Tuesday, January 31, 2012

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

It was only in the -65°F range.
From Wunderblog:
Bitter cold temperatures gripped much of Alaska again this morning, and the month of January is setting numerous records for coldest January on record for much of northern Alaska. According to the Fairbanks weather office, here are the likely final rankings for January temperatures at select locations in Alaska during 2012:

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

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

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

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

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

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

The Romney campaign could not be reached for comment.
From peHUB:
Ryan Seacrest has gone private equity.

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

Clear Channel, which is also owned by THL and Bain, has also bought a minority stake in Ryan Seacrest Productions, according to the statement . RSP is the entertainment company known for producing such shows like “Keeping Up with the Kardashians,” “Kourtney and Kim Take New York,” “Khloe and Lamar,” and “Kourtney and Khloe Take Miami.”...MORE
"What Debt Did for Romney"
"Unions Hate Private Equity, but They Love Its Profits"
'King of Bain': 6 questions answered about anti-Mitt Romney attack ads
 George Washington Would Beat Out Romney as Richest President; John Kerry Would Have, Too
"Tax rates of presidential candidates, in one chart "

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

Always remember that Congress only allows the CBO to model the numbers that Congress gives the CBO i.e. the Budget Office is not allowed to do dynamic modeling or pass judgement on whether the inputs are realistic.
With those caveats, here's the Atlantic:
The 2012 deficit will break $1 trillion for the fourth consecutive year. The economy's growth will slow in 2013 as spending cuts take hold. Unemployment will stay above 7 percent through 2015. The housing recovery is locked behind a thick wall of vacancies. Yeah, the Congressional Budget Office's new economic report is kind of a bummer. Here's what it tells us about the economy in 10 big charts.

1. What's Behind Our Future Deficits?

Screen Shot 2012-01-31 at 11.03.11 AM.png
The CBO's "baseline projection" sounds like a sober prediction. It's not. It's a fantasy. For example, the baseline projects that the Bush tax cuts are will expire next year (not!). For a dose of reality, the CBO also calculates spending and taxing under an "alternative scenario." This is the scenario to pay attention to. It anticipates that Congress will delay both tax increases and spending cuts currently scheduled in the law -- a very reasonable assumption.

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

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

Screen Shot 2012-01-31 at 11.03.51 AM.png
What if we let current tax law rule? Our deficits would fall by more than half in the next decade. The dark blue portion of the bars in the chart above represent our deficits if we let the Bush tax cuts expire and enacted the Budget Control Act of 2011 (the debt ceiling deal) along with some other measures. The CBO has seen this movie before, which is why it calculates an alternative scenario where Congress falls prey to status quo bias, year after year....MORE

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

I always feel so Roman when I put the ETN symbols in a headline.
From FT Alphaville:
Are VIX ETNs and Vix-related funds influencing the Vix futures curve?

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

Is the Vix tail wagging the implied volatility dog?

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

"A composite of leading indices"

From EconWeekly:

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

Here's the post he refers to:

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

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

Natural Gas futures are down 7% at 2.522. They will be under $2.00 by June as storage capacity tops off and production goes directly into the spot market.
Chesapeake is down 2% at $21.26, Range is down 1.39% at $56.96.
From Knowledge Problem:
Ken Silverstein has a good article in Forbes on the business prospects for shale gas developers (and I’m glad to see him there, having followed his work for a very long time). Since he asks in the title whether low shale gas prices are a mirage, I think it’s useful to go through the underlying economic analysis that’s embedded in his article. Note: if you are a principles student, this is a good exercise for you, because there will be a lot of shifting of supply and demand curves.

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

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

Note also that regulatory changes, such as environmental regulations to reduce greenhouse gas emissions, will exacerbate the substitution out of coal, and shift the demand for coal even further to the left.
Another important factor in a dynamic economy is time, and the fact that over time, by adapting to these changes, people create new changes....MORE

Where on Earth is Al Gore? (Tokyo Sexwale)

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

From Ecorazzi:
Richard Branson and Al Gore Off to Antarctica
For the first time in over 22 years, Al Gore is returning to Antarctica.

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

Over on his own site, Branson (a prolific blogger) said the group has already passed through the notorious Drakes Passage....
Gore flew to South America to hook up with 100 of his friends including Mr. Sexwale, South Africa's Human Settlements Minister and one of SA's richest people.
From Engineering News
Sexwale to join Antarctica climate change expedition 
Human Settlements Minister Tokyo Sexwale will be joining a climate change expedition to the Antarctica this weekend.

The expedition, called Destination: Reality 2012, aimed to resolve doubts about the seriousness of climate change and the crisis facing the world, the Human Settlements Department said on Thursday....MORE
Flying down from Iceland, the country's President. Ólafur Ragnar Grímsson.
Jetting in from Florida, Ted Turner...

These folks have some Sasquatch-sized carbon footprints.

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

I owe someone a hat tip but don't know where it came from. If it was yours, drop us a line and we'll link.
From the Wall Street Examiner:
,,,When commodities came back in late 2009-2011, shipping construction surged forward unchecked. Now with China rolling over, the shipping that was produced during this period is increasingly lined up and stacked in Asian harbors around the world.  22.7% of the existing fleet, is due for delivery this year.  Shipping rates have collapsed, another event which the markets continue to largely ignore.

I have been feeling for some time that this would bite the players involved. Although the shipping company stocks have become very depressed of late, the story as it relates to shipping lenders  has been relatively overlooked. Now the IHT is out quoting industry observers stating that European banks may be facing writedowns on these loans on the order of $100 billion, which is even more than their Greek losses....MORE
Here's a headline from 24/7 Wall Street, Nov. 18, 2011:
Another Shipping Bankruptcy Filing Could Signal More on the Way (GMR, ONAVQ, TNK, OSG, NAT, FRO, NM, DRYS)

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

Relying on estimated revenues from a program that is not even in operation to fund a project whose costs are surely going to rise sounds so Wall Street that I'm tempted to offer the Governor a job.
"Ya see boss we borrow short and buy long with 90 to 1 leverage, goosing the management fee..."
Based on the estimates I've seen, Gingrich's moon colony would be cheaper.
I'm serious.
From the Sacramento Bee:
Gov. Jerry Brown said in an interview airing in Los Angeles today that California's high-speed rail project will cost far less than the state's current estimate of nearly $100 billion and that environmental fees paid by carbon producers will be a source of funding.

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

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

"Phase 1, I'm trying to redesign it in a way that in and of itself will be justified by the state investment," Brown said. "We do have other sources of money: For example, cap-and-trade, which is this measure where you make people who produce greenhouse gasses pay certain fees - that will be a source of funding going forward for the high speed rail."...MORE including video 
From the California State Auditor's High-speed rail Authority January 2012 Follow-up report:
...Further, the Authority's 2012 draft business plan still lacks some key details about the program's costs and revenues. In particular, only within the business plan's chapter about funding—more than 100 pages into the plan—does the Authority mention that phase one could cost as much as $117.6 billion, whereas it uses one of its lower cost estimates of $98.5 billion throughout the plan. Moreover, neither of these cost estimates includes phase one's operating and maintenance costs, yet based on data included in the 2012 draft business plan, we estimate that these costs could total approximately $96.9 billion from 2025 through 2060.

The Authority projects that the program's revenues will cover these costs but it does not include any alternatives if the program does not generate significant profits beginning in its first year of operation. Further, the plan assumes, but does not explicitly articulate, that the State will not receive any profits between 2024 and 2060, because private sector investors will receive all of the program's net operating profits during these years in return for their investment....
Let's see, $96.9 Billion operating plus $117.6 upper-end, carry the 5...

Monday, January 30, 2012

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

It's time for Jon Corzine to do the honorable thing. Either he knew or he should have known.
From the Wall Street Journal via the New York Post:
Nearly three months after MF Global Holdings collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

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

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

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

Silver ETF: "SLV Near Triple Resistance"

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

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


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

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

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

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

Edward loved the stuff. Not only did he drink it on the road, but he took the King's Ginger with him hunting, and made sure anyone who accompanied him on a shoot got some too. Edward died in 1910, but Berry Bros. kept producing it for the royal family -- and, as word spread, for much of the aristocracy, too. There was no fixed recipe, and it was only available at the Berry Bros. shop. In a good year they'd sell 250 cases or so....MORE
A quick look shows only one CI post related to Edward VII, "Seating Charts are Such a Pain: Soros and the Starlet":

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

Nine Kings 1910


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

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

From PEhub:
What if We Didn’t Tax All of Carried Interest?
Now, Democrats want to cobble together what will likely be a failed attempt at a tax increase on all of private equity’s carried interest. Aaaagain. But they’re not seeing the forest for the trees.

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

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

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

No bailouts, please.
From Bloomberg:

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

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

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

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

"Mark Gongloff moves from WSJ to Huffington Post"

Mark was a friend of our little blog in its earliest days.
Via the Poynter Institute:
MediaWire Memo
Peter Goodman, Huffington Post’s executive business editor, tells staff that Mark Gongloff will become chief financial writer for HuffPost Business. “He is everything we could have asked for: smart, well-sourced, energetic, swift and engaging.” And David Levine is leaving Adweek to become a financial writer for Huffington.

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

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

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

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

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

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

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

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

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

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

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

Brrrr: Arctic Oscillation Goes Deeply Negative, Here Comes Winter

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

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

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

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

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

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


Sunday, January 29, 2012

Goldman: Profit Margins Have Peaked

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

From ZeroHedge:

Cutting Into Muscle - The Record Corporate Margin Juggernaut Has Just Rolled Over
In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire.

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

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

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

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

(click to enlarge)

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

Jeremy Grantham on Corporate Profits and Mean Reversion

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

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

We've been on the dopamine beat for a while:
Engineer -- Addicted to Day Trading -- Stole Nearly $750,000 Making False Securities Class-action Claims
Now that's obsessive.
Usually it's the little old lady bookkeeper embezzling from her employer of thirty years to cover her slot habit.
Understandable, in a dopaminergic sort of way.
She's triggering her reward pathways and going a little nuts from the neurotransmitters bathing her brain but she's not trying to rob the casino to keep playing the slot machine.

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

Here's the headline story from the Contra Costa Times:
New research suggests link between genetics, Wall Street success
CLAREMONT - Stock traders whose genetic makeups can help them make healthy decisions about risk-taking may be better suited for a long career on Wall Street than others who may be predisposed to a "cowboy" way of doing business, new research suggests.

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

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

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

And just two weeks ago:
The Internet, Deflation and Depression
There was a story out last week that purported to show a correlation between time spent on the www and changes in brain physiology. I'm dubious....

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

Silver Closing the Gaps, Look Out Below (SLV)

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

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

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

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

From the New York Daily News:

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

Anja Niedringhaus/AP

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


The Telegraph has the video:

Joseph Stiglitz on the Agricultural Revolution as the Cause of the Great Depression and What it Means for Today

As far as I know Professor Stiglitz is the only Nobel Laureate* that Gary Indiana has produced, to date.
From Vanity Fair:
Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.

It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.

We knew the crisis was serious back in 2008. And we thought we knew who the “bad guys” were—the nation’s big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limit—and without conditions—could the economy recover. We did this not because we loved the banks but because (we were told) we couldn’t do without the lending that they made possible. Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.

The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didn’t really recover—output is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their ways—that they would start to lend, if only they were treated nicely enough. We were told, in effect: “Don’t put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Don’t force them to use the money to lend. Such conditions will upset our delicate markets.” In the end, bank managers looked out for themselves and did what they are accustomed to doing.

Even when we fully repair the banking system, we’ll still be in deep trouble—because we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulation—not even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to “where it was” does nothing to address the underlying problems.

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery. Under the best of conditions, we will endure a Long Slump. If we respond incorrectly, as we have been, the Long Slump will last even longer, and the parallel with the Depression will take on a tragic new dimension.

Until now, the Depression was the last time in American history that unemployment exceeded 8 percent four years after the onset of recession. And never in the last 60 years has economic output been barely greater, four years after a recession, than it was before the recession started. The percentage of the civilian population at work has fallen by twice as much as in any post-World War II downturn. Not surprisingly, economists have begun to reflect on the similarities and differences between our Long Slump and the Great Depression. Extracting the right lessons is not easy.

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn’t succeed in saving the economy.

Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it’s difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then, is something else. The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume....MORE
More accurately the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel i.e. not one of the prizes in old Alfred's will.

"What Debt Did for Romney"

As companion to the post below, "Unions Hate Private Equity, but They Love Its Profits", here's another angle to the private equity story. PE is the least intellectually challenging field of investment, a smart monkey with a spreadsheet and long lines of credit can do it in the right circumstances. In the current environment it is much tougher but its practitioners are ill-equipped for the higher order stuff e.g. distressed debt/company investing à la Wilbur Ross, so they keep trying. Or they come public for one last cash out.
Why do I think of the Bain & Co. (the consultancy) senior partners doing their $200 mil. recap?

From The New Yorker:
The most interesting line in the G.O.P.’s official response to the State of the Union address was Mitch Daniels’s assertion that the United States is in big trouble because “no entity, large or small, public or private, can thrive, or survive intact, with debts as huge as ours.” Unsurprising as the attack was, its phrasing inadvertently underscored the curious reality of this year’s election; namely, that the same party that loves to inveigh against the dangers of excessive borrowing is now likely to nominate for President a man whose entire career, and entire fortune, was built on debt. Leveraged-buyout firms like Bain Capital, which Mitt Romney ran between 1984 and 1999, routinely borrow massive sums in order to make their acquisitions, leaving companies with debt loads equal to twice their annual sales or more. (Last year, for instance, the L.B.O. firm Apex Capital borrowed five billion dollars to acquire the medical-technology firm Kinetic Concepts, a company with annual revenues of around two billion dollars.) And they do so while borrowing at much higher interest rates than the federal government has to pay.

L.B.O. firms do borrow less these days than they did in the nineteen-eighties. But they still typically borrow sixty to seventy per cent of the value of the deals they do, and it’s difficult to overstate the centrality of debt to their business model. As a study of a hundred and fifty-three large buyouts showed, companies acquired by L.B.O. firms borrow more than similar public companies. In that sense, one the core advantages of L.B.O. firms is simply their willingness, and their ability, to borrow huge sums of money.

The debt helps juice the firms’ investment returns—as with any investment, the less you put down, the higher your returns will be (assuming things don’t go bust). It also makes them dependent, to a great degree, on credit markets—when credit is loose, as it was for most of the aughts, it’s easy for private-equity firms to make their returns look good (at least in the short run). When credit gets tighter, as it did after 2007, it becomes much harder to do so. As one private-equity manager says in a recent paper by Ulf Strömberg, Tim Jenkinson, Per Axelson, and Michael Weisbach, “Things are really tough because the banks are only lending 4 times cash flow, when they used to lend 6 times cash flow. We can’t make our deals profitable anymore.”

Debt is also valuable to private-equity firms because the government subsidizes their borrowing—corporate interest payments on debt are tax-deductible, while dividend payments (which you can think of as payments on equity) are not. And this tax-subsidized borrowing has been a key part of their success over the years. The University of Chicago’s Steve Kaplan, arguably the leading researcher in the field and an unabashed defender of private equity, recently wrote a piece extolling private-equity firms’ performance, and attributing their superior returns to their ability to better incentivize and supervise management and their ability to introduce operational improvements. What Kaplan strangely fails to mention are the advantages created by all the debt these firms take on, even though, in a paper co-authored with Per Strömberg, Kaplan himself wrote that the debt subsidy alone for L.B.O.s in the nineteen-eighties may well have accounted for ten to twenty per cent of the value these deals created. Even if private-equity firms are, in some circumstances, able to do a better job of managing companies, a substantial portion of their superior returns is due simply to the fact that they exploit the U.S. tax code better than most public companies do....MORE

"Tax rates of presidential candidates, in one chart "

From the Washington Post's Wonkblog:
Late on Monday, Mitt Romney released his 2010 tax returns, showing that he paid 13.9 percent of his income in federal taxes. (His rate is relatively low because most of his money comes from investment income, which is taxed at a lower rate than wages.) But how does Romney stack up to previous presidential candidates? Here’s a chart for comparison:

Sources, caveats, details: I tried to use candidates’ tax returns two years before the election to compare with Romney’s, although that wasn’t always possible....MORE

"Unions Hate Private Equity, but They Love Its Profits"

Be sure to follow the 'Update' link. The Economist's numbers comport more with what I've seen over the last decade.
There's a reason Carlyle is doing it's IPO in 2012 rather than in 2002.
From The Atlantic:

The Wall Street Journal reports that many of the same public-employee unions that have attacked Mitt
Romney for his private equity career are increasingly pouring their own pension money into ... private equity. Awkward.

According to the Journal, large public pensions now have about $220 billion, or 11% or their total assets, invested with firms like Bain Capital, the private equity giant where Romney made his fortune. That's $50 billion more than a year ago. The chart below tracks the long term trend.
Public employee unions have been pretty unsparing with Romney over his tenure at Bain, which they've accused of firing workers to wring more profits from the companies it's targeted in leveraged buyouts. The Service Employees International Union, for instance, has gone after him for having "a long and troubling track record of putting profits above workers." Meanwhile, the WSJ writes that the union's members have retirement savings in "numerous state and county pension plans" that have poured money into private equity. One SEIU member is a trustee on the Ohio Public Employees Retirement System, which has billions in private equity investments.

It would be easy to play gotcha here. But that's less interesting than looking at what all this says about private equity's rising profile in the contemporary world of finance. Public pension funds are turning to these investments as they strain to hit their yearly return target of 8%. According to the WSJ, that's partly because during the last decade, private equity returns were more than twice as high as the S&P 500 stock index and Dow Jones Industrial Average....MORE
See also: "What Debt Did for Romney"

Friday, January 27, 2012

Sun Unleashes X-Class Solar Flare to Salute MarketBeat's Departing Mark Gongloff

As sunspot 1402 leaves us...
X-class=the highest energy:
X-FLARE: Departing sunspot 1402 unleashed an X2-class solar flare today, Jan. 27th, at 18:37 UT. Click on the image to view a movie of the extreme ultraviolet flash recorded by NASA's Solar Dynamics Observatory:
Sunspot 1402 is rotating onto the far side of the sun, so the blast site was not facing Earth. Nevertheless, energetic protons accelerated by the blast are now surrounding our planet, and an intensifying S1-class radiation storm is in progress

The explosion also produced a spectacular coronal mass ejection (CME): SOHO movie. Analysts at the Goddard Space Weather Lab say the cloud raced away from the sun at 2500 km/s or 5.6 million mph. The CME is not heading toward Earth, although it is too soon to rule out some kind of glancing blow on Jan. 28-29. Stay tuned for updates. Solar flare alerts: text, voice.
-From SpaceWeather.com

Space.Com says it was the most powerful flare of the year.

Meanwhile, over att MarketBeat:
"Well, this is it, my last post on this blog."
As I said in 2010's "We Lost a Friend Yesterday (Hint: we like reporters)":

The powers that be at the online outpost of the Wall Street Journal decided to turn out the lights on Environmental Capital.
EC was probably the best spot on the web for quick hits on matters energy/environment/policy.

We linked to it's predecessor, the WSJ's Energy Roundup on our blog's first day, Feb. 19, 2007. Three days later the site's proprietor, Mark Gongloff posted:

Blog Roll: E.Coli Edition

Toronto Star reporter Tyler Hamilton, writing in his Clean Break blog, offers a synopsis of his new story in MIT’s Technology Review about a Canadian company called CO2 Solution, which has found a way to capture carbon dioxide from power plants and factories using an enzyme extracted from genetically engineered E. coli bacteria.
Blogs We’re Reading:
– Mark Gongloff

I was so tickled I came back with:

WSJ Energy Roundup

We got a mention in Mark Gongloff's WSJ Energy Roundup yesterday.
The reasons we linked to the Energy Roundup from our first day?

"Gongloff, a master of any medium he chooses...Energy Roundup will be a case study of the craft."

"Energy Roundup has a lot under the hood, tight and fast".

"Energy Roundup-It's a smash, number one with a bullet!"

"Energy Roundup is intelligent; To use a tired cliche, a must read."

"Just two weeks on the scene, Mark Gongloff's WSJ Energy Roundup is redefining what a business blog should be."

Seriously Mark, thanks for the link-back.

Edited 6:34 p.m: -and Kudos to the wsj.com staff.

In addition to being the blogmaster Mr. Gongloff was Markets Editor for the online Journal. He also hung out with his pal David Gaffen who headed up the Journal's marquee blog, MarketBeat.
Here's a quick overview of MarketBeat's first two weeks.

Mark either saw a spark of something or he was bemused by our [very -ed] amateur efforts.
We scored over a dozen spots on the ER's blogroll and a couple Hat Tips, all of which helped immensely in spreading the word about Climateer Investing....MORE

As recently as August we awarded the "Line of the Day" to Mark:
Climateer Line of the Day: Meta-metaphor Edition

I've left a comment at MarketBeat that apparently didn't make it through the spam filters
Rupert, get on this!

Seriously, my first thought when a friend emailed the news was Dammit. Damn, Damn, Dammit.

First class journalism and some knowledge of music, big shoes to fill.

What was it the dolphins said in the Hitchhikers Guide?

Three More Chinese Provinces Will Reach $10,000 GDP per Capita This Year

From Next Big Future:

China’s Provincial GDP Figures in 2011 and forecasts for 2012 through 201
... Getting over US$12,000 per person in 2010 dollars is the level where a country is believed to exceeded the level of a middle income trap.

Shanghai, Beijing and Tianjin are all over the US$12,000 per capita level as of the end of 2011. The other provinces should clear the US$12,000 per capita levels 1 to 2 years after they clear the US$10,000 per capita levels.

By 2015, China should have provinces with a combined population of about 500 million with per capita GDP over US$12,000. I am projecting all of China to have a per capita GDP of about $9000-10000 in 2010 US dollars in 2015

The Economist:"the end of America’s coal era" and "Asian Coal Demand Buoys Peabody; Arch, Kinder Morgan Team On Exports" (BTU; ACI)

Now's the time to juxtapose!
From The Economist:
Tighter regulation, bountiful natural gas and declining installation costs for renewable energy herald the end of America’s coal era

A FREIGHT train, its dozen cars loaded with coal covered in a light dusting of snow, snaked through the narrow valley, sometimes following the two-lane highway and sometimes crossing it. The valley was silent and snowy, and though it was two days into 2012 it could easily have been 1982, 1942 or 1922: coal has been mined in Appalachia and carried out by rail for well over a century.

And by some measures, coal is still going strong. It provides more of America’s electricity than any other fuel. Production has fallen off since 2008, but it remains high, as do prices, for which thank the developing world’s appetite. In Appalachia, coal remains a source of well-paid jobs in a region that needs them: for the first three quarters of 2011 employment in the Appalachian coal industry was at its highest level since 1997. And the Powder River Basin, which spans Wyoming and Montana, has become America’s major source of coal in the past decade, relieving overmined Kentucky and West Virginia. The Energy Information Administration (EIA) reckons America has enough coal to meet current demand levels for the next 200 years.

But if the raw numbers look good, the trends tell a different story. Regulatory uncertainty and the emergence of alternative fuel sources (natural gas and renewables) will probably make America’s future far less coal-reliant than its past. In 2000 America got 52% of its electricity from coal; in 2010 that number was 45%. Robust as exports are, they account for less than one-tenth of American mined coal; exports cannot pick up the slack if America’s taste for coal declines. Appalachian coal production peaked in the early 1990s; the EIA forecasts a decline for the next three years, followed by two decades of low-level stability. Increased employment and declining productivity suggest that Appalachian coal is getting harder to find....MORE
HT: Abnormal Returns
And from CBS News:
Coal miner Peabody Energy Corp. said Tuesday that fourth-quarter earnings increased 6 percent as demand from China and other developing nations helped the company sell more coal at higher prices.

Even though its financial results were up, they missed analyst expectations by a wide margin and shares fell nearly 4 percent in heavy trading.

Peabody, one of the world's biggest coal companies, said the coal industry is increasingly focused on supplying Asia's growing economies. U.S. coal producers increased exports 29 percent in 2011, more than making up for a drop in American consumption, Peabody said.

As U.S. utilities burned 5 percent less coal in 2011, China's power plants increased consumption 14 percent while India's power plants burned 9 percent more, Peabody said.

Those trends will continue this year. Peabody estimates that 90 gigawatts of coal-fired power plants will come online this year, and that will increase international demand by another 300 million tons....MORE
The second half of the headline is from a source I can't share.

Special Inspector General: "TARP's Not Over"

As part of our 2012 mission to show CI readers some of the 1300 feeds we read, here's another one of the good ones.
From Securities Law Prof blog:
The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released its most recent Quarterly Report to Congress on Jan. 26, 2012 (Download SIGTARP.January_26_2012_Report_to_Congress[1]), and it makes for interesting reading.  From the executive summary:
TARP will continue to exist for years. TARP programs that support the housing market and certain securities markets are scheduled to last until as late as 2017, and Treasury can spend an additional $51 billion on these programs during those years. Taxpayers are still owed $132.9 billion in TARP funds, and taxpayers will never get back some of these funds. Some programs were designed as a Government subsidy with no return to taxpayers. Treasury has already written off or realized losses of $12 billion and Treasury predicts losses on other TARP investments. The Congressional Budget Office recently increased its estimated cost of TARP to $34 billion. One fallout of slow economic recovery is that it slows Treasury’s progress in recouping outstanding TARP funds. Unwinding Treasury investments in 458 institutions, including American International Group, Inc. (“AIG”), General Motors Corp. (“GM”), Ally Financial Inc. (“Ally Financial”), and community banks, in the near term could prove challenging as markets remain volatile and banks struggle to stay on their feet. Financial stress continues to pose obstacles to economic recovery, in part due to an 8.5% unemployment rate, decreased consumer confidence, nonperforming mortgages, and job cuts and asset sales by some of the nation’s largest institutions.
The U.S. Government continues to own 77% of AIG, 32% of GM and 74% of Ally.  Unwinding these investments is "likely to take several years."...MORE
Also at SLPB:
SEC Charges Latvian Trader with Hacking into Customers' Accounts

How to Do Journalism

It's best if you can do it right the first time but if that doesn't happen you've got to fess up to the facts.
From a Reuters story, yesterday:
(Editing by David Lindsey and Eric Walsh)

(Removes words "and at times has had difficulty paying his mortgage," paragraph 7; removes "he did not make payments on a $100,000-plus student loan" and instead states "he did not pay down the balance of a $100,000-plus student loan," paragraph 10; removes "he was caught up in an Internal Revenue Service Investigation" and instead states "his name surfaced in an Internal Revenue Service investigation," paragraph 12; removes "voted against Sonia Sotomayor, Obama's Supreme Court nominee" and instead states "opposed President Barack Obama's Supreme Court nomination of Sonia Sotomayor," paragraph 41; removes "voted against Obama's healthcare overhaul" and instead states "opposed Obama's healthcare overhaul," paragraph 41)
Rest is fine.

HT: Politico

Crime (or trading) Does Pay: Former Mrs. Marc Rich Lists Co-op for $65 Million

You know the story: Marc Rich & Co AG>Glencore with the diversions of the tax charges for trading with Iran and the spinout set-up of Trafigura (25% return on capital, $77Bil. revs trading oil & metals).

From the New York Post:
Denise Rich selling NY's most expensive co-op for $65 million
It’s the city’s most expensive co-op apartment — and it can be all yours for a cool $65 million.
Songwriter Denise Rich — ex-wife of presidential-pardon recipient Marc Rich — is putting her Fifth Avenue penthouse on the selling block.

With such a staggering price tag, a buyer can expect a bit more than the basic luxury amenities.
The digs are so expansive that Rich — who penned the lyrics to such hits as the Aretha Franklin-Mary J. Blige duet, “Don’t Waste Your Time,” and Mandy Moore’s “Candy” — once converted one of her three terraces into a professional-grade figure-skating rink for a blowout party.
FOR SALE: The duplex, which includes this vast living room, is being sold by Denise Rich, a songwriter and one-time Pardongate figure.

The other two outdoor spaces are a rooftop terrace that can hold up to 200 people and a separate wraparound terrace.

Stevie Wonder has tickled the ivories of her baby grand piano, which takes up only a fraction of the living room, and Celine Dion has sung in the apartment’s personal recording studio.
The 12,000-square-foot duplex, right on the corner of East 60th Street, was designed by Emery Roth and boasts seven bedrooms, 11 baths and three kitchens.

There’s also a grand salon, a formal dining room seating 22, a media room, a billiards room, a full gym and a library with a fireplace.

Oh, and sweeping views across Central Park....MORE
HT: Economic Policy Journal

"More evidence emerges that Spain and Portugal may bypass recession and go straight to depression"

If you thought Greece was bad...
From Mindful Money:
One of the themes of this blog has been concern over the economic situation in the Iberian peninsula where both Spain and Portugal have serious problems to address. This is not as clear-cut as you might think as whilst the situation is opaque and apparently not recorded well they seem to trade together less than you might assume. However there has been an increase in trade in the Euro era, which I record as it is rare these days to read of a benefit from the Euro.

I expressed my fears for Portugal back on the 17th of January when I described the decline of her economy thus.
Indeed this reminds me so much of back in 2010 when I was writing that the Greek experience was likely to be much worse than projected. Unless something unexpected happens for the better I expect 2012 and probably 2013 to be dreadful years for Portugal and her economy. I wish that their previous finance minster had taken some note of the alternative strategy that I sent him.
Since then financial markets have begun to catch up with the reality of Portugal’s economic situation. Her ten-year bond yield went above 15% yesterday and even intervention by the European Central Bank has helped little as it has been above 15% again this morning. Even worse she has exhibited one of the signals that Greece exhibited as her spiral downwards accelerated and that is that shorter-dated bond yields rise above (eventually significantly above) the ten-year yield. For example her three year yield has risen above 20%. I fear for her....

The official story is that Spain’s government is working hard to reduce her fiscal deficit and that austerity is being applied which means that everything is under control. However this mantra was holed below the waterline by this as I reported on January 3rd.
The previous Spanish government told us that it was on target to hit a fiscal deficit of 6% of Gross Domestic Product in 2011. However a spokeswoman for the new Spanish government Soraya Saenz de Santamaria told us late last week that the deficit would now be 8%.
The oddly familiar tone which of course was repeating what happened in Greece after her election now has a further echo of that experience. As Bloomberg reports.
Spain’s 17 regions owed pharmaceutical companies 6.37 billion euros at the end of 2011, lobby group Farmaindustria said today in a statement. That debt has risen 36 percent from a year earlier as payments were delayed by an average of 525 days, according to the group.
Those who followed my articles on Greece in 2010 will recall how  unpaid medical/phamaceutical bills were used as a way of claiming reduced spending when instead it had merely been deferred. This not only weakened the economy as a side-effect but meant that next-year the fiscal position declined again.

Spain’s Unemployment levels continue to rise
This morning Spain’s National Statistics Institute has announced that the  unemployment rate rose in the fourth quarter of 2011 from an already very high 21.5% to 22.8%. This means that the number of unemployed has now risen above the 5 million mark to 5,273,600. Adding to the grim picture is that employment fell by 348,700 in the fourth quarter.

The unemployment picture in Spain has become symbolised most by the high rate of youth unemployment which has now risen to 51.4% for the 16 to 24 age group compared to 45.8% before. More than one in two is a chilling statistic which frankly is more akin to an economic depression than a recession....MORE

American Superconductor Sues Former Chinese Customer for Theft of Trade Secrets (AMSC)

We haven't had much on AMSC since the news that Sinovel was refusing to take delivery, here's the latest.
From E&E Publishing:
A case of software piracy with a mystery writer's twist has opened the newest rift between the United States and China over intellectual property protection, in a dispute with vital stakes for a leading American wind turbine component vendor.

American Superconductor (AMSC) expects to begin a breach of contract suit this month in the Beijing Arbitration Commission against Sinovel, China's largest wind turbine manufacturer, seeking a total of $790 million to cover current and contracted shipments of wind turbine components and software. AMSC stunned shareholders on April 5 with the announcement that Sinovel -- by far its largest customer -- was refusing delivery of AMSC products and canceling contracts for future deliveries.

The U.S. company has also filed a $453 million trade secrets infringement case against Sinovel in China and criminal charges there, as well, after a former AMSC manager in Austria was convicted last September of stealing AMSC's proprietary software and delivering it to Sinovel. Sinovel alleges performance failures by AMSC in a $58 million counterclaim.

The case is a new hot spot in the tension over the security of American companies' industrial know-how, patents and intellectual property in Chinese markets. "The failure of Chinese companies to respect western intellectual property rights has been one of the greatest sources of strain in the relationship" between the United States and China, said Leo Schwartz, head of China Strategies LLC, a Pittsburgh consulting firm....MORE
This case will show where the Chinese government comes down on the IP issues, it's a pretty big deal.