Archive - Dec 15, 2012 - Story

The Fiscal Cliff cat and mouse game is entering its last two weeks of calendar 2012, with Congress now officially closed for the year. And while we would have expected major updates in the Cliff timeline to only hit during trading hours, usually just as AAPL once again threatens to trade with a 4-handle, Reuters reports that out of the blue Boehner, who last we checked is back in Ohio, has made a radical departure with the Norquist pledge status quo, and has offered to raise tax rates on high earners to break the "fiscal cliff" deadlock in exchange for major cuts in entitlement programs, "but President Barack Obama is not ready to accept, a source said late Saturday."

The 'something for nothing' mentality is now firmly in charge in the developed economies. As the G7 economies cascade lower under their past, present and future entitlement & politically connected reward policies, misery is now being spread widely! Misery being spread widely is the product of socialism, as real growth disappears and money printed out of thin air fills in for the lack of real income growth. All of this is paid for by the money you earn and store your wealth in, buying less and less, while your balance in the bank stays the same. The attacks on wealth and job creation are set to accelerate as politicians loot and plunder the private sectors to pay the unpayable promises and support those that don’t produce, by dis-incenting and enslaving those that do. Effectively, penalizing those who lead a prudent and productive lifestyle. The cynical would argue that the goal is not to spur economic growth and job creation but instead is intended to formant economic collapse, grow government dependence, gather power as the man-made disaster unfolds, take freedoms and redistribute what wealth is left to the special interests in charge. This may very well be true but it could also be a matter of human nature and the generational re-learning of what role a government must be restricted to playing.

In the past we have explored the life-cycle of a sovereign nation, and, perhaps more importantly when allocating capital to specific idiosyncratic investment ideas, we strongly believe, as Goldman notes below, that the competitive strengths of companies often stem from the advantages of the countries they reside in. These include a combination of resource availability (food, energy, mining and others), demographics, trade positioning, infrastructure quality and above all, the presence of strong, inclusive institutions that encourage innovation. So, what follows is Goldman's attempt to map the various success drivers of the world’s countries. Of course, the components of each category aren't exhaustive (and in some cases they are they overlapping), but we hope it is a good starting point from which to understand the fundamental advantages that some countries enjoy over others. Still think the U.S. is the greatest nation in the world? Try telling the Scandinavians...

The anchoring bias in the world's major sovereign bond markets (most notably those that have printing presses) is tremendous. As Jim Grant notes during this interview with Lauren Lyster, the blind indifference to the possibility of rising interest rates now is extremely similar to the indignance to the possibility of interest rates falling during the 1970s and 80s. In a broad and insightful few minutes Grant sheds a critical light on the similarities between then and now and fears that our unshakable confidence in the ability of the PhDs running our world monetary policy is false and that the market will eventually win out. The fear that is dominant among central bankers is indeed that of deflation and there is little to no fear of inflationary concerns and notes that there is a less than small probability that the world falls out of love with the US government's financial position. The truly humbling lesson of cycles past, he notes, is that they don't issue a press release (or ring a bell) at the turning point. "Things can remain seemingly excessive, until you turn your back and the reversion to some sort of mean begins." Grant believes we are approaching that, if not having already begun, that path back to reasonableness in interest rates. Grant continues with a discussion of potential income-generating ideas (in prime rate or leveraged loan funds) and concludes with his views on Bernanke's miscalculcations and most recent regime shift, the concerning idiocy of Japan (who seemingly can neither "procreate, nor re-inflate"), MMT, and the path to total central planning.

Instead of uttering one more word in a long, seemingly endless tirade that stretches all the way to April 2009, we will this time let such dignified members of the credible, veritable status quo as Credit Suisse, who have released a two part primer on everything HFT related, with an emphasis on the broken market left in the wake of the "high freaks", which is so simple even a member of congress will understand (we would say a member of the SEC, but even at this level of simplicity its comprehension by the rank and file of the SEC is arguable). As Credit Suisse conveniently points out "market manipulation is already banned", but that doesn't mean that there are numerous loophole that HFT can manifest themselves in negative strategies that have virtually the same impact on a two-tiered market (those that have access to HFT and those that do not) as manipulation. Among such strategies are:

• Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
• Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
• Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
• Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.

Update: The focus now shifts to the mother, the first casualty of her son's murderous rampage, who was a "big, big gun fan" as the NYT explains, and who went target shooting with her children, one of whom had Asperger's.

As we reported last night, buried inside the NYT biopic of Newtown shooter Adam Lanza was arguably one of the most important missing pieces in the story, at least so far, which could provide clues into partially explaining yesterday's tragic loss of young life, namely that the 20 year old man suffered from Asperger Syndrome, a high-functioning form of autism (two conditions which are being merged in the upcoming update of the Diagnostic and Statistical Manual (DSM-5) manual of mental disorders), which has been traditionally associated with social communication difficulties, including flat affect, and one which in some clinical studies has been shown to have a causal link to violence. In other words, in addition to the surge in the debate over national gun control and access limitations (ignoring that the perpetrator of the biggest school mass murder in US history - the Bath School disaster - used openly purchased dynamite and no guns, also ignoring that in the US there are roughly 300 million firearms), perhaps there should also be a broad discussion as to the risks of social misadoption of children with autism and other social and behavioral disorders.

Even as the Nobel peace prize award-winning administration has been vocally partially withdrawing, but never fully, US troops from various middle eastern nations over the past several years, it appears that it has decided to open up a brand new military front, and position US soldiers in yet another hotspot, which is sure to escalate in the future, namely Syria, where yesterday, quietly in the media blanket coverage of the Newtown tragedy, the Pentagon said that some 400 US troops and several Patriot missile batteries would be stationed as part of a NATO force to protect Turkey from "potential Syrian missile attack." As the AP reports, "Defense Secretary Leon Panetta signed a deployment order en route to Turkey from Afghanistan calling for 400 U.S. soldiers to operate two batteries of Patriots at undisclosed locations in Turkey, Pentagon press secretary George Little told reporters flying with Panetta." As is well known to those who follow the local conflict, the traditional narrative is that the US is supporting the oppressed Syrian rebellion, which has been fighting the Assad regime as glorious guerrilla freedom fighters. What is less known is that parts if not all of the Syrian rebellion have an "explicit stamp of approval" from Al Qaeda, the same Al Qaeda, which when useful, is carted out to justify US foreign, and at times very domestic, interventions, and the trampling of all civil liberties (see U.S. Terrorism Agency to Tap a Vast Database of Citizens) , in various other parts of the world.