Archive - Apr 2014

It seems two states is not enough for billionaire investor George Soros (who is ranked the 9th most influential marijuane user in the US). As The Washington Times' Kelly Riddell reports, advocacy groups are leading the campaign to crush marijuana prohibition from coast-to-coast, and 83-year-old Soros is helping line the pockets of those making that push. "Through a network of nonprofit groups, Mr. Soros has spent at least $80 million on the legalization effort since 1994, when he diverted a portion of his foundation’s funds to organizations exploring alternative drug policies, according to tax filings," Riddell notes, adding that the Soros-affiliated Foundation to Promote an Open Society donates roughly $4 million annually to the Drug Policy Alliance.

For a few weeks there, as the Baltic Dry Index rose, talking-heads were ignominous in their praise of the shipping index as a leading indicator of an awesome future ahead for the world economy. The last 9 days have smashed that 'hope' to smithereens (and yet the talking-heads have gone awkwardly silent, having moved on to some other bias-confirming meme). The Baltic Dry is down 25% in the last 2 weeks, back near post-crisis lows, and has just suffered the worst start to a year in over a decade. But apart from that, seems global trade is all-good and about to take off any minute now...

The fear of deflation serves as the theoretical justification of every inflationary action taken by the Federal Reserve and central banks around the world. It is why the Federal Reserve targets a price inflation rate of 2 percent, and not 0 percent. It is in large part why the Federal Reserve has more than quadrupled the money supply since August 2008. And it is, remarkably, a great myth, for there is nothing inherently dangerous or damaging about deflation. Now unmoored from any gold standard constraints and burdened with massive government debt, in any possible scenario pitting the spectre of deflation against the ravages of inflation, the biases and phobias of central bankers will choose the latter. This choice is as inevitable as it will be devastating.

...One reporter asked the President if perhaps the celebration was premature, since so much of the law has yet to go into effect, and nobody can say whether the new regime will in fact be better than the old one. Responding in that cute way that makes us forget so many of our other disappointments with him, Obama responded by saying “don’t be a party pooper.” 

The outperformance "hope" of so-called 'growth' stocks over the past 5 months has been rapidly eviscerated as they catch down to 'value'... it seems the self-sustaining escape-velocity dream is postponed for now...

There is a gloriously simple solution to all the world's TBTF problems, one that could be enacted in a HFT millisecond by pulling the trigger, so to speak. The solution comes from none other than that historic US nemesis, Vietnam, where unscrupulous financiers don't just go to jail. Sometimes, they get death row.

The jobs number expectation had been falling for a few days into the print this morning and despite the desperate efforts of every status-quo-hugging TV talking-head's Goldilocks scenario, it was not a good report - it missed low expectations and it seems the market is realizing (having been told the bar is very high for an un-taper) that the Fed will not rescue it any time soon. GDP expectations are also tumbling and thus the hope-driven hyper-growth stocks have been monkey-hammered. This is the worst swing for the Nasdaq since Dec 2011 (with Russell, Dow, and Nasdaq -1% YTD). Momos and Biotechs were blamed but this was broad-based selling as JPY carry was unwound in a hurry. Gold rallied above $1300 (+8.1% YTD) as bond yield ripped lower for 5Y's biggest daily drop in 10 weeks (short-end -4bps on the week). VIX pushed back above 14 (but it was clear derisking exposure - as opposed to hedging positions - was the order of the day).

According to stunning new numbers just released by the federal government, that we detailed yesterday, nine of the top ten most commonly held jobs in the United States pay an average wage of less than $35,000 a year.  When you break that down, that means that most of these workers are making less than $3,000 a month before taxes.  And once you consider how we are being taxed into oblivion, things become even more frightening.  Can you pay a mortgage and support a family on just a couple grand a month?  Of course not.  In the old days, a single income would enable a family to live a very comfortable middle class lifestyle in most cases.  But now those days are long gone. 

On Monday, in "High Frequency Trading: Why Now And What Happens Next" we predicted that "the high freaks are about to become the most convenient, and "misunderstood" scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following:

• Layering: multiple, large orders are placed passively with the goal of “pushing” the book away

Of course, another name for "layering" is "spoofing" which is precisely the term that the SEC used today when it announced that it charged the owner of a New Jersey-based trading firm and several other defendants "in a scheme to manipulate the market through an illegal practice known as "spoofing."

"Stock-Picker's Market" is the term we hear again and again, but, as Cliff Asness blasted "I think they mean, "We will have to pick stocks now because the market isn’t making us money the easy way." As the following chart shows, the picture for most people's portfolios is a very different one from the index all-time highs that are tritted out day after day as indicative of the wealth that the Fed has created. As Asness concluded, perhaps talking-heads should more honestly explain, “Our market-timing forecasts are mostly useless most of the time, but right now, they are completely useless,” as the average member of the S&P 500 is 6.5% off its highs (as the index pushes ahead).

A sneak peak...

While the West and Russia exchange sanctions in a tit-for-tat 'do no real damage' process, the rhetoric between Ukraine and Russia is escalating from words to deeds in some cases. As The FT reports, Russia detained 25 Ukrainian citizens on suspicion of plotting terror attacks (on Russian soil) and claimed to have information that the Ukrainian Right Sector movement was to “carry out subversive and terrorist acts” in seven Russian regions. Ukraine retaliated with claims it had evidence that implicated dozens of Russian Federal Security Bureau agents in a crackdown on anti-government protesters in February that left more than 100 demonstrators dead, many from police sniper fire, which Russia's FSB denied. NATO proclaimed it all "just propaganda and disinformation."

According to this chart from JPM the market's forward P/E ratio now is precisely 15.2x. What was it at precisely the last bubble peak on October 9, 2007? 15.2x.