Archive - Oct 4, 2013

When the NSA sorts through American communications to find terrorists, what is their accuracy in identifying one?

From algos to trading pschology and from market-maker's tricks to the quant models that dominate, Batur Asmazoglu provides an insider's view of a large sell-side bank FX trading desk. While the likes of Goldman's Thomas Stolper have proved it, Asmazoglu's first 'secret' is that "while many believe the big investment banks are very sophisticated, that is not the case at all."

Looking at the equity market and some of the background dynamics Citi's FX Technical group cannot help but be reminded of 2011. They also warn, despite the constant hope-driven rallies this week, there are also some aspects of what we saw in 1998 and similarities with 2000 that are worth noting. The bottom line, we have had the view for some time that we would see a much deeper correction in the equity market (in excess of 20%). Recent price action and developments might (just might) be suggesting that it is time to revisit that theme.

The standard wisdom on gold is that it does well in times of economic bad news such as in the 1970s, a period of stagflation and recessions, when the yellow metal rose from $35/oz to peak at $850/oz in 1980. But this time, Don Coxe, a portfolio adviser to BMO Asset Management, believes, things are different. In this interview with The Gold Report, Coxe explains why gold will rise when the economy improves.

"Work hard, play hard" is the adage often put forward to encourage that work-life balance so many find hard to come by. But judging from the time spent on daily activities, it would appear there is one message for the Japanese and North Americans... move to France!

Why are young people in America so frustrated these days? 

You are about to find out...

The system is failing, and young people are going to become even angrier and even more frustrated.

What if the Treasury were to go over the X date (date beyond which the Treasury cannot honor all its payments) without the debt ceiling being raised? As BofAML notes, the Treasury estimates the X date to be October 17, though they believe that the Treasury may have enough cash and incoming tax receipts to last a few more days. In either case, the date is not too far out. Market concerns over possible postponed payment have been rising as indicated by the performance of October and November bills. What are the options of for the Treasury?

Just when you thought they couldn't stoop any lower...

It may "not be some damn game", but this sure is some damn summary of all the latest news and developments.  Via Bloomberg:

• House Democrats will attempt to use discharge petition to force House to vote on clean stopgap spending bill; 17 House Republicans would need to back the measure and 20 House Republicans have said they’d vote for a clean bill
• House in session tomorrow 10am
• White House supports House bill to retroactively pay govt staff, says Obama would veto House piecemeal spending bills
• House Speaker John Boehner says he won’t offer a clean debt limit bill, says shutdown "isn’t some damn game"
• Tea Party-backed Rep. Dennis Ross, R-Fla., says he’s in favor of spending deal that doesn’t include changes to Obamacare

The dump into last night's close marked the lows of the last 24 hours as US equities decided that worrying about government shutdowns, near-record negative earnings pre-announcements, disappointing job growth, debt-ceiling dynamics that are increasingly feared in money markets, and a reversal in the key "soft" survey data was not enough to stop them BTFATH (thanks to confused banter from several Fed heads). Sell Gold, Sell Bonds, Buy Stocks - sure why not!

Secular bull markets are great parties. Investors arrive from secular bears really wanting to take the edge off. As the bull proceeds, above-average returns become intoxicating. By the time it is over, the past decade or two has delivered bountiful returns. In contrast, secular bears seem like hangovers. They are awakenings that strip away the intoxication, leaving a sobering need for an understanding of what has happened. If history is a guide, the inflation rate will at some point trend away from the present price stability. The result will be a significant declining trend in P/E. If this occurs over a few years, the market losses will be dramatic. These processes take many years. Be careful not to let hope for the next secular bull mask the reality of the current secular bear.

Woodrow Wilson signed the Income Tax into law one hundred years ago today. As direct taxation of Americans was prohibited by the Constitution, a constitutional amendment was necessary before what would become the Revenue Act of 1913 could be legally imposed. The income tax, and the enabling amendment, were sold to the voters as necessary for a tax on rich people that would mean lower taxes and cheaper goods (due to lowered tariffs) for everyone else. Only one percent of the population was subject to the tax then, and the tax rate was one percent.  The voters need not worry, they were told, because regular people would never ever pay the income tax.

The most likely outcome of the current fiscal dispute, in Goldman's opinion, is an agreement that combines an increase in the debt limit and a "continuing resolution" that reopens the federal government. Unlike the November T-Bill market traders, Goldman expects this to pass; but no earlier than the end of next week (i.e., October 11-12) and more likely sometime around the Treasury's projected deadline of October 17. Other outcomes are possible, but Goldman believes they have lower probabilities.

One of these things is not like the other...