Archive - May 2014

Some thoughts about the price action, or lack thereof, in the foreign exchange market.  

German lawmakers fumed Friday over "vicious" criticism by John MCCain...

Because when in doubt, just let "specialists" hedonically adjust it...

The joint naval drill is another example of the growing military, economic and political ties between China and Russia.

We have detailed the straitjacket into which the Japanese have been strapped for the past two decades numerous times in the last few years (in great detail here)  but as Grant Williams leaned back in his most comfortable chair after reading an article about proposed changes to the GPIF (Government Pension Investment Fund), Japan’s public pension fund; the thought popped into his mind - "Japan really is totally f##ked." What led him to that well-thought-out and eruditely expressed conclusion? Read on...

Putin at least stands for what he truly believes in. That is far more than we find in Western Politicians.

Having called for the demise of the hype/hope growth stocks, biotech, and social media schemes at the end of 2013, Marc Faber believes the weakness in those sectors is a signal of things to come (and that the so-called "rotation" to quality stocks is fallacious in the medium-term). Faber carefully notes that the size of markets allows some stocks to move up as others move down and so the overall market "looks" ok, but warns "we have already had a big break in parts of the market... but we haven't had the big break in the overall market," adding that "it's too late to buy the US stock market," confirming what we noted about Jeremy Grantham's dismal outlook for US equities in the medium-term (and how and when the bubble bursts). Simply out, given yields around the world and the fundamentals, "individual investors have excessively optimistic expectations about their future returns," which is terrible news for the record amounts of Greater Fools piling in as professionals pile out.

Yesterday we asked if the world was tumbling towards fascism. This is not the first such warning, as we noted previously (with Geoffrey Batt), in a Washington Post article from 1938 one finds an interesting warning from former president Herbert Hoover, in which he declares that the FDR "New Deal" is leading the US to fascism.

We’ve been hearing a lot about the so-called Deep State lately. What to make of this shadowy monster? Some observers link it to the paranoid fantasy called the New World Order, a staple of political talk radio (and a hobgoblin I don’t believe in). In popular movies such as the Jason Bourne epics and Mission Impossible, the Deep State launches hyper-complex schemes that work flawlessly and never fail. That is exactly why they have such high entertainment appeal. Viewers are thrilled by the precision, by the conceit of seeming infallibility. The Deep State definitely exists; it just doesn’t work the way it is depicted in the movies. We like to say that we're allergic to conspiracy theories because human beings are generally too inept to carry out schemes at the grand scale, as well as being poor secret-keepers. Insider knowledge is almost always swapped around, even in secretive organizations, often recklessly so, because doling it out confers status, tactical advantage, and sometimes money for the doler-outer. But the Deep State isn’t a secret. It operates in plain sight.

20 years in prison... That’s the penalty you could face for traveling to a country the President has labelled to be “of concern”. Sending any form of monetary assistance to people in the country merits further steep penalties.  While something as innocuous as travelling abroad is enough to get the average American 20 years in prison, the government is using your tax dollars to aid terrorism directly… and using YouTube as their auditor. Sounds about right for a terrorist organization whose leader has a Nobel Peace Prize.

Pray to the god of hockey-sticks...

There is an old Wall Street axiom that goes "Sell in May and go away, come again after St. Leger's day."  Of course, as with all Wall Street axioms, they are viewed by the media to be "valid" only if they work every single year. The reality is that no axiom, investment discipline or strategy works all the time. It is the cumulative effect over long periods of time which defines success or failure. Today's selected readings, both for and against this particular "Wall Street wisdom," provide some statistical insight.

Filed under - WTF Headline of the day. The FAA, for the 2nd time in its history, has fined someone (David Zabdlidowsky) for operating (and crashing) an unmanned drone in Midtown Manhattan:

FAA FINES DRONE OPERATOR FOR FLIGHT OVER MANHATTAN IN SEPTEMBER
FAA RELEASES LETTER CHARGING NY MAN WITH DANGEROUS FLIGHT
FAA SAYS DRONE HIT 2 BUILDINGS IN MIDTOWN NYC THEN CRASHED

The drone was operated in a "careless and reckless" manner, according to the letter below, which is hardly surprising given it took off from 38th near what locals call "Pub Alley."

Based on Markets revenue results to date, which reflect a continued challenging environment and lower client activity levels, expect 2Q14 Markets revenue to be down approximately 20%+/- versus 2Q13.
Higher levels of mortgage interest rates are expected to continue to have a negative impact on volumes
Expect pretax production loss of approximately $100–$150 million in 2Q14 and pretax margins to be negative in 2H14
Expect net servicing revenue of $600–$650 million in 2Q14 and declining by approximately 10% (not annualized) per quarter for 2H14

Stocks just could not figure it out - good jobs data, bad jobs data, WWWIII? But Treasuries and gold did. 30Y yields tumbled to fresh 11 month lows (lot of desk chatter of GPIF buy orders ahead of their holiday), 10Y to 2014 lows, but the short-end sold off as 5s30s flattened to 5 year lows (under 170bps). Despite some smackdowns this week, precious metals bounced back notably today with gold's best day in a month, back over $1300 and unch on the week. Despite yields tumbling, Utility stocks were the week's losers (-1.2%) while homebuilders were best (oh yeah because lower mortgage rates is all that is holding back pent-up demand for homes!!). On the week, Trannies outperformed but Russell 2000 was worst of the major indices (the opposite of today's action). The USD pumped and dumped around the jobs data, but ended the day unch (down 0.25% on the week). Credit markets closed at their wides of the day, notably divergent from stocks on the week. A massive VIX-selling effort began late in the day (because with 38 dead in Odessa who would need to hedge?) - but stocks ignored it.