Wednesday, November 30, 2011

It's All in the Timing: Hedge Funds Were Dumping Stock Right Up to the Start of Our One Week 750-DJIA-Point Rally (DIA; SPY)

Joining their retail brethren who have been net sellers for 31 weeks.
From CNBC:
Hedge Funds Dump Stocks, Hoping for Rebound in 2012
Frustrated by market volatility over the European debt crisis and uncertain U.S. economic outlook, the so-called smart money—hedge funds—has thrown in the towel for 2011 and pulled out of stocks, according to fund managers, SEC filings and exchange data.

Hedge funds have slashed their exposure to stocks—both on a long and short basis—to the lowest level since 2008, according to Bank of America Merrill Lynch analysis of SEC disclosures and NYSE and Nasdaq data.

Their net long exposure to stocks plummeted by more than a third, the biggest drop since 2009, stated the report by analyst Mary Ann Bartels entitled “Hold ‘em and Fold ‘em.”
Ironically, the move by the Wall Street pros may not have come at the best time. A coordinated move by central banks on Wednesday to ease Europe's debt crisis sent global markets soaring and sparked hopes for a year-end rally....MORE

"Could they lose the fortune? Rich bankers who 'posed as a front for mystery client' could forfeit $254m Powerball jackpot "

Too clever by half.
Or $508Million halves.
From the Daily Mail:
The rules of the Connecticut Powerball state that the winner ‘shall be disclosed’ or the winning ticket could be ruled invalid.

The final decision rests with the president of the Connecticut Lottery Company, which runs the draw, and he could throw out their claim.

Should that happen it would mean that the entire scheme backfired spectacularly - and leave the charities which have been promised cash out of pocket.

The three men allegedly set up a trust ‘as a front’ so that Tim Davidson, Brandon Lacoff and Greg Skidmore could be the public face of the win.

In a further twist, it was also claimed that rather than donate a large proportion of the money to charity, the winner has requested that the majority just be invested for his personal gain.

The explosive claims  blow apart the fairytale story that Mr Davidson bought the ticket at a gas station in Greenwich Connecticut for $1.

It would also explain the bankers' sheepish performance at a press conference to collect their ‘jackpot’, during which they refused to discuss their relationship with each other.

It had been suggested that Mr Davidson bought his ticket on November 1 and the following day they realised their numbers had come up, beating odds of 195,249,054 to one.
Big win: The trio poses with Anne M. Noble, CT Lottery President and CEO (left) and Frank Farricker after claiming their prize in Rocky Hill, Connecticut
Big win: The trio poses with Anne M. Noble, CT Lottery President and CEO (left) and Frank Farricker after claiming their prize in Rocky Hill, Connecticut

The jackpot was the largest ever won in Connecticut and the 12th biggest in Powerball history.

It means they will take the after-tax lump sum of nearly $104 million in cash between them.

The Connecticut Lottery Company has failed to return repeated phone calls by MailOnline but its own rules suggest that the plot could leave the bankers - and their client - out of pocket.

The rules state: 'Subject to Connecticut laws and regulations relating to the public disclosure of 'Connecticut MEGA MILLIONS' winners, the name and city/town of the JACKPOT winner shall be disclosed in a press release or press conference and the winner may be requested to participate in a press conference.'

The rules also contain the general warning: 'By submitting an official winning 'Connecticut MEGAMILLIONS' ticket for validation, the Claimant agrees to abide by all applicable laws, rules, regulations, instructions, conditions and final decisions of the President.'

Now, according to a family friend who has known Mr Lacoff since he was a boy, the truth behind what happened is very different....MORE

On the Importance of Detached Awareness While Trading Equities: Pay Attention or Pay the Offer (FSLR)

That's a long headline for a short bit of gloating.
Around 1:00 last Wednesday with the general market down for the day at around 11,300 one of our alarms went off as spec name and former high-flyer First Solar levitated. That prompted a post:

Saaay, One of Our Coal Mine Canaries Wasn't Dead After All and Appears to Be Trying to Get to its Feet (FSLR)
One of the things I do unconsciously [we'll pass on that high hanging curve ball -ed] is note the action in the more speculative names versus those at the ultramarine end of the spectrum.

Today First Solar was up a couple bucks while the DJIA was down 200.

This isn't nearly as foolproof as our 'What's on TV Timing Model' (backtested to August) but has shown some skill in forecasting the overall market with a 1 to 5 day lead time.

Fairly wide error bars so your mileage may vary etc, but for what it's worth here's today's action...
Since that post here's how the DJIA has performed (Wed, Fri, Mon-Wed):


Cool huh?

Of course I have the advantage of a deepley suspicious nature, having posted after the close on Tuesday 22nd::
...So when the talking heads started babbling about the supercommittee failure as a proximate cause of yesterday's market decline I started giggling.
And wondered who was on the other side of the seller-initiated transactions.

[it was a manly giggle -ed]
I think that was the fithe down day out of six or somesuch.
Here's the 10-day picture:

Hanging Gardens Redux: "Firm wants to turn Eiffel Tower into "giant tree"" Au Contraire says City Hall

For those looking to short the consultant pushing this idea, it's Ginger Group, not the spice. Or the Spice girl.
I checked.
From Reuters:
An aerial view of the Eiffel Tower in Paris on Bastille Day July 14, 2011.  REUTERS/Charles Platiau
An aerial view of the Eiffel Tower in Paris on Bastille Day July 14, 2011.
Credit: Reuters/Charles Platiau
(Reuters) - A French company wants to turn the Eiffel Tower into a heaving, breathing, botanical giant by draping its mass of metal struts and rivets under a mantle made of 600,000 plants.
The plan to transform one of the biggest tourist attractions in the world into a vast environmental curiosity as well is, for now, little more than the dream of an urban planning consultancy that would gain in fame if the dream became reality.

The idea, which has not so far been officially endorsed by Paris City Hall or the company that operates the Eiffel Tower, would transform the three-floor edifice of more than 300 meters (yards) into something akin to a very tall, and growing, Christmas tree.

Ginger, the consultancy promoting it, issued a statement on Wednesday to defend a project that it said would symbolize the reconciliation of nature and mankind as the world's population heads for nine billion, seven billion of whom would live in urban areas....MORE

From the AP:
Paris: No plans to cover Eiffel Tower with plants
An engineering company says it's preparing plans to blanket the Eiffel Tower in live plants, but Paris City Hall has denied it will happen.In a statement, city hall said it "refutes the existence of any project to vegetalize" the iconic monument.
Wednesday's statement dismissed as "lacking substance" a report in the Le Figaro daily that said Ginger engineering company is working on a euro72 million ($95 million) plan to hang the tower with 600,000 plants for four years.
The report said the company is testing its design on a small model.
Contacted by The Associated Press, officials with Ginger insisted the report is true and that the project is under way...MORE
It's twoo, it's twoo said the spokeswoman
...The hope still lives, and the dream shall never die.

"Wall Street Pundits' Instant Response To Global Fed Bailout" (including the Climateer Line of the Day)

From Reuters via ZeroHedge:
"It feeds into the idea that policymakers are at least beginning to address the problem. There was a very dark mood developing at the back end of last week. With the dire scenarios doing the rounds the last few days, it's all the more important they step in with aggressive measures to support the banking system and show they're beginning to confront the financing problems of the sovereigns as well."

"From a currency perspective the move has given risk currencies real lift. The liquidity injection means the world's most liquid currency the Dollar is less required near-term and is currently being broadly sold.
"Such an operation usually gives pairs such as Eur/Usd, Aud/usd a fairly lasting lift. It is an emergency measure and of course will do very little to aid Greek and other EMU nations debt woes further out."

"Initial reaction was bullish. The announcement caught markets by surprise and prompted short covering in dollar-euro and a firming in oil price. It is supportive. Difficult to predict for how long."

"This is something that is very welcome. This will not solve all deep-based funding problems which are due to the sovereign debt crisis. But there is an issue with dollar liquidity, especially with foreign currency and this measure addresses that. This helps the margin and also shows that central banks remain at unease with what certainly is very significant distress.

"We were expecting the ECB to deliver these measures next week ... the ECB has more scope to go, and we expect the ECB to announce more measures in next policy meeting (on Dec. 8). Now that is has done the swapline, there is scope to reduce the cost of liquidity banks get from the ECB regardless of the currency, and that goes via interest rates.

"Doing more on the collateral side is probably the second step. The ECB is helping the banking system while sovereigns do their homework."...MORE
And the winner is:

"Not a complete surprise. People were expecting China to do something before the end of the year, and given the stresses in the market there has been talk about the Fed backstopping what's going on in Europe. Desperate times and all.

"The move in (U.S. stock) futures is justified. Whether this solves our long-term problems remains to be seen, but when you flood the market with liquidity, risk assets go much higher."

"The Effect of Quantitative Easing on Stock Prices"

Always keeping in mind that Correlation≠Causation, blah, blah, blah.
We like this site, he keeps an active link to the Cowles/S&P 1871-present stock index database currently presided over by Professor Schiller and have linked to a half-dozen posts over the years.
Nose around if you have time but at minimum read the concluding thoughts of this exposition.

From Politcal Calculations:

What effect did the Federal Reserve's quantitative easing programs have on U.S. stock prices in the three years from November 2008, when it was first suggested, and today?
To find out, we'll do an event analysis - we'll match up the level of stock prices as measured by the S&P 500 with the timing of the Federal Reserve's announcements and implementation of its two rounds of quantitative easing (aka "QE1" and "QE2").
The Federal Reserve Bank of St. Louis maintains a timeline of the events and policy actions that have been taken with respect to the financial crises since 2007. Here are the key milestones with respect to the Fed's quantitative easing programs, along with some other notable events. Our chart below shows the overall timeline over the past three years:
S&P 500 Index Closing Price, 25 November 2008 through 28 November 2011Beginning the timeline:
A. 25 November 2008
The Federal Reserve Board announces a new program to purchase direct obligations of housing related government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac and Federal Home Loan Banks—and MBS backed by the GSEs. Purchases of up to $100 billion in GSE direct obligations will be conducted as auctions among Federal Reserve primary dealers. Purchases of up to $500 billion in MBS will be conducted by asset managers.
B. 16 December 2008
The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.
C. 28 January 2009
The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets....MORE

Zeitgeist: "Cornel West Predicts Fight for Entitlements in 'the Streets'" (and how it ties in to Presidential politics)

If you do a Google search for -make ungovernable- (no quotes) you'll see that it's recent use as a political term is most common in Africa. On the first couple page of hits you'll find Nigeria, South Africa and Ghana with LDC's in other hemispheres also represented.
It's also starting to pop up in the developed world, here's a British anarchist website back in March:
To fight the cuts, make the country ungovernable
The thinking has a long informal history, though some intellectual heft was afforded to it, in the context of actual poverty, with the 1966 with the publication by The Nation of "The Weight of the Poor: A Strategy to End Poverty".

I've mentioned the Cloward-Piven Strategy a few time and probably will again.
At it's base the strategy requires pigeonholing people into groups and classes to divide and sub-divide the populace, the intellectually laziest criteria being race. I'l have some links after the jump.
From The Root:

Cornel West Predicts Fight for Entitlements in 'the Streets'
Cornel West (Getty Images)
In an appearance on MSNBC, Princeton professor Cornel West said that there may be more civil disobedience as more people become frustrated by the poverty rate, especially as it relates to children. Read the transcript from Real Clear Politics:

"I think the problem is that the poor children, keep in mind it's 42% of poor children who live at or near poverty, it's 25% in poverty. Our audience needs to keep that in mind," West said on MSNBC this afternoon.

"Poor children need more than just a $1,000 for their family, they need a war against poverty to make it a major priority in the way which we have a priority for Afghanistan, and a priority to bail out banks, and a priority to defend corporate interests when it comes to environmental issues," West said about more and new entitlements for the poor.

West didn't just call for another war on poverty (the first war was fought by Lyndon B. Johnson), but went on to say that the push for more entitlements "is going to be fought in the streets." West showered the Occupy movement with praise for making people aware of the issue...MORE
Here are a few commentaries on the 2012 presidential race. From the New York Times' Campaign Stops blog, November 27, 2011:
The Future of the Obama Coalition
For decades, Democrats have suffered continuous and increasingly severe losses among white voters. But preparations by Democratic operatives for the 2012 election make it clear for the first time that the party will explicitly abandon the white working class.

All pretense of trying to win a majority of the white working class has been effectively jettisoned in favor of cementing a center-left coalition made up, on the one hand, of voters who have gotten ahead on the basis of educational attainment — professors, artists, designers, editors, human resources managers, lawyers, librarians, social workers, teachers and therapists — and a second, substantial constituency of lower-income voters who are disproportionately African-American and Hispanic.

It is instructive to trace the evolution of a political strategy based on securing this coalition in the writings and comments, over time, of such Democratic analysts as Stanley Greenberg and Ruy Teixeira. Both men were initially determined to win back the white working-class majority, but both currently advocate a revised Democratic alliance in which whites without college degrees are effectively replaced by well-educated socially liberal whites in alliance with the growing ranks of less affluent minority voters, especially Hispanics.
The 2012 approach treats white voters without college degrees as an unattainable cohort. The Democratic goal with these voters is to keep Republican winning margins to manageable levels, in the 12 to 15 percent range, as opposed to the 30-point margin of 2010 — a level at which even solid wins among minorities and other constituencies are not enough to produce Democratic victories....MORE
From The Center For Americaqn Progress:
November 2011
The Path to 270
Demographics versus Economics in the 2012 Presidential Election
(68 page PDF)

Finally from National Journal, November 15, 2011:
Obama’s Choice: Ohio or Virginia 
The president needs white working-class voters in the Rust Belt and upscale professionals in swing states. Can he woo both? 
Former Massachusetts Gov. Mitt Romney has been parodied for changing his positions over his political career. But when it comes to devising an election strategy for 2012, President Obama is the candidate at risk of being seen as a waffler.

The president’s advisers are stuck between pursuing two distinctly different strategies and two very different kinds of voters, each of which is crucial to his reelection. The first is an “Ohio strategy,” which means adopting an aggressively populist message to win back blue-collar voters in Rust Belt states such as Ohio, Pennsylvania, Michigan, and Wisconsin. The second is a “Virginia strategy,” which would emphasize a more centrist message aimed at upscale white-collar professionals and college-educated suburbanites. The Virginia strategy would also appeal to voters in Colorado, Nevada, and North Carolina, and would probably be bolstered by a mobilization of young voters and minority groups, who make up a significant share of the electorate in those states....MORE
So there you have it,a framework to hang things on as the next year unfolds.
In twelve months we'll see if it's an objective analysis or just projection on my part of a radical youth.
In the meantime, stop me if you've heard this, Two politicians walk into a bar...

U.S. Natural Gas Production Hits Another New Record in September

It's been a while since we checked in with Professor Perry, who I can't help referring to as the Happy Economist.
From Carpe Diem:

Updated: The EIA released data today on U.S. natural gas production for the month of September.  On a seasonally-adjusted basis, natural gas production (both gross withdrawals and marketed production) in the U.S. reached new record-high levels in September of almost 2.5 trillion cubic feet for gross withdrawals and 2.1 trillion cubic feet for marketed production, about 6% above the year-ago levels.  Compared to September 2006, natural gas production has increased by 22% over the last five years for gross withdrawals and 24% for marketed production. 

Here's the opening paragraph from a related story on natural gas in The Economist from a few days ago, about why Europe may "have trouble replicating America’s shale-gas bonanza," at least in the short-run:
"Shale gas has turned the American energy market on its head....MORE

Tuesday, November 29, 2011

In Other News: Iran Edition

Here are the headlines at Drudge:

S&P Downgrades Most of the U.S.'s Major Banks (GS; C; BAC; JPM)

From MarketBeat:
S&P Hits Biggest U.S. Banks With Credit Rating Downgrades
S&P has reviewed its credit ratings for 37 of the world’s biggest banks, cutting the ratings of several, including all of the Big Six.

This is not the most shocking news in the world, but it is not good news. Bank of America briefly traded below $5 after hours and was recently down to $5.02. It was dancing with $5 all day, as the financials lagged the market all day. Purely coincidental, we’re sure!...MORE
 And from London, 1910:
Mr. Dawes Sr, Mr. Banks and Bankers:

If you invest your tuppence

Wisely in the bank

Safe and sound

Soon that tuppence,

Safely invested in the bank,

Will compound

And you'll achieve that sense of conquest

As your affluence expands

In the hands of the directors

Who invest as propriety demands

You see, Michael, you'll be part of

Railways through Africa

Dams across the Nile

Fleets of ocean greyhounds

Majestic, self-amortizing canals

Plantations of ripening tea

All from tuppence, prudently

Fruitfully, frugally invested

In the, to be specific,

In the Dawes, Tomes

Mousely, Grubbs

Fidelity Fiduciary Bank!

Now, Michael,

When you deposit tuppence in a bank account

Soon you'll see

That it blooms into credit of a generous amount


And you'll achieve that sense of stature

As your influence expands

To the high financial strata

That established credit now commands

You can purchase first and second trust deeds

Think of the foreclosures!

Bonds! Chattels! Dividends! Shares!

Bankruptcies! Debtor sales!


All manner of private enterprise!

Shipyards! The mercantile!

Collieries! Tanneries!

Incorporations! Amalgamations! Banks!

You see, Michael

Tuppence, patiently, cautiously trustingly invested

In the, to be specific,

In the Dawes, Tomes

Mousely, Grubbs

Fidelity Fiduciary Bank! 
[sorry about that, he fancies himself a Mary Poppins era banker -ed]

Paging Al Gore: Lithium Battery Maker "A123 'Temporarily' Lays Off 125 in Michigan" (AONE)

Remember the "These are good jobs, jobs that can't be offshored" schtick.
Me too.
From Greentech:

The lithium ion battery maker blames the layoffs on slashed orders from customer Fisker Automotive. When will business pick up enough to bring them back? 
Thanksgiving didn’t have much to offer by way of thanks for about 125 employees of A123 who were laid off from the lithium-ion battery maker’s Livonia and Romulus, Mich. factories last week.

The layoff announcements came just weeks after A123 reported rising third-quarter losses and lowered its annual revenue forecast, a sad state of affairs it blamed on reduced orders from big customer Fisker Automotive.

A123 has said it hopes to hire back the workers after six months or less, and still employs about 700 workers at the two plants and at A123’s engineering center in Ann Arbor, Mich.. “The part we really want to stress is we expect it to be temporary, hopefully a blip we all get past,” A123 spokesman Dan Borgasano told local reporters.

Still, for a company that built its Michigan plants with the help of a $125 million state grant and a $249 million Department of Energy stimulus grant, it’s a bad way to enter the holiday season. Given the troubles that bankruptcies at DOE loan guarantee winners Solyndra and Beacon Power have given the Obama Administration, A123’s layoffs aren’t going to be welcome political news in the White House, either.
A123 has laid blame for the layoffs squarely on Fisker’s decision to reduce its orders for battery packs. The two companies inked a partnership last year which came along with a $23 million investment by A123 into Fisker.

But Fisker has struggled to deliver its first car, the high-end hybrid Karma sports car, with only about 40 cars delivered to date. Earth2Tech reported that A123 said Fisker is now looking to delay full-scale Karma production until mid-2012 — that despite the fact that it’s raised close to $700 million, most recently with a $58 million tranche of a $150 million “pre-IPO” round....MORE
You may also remember this 2009 WSJ story:

Gore-Backed Car Firm Gets Large U.S. Loan
WASHINGTON -- A tiny car company backed by former Vice President Al Gore has just gotten a $529 million U.S. government loan to help build a hybrid sports car in Finland that will sell for about $89,000.
The award this week to California startup Fisker Automotive Inc. follows a $465 million government loan to Tesla Motors Inc., purveyors of a $109,000 British-built electric Roadster. Tesla is a California startup focusing on all-electric vehicles, with a number of celebrity endorsements that is backed by investors that have contributed to Democratic campaigns.

The awards to Fisker and Tesla have prompted concern from companies that have had their bids for loans rejected, and criticism from groups that question why vehicles aimed at the wealthiest customers are getting loans subsidized by taxpayers.

"This is not for average Americans," said Leslie Paige, a spokeswoman for Citizens Against Government Waste, an anti-tax group in Washington. "This is for people to put something in their driveway that is a conversation piece. It's status symbol thing."....MUCH MORE

Mind the Gap: The Next Market Downdraft Will See Bank of America Trade With a 4 Handle (BAC)

The stock is currently at $5.09 down 3.14% after setting a 52-week (actually longer but I'm too lazy to look) low of $5.03 earlier today.
First up, What's Trading says option buyers are bullish:
Bank of America (BAC) fell to a 52-week low of $5.1 this morning, but has since battled back and is now down just a penny to $5.25 per share. Interesting trade in the bank this morning is a 39000-contract block of Jan 6 calls bought for 28 cents per contract. 57,570 now traded, making it today’s most actively traded options contract. 14,560 Dec 6 calls traded on the bank as well. Total volume through the first hour is 90K calls/49K puts and implied volatility in BAC options is steady at 79 percent.
And a repost of a drum we started beating on August 4th and highlighted again on October 3rd:

Just a Reminder on Bank of America: Mind the Gap (BAC)
Stocks are smarter than fund managers.
And investors, brokers, analysts, traders etc.
With the stock at $5.68, down 44 cents (7.27%) I'm reposting  from August 4:
Remember "Is Bank of America At Risk of a Death Spiral? (BAC)"
For cryin' out loud it was only July 21st when we posted it.
Here's the link.

I bring this up because, with the stock down 7.4% to $8.88 today I was asked "How far can it drop?"
Houston we may have a problem.
Here's the chart for March 2009: 

If I may direct your attention attention to the bars for the 9th and 10th there is a gap where the stock closed at $3.75 on the 9th and opened at $4.35 on the 10th.
That gap has never been filled.

I had sworn to myself that I would not ever speak of this, it sounded outlandish even to me.
Not all gaps fill. As I said in October '09's "Equities: Well We Filled the Gap in the S&P 500 Chart"
It is almost uncanny how many times a stock or index makes a gap up and then comes back to fill the gap before resuming the move. In this case S&P 1073 or thereabouts.

On the other hand, I knew an old-timer who spent much of the eighties waiting for the Dow Joneses to fill a gap in the high 500's that dated from 1974....
And it may not fill on this go-around.
We are expecting the ultimate market bottom in 3-4 years, it may be the next big bear before BAC see's $4.
But now you know.

Molycorp, Daido, Mitsubishi Form Next-generation Rare Earth Magnets Joint Venture (MCP)

MCP is trading up 36 cents at $31.01.
From Mineweb:

Molycorp has formed a joint venture with Daido Steel and Mitsubishi to manufacture next generation NdFeB permanent rare earth magnets
Molycorp, Daido Steel, and Mitsubishi have formed a joint venture to manufacture and sell next-generation neodymium-iron-boron (NdFeB) permanent rare earth magnets, producing greater performance with less reliance on dysprosium.

The joint venture will be financed by the three companies and by a government subsidy sponsored by Japan's Ministry of Economy, Trade, and Industry.

The effort will utilize Daido's commercial-scale magnet manufacturing technologies, Mitsubishi's domestic and international marketing and sales network, and Molycorp's rare earth oxide, metal and alloy manufacturing capabilities, according to Molycorp.

Target markets for the joint venture are the automotive and home appliance markets. "The joint venture has been provisionally awarded a supply agreement for a next-generation electric vehicle with a major automotive manufacturer," Molycorp advised....MORE

Time for a Perp Walk? "Hank Paulson’s inside jobs"

And since Mr. Geithner was head of the New York Fed at that time maybe he should also be made to answer for what was going on.
From Felix Salmon at Reuters:
What on earth did Hank Paulson think his job was in the summer of 2008? As far as most of us were concerned, he was secretary of the US Treasury, answerable to the US people and to the president. But at the same time, in secret meetings, Paulson was hanging out with his old Goldman Sachs buddies, giving them invaluable information about what he was thinking in his new job.

The first news of this behavior came in October 2009, when Andrew Ross Sorkin revealed that Paulson had met with the entire board of Goldman Sachs in a Moscow hotel suite for an hour at the end of June 2008. He told them his views of the US and global economies, he previewed a market-moving speech he was about to give, and he even talked about the possibility that Lehman Brothers might blow up. Maybe it’s not so surprising that Goldman Sachs turned out to be so well positioned when Lehman did indeed do just that a few months later.

Today we learn that the Goldman meeting in Moscow was not some kind of aberration. A few weeks later, on July 28 2008, Paulson met with a who’s who of the hedge-fund world in the headquarters of Eton Park Capital Management — a fund founded by former Goldman superstar Eric Mindich....MORE

Jeremy Grantham on Corporate Profits and Mean Reversion

Back in April we awarded Mr. Grantham the presigious CLoD in "Climateer Line of the Day: Jeremy Grantham on Profit Margins Edition":
“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
That post had a half-dozen links to commentary on profit margins.
Here's Mr. Grantham's latest via Bloomberg:
U.S. companies are the most profitable in more than 40 years, and some of the best-known stock pickers are divided over how long that will last.

Bob Doll, chief equity strategist at BlackRock Inc. (BLK), said low labor costs and cost-saving technology will allow companies to keep up their profitability. Jeremy Grantham, chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co., said margins will send stock markets tumbling when they eventually revert to their mean.

“The implication for the stock market is ugly, because it means earnings are unsustainably high,” Grantham’s colleague Ben Inker, GMO’s director of asset allocation, said in a telephone interview. GMO, an investment manager that oversees $93 billion, puts the fair value of the Standard & Poor’s 500 Index at between 950 and 1,000, compared with the 1,158.67 level at which it closed last week....
...Grantham also believes in mean reversion, the notion that most measures drop back to their historical norms over time.

‘The Great Threat’
“Lower margins are the great threat to market performance,” he wrote in the August newsletter. Grantham is known for his bearish investment outlook and for his successful record in identifying stock-market bubbles.
Margins have been propped up by a “great surge” in government spending that fueled consumption, Grantham said. As political pressures force the U.S. to cut its budget deficit, the economy will suffer and margins will drop, Grantham predicted without laying out a timetable.

GMO expects U.S. large-capitalization stocks to return 1.8 percent a year above inflation over the next seven years, according to its website....MUCH MORE 
HT: Abnormal Returns

One area where Mr. Grantham is not looking for mean reversion is in commodities. In this he is at odds with SocGen's Dylan Grice, see:
Société Générale's Dylan Grice-"Commodities: ‘Their Expected Long-Run Real Return is 0%’"
Commodities: "The Case for Human Ingenuity"
Commodity Prices tend to be Mean-Reverting (cotton)

Back to GMO, here's our July 1, 2011 post "A Tip of the Cap to Jeremy Grantham on his Commodities Call":
That is not sarcasm.
When Mr. Grantham made his "paradigm shift" call back in April most analysts, pro and con, looked at the longer term comments. I did, although I also had a contrary gut feel. Our May 5 post:

Commodities: Did Jeremy Grantham's 'Paradigm Shift' Letter Call the Intermediate-term Top
Remember: A paradigm is only worth twenty cents.
Like a lot of blogs we relayed Mr. Grantham's commodities call.
Here's the Jeffries Global Commodity ETF chart via Finviz:

I'll be back with more. In the meantime here's the April 26 post that linked to FT Alphaville's Grantham story:
The End of Cheap Commodities (or not)
Later that day:
Commodities Have Reached a Permanantly High Plateau* (or not)
April 29:
Commodity Prices tend to be Mean-Reverting (cotton)
May 3:
Commodities: "The Case for Human Ingenuity"

You can probably guess that I tend toward the optimistic.
There was more to the story. From June 2:
Job Creation Disappears and Lord Rothschild Suggests You Panic, Sells Gold (and the Jeremy Grantham Commodity Call that Didn't Make the Headlines)
This didn't get a lot of play in late April and in fact I missed it on first reading GMO's letter. Most folks focused on the longer-term "paradigm shift" portion of what Grantham was saying and missed this because the shorter-tem negative bits were scattered throughout. Citywire wrapped it up in a neat package (note, this is not the Grantham piece linked in the article above) . 
Grantham predicts commodity crash on scale of financial collapse
GMO’s self confessed perma-bear Jeremy Grantham has rung the alarm bell on rising commodity prices predicting a crash ‘not unlike the financial collapse’.
In his latest quarterly letter titled Time to wake up: days of abundant resources and falling prices are over forever’, he argues that a combination of better than expected weather and a blip in China's 'warp speed' growth due to anything from wage increases, misappropriated capital in large, unnecessary projects, rising debt or a house price bubble, could drag commodity prices down dramatically.
He warned: ‘If the weather and China syndromes strike together, it will surely produce the second “once in a lifetime” event in three years.’

Elaborating, he said: 'Several of my smart colleagues agree with Jim Chanos that China’s structural imbalances will cause at least one wheel to come off of their economy within the next 12 months. This is painful when travelling at warp speed – 10% a year in GDP growth.'

'The significance here is that given China’s overwhelming influence on so many commodities, especially in terms of the percentage China represents of new growth in global demand, any general economic stutter in China can mean very big declines in some of their prices.'

'You can assess on your own the probabilities of a stumble in the next year or so. At the least, I would put it at 1 in 4, while some of my colleagues think the odds are much higher.'

'If China stumbles or if the weather is better than expected, a probability I would put at, say, 80%, then commodity prices will decline a lot. But if both events occur together, it will very probably break the commodity markets en masse. Not unlike the financial collapse.'...MORE
That is almost stunning in its simplicity. The guy is good.

China's Solyndra? and Nathan Myhrvold Slams the Industry's Business Model(STP; YGE; TSL; JASO)

 While the story below references the September 2010 China Development Bank loans, we posted on the Chinese Government's financial support as early as 2009, links* below.
From Foreign Policy's Passport blog:
Money for clean energy is creating political messes all over. Of course, there are the Obama administration's ongoing troubles over loans to now-bankrupt solar manufacturer Solyndra. Now comes a report from Reuters saying that green energy loans to bolster China's businesses may be in danger of defaulting, due to falling demand from Europeans, their biggest customers.
From the report:
State banks provide easy loans to the sector amid the Chinese government's push to develop clean energy. Provincial governments that have helped build solar companies are also pressuring banks to continue lending, which may add to the woes of the struggling industry.
The glut of production and swelling inventories of the panels that turn sunlight into electricity have already driven down prices by about 40 percent so far this year. Analysts expect prices to slide by another 10 percent by early next year.
"Over the next six months, there won't be profits to be made," said CLSA's solar analyst Charles Yonts. He expects some companies to start defaulting on loans and put themselves up for sale.
"Balance sheets across the solar sector are already stretched to breaking."
This comes on top of other setbacks for China's green energy aspirations this year. In September, the Chinese had to shut down a solar panel plant following protests against the its pollution. Other economic concerns including the rising number of "ghost cities" amidst the Chinese property bubble, are rattling the markets and prospects for growth.

The Guardian reported in September that in 2010, the China Development Bank gave out nearly $30 billion in loans to the top 5 manufacturers of solar panels.  Several weeks ago, industry groups representing the U.S solar industry raised concerns to the U.S Commerce Department about possible dumping by Chinese manufacturers....MORE
From Bloomberg:
Energy Subsidies Stymie Wind, Solar Innovation: Nathan Myhrvold
This month, the U.S. Department of Commerce launched a formal investigation into complaints, lodged by the U.S. solar-cell manufacturers, that the government of China is funneling loan guarantees, grants and subsidies to its solar-cell companies.

Apparently, the Commerce Department is shocked, shocked to learn that a government would subsidize the solar industry.

A few days later, the New York Times described a “gold rush” under way in the U.S. as builders of wind and solar farms cash in on grants and loan guarantees offered by both the federal government and various states. These incentives effectively allow players at every level of the renewable-energy industry to lock in profits of 10 percent to 30 percent a year for the 20- to 30-year life of their plants -- not bad considering 10-year Treasury bonds are paying only 2 percent.

Both of these developments are symptoms of a larger problem with the world’s current approach to renewable energy. The range of prospects being tried now is dizzying -- from high-tech windmills to biofuels, from corn to algae, from silicon photovoltaic cells to boilers heated by thousands of reflected sunbeams. But they all share one thing that makes them appealing to investors: taxpayer dollars. One of the ugly secrets of the renewable-energy industry is that its products make no economic sense unless they are highly subsidized.

‘Levelized’ Energy Cost
To get a sense of just how deep these subsidies run, I looked up projections from the U.S. Energy Information Administration of the “levelized cost” of energy from various power sources. Let’s say you decide to build a new electricity plant that will come online five years from now. Before getting a loan, you’ll want to estimate how much money you will have to lay out for construction, operations and maintenance, fuel, interest payments, insurance and so forth over the 30-year lifetime of your plant. Divide that total investment by the amount of electricity the plant is likely to sell, and you get a break-even price per kilowatt-hour. That’s the levelized energy cost....MORE 
...Some people fret that China will reap the green jobs of the future, but no economically viable green-energy product exists. It makes no sense for the U.S. to try to dominate a money-losing industry, especially by guaranteeing profits to inefficient power plants for 30 years.... 

*December 2009 
Trina, Belle of the Solar Ball (TSL; LDK)
...Trina Solar Prices $120 Million of Convertible Senior Notes and Up to 4,073,194 American Depositary Shares 
TSL is a favorite of the Chinese government who helped arrange this hunk o'loot, September:
September 2010 
China Development Bank to Supply LDK Solar $8.9 Billion Credit Facility (LDK)
April 14, 2010 
"UPDATE 1-Suntech,Trina Solar sign $11.7 Billion loan deals" (STP; TSL)

April 14, 2010 
Credit Where Credit is Due: Forbes Had the Suntech, Trina Loan Story First (STP; TSL)

Monday, November 28, 2011

Ponzi Topping Our? Brother-in-law a Zetas Kingpin? "How to disappear completely"

Handy hints from Wired UK:
It seems you can't move in today's world without leaving a digital footprint. The good news is that escaping the panopticon doesn't have to mean living in a cave in Tora Bora. Frank Ahearn, a former skip-tracer and the author of How To Disappear, reveals how to pull off the ultimate vanishing act.

Incorporate Yourself
"The beauty of corporations, whether in the US, Canada, Caribbean, UK, Guernsey or Jersey, is that they offer privacy," says Ahearn. A corporation lets you conduct business affairs anonymously. Utilities, property and other essentials can be leased in the company's name.

Learn to live off the grid
When you upload info to social networks, you grant them rights to share that data. "If you want to remain anonymous you can't rely on third-party entities," he says. Share images on your own password-protected website, and use Skype or email to stay in touch with friends.

Create an army of doppelgängers
To throw stalkers off the scent, Ahearn buys 30 different domains containing variations of his client's name and creates an individual social network for each one. He then splices real information about each client with misinformation about their location and activities.

Engineer your own identity
Open a bank account and deposit a few hundred pounds. Send the card to a friend in a different city and have them spend in small increments. If your bank statements fall into the wrong hands, says Ahearn, "They'll find those supermarkets and search in the wrong place"...MORE

Genius Engineer/Can't Get an H-1b Visa? "Blueseed: A Startup That Plans to House Would-Be Immigrant Innovators 12 Nautical Miles from Silicon Valley"

We have a (very flexible) prohibition against linking to the same site more than once per day.
Reason's Hit&Run blog gives us a reason to break the rule:
Max Marty sees a potential market in what he considers flawed U.S. immigration policies. Marty is the founder and CEO of Blueseed, a startup that plans to create a “high-tech visa-free entrepreneurship and technology incubator on an ocean vessel in international waters.”

Because of the current U.S. immigration system, says Blueseed, “bold and creative entrepreneurs from around the world aren’t given the chance to come to Silicon Valley and develop the technologies that could be creating jobs and propelling the economy forward.” So the company plans to house these potential innovators near Silicon Valley on a floating vessel in international waters near the San Francisco Bay Area.
Most so-called "high-skilled" immigrants (scientists, engineers, computer programmers, and the like) come to the United States under the H-1B visa program. Congress caps the number of visas issued at 65,000 each year and allows an additional 20,000 exceptions for immigrants with advanced U.S. degrees.

Last week U.S. Citizen and Immigration Services announced that the Fiscal Year 2012 cap was reached, which was two months ahead of last year's pace. ComputerWorld noted that before the recession, the cap was routinely reached in just a week. It took only one day in 2007....MORE

"Asset Managers Claim $254 Million Powerball Jackpot "

A excellent plan, flawlessly executed.
From CNBC:

Three asset managers from Connecticut claimed a $254 million Powerball jackpot on Monday off a $1 ticket.
Gregg Skidmore, Brandon Lacoff and Tim Davidson came forward as trustees for The Putnam Avenue Family Trust, which they formed after Davidson bought the winning ticket at a Stamford gas station. At least two of them live in Greenwich, one of America's wealthiest towns and not far from the New York state border.
They will take the after-tax lump sum of nearly $104 million in cash. 

They say a significant portion will go to charity. 

Davidson bought the $1 quick-pick ticket for the Nov. 2 drawing at the Shippan Point Getty station in Stamford. It was the only ticket he bought. The winning numbers were 12-14-34-39-46, Powerball 36.
The jackpot was the largest ever won in Connecticut and the 12th biggest in Powerball history. 

The three men work at a small, startup asset management firm called Bell Asset Management in Greenwich. They appeared with their lawyer at a news conference and didn't say much....MORE
I have a collection of planning quotes from Patton, Eisenhower, Edison etc. Out of all of them I think this is my favorite:

Everyone has a plan - until they get punched in the face 
- Mike Tyson

Why You Really, Really Want to Listen to the Bank for International Settlements

On June 26, 2007 (i.e. pre-"Quant-quake", pre-Bear Stearns, pre-ought-eight-near-catastrohe) we posted a short little piece:
"(Off-topic) Banks' banker warns of downturn":
THE risk of a 1930s-style economic slump has been heightened by "euphoric" markets tapping cheap global credit, one of the world's pre-eminent financial institutions has said.

In its annual report, the Bank for International Settlements noted that the conditions that led to the Great Depression of the 1930s and the Asian crises in the 1990s reflected the current environment.
From The Age
On April 28, 2010 it was Greece: "Exposure fears weigh on French, German banks"
From MarketWatch:

Banks with local subsidiaries, government-lending exposure most at risk
Banks in France and Germany have the biggest exposure to Greece of non-Greek lenders are also heavily exposed to other potentially at-risk countries, with those firms that operate local subsidiaries or with big local-authority funding activities likely to face the heaviest losses, analysts said.

The latest figures from the Bank for International Settlements show French banks have $75.2 billion of exposure to Greek borrowers, while the industry in Germany has an exposure of $45 billion. The U.K. trails a relatively distant third, with exposure of $15.1 billion....
There is a reason the BIS is known as the "Central banker's central bank".
Here's their website. I try to visit a couple times per month.

No Austerity Please, We're British: "Hammersmith and Fulham Council Spends $10 Grand on Panjandrum's Retirement Party

For our non-English speaking readers trying to run the headline through a mechanical translator the OED defines panjandrum as:
"a person who has or claims to have a great deal of authority or influence:"
For me the connotation is an old west medicine show with a wagon emblazoned "The Great Panjandrum" goes with "a self-important or pretentious official" which is probably closer to what I was picturing.
From the Fulham and Hammersmith Chronicle:
Debt-ridden Hammersmith and Fulham Council spent more than £7,000 of public money on a party for its retiring chief executive in what has been described as an 'astonishing' use of tax payers' cash.

More than 450 council staff attended the Town Hall event in honour of Geoff Alltimes, who last month left his job as one of the highest paid local authority executives in the country with a pay-off of more than £200,000 and an annual pension thought to be in excess of £100,000.

Conservative councillors and colleagues of Mr Alltimes insisted the public would 'understand' why the authority, which has overseen cuts to community services and buildings worth millions of pounds in what it describes as its 'relentless drive for savings', pushed the boat out to mark his 36-year council career.

But leader of the Labour opposition Stephen Cowan said: "It's hard to understand why over £7,000 of tax payers' money was wasted on a boozy knees-up...MORE
HT: EU Referendum who headlines the story: 

Austerity Italian Style Update: Govenment's Maserati Order Scaled Back

Il nuovo Ministro rinuncia a 10 Maserati blindate

Following up on last month's "Austerity Italian Style: Govenment Buys 19 Maseratis to Tool Around Roma" we have word that maybe the optics on this were not reflective of the Italian propensity toward restraint and sobriety. 19 to 10, hey that's progress right?

From Motori.ItMotori.It:
Il nuovo Ministro rinuncia a 10 Maserati blindate
Il ministro della difesa Di Paola ha disdetto l'acquisto di 10 Maserati blindate ordinate nella precedente legislatura.

La notizia dell'acquisto di 19 Maserati blindate da parte del Ministero della Difesa ha scatenato una forte polemica.

Interrogato in parlamento sulla vicenda però, l'allora Ministro della Difesa Ignazio La Russa aveva giustificato l'acquisto della Maserati Quattroporte come il più conveniente proposto dal mercato.
Le 19 ammiraglie però non saranno mai assegnate ai generali, o almeno in parte. Il generale Biagio Abrate, capo di Stato Maggiore della Difesa, ha annunciato un netto taglio dei costi. "Abbiamo rinunciato a 10 delle 19 Maserati previste, nonostante il contratto risalisse a qualche anno fa".

Dopo la scelta del premier Mario Monti di viaggiare esclusivamente su vetture italiane e la decisione presa dal Ministro della Difesa in merito alle Maserati, non resta che attendere un taglio netto alle auto blu circolanti in Italia. 

"Why France Favors Bailing Out Greece. And Why Germany Doesn't."

Lifted in toto from Reason's Hit&Run blog:
Writing in The New York Times, Reason columnist and Mercatus Center economist Veronique de Rugy discusses why a split between France and Germany is pending with regard to bailing out European Union members and inducing inflation. French native de Rugy notes that part of Germany's official national story is that hyper-inflation in the 1920s paved the way for the Nazi regime in the '30s. As a result, Germans are particularly reluctant to inflate away debt. France, says de Rugy, has a substantially different take on printing money. Moreover,
The official government debt and deficit numbers of France and Germany are substantially different. The Organization for Economic Cooperation and Development projects Germany’s debt at 87.3 percent of G.D.P. with a deficit of 2.1 percent of G.D.P. —possibly sustainable levels. However, France’s levels of debt and deficit are higher and unsustainable (debt of 97.3 percent of G.D.P. and a deficit of 5.6 percent of G.D.P.).
...attitudes toward reforming social programs differ too: in recent years. Germany has engaged in significant structural reforms to tackle the rigidity in the labor market as well as demographic pressure on the private and public pension system. France, however, has been reluctant to change any “acquis sociaux,” France’s famous social entitlements.
With higher levels of debts and no will to reform entitlement programs, sooner or later France is likely to need a European Central Bank “bailout” to keep paying its bills (and French banks may also be in big trouble). The need for a rescue plan makes France more inclined to set a precedent [for a bailout]. However, Germany, after 60 years of desperately trying to avoid inflation, is reluctant to pay that bill.
Whole thing here.
De Rugy's piece is part of a "Room for Debate" discussion of the matter. For the other contributions, go here.
For de Rugy's Reason archive, including a year's worth of "Reality Checks" done for Bloomberg TV, go here.

Secret Fed Loans to the Banks = Profits Baby, Profits! (C; GS: JPM; BAC)

Huge kudos to Bloomberg, this is Pulitzer Prize level journalism.
From Bloomberg:
Secret Fed Loans Gave Banks Undisclosed $13B
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

‘Change Their Votes’
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”

The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.

$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day....MORE

Why I was wrong [on the bank stocks], by Dick Bove (XLF; BAC; C; JPM)

From FT Alphaville:
Rochedale’s Dick Bove has pondered why he’s been wrong on the banks — spurred on, he writes, by a Bloomberg survey (which we couldn’t find) showing analysts’ predictions on financial stocks have been dismal over most of the past two years.
The conclusion:
Why Was I Wrong in 2011 and Will This Continue Through 2012?
The answer to the question as to why I was wrong in 2011, and some other analysts may have been as shown in the Bloomberg survey, is clear. I failed to understand that the fears in the market concerning banking were so great that the fundamental improvements in the economy, the industry, and companies like Bank of America and Citigroup would simply be ignored.

The next question that arises concerns whether the fears in the marketplace are reasonable and whether it is true that the banking industry can suffer very negative consequences that do not impact the overall economy. The key issues are these...MORE

Sunday, November 27, 2011

"UK Inflation 1790-2005" and Real U.S. Average Hourly Earnings 1978-2011

Someone sent me these two sites but I've no idea who it was.
First up, Bank of England UK Inflation 1790-2005:

Next, U.S. Average Hourly Earnings from Data360 (spooky)

Have All the Policies Designed to Insulate, Protect, Bail Out etc. Guaranteed Euro-contagion?

That's the question asked by Knowledge Problem's Lynne Kiesling:
“Death of a currency”
One of the great topics of discussion with my in-laws over the holidays was the impending demise of the euro, and whether there was any hope for, or reason to, maintain the euro given the sovereign fiscal challenges of the member countries. The disastrous German and Italian bond auctions, and Spain’s cancellation of its sovereign bond auction, seems to portend “eurogeddon”. One of the articles that helped me interpret these events was this column from Jeremy Warner in the Telegraph:
No, what this is about is the markets starting to bet on what was previously a minority view – a complete collapse, or break-up, of the euro. Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency.
...But I have a simple-minded question to ask, perhaps one that I should have asked two years ago: why are so many people so worried about contagion from sovereign default in the eurozone? Should they be worried?

Typically, interconnected financial markets have negative feedback loops that lead to the dampening of propagation; price changes as investors move money around in response to changes in relative risk are an example of such a negative feedback. But with so many policies designed to insulate, protect, bail out parties, policies that introduce asymmetries by insuring against losses, have these negative feedback loops been distorted and replaced or outweighed by positive feedback loops that amplify effects? That’s how I’ve been thinking about the bailouts and subsidies and loan guarantees in both the EU and the US — policies that distort the negative feedback effects that can be equilibrating and introduce asymmetries that create destructive positive feedback effects, whereas before any disequilibrating events or shocks could have been smaller and dampened by the normal negative feedback effects in markets....MORE

Volatility Update: Is the VIX Giving You A Wedgie? (VIX; VXX)

From MACROstory:

I find it somewhat ironic the vix is sitting in the mid 30′s yet has been anything but volatile as it trades within the wedge pattern. A break either way should occur in the coming days, Tuesday at the latest.
I continue to believe it will break higher based on (1) the bullish momentum in the chart and (2) the skew VS vix divergence.

Vix Six Month Daily
Notice the wedge pattern that is just about closed and the position of the MA’s. Additionally the 100MA has held on numerous tests.
(click to enlarge)


"Newt in the Congo"

So there I was, refining the master plan for world domination with the, as Calvin Trillin puts it, Sabbath Gasbags, droning on in the backround when it struck me that there was a non-trivial chance that the former Speaker could be President of the United States.

Naturally my first thought was "What does this do to/for Tiffany?" (there was a reason we posted "Gingrich Closes Tiffany’s Account, Stock Declines (TIF)" back on July 25)

The stock had almost recovered from the earlier news of the account closing when the implications of Newt's ascendancy filtered into the consciousness of the smart money a few weeks ago: Blind Trusts, designers thrusting jewelry upon you etc. Here's the chart, starting the day before the July 26 post:

Here's Foreign Policy's Passport blog:
Current primary frontrunner Newt Gingrich is often referred to as one of the leading "intellectuals" of the Republican Party. Gingrich has encouraged this view, even suggesting that the $1.6 million in consulting fees he received from Freddie Mac were for his services as a "historian."
In recent years, Gingrich's historical output has been mainly confined to a series of co-authored war thrillers and alternate histories. But he does indeed hold a Ph.D. in history from Tulane University and taught the subject at West Georgia College during the 1970s.
Curious about whether Gingrich's background as a historian does, in fact, shed any light on his current views, I decided to give a read to his 1971 doctoral thesis on the unlikely topic of Belgian Education Policy in the Congo: 1945-1960.
Several bloggers -- notably Morehouse College professor and African politics blogger Laura Seay -- have discussed the thesis before, particularly in reference to Gingrich's comments last year that President Obama's policies are evidence of "Kenyan, anticolonial behavior."   
Indeed, even considering that he was at a southern university in the early 1970s, Gingrich's attitudes toward colonialism seem remarkably benign, often drifting into "White Man's Burden" territory:
It would be just as misleading to speak in generalities of ‘white exploitation' as it once was to talk about ‘native backwardness.' We need to know what kind of exploitation, for what reasons, and at what price. However this is a most difficult task since political pressures encourage Black xenophobia. It would be only too easy for the leaders of developing countries faced with massive domestic problems, to divert public attention toward the ‘white man's guilt.'...
Within the beliefs of twentieth century American liberalism, European colonialism is an unacceptable political policy, but what did it mean to the natives? Did the colonial powers perform a painful but positive function in disrupting traditional society and so paving the way for modernization?
It should be noted that Gingrich here is not discussing the brutal period in the late 19th and early 20th century when the Congo was ruled as a "free state" under the direct ownership of King Leopold II, during which as many as 5 to 10 million Congolese may have been slaughtered and many more maimed and dismembered.  Gingrich does concede that the free state was "the most clearly abusive government in nineteenth century colonialism."...MORE
If you want to know more about the Congo under Leopold here's an online version of Mark Twain's masterpiece of political satire:

King Leopold's Soliloquy:
A Defense of His Congo Rule

If you want to know more about Newt's thinking I hear he's written a few books.
If you want to know more about Newt, here's one of my favorite descriptions:
[Gingrich] is amazingly similar to Bill Clinton - both are pot smoking, draft-dodging adulterers from poor Southern families.
The story about him divorcing his dying wife while she was in the hospital isn't true though.
She initiated the action and is still very much alive.

UPDATED--"Dutch Scientists Have Genetically Altered the H5N1 Bird Flu Virus to Make it More Contagious" (could kill half humanity)

Update below.
Original post:
Or, as the folks at RT (formerly Russia Today)* headline it:

Man-made super-flu could kill half humanity 
Avian influenza virus, TEM (NIBSC/Science Photo Library)
Avian influenza virus, TEM (NIBSC/Science Photo Library)

A virus with the potential to kill up to half the world’s population has been made in a lab. Now academics and bioterrorism experts are arguing over whether to publish the recipe, and whether the research should have been done in the first place.
­The virus is an H5N1 bird flu strain which was genetically altered to become much more contagious. It was created by Ron Fouchier of the Erasmus Medical Centre in Rotterdam, the Netherlands, who first presented his work to the public at an influenza conference in Malta in September.
Fouchier said the strain circulates in animals, particularly birds, but rarely affects humans.
In the ten or so years since bird flu first emerged in Asia, fewer than 600 cases have been reported in humans. But the H5N1 strain is particularly vicious, killing roughly half of patients diagnosed with it. What stops it from becoming a major threat to public health is that it does not readily transmit from human to human. Or at least it didn’t – until now.
Researchers in Fouchier’s team used ferrets – test animals which closely mimic the human response to influenza – and transmitted H5N1 from one to another to make it more adaptable to new hosts. After 10 generations, the virus had mutated to become airborne, which means ferrets became ill from merely being near other diseased animals.
A genetic study showed that the new, dangerous strain had only five mutations compared to the original one, and all of them were earlier seen in the natural environment – just not all at once. Fouchier’s strain is as contagious as the human seasonal flu, which kills tens of thousands of people each year, but is likely to cause many more fatalities if released.

"I can't think of another pathogenic organism that is as scary as this one,"
Paul Keim, a microbial geneticist who has worked on anthrax for many years, told Science Insider. "I don't think anthrax is scary at all compared to this."...MORE
HT: Big Think

So deadly it scares the anthrax guy.
And the debate is whether to publish the recipe?

*Back in the day Russian Life was part of the Soviet propaganda and dezinformatsiya apparatus, albeit a very subdued part showing happy peasants on the new tractor. Today RT is unapologetic:
Is Russia Today Just Propaganda for Uposcrabblenyk?

UPDATE: "UPDATE: Dutch Scientists Agree to Redact Details of Super-lethal (50% Kill Rate) Genetically Modified Bird Flu"