Archive - Mar 12, 2013

Tyler Durden's picture

Kyle Bass Warns "The 'AIG' Of The World Is Back"





Kyle Bass, addressing Chicago Booth's Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. "The AIG of the world is back - I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time... and it is happening in size." As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and "if the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year." Critically, the bank that he bought the 'cheap options' from recently called to ask if he would close the position - "that happened to me before," he warns, "in 2007 right before mortgages cracked." His single best investment idea for the next ten years is, "Sell JPY, Buy Gold, and go to sleep," as he warns of the current situation in markets, "we are right back there! The brevity of financial memory is about two years."

 

Tyler Durden's picture

Guest Post: China’s Military Development, Beyond the Numbers





Given China’s rapid rise in all aspects of national power, as well as its reluctance to release specific details about many important aspects of its military spending, its annual budget announcement rightly attracts worldwide attention. Last week, China revealed its projected 2013 official defense budget: 720.2 billion yuan (roughly $US114 billion), a figure that continues a trend of nominal double-digit spending since 1989 (the lone exception: 2010). Although China’s limited transparency about specific defense budget line items matters, it shouldn’t distract observers from seeing the bigger picture concerning China’s military development: The People’s Liberation Army (PLA) increasingly has the resources, capabilities, and confidence to attempt to assert China’s interests on its contested periphery, particularly in the Near Seas (Yellow, East, and South China Seas). This development has the potential to seriously challenge the interests of the U.S., its allies, and other partners in the region, as well as access to and security of a vital portion of the global commons—waters and airspace that all nations rely on for prosperity, yet which none own. That’s why the PLA’s development matters so much to a Washington located halfway around the world.

 

Tyler Durden's picture

Bitcoin 'Glitch' Sparks 23% Flash Crash





While we are used to seeing insta-crashes in our highly-regulated and trustworthy equity markets, the unregulated digital world of Bitcoins suffered another flash-crash last night. According to Ars Technica, the 23% plungefest in the value of the digital currency (the second in a week) was due not to Waddel & Reed, not HFT algos, but 'forking' Cryptographic algos gone wild agreeing on different (legacy) keys as being correct - akin to finding Tungsten in your Gold bars (and hence the drop in the value). This latest glitch is different from the problem that caused Bitcoin prices to briefly crash to zero in June of 2011. In that case, the sell-off was caused by the compromise of the exchange itself, whereas this time the glitch occurred in the core Bitcoin software. Obviously, the incident will be another important test of the cryptocurrency's decentralized governance structure - to say nothing of its reputation among the less technically-capable owners and miners (even though BTC rapidly recovered almost all its losses).

 

Tyler Durden's picture

Hot And Cold Weather Caused Dick's Revenue Shrinkage





Water is wet. Sky is blue. Spring follows Winter. All things we hold as true and yet, it appears the last of these has managed to foil the best laid plans of Dick's Sporting Goods amid their dismal earnings call. The company at once blamed 'warmer weather' than expected for shrinkage in its outerwear sales and because "it didn't look like Winter was going to come," the firm then blamed excessively cold weather and its lack of outerwear inventory to meet those needs. Just as the firm said, "we're not as smart as we look," as it appears that unless we get Goldilocks perfection year-round, retail sales are all but a pure guess on meteorological mysticism.

 

David Fry's picture

Quiet Day Prone To Rumors





The only major news from overseas was from the UK where Industrial Production fell 1.5% leading many to worry the country would succumb to a triple dip recession. Naturally the pound (FXB) has been taking a beating with pundits recommending long euro short pound pair trade. 

It was a boring enough day that the goings on in Rome caught my attention—a new candidate for pope and he’d be a refreshing change:

 

 

Tyler Durden's picture

When HFT Steals Liquidity - Exploratory Trading In The eMini





On November 12, 2012,  Adam D. Clark-Joseph published Exploratory Trading, which analyzes CFTC audit level trading data in the eMini S&P 500 futures market. This is a special, "regulators-only" data-set that contains all orders and trades, and each order and trade has a trader identifier. What this paper exposes is astounding. Nanex notes that the top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else. Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

 

Tyler Durden's picture

Guest Post: Boeing Declares War on Privacy in Washington State





Washington state has led the way in many respects when it comes to the drone issue, something we highlighted recently in my article: Just Say NO: Seattle Residents Kill the City’s Drone Program.  It’s not just Seattle though, there is a bi-partisan bill in the Washington state legislature, H.B. 1771, which limits drone use within the entire state.  The bill has already passed its House Committee hearing and, as expected, the state’s corporate overlords have started to fight back.  Specifically, Boeing.

 

Tyler Durden's picture

With Twinkies Set To Return, Ebay "Collectible" Buyers Get Harsh Lesson In US Bankruptcy Law





Remember when greed-stricken Capitalist eBay'ers bid a single-Twinkie up to $8000.00? It appears our rather prescient note that they may regret not comprehending the US bankruptcy process was spot on as NBC News reports that the new owners of the Hostess Brand "look forward to having America's favorite snacks back on the shelf by this summer." The buying group, led by private equity shop Apollo Global, got news of their $410 million winning bid late last night. We suspect the re-establishment of these brands on store-shelves may cut the price a little from $8000 (or perhaps the all-knowing 'market' price signals that demand is there at that price?) - the question is - does eBay have a CFTC-equivalent that the winning Twinkie bidder can cry fat-finger to? Meanwhile, we wonder how long will it be before CNBC gets a visit from the friendly local bakers' union once again?

 

Tyler Durden's picture

Which 'Patriotic' US Companies 'Invested' The Most Cash Overseas Last Year?





A Wall Street Journal analysis of 60 big U.S. companies found that, together, they parked a total of $166 billion offshore last year. That shielded more than 40% of their annual profits from U.S. taxes, though it left the money off-limits for paying dividends, buying back shares or making investments in the U.S. The 60 companies were chosen for the analysis because each of them had held at least $5 billion offshore in 2011. Within the group of 60 companies, WSJ found 10 that parked more earnings offshore last year than they generated for their bottom lines. The trend was most pronounced among the 26 technology and health-care companies. Not all of the earnings parked offshore are in cash. Some of the money is used to build plants and buy equipment overseas. Why? Apple said it held $40.4 billion in untaxed earnings outside the U.S. and estimated that it would owe $13.8 billion in tax if it brought that money back to the U.S. That is a 34% tax rate. Since foreign income taxes are creditable on U.S. taxes, that means Apple has paid less than 5% tax on those earnings to date.

 

Tyler Durden's picture

Swirlogram Shows Slowdown Is Here





Despite the hopes and greed of the marginal greater fool algo lifting equity markets to highs, Goldman's business cycle 'swirlogram' has dropped notably into the 'Slowdown' phase after a brief 6-month trip into 'Expansion'. China growth risks remain the largest weight on investors' angst (Chinese IP growth and retail sales for the January/February period were sequentially weaker, and overall disappointing) as Euro and US risks have 'apparently' fallen in the last week or two.

 

Tyler Durden's picture

Guest Post: Let's Stop Fooling Ourselves: Americans Can't Afford the Future





The American spirit is rooted in the belief of a better tomorrow. Its success has been due to generations of men and women who toiled, through both hardship and boom times, to make that dream a reality. But at some point over the past several decades, that hope for a better tomorrow became an expectation. Or perhaps a perceived entitlement is more accurate. It became assumed that the future would be more prosperous than today, irrespective of the actual steps being taken in the here and now. And for a prolonged time characterized by plentiful and cheap energy, accelerating globalization, technical innovation, and the financialization of the economy it seemed like this assumption was a certain bet. But these wonderful tailwinds that America has been enjoying for so many decades are sputtering out. The forces of resource scarcity, debt saturation, price inflation, and physical limits will impact our way of life dramatically more going forward than living generations have experienced to date. And Americans, who had the luxury of abandoning savings and sacrifice for consumerism and credit financing, are on a collision course with that reality.

 

Tyler Durden's picture

Chase.com Hacked?





 

Tyler Durden's picture

"Psychologically, We Closed Positive" - 8th All-Time High Dow Up-Day In A Row





Because all that matters is the Dow, as one intellectual giant noted - whether we close red or green "psychologically, we closed positive." Unfortunately, AAPL closed at its lows, Nasdaq -11 points, S&P 500 futures in the red perfectly balanced at their VWAP (which saw nothing but selling all day) for the fifth lowest volume day of the year (following yesterday's lowest volume day). The S&P stayed in its uptrend channel as the USD-Stocks correlation algos gave up today - as did the Treasury-Stocks algos. 10Y closed -3bps on the week (-6bps today). HY credit closed at its lows, VIX rose 0.75 vols today at 12.3% - leading stocks south, and while commodities pulled back off early spike highs, they are all in the green on the week (with gold just shy of $1600 intraday). While it is of little import as the sixth consecutive all-time Dow highs is all that counts for the headlines this evening, we would note that we haven't seen such weakness in AAPL and selling pressure at VWAP in S&P 500 futures for a while (and that was with a 19/30, $650 to the sell side MOC in the DJIA).

 

Tyler Durden's picture

BHP's CEO On The Disconnect Between Reality And Markets





"...we've had volatile times and I think while the world has on balance, poured a lot more into equities; the reality is that the underlying situation in the world has probably not changed as much as the equity markets reflect."

Marius J. Kloppers, CEO BHP Billiton

 
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