Natural Gas: Psst, I'm Going to Give You Just One Word: Tanzania (APC)

Natural gas at $2.354 getting you down, bunky?
Looking for another game? Expand your horizons! Look at things from a different point of view!
Remember November 2010's "India Orders Firms to "Scour the Earth" for Energy Supplies as President Obama Heads Over"?

The Chinese approach works best if you have a blue water navy.
The Indian's currently have one aircraft carrier, the Viraat. Back in 2001 the Chinese bought a Soviet carrier from Ukraine for $20 mil. and said they were going to turn it into a, aahhh, casino, yeah that's the ticket. They've since started work on two more.
I have a hunch that American schoolkids today will be hearing a lot about the Indian Ocean before they graduate and might even be able to find it on a map.*...
...*I mean come on, just look at the land masses that border it:

Here's one more reason to think that area will be in the news and why you might want to nail down that LNG carrier lease.
From Resource Investor:

The vast majority of investors are dead wrong when it comes to natural gas. It is no fault of their own, though. It's the product of a dishonest government and an industry that is scared for its life.
Here's the truth.

America is not the king of natural gas. Nobody is.

Sure, we've got a ton of gas. It's more than enough to transform our entire energy industry. But Europe has just as much, if not more – Poland is quickly becoming a gas dominator.
It's the same situation in South America. China, too.

Don't forget Australia is about to become the world's largest gas exporter. And even though it refuses to admit it (that's another great story), Russia would be awash with gas if it opened its arms to fracking.
My guess, though, is Africa will be the eventual dominator.
Take Tanzania, for instance. Global watchdogs have warned the country to prepare for a flood of foreign cash in the next few years. They say massive sums of money will change hands as drillers work to tap a reserve believed to hold 60 trillion cubic feet of natural gas.

This vast supply has caught the eyes of the industry big boys... BP, Petrobras, Statoil, Exxon Mobil and Shell are spending big money in the region. There are already plans for 23 new wells this year.

Some of those wells will be dug in Tanzania's southern neighbor, Mozambique. The country has a GDP of just $9.9 billion... yet it sits on a gas reserve worth an estimated $800 billion.

If you're wondering who's the big player in the region, I'll solve the mystery. It's Anadarko (APC:NYSE) – the same company fighting to maintain its profits in the oversupplied Marcellus region.

While so many investors focus on America's gas boom, the prospectors at Anadarko say Africa's east coast is "one of the most important natural gas fields discovered in the last 10 years."
After announcing another big find last fall, Anadarko revealed its plans for a one-of-a-kind LNG export terminal off of Africa's coast. It's more proof this is a big wrinkle in the American gas dream.
Anadarko says it can pull 30 trillion cubic feet of gas from the region. For comparison, drillers say they can recover about 50 trillion cubic feet from the Marcellus region. But thanks to news last week... even that figure is questionable.

Most investors thought the news that Chesapeake Energy (CHK:NYSE) cut its gas production was the reason natural gas prices jumped. The truth is a quiet report out of the Energy Information Agency spooked the market....MORE

Mitt Romney and the Greenspan Put

The 1980's economic backdrop was perfect for LBO's.
A high but declining interest rate allowed financial operators the maximum advantage when exploiting the differential tax treatment of debt and equity. Throw in the cash-flow multiple contraction from the discounting formulae and there you go.


So the market responded.
From Macroeconomic Resilience:
Private Equity and the Greenspan Put

Mitt Romney’s campaign for the Republican nomination for the US Presidential election has triggered a debate as to the role of private equity (PE) in the economy. The critical of the private equity industry tend to focus on their perceived tendency to layoff employees and increase leverage. Regarding layoffs, there is very little evidence that PE firms are worse than the rest of the corporate sector. However, this does not imply that their role is entirely positive. But it does imply that the excesses of PE mirror the excesses of the larger economy during the neoliberal era. This is obvious when the role of leverage is examined. As Mike Konczal notes, “something did change during the 1980s, and LBO was part of this overall shift.” The road that started with LBOs in the 1980s ended with the rash of dividend recapitalisations between 2003–2007, a phenomenon that has even resurfaced post the crisis.

It is easy to find proximate causes for this dynamic and commentators on both sides of the political spectrum attribute much of the above to the neo-liberal revolution – the doctrine of shareholder value maximisation, high-powered managerial incentives, a drive towards increased efficiency etc. The acceleration of this process in the last decade usually gets explained away as the inevitable consequence of a financial bubble with irrationally exuberant banks making unwise loans to fuel the leverage binge. But these narratives miss the obvious elephant in the room – the role of monetary policy and in particular the dominant monetary policy doctrine underpinning the ‘Great Moderation’ which focused on shoring up financial asset prices as the primary channel of monetary stimulus, otherwise known as the ‘Greenspan Put’. All the above proximate causes were the direct and inevitable result of economic actors seeking to align themselves to the central banks’ focus on asset price stabilisation.
As I elaborated upon in an earlier post:

creating any source of stability in a capitalist economy incentivises economic agents to realign themselves to exploit that source of security and thereby reduce risk. Similar to how banks’ adaptation to the intervention strategies preferred by central banks by taking on more “macro” risks, macro-stabilisation incentivises real economy firms to shed idiosyncratic micro-risks and take on financial risks instead. Suppressing nominal volatility encourages economic agents to shed real risks and take on nominal risks. In the presence of the Greenspan/Bernanke put, a strategy focused on “macro” asset price risks and leverage outcompetes strategies focused on “risky” innovation. Just as banks that exploit the guarantees offered by central banks outcompete those that don’t, real economy firms that realign themselves to become more bank-like outcompete those that choose not to…….When central bankers are focused on preventing significant pullbacks in equity prices (the Greenspan/Bernanke put), then real-economy firms are incentivised to take on more systematic risk and reduce their idiosyncratic risk exposure.

The focus on cost reduction and layoffs is also a result of this increased market-sensitivity combined with the macro-stabilisation commitment encourages low-risk process innovation and discourages uncertain and exploratory product innovation. The excesses of some forms of private equity are often instances in which they apply the maximum possible leverage to extract the rents available via the Greenspan Put. Dividend recaps are one such instance.
James Kwak summarises the case of Simmons Bedding Company:

In 2003, for example, THL bought Simmons (the mattress company) for $327 million in cash and $745 million in debt. In 2004, Simmons (now run by THL) issued more debt and paid a $137 million dividend to THL; in 2007, it issued yet more debt and paid a $238 million dividend to THL. Simmons filed for bankruptcy in 2009.

The obvious question here is why banks and financial institutions would lend so much money and allow firms to lever up so dramatically. Kwak lays the blame on the financial bubble, principal-agent problems, bankers bonus structures etc....MORE

Are Economists Selfish? A Review of the Literature

From The Stand-Up Economist:

Econlib’s previous discussion of my NYT op-ed was sidetracked, so in the interest of bringing the focus back to the question of whether or not economists are selfish and (if so) whether economics educations makes them so, I am offering up a selected lit review. I do not claim that this lit review is complete or unbiased, but I do claim that it will make you think twice about dismissing my work. More comments from me at the bottom, and for even more on the existing literature I recommend the discussions in Frey and Meier (2003), Wang et al. (forthcoming)—both discussed below—or my peer-reviewed journal article with Elaina Rose.

Marwell and Ames, 1981. “Economists free ride, does anyone else?” Journal of Public Economics 15: 295-310. They conducted a public-goods game by giving individuals 250 “tokens” and asking them how many tokens they wanted to invest on an “individual exchange” versus a “group exchange”; payoffs were set up to create a tragedy-of-the-commons situation, i.e., each individual can maximize their own payoff by free-riding, but if everybody invests in the group exchange then everyone is better off than if everybody invests in the individual exchange. They found that contributions to the group exchange from economics graduate students were about half those from others (20% versus 41%). They also asked questions about “fairness” and noted: “There was surprising unanimity of thought [among everyone except the econ grad students] regarding what was considered fair… [In contrast, m]ore than one-third of the economists either refused to answer the question regarding what is fair, or gave very complex, uncodable responses. It seems that the meaning of ‘fairness’ in this context was somewhat alien for this group. Those who did respond were much more likely to say that little or no contribution [to the group exchange] was ‘fair’. In addition, the economics graduate students were about half as likely as other subjects to indicate that they were ‘concerned with fairness’ in making their investment decision.”...

...B. Frank and Schulze, 2000. “Does economics make citizens corrupt?” Journal of Economic Behavior and Organization 43:101-113. Their experiment involved giving students an opportunity to receive a bribe (up to a maximum of about $72) for recommending a plumber. Of the 190 students sampled, one name was randomly chosen to actually receive whatever bribe they had designated: “In this paper, we report on an experiment on corruption which investigates various determinants of corruptibility. We found that economics students are significantly more corrupt than others, which is due to self-selection rather than indoctrination.”

Frey and Meier, 2003. “Are political economists selfish and indoctrinated? Evidence from a natural experiment”, Economic Inquiry 41:448-462. This study is very similar to my work with Elaina Rose in that it looks at donations by students, in this case at the University of Zurich, where students are asked if they want to donate small sums to “a fund that offers cheap loans to needy students” and/or “a second fund supporting foreigners who study at the University of Zurich.” They find that “[p]olitical economists (to use the classical term) are not more selfish than the average student, but students of business economics are” and that “[the] higher level of selfishness of business students is due to self-selection, not indoctrination.”...MORE 

The London to Shanghai Copper Pipeline

FT Alphaville has been on top of various aspects of this story for going on a year now. Here's a JP Morgan snapshot via Sober Look:

Copper inventories shift from LME to SHFE

 

Copper inventories Thousand metric tonnes 

(source: JPMorgan)

...MORE

"Blaming Capitalism for Corporatism"

From Project Syndicate:

The future of capitalism is again a question. Will it survive the ongoing crisis in its current form? If not, will it transform itself or will government take the lead?


The term “capitalism” used to mean an economic system in which capital was privately owned and traded; owners of capital got to judge how best to use it, and could draw on the foresight and creative ideas of entrepreneurs and innovative thinkers. This system of individual freedom and individual responsibility gave little scope for government to influence economic decision-making: success meant profits; failure meant losses. Corporations could exist only as long as free individuals willingly purchased their goods – and would go out of business quickly otherwise.

Capitalism became a world-beater in the 1800’s, when it developed capabilities for endemic innovation. Societies that adopted the capitalist system gained unrivaled prosperity, enjoyed widespread job satisfaction, obtained productivity growth that was the marvel of the world and ended mass privation.

Now the capitalist system has been corrupted. The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system, however, is not capitalism, but rather an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism....MORE

One of the authors has some of those Nobel tchotchkes.

"Iran warns currency speculators as rial continues to fall"

In war-time, truth is so precious that she should 

always be attended by a bodyguard of lies

-Winston Churchill

From the Washington Post:

Faced with a plummeting currency in the wake of toughened international sanctions, Iran is cracking down on black-market money changers and warning that major speculators could face execution.

The crackdown comes as Iranian authorities are struggling to stabilize the rial, which has nosedived amid announcements of new U.S. and European sanctions against Iran’s central bank and oil exports.

As a warning to speculators, several money changers working on the streets of central Tehran have been arrested by undercover police officers pretending to be desperately seeking foreign currency.

In addition, the hard-line chief of Iran’s judiciary, Ayatollah Sadegh Amoli Larijani, threatened Wednesday to seek the death penalty for major speculators. Speaking about the unrest in the foreign-exchange markets, he warned that “depending on the importance of their crimes, some of the economic corrupted can face execution,”...MORE

Why the Clean Tech Boom Went Bust

First Solar IPO $20.00 Nov. 17, 2006.
Top tick $317.00 May 14, 2008.
Last $42.93.

Yeah, that's a boom, bust cycle.

From Wired:

Wind Power: Plummeting natural gas prices now make this option comparatively expensive.
Photo: Dan Forbes

John Doerr was crying. The billionaire venture capitalist had come to the end of his now-famous March 8, 2007, TED talk on climate change and renewable energy, and his emotions were getting the better of him. Doerr had begun by describing how his teenage daughter told him that it was up to his generation to fix global warming, since they had caused it. After detailing how the public and private sectors had so far failed at this, Doerr, who made his fortune investing early in companies that became some of Silicon Valley’s biggest names—Netscape, Amazon.com, and Google, among others—exhorted the audience and his peers (largely one and the same) to band together and transform the nation’s energy supply. “I really, really hope we multiply all of our energy, all of our talent, and all of our influence to solve this problem,” he said, falling silent as he fought back tears. “Because if we do, I can look forward to the conversation I’m going to have with my daughter in 20 years.”

As usual, Doerr’s timing was perfect. Just weeks earlier, Al Gore’s An Inconvenient Truth had won an Oscar for best documentary. (Gore is now a partner in Doerr’s green tech team at the VC firm Kleiner Perkins Caufield & Byers.) Interest in climate change had never been higher. And as the economy recovered from the dual shocks of the Internet bubble and 9/11, Doerr’s fellow Silicon Valley VCs were already looking to clean technology as the next big thing. What followed was yet another Silicon Valley gold rush, as the firms on Sand Hill Road were pulled along by the promise of new fortunes and the hope that they would be the ones to wean America off of fossil fuels. The entrepreneurs and tech investors who had transformed media and communications were ready to make Silicon Valley the Saudi Arabia of clean energy.
Never mind the fact that green technology had been struggling to achieve critical mass for decades. “You had folks who came in with the hubris to say, ‘I know these guys have been working on this for 50 years,’” says Andrew Beebe, chief commercial officer for Suntech, the Chinese solar manufacturer. “‘But I’ve got $50 million and I can blow the doors off this thing.’”

In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr’s speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom.

Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors—including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China’s ascendant solar industry, and certain technological realities—the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector—wind, biofuels, electric cars, and fuel cells—but none more dramatically than solar.

Doerr’s TED talk wasn’t the start of this VC-fueled drive for a new-energy economy. Rather, it was a product of a transformation that was sweeping Silicon Valley. Many of the investors and entrepreneurs who had ridden the Internet bubble to various levels of success had already started pouring money and ideas into clean tech.

One of the first to bet big was Martin Roscheisen. He sold his email-management firm eGroups to Yahoo for $450 million, and in 2002 he cofounded Nanosolar, a panel manufacturer. But that was just the beginning. Vinod Khosla, cofounder and former CEO of Sun Microsystems, moved his VC firm, Khosla Ventures, heavily into biofuels and other renewables. Beebe, cofounder of the dotcom-era darling Bigstep.com, a web-hosting company, helped start the solar panel maker Energy Innovations in 2003. Arno Harris, who had helped steer what he now calls “an Amazon-Kleiner Perkins online wine store that left a big hole in the ground,” worked with Beebe at a subsidiary of Energy Innovations before founding Recurrent Energy, a company that develops utility-scale solar projects, in 2006. And PayPal cofounder Elon Musk has put $96 million of his own money into the electric-car startup Tesla Motors and was joined by well-known VCs Steve Jurvetson and Nancy Pfund.

In 2008, by which time Kleiner Perkins had allocated more than $300 million to clean tech, the firm launched a $500 million growth fund that it said was “intended to help speed mass-market adoption of solutions to the world’s climate crisis.” Doerr, who told Forbes that curbing climate change was “the largest economic opportunity of the 21st century, and a moral imperative,” helped direct money to everything from solar to smart meters.

These investors were drawn to clean tech by the same factors that had led them to the web, says Ricardo Reyes, vice president of communications at Tesla Motors. “You look at all disruptive technology in general, and there are some things that are common across the board,” Reyes says. “A new technology is introduced in a staid industry where things are being done in a sort of cookie- cutter way.” Just as the Internet transformed the media landscape and iTunes killed the record store, Silicon Valley electric car factories and solar companies were going to remake the energy sector. That was the theory, anyway....MUCH MORE

Oil: "Anxious Refineries Need Closure on Capacity" (VLO; WNR; TSO)

Back in June '11 First Trust ISE  was planning their Global Oil Refiners Index Fund but nothing has come of it yet, so I punch in the symbols I know.
From the Wall Street Journal's Heard on the Street column:

Rare is the industry that rallies on news of a bankruptcy. Oil refining is one of them.

Gasoline prices have been on a tear despite U.S. demand for the fuel hitting its lowest level in a decade. Speculators have increased their net long position in gasoline futures on Nymex to the highest level since May 2010. Shares in refiner Valero Energy have rallied 14% so far in 2012.

The party starter? Swiss refiner Petroplus Holding's recent bankruptcy, as well as other announcements of refineries closing on both sides of the Atlantic. Altogether, some 1.5 million to two million barrels per day of capacity have closed or been slated for closure in recent months, according to estimates from JBC Energy, a consultancy, and Barclays Capital. Excess refining capacity globally stood at four million barrels per day at the end of 2011, according to Deutsche Bank, so a sizeable chunk of that has been taken off the table....MORE

Here's Western Refining vs. the S&P and big daddy Valero:

Western has some advantages in their feedstock prices.

"US Drought and China Lend Support to Cotton Prices"

Well duh.
Back on Dec. 15 we said:

A reasonable target would be the bottom of the chart gap in the 130 area a ~50% move from this morning's 85.680.

That wasn't our first post on cotton, we mentioned it in a climate post at 1.10 in September and again at 91.61 on Dec 30.

Here's the one year chart from FinViz, the white stuff was trading 93.89 last I saw.:

 

From Agrimoney:

Cotton prices, which on Tuesday closed at a 2012-low, could yet revive should China come good on the huge orders of the fibre it has made from the US, National Australia Bank said.

Separately, Rabobank upgraded its forecasts for cotton futures, warning that a longstanding drought in America's main southern growing areas "remains a concern".

National Australia Bank, while acknowledging that prices were likely to weaken over 2012, took issue with a common expectation that values are in for a short-term tumble.

"There is sufficient support for prices here," NAB agribusiness economist Michael Creed said, adding that "near-term upside risk is evident".

Futures could be revived by strong demand from China, which has 4.3m running bales of outstanding orders from the US for 2011-12 yet to ship – 50% more than a year ago.

'Fairly solid floor'

"Should China actually ship the large US sales [orders] it has made recently, and the US stocks situation starts to become tight, there is a risk that New York futures become focused on a relatively tight US situation," Mr Creed said.

Indeed, plugging US Department of Agriculture forecasts into a variation pricing model drawn up by the International Cotton Advisory Committee, an intergovernmental group, suggested an average price of about 112 cents a pound for the Cotlook A index of physical values, above where it has traded for much of 2011-12....MORE

Previously:
"Corn, cotton futures offer chance of hefty gains"
Cotton: "Texas Drought Could be Extended by Rare Third Year of La Niña"
Pray for Texas (and maybe buy some cotton futures): "Historic La Nina imminent?"

"The 3 Facebook IPO risk factors that matter"

From VentureBeat

When Facebook’s S-1 filing comes out (which could be as soon as tomorrow, if you believe the Wall Street Journal), we’ll see a lot of risks in it.

The S-1 is the first and most significant document that a company fills out, and the Securities and Exchange Commission publishes, prior to an initial public offering. If it’s typical, we’ll see many boilerplate risks, such as an earthquake wiping out Facebook’s headquarters in Menlo Park, a global economic meltdown, and the world deciding en masse that the Internet is boring. Lawyers include so many of these risks — in Groupon’s S-1, the risks section went on for 20 pages — that it can be hard to isolate the meaningful ones.
Here’s a look at what I believe are the three biggest risks to Facebook’s business.

The rise of mobile and Android. 
 Mobile phones will be the centerpiece of social networks. They’re already tremendously important and will become even more so. This is especially true in the developing world, where the phone may be the only device consumers use to get online.

In this space, Google has strong assets that Facebook does not. I fully expect that Google will attempt to shove Google+ down the data pipe of every Android user. Google+ will eventually come pre-installed on nearly every Android phone, much as Google Maps does today.

Google has already built some interesting features into its Google+ app. For example, although I’m not a big fan of Google+ in general, I do like the feature that automatically uploads pictures I take to Google+. From there, it’s easy to share them. The easier you can make it for people, the more they’ll use your service.

An often-overlooked asset that Google has is Google Voice. Social networks like Facebook miss a key piece of the social graph: the people you call and text. For my closest friends, I tend to text with them regularly. That is data that Facebook currently doesn’t have.

To the extent that Google can deeply integrate Google+ features into Android, it has a significant advantage.

Facebook itself is no slacker on mobile....MORE

HT: MarketBeat

Recently:

The Tiny Publicly Held Fund That Has 5% of It's Assets in Facebook

Volatility: It's Quiet Out There... (VIX; VXX)

...too quiet.

From Condor Options:
Is the Market Getting Too Quiet?

The market has not been this docile in more than eight months. The short-term volatility of the S&P 500 dipped below 10% in mid-January, and the market has kept getting quieter as stocks churn flat-to-higher. The temptation when stocks get this quiet and options become this cheap is to assume that volatility will soon revert higher. But before speculating on rockier markets up ahead, it is worth looking back at how similar markets have fared historically.

Fig. 1. SPX 10-day Historical Volatility, 2009 – 2012. Source: Condor Options

To get a sense of just how calm equity markets have been recently, compare the sub-10% historical 10-day volatility for SPX to the last few years of market history.
There have been four periods since the March 2009 market bottom during which SPX has traded with such lack of intensity. In the first three cases, market volatility touched 20% within a month or less. In the final case, stocks stayed quiet from April to July 2011 before getting rowdy for the European banking crisis....MORE

HT: FT Alphaville

See also yesterday's ""The Vix feedback loop, analysed" (VXX; TVIX; XIV; XXV)"

The Analyst Biz: Lucky or Good, the Pay's the Same (FSLR; PPO)

And some guys are both. Remember this name.
From TheStreet:

Big Alternative Energy Short of 2012 Takes One Day to Work

Well, that was fast. 

The analyst who was synonymous with the big, and very profitable, solar stock short of 2011 made a new alternative energy short call on Monday, and it's already working.

Yesterday Gordon Johnson of Axiom Capital launched coverage of shares of battery maker Polypore(PPO_) -- a play on the electric car market - with a sell rating and a $26 price target, representing 54% downside from its opening price on Jan. 30.

On Tuesday, shares of Polypore fell by 30%....MORE

"Andreessen Horowitz Raises $1.5B For Third Fund" (the Smartest Firm in the Valley or the Most Dangerous?)

Like Bain Capital, Andreessen Horowitz is also invested in the Kardashians, in AH's case by way of Kim's fashion site ShoeDazzle.
Two from peHUB:

Andreessen Horowitz has raised another whopper of a fund, the firm announced Tuesday.

The VC, as earlier reported, will bring another $1.5 billion into its coffers–coffers that have already backed some of Silicon Valley’s most prestigious startups.

One of its first deals, in Skype, proved to be a successful investment and since then, the VC has pumped cash into companies including Airbnb, Groupon and Zynga....MORE

And:

As most industry observers already know, today Andreessen Horowitz, the Sand Hill Road firm, announced it has closed on $1.5 billion in fresh capital, bringing the money raised by the firm – founded less than three years ago — to a stunning $2.7 billion.


Whether that’s good news or bad for Silicon Valley is an open question.

The firm’s LPs are clearly pleased with the direction of the firm thus far. Cofounder Ben Horowitz tells me the firm could have easily raised “$5 billion. We had guys wanting to write really big checks.”
The LPs’ zeal is understandable. While Horowitz says he “doesn’t want to overstate where we are,” he adds that according to one of the firm’s LPs, Andreessen Horowitz enjoys the second best IRR in the venture industry right now.

The firm made at least a 3x return on its $50 million investment in Skype (which sold to Microsoft last May), money that Andreessen Horowitz returned to investors....MORE

Downward Mobility: "The Millionaire Decay Function"

Continuing our traipse through feeds we read but don;t link to often enough.
From Political Calculations:

Did you know that the most downwardly mobile members of society are millionaires?
It's true, and what's more, we have the data and math to prove it!

Our featured chart today was originally produced by Veronique de Rugy of the Mercatus Institute, which is based upon data from the IRS and analysis by the non-profit Tax Foundation.

Here, the story begins in 1998, when the IRS reports that there were approximately 675,000 tax returns with adjusted gross incomes of $1 million, or more.

[Side note: The traditional definition of a millionaire was someone who had accumulated at least one million dollars in total assets. However, since the word was first documented back in 1826, the effect of inflation is such that perhaps a more modern definition would be those who earn incomes of at least one million dollars in a year. In any case, $45,000 in 1826 dollars is roughly the equivalent of $1 million in 2012, going just by changes in the Consumer Price Index.]

Then, beginning in 1999, following the tax returns filed by the same people, the number of those with incomes over $1 million begins to drop dramatically - by nearly 50% in the first year!...MORE 

The whole blog is worth a look.
He has a nice calculator that links to Professor Schiller's Cowles/S&P 500 1871-2011 database:
The S&P 500 at Your Fingertips

As I've said:

We're kind of fond of old Doc Shiller.
In addition to publishing "Irrational Exuberance" in March, 2000 with the NASDAQ hitting its all time closing high of 5048 (subsequent low 1114, how's a 78% decline grab ya?) he is the keeper of the Cowles Commission records. From one of our Forecasting Equity Returns posts:

A subject near and dear to my heart. I may be the only person I've ever met who read every page of "The Cowles Commission's Common Stock Indexes 1871-1937".
[you must be a blast at parties -ed]

Here's his Yale homepage.
And  Irrational Exuberance.
Here's Common Stock Indexes...

....My favorite tidbit is the listing, among the pre-1871 industrials, of New York Guano.
Some things never change.
Here’s Yale’s (and my) gift:
http://cowles.econ.yale.edu/P/cm/m03/index.htm
It links to a big ‘ol hog of a PDF.

Here's "New York Guano".

"Private equity flocks to foreclosed homes"

And the Kardashians.
From Marginal Evolution:

Private equity is flocking to get its share of 200,000 foreclosed homes that the government wants to sell as rentals.

Rentals produce cash flows and Oliver Chang, Morgan Stanley analyst, says that such properties yield 8.1% on average calculated from 1990.


Federal Reserve report also calculates a similar rate of return.

“Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8 percent — sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property,” says Fed paper....MORE

Bitter cold in Alaska and Europe Although Alaska's -79°F Reading is Bogus

It was only in the -65°F range.
From Wunderblog:

Bitter cold temperatures gripped much of Alaska again this morning, and the month of January is setting numerous records for coldest January on record for much of northern Alaska. According to the Fairbanks weather office, here are the likely final rankings for January temperatures at select locations in Alaska during 2012:

Nome: coldest
Kotzebue: 2nd coldest
Barrow: not in top ten coldest
Galena: coldest
Bettles: coldest
Fairbanks: 5th coldest (coldest since 1971)

A major atmospheric jet stream pattern change is underway this week, though, which will bring more seasonable temperatures to Alaska by late in the week.


Figure 1. Departure of temperature from average as analyzed by the GFS model, for January 30, 2012. Remarkably cold air was present over northern Alaska, Eastern Europe, and Southern Asia, while very warm air was over the Central U.S. and much of Siberia.

European cold wave kills 58
Alaska isn't the only place suffering exceptionally cold temperatures this week. At least 58 people have died in the European cold wave over the past week, according to ABC News. Hardest hit was the Ukraine, where 30 people, most of them homeless, died.

Alaska's -79°F reading bogus
I reported in yesterday's post that a personal weather station located about 180 miles north of Fairbanks, the Jim River DOT site, apparently recorded a low temperature of -79°F Saturday morning (January 28, 2012). This is very close to the coldest temperature ever recorded in the U.S., a remarkable -80°F (-62.2°C) reading from Prospect Creek, AK (about a mile away from Jim Creek), on January 23, 1971....MORE

Earlier:
Brrrr: Arctic Oscillation Goes Deeply Negative, Here Comes Winter

Speaking of Bain: Thomas H. Lee, Bain Capital to Invest Up to $300 Mln in Ryan Seacrest Media

The Romney campaign could not be reached for comment.
From peHUB:

Ryan Seacrest has gone private equity.

Thomas H. Lee Partners and Bain Capital have committed to invest up to $300 million in Ryan Seacrest Media, the investment company from the “American Idol” host. RSM will use the funds to “identify, acquire and develop innovative” media company, media content and other properties.

Clear Channel, which is also owned by THL and Bain, has also bought a minority stake in Ryan Seacrest Productions, according to the statement . RSP is the entertainment company known for producing such shows like “Keeping Up with the Kardashians,” “Kourtney and Kim Take New York,” “Khloe and Lamar,” and “Kourtney and Khloe Take Miami.”...MORE

Recently: 
"What Debt Did for Romney"
"Unions Hate Private Equity, but They Love Its Profits"
'King of Bain': 6 questions answered about anti-Mitt Romney attack ads
 George Washington Would Beat Out Romney as Richest President; John Kerry Would Have, Too
"Tax rates of presidential candidates, in one chart "

"The 10 Most Important Charts in CBO's New Economic Report"

Always remember that Congress only allows the CBO to model the numbers that Congress gives the CBO i.e. the Budget Office is not allowed to do dynamic modeling or pass judgement on whether the inputs are realistic.
With those caveats, here's the Atlantic:

The 2012 deficit will break $1 trillion for the fourth consecutive year. The economy's growth will slow in 2013 as spending cuts take hold. Unemployment will stay above 7 percent through 2015. The housing recovery is locked behind a thick wall of vacancies. Yeah, the Congressional Budget Office's new economic report is kind of a bummer. Here's what it tells us about the economy in 10 big charts.

1. What's Behind Our Future Deficits?

The CBO's "baseline projection" sounds like a sober prediction. It's not. It's a fantasy. For example, the baseline projects that the Bush tax cuts are will expire next year (not!). For a dose of reality, the CBO also calculates spending and taxing under an "alternative scenario." This is the scenario to pay attention to. It anticipates that Congress will delay both tax increases and spending cuts currently scheduled in the law -- a very reasonable assumption.

What if Congress sat on its hands and let current law rule? The deficit would fall by 60 percent to $500 billion in 2013, and it would stabilize by the middle of the decade. But nobody wants that to happen. Conservatives don't want to raise taxes, and liberals don't want to soak up stimulus by $500 billion in one year. So we'll keep having high deficits through the decade.

2. What's Behind Our Future Deficits? Part II

What if we let current tax law rule? Our deficits would fall by more than half in the next decade. The dark blue portion of the bars in the chart above represent our deficits if we let the Bush tax cuts expire and enacted the Budget Control Act of 2011 (the debt ceiling deal) along with some other measures. The CBO has seen this movie before, which is why it calculates an alternative scenario where Congress falls prey to status quo bias, year after year....MORE

"The Vix feedback loop, analysed" (VXX; TVIX; XIV; XXV)

I always feel so Roman when I put the ETN symbols in a headline.
From FT Alphaville:

Are VIX ETNs and Vix-related funds influencing the Vix futures curve?

Has the popularity of Vix trading come to impact wider volatility surfaces, if not the S&P 500 options used to construct the Vix index themselves?

Is the Vix tail wagging the implied volatility dog?

Quick answer: it’s possible, but corroborating the theory with cold hard evidence isn’t easy.
That, at least, is the verdict from Tabb Group’s Henry Chien. In a soon to be published report about the structure and effects of volatility trading, seen by FT Alphaville, Chien discusses the realities of these much speculated about effects....MORE

"A composite of leading indices"

From EconWeekly:

Following up on yesterday's post, here's a chart of a composite of leading indices for the U.S.:

Here's the post he refers to:

A less-brave, new LEI

The Conference Board updated this month the composition of its Leading Economic Indicators index. The most important change was the substitution of M2 for a proprietary index of credit conditions. Over the last year, especially, it had become embarrassingly evident that M2 was pushing the LEI up, and that this was not justified by economic conditions. M2 accounts for almost a quarter of the index....

"Shale gas glut, but won’t last? The underlying model" (CHK; RRC)

Natural Gas futures are down 7% at 2.522. They will be under $2.00 by June as storage capacity tops off and production goes directly into the spot market.
Chesapeake is down 2% at $21.26, Range is down 1.39% at $56.96.
From Knowledge Problem:

Ken Silverstein has a good article in Forbes on the business prospects for shale gas developers (and I’m glad to see him there, having followed his work for a very long time). Since he asks in the title whether low shale gas prices are a mirage, I think it’s useful to go through the underlying economic analysis that’s embedded in his article. Note: if you are a principles student, this is a good exercise for you, because there will be a lot of shifting of supply and demand curves.

We start with the current boom in shale gas production, the consequence of technological change — horizontal drilling makes gas deposits available that were not with conventional technology. How do we model technological change? As an outward shift/increase in the supply of natural gas; at every price the quantity supplied is now greater, at every quantity the supplier’s marginal cost has fallen. For a given demand in the natural gas market, moving along the demand curve toward the new equilibrium means that price falls and quantity of gas sold and consumed rises. That’s a good model of where we are now.

But this equilibrium is unlikely to persist. Why? Because people don’t consume natural gas in isolation; we make decisions at the margin about when to substitute natural gas consumption for other fuel consumption, depending on the relative prices of those fuels. Even assuming all other things equal (a strong assumption), the falling price of natural gas will make the relative price of coal (Pcoal/Pnatgas) go up. Natural gas has become cheaper relative to coal, and at the margin consumers will substitute out of coal and into natural gas, even barring any other changes. We model this effect as a decrease in demand for coal, a leftward shift in the demand curve. For a given supply of coal, that means a lower price of coal (bringing their relative prices back into some balance that I won’t bore you with here) and lower quantities of coal consumed. In the short run that happens by substitution where it’s easiest, in industries using technologies (engines, turbines, smelters, etc.) where it’s relatively easier to switch between fuels.

Note also that regulatory changes, such as environmental regulations to reduce greenhouse gas emissions, will exacerbate the substitution out of coal, and shift the demand for coal even further to the left.

Another important factor in a dynamic economy is time, and the fact that over time, by adapting to these changes, people create new changes....MORE

Where on Earth is Al Gore? (Tokyo Sexwale)

Antarctica
I'm not sure why.
At least it's summer down there.


From Ecorazzi:
Richard Branson and Al Gore Off to Antarctica

For the first time in over 22 years, Al Gore is returning to Antarctica.

The former Vice President is returning to the frozen region as part of a trip organized by his Climate Reality Project. Joined by climate experts and a certain billionaire named Richard Branson, Gore and Co. plan to document first-hand the effects of climate change. “The West Antarctic Peninsula is warming about four times faster than the global average. In many ways, it is the biggest ‘canary in the coal mine,’ Gore said on his blog.

Over on his own site, Branson (a prolific blogger) said the group has already passed through the notorious Drakes Passage....

Gore flew to South America to hook up with 100 of his friends including Mr. Sexwale, South Africa's Human Settlements Minister and one of SA's richest people.
From Engineering News
Sexwale to join Antarctica climate change expedition 

Human Settlements Minister Tokyo Sexwale will be joining a climate change expedition to the Antarctica this weekend.

The expedition, called Destination: Reality 2012, aimed to resolve doubts about the seriousness of climate change and the crisis facing the world, the Human Settlements Department said on Thursday....MORE

Flying down from Iceland, the country's President. Ólafur Ragnar Grímsson.
Jetting in from Florida, Ted Turner...

These folks have some Sasquatch-sized carbon footprints.

European Bank's Shipping Loans Larger than Their Greece Exposure (and the loans are going bad)

I owe someone a hat tip but don't know where it came from. If it was yours, drop us a line and we'll link.
From the Wall Street Examiner:

,,,When commodities came back in late 2009-2011, shipping construction surged forward unchecked. Now with China rolling over, the shipping that was produced during this period is increasingly lined up and stacked in Asian harbors around the world.  22.7% of the existing fleet, is due for delivery this year.  Shipping rates have collapsed, another event which the markets continue to largely ignore.


I have been feeling for some time that this would bite the players involved. Although the shipping company stocks have become very depressed of late, the story as it relates to shipping lenders  has been relatively overlooked. Now the IHT is out quoting industry observers stating that European banks may be facing writedowns on these loans on the order of $100 billion, which is even more than their Greek losses....MORE

Here's a headline from 24/7 Wall Street, Nov. 18, 2011:
Another Shipping Bankruptcy Filing Could Signal More on the Way (GMR, ONAVQ, TNK, OSG, NAT, FRO, NM, DRYS)

Jerry Brown Rejects $100 Billion Cost Estimate, Says Cap-and-trade Fees Will Fund High-speed Rail

Relying on estimated revenues from a program that is not even in operation to fund a project whose costs are surely going to rise sounds so Wall Street that I'm tempted to offer the Governor a job.
"Ya see boss we borrow short and buy long with 90 to 1 leverage, goosing the management fee..."
Based on the estimates I've seen, Gingrich's moon colony would be cheaper.
I'm serious.
From the Sacramento Bee:

Gov. Jerry Brown said in an interview airing in Los Angeles today that California's high-speed rail project will cost far less than the state's current estimate of nearly $100 billion and that environmental fees paid by carbon producers will be a source of funding.

"It's not going to be $100 billion," the Democratic governor said on ABC 7's Eyewitness Newsmakers program. "That's way off."

Brown's remarks come as his administration prepares revisions to the California High-Speed Rail Authority's latest business plan. Brown is trying to push the project through an increasingly skeptical Legislature following a series of critical reports.

"Phase 1, I'm trying to redesign it in a way that in and of itself will be justified by the state investment," Brown said. "We do have other sources of money: For example, cap-and-trade, which is this measure where you make people who produce greenhouse gasses pay certain fees - that will be a source of funding going forward for the high speed rail."...MORE including video 

From the California State Auditor's High-speed rail Authority January 2012 Follow-up report:

...Further, the Authority's 2012 draft business plan still lacks some key details about the program's costs and revenues. In particular, only within the business plan's chapter about funding—more than 100 pages into the plan—does the Authority mention that phase one could cost as much as $117.6 billion, whereas it uses one of its lower cost estimates of $98.5 billion throughout the plan. Moreover, neither of these cost estimates includes phase one's operating and maintenance costs, yet based on data included in the 2012 draft business plan, we estimate that these costs could total approximately $96.9 billion from 2025 through 2060.

The Authority projects that the program's revenues will cover these costs but it does not include any alternatives if the program does not generate significant profits beginning in its first year of operation. Further, the plan assumes, but does not explicitly articulate, that the State will not receive any profits between 2024 and 2060, because private sector investors will receive all of the program's net operating profits during these years in return for their investment....

Let's see, $96.9 Billion operating plus $117.6 upper-end, carry the 5...

WSJ Jan. 30: "MF Global client money feared gone"

It's time for Jon Corzine to do the honorable thing. Either he knew or he should have known.
From the Wall Street Journal via the New York Post:

Nearly three months after MF Global Holdings collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, a person close to the investigation was cited as saying Monday.

Many officials now believe certain employees at MF Global dipped into the "customer segregated account" that the New York company was supposed to keep separate from its own assets -- and then used the money to meet demands for more collateral or to unfreeze assets at banks and other counterparties as they grew more concerned about their financial exposure to MF Global.

Investigators also are examining other scenarios that have gained traction in recent weeks, such as the possibility that MF Global suffered steep losses on investments made using customer money. Officials investigating the case have looked into whether such investments were appropriate under rules at the time.
As money poured out of MF Global, much of it likely passed through J.P. Morgan Chase and other banks where the securities firm had accounts, as well as trade-clearing partners such as Depository Trust & Clearing and LCH.Clearnet Group, people familiar with the matter said....MORE

Silver ETF: "SLV Near Triple Resistance"

The futures are off a percent at $33.46/
Following up on yesterday's "Silver Closing the Gaps, Look Out Below (SLV)", here's the Price Action Lab Blog with a look at the ETF:

The recent rally in precious metals has lifted SLV as much as 28% from its December 2011 low of $25.65 to close near $33 on Friday, January 27, 2012. This closing price is $1.50 below a triple resistance area.

...MORE

Ethanol-- "Drink Like Royalty: Berry Bros. & Rudd's King's Ginger Hits America"

From The Atlantic:

Created specifically for King Edward VII by this centuries-old London merchant, King's Ginger is finally available on American shelves.

In the summer of 1903 King Edward VII could often be found touring the English countryside in a luxurious "horseless carriage" -- a topless Daimler, of course, fitting his German heritage. The king, who had only recently ascended to the throne after the long reign of his mother, Queen Victoria, had spent most of his life as a famous playboy, a lover of good food and friendly women known to the wags as "Edward the Caresser." By the time he became king he was a corpulent 62 year old, plagued by occasional health problems, but hardly kept in check by them.

And so his doctor, fearing the effect that so much damp air might have on His Aging Majesty, paid a visit to Berry Bros. and Rudd, a centuries-old London merchant that held the royal appointment for wine and spirits. He told them he needed some sort of liqueur that he could put in Edward's driving flask (those were the days) to fortify him against the elements. Berry Bros. soon returned with a brandy-based quaff infused with ginger and honey: the King's Ginger, they called it.

Edward loved the stuff. Not only did he drink it on the road, but he took the King's Ginger with him hunting, and made sure anyone who accompanied him on a shoot got some too. Edward died in 1910, but Berry Bros. kept producing it for the royal family -- and, as word spread, for much of the aristocracy, too. There was no fixed recipe, and it was only available at the Berry Bros. shop. In a good year they'd sell 250 cases or so....MORE

A quick look shows only one CI post related to Edward VII, "Seating Charts are Such a Pain: Soros and the Starlet":

Sometimes it's easy:
You whistle up your Protocol peeps and in three minutes you get

Nine Kings 1910

 

That is probably the only photograph of nine reigning monarchs ever taken.*...

Private Equity: Does a 15% Tax Rate Make Sense for Rape/Pillage/Plunder Dividend Recaps?

From PEhub:
What if We Didn’t Tax All of Carried Interest?

Now, Democrats want to cobble together what will likely be a failed attempt at a tax increase on all of private equity’s carried interest. Aaaagain. But they’re not seeing the forest for the trees.

Well, particularly, the big, ugly monstrosity of a tree that stands to make most of the other trees look sleazy by comparison, that is, the dividend recapitalization. The dividend recap is one of the less savory things about PE, and lawmakers would be wise try to increase the tax rate of money derived from those transactions, rather than for all private equity deals—not that I expect a pack of legislators, some of whom came to Washington armed with little more than a limited worldview and a community college degree, to try to comprehend this unprompted.

For one, it forces good management, and basically tells private equity managers: “You can run this company to profitability? Fine, you get taxed at a lesser rate. Even if you cut jobs? Fine, you get taxed at a lesser rate. But if you just load it up with debt and make its financial structure a burden onto the organization itself, then haul ass with a profit and leave something behind that bleeds jobs, you better believe you’re going to take a hit.” Even if a PE firm can dividend recap its poor, huddled portfolio to the exits, a more heavily-taxed revenue stream will be unappealing to LPs, who will also take note of the borderline irresponsible fiscal management....MORE

Chicago (Springfield) Politics: "Illinois Faces ‘Potentially Paralyzing’ $35 Billion Unpaid Bill Backlog"

No bailouts, please.
From Bloomberg:

Illinois (STOIL1)’s unpaid bills may more than triple to $34.8 billion by 2017 unless lawmakers and Democratic Governor Pat Quinn immediately bring Medicaid and pension spending under control, said a research group.

The “potentially paralyzing” backlog, projected to reach $9.2 billion when this fiscal year ends June 30, would be fueled by an “unsustainable” increase in Medicaid spending, according to the Civic Federation, which calls itself a nonpartisan government research organization. 

“Failure to address unsustainable trends in the state’s pension and Medicaid systems will only result in financial disaster for the state of Illinois,” Laurence Msall, president of the Civic Federation in Chicago, said in a press release today.

Illinois had its general-obligation bond rating reduced Jan. 6 by Moody’s Investors Service to A2 from A1, making it the company’s lowest-graded U.S. state....

"Mark Gongloff moves from WSJ to Huffington Post"

Mark was a friend of our little blog in its earliest days.
Via the Poynter Institute:

MediaWire Memo
Peter Goodman, Huffington Post’s executive business editor, tells staff that Mark Gongloff will become chief financial writer for HuffPost Business. “He is everything we could have asked for: smart, well-sourced, energetic, swift and engaging.” And David Levine is leaving Adweek to become a financial writer for Huffington.


Goodman’s memo:
All,
We are thrilled to announce that we are adding to our ranks the formidable Mark Gongloff, a columnist and blogger at the Wall Street Journal, who will soon become chief financial writer on HuffPost Business. Mark brings immediate, high-impact presence to the crucial work of covering Wall Street and the broader financial world. He is everything we could have asked for: smart, well-sourced, energetic, swift and engaging. His trenchant insights, wry sense of humor, and nose for scoops will now be unleashed across our site in myriad forms — via a morning newsletter, frequent posts throughout the day, and in television spots.

Mark brings a dozen years of experience covering financial markets and the economy, having held prominent positions as a reporter, editor, columnist and blogger — first for CNN/Money and then for the Wall Street Journal. His ground-breaking work exploring the extent of the Fed’s special lending programs to banks during the financial crisis was cited in a congressional investigation. He was part of a team of finalists for the Scripps-Howard award for Web reporting on mortgage delinquencies in 2007. He authored or collaborated on several Page One stories for the Journal, contributed to its “Heard on the Street” column, and wrote both its “Evening Wrap” and “Ahead of the Tape” columns. Since August he has been the lead writer for the Journal’s MarketBeat blog, amassing record traffic....MORE

Big Money: "SEC Staff Define New Family Office Rules"

From Barron's Penta column:

It’s hard to digest and boring. I know. But it’s important stuff.

SEC staff just answered questions regarding the Family Office Rule. You’ll recall, that’s the carve out from the Dodd-Frank Act for family offices, so that family-run vehicles don’t have to register as investment advisers under the burdensome Advisers Act. There is, as we’ve previously reported, a lot of confusion among family members as to what precisely this all means. To lighten the burden, I’ve summarized some highlights of the SEC’s Q&A family office session, as reported in the Wolters Kluwer daily digest, SEC Today:

Example: A family office has seven directors on its board, four of which are family members.  Under the office’s governing documents, each director has equal voting power and there are no minority veto rights. According to the SEC staffers, such a family office would be deemed a legitimate family office, exempt from onerous Investment Adviser regulations, because “this arrangement would satisfy the requirement that the family office be exclusively controlled by family members or family entities, assuming there are no special shareholder agreements or other arrangements that would give someone other than a family member control over the management or policies of the office.”

Translation: Any individual or firm hoping to use a family office as a front to bypass the Advisers Act is asking for trouble. The message from the SEC is clear. Genuine families only allowed....MORE

Boring is in the eyes of the beholder.

Zeitgeist: "Critics of capitalism call global protest in June"

From Agence France-Presse:

Thousands of critics of capitalism meeting in Brazil called Sunday for a worldwide protest in June to press for concrete steps to tackle the global economic crisis.

The World Social Forum wrapped up a five-day meeting in this southern Brazilian city, urging citizens to "take to the streets on June 5" for the global action, which would be in support of social and environmental justice.
The forum also announced a "peoples' summit" of social movements to be held in parallel with the high-level UN conference on sustainable development scheduled next June 20-22 in Rio.

The Rio+20 summit, the fourth major gathering on sustainable development since 1972, will press world leaders to commit themselves to creating a social and "green economy," with priority being given to eradicating hunger.

But World Social Forum participants, including representatives of the Arab Spring, Spain's "Indignant" movement, Occupy Wall Street, and students from Chile, sharply criticized the concept of "a green economy" that would allow multinational corporations to reap the profit....MORE

From the Doobie Brothers:

Brrrr: Arctic Oscillation Goes Deeply Negative, Here Comes Winter

Following up on Jan. 9's "Dear Europe: Arctic Oscillation About to Go Negative, Try to Stay Warm".
Here are the latest index values from NOAA's Climate Prediction Center:


And here are some of this morning's British headlines"
Telegraph:
Big freeze to hit Britain as temperatures plummet to -10C
Daily Mirror:
UK weather: Temperatures set to plummet to -10C this week as parts of Britain wake up to snow - pics 

You don't know where the Arctic 'fence' will open and the timing is always iffy.
If the gates were to open over the U.S. Northwest all that -50F air over Fairbanks would come spilling into the contiguous Lower 48.

Here's the quick tutorial from the Jan. 9 post:

 
Arctic Oscillation: positive phase (left) has higher air pressure in mid-latitudes than in Arctic, leading to milder winter for US; negative phase (right) has higher air pressure over Arctic, pushing frigid, wet air into US.: Credit: NASA.Technically, the Arctic Oscillation is a measure of atmospheric pressure variations at sea level north of 20N latitude. Where an Arctic high develops affects weather thousands of miles away....

Finally:
Here are the ensemble model runs at NOAA's Climate Prediction Center.
For a major change the index has to go below and stay below the zero line for at least a few weeks

Goldman: Profit Margins Have Peaked

“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.” – Jeremy Grantham

-"Climateer Line of the Day: Jeremy Grantham on Profit Margins Edition"

From ZeroHedge:

Cutting Into Muscle - The Record Corporate Margin Juggernaut Has Just Rolled Over

In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire.

If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over.

This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase.

Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more.

In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.
The two smoking guns:


(click to enlarge)

And another chart which confirms that the good times are now over:...MORE

See also:

Jeremy Grantham on Corporate Profits and Mean Reversion

One of the smartest guys in finance telling us what to watch for.

"New research suggests link between genetics, Wall Street success"

We've been on the dopamine beat for a while:
Engineer -- Addicted to Day Trading -- Stole Nearly $750,000 Making False Securities Class-action Claims

Now that's obsessive.
Usually it's the little old lady bookkeeper embezzling from her employer of thirty years to cover her slot habit.
Understandable, in a dopaminergic sort of way.
She's triggering her reward pathways and going a little nuts from the neurotransmitters bathing her brain but she's not trying to rob the casino to keep playing the slot machine.

This guy, on the other hand is a) participating in a slower game, which in theory should trigger the dopamine cascades less frequently and b) he's ripping off Martha Stewart!?

Here's the headline story from the Contra Costa Times:
New research suggests link between genetics, Wall Street success

CLAREMONT - Stock traders whose genetic makeups can help them make healthy decisions about risk-taking may be better suited for a long career on Wall Street than others who may be predisposed to a "cowboy" way of doing business, new research suggests.

"I don't want the guy who is going to stay awake for four days and drink Red Bull and make trades across three markets in three time zones," Claremont Graduate University professor Paul Zak said.
Zak and two graduate students published their research in the January issue of PLoS One, an online science journal. The researchers conducted their study by comparing the genetic codes of working Wall Street traders to a control group of business students.
 
The researchers found evidence that genes affecting the way the brain processes dopamine, a chemical linked to risk-taking behavior, may be associated with success on Wall Street.
Traders who had successful careers, as measured by length of employment, tended to have genetic backgrounds linked to moderate levels of dopamine.
 
In other words, a good trader is likely to have a genetic code that influences a person's behavior toward competitiveness, but not the kind of thrill-seeking behavior in which risk taking becomes an addiction.

"Combining the personality analyses and genetic findings from the present study reveals that our sample of traders are analytical, integrative and can delay gratification," Zak and his co-authors wrote in their research paper....MORE

HT: Finance Professor

I love PLoS One; JSTOR and the journals crowd can go hang. Any work financed by the public should be publicly available. Here's the paper.

*Previously:
Berlusconi Blames Stock Market Volatility On Cocaine (and a look at neurotransmitters)
"What Caffeine Actually Does to Your Brain"
Your Brain and Financial Bubbles

And just two weeks ago:
The Internet, Deflation and Depression

There was a story out last week that purported to show a correlation between time spent on the www and changes in brain physiology. I'm dubious....

...Further, the newspapers likened the changes to those seen in cocaine abusers but went on to describe something quite different from my understanding of what blow does to the reward pathways, overexciting the dopamine cascade until the various D receptors no longer react to dopamine and eventually leading to anhedonia. The big A is often concurrent with and like anxiety, may even kindle for depression.
Don't worry, be happy....

Silver Closing the Gaps, Look Out Below (SLV)

Not exactly the point of his post but it jumps out at you.
I've mentioned some of our computer runs that put silver in the $15-18 range should China have a hard landing.
From Market Anthropology:

Return To "Normalcy"

I like to remind myself every now and then why the analogy has worked so well between silver and the Nasdaq market - circa 2000 and now 2001. It's not just the charts that have great similarities - it's the overarching psychology of the boom and bust cycle and the ratio contrasts to their larger sibling (gold & SPX) markets that has provided a long-term roadmap with considerable correlations. And while the charts certainly represent that emotionality in characteristics such as the parabolic tops, you can find other sentiment and behavioral comparatives in the charts....MORE

"Topless Protesters At Davos Forum: Three Shirtless Ukrainian Women Detained"

Much more effective than the igloo-dwelling #OccupyDavos folks.

From the New York Daily News:

Anja Niedringhaus/AP

The activists are from a group which has have become popular in Ukraine for staging small, half-naked protests against a range of issues including oppression of political opposition.

...MORE

The Telegraph has the video: