Thursday, August 28, 2014

"The Relative Weakness in Gold Aint Over Yet"

Long suffering readers know we have been bearish on gold since FT Alphaville's Izaabella Kaminska pointed out the TIPS/shiny correlations back in December 2012, and have been calling for an $875 bottom for the last 14 months.
From Dragonfly Capital:
Gold ($GLD) has been weak relative to the S&P 500 ($SPY). This has been the case since mid 2011. And throughout 2014 there have been signs that there might be an inflection point in the making. Gold might be ready to strengthen against equities. But the past few weeks have shown that it is not time for the fat lady to sing yet.
gld -spy
The chart above shows nearly 10 years of relative performance of Gold to the S&P 500. It traces out a a bullish Shark harmonic, which sounds great for a reversal. Except that the bullish part of that harmonic pattern kicks in after it has fallen to point D, another 25% lower in the ratio. Or worse at a ratio of 0.21 another 45% lower. Ugh. She had better take a seat or order some food...
See also:
Spot Gold Down $21.80 as HSBC, Credit Suisse Lower Forecasts (GLD)

A Fool and His Money Is Not Worth Your Time

From I Love Charts:

Applied Math: Fools
This week, test your math skills with Applied Math: Cats.

"Can the Bloomberg Terminal be “Toppled”?"

Re-reading this Alphaville post from earlier in August, "A Deep Dive Into Goldman's Chat Platform (GS)" I was reminded of a piece Matt Turck* did in March..
But first, back to the FT, Aug. 25, just to demonstrate there is a there there, for at least some functions.

Wickr butts into conversation on Wall St chatroom
Wickr, a cyber security start-up, is in talks with banks and major financial services companies including Markit to create an alternative to Bloomberg instant messaging, just as Goldman Sachs tries to create its own Wall Street chat service. 

The San Francisco-based company has taken an investment from CME Group, the futures exchange operator, and is working closely with it to create an app that will allow both chat and financial transactions between traders. 

The app would undercut Bloomberg while creating a more secure service which automatically deletes messages that regulators no longer require financial services to keep, removing the risk of storing information for longer than is necessary. 

Nico Sell, Wickr chief executive, said the company wanted to be the “cheapest and the best” for messaging, using encrypted peer-to-peer communications which means Wickr never has access to the content of the emails or chats.

She said the financial services industry could not trust the big technology companies to create a messaging service because their business is data....MORE
And now Mr. Turck (*"Partner at FirstMark Capital. Previously, Managing Director at Bloomberg Ventures and before that, co-founder of TripleHop Technologies, acquired by Oracle...."):
In the eye of some entrepreneurs and venture capitalists, the Bloomberg terminal is a bit of an anomaly, perhaps even an anachronism.  In the era of free information on the Internet and open source Big Data tools, here’s a business that makes billions every year charging its users to access data that it generally obtains from third parties, as well as the tools to analyze it.  You’ll hear the occasional jab at its interface as reminiscent of the 1980s.  And at a time of accelerating “unbundling” across many industries, including financial services, the Bloomberg terminal is the ultimate “bundling” play: one product, one price, which means that that the average user uses only a small percentage of the terminal’s 30,000+ functions.  Yet, 320,000 people around the world pay about $20,000 a year to use it.
If you think that this sounds like a perfect opportunity for disruption or “unbundling” at the hand of nimble, aggressive startups, you’re not alone.  I spent four years at Bloomberg Ventures, and this was a topic that I heard debated countless times before, during and after my tenure there. Most recent example: a well written article in Institutional Investor a few weeks ago declared the start of “The Race to Topple Bloomberg“, with a separate article highlighting my friends at Estimize and Kensho as startups that “Take Aim at Bloomberg“. 
Yet, over the years, the terminal has seen its fair share of would be disruptors come and go. Every now and then, a new wave of financial data startups seems to be appearing, attempting to build businesses that, overtly or not, compete with some parts of the Bloomberg terminal.  Soon enough, however, those companies seem to disappear, through failure, pivot or acquisition. 
What gives? And where are the opportunities for financial data startups?
Frontal assault: good luck
To start, Bloomberg is not exactly your run-of-the-mill, lazy incumbent. Perhaps I drank too much of the Kool-Aid while I was there, but I left the company very impressed.  Bloomberg, which was itself a startup not that long ago, comes armed with a powerful brand, deep pockets, a fiercely competitive culture, a product that results from billions of dollars of R&D investment over the years, and a technology platform that basically never goes down or even slows down, supported by generally excellent customer service.
But great incumbents have been disrupted before.  So there is perhaps another set of less immediately apparent reasons why the terminal has so far been very resilient to disruption by startups:
1.  It is protected by strong network effects.  One surprisingly misunderstood reason to the long term success of the Bloomberg terminal is that, beyond the data and analytics, it is fundamentally a network.  In fact, it was probably the first ever social network, long before the term was coined. Although some believe that its cachet as a status symbol is starting to erode, “the Bloomberg” (as it is often called) has been for decades the way you communicate with other finance professionals (for legitimate or not so legitimate reasons).  In its relevant target market, everyone is on it and uses it all day to communicate with colleagues, clients and partners. Web based services (Facebook, Dropbox, Gmail), often banned in financial services companies, haven’t made much of a dent in that, at least for desktop communication.
2.  It is an aggregation of niche products.  In the world of financial data, there is enough specificity to each asset class (and subsegment thereof) that you need to build a substantially different product for each, which requires deep expertise, as well as a huge amount of effort and money, to address a comparatively small user base (sometimes just a few tens of thousands of people around the world).  Bloomberg started with fixed income data and over many years, used its considerable cash flow to gradually conquer other classes (still a work in progress, to this day).  So disrupting the Bloomberg is not as “easy” as coming up with a great one-size-fits-all product.  It would take immense amounts of venture capital money to build a direct competitor across all those niches....

Much, Much More From Société Générale's Albert Edwards (28Aug2014)

Following up on the post immediately below, "Société Générale's Albert Edwards Is ALIVE!".
From FT Alphaville:

Edwards: “The equity market is now running on fumes”
Ice Age theologian, Albert Edwards of SocGen, is back from holiday with a new missive warning of imminent equity collapse.

(As a reminder the Edwards’ Ice Age thesis, which has been running since the days of the Asia crisis, predicts a world of very low inflation and near deflation, where equities de-rate both absolutely and relative to government bonds, which also re-rate in absolute terms. This long-term valuation bear market doesn’t end until the S&P 500 hits 400 and bond yields are below 2 per cent and there’s been a deep recession and blow-up in China.)

As Edwards notes, sub 1-per cent 10-year bund yields are testament to at least one part of his theory playing out as anticipated.

There’s just the tricky issue of the S&P500 breaking above 2,000 that rumbles the theory.

But, as Edwards notes, that’s all due to the artificial support the equity market has been receiving from QE. When QE ends, this support will be removed and there will be no stopping the crash, bang, wallop due.
In many respects, he says, the equity market is already running on fumes. Evidence for this comes in the fact that corporate buybacks, which have been propping up equity prices for some time, are now beginning to run thin. In their wake they leave leveraged corporate balance sheets which — in the event of higher rates — could be unable to maintain cash-flow at current rates.

As Edwards explains (our emphasis):
It is widely accepted the Fed’’s QE programme has inflated asset prices way above fundamental values (higher inequality being one unwelcome by-product). Andrew Lapthorne has identified the mechanism whereby QE, by shrinking the available stock of investable government bonds, has encouraged investors to instead gobble up other debt assets all along the risk spectrum. Companies issuing at low yields into this buying frenzy are doing what they always like doing with debt in the final throes of an economic cycle they issue cheap debt to buy expensive equity. Decent profit (cashflow growth) may be more than sufficient to cover capital expenditure and dividends, but a gargantuan funding gap emerges as companies also undertake their corporate finance zaitech activities (see chart below, Andrew also calculates that currently almost a third of all buybacks are to cover the expense of maturing management share options QE is indeed making the rich richer!)...

UPDATED--Société Générale's Albert Edwards Is ALIVE!

Update below.
Original post:
We hadn't heard from Albert since April's "In Which Izabella Kaminska Takes the Knife to Société Générale's Albert Edwards":
Like a Canadian fishing guide gutting walleyes.
Or something.

Two quick points up front. There is only one reason to pay attention to Mr. Edwards. He has been right about interest rates. You could make an argument he has been right for the wrong reason; he firmly believed the world economy was going into a nuclear winter but even that probably would have happened if the Fed hadn't done the balance sheet expansion.

Second, kudos to Izabella for avoiding the pedantry of  "asset inflation is not inflation".
I know that, she knows that, our readers know that and I'm sure Mr. Edwards knows that....MORE
And now he's back.
I know you could have found him last week lumped in with the other prognosticators at Die Welt's
"Börsen-Prognosen : Das grandiose Scheitern der Crash-Propheten"
But now we get him without Faber or Roubini to detract from the essence of that which is Albert.

From CityWire's Wealth Manager: 

Albert Edwards: 'I can hear the hissing of the stock market bubble bursting'
SocGen’s Albert Edwards says the ‘share buyback party’ that has been driving the stock market is over and he can hear the ‘hissing’ of the stock market bubble starting to burst.

In his latest research note, the well known bear, pointed out that the level of share buy backs fell by 20% in the second quarter, compared to the first three months of the year, and warned of the new threat of a ‘gargantuan’ funding gap emerging.

‘Companies themselves have been the only substantive buyers of equity, but the most recent data suggests that this party is over and as profits also stall out, the equity market is now running on fumes,’ Edwards said.
He said that the companies have been issuing cheap debt to help fuel the share buyback binge, which has seen them reinvest this money in expensive equity.

‘The equity bubble has disguised the mountain of net debt piling up on US corporate balance sheets. This is hitting home now QE has ended. The end of the buyback bonanza may well prove to be decisive for this bubble,’ Edwards said.

'Is that a hissing I can hear?'
Update: "Much, Much More From Société Générale's Albert Edwards (28Aug2014)"

And back to the previous program:
We aren't even close in our outlook.
We're betting on a quick dip back to ~1900 S&P before new highs. See:

Aug. 15
The Peak-to-Trough Magnitude of the Recent Decline Was 4.3%
I'd expect the next one to be deeper but also reward "Buy-the-dips" setting up a nasty little experience on the next-next one for folks coming in at down 10% who watch in horror as the drop doubles to 20%....

Aug. 19
Equities: Another 7% Higher on the Nasdaq 100 (NDX)
Aug. 19
Equities: The Short Term Prognosticator of the Day Award Goes To....
Aug. 22
In Rainy Jackson Hole, Yellen Ponders Labor Market Mojo
There are signs that the current up move is not strong enough to take and hold the 2000 level on the S&P 500.
What may be required is a trip back to ~1900 or so to flush out any remaining weak hands/hot money. This could begin as soon as Monday, meaning lightening positions ahead of the weekend--something we are usually loathe to babble about on the blog--may be the better-safe-than-sorry tactic.

I'm writing about this on this particular post because Jackson Hole may be a catalyst, or at least be perceived to be by the explainers....
Aug. 25
Equities: "Some Retracement Imminent ….. Probably"

Where Did the Gunslinger Prop Traders Go? (some of them ended up at insurance companies)

From Artemis:

Weather derivatives trading unit complements Munich Re: S&P
The world’s largest reinsurance firm Munich Re’s U.S. weather derivatives and energy commodities trading unit Munich Re Trading LLC complements the reinsurers core operations and is highly strategic to its parent, according to S&P.

Munich Re purchased the weather and weather-related energy risk management unit of Bermuda reinsurer RenaissanceRe, RenRe Energy Advisors Ltd., back in September 2013. Almost a year later the unit, now called Munich Re Trading LLC, has become strategic component of the reinsurance firm, complementing its expertise in weather and catastrophe risks.

Ratings agency Standard & Poor’s said in a report that Munich Re Trading LLC’s strong business position in the weather derivatives market is a complement to Munich Re’s product portfolio in the area of weather risks.

S&P said that Munich Re Trading holds “highly strategic group status” to its parent, reinsurer Munich Re. Its business involves selling corporate clients which are weather sensitive, such as utilities, risk management products to mitigate the effects of weather events and variation.

This is achieved predominantly with the use of derivative contracts utilised to mitigate the economic impact of noncatastrophic weather events as well as weather-linked commodity price variations.

These activities are likely a strong complement to Munich Re’s increasing focus on providing specialist, customised reinsurance covers for large corporate clients, which is a key strategic aim for the reinsurer as it navigates the challenging reinsurance price environment....MORE

"Guess what, journalism companies? Facebook is going to be your biggest competitor in the long run"

Thinking about yesterday's post on Sam Zell (“There’s this illusion that they [journalists]… are doing God’s work and therefore… you should get a pass on economic reality”) and journalists when this dropped out of one of the feedreaders.
From The Atlantic:

The New Editors of the Internet
 In a small number of Silicon Valley conference rooms, decisions are being made about what people should and shouldn't see online—without the accountability or culture that has long accompanied that responsibility.
Bowing to their better civic natures, and the pleas of James Foley's family, Twitter and YouTube have pulled down videos and photos of his murder. They had every right to do so, and in my view they did the right thing.

So why am I so uncomfortable with this? Because it's not clear what's too vile to host. And, even more, because Twitter and YouTube are among a tiny group of giant companies with greater and greater power—and less and less accountability—over what we read, hear, and watch online. 

Who gave them this power? We did. And if we don’t take back what we’ve given away—and what’s being taken away—we’ll deserve what we get: a concentration of media power that will damage, if not eviscerate, our tradition of free expression.

For the moment, it's reasonable to dismiss the widely repeated accusation that removing the Foley videos was an act of censorship. When Twitter worked with the Turkish regime to remove certain accounts, that was censorship, if by proxy, because it was done on the orders of a government. And, of course, when governments directly block Twitter, YouTube, Facebook, and other services, as some do, that is direct censorship. But when Twitter and YouTube took down a murder-as-propaganda video, that was editing. (Show me evidence that the U.S. government persuaded Twitter and YouTube to do this, as it almost certainly did when the major payment systems cut off Wikileaks' funding several years ago, and I'll revise that view.)

Editing, yes, but on an epic scale—and critics are absolutely right to raise some stark questions. What precedent does this set? What actual policies are at work? Are the policies being applied consistently? If it's appropriate to take down these videos and pictures, why not the images of so many others who've been the victims of ISIS and other criminals?

All are important questions, but the reason they're so important, again, is the clout these services exert in the information marketplace. There was little uproar, after all, when the anything-goes LiveLeak—which hosts videos that most others find beyond the pale—vowed not to post any ISIS beheading videos, on the reasonable grounds that it’s wrong to help murderers do public relations. 

What makes so many free-speech protectors fret in the current situation, again, is not the instinct to protect an unwary public from encountering the worst of humanity, or to avoid helping barbarian propagandists. It is the slippery slope issue, and this is getting more worrisome every day with the growing domination of Facebook, Google, and Twitter over our media flow....MORE
HT: Ritholtz's Reads

Dogbert, Ratbert and Google (GOOG)

The Official Dilbert Website featuring Scott Adams Dilbert strips, animations and more

Wednesday, August 27, 2014

"Drop in disaster payouts strengthens case for reinsurance price cut"

From Reuters via the Thompson Reuters Foundation:

Payouts by insurers for disaster claims in the first six months of the year were below the average for the past 10 years, a study showed on Wednesday, which is likely to bolster insurers' calls for cheaper reinsurance.

The global insurance industry covered $21 billion in losses from natural catastrophes and man-made disasters in the first half of the year, preliminary estimates from a study by reinsurer Swiss Re showed.
This was 22 percent below the $27 billion first-half average for the previous 10 years.

The findings come as reinsurance executives prepare for their annual get-together in Monte Carlo next month and at a time when they are facing calls from insurance company clients to lower prices.

Reinsurers such as Hannover and Swiss Re help their clients to cover claims from events such as earthquakes or floods in exchange for part of the premium....MORE

"Is This Alibaba-Like New Startup The Tinder Of Lyfts For The Airbnb Snapchat Uber Dear God Please Click This?"

From Digg:
It may be hard to believe, but this new startup — a mere three weeks old and still unnamed — is already being dubbed “the Tinder Of Lyfts For The Airbnb Snapchat Uber” by tech journalists desperate for page views. What does this mean for the future? We can only pretend — at length — to know, while thanking you profusely for clicking this article.

Having just raised a cool $10 million in series A funding, we can expect this Bustle- or Venmo-competitor to seriously disrupt the cloud, probably. The only thing more remarkable than an unnamed startup getting that much money is how, out of the countless articles on your many dashboards, you ended up here, reading this one. Who even knows what this thing does? Not us.

Early talks indicate a possible acquisition by Yahoo, Microsoft, Google and/or Amazon and really, we couldn’t be more grateful that you’re still reading this. 

While we haven’t gotten our hands on this product yet, let’s just list some other things we think you guys might like: Ezra Klein, Flappy Bird, Joe Biden, the iPhone 6, Twitter, grilled cheese (who doesn’t?). Wow, the SEO on this post just went through the roof! Let’s just toss another one on the heap: the “Internet of things.”...MORE

"Never Make an Investment Just Because There is a Beautiful Tree on the Property"

And watch the name. The name can be a tip-off.*
From The Daily Bell:

The Fate of Galt's Gulch Chile 
Many have wondered about the status of Galt's Gulch Chile (GGC), the libertarian community that was planned and sold in lots as a liberty oasis for those who wished to live freedom before they died. My husband and I purchased an option on 1.25 acres in July 2013. Others bought 10- or 25-acre lots and some invested in the agricultural side of the venture; extremely savvy investors committed small fortunes. GGC has been an unexpectedly wild ride since then.

Shortly after purchasing, I received an unsigned email through the webform of a site I maintain. It informed me that GGC was a fraud. One reason: GGC lacked water rights. In Chile, purchasing surface land and water rights are two separate processes. GGC is desert terrain, rather like California, and water rights are absolutely necessary for a community to be established. I responded to the email but the message bounced back to me. I did a search on the email's IP address and it became apparent that the sender had used an anonymizer....MORE
HT: Economic Policy Journal:
Never Make an Investment Just Because There is a Beautiful Tree on the Property
That was the ruling reason behind a property investment Wendy McElroy made that she now regrets....
*See for example Aug. 2012's "Doug Kass: Beware the Dreaded Triple Top":
Dreaded? Ha! I laugh at dread.
[You learned nothing from the Valley of the Shadow of Death Estates foray? -ed]
.SPX  1405.77    1.66 

"No Bubble At All: Jessica Alba's Diaper-Delivery Startup Is Valued At $1 Billion, Prepares For IPO" (we're more interested in the Snapchat final round)

We don't care so much about Jessica Alba but rather the Snapchat final round done by Kleiner Perkins which long-time readers will recognize as the same scam for which KP utilized gone-but-unlamented private placement packager Advanced Equities, see below.
From ZeroHedge:
While today even the pundits are aghast at the latest Snapchat valuation round, which according to the WSJ has Kleiner Perkins inject a laughable $20 million into the private-parts photography service, boosting its valuation to a whopping $10 billion in a clear windowdressing mark-up round, up from $800 million a year ago, even as the actual equity invested into the company is a paltry $160 million or under 2% of said valuation, the true indicator of just how bubbly the second coming of the dot com era has become comes courtesy of none other than Jessica Alba's, yes the actress, own startup: a company launched in 2012 and which makes "non-toxic" diapers (as opposed to toxic diapers?), called the Honest Co., has raised $70 million at a valuation just shy of $1 billion in preparation for an IPO. 

Ridiculous? Well of course, but at least unlike Snapchat which still has zero revenue, there actually are idiots who will pay a premium to subscribe to hemp diapers, and the company does in fact have some revenue: "since launching in 2012 with its non-toxic diapers and other natural baby products, the California-based startup has grown quickly by blending its environmentally sensitive products with a social mission. Annual revenue is tracking to hit north of $150 million in 2014, or three times the revenue of 2013, according to Mr. Lee. Roughly 80% of Honest revenue is from customers who subscribe to a monthly service delivering diapers and other consumable products on a recurring basis."..MORE, including gratuitous pics of Jessica.
It appears that Kleiner Perkins are using their own pocket lint to bump valuations now that Advanced Equities is no longer around.
From November 2012's "Phi Scamma Jamma: Late Stage VC Investor Advanced Equities Shutting Down (Bloom; Fisker etc.)":
That's a wrap.

These guys would do middle-of-the-alphabet rounds (H-round, N-round etc.) that the Sand Hill Road crowd owned at 1/20th the valuation. They invested private placement style for accrediteds, giving the original VC's a nice bump in valuation while the AE principals got to act like they were in with the in crowd.

We were dubious as far back as 2008.
After the principals were hit with attention-getting fines, the last straw came when they were ordered to make a recission offer to some of their Fisker investors.

Recissions are brutal for that type of operator, they are not ordered when investors are making money hand-over-fist and tend to be accepted rather quickly by the investor and/or their counsel....
See also:
Al Gore (and Kleiner) no Score? Advanced Equities Execs Under SEC Investigation for 2009 Private Placement

Aug 19, 2008 
Venture Capital: "Garbage In..."
From Forbes:

A late-stage venture funding outfit is foisting junky startups on investors--much to the benefit of the Sand Hill Road crowd.

It's just the sort of improbable success that Silicon Valley adores. Two young entrepreneurs have, in a mere five years, turned an obscure Chicago venture capital firm into a presence visible from Sand Hill Road. This year Keith Daubenspeck and Dwight Badger's Advanced Equities Financial is on track to raise $1 billion for startups previously backed by industry Brahmins like Kleiner Perkins Caufield & Byers, Benchmark Capital, New Enterprise Associates and Vinod Khosla....
Friday, May 21, 2010
The Company you Keep: "Bloom, Fisker and Serious Materials Raising Cash from Advanced Equities"

And many more.

"Can Ebola be stopped? 14th century Venice could teach us something"

Return with us now to what Barbara Tuchman called "The Calamitous 14th Century" .
From City AM:
In 1348, the Black Death arrived in Venice from Sicily. From there it travelled across most of Europe and ultimately killed off an estimated 45 per cent of the population. 
Spread by a simple flea bite, it turned out to be one of the most devastating pandemics in human history.
14th century Venice
Venice, the hub of many trade routes into central Europe, became a prime location for transmission of the disease as people from all countries in the region met and exchanged goods. Yet Venice continued to flourish while much of the rest of Italy and the surrounding nations fell hard at the hands of the disease.
Why? “Resilience management”, according to Dr Igor Linkov of the US Army Engineer Research and Development Centre. 
In an article published in the Journal Environment Systems and Decisions, he argues the way in which they managed physical movement and social interactions proved an effective means of containing the disease, and that emulating their activities in a modern-day setting could provide a long-term solution to the Ebola epidemic currently spreading through West Africa....MORE

Argentina Bars BNY Mellon And Oddly Blasts Sam Zell

There are plenty of things to dislike about Sam Zell (LA Times, 1% work harder etc.) but this is just plain funny.
From ValueWalk:
Like a messy divorce, the tit-for-tat battle that is Argentina’s bond debt just keeps getting uglier with each passing day.
Argentina Zell
Argentina said on Tuesday it has barred The Bank of New York Mellon Corporation (NYSE:BK) from operating in the country, an apparent move against the bank that, following orders from a US court, had blocked the Argentine government debt payment. Wednesday Argentina’s Congress is set to consider a law that would replace BNY Mellon as the intermediary for foreign bond payments, instead using the state-controlled Banco Nacion.

A Reuters report notes that the BNY Mellon, as the intermediary between Argentina and bond holders, was replaced because Argentina claims it did not fulfill technical requirements to operate in the country. The apparent target of Argentina’s ire is that BNY Mellon in June obeyed a U.S. court ruling that required the bank to block a $539 million interest payment on debt to Argentina’s bond holders.
The Bank of New York Mellon Corporation (NYSE:BK) is caught up in a messy and sometimes emotion filled battle that, like a divorce fight, sometimes makes little sense and defies logic. This weekend, for instance, Argentine President Christina Fernandez de Kirchner, while blasting Chicago-based RR Donnelley & Sons Co (NASDAQ:RRD) for closing a plant in the country, saying the act might fall under the country’s new terrorism law, held up an odd picture as her emotion-filled voice denounced the printing company.

Sam Zell had no connection with RR Donnelley or Argentina
Recorded on a YouTube video, the picture was of Chicago billionaire Sam Zell.  The problem, according to a report in the Chicago Tribune, was that Zell had no connection to the printing company or the Argentine situation whatsoever....MORE

Holy Crap: The Swiss Franc Could Buckle

If you can keep your head when all about you / Are losing theirs....then maybe you didn't get the message.

Apologies to the Kipling literary estate.
From FT Alphaville:
Beat Siegenthaler, FX strategist at UBS, has been wondering about what the Swiss National Bank may do if the ECB’s measures to weaken the euro begin to test its 1.20 EURCHF floor.
He notes, for example, that there has already been a marked divergence between the EURCHF and the USDCHF:

As Siegenthaler explains:
Looking back over the last few months, however, the EURUSD almost breaching 1.40 on 8 May was probably decisive in prompting the ECB into a reaction at the June meeting, implementing negative interest rates, launching further liquidity injections via the TRLTROs and preparing the ground for asset purchases. Even though it was not immediately obvious, it now seems clear that the launch of the ECB package was an important event for the franc too, as it marked the moment when EURCHF broke out of the previous pattern and embarked on another leg lower. The escalation of political tensions in Eastern Europe and the Middle East did not help, though are unlikely to have been a major driver. Instead, the ECB becoming ever more dovish seems the crucial factor.
The key question then is if and when the euro continues to weaken will the SNB trust in the power of the 1.20 floor to stop the franc from becoming “overvalued”, or will it somehow try to stop it from being tested in the first place?...

"Return to Behemoth Stocks"

In 1999-2000 the breadth kept shrinking until in the last few weeks before the ensuing 78% NASDAQ collapse the market was reduced to a handful of megacaps.
From The Aleph Blog:
Somewhat less than three years ago, I wrote two articles on Behemoth stocks [one, two], which I define as stocks with over $100 Billion of market cap.  Today I want to revisit those stocks, and those that have joined them.  The last time I wrote, there were 39 of them actively trading on US Exchanges.  Now there are 61, for a difference of 22.  24 stocks are new, and two have dropped out.  Let start with those two:
  • Vodapone plc [VOD] sold off its interest in Verizon Wireless to Verizon, creating a lot of value, and returned a lot of capital to shareholders.  For those of us who were shareholders, I can only say, great job.  You made Verizon pay up, and you didn’t blow all of the new free capital on suboptimal projects.
  • The stock price of Vale, SA [VALE] has gone down considerably (~40%).  China is no longer a giant vacuum cleaner for minerals The pace of China’s expansion has slowed, and that has had an impact on base metals producers like Vale.
This highlights three things:
  • In a bull market, once you are big, you tend to stay there.
  • If you want to create value for shareholders as a behemoth, you need to take radical actions that sell off parts of the company, and return capital to shareholders.  Managements should think, “How can we reorganize the company such that each component part will be better managed, and lines that we aren’t so good at are sold off.”
  • In general, these companies are too large to be taken over; change must come from within.  Activists will only succeed if the managements let them.
Now let’s look at the new companies, which fall into six main groups: Consumer Oriented, Banks, Pharmaceuticals, Information Technology,  Industrials, and  Internet....MORE
See also: 
The Day the NASDAQ Died
Humble Pie (sung to the tune of American Pie)

A long, long week ago
I can still remember how the market used to make me smile
What I'd do when I had the chance
Is get myself a cash advance
And add another tech stock to the pile.
But Alan Greenspan made me shiver
With every speech that he delivered
Bad news on the rate front
Still I'd take one more punt
I can't remember if I cried
When I heard about the CPI
I lost my fortune and my pride
The day the NASDAQ died 
So bye-bye to my piece of the pie
I poured my paycheck into Datek
Now my cash account's dry
It's just two weeks from an all-time high
And now we're right back where we were in July
We're right back where we were in July
Did you buy stocks you never heard of?
Q COM at 150 or above?
'Cos your plumber told you so
Now do you believe in Home Depot?
Can Wal-Mart save your portfolio?
And can you teach me what's a P/E ratio?
Well, I know that you were leveraged too
So you can't just take a long-term view
Your broker shut you down
No more margin could be found...

In Other Caliphate News: Boko Haram Says No, It Is The Real Caliphate

Both Abubakar Shekau and  Abu Bakr al-Baghdadi are claiming to be the successor to Muhammad, one of them must be wrong.*
From the Daily Mail:

Now Nigeria's jihadis declare an 'Islamic caliphate': Boko Haram release video proclamation that shows massacre of prisoners
Boko Haram's leader has declared an Islamic caliphate in a northeast Nigeria town seized by the extremist militants earlier this month.

Abubakar Shekau, the terrorist behind the kidnapping of more than 200 schoolgirls four months ago, made the statement during a video which shows a group of prisoners being shot with assault rifles as they lie in a ditch.  

He declared that Gwoza, in Borno State, now has 'nothing to do with Nigeria' and said 'by the grace of Allah' they will not be leaving the town....MUCH MORE
*"Two men say they're Jesus one of them must be wrong"
-Industrial Disease, Dire Straits

The Revolt Against Transhumanism

The real concern is that one-percenters will be able to afford the technologies that can accelerate and direct evolution while the 99% plod along using good 'ol Mother Nature, thus creating an übermensch/untermensch dichotomy on top of other elite advantages.

Here's h+, the magazine of the transhumanist movement, to soothingly say that won't happen:
Having introduced transhumanists ideas to university students over the years, I am familiar with typical objections: if we don’t die the world will become overpopulated; not having a body would be yucky; this is all science fiction; lots of things can go wrong; technology is bad; death makes life meaningful; immortality would be boring; etc.

So I was surprised after yesterday’s post to receive hostile responses of the “we shouldn’t play god,” or “we should let nature take its course” variety. You can find similar critiques at links like : “The Catholic Church Declares War on Transhumanism”  and“Transhumanism: Mankind’s Greatest Threat.” Here is a statement from the latter:

Various organizations desire to use emerging technology to create a human species so enhanced that they cease to be humans. They will be post-humans with the potential of living forever. If these sciences are not closely monitored and regulated, transhumanists’ arrogant quest to create a post-human species will become a direct assault on human dignity and an attack on God’s sovereignty as Creator. We must decide on an unmovable line now, one that upholds human dignity based on Biblical Truth.

It is no longer enough to be pro-life; we have now entered a time when we must be pro-human. Education about the full implications of these emerging sciences is a key to be able to directly confront these assaults on humanity.

If one truly believes that humans should accept their fate, that they were specially designed and created by the gods, and that the divine plans includes evil and death, then the condemnations of transhumanism stand. But these arguments will not succeed. Most do not desire to go back to the middle ages, when believers prayed sincerely and then died miserably. Some may still consult faith healers but the intelligent go to their physicians. More generally, everything about technology plays god, and letting nature takes its course means that half the people reading this article would have died from childhood diseases before the advent of modern medicine.

Still there are good reasons to be cautious about designing and using future technologies, as Bill Joy outlined more than a decade ago in “Why The Future Doesn’t Need Us.”3  (Here is my published criticism of Joy’s argument.) Yes, we should be cautious about the future, but we should not stand still. Do we really want to turn the clock back 100 years before computers and modern medicine? Do we really want to freeze technology at its current level? Look before we leap, certainly, but leap we must. If we do nothing, eventually we will go extinct....MORE
If you're new to this stuff that is how the argument is usually framed, that it's for the good of all humanity.
Also at h+:

National Hurricane Center Says 20% Chance of Gulf of Mexico Cyclone by Saturday

From Reuters:

NHC says 20 percent chance of cyclone over Gulf of Mexico
A weak low pressure area located over the northwestern Gulf of Mexico has a 20 percent chance of becoming a tropical cyclone in the next 48 hours, the U.S. National Hurricane Center (NHC) said on Wednesday.

Some additional development is possible before the system moves inland over southern Texas and northern Mexico on Thursday, the NHC said.

"The ECB’s New Math: 5+5=QE"

From Real Time Economics:
There is a new “it” indicator in Europe: the five-year, five-year swap rate.

It may look like a typo, but this index has generated rampant speculation in financial markets that the European Central Bank will launch a large-scale program of public and private debt purchases—known as quantitative easing or QE—in the next few months.

ECB chief Mario Draghi made it famous at his Jackson Hole speech Friday when he noted that financial measures of inflation expectations have weakened.

“The 5-year/5-year swap rate declined by 15 basis points to just below 2% – this is the metric that we usually use for defining medium term inflation,” Mr. Draghi said.

Financial markets have rallied since. Bond yields are down in Europe, and equities jumped. The euro has lost ground on hopes for more aggressive ECB efforts to fight low inflation and spur stronger economic growth.
So what is this new best friend of QE advocates? The index measures investors’ bets on what the inflation rate will be starting in five years and lasting another five. If the swap rate falls, investors expect less inflation. It’s not a perfect measure—no gauge of inflation expectations is—but the ECB likes it, and that’s what counts.

And here’s why it matters: Mr. Draghi has said that if the ECB thought the longer-term outlook for inflation was eroding, then QE would be an appropriate response. With annual inflation just 0.4% in July—far below the ECB’s 2% target—any weakening in price expectations raises the risk that too-low inflation will become entrenched....MORE

Tuesday, August 26, 2014

Private Banking: "Pictet, Lombard Odier Unveil Financial Results"

From Penta:
The Swiss private banking industry just took a major step towards more disclosure and openness, not because some regulator demanded the move, but because the partners of two leading private banks, Pictet Group and Lombard Odier Group, changed their corporate structure to meet their client’s wealth management demands in an increasingly complex world.

Today, the Geneva-based Pictet Group, reporting for the first time as a limited liability company, announced it had 404 billion Swiss Francs ($440 billion) of assets under management and in custody. Operating income for the first six months of 2014 was CHF 975 million; net profit, CHF 203 million. It’s Core Tier 1 capital ratio is 21.7% and liquidity coverage ratio is 166%.
The 1805-founded private bank, previously run as a partnership bank with the partners personally on the hook through their unlimited liability, now operates in 17 countries and has 3,611 employees globally, with the business itself divided between wealth management, asset management, and asset services. On Thursday, the Lombard Odier Group, also of Geneva, will also be announcing its financial results for the first time and for the same reason.

The benefits for clients of an unlimited liability partnership private bank are that the management is personally on the hook for missteps and misdeeds, and, with their own skin in the game, less inclined to cut corners to reach short term profit goals, only to saddle the company with regulatory fines and lawsuits at some later date. An example of this form of partnership private banking, where service, not in-house products, is the key to profits, is the tiny, conservatively-run but highly-profitable C. Hoare & Co. in London, previously profiled in Penta. The downside of private bank partnerships is that the business often suffers from capital constraints, limiting the bank’s growth. That’s particularly true when the bank needs to service globe-trotting clients in multiple jurisdictions with different regulatory regimes....MORE

"Too Much Corn With Nowhere to Go as U.S. Sees Record Crop" (Buy storage)

The futures appear to be forming a high-fructose fat bottom:
Old crop (Sept)  355'2 -4'6, new crop (Dec) 364'4 -3'0.

From Bloomberg:
The ripening corn and soybean fields stretch for miles in every direction from Dennis Wentworth’s farm in Downs, Illinois. As he marveled at his best-yielding crops ever, he wondered aloud where the heck he’ll put it all.

“Logistics are going to be a huge problem for everyone,” the 62-year-old grower said, adding that he has invested in boosting output rather than grain bins. When harvesting starts in a few weeks, Wentworth expects his 150-year-old family farm to produce 10 percent more than last year’s record. “There are going to be some big piles of grain on the ground this fall.”

From Ohio to Nebraska, thousands of field inspections this week during the Pro Farmer Midwest Crop Tour show corn output in the U.S., the world’s top producer, will be 0.4 percent above the government’s estimate. Months of timely rains and mild weather created ideal growing conditions, leaving ears with more kernels than normal on 10-foot (3-meter) corn stalks and more seed pods on dark, green soy plants.
Prospects of bumper harvests sent Chicago futures tumbling into bear markets last month, two years after a drought eroded output and sparked the highest prices ever. Cheaper grain is bolstering profit for buyers including Tyson Foods Inc. and Archer-Daniels-Midland Co. (ADM), encouraging some cattle producers in the Great Plains to expand herds, and eroding income for farmers who say increased output will make up for some of the slump.

Bigger Yields
Corn on the Chicago Board of Trade has tumbled 20 percent since the end of May, closing at $3.715 a bushel today, and soybeans are down 30 percent to $10.42 a bushel. The Bloomberg Commodity Index slid 6.3 percent over the same period, while the MSCI All-Country World Index of equities rose 1.7 percent. The Bloomberg Treasury Index gained about 0.6 percent.

Samples in Illinois, Ohio, Indiana and Iowa -- representing 45 percent of forecast U.S. corn output and 41 percent of soybeans -- showed bigger yields than last year, according to inspections on the 22nd annual Pro Farmer crop tour, which ended yesterday. Corn production will be 14.093 billion bushels, compared with 14.032 billion estimated by U.S. Department of Agriculture, Pro Farmer said in its final report today. Soybean output was forecast at 3.812 billion bushels, compared with a USDA estimate of 3.816 billion.

The volunteer scouts on the four-day crop tour drove more than 15,000 miles across seven Midwest states, the biggest growing region, taking random samples by counting the number of kernels on corn ears and pods on soybean plants. Editors of the Pro Farmer newsletter will issue final estimates of U.S. output today, partly based on this week’s measurements.

Ideal Weather
In Illinois, the No. 2 corn-growing state, Pro Farmer estimated yields at 198 bushels an acre, more than the 188 bushels the USDA predicted earlier this month, while soybeans were estimated at 54 bushels an acre, the same as the government forecast. In Iowa, the top grower, Pro Farmer pegged corn yields at 183 bushels, less than the USDA’s estimate of 185, and said soybean yields will be 49.5 bushels an acre and may reach the USDA’s forecast of 50 bushels....MORE
 HT: Bloomberg contributor The Big Picture

And a story we were thinking of posting a couple weeks ago but didn't due to uncertainty about the stock:

Grains: What to Buy When There's Too Much Corn? Storage (AFN.tse)
The stock is at $47.88.
From Agrimoney:
Ag Growth bucks weakness in ag equipment sector

Ag Growth International bucked the weakness in the farm machinery sector, unveiling a jump in earnings and foreseeing profits remaining strong, thanks to the prospect of large harvests.

The Canada-based maker of grain handling and storage equipment reported a more than doubling in earnings, to Can$13.64m, for the April-to-June quarter, on revenues up 19.7% at Can$112.4m.
"Favourable crop conditions in North America and continued investment in agricultural infrastructure lead to robust demand for on-farm and commercial grain handling, storage and aeration equipment," Ag Growth International said.
With demand in many overseas markets boosted by desire to fill "a significant storage and handling infrastructure deficit", revenues hit record levels "in all geographies" for the first half over 2014 overall.
'Excellent market environment'
 Orders remain strong too, ahead of what are expected to be record corn and soybean harvests in the US, and with bumper crops in many other countries too....MORE

The stock hasn't done much, $46.90 last.
See also, from a few years ago, turn that corn into silage!:

Farmers Betting on Corn Storage (and how not to sell a silo)

"Atlantic hurricane season showing signs of heating up..."

From the Washington Post's Capitol Weather Gang:

Expected average tropical cyclone activity in the north Atlantic by month. (NOAA)
Expected average tropical cyclone activity in the north Atlantic by month. (NOAA)
It’s been a slow hurricane season so far this year, but things might be heating up in the tropics, with one active hurricane and three areas to watch over the coming days.

So far, 2014 has seen only three named storms, including Hurricane Cristobal, and another tropical depression that really isn’t worth mentioning. While the rest of the Northern Hemisphere is running 121 percent above average in accumulated cyclone energy, the Atlantic has only seen 70 percent of its average activity so far this year.

But August and September are typically the months when Atlantic hurricane activity tends to go into overdrive, as the number of tropical waves coming off the coast of Africa increases. Sea surface temperature also reaches its peak in September, and wind shear, which is detrimental to hurricanes, is relatively low. Technically, September 10 is the average peak of hurricane season in the Atlantic....MUCH MORE
Actually, if you measure either strong (Cat 3 or above) or landfalling hurricanes, the decade since Katrina has been remarkably quiet and especially since 2008 when then-Senator Obama said at the end of  his Democratic nomination victory speech:

"...this was the moment when the rise of the oceans began to slow and our planet began to heal..."

Coal in India is Different: Time to Buy the Subcontinent

Truth be told, Indians are different.
They speak better English than I do.
From FT Alphaville:

India’s Coalgate, the winners and losers
Of course, everyone’s a winner when judgements start off with prose like this:
Coal is king and paramount Lord of industry is an old saying in the industrial world. Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications.
So we’ll have to make do with degrees when discussing the verdict of India’s Supreme Court that, in the words of the FT, saw more than 200 coal mining licences awarded to private industrial groups declared illegal.

Some more words from the FT:
During the past two decades India has granted coal blocks to a range of businesses in sectors such as power and steelmaking, partly to overcome fuel shortages stemming from its inefficient and state-dominated mining sector....MORE, including the winners.
Meanwhile, at Barron's Emerging Markets Daily:
India Slumps On Supreme Court Ruling: Oversold?

Technical Analysis on Commodities As Stocks Set New Records

This is not an offer to sell nor a solicitation of an offer to buy any commodity.
Please contact your personal farmer or miner for further insight.
From Barron's Getting Technical column:

Commodities Attractive As Stocks Smash Highs
As equities continue to climb, commodities may present a valuable buying opportunity.

Most financial advisors suggest that their clients diversify across asset classes, with only the percentages of stocks, bonds, gold and other assets as a matter for debate. I won't wade into the latter discussion, but the charts suggest that commodities as an asset class may be ready to play a greater role. 

The Thomson Reuters CRB index, also known as the CCI index, may have found a bottom (see Chart 1). As the Standard & Poor's 500 reached the 2000 milestone Monday, investors should consider that commodities could be the next opportunity.
Chart 1 
Thomson Reuters CRB index
To be sure, advisors usually recommend a single-digit percentage weighting for gold with even less for other commodities. I must emphasize that I am not suggesting dumping stocks at new highs to buy commodities. However, an upside reversal for the latter can add a kicker to an otherwise stock-heavy portfolio.
Commodities trade in the futures markets, which makes them inaccessible for most individual investors. But exchange-traded notes and exchange-traded funds offer access to commodities via a normal stock account, so let's focus there. 

The Greenhaven Continuous Commodities index fund (ticker: GCC ) is one way to gain exposure to a broad array of commodities. It is designed to track the CCI index of 17 equal-weighted futures markets. As with the CCI itself, the Greenhaven fund is also approaching major support but price action has not yet reached it. However, the rate of descent has slowed according to several technical momentum indicators, such as the relative strength index (RSI). 

Livestock is the most interesting commodity sub-group group right now and the iPath Dow Jones-UBS livestock ETN (ticker: COW ) scored a bullish reversal last week (see Chart 2)....MORE
Jeez, I don't know. Anyone who can write about a bullish reversal in COW....

More seriously, we don't do anything with the ETN's, prefering to lose money the old fashioned way, in the futures.

Furthermore the August USDA Cattle on Feed report came out yesterday, bullish but already old news.
Anyhoo...that's what's mooving.
Most active October feeder cattle:  212.350 +0.600
Most active October live cattle:       148.550 +0.400

"How Home Prices Have Slowed Down, in Five Charts"

From Real Time Economics:
U.S. home prices aren’t rising as fast as they were a year ago following a slowdown in sales triggered by last year’s jump in mortgage rates.

The latest S&P/Case-Shiller index shows that home prices rose 6.2% in June from a year earlier. The big questions now are whether, when, and at what level do year-over-year price changes normalize after the volatile decade that began with a sharp spike and then collapse in prices.
On a monthly basis, prices rose 1% in the Case-Shiller 20-city index. After adjusting for seasonal factors, prices were down 0.2% for the second straight month in June, though S&P has cautioned that its seasonally adjusted series isn’t reliable right now. The unusually high level of foreclosed property sales over the last five years has distorted the seasonal adjustment because those sales don’t follow a normal seasonal pattern.....MORE

"Europe's GDP performance is 15% behind Japan's 1990s lost decade economic performance"

From Next Big Future:
Japan's decades post 1990 are known as 'the lost decades' but GDP per capita growth was comparable to that in the US and Europe. Japan never really experienced any major decline in production or anywhere near double digit unemployment.
Europe is currently progressing through a lost decade that is showing worse GDP performance for the 7 years since the financial crisis began.

Seeking Alpha describes how he eurozone is resembling Japan's lost decades ever closer on a host of metrics, including demographics, growth, inflation, yields and debts. In some respects, the eurozone crisis actually resembles the Great Depression of the 1930s.

The Euroarea as a whole is still at about zero GDP growth since 2007. Europe would need about 15% GDP growth over the next three years to catch up to Japan's economic performance from 1990-2000.

Europe will need more than 2.0% GDP growth for several years to catch up to Japan lost decades sometime after 2020.

The Washington Post also had a comparison of Europe to the Great Depression...

Monday, August 25, 2014

"Multiverse No More, a New Theory of Scale"

From MetaFilter:
Perhaps the fundamental description of the universe does not include the concepts of “mass” and “length,” implying that at its core, nature lacks a sense of scale. 'Supersymmetry posits the existence of a missing twin particle for every particle found in nature.' But there's 'one big problem with supersymmetry: in the particle physics that is observed in today's accelerators, every boson most definitely does NOT have a matching fermion with the same mass and charge. So if supersymmetry is a symmetry of Nature, it must somehow be broken.'

 'Scale symmetry[warning: slow-loading pdf], constitutes a radical departure from long-standing assumptions about how elementary particles acquire their properties. 'With their field stuck at a nasty impasse,' 'researchers have returned to the master equations that describe the known particles and their interactions, and are asking: What happens when you erase the terms in the equations having to do with mass and length?'...MORE

Internet-of-Things: Wearables Show Earthquakes Wake People Up

From recode:
New Wearables Data Reveals Strong Earthquakes Wake People Up
Jawbone has uncovered a new functionality for its Up fitness tracker — earthquake response monitoring system. The company’s data science team collated sleep information across Northern California after an early Sunday morning earthquake to determine what percentage of Up wearers were shaken awake. In Napa, Sonoma and other cities close to the quake’s epicenter, about 93 percent of Up wearers suddenly woke up at 3:20 am when the quake struck, while their counterparts 75 miles away in Santa Cruz continued to sleep peacefully....
Also at recode's Happening Today post:
A Follow-Up Study Called “Quantification of Cheese Bloat and Its Correlation With Pizza Coma Phenomena” Is Also Planned

Journalism: "Fars News proposes joint reporting by Iran, Russia"

Taking on the Anglosphere's journo dominance is probably tougher than it looks, petroleum might be an easier play.
From AL-Monitor:
In a meeting with the Russian ambassador to Iran and a delegation of Russian journalists, the director of Fars News Agency, Seyed Nezamoldin Mousavi, said that the United States is a common threat facing both Russia and Iran and emphasized the need to for media cooperation between the two countries to counter Western influence.

“Iran and Russia have historically shared goals that have had many ups and downs, geographical borders and historical relations which we are all aware of today,” Mousavi said, adding, “Today there is a common threat against independent countries and in this field, and we have to put diplomatic pleasantries aside.”

Mousavi continued, “Today there is one particular power in the name of America, which is a common threat for Iran and Russia. The way America behaves with Iran it also behaves with Russia.”...MORE

Anomalies: Can Momentum Be Arbitraged Away?

Probably not.
From Systematic Relative Strength:
Will momentum “work” in the future just because it did in the past?  Or, is momentum susceptible to having its returns arbitraged away?  Valid question, and one that comes up regularly.

First, just a quick review of how momentum has performed in the past.  There are a number of white papers on this topic, but results of a white paper by RBC Capital Markets are summarized below:
exhibit 1 Can Momentum Be Arbitraged Away?
Over this period of time, momentum outperformed in every single decade.  It also outperformed the S&P 500 by 3.7% annually over the test period.  This is just an academic formulation of momentum and there are other formulations that may be better or worse, but the conclusion is pretty clear: momentum is a very robust return factor.

I think there are two key reasons why momentum returns have not been arbitraged away up to this point and why they are unlikely to be arbitraged away in the future.

First, as long as there is momentum in the underlying fundamentals of companies, there will be price momentum in stocks.

Consider, the strong momentum of revenue of Microsoft (MSFT) in the 1990′s.  I only had revenue data going back to mid-1994, but the explosive growth is very clear.
msft1 Can Momentum Be Arbitraged Away?
Source: FactSet, June 1994 – December 1999, Trailing 12 month revenue for each quarter
Just as there was momentum in the underlying fundamentals of the company, there was also strong price momentum in the stock during the 1990′s.  In fact, MSFT outperformed the S&P 500 nine out of ten years in the 1990′s....
...Second, there is a behavioral explanation for momentum that I don’t believe is likely to go away.  This is summarized by Andrew Ang in his book Asset Management: A Systematic Approach to Factor Investing.....

HT: Abnormal Returns

Goldman Sachs on How Hedge Funds Are Making Money In 2014: The Full Strategy Breakdown

From ZeroHedge:
As part of his latest weekly report, Goldman's David Kostin breaks down the full array of strategy "baskets" used by hedge funds at this moment to outperform the market in 2014. In a nutshell, the best performing strats right now involve betting on a high vs low tax rate divergence (perhaps because companies facing high tax regimes are soaring on hopes they will engage in a price-boosting tax inversion deal), and shorting BRIC exposure:
... on betting aggressively against high quality and shorting strong balance sheet names (thanks to the bond bubble which allows the worst of the worst companies to refinance in the current environment) while at the same time betting that companies will engage in aggressive stock buybacks and generate a return to shareholders (via dividends and general total cash)...MORE

Climateer Headline of the Day: Blame the Blogger Edition

At Business Insider:
The French Government Has Collapsed, And It's Partly Paul Krugman's Fault

Also at BI:

Yes, yes I know Doktor, Doktor* has other interests beyond his blogging.
When he was awarded the better-than-a-faux-Nobel John Bates Clark medal I wrote a poem commemorating the occasion that managed to rhyme 'world trade' with 'got it made.'

*In one of his blog posts he made the point that he had the double-D's.

Equities: "Some Retracement Imminent ….. Probably"

In the intro to Friday morning's "In Rainy Jackson Hole, Yellen Ponders Labor Market Mojo" I noted:
There are signs that the current up move is not strong enough to take and hold the 2000 level on the S&P 500.
What may be required is a trip back to ~1900 or so to flush out any remaining weak hands/hot money. This could begin as soon as Monday, meaning lightening positions ahead of the weekend--something we are usually loathe to babble about on the blog--may be the better-safe-than-sorry tactic.

I'm writing about this on this particular post because Jackson Hole may be a catalyst, or at least be perceived to be by the explainers....
That was done at 9:01 EDT, pre the 1902.60 open.
Now 13 minutes into the new trading day we are sitting at 1,996.87, up 8.47 and Slope of Hope is thinking similar thoughts:
ES is well up overnight, and if that continues into trading hours, then there is an obvious target and significant resistance at the daily upper band, now at 2003 but possibly moving as high as 2005/6 on a strong open today. If that is hit and we see a strong rejection there that would then open up the daily middle band, currently at 1952, as a possible retracement target. SPX daily chart:
140824 SPX Daily Trendlines BBs MAs
There was some weakness/consolidation on Friday, and that did not hit the obvious trendline targets for a retracement. I have rising wedge support in the 1978 area this morning, and have added a scenario on the chart for a possible target in the 1974 area, as there is a nice confluence of support levels there. SPX 60min chart...

U.S. Special Forces, British S.A.S Form Hunter Killer Groups to 'Smash' ISIS

From the Daily Mirror:

SAS and US special forces forming hunter killer unit to 'smash Islamic State'
Target: Islamic State gunmen led by Abu Bakr al-Baghdadi
Elite British and US special forces troops are forming a hunter killer unit called Task Force Black – its orders: “Smash the Islamic State.”

The undercover warriors will aim to “cut the head off the snake” by hitting the command structure of the Islamist terror group responsible for a trail of atrocities across Iraq and Syria, reports the Sunday People.
PM David Cameron has told the SAS and UK spy agencies to direct all their ­resources at defeating IS after a video of US journalist James Foley being beheaded shocked the world.

British special forces will work with America’s Delta Force and Seal Team 6. The move sees a rebirth of top secret Task Force Black, which helped defeat al-Qaeda terrorists in Iraq .

This time the counter-terrorist ­experts will be targeting Abu Bakr ­al-Baghdadi, leader of IS and now the world’s most wanted terrorist.

A source said: “We need to go into Syria and Iraq and kill as many IS members as we can. You can’t ­negotiate with these people....MORE
The last time the S.A.S. did a Task Force Black  they killed 3500 al-Qaida-in-Iraq fellows, 2006-2008.

Sunday, August 24, 2014

This Is Just Plain Smart: Creative Destruction May Be Neither Creative nor Mere Destruction

From FT Alphaville:

When creative destruction becomes creative devastation
John Komlos of the Ludwig-Maximilians University in Munich proposes in a new paper that ‘creative destruction’ has become devastating, not just destructive:
the destructive power associated with Schumpeterian creative destruction has increased markedly relative to their creative component, in contrast to previous epochs. Creative destruction’s gentle winds have mutated into cyclones of destruction.
Thus, our sense of well-being will probably not keep pace with even the slow economic growth being predicted by Gordon, Summers, and Krugman. While the economy will be growing, albeit slowly, we predict that our sense of well-being will be mysteriously lagging well behind.
Furthermore, he argues, the latest innovation cycle is probably being overvalued in Net National Product data:
Market capitalization of Facebook is inching toward $200 Billion, and Twitter, WhatsApp, Instagram are all household names worth billions but probably add much less value to real NNP (net national product), welfare and employment beyond the technologies and firms they replaced. This is the case, because the needs they respond to were satisfied for the most part prior to their existence. They destroyed old forms of communication to which they are close substitutes; hence, my hypothesis is that their ScR value is relatively small. Besides, Facebook has merely 7,000 employees.
The current list of “disruptive technologies” that are likely to usher in future waves of innovation include such fields as education, information, nano- and biotechnology including genetic engineering, cognitive science, robotics, and artificial intelligence. These are not likely to offer major consumer goods which make up the most important part (70%) of US NNP and even those that might be forthcoming promise not to satisfy a basic need that is not already satiated.
The idea that faddy apps are leading to an over-estimation of net product obviously conflicts quite strongly with the alternative view, which is that they’re not being valued highly enough. The idea is that society’s standard of living is improving more than we appreciate due to an abundance of tech-advanced services and products, which can’t be monetised easily and therefore can’t be captured in national measures....MORE