimate that the affordability gap is about $18 billion per year (Exhibit 79). This represents about 4 percent of New York City’s GDP.

This ties well with current statistics, about 1.6 million households in New York City face housing challenges across different housing categories (Exhibit 80). About 55 percent of renters and 50 percent of households with mortgages are financially stretched, paying more than 30 percent of income on housing costs.
Housing issues affect low-income households disproportionately: 89 percent of households earning less than 30 percent of area median income are financially stretched by housing costs. Of households earning 30 to 50 percent of area median income, 83 percent are financially stretched by housing costs, and 66 percent of households earning 50 to 80 percent of area median income pay more than 30 percent of income for housing....
...MUCH MORE
Someone should probably do a story, eh?

Wednesday, October 29, 2014

It Appears There Is A Volcano Threat In Japan That Could Wipe Out The Country

Didn't have this in the models. Have a big earthquake, not this.
From ENE Energy News:
Experts warn of volcano destroying Japan at any moment, causing nation’s extinction — Millions buried by lava in minutes, ‘hopeless’ for 120,000,000 people — Reactors would be devastated and spread nuclear waste worldwide — Gov’t: Volcano near nuke plant is shaking, tremor 7 minutes long… ‘Stay away’ — Increased eruption risk due to 3/11 quake

Wall St Journal, Oct. 23, 2014 (emphasis added):  One major volcanic eruption could make Japanextinct,” a study by experts at Kobe University warns… “We should be aware… It wouldn’t be a surprise if such gigantic eruption were to take place at any moment.”

Japan Times, Oct. 24, 2014: Colossal volcanic eruption could destroy Japan at any time: study — Japan could be nearly destroyed by a volcanic eruption over the next century that would put nearly all of its population of 127 million people at risk… “It is not an overstatement to say that a colossal volcanic eruption would leave Japan extinct as a country,” Kobe University earth sciences professor Yoshiyuki Tatsumi and associate professor Keiko Suzuki said… A disaster on Kyushu… would see an area with 7 million people buried by flows of lava and molten rock in just two hours [and] making nearly the entire country “unlivable”… It would be “hopeless” trying to save about 120 million
...MORE

HT: ZeroHedge

"Economists React to the Fed Statement: ‘Surprisingly Hawkish’"

From Real Time Economics:
The Federal Reserve on Wednesday announced the end of its long-running bond-buying program. The central bank also stuck to an assurance that short-term interest rates would remain near zero for a “considerable time.” Economists largely expected the end of the Fed’s third round of quantitative easing, as it was known. But many found the statement more “hawkish,” easing off concerns about progress in the labor market.

Here’s what some economists are saying:

In short, [the Fed's statement was] largely as expected, but, if anything, a more positive tone, at least on the labor market. We expect tightening will start by June 2015, but, of course, that will depend on the data.  For now, there is no urgency for officials to use the statement to signal an imminent move. Bond yields have risen a few basis points since the statement was released.” –Jim O’Sullivan, High Frequency Economics

“As expected, the Fed today announced an end its third round of large-scale asset purchases (aka QE3). Slightly less expected, however, is that despite the recent market volatility, the statement issued after the FOMC meeting was, if anything, more hawkish…On balance, the Fed believes it is getting closer to meeting the full employment side of its mandate, while it is not necessarily convinced it is losing ground in meeting the price stability side of its mandate. We would say that was, if anything, a slightly hawkish shift. It’s also perhaps telling that it was the dovish Narayana Kocherlakota who dissented at this vote, whereas in previous FOMC meetings this year it is the hawks who dissented.” –Paul Ashworth, Capital Economics

After getting knocked off its mark by recent equity market volatility, the FOMC has apparently returned to form, namely a slow but steady shift towards a more hawkish trajectory on policy. What better way, in fact, to get the equity market to rally in the face of eventually higher interest rates than to be more bullish on growth and shifting the focus of potential action from labor to now waiting for inflation. The FOMC also dropped any mention of fiscal policy being a drag on growth. Barring any unforeseen slowdowns, which the Fed never sees, we are now simply left to wait around for signals core inflation is on its way back towards 2%. Once signaled, the Fed is ready to shorten ‘considerable time’ to no time at all.” –Steve Blitz, ITG Investment Research
...MORE 

Here's commentary from junior gold miners on how hawkish the statement was:
Market Vectors Junior Gold Miners ETF (GDXJ)

"The Opportunity in Weak Commodity Prices"

That is Barron's magazine's headline, not ours.
We see commodities as tactical trading vehicles, not investments and see the larger macro picture as being shaped by a disinflationary-to-deflationary bias.
On the other hand Barron's has been around longer than I so they may be right with the six "Buy Oil" articles they've run in the last week.
But I'm doubting it.
From Barron's 'Wall Street's Best Minds' feature:
Wells Fargo urges investors to use price pullbacks to invest in energy, metals, and agriculture.
Commodity markets – especially for crude oil -- continue to face headwinds from excess supply and uncertainties about divergent monetary policies. But nascent positive trends give commodity markets a more balanced outlook, in our view. 

Looking into the end of the year and into 2015, we feel investors should use the recent price pullbacks to take commodity allocations towards their long-term target allocations. We recommend an allocation split evenly between a broadly diversified position and another in energy (crude oil, refined products, and natural gas).
For the past two months, investor anticipation of new and large monetary policy stimulus in Europe and Japan has rallied the U.S. dollar and raised the cost of raw materials in local currencies. In addition, worries about excess commodity supplies accompany slipping global economic data. 

We think the impact of these factors is overdone. During the coming weeks, expectations for dollar strength should moderate. The excess supply problem also seems to be resolving, especially in base metals, where miners are cutting production quickly and global markets are gradually rebalancing. 

The crude oil market is particularly concerned about excess oil supply and the strong U.S. dollar. After touching $115/barrel in June, the price of benchmark European Brent crude oil fell by $35/barrel by early October, finishing below $100 for the first time since political turmoil erupted in Egypt in 2011. The decline seems unjustified based on our supply and demand outlook, and we advise investors to be careful about assuming $80/barrel oil prices are here to stay. For example, the last $12 of oil price declines came as the dollar also declined this month. 

It is also risky to assume that OPEC and U.S. supply will become permanent sources of excess supply. Extra U.S. production does not add much to new excess supply. If OPEC would only cut by 500,000 barrels per day (1.5% of their daily output), it could effectively erase the contribution of this year’s gain in U.S. production. So why doesn’t OPEC cut? For perspective, oil prices are still in their four-year trading range of $80-$120 per barrel, and the collapse from $90 came quickly – possibly too quickly for OPEC’s factious members to form a consensus. Since the mid-1980s, OPEC has tried to steady oil prices, and potential price spikes are material risks – for example: if the Libyan production recovery falters and ISIS threatens large production facilities.
Our monthly review of the major commodity sectors follows next: 

Energy: Energy prices continue to drag on concerns of excess crude oil supply and weak seasonal demand. However, seasonal petroleum and natural gas demand is poised to pick up, and consumption is still growing globally -- especially from strong Chinese automobile sales -- and should accelerate with improved global economic growth next year. We revised lower our 2014 year-end target for West Texas Intermediate crude oil to $90-$95 per barrel to account for temporary uncertainty and expect a rebound into year-end, followed by single-digit 2015 returns.

Base metals: Base metals prices have fallen with the rising U.S. dollar, and weakening global manufacturing demand and falling real estate prices in China have sapped the construction consumption of industrial metals. However, 2015 global demand prospects look better, and miners are slashing output faster than we previously thought they would. 

Precious metals: Demand for platinum and palladium for catalytic converters has supported these markets somewhat, but no supply-demand rebalance is likely for gold and silver, which remain vulnerable to potentially higher U.S. interest rates sooner rather than later. Investors should use any gold or silver price rebound to reallocate into a diversified commodity position. 

Grains: The wet weather in the U.S. Midwest has slowed the harvest and boosted the soil conditions for wheat planting. As a further negative for price, robust foreign demand for corn and soybeans may fail to counteract excess supply and the strong dollar and put U.S. farmers at a competitive disadvantage....MORE
Oddly enough (or maybe not that odd) the disinflationary backdrop is actually a positive for the overall market whose best real returns usually occur in a 0-2% inflation regime. 

"Farmland Partners buys back shares, 3 months after selling them" (FPI)

From Agrimoney:

Farmland Partners revealed a share buyback only three months after raising $46.5m from shareholders, saying the turnaround reflected the unwarranted cheapness of the stock.
The land investment group revealed a $10m stock repurchase programme, to be executed "from time to time, in amounts and prices as the company deems appropriate".
The buyback "demonstrates our confidence in our ability to generate returns that are not reflected by our current stock price", said Paul Pittman, the group's founder and chief executive.
"Repurchasing our shares is a prudent use of our cash and a significant value creation opportunity for the company's stockholders."
Farmland Partners in July sold 3.71m shares at $12.50 a share to raise cash for a land acquisition warchest.
The shares closed last night at $10.36, representing a drop of 17% on the July sale price, although they rose 3.3% on Wednesday to $10.70 in lunchtime deals in New York.
Soaring costs
The announcement came hours after Farmland Partners unveiled for the July-to-September period, its first full quarter since listing in April, earnings of $34,805, down from $169,418 a year before.
While revenues more than doubled to $1.19m, a reflection of a spending spree which is on track to lift its portfolio above 38,000 acres, costs soared too, with general and administrative expenses rocketing above $645,000 from  $7,873 a year before, a reflecting of its listing and more active operation....MORE

Grantham Mayo’s James Montier Calls Shareholder Value Maximization “The Dumbest Idea In The World”:

I can think of a few things dumber but let's roll with Jim on this.
From the CFA Institute:

Shareholder Value Maximization: The World’s Dumbest Idea?
If you agree with the economist John Maynard Keynes that “ideas shape the course of history,” then you ought to agree that the history of modern business and finance has been shaped by one influential idea: that the job of a company’s management is to maximize shareholder value. But according to James Montier, a distinguished investment professional and behavioural finance writer, shareholder value maximization is “a bad idea.” He believes it has not added any value for shareholders and has contributed to such major economic and social problems as short-termism and rising inequality.

Montier made his case against shareholder value maximization when delivering the closing keynote address at the 2014 European Investment Conference in London, a video of which can be viewed below. In his characteristic iconoclastic style with a generous use of ironic humour, Montier labeled shareholder value maximization, the way Jack Welch, the former CEO of GE, had once described it in 2009, as “the dumbest idea in the world.”


An Academic Opinion without Much Evidence
Montier said that the idea of shareholder value maximization didn’t come from businesses but rather originated as an opinion in academia and was unsupported by much evidence. It is most directly traced to an op-ed written by economist Milton Friedman in 1970. Over the years, academic research papers on the subject, such as those by Michael C. Jensen and William H. Meckling (PDF) and Jensen and Kevin J. Murphy (PDF), have made it inseparable from the alignment of incentives. That is, top management of companies should be offered financial incentives (e.g., stock ownership and call options) to align their interest with maximizing the stock price.

The idea of shareholder value and incentives then worked its way into practice. Montier gave the example of Business Roundtable (BRT), an association of CEOs of major US companies. He said that in 1981, the mission of BRT referred to making quality goods and services, earning a profit, and building the economy, but by 1997, it became firmly focused on shareholder value.

Failing Shareholders
Montier claimed that shareholder value maximization has failed the shareholders — its intended beneficiaries. Despite enormous increases in compensation of CEOs and a rising proportion of financial incentives through stock ownership and options, shareholders are not better off. To illustrate this point with a case example, Montier compared the return performance of IBM, which switched its focus to shareholder value maximization, to that of Johnson & Johnson, which retained its credo (PDF) emphasizing responsibility to customers, employees, and communities. Montier showed that during 1971–2013, the stock of Johnson & Johnson had indeed outperformed that of IBM....MORE

North Korea's Kim Jong Un Executes 10 Party Official for Watching Soap Operas, Graft

From the Inquisitr:
North Korean leader Kim Jong Un ordered the execution of 10 officials for charges ranging from watching soap operas to graft.

Bloomberg reports that it appears that Kim Jong Un is seeking to erase the remaining influence of his dead uncle by executing about 10 senior Workers’ Party officials on charges from graft to watching South Korean soap operas. The reports come from an aide to a South Korean lawmaker. The deaths, which occurred by firing squad, are likely part of Kim’s latest round of purges said Lim Dae Sung, an aide to ruling South Korean Saenuri Party lawmaker Lee Cheol Woo, who attended a briefing at the National Intelligence Service yesterday in Seoul. Kim had his uncle, Jang Song Thaek, killed in December last year....MORE
“Kim Jong-un is trying to establish absolute power and strengthen his regime with public punishments. However, frequent purges can create side effects.”

Gold Closes Near Two-Week Low as Oil Hits a Four Day High

Children, do not try this at home. I'm not kidding.
By the time you are calling opposite moves in monetary commodities (what, you've never heard of the BTU standard?) you are probably beyond hope and riding the fast train to loony land:
Oct. 16-"(just kidding, a gold short at $1240 sounds lovely) "
Oct. 27-"...WTI is now only down 26 cents from today's settle, at $80.74. We're going lower but you may see a bit of a short squeeze this week."
From Bloomberg:
Gold Futures Closes Near Two-Week Low on Fed Speculation
Also at Bloomberg:
WTI Crude Rises to Four-Day High

WTI $82.46 up $1.04
Dec. gold $1223.3 down $6.1

Godfather of the Bakken: "There Is No Oil Glut" (CLR)

Whatevs.
From CNBC:
Oil titan Harold Hamm told CNBC on Tuesday: Don't believe the hype. "There's not a glut in the market at all."

The billionaire founder of Continental Resources took issue with the reason mostly given for crude's slide to multi-year lows, and said he's not cutting production yet. But even if he did, he said, "You don't cap producing wells. What you do is cut back on new drilling."

"What we see here is people projecting next year that we might see [oversupply]," he said in a "Squawk Box" interview. "It would have to be a perfect world to see that. I, frankly, don't believe that's going to happen."

He disputed contentions from Goldman Sachs, which on Sunday predicted oil at $70 a barrel in the U.S. in the second quarter because of oversupply. West Texas Intermediate (WTI) crude was trading $81 in early trading Tuesday after dropping below $80 Monday for the first time since early summer of 2012....MORE
Mr. Hamm is one of the 50 wealthiest people on the planet which is a good thing as, possibly as early as today, he is about to lose between $7 and $9 billion dollars in the most expensive divorce in U.S. history.
Of course if he loses it it means that the loot wasn't really his to lose, that the wealth is a marital asset and... jeez, I see no upside to my prattling on about divorce law.

WSJ Oct. 29, 1929: "Market Orderly In Record Drop"

"Continued Operation of Banker's Pool Prevents Repetition of Thursday's Hysteria"

From the Wall Street Journal's WSJ blog:

Oct. 28-29, 1929: Stock Crash
The 1929 crash that ushered in the Great Depression included Black Monday and Black Tuesday, during which the Dow Jones Industrial Average fell 13% and 12% back-to-back. Investors after Monday’s slide were assured that “banking interests” were supporting the market, “with a hand on the throttle.” Today in WSJ History....
...MORE

Bundesbank Paper Flags Risks of Ultralow Rates to German Insurers

No kidding. Second only to the fact that the insurers have probably screwed up the longevity numbers à la the British,* is the fear they won't earn enough to meet the obligations they have incurred.
From MoneyBeat;
A dozen German life insurance companies wouldn’t be sufficiently funded to face even a mild stress scenario in which German government bond yields decline further and stay super low, according to a paper released Monday by Germany’s central bank.

“The present analysis shows that a persistent low-interest-rate environment harbors a potential risk to the stability of the life insurance segment,” a pair of Bundesbank economists wrote in a study looking at year-end 2012 data from 85 German life insurers.

The study included what the authors called a “mild stress scenario” in which German Bund yields stayed at levels that have persisted in Japan “for an extended period.” Twelve of the 85 German life insurers wouldn’t be able to meet their own funding  requirements by 2023 under this scenario, the authors found. The study didn’t identify individual companies....MORE
*See for example at Artemis:
Potential flaw in UK mortality data may impact longevity re/insurers

Tuesday, October 28, 2014

The Timeless Allure of Stock-Market Timers

Dennis Gartman is not our favorite prognosticator. I've said in the past that Gartman will lose you money in equities* ("Warren Buffett is an idiot") but in commodities, especially ags, but also commodities in general, he exhibits what computer modelers call forecast skill and can generate excess returns.

From Barron's Read This Spike That column:
Twelve days ago, as the broader U.S. stock market was in the midst of its first sharp decline in years, popular newsletter editor Dennis Gartman appeared on a CNBC show and advised viewers to prepare for a bear market. 

“You stay in cash and you stay in short-term bonds and you don’t move out,” Gartman advised viewers before adding “this is the start of a bear market, and it could last for several more months I’m afraid.”

But stocks quickly turned around and began to move toward the heights last seen in September. A chastened Gartman admitted late last week on another CNBC show that his bear-market call was all wrong. However, he’s still not willing to go long, instead maintaining a “neutral” position on the market as a whole, according to a CNBC.com report on Gartman’s rapid change of heart.

Asked by CNBC what he missed about the current character of the market, he replied “I’m not sure what I missed. I really don’t know….This is the type of volatility that is absolutely beyond my ken. I’ve only been at this for 40-some years, so I’m relatively new to it. But quite honestly, I’ve never seen anything like the last two weeks.”

While the volatility may have been beyond Gartman’s ken, it didn’t humble him enough to beg off the game of predicting where the stock market is heading. At least he hasn’t met the fate that Dante reserved for soothsayers in his classic 14th century work, The Divine Comedy: Those who attempt to divine the future should have their heads twisted around and be forced to walk backwards for eternity. 

But it would be wrong to just pick on Gartman. He is just one of a long list of market pundits who attempt to do what many respected investment minds argue is impossible—predict with some degree of confidence where stocks as a whole are heading and then often recommend a sharp shift in one’s asset allocation to play a bull or bear scenario....MORE
I've no idea where he was going with "I’ve only been at this for 40-some years, so I’m relatively new to it."
If he meant to be funny he missed, badly.
Some other Gartman posts:

August 2012 
We have very little patience with guys like Gartman.
Here's the "since inception" chart for the Horizons Gartman ETF:

Chart forHorizons Gartman ETF Comm (HAG.TO)

You'll note the ETF underperformed the S&P 500 from day 1 and only got worse from there.
In June 2009 we had:
Last week MarketBeat had a post "Gartman: ‘Warren Buffett Is an Idiot’" that relayed Mr. Gartman's radio comment. I had a comment [of course you did -ed] as did 57 other MarketBeat readers. The post is still at the top of their most read list. 10:47 am June 19, 2009
  • Mr. Gartman is a lightweight.
    As donzoab points out, free cash flow is key. It allows you to play in the big leagues.
    That and being able to cut opportunistic deals with a single phone call to Charlie or Sokol.
    When Gartman takes Goldman as deep as Warren did, 10% money and warrents! (in the money $1.1 Bil.) I’ll pay attention to his comments on BRK.
A few days later he backtracked:
Gartman: Warren Buffett Isn't An "Idiot" .. But He Allowed "Inexcusable" Losses (BRK.A)
and a few weeks later:
Dennis Gartman is an Idiot (BRK.B; DXY)
On June 18, 2009 Dennis Gartman said "Warren Buffett is an idiot"* and announced to the world that he was short Berkshire Hathaway. Neither of these were very smart moves. As the chart below shows, Berkshire is up 40-odd percent since Gartman's call.
In fact BRK.b has outperformed the S&P 2:1 in the intervening months....
DJIA 13,132.73
S&P    1,409.28   
January 2013 
Gartman Rolling Out Four Gold ETF's Including A Fund-of-Funds to Buy the Other Three

October 2010 
"The curious incident of the 300m bushels of corn" (BRK.B) CORN
Long time readers know that I've had some quibbles with Mr. Gartman (Dennis Gartman is an Idiot (BRK.B; DXY) regarding his understanding of Berkshire Hathaway and it's chairman.
(See links and chart after the jump)

Then there was his EUR/USD commentary. June 1 with the Euro at 1.22 he said it was "almost certainly" going under $1.20. Duh
We'd been making the same call since Nov. 2009 at $1.50.
The buck strengthened to $1.1877 and reversed, I think it was June 4.
On June 18 of this year he called the Euro doomed. That may be but it had bottomed two weeks earlier and  was on its way to kicking Yankee butt.
Hmmm...

On the other hand he is a student of the grains. Here's FT Alphaville...
December 2011
Update on the Fisher/Gartman Volatility ETN's (ONN; OFF)
Following up on last week's "Fisher/Gartman Introduce Volatility ETN's; Short 'em Both (ONN; OFF)".

November 2011 
Oh Now What? "Huge asteroid headed for close encounter with Earth"
So there I was, shooting off my mouth over at MarketBeat:
Stock Market Has Topped: Gartman
...“The investment objective of the Horizons AlphaPro Gartman ETF (the “ETF”) is to provide investors with the opportunity for capital appreciation through exposure to the investment strategies of The Gartman Letter, L.C. (“Gartman”), founded by Dennis Gartman….”

The fund launched at the beginning of the big bull run in March, 2009, at $10.00 It’s at $8.56, down 14.4% since the launch. The S&P 500 is up 71.5%. This baby is one anti-correlated asset. The Gartman fund has recently begun to turn up which probably means there is an asteroid headed our way.”...
And now this, via the Chicago Tribune:
CAPE CANAVERAL, Fla (Reuters) - A huge asteroid will pass closer to Earth than the moon Tuesday, giving scientists a rare chance for study without having to go through the time and expense of launching a probe, officials said....
 There's more but I'm sure gentle reader has things to do.

If the west wants to hurt Putin, could Saudi Arabia do its dirty work?

Just a reminder.
From The Guardian:
Wednesday 26 March 2014


Russia is vulnerable to sanctions. Economic weakness caused the collapse of the Soviet Union a quarter of a century ago and – the self-enrichment of the oligarchs apart – not much has changed since. Energy exports to the rest of the world pay for imports of machines and consumer goods. The population is ageing and there has been little industrial diversification.

So, if the west really wants to hurt Vladimir Putin it should slap an oil embargo on Russia similar to that used against Iran. A drop in oil exports would mean Russia would not be able to afford German cars, French wine and Italian designer clothes.

It's not quite that simple. Europe is dependent on Russia for its energy supplies, so an embargo might be a classic example of shooting oneself in the foot, especially if Russia finds a way of sending its oil and gas east to energy-hungry China.

This, though, could not happen overnight, so what the west really needs is a way of hurting Putin that does not hurt itself. Neil Barnett of the Centre for Policy Studies says there is a way of doing this: persuade Saudi Arabia to do the dirty work.

There is a precedent. Angered by the Soviet invasion of Afghanistan in 1979, the Saudis turned on the oil taps, driving down the global price of crude until it reached $20 a barrel (in today's prices) in the mid-1980s. It would take a much smaller drop in the cost of oil – from $107 a barrel currently to somewhere south of $90 a barrel – to cause Russia severe financial and economic damage....MORE

Art: "Caravaggio and the Experts: Science v. Connoisseurs"

From Art Market Monitor:
 http://1uyxqn3lzdsa2ytyzj1asxmmmpt.wpengine.netdna-cdn.com/wp-content/uploads/2014/10/Caravaggio-Card-Sharps.jpg
It has been a busy week for Caravaggio experts. A long-simmering court case involving the Card Sharps, above, is finally reaching court in London just as a connoisseur is claiming to have found the true original to the painters Mary Magdalene in Ecstasy, according to The Guardian:
Mina Gregori, 90, president of the Roberto Longhi foundation of art history studies in Florence and author of several books on the baroque painter, said she was 100% sure she had found the original Mary Magdalene in Ecstasy.

“I have become a connoisseur,” she said. “And I know a Caravaggio when I see one.”

A number of elements had combined to give her complete certainty, she said, that the oil on canvas she was presented with this year was the real thing.

There are several different versions of the Mary Magdalene in Ecstasy, and until now the one thought most likely by art historians to be the 1606 original was lying in a private collection in Rome....
...MORE

"Matt Taibbi Disappears From Omidyar’s First Look Media"

From New York Magazine:
Matt Taibbi, the star magazine writer hired earlier this year to start a satirical website for billionaire Pierre Omidyar's First Look Media, is on a leave of absence from the company after disagreements with higher-ups inside Omidyar's organization, a source close to First Look confirmed today.

Taibbi's abrupt disappearance from the company's Fifth Avenue headquarters has cast doubt on the fate of his highly anticipated digital publication, reportedly to be called Racket, which First Look executives had previously said would launch sometime this autumn.

When he was hired, amid much fanfare, Taibbi's website was meant to be the second in an envisioned fleet of titles to be published by First Look, an ambitious digital journalism company funded by Omidyar, the founder of eBay and one of the richest tech moguls in America. Like its counterpart the Intercept, launched earlier this year by Glenn Greenwald and others to pursue investigations of NSA surveillance and the intelligence world, it was a venture centered around a brand-name polemicist without much management experience. Prior to joining First Look, Taibbi made his name by gleefully skewering fat targets for Rolling Stone — most famously, he described Goldman Sachs as "a great vampire squid wrapped around the face of humanity" — and he said at the time of his departure that he was lured away by the chance to lampoon the financial industry in the "simultaneously funny and satirical voice" associated with the legendary magazine Spy. Over the succeeding months, the mission of the publication broadened to encompass political satire as well, and it brought on a number of high-profile names from the New York digital scene, including deputy editor Alex Pareene, formerly of Salon; Laura Dawn, a digital video producer who formerly worked with Moveon.org; and Edith Zimmerman, founding editor of the Hairpin.

"Journalists should be dark, funny, mean people," Taibbi told New York in an interview in March. "It's appropriate for their antagonistic, adversarial role."...MORE

Queen Uses Twitter, Stock Collapses (TWTR)

On Oct. 24 the wires were humming with news  the Queen of England had made her first tweet.
Which was followed by the news she got trolled 4 minutes later.

Less widely reported is the fact that Elizabeth Regina was the last adult on earth who had yet to make the social-media-or-not decision.

Peak Twitter if you will:
http://ftalphaville.ft.com/files/2014/10/Screen-Shot-2014-10-28-at-16.49.31.png
From FT Alphaville:

If you monetise it, they will leave
The Twitter paradox in chart form:


That’s on the back of news that the social media network’s closely watched measure of engagement slid 7 per cent, despite growth in its user count of 23 per cent.

As Reuters reported on Tuesday that solidifies a pretty crappy month for the 140 word character propagator:

Oct 28 (Reuters) – Twitter Inc’s TWTR.N efforts to improve user engagement and growth rates are taking longer than expected to gain traction, prompting a wave of rating and price target cuts on the stock.
Twitter’s shares fell 14 percent to a near four-month low of$41.80 in early trading on Tuesday. Up to Monday’s close, the stock had already fallen about 24 pct this year....
...MORE 

Are Economists Ready for Income Redistribution?

First off, we'll have to determine Piketty's royalties, then...*
Oh wait.
From the Fiscal Times:
When the Great Recession hit and it became clear that monetary policy alone would not be enough to prevent a severe, prolonged downturn, fiscal policy measures – a combination of tax cuts and new spending – were used to try to limit the damage to the economy. Unfortunately, macroeconomic research on fiscal policy was all but absent from the macroeconomics literature and, for the most part, policymakers were operating in the dark, basing decisions on what they believed to be true rather than on solid theoretical and empirical evidence. 
Fiscal policy will be needed again in the future, either in a severe downturn or perhaps to address the problem of growing inequality, and macroeconomists must do a better job of providing the advice that policymakers need to make informed fiscal policy decisions. 
Why was there so little attention to fiscal policy issues in the macroeconomics literature prior to the Great Recession? Why didn’t we have any idea, for example, of what government and tax multipliers are at the zero lower bound? Are they near zero as some people claimed, or, as others believed, much, much larger? Are expenditure multipliers bigger than tax multipliers?


Source: The New York Times
There are two reasons for the lack of attention to fiscal policy. First, many prominent macroeconomists – in large part those in control of which questions are considered interesting enough to warrant publication in the best journals – believed that the problem of large financial meltdowns of the type that led to the Great Depression had been solved.
There was no need to study fiscal policy, monetary policy alone would be enough to counter the mild fluctuations associated with the new era known as the Great Moderation (which many macroeconomists believed had been brought about by improvements in monetary policy, i.e. by their own research on these issues). Second, it would be a waste of time to study fiscal policy in any case since ideological differences in Congress prevented fiscal policy measures from being implemented....MORE
*Being a best-selling author isn't all that it used to be.
If Piketty earned 15% of the $35 cover price on the 200,000 copies sold, that works out to a bit over a million bucks.

Even at a 90% tax rate I don't think he's paying enough.
Oh wait...

What Do You Really Think About Silicon Valley's .01%? (GOOG; FB)

From New Geography:

Silicon Valley's Chips off the Old Block 
Silicon Valley long has been hailed as an exemplar of the American culture of opportunity, openness and entrepreneurship. Increasingly, however, the tech community is morphing into a ruling class with the potential for assuming unprecedented power over both our personal and political lives.

Rather than the plucky entrepreneurs of legend, America’s rising tech oligarchy constitutes a narrow emerging elite. They are primarily beneficiaries of the limited pools of risk capital – nearly half of which is concentrated in Silicon Valley. They also have access to a highly incestuous club of skilled professional managers, lawyers, PR mavens and accountants that counterparts elsewhere are unlikely to enjoy.

In contrast to the intense competitive environment that defined industries such as semiconductors, disc drives and personal computers in the 1980s, today’s “lords of cyberspace,” as author Katherine MacKinnon describes them, enjoy oligopolistic market shares that would thrill the likes of John D. Rockefeller. Google, for example, accounts for more than two-thirds of the market for Internet search. The fantastic wealth amassed by Bill Gates, like that of the other oligarchs, stems in large part from these kinds of “monopoly” rent; in his case, for consistently mediocre but dominant software.

Of course, these oligarchs, like feudal lords or rival gangs, sometimes fight among themselves, say, Google versus Apple over operating systems or, increasingly, over hardware segments of the industry. Yet, this struggle between oligarchs is far from a competitive free for all: Together, these two firms provide almost 90 percent of the operating systems for smartphones.

Faux Progressivism
Normally, progressives would be expected to decry such concentrations of wealth and power. But Silicon Valley has largely insulated itself from such criticism by taking “progressive” policy stances, notably on climate change, and by cultivating both a “hip” image and close ties to the Obama administration. When Steve Jobs died in 2011 during the Occupy Wall Street movement, the passing of this brilliant, but often ruthless, 0.00001 percenter was openly mourned as if he was a counterculture hero.

But this should not mask the fact that Silicon Valley entrepreneurs have turned out to be every bit as cutthroat – and odious to the individual – as any industrial group in modern American history. As technologist and author Jaron Lanier has suggested, the current oligarchical ascendency rests not on improving productivity or sparking broad-based growth, but mining the private lives of every consumer in order to reap riches from advertisers.

Google, while a prime offender, is hardly alone in pursuing violations of privacy. Consumer Reports has detailed Facebook’s pervasive, and often deepening, privacy breaches. Ironically, as one blogger noted, even as Facebook has been loosening privacy restrictions for teenage users of its site, company founder Mark Zuckerberg acquired property around his Palo Alto estate to better-protect his privacy.

Once seen as a liberating force, the social media firms are morphing into an overweening Big Brother. Apple’s new devices, the tech publication Wired recently noted, are aimed at “building a world in which there is a computer in your every interaction, waking and sleeping.” The ambition for control is remarkable. As Google’s Eric Schmidt put it: “We know where you are. We know where you’ve been. We can, more or less, know what you’re thinking about.”...MORE

Felix Dennis on "What Is the Magazine Business?"

Via Alpha Ideas:
What is the magazine, business?
It is a business where our main, activity is chopping down millions and millions of trees, flattening the pulp and printing hieroglyphics and images on both sides of it. Then we send the end product out in diesel-guzzling trucks to shops where perhaps 60 per cent of them sell to customers. We then pile the remaining, unsold magazines into more diesel-guzzling trucks and take them to a plant where they are either consumed as fuel, buried or shredded, or used to make cardboard boxes for refrigerators. That’s the magazine business. 
-Felix Dennis
We were fans of Mr. D:

Felix Dennis, a Hedonist and Media Magnate, Died on June 22nd aged 67
“If it flies, floats, or fornicates, rent it. It’s cheaper.”
Some Advice for Our Younger Readers: How to Get Rich
"New or rapidly expanding industries, whether glamorous or not, very often provide more opportunities to get rich than established sectors. The three reasons for this are availability of risk capital, ignorance and the power of a rising tide. 
Investors are drawn to emerging industries in the hope of making a fast buck. To get rich you will need capital and to acquire capital you need to be where loose capital is searching for a home."
-Felix Dennis, How to Get Rich, pp 47

 From The Economist:


Columbia University Business School's Graham & Doddsville's Fall 2014 Issue Is Out

Via Value Investing World:
Graham & Doddsville's Fall 2014 Issue (LINK)
The new issue features Wally Weitz of Weitz Investment Management, Guy Gottfried of Rational Investment Group and the team at Development Capital Partners.  Additionally, you will find pictures from the 2014 “From Graham to Buffett and Beyond” Dinner in Omaha, news about the recently launched 5x5x5 Student Value Investing Fund and two investment ideas from CBS students.
HT: Value Investing World's linkfest

We are fans.
Previously:
Spring 2012 Graham and Doddsville Newsletter: Jim Chanos, Julian Robertson et al
Graham & Doddsville: Gotham Capital's Joel Greenblatt on Cash Flow, Short Selling and Genius
Columbia's Business School: Graham and Doddsville Spring 2013 Newsletter and Warren Buffett on the 50th Anniversary of "Security Analysis"
Warren Buffet's Columbia University Talk Upon the 50th Anniversary of 'Security Analysis' (he doesn't seem to have much use for EMH)

China Loves Australian Beef (and cattle ranches)

From The Land:
Chinese covet cattle stations
CHINA'S ravenous demand for Australian beef could soon lead to some major cattle station purchases, with one of ­several Chinese importers, Snow Dragon Group, looking to buy land.

Snow Dragon, owned by the Xuelong Industrial Group based in Dalian in northern China, has been importing about $7 million worth of high-grade chilled Angus beef from Australia every year for the last three years.

It is one of many that have seen the dollar value of Australian beef and veal exports to China surge 3273 per cent in the past five years, according to Meat and Livestock Australia.

Snow Dragon director of quality management Chen Hong, who oversees a 10,000-head feedlot in Dalian, said the company wanted to rapidly expand and "co-operate in a closer way" with Australia.
"Because supply is less than demand we had to start importing beef from Australia," Mr Chen said through an interpreter. "We hope we can import more beef from Australia.

"We have a plan to purchase ­farmland in Australia soon. The details are to be decided by the board."...MUCH MORE
HT: farmlandgrab

More Goldman on Oil and a Correction on the Stimulative Effects of Oil Price Declines

In yesterday's "Oil Shows Some Resiliance (today)" I said "The stimulative effects of lower oil prices are immense, maybe two trillion dollars". That number is too high.
I did three things that raised the number:

1) Even though I knew it to be lower I used a mental shorthand of 100 MM bbl/day for world consumption.
A quick glance at our BP Statistical Review of World Energy 2014 gives us a figure of 91.3 million bpd for 2013 with the IEA guess for 2014 at 92.4 MM B/D.

2) I assumed a $70/bbl price for WTI. That hasn't happened yet and while we think it will happen it is possible oil may never again trade that low.

3) I inflated the second order effects of the price decline.
One of the areas these effects are most apparent is foodstuffs where energy is a major input cost, especially in the growing of row crops and then in the transportation of the raw commodity, the transport of any intermediate goods and the cost of moving the final product to your favorite restaurant or grocery store.
Still, I jacked the worldwide number by around $400 Bil.

The combination of these three errors, especially because they all move in the same direction, is on the order of $600-800 billion per year. For now it is probably best to stick with October 16's "Citigroup Sees $1.1 Trillion Stimulus From Oil Plunge".

On the plus side it appears this bit from yesterday's post may be happening:
...After trading down to a better-than-two-year-low $79.44 the front future WTI is now only down 26 cents from today's settle, at $80.74. We're going lower but you may see a bit of a short squeeze this week....
WTI December's $81.51 up 51 cents so far.
Then again it may just be an artefact of a slightly stronger dollar.

From FT Alphaville:
Why Saudi Arabia’s best bet may be to increase output
In their latest oil note, Goldman Sachs describe the oil market as having a “dominant firm/competitive fringe” structure, in contrast to say a monopolistic or perfect competition structure.
This is basically the description of an oligopoly, in which a dominant firm (for decades, Saudi Arabia) only differs from a monopolist in one key aspect…
… when deciding on production it must take into account not only the market demand curve (as a monopolist does) but also the reaction of the competitive fringe producers to its production decisions.
The structure results from the fact that no single entity is ever likely to be able to service the entire market by itself, meaning full monopoly is not desirable, since the consequences of failing to provide the market with the supply it needs may be even more undesirable than being able to control the market.

As a result, the strongest player never has an incentive to push prices to a level that may encourage new competition in, nor does it have an incentive to allow prices to drop below the break-even levels of competitors. It’s primary incentive instead is to protect as steady a revenue stream it can given its position as the provider of the marginal barrel. And that involves hedging.

Hence the need, as Goldman Sachs notes, to base prices on the strongest player’s marginal cost curve:
From this ‘residual’ demand curve we now calculate the marginal revenue curve and equate it to the dominant firm’s marginal cost (or supply) curve. Equating these two functions is exactly how the monopolist behaves, with the key exception that the monopolist did not have to first account for fringe producers. With the dominant firm’s supply decided, the competitive fringe firms will supply the remaining quantity demanded at the prevailing price level (Pdominant)....MORE
See also:
Oil: Goldman Lowers Forecast, Brent and WTI Both Down

Sardinians Want Rome to Sell Them to the Swiss

From Marginal Revolution:
Sardinians who want to be a Swiss Charter-City Island Most secessionist movements want independence. But a small group in Sardinia, the beautiful island off Italy’s coast has another idea for secession. Angered by a system they say has squandered economic potential and disenfranchised the ordinary citizen, they have had enough.

sardinia-at-duskThey want Rome to sell their island to the Swiss.

 “People laugh when we say we should go to become part of Switzerland. That’s to be expected,” said Andrea Caruso, co-founder of the Canton Marittimo (Maritime Canton) movement. While many have dismissed the proposal as a joke, its supporters insist they are serious.

“The madness does not lie in putting forward this kind of suggestion,” said Caruso.
“The madness lies in how things are now.”...MORE

Monday, October 27, 2014

"Why The Fed Will End QE On Wednesday"

As noted en passant in the post immediately below.
From ZeroHedge:
This week we will find out the answer to whether the Federal Reserve will end its current quantitative easing program or not (click here for more discussion on this issue). Today is the last open market operation of the current program, and my bet is that it will be the last, for now. Here are my three reasons why I believe this to be the case.

1) Much Smaller Deficit Restricts Treasury Bond Issuance

Over the last few years, the Federal deficit has shrunk markedly as infighting between Republicans and Democrats has restricted government spending to a large degree while taxes were increased across a broad spectrum of American taxpayers. The good news is that the U.S. government is closer than in many years to running a balanced budget, although it is has been more by accident rather than through a logical approach of budgeting and waste reductions. The bad news is that deficit spending has been a major contributor to economic growth in the past and the reduction of such has been a drag on economic growth recently.
The chart below shows the level of federal spending, revenue and the deficit. I have added the Federal Reserve's balance sheet which has been a major buyer of U.S. debt in recent years.
Deficit-FedBalanceSheet-102714
One of the reasons, as I explained previously, that the Federal Reserve will allow the current QE program to conclude is because the shrinking deficit is reducing the number of bonds being sold by the Treasury.
"But in the economic recovery phase, the federal deficit commenced shrinking sooner than the Fed commenced tapering. There reached a point at which the Fed was acquiring more than 100% of the net new issuance of US government securities. At that point, the Fed's buying activity was withdrawing those securities from holders in the US and around the world. Essentially the Fed was bidding up the price and dropping the yield of those Treasury securities, and it was doing so in the long-duration end of the distribution of those securities.

The Fed has taken the duration of its assets from two years prior to the Lehman-AIG crisis all the way out to six years, which is the present estimate. It is hard to visualize the Fed taking that duration out any farther. There are not enough securities left, even if the Fed continues to roll every security reaching maturity into the longest possible available replacement security."
The chart below illustrates this point.
Fed-Balance-Sheet-Treasury-Issuance-102714
As you can see, the net change to the Federal Reserve's balance sheet swelled during each of the quantitative easing programs. The liquidity supplied flowed into the financial markets driving asset prices higher.  Importantly, notice the extreme level of balance sheet expansion during QE 3 which caused assets to surge in 2013. However, since the beginning of 2014, the balance sheet expansion has markedly slowed and along with it the inflation of asset prices.
Importantly, with the Treasury issuing fewer bonds due to reduced funding needs, the Federal Reserve can not keep the current pace of purchases going without the risk of potentially creating a liquidity problem within the credit markets. I am quite sure that the Federal Reserve is aware of this issue which is why, despite many bumps in the market this year, they have continued their pace of reductions without pause.
For investors this is critically important to understand, as shown above, there is a very important correlation between the Fed's QE programs and the liquidity flows that support asset prices. As that liquidity push is extracted from the financial markets, there will be a corresponding increase in market volatility. "Tapering" is in effect a "tightening" of monetary policy which historically slows the growth rate of asset prices.

2) Not Ending Program Could Send Wrong Message On Economy

Boston Federal Reserve President, Mr. Rosengren, recently stated that: the Fed's asset purchases have achieved their stated goal, the jobs report for September is already in and his economic forecasts have not changed....MORE

Oil Shows Some Resiliance (today)

At the moment oil is probably the most important story in the global economy.
The stimulative effects of lower oil prices are immense, maybe two trillion dollars, and more important than anything the central bankers are up to, for now anyway.
(QE ends Wednesday)

After trading down to a better-than-two-year-low $79.44 the front future WTI is now only down 26 cents from today's settle, at $80.74. We're going lower but you may see a bit of a short squeeze this week.

From CNBC:
After dipping below $80 per barrel, crude oil settles a penny lower, at $81
U.S. oil prices settled modestly lower on Monday after touching a 28-month low earlier after Goldman Sachs slashed its price forecasts amid further signs of lackluster demand and booming supply.

Weaker-than-expected U.S. pending home sales data at mid-morning sent the dollar index lower, pepping up dollar-denominated commodity markets across the board.

Goldman Sachs cut its forecast for Brent to $85 a barrel from $100 for the first quarter of 2015 and reduced its projection for U.S. crude to $75 from $90, making it the most bearish bank on Wall Street.

U.S. crude for December settled 1 cent lower at $81.00 per barrel, having earlier touched a low of $79.44, its lowest level since June 2012.

Brent for December fell to a low of $84.55 but also partially recovered.

"As we sold off (in early trade), pending home sales came out which misses expectations so the U.S. dollar came off and some buyers stepped in," said Bill Baruch, senior market strategist at futures for iitrader.com LLC in Chicago.

Baruch said the overall sentiment for crude was still bearish however, and forecast $75-$77 in U.S. crude...MORE
Earlier:
Oil: Goldman Lowers Forecast, Brent and WTI Both Down

Magicians, Mafiosos, a Missing Painting, and the Heist of a Lifetime

From Medium:

Pipino: Gentleman Thief
Venice was built to confuse. The floating Italian city has few straight lines: Each cobblestoned footpath veers and twists, the buildings lean, and small bridges vault sideways. For tourists, it’s like entering a labyrinth. Locals have tried to help, scrawling arrows on the walls. They are supposed to point to San Marco Square, the city’s most prominent attraction, but sometimes the arrows point in opposite directions.
The beauty is that it doesn’t really matter. Somehow, everybody ends up in San Marco anyway, as if by magic. Befuddled tourists emerge from narrow alleys and abruptly find themselves standing on the edge of a grand square with a towering 323-foot-tall bell tower. To get some perspective on the mystery, many visitors ride the elevator to the top of the tower. On the observation platform, they can use coin-operated telescopes to scan the vast medieval tangle of waterways, churches, and tiny, hidden piazzas.

But on an afternoon in the spring of 1991, a well-dressed Italian man was monopolizing the single west-facing telescope, preventing anyone else from getting a good look at Dorsoduro, Santa Croce, and San Polo, the wealthy neighborhoods on the far side of the Grand Canal. Vincenzo Pipino was attractive in a classic Italian way, which is to say he wasn’t good looking at all. He had prominent moles, a high forehead, and slicked back hair, but he radiated a sense of confidence, as if he owned the entire city. In a way, he did. He had robbed many of the buildings he was looking at, and had cased most of the others.

To the southwest, there was the Palazzo Barozzi, a charming, five-story Baroque building at the entrance to the Grand Canal. Count Barozzi had hired Pipino to steal art from his fellow aristocrats and, as a result, had an attractive collection of masterworks. Further up the canal stood the Ca’ Dario, a fifteenth-century marble-fronted palazzo leaning slightly to one side. Periodically, a new owner bought the place and filled it with fine art, apparently unaware that the building was cursed. Many of its owners over the centuries have been murdered, driven insane, or gone bankrupt after buying the place....MORE

Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 9: Marc Andreessen on "How to Raise Money"

Jumping ahead here, back to lectures 7 & 8 in a couple days.
From Stanford University:


Annotated transcript

The recommended readings for Lecture 9:
Marc Andreessen — “Why Software Is Eating The World”
Paul Graham — “How To Convince Investors”
Paul Graham — “How To Raise Money”
Reid Hoffman — “LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs”

Previously:
Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 6: Growth
Peter Thiel at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 5
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 4
Paul Graham at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 3
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture Two
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture One 

RIP, NYC's Middle Class: Why Families are Being Pushed Away From the City

From New Geography via The New York Daily News:
As wages stay flat and the cost of living keeps rising, we’re no longer a city of opportunity
Mayor de Blasio has his work cut out for him if he really wants to end New York’s “tale of two cities.” Gotham has become the American capital of a national and even international trend toward greater income inequality and declining social mobility.

There are things the new mayor can do to help, but the early signs aren’t promising that he will be able to reverse 30 years of the hollowing out of the city’s once vibrant middle class.

As the cost of living has skyrocketed while pay has stagnated except for those at the very top, New York has shifted from a place people go to make it to a place for those who already have it made, or whose families have.

And once here, the rich are indeed getting richer even as the rest of the city is barely holding on.

Manhattan is now the most unequal county in America (it was 17th in 1980), with a Gini coefficient — which measures the disparity between the richest and poorest residents — higher than that of Apartheid-era South Africa.

Between 1990 and 2010, the city’s 1% saw their median income shoot up from $452,415 to $716,625 in 2010 dollars, even as the bottom 60% hardly saw their incomes budge at all, according to a recent City University study. The trend precedes Michael Bloomberg, the billionaire mayor who envisioned New York as a “luxury city,” and it won’t be easy for de Blasio to reverse — especially as he rolls out pricey new public-employee contracts and programs like universal pre-K that further expand the city’s dependence on its wealthiest citizens.

In 2009, the 0.5% of New Yorkers who made $1 million or more accounted for 27% of the city’s income (nearly three times their share nationally), and an even higher share of its tax take. But while the smart set that attends President Obama’s frequent Manhattan fundraisers has prospered, in no small part thanks to low-interest Federal Reserve policies that have helped big banks more than working people, just across the Harlem River roughly one in three Bronx households lives in poverty — making it the nation’s poorest urban county.Over the Bloomberg years, New York was the national leader in both luxury housing and in homelessness — with a 73% jump in the number of homeless families here. Last January, an unprecedented 21,000 children were in the city’s shelter system each night. This year, that number is rising.

And as the city becomes more economically unequal, it’s also become more racially segregated.

Demographer Daniel Herz’ census analysis shows New York is now America’s second most racially divided city, behind only Milwaukee.African-American incomes in New York are barely half those of whites, as compared to nearly 70% in Phoenix and Houston....MORE
Probably related, yesterday's note in "San Francisco Is Smarter Than You Are":
And probably more racist.
 Depending on the source, San Francisco's population is between 6.0 and 6.6% black vs. 14.2%  for the country as a whole. S.F. city and county use zoning laws to keep black folks out.
The same goes for Seattle and Portland. Someone should do a story on it....