Archive - Jan 6, 2014 - Story

Recently, Facebook got into hot water with investors when it was revealed that as many of its 1.18 billion active users 14.1 million (and likely orders of magnitude more) were fraudulent. Things are even worse at Twitter, where Italian security researchers Andrea Stroppa and Carlo De Micheli found that of the social network's 232 million monthly active users about 20 million are fake and for sale, while Jason Ding of Barracuda Labs said 10% of more of all Twitter accounts are fake. Welcome to the world of click farms, where nothing is what it seems, and where social networking participants spend millions of dollars to appear more important, followed, prestigious, cool, or generally "liked" than they really are... The bottom line is simple "The illusion of a massive following is often just that," said Tony Harris, who does social media marketing for major Hollywood movie firms, said he would love to be able to give his clients massive numbers of Twitter followers and Facebook fans, but buying them from random strangers is not very effective or ethical.

There is no quicker route to success in the USSA than to go into “public service” regulating a massive industry and then flip back over to engage in M&A in the exact industry you were in charge of regulating.

Nothing lasts forever (as we've shown before) - except perhaps gold as a store of value it would appear. Central banks around the world are increasingly diversifying their currency reserves away from the US Dollar. Even as overall holdings soar to a record $11.4 trillion, the US Dollar accounted for 61.44% (down from well over 65% at the peak of the crisis in 2008). With China outspokenly concerned at the US Dollar's future status, we suspect this will only become more 'diversified'.

Most economic observers are predicting that 2014 will be the year in which the United States finally shrugs off the persistent malaise of the Great Recession. In contrast, we believe that the episode has, for the moment, established supreme confidence in the powers of monetary policy to keep the economy afloat and to keep a floor under asset prices, even in the worst of circumstances. The shift in sentiment can only be explained by the growing acceptance of monetary policy as the magic elixir that Keynesians have always claimed it to be. This blind faith has prevented investors from seeing the obvious economic crises that may lay ahead. Based on nothing but pure optimism, the market believes that the Fed can somehow contract its $4 trillion balance sheet without pushing up rates to the point where asset prices are threatened, or where debt service costs become too big a burden for debtors to bear. The more likely truth is that this widespread mistake will allow us to drift into the next crisis.

“That was never our target number. That was a target that came from the Congressional Budget Office, and it has become an accepted number. There’s no magic to the 7 million. What there is magic to is that in the month of December a million Americans signed up for insurance.”

– White House aide Phil Schiliro, interview on MSNBC, Dec. 31, 2013

"Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations."

While banks have been shown to manipulate every asset class (except of course stocks where HFT is merely a liquidity provider), it has largely been left to the Chinese to be blamed for 'plan' what data is released to the world and 'manage' expectations. With conspiracy 'theories' in market and macro data manipulations being proved 'fact'; we thought it intriguing that the US Macro data cycle has rapidly diminished since the financial crisis. This, of course, makes perfect sense in a world where fundamentals no longer matter; nevertheless, compared to the pre-crisis swings, things are different this time.

Evolutionary theory as a perspective for understanding human behavior within capital markets is a more useful perspective than what economic theory has become... a cloistered, brittle theology that day after day becomes more abstract in its formation and more narrow in its application. The first and most basic lesson of an evolutionary perspective properly applied: we are well served as investors to jettison the superiority complex that comes with living in the present and looking back on what naturally seems a benighted past. The notions of liberal progress and evolution-as-hierarchy are so deeply ingrained that we assume that whatever behaviors are new or modern, including modern investment management practices or modern investment strategies (or modern monetary policy), must be part and parcel of some advancement over what existed in the past. In truth there is no up-and-to-the-right arrow associated with evolution; there is no intelligent design pushing us “forward”.

As Samsung unveiled its new curved screen, presumably so that one can watch it around corners, Director-extraordinaire Michael Bay shows why he is better off behind the camera than in front of it... Behold, 2014's most embarrassing moment so far...

With the critical 50th Yes vote just being cast, Janet Yellen has officially become the first woman to head the central bank in its 100 years of existence. The vote continues, and the only question now is whether the current tally of 27 No votes will surpass the Bernanke record of 30 objections to the central bank head.

Workers at a tire plant in Northern France have taken two managers hostage until Goodyear (the firm that owns the plant and has been trying to shutter it for years) meets the mabor unions demands. WSJ reports, as Goodyear winds down operations with the plant almost idle, French labor law requires the company to keep all workers employed, which means many of them don't work more than a couple of hours a day while still getting full salary. The situation is why Titan International's Maurice Taylor blasted that he "would be stupid" to operate the plant on that basis.

And now, the saddest chart of the day: Greek poverty since the crisis, and in 2013, when the so-called "Grecovery" arrived.

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some..." The problem today is that some people believe inflation is lower than it actually is. The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction. You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate. Under reporting inflation has led to many predictable outcomes.

US equities converged down to VIX's warnings from the holiday period as for the 3rd day in a row equities dropped. This is the worst start to the year for the S&P 500 since 2005. Equities improved during the European session but top-ticked at the US open, tumbling to 10-day lows by the time Europe closed. A leak higher with a vertical ramp to VWAP in the afternoon gave way to selling in the last hour. Trannies are the worst year-to-date (-2.2% from 2013 close highs). Treasuries gained further today, with yields down 6-8bps on the year. The USD lost ground during the European session then flatlined for the rest of the day (-0.25% on the day). From Friday's close, commodities are ending almost unchanged but all had a very volatile ride today (most notably in gold and silver).

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