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Weekend May 18th , 2013 |
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We post throughout the day as we do our Investment Research LONGWave - UnderTheLens - Macro Analytics |
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EURO EXPERIMENT - Correlation is Not Necessarily Causation... but |
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NPL - A €500bn Non-Performing Loan problem in Periphery. Europe's EUR 500 Billion Ticking NPLTime Bomb 05-17-13 Zero Hedge Europe's non-performing loan problem is such an issue that there is increasing bluster that the ECB may take this garbage on to its balance sheet since policymakers realize that bad debts and non-performing loans (NPLs) reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain's bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year). As we discussed in detail here, the bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. As we answered at the time - the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? With Periphery non-performing loans totaling EUR 720bn across the whole of the Euro area in 2012 and EUR 500bn of which were with Peripheral banks, it seems the Cyprus deposit haircut non-template may indeed become the key template. Simply put, the greater the unemployment the more the strain on banks to generate "profits" by any means possible (GGBS?) to cover the capitalization shortfall from NPLs until at some point liability haircuts have to begin... Non-performing loans as % of total loans across the Euro area Unemployment rates across Euro area countries Via JPMorgan:
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05-18-13 | EU NPL |
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SERIOUS ECONOMIC CRACKS - WAL-MART Same Store Sales Fall 1.4% Wal-Mart Warns of a Slowdown 05-17-13 Phoenix Capital Researchvia ZH If you want to get a sense of what’s happening in the world, your best bet is to ignore Government data and focus on corporate revenues. Why revenues? Because earnings can be massaged any number of ways (depreciation methods, laying off staff to cut costs, depletion of loan loss reserves for banks, etc.). But you cannot fake actual money coming in the door. With that in mind, I want to draw your attention to the recent drop in corporate revenues at a number of corporations including Proctor and Gamble, Starbucks, AT&T, CB Richard Ellis, Safeway, American Express, IBM. If this doesn’t serve as evidence that real economy falling to pieces, I don’t know what does. To top it off, we can now add Wal-Mart, the single largest retailer, to the list. Wal-Mart just reported that same-store sales fell 1.4%. This is the first time this has happened in six quarters. So much for the “recovery” theory. If you look at the real economy, things are getting worse and worse. When even Wal-Mart reports that people are spending less (remember that corporate email that February sales were a “disaster”?) you KNOW things are bad. Folks, something awful is brewing in the economy. And yet, against this backdrop, stocks continue to rally hard. This bubble is worse than anything I’ve seen in my career, including the 2007 top. Wal-Mart Says Customers Remain 'Stretched' 05-16-13 WSJ Wal-Mart Stores Inc.'s first-quarter profit and revenue edged higher, but same-store sales at its namesake U.S. stores fell for the first time in seven quarters. The retailer blamed
While Chief Financial Officer Charles Holley said the second quarter was off to a healthy start, he said employment remains customers' primary concern and "our consumer is still stretched." Wal-Mart's Customers Are More Broke Than Anyone Realizes 05-16-13 BI The scary truth about Wal-Mart's customers? They're broke, said Brian Sozzi, chief equities strategist at Belus Capital. "They are still living paycheck to paycheck, something that's not captured in headline jobs numbers but is captured in weak wage growth," Sozzi said. "Bottom line here: Food and gas price deflation have not yet caused the Wal-Mart shopper to spend more during each trip." And the implications could be disturbing for the U.S. economy, writes Anne D'innocenzio at The Associated Press. Wal-Mart "is considered an economic bellwether because the retailer accounts for nearly 10% of nonautomotive retail spending in the U.S.," she writes. Wal-Mart CEO Mike Duke acknowledged the retailer's customers were struggling because of the payroll tax hike in an interview with Women's Wear Daily last year. “They are middle-class Americans and those aspiring to join the middle class,” Duke said. “Our customers are working hard to adapt to the ‘new normal,’ but their confidence is still very fragile. They are shopping for Christmas now and they don’t need uncertainty over a tax increase." |
05-18-13 | INDICATORS CATALYST DI |
US ECONOMICS |
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PROFITS -The Madness of Consistent Quarterly Profit Improvements (EDITORS NOTE: CEO Oberhelman spent his whole career as a 'finance man'. He started in banking doing loans and repossessions. This is not a leader with a vision and a passsion for the business - He is yet another "MBA" driven profit performer that boards keep hiring with ZERO LOYALTY to anything other than surviving another quarterly earings report). What Crony Capitalists look like. Caterpillar CEO: 'We Can Never Make Enough Profit' 05-17-13 BI “I always try to communicate to our people that we can never make enough money,” Oberhelman continues. “We can never make enough profit.”
But there's a difference between doing what you need to do to beat the competition, and treating workers like they're an expense to be minimized for the good of shareholders. At the end of the day, wages aren't going to go up until growth is strong enough to demand it, Oberhelman says. That kind of growth would be good for both companies' bottom lines and workers' wallets. Caterpillar's Doug Oberhelman: Manufacturing's Mouthpiece 05-16-13 Bloomberg
LABOR - It Isn't JUST An Expense, Its ALSO a Strategic Investment
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05-18-13 | THESIS | MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - May 12th - May 18th 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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JAPAN - DEBT DEFLATION | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GLOBAL DEBT - 313% of GDP Number of the Week: Total World Debt Load at 313% of GDP 05-11-13 WSJ $223.3 trillion: The total indebtedness of the world, including all parts of the public and private sectors, amounting to 313% of global gross domestic product. Advanced economies tend to draw attention for their debt at the government and household levels. But emerging markets are gathering debt at an increasing pace to drive their economic development. In a comprehensive report on global indebtedness, economists at ING found that debt in developed economies amounted to $157 trillion, or 376% of GDP. Emerging-market debt totaled $66.3 trillion at the end of last year, or 224% of GDP. The $223.3 trillion in total global debt includes public-sector debt of $55.7 trillion, financial-sector debt of $75.3 trillion and household or corporate debt of $92.3 trillion. (The figures exclude China’s shadow finance and off-balance-sheet financing.) “Increasingly, ‘debt’ is seen as a dirty word,” the ING research team said in a report released this week. “But in most cases, it should not be. Perhaps it is no coincidence that the rise of U.S. indebtedness coincided with improvements in technology and the globalization of trade, human labor and finance. Computers allowed for speedier processing and better and more transparent access to credit risk data.” “Debt can become dirty when the rise of debt service costs exceeds income and a borrower’s long-term ability to make payments and often when rapid growth of debt and/or lack of adequate transparency disguises creditworthiness issues,” they write. Global trade has played a leading role in driving debt dynamics as emerging markets increasingly supplied low-cost labor and raw materials in recent decades. But emerging-market debt has grown only slightly faster than economies. A decade ago, total emerging-market debt was $18.8 trillion, or 214% of GDP. (Now it’s $66.3 trillion, or 224% of GDP.) Per-capita indebtedness is still just $11,621 in emerging economies (and rises to $12,808 if you exclude the two largest populations, China and India). For developed economies, it’s $170,401. The U.S. alone has total per-capita indebtedness of $176,833, including all public and private debt.
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05-16-13 | GLOBAL MONETARY |
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CHINA BUBBLE | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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GLOBAL MACRO REPORTS & ANALYSIS |
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PRIVATE EQUITY - The Global "Debt for Equity" Swap BUJAGALI, Uganda—A new dam at the headwaters of the White Nile, nearly 20 years in the making, generates almost half of this East African country's electricity. Its owner isn't a state utility or an energy giant. It is Blackstone Group LP, BX best known for corporate takeovers. The private-equity firm built the dam with partners and has a contract with energy-hungry Uganda to sell it power at rates that ensure profits for Blackstone for years to come. The project, fraught with holdups that included a pirate hijacking and rituals to appease spirits before flooding an island, has little in common with the debt-fueled billion-dollar buyouts Blackstone helped popularize. But the firm and its rivals increasingly are moving beyond the buyout playbook in search of other, sometimes unfamiliar sources of profit:
"You've seen a radical shift in what private equity has done these last few years. You're forced to cast your nets a bit wider and find things where the space isn't so crowded." Blackstone' President, Hamilton "Tony" James. Private-equity firms long counted on buyouts for yearly returns of 20% or more. In such deals,
In recent years, some firms are finding it difficult to survive on buyouts alone. Competitors have crowded into the buyout business, leaving fewer good candidates available. And large firms that have gone public want to show their shareholders steady earnings quarter after quarter—hard to obtain with buyouts, where the timing of a payoff is unpredictable. "Conventional private-equity is a wonderful business in certain environments, but there are a lot of environments where, frankly, it doesn't work right," said Leon Black, chairman and chief executive of Apollo Global Management LLC, APO at an investor conference last year. Buyouts remain the large firms' bread and butter. Blackstone, although it ultimately decided not to go forward, recently considered mounting a $25 billion-plus offer for Dell Inc. In addition, while choppy markets limit the times when private-equity firms can cash out of past buyouts, a strong stock market has held that window wide open this spring. Nonetheless, Blackstone, Apollo, KKR KKR -0.40% & Co. and Carlyle Group LP CG +1.73% —all publicly held—now have operations far afield from their traditional financial plays.
CARLYLE: Among the novel ventures, Carlyle raised a fund it is using to lend to companies that banks increasingly shun, which include a business that turns construction debris and old shipping pallets into power. APOLLO: Apollo, for its part, is managing the investment of money that small savers put into fixed annuities promising them a steady rate of return. This is a business some insurers are retreating from, in the face of low returns on the high-quality corporate bonds that insurers invest in; Apollo is betting it can do better by putting the cash in higher-paying investments. KKR: KKR, meanwhile, is making several bets on energy. It has teamed up with Chesapeake Energy Corp. CHK to buy mineral rights from U.S. landowners, a deal that could allow KKR to drill for oil for years to come. KKR also created an in-house oil company to scout for its own drilling opportunities. In addition, the firm has made billions of dollars in recent years flipping shale-field leases, many purchased from private landowners, to major oil companies. In yet another drilling-boom play, KKR is developing a tract of houses and apartments in Williston, N.D., for the oil workers pouring into that region. BLACKSTONE: In these ventures, the private-equity firms often are creating businesses from scratch, instead of making debt-fueled bids for existing ones at auctions. David Foley, who heads Blackstone's energy investing, said his group is "building, not buying." Besides power projects like the dam in Uganda, Blackstone has used billions of dollars of its investors' money to buy foreclosed homes to spruce up and rent out. Blackstone has bought ships and gotten into ocean transport. It also selects hedge funds and allocates some of investors' money to them. There is no assurance private-equity firms will succeed in all these ventures, of course, but they have the advantages of ample capital and the ability to team up with operators with long experience. In addition, branching out helps the firms enlarge the pools of cash they control and thus their fees for managing it, generally 1% or 2%. These fees are paid whether the money is invested successfully or not. Some firms are adding to the assets they control by buying up money-management businesses. For the firms' investors and shareholders, diversification can be a mixed bag. Public shareholders like the idea of steadier profit flows than buyouts produce, but some investors in the funds worry that the firms' focus on their core business will diminish and they won't find the same success in other pursuits. "As firms get bigger and bigger, it's harder to transfer the DNA, the secret sauce, to new businesses," said Lawrence Schloss, who as New York City's chief investment officer allocates pension money to private-equity funds. Indeed, some buyout firms boast of sticking to their knitting. David Mussafer, a managing partner at Advent International Corp., said investors were drawn to his Boston firm's "singular focus on private-equity" when they committed to a $10.8 billion fund Advent raised last year, one of the largest pools dedicated to buyouts assembled since the financial crisis. |
05-16-13 | ANALYTICS FUND- MENTALS |
GLOBAL MACRO |
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ENTITLEMENTS - Dependent Society "America, The Dependent" 05-16-13 Zero Hedge Perhaps instead of "America, The Brave", a more appropriate description of what the USA has become would be (judging by the following chart) "America, The Dependent". (h/t @Not_Jim_Cramer) Facts Below Taken From: gordontlong.com - MACRO ANALYTICS ENTITLEMENTS
SUPPORT FOR ENTITLEMENTS
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05-17-13 | US FISCAL | US ECONOMICS |
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TECHNICALS & MARKET ANALYTICS |
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EXPANDING PE - A Perception of 'Few Options' Availbale to Investors Tepid Profits, Roaring Stocks - A Passable Earnings Season Can't Dissuade Investors, Who Have Few Other Options 05-16-13 WSJ Profit at large U.S. companies modestly exceeded Wall Street analysts' expectations, while revenue was weak and many companies ratcheted down growth projections.
"Many market watchers emphasize there are few other options available for investors. With the Federal Reserve committed to buying $85 billion a month in bonds for the foreseeable future, pushing down interest rates and reducing the income investors can make on assets perceived as safe like Treasurys, many will likely continue pushing into stocks, betting that the economy will continue to improve." "How long can you sit, earning nothing in cash, when you can buy [stocks] with attractive valuations?" Mark-up: gordontlong.com Earnings Are a Margin Story but for How Long 05-17-13 WSJ
MARGINS & PE
VIRTUOUS CYCLE If consumers have more money >> they spend more >> sales rise >> profits rise >>companies reinvest >> pay their workers more >> rinse, repeat and keep the whole thing going until you retire in Miami. SOMETHING IS BROKEN? It’s not happening right now, which is why the central banks have stepped in, to plug in the holes in the circle. In the pretzel logic of the equities markets, all of this is actually constructive. Soft sales reflect a soft economy, and that means the central banks are going to keep their monetary stimulus factory running 24 hours a day, seven days a weak. It’s not ultimately a healthy situation, but it’s been fine for stocks lately. |
05-17-13 | FUNDA-MENTALS EARNIGNS |
ANALYTICS |
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PATTERNS - 10Y UST and HY Credit Sending a Market Message Visualizing The Taper 05-15-13 Zero Hedge When the noisy-as-you-like-prone-to-epic-revisions non-farm-payrolls figure hit on May 3rd, it seems we crossed the streams. From a regime where Fed liquidity was expected to be large for long, discussions started to turn to good-is-bad and Fed 'Tapering' conversations began. Across every asset class, prices began to shift in the direction one would assume based on a less expansive monetization scheme by the Fed. But there is one market; a market incapable of believing reality; that remains in its own world of hope and unicorns. The US equity market has seen one of its best runs ever during this post-NFP period in the face of the rest of the world's pricing in a tapering. US equities post-NFP amid growing Taper chatter... and every other major asset class that has QE-sensitivity... looks like it is pricing in the start of a Taper...
Though who is right is anyone's guess (but it seems some bargains across asset classes if the growth story in stocks is to be believed)... Charts: Bloomberg |
05-16-13 | PATTERNS | ANALYTICS |
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VALUATIONS - The Incentive for the Anticpated "Great Rotation" David Tepper: ‘I’m Definitely Bullish’ 05-14-13 WSJ Tepper, Birinyi, Damodaran, O'Neill, Ritholtz All Love This Bullish Stock Market Metric 05-14-13 BI Liberty Street Economics With the S&P 500 at an all-time high, many stock market pundits have grown increasingly cautious. However, the savviest experts are reiterating their bullishness, and they are all pointing to one metric: the equity risk premium. "The equity risk premium is the key to investing and valuation," says legendary NYU finance professor Aswath Damodaran, The equity risk premium can be defined simply as the expected return on a broad stock market index in excess of the long-term risk-free rate, which is often measured by a government bond yield. Markets spiked this morning when influential hedge fund manager David Tepper held up a chart of the equity risk premium as he presented his uber-bullish case for stocks during a CNBC appearance. Blogger extraordinaire Barry Ritholtz and stock market legend Laszlo Birinyi each pointed us to Tepper's exact chart last week. Birinyi confident we'll see the S&P 500 pass 1,700 this year, and 1,900 relatively soon. Jim O'Neill, the now retired economist from Goldman Sachs, has long been bullish on stocks thanks to the equity risk premium. In the final slide of his final presentation, O'Neill argued, "Current ERP levels continue to indicate that equity markets are still quite attractive in many parts of the world." BIRINYI: History Tells Me We'll Soon See The S&P 500 Pass 1,900 05-14-13 BI Investor strategist Laszlo Birinyi, who accurately predicted the S&P 500 would break 1,600, told CNBC on Tuesday he thinks the closely watched index could eclipse 1,900 in the longer term. Expanding on bullish sentiment from hedge fund titan David Tepper, Birinyi said the market is for stock pickers, who should to look at individual companies instead of broad sectors. (Read More: It's a 'My Cousin Vinny' Market, Bullish Tepper Says) "I've been impressed with resilience of this market," Birinyi said on "Squawk on the Street." "The pauses are only temporary, and now we've seen a rotation to the cyclicals. Looking at the market perspective, I still think we're going higher." Birinyi pointed to Autozone, which was hit by a downgrade on Monday but bounced back quickly. "Those are the kind of things I think are more important," he said. In the near term, Birinyi sees the S&P 500 going to 1,700, but in the longer term (after 2013) he said the index could reach 1,900. He called the 1,900 number "guidance" based on historical parallels, instead of a target. Birinyi's call earlier this year that the S&P would eclipse 1,600 came to fruition, leading to another bullish prediction. He said his firm is currently buying S&P 170 calls on the SPDR S&P 500 ETF, a bullish options bet that the S&P will hit 1,700. (Related: Cramer: This Is the Short's Worst Nightmare) Birinyi characterized the climb as "a cross country trip," suggesting that there will be stops and starts along the way. "This market is very strong, but I want to take it one step at a time and I want to get to 1,700 before we decide where we're going after that," he said. "People don't realize how strong this market has been," he said. "This has been the strongest advance-decline in the S&P over the last 20 years. What that means is that you want to be picking stocks. I think that's the key here. You want to pick stocks here and not worry about sectors or themes." "When I look at the market, I look at what individual stocks are doing. People have been concerned about things like inflation, and I look at the inflation-sensitive names and they are not reacting the way you would expect them to if that was an issue," he added.
Global Financial Data - Ralph Dillon - rdillon@globalfinancialdata.com At 85 Billion a month, massive amounts of liquity are driving the markets higher each day. While we are closely watching the FED for signs of an exit strategy, I heard a very interesting piece from David Taper at Appaloosa Management this morning that put todays markets in a much better perspective. According to David, The FED will have a 368 Billion dollar surplus this year! That is 368 Billion in more liquity that “has to go somewhere”. With the Dow and the S&P 500 trading at or near all time highs and 10yr paper trading at historic lows, you would think that we have run our course and we may want to pull some money off the table. Think again? Do you fight the FED? Do you create the MOAS? (Mother of all shorts)….Or do you stay long? In this chart, we look at the Equity Risk Premium Index versus the DJIA, S&P 500 and the US 10yr to 1885. The red line reprersents the Equity Risk Premium Index and by all accounts, looks like it is ready to breakout and make a move to new highs. Provided the FED follows through to 2014 with the QE program, one would have to assume that the respective equity indices will all move higher with the massive amounts of liquidity that are in the pipeline. That has proven wise as long as the FED stays your partner.
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05-14-13 | ANALYTICS FUND-MENTALS VALUATIONS
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BAC TRADING - Profitable on 60 out of 60 days Bank Of America Q1 Profitable Trading Days: 100% 05-08-13 Zero Hedge After the "humiliating" performance in Q4 2012, when Bank of America had a whopping 2 trading loss days out of 61, in has managed to redeem itself in the first quarter of 2012, when not only did it record seven trading days when it generated revenue of over $100 million daily, but more importantly it had zero days (of 60 total) with any net trading losses: a track record that can only be matched by any daytrader on Twitter. After all, what is better than trading when there is no risk of loss. From BAC:
And the stunning histogram: Going further back, here is 2011 and 2012: And summarizing it all: since the start of the New Normal 2009, Bank of America has had 962 profitable trading days, with just 97 days with trading losses: a 90.8% win record. |
05-13-13 | US ANALYTICS FUND-MENTALS EARNINGS |
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JPM TRADING - Profitable on 63 out of 63 days JP Morgan Has Zero Trading Losses In The First Quarter 05-08-13 Zero Hedge Earlier it was Bank of America reporting a perfect trading quarter, with profitability on 60 out of 60 trading days, and now it is JPMorgan's turn. Moments ago, Jamie Dimon's firm filed a 10-Q in which, among other things, it announced than in the quarter ended March 31, it was profitable on 63 out of 63 trading days and had one day in which it gained more than $200 million, or said simply another case of trading perfection unmatched anywhere in the known universe except perhaps by sellers of newsletters on Twitter. It was not immediately clear why JPM got a freebie of three extra profitable trading days in the quarter compared to BofA, although we suspect Jamie Dimon's presidential cufflinks may have something to do with it. What is clear is that the probability of one firm trading without error for an entire quarter, let alone two (and soon more as other banks file their 10-Qs) is slim to quite slim. Although not nearly as slim as whoever the hot chick is on Dancing with the Stars this season, which we are confident is the only thing the bulk of the population cares about. For everyone else, there's E(rror free)-trade. Going further back in time, we find that JPM had a winning trading accuracy of:
This compares to Bank of America's:
Or, since 2009, BAC's winning trade hit rate is somehow even better than that of JPM, at 90.8% compared to 88.9% for the firm that is in charge of Tri-Party repo. The chances of this occurring, considering the traders at Bank of America (including those from Merrill) are the butt of every joke on Wall Street and certainly far inferior to the traders from a firm which until the London Whale assumed it had an unlimited balance sheet, are also slim to quite slim. Perhaps related to all of the above, and for those curious if the recent reports of regulatory action against Blythe Masters will lead to anything, this is what the firm had to say about its ongoing legal entanglement with FERC:
The first to figure out what a "Wells-type" notice is (a Wells notice that is not really a Wells notice if one has presidential cufflinks perhaps?) gets a tour of the JPMorgan gold vault. As for anyone harboring any hope that Blythe Masters may spend even a minute in prison, your chance of seeing the JPM gold vault first hand is equally high. |
05-13-13 | US ANALYTICS FUND-MENTALS EARNINGS |
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RISK - "Jaws of Despair" and the Regression-to-the-Mean The BTFD Strategy Has Never Worked Better (But Beware) 05-10-13 Zero Hedge There is a mathematical term used to describe a time series' propensity to mean-revert or not. Autocorrelation measures the tendency for today's price direction to be in the same direction as yesterday's. In a period of negative autocorrelation (such as today) when the market sells off one day it is much more likely to rebound the next. As Artemis Capital's Chris Cole notes, the current level of negative auto-correlation (often associated wite positive for 'buy-the-dip' strategies in an upward trending market) has never been higher. Mean reversion and negative autocorrelations are one reason why many pure 'portfolio insurance' strategies are struggling with losses. If you are constantly shorting volatility this trend toward powerful mean reversion is your best friend. However, empirically, this high mean reversion is unsustainable. Via Artemis Capital,
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05-13-13 | RISK | ANALYTICS |
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RISK - Historic Low High Yield (Record Price Paid) Race to Zero in High Yield Credit 05-10-13 SurlyTrader via ZH The average annual credit loss in high yield bond portfolios was 2.65% between 1992 and 2011. During that same time period, your average yield for taking that credit risk was 10.25% and your average option adjusted spread was 5.7%. Today, that total yield has dropped to 4.96% High Yield - The New Risk Free Asset Class At 4.96% you are picking up 4.04% above a comparable tenor in US treasuries. With a 2.65% average credit loss, you are expecting a 1.39% risk premium for taking on junk credit risk if we experience historical average credit losses. Do not worry though, because volatility has been removed from all asset classes. |
05-13-13 | RISK | ANALYTICS |
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COMPLACENCY - Leverage Being Increased Investors Rediscovering Margin Debt 05-09-13 WSJ
But to others it is a warning sign that the Federal Reserve's easy-money policies are creating a bubble mentality among stock investors. As of the end of March, the most recent data available, investors had $379.5 billion of margin debt at New York Stock Exchange member firms, according to the Big Board. That is just shy of the record $381.4 billion in margin debt set in July 2007. The fear is that as more investors rely on money borrowed against stocks, any significant fall in stock prices will be magnified if investors are forced to sell securities to raise cash and meet margin requirements. "Borrowing is cheap," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab Corp. "The big danger in trading on margin isn't that the market goes down a little, it's that the market goes down a lot," said Mr. Frederick. "It could cause a downturn to accelerate." With margin debt, investors pledge securities—stocks or bonds—to obtain loans from their brokerage firm. The money doesn't have to be used to just buy more investments. The funds can be used in what ever way the account holder wishes. Interest rates can vary significantly for account holders. A valued client may pay less than 1% interest on the loan, while others could pay more than the prime rate, which is now 3.25%. Jamie Cox, managing partner at Harris Financial Group, a financial-services firm in Richmond, Va., that manages money primarily for retirees, said a client this week used margin debt to finance a $70,000 home-improvement project that included renovating a kitchen, bathroom and a couple of bedrooms. In this case, margin debt was viewed as a more attractive option to pay for the project than was selling stocks in the portfolio to raise cash, Mr. Cox said. One reason is that the interest on margin debt is tax-deductible, he said. Mr. Cox, after consulting with his client, could then selectively sell some securities and let dividend payments pay down the margin loan. "He decided it was a great alternative," Mr. Cox said. For some market watchers, rising levels of margin debt are a sign that investors are becoming complacent and making decisions based on the idea that stocks can only go up. "You have to feel really good about the market to be borrowing to buy more shares at these levels," said Bruce McCain, chief investment strategist at Cleveland's Key Private Bank, a subsidiary of KeyCorp . "It's probably a sign of excessively positive sentiment right now." As evidence that the high levels of margin debt are a warning sign, some analysts note that margin debt hit a peak at the onset of the last two bear markets. Margin debt topped out in March 2000, which turned out to be the top of the dot.com-stock bubble. Others are less worried. "This is not a warning that the markets are becoming frothy," said Jim McDonald, chief investment strategist at Northern Trust, whose firm manages more than $700 billion. "It makes sense in this environment to lever up and to take advantage of stronger returns." To some degree, margin debt reflects the movement of the stock market itself, some note. The more that stocks are worth, the more that investors can borrow. "Coincidence doesn't imply cause and effect," said Schwab's Mr. Frederick. "The fact that two things move together doesn't mean that one is causing the other." In addition, some note that when the level of margin debt is compared to the value of the stock market, it isn't as close to a record high as the absolute levels of debt. The total amount of NYSE margin debt as of the end of March was 2.7% of the market capitalization of the Standard & Poor's 500-stock index. At its precrisis peak, investors had borrowed as much as 2.9% of the S&P 500, and at its crisis low, investors were borrowing 2.3% of the S&P 500's market value. Still, many say that higher levels of margin debt could ultimately magnify any stock-market selloffs, even if they are not on the near-term horizon. "It's the irrational move of the leveraging up that helps [drive] the boom," said Cullen Roche, founder of San Diego-based Orcam Financial Group, a research and consulting firm. Because unwinding that debt could lead to forced selling, "when the air comes out of the bubble, the situation gets exacerbated on the way down." |
05-13-13 | RISK | ANALYTICS |
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2013 - STATISM |
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STATISM - Suppressing Dissention IRS as a Political Hit Squad 05-15-13 BATR.org When the Internal Revenue Service admits to violations of law by targeting limited government advocate organizations, you know that the non-divulged crimes are much worse. The discloser in the mainstream media is a pleasant astonishment. The usual pattern of protecting "Big Government" is still intact, while the noise and agency diversion on the abuses of the IRS avoid the fundamental problem with federal taxation, based upon a system of deductions, exemptions, incentives and grants. The extortion and intimidation in the enforcement of the tax code is the entrusted role assigned to the IRS by the political hacks that administer the social engineering experiment that is fundamentally changing America. The politicalization of the system is premeditated. The revelation that Obama governance resulted in IRS scrutiny went beyond Tea Party, targeting of conservative groups broader than thought, should not be shocking. The sycophants in federal employment have a deranged hostility towards any voice that defends and promotes constitutional federalism. Foxnews reports:
The game of citing partisan hypocrisy in describing respective "enemy lists" avoids the necessary task of replacing the taxation labyrinth, designed to select winners and losers. Every administration uses the bureaucracy to punish political foes and most presidencies intentionally engage in illegal retribution, but all share the virtual immunity from prosecution for their misdeeds. What can we reasonably expect from this Obama scandal? It certainly has the hallmark of being a far more severe constitutional violation than those committed in the heyday of the LBJ, Nixon and Clinton outlaws. Now be forewarned, that the IRS is charged with overseeing compliance under Obamacare. Giving a mandate for expansion under this current cloud of criminality is the height of arrogance. Notwithstanding, the irreversible loss in credibility, the wholesale revamping of the method of taxation should be examined and a trustworthy replacement adopted. However, before reviewing one such alteration, it must be pointed out, that collecting taxes to finance governmental operations is not the primary purpose of the current system. Perpetual trillion dollar deficits demonstrate that raising revenue to pay for federal programs lacks the ability to balance budgets. The principal function of the Internal Revenue Service is to facilitate the tax avoidance practices of corporatist transnational conglomerates. The retaliatory mission against working class citizens is ostensibly a disciplinary process to maintain control over the finances of producing contributors. Inhibiting upward mobility for the populace, while accelerating elite’s wealth accumulation, is the destructive result of the tax code. The Hill offers a solution in the article, House GOP seeks to abolish IRS, replace income tax with consumption tax.
The merits or criticism of a consumption tax and certainly any final amount of the levy certainly deserves a vigorous national debate. However, the need for eliminating the byzantine complexity and inherent inequity in the present punitive tax collection system should be unanimous. Obviously, the prospect that the establishment ruling class would allow the slaughter of their cash-cow is zero. The entire existence of the Tea Party movement grew out of a desire to restore the principle of no taxation without representation. Yet, the efforts out of the authoritarian globalists are to ramp up even more draconian measures to monitor and intrude into every financial affair of normal people. The only prudent political response to this intolerable obliteration of our eternal right to the pursuit of happiness is to require a return to the pre income tax system of revenue collection. Just listen to the screams, from those progressive socialists, who demand that the State must use their penalizing power to force egalitarian redistribution upon every wealth creator or economic producer. The calculated fear factor imbedded into the Internal Revenue Service goes well beyond targeting just conservative groups. Every self-respecting American shares a vested interest in restoring a constitutional government. As it stands now, the prospect of achieving even a reasonable prospect of legitimate authorities is incompatible as long as the IRS is allowed to run amok over the masses who are attempting to petition and redress their government. USA Today reports, Obama calls purported IRS targeting "outrageous", from the latest Obama presidential press conference.
How can anyone believe that Obama has clean hands or that some faction within the Internal Revenue Service was operating without his knowledge? Well Mr. President, prove the meaning in your words and put forth the political capital to pass the H.R. 25 legislation. James Hall – May 15, 2021 |
05-16-13 | THESIS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 - FINANCIAL REPRESSION |
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2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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G7 - Lying to Each Other
This is how a "Den of Thieves" Go about Lying to each Other! What is not being said by the G6 is they need the re-ignition of the Japanese Carry Trade
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2010 - EXTEN D & PRETEND |
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SOCIAL UNREST |
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CENTRAL PLANNING |
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AN INSIDER SPEAKS - Catherine Austin Fitts
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05-15-13 | THEME |
CORRUPTION
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GOLD MANIPULATION - The Gold Smakedown Gangster State America — 05-13-13 Paul Craig Roberts There are many signs of gangster state America. One is the collusion between federal authorities and banksters in a criminal conspiracy to rig the markets for gold and silver. My explanation that the sudden appearance of an unprecedented 400 ton short sale of gold on the COMEX in April was a manipulation designed to protect the dollar from the Federal Reserve’s quantitative easing policy has found acceptance among gold investors and hedge fund managers. The sale was a naked short. The seller had no gold to sell. COMEX reported having gold only equal to about half of the short sale in its vaults, and not all of that was available for delivery. No one but the Federal Reserve could have placed such an order, and the order came from one of the Fed’s bullion banks, one of the entities “too big to fail.” Bill Kaye of the Greater Asian Hedge Fund in Hong Kong and Dave Kranzler of Golden Returns Capital have filled in the details of how the manipulation worked. Being sophisticated investors of many years of experience, both Kaye and Kranzler understand that the financial press runs with the authorized story planted to serve the agenda that has been put into play. Institutional investors who have bullion in their portfolio do not want the expense associated with storing it securely. Instead, they buy into Exchange Traded Funds (ETF) and hold their bullion in the form of a paper claim. The largest, the SPDR Gold Trust or GLD, trades on the New York Stock Exchange. The trustee and custodian is a bankster, and only other banksters are able to turn investments into delivery of physical bullion. Only shares in the amount of 100,000 can be redeemed in gold. The price of bullion is not set in the physical market where individuals take delivery of bullion purchases. It is set in the paper futures market where short selling can drive down the price even if the demand for physical possession is rising. The paper gold market is also the market in which people speculate and leverage their positions, place stop-loss orders, and are subject to margin calls. When the enormous naked shorts hit the COMEX, stop-loss orders were triggered adding to the sales, and margin calls forced more sales. Investors who were not in on the manipulation lost a lot of money. The sales of GLD shares are accumulated by the banksters in 100,000 lots and presented to GLD for redemption in gold acquired at the driven down price. The short sale is leveraged by the stop-loss triggers and margin calls, and results in a profit for the banksters who placed the short sell order. The banksters then profit again as they sell the released gold into the physical market, especially in Asia, where demand has been stimulated by the sharp drop in bullion price and by the loss of confidence in fiat currency. Asian prices are usually at a higher premium above the spot prices in New York-London. Some readers have said “don’t bet against the Federal Reserve; the manipulation can go on forever.” But can it? As the ETFs such as GLD are drained of gold, their ability to cover any of their obligations to investors diminishes. In my opinion, these ETFs are like a fractional reserve banking system. The claims on gold exceed the amount of gold in the trusts. When the ETFs are looted of their gold by the banksters, the gold price will explode, as the claims on gold will greatly exceed the supply. Kranzler reports that the current June futures contracts are 12.5 times the amount of deliverable gold. If more than 8 percent of these trades were to demand delivery, COMEX would default. That such a situation is possible indicates the total failure of federal financial regulation. What the Federal Reserve has done in order to maintain its short-run policy of protecting the “banks too big too fail” is to make the inevitable reckoning more costly for the US economy. Another irony is the benefactors of the banksters sale of the gold leeched from the gold ETFs. Asia is the beneficiary, especially India and China. The “get out of gold line” of the US financial press enables China to unload its excess supply of dollars, accumulated from the offshored US economy, into the gold market at a suppressed price of gold. Kranzler points out that not only does the Fed’s manipulation permit Asia to offload US dollars for gold at low prices, but the obvious lack of confidence in the dollar that the manipulation demonstrates has caused wealthy European families to demand delivery of their gold holdings at bullion banks (the bullion banks are essentially the “banks too big to fail”). Kranzler notes that since January 1, more than 400 tons of gold have been drained from COMEX and gold ETF holdings in order to satisfy world demand for physical possession of bullion. Again we see that institutions of the US government are acting 100% against the interests of US citizens. Just who does the US government represent? |
05-14-13 | THEME |
CORRUPTION
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GENERAL INTEREST |
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