Archive - Mar 2014 - Story

Transparency has nothing to do with freedom and everything to do with control, and the more “radical” the transparency the more effective the control…the more willingly and completely we police ourselves in our own corporate or social Panopticons. This was Michel Foucault’s argument in his classic post-modern critique Discipline and Punish: The Birth of the Prison, which – just because it was written in an intentionally impenetrable post-modernist style, and just because Foucault himself was a self-righteous, preening academic bully as only a French public intellectual can be – doesn’t make it wrong. The human animal conforms when it observes and is observed by a crowd, at first for fear of discipline but ultimately because that discipline is internalized as belief and expectation.

"Compared to the ones I ran into," noted former-SEC chief, John Babikian's 'AwesomePennyStocks' fraud "is the biggest on ever." As Bloomberg reports, short-sellers and stock promoters have puzzled for years over who operated one of the largest penny-stock websites. A U.S. lawsuit points to a Bugatti-driving 26-year-old from Montreal. The SEC is freezing Babikian’s assets, including two homes and the proceeds of selling a fractional interest in a plane. "The traditional Stratton Oakmont has been replaced by the opt-in newsletter... the world of pump-and-dumps occurs in the shadows." Welcome to the new 'get-rich-quick' bubble euphoria...

Having offloaded its short-dated Ukraine bonds to clients (recommending they buy them in size when Yanukovych was ousted for a decent loss so far), the boys from Goldman are up to their old tricks with a lorry-load of German stocks to sell you... "Year to date, the DAX is one of the worst performing indices in Europe (down 4.6% relative to the European market which is flat)... but we think the overall German market will outperform the pan-European STOXX Europe 600 index, and also highlight a list of DAX stocks that are currently Buy rated by our analysts."

One upon a time everyone got a hearty chuckle when Obama declared, on the very first day of his ascension to the throne, that his administration would be the "most transparent in history." And if they didn't then, they certainly will now following news that it none other than Obama's own administration - made infamous for spying on everyone who uses electronic communication courtesy of one whistleblower - that it has refused a record number of Freedom of Information (don't laugh) requests on the basis of, drumroll, national security. So between the NSA, whose job is to ensure national security, and all those pesky meddlesome investigators, whose only curiosity is to peek behind the secrecy of the Obama administration, there should be precisely zero acts of terrorism on US soil. Like last year's Boston bombing for example. Oh wait...

Despite spending over half-a-billion dollars on increasingly mind-blowing promotions for Obamacare, a new survey released today shows that even the website apparently fixed, over one-third of Americans without insurance say they plan to stay that way, even after being told that the new law requires them to get covered or pay a penalty. As CBS notes, some 46% of those surveyed also were unaware of the March 31 deadline for being insured as it seems "low-income, young families may have been overlooked. They're probably not spending a lot of time watching television, they never read a newspaper and if they listen to radio it's probably music in the car." 41% cited insurance as still too expensive with, oddly, 39% of middle-aged men preferring to stay uninsured.

Seth Klarman recently remarked:

"All the Trumans – the economists, fund managers, traders, market pundits –know at some level that the environment in which they operate is not what it seems on the surface…. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end."

Klarman is here referring to the waning days of this third and greatest financial bubble of this century. But David Stockman's take is that the crack-up boom now nearing its dénouement marks not merely the season finale of still another Fed-induced cycle of financial asset inflation, but, in fact, portends the demise of an entire era of bubble finance.

"X" continues to mark the spot of the death of global investor rationality...

Ever since the theatrical announcement of asset freezes and other related sanctions of various Putin aides, Russian military and pro-Russia Ukrainian leaders earlier today by both the US president and the EU, the nagging question was when and how would Vladimir Vladimirovich retaliate, with tomorrow's Putin address to the joint session of Parliament seeming as a probable time and place. It now appears that Putin's personal retaliation has been leaked in advance, and according to the Daily Beast's Josh Rogin, it will involve an in kind response where various US senators and highly placed officials will be banned from visiting Russia, and likely also see their particular assets - if any- in Russian custody promptly frozen.

It was almost exactly one year ago to the day that an entire nation was frozen out of its savings… overnight. Cypriots went to bed on Friday thinking everything was fine. By the next morning, they had no way to pay bills or buy food.  It’s certainly a chilling reminder of how quickly things can change. And why. The government was too insolvent to bail anyone out. And as a member of the eurozone, Cyprus didn’t have the ability to print its own money. So they did the only thing they could think of– confiscate customer deposits. Now, in the Land of the Free, you now have an insolvent government and insolvent central bank underpinning a commercial banking system that is incentivized to make risky, stupid bets with their customers’ money. And if there is one thing we can learn from the Cyprus bail-in, it’s that it behooves any rational person to have a plan B, even if you think the future holds nothing but sunshine and smiley faces.

The scenario that best fits the facts is a spontaneously initiated "drastic political protest" by the captain that went awry.

Today Kermit rang the bell for the NYSE. That is all.

The Dow has retraced half of last week's losses as exactly what everyone expected (a "yes" vote followed by US/EU sanctions and no actions yet by Putin) occurred.  The S&P was ramped thanks to the always-happy-to-help EURJPY back into the green for 2014. The big ramp occurred heading into the US open to spark momentum and save the day but weakness into the close suggests that the early short squeeze ran out of ammo relatively quickly. Volume overall was extremely weak - lowest non-holiday volume in 5 months. VIX's notable divergence from Friday likely provided some of the ammo for the early ramp. Gold and Treasuries were relatively unimpressed by equity exuberance until Europe closed and then were sold quite notably (TSYs +3-4bps, Gold/Silver -1.4%) Late-day weakness pushed Nasdaq back to unchanged post-Putin's conference call.

There are three things that are often spotted, widely believed, and actively sought after with little evidence they actually exist:  Big Foot, Ghosts and Economic "Soft Landings."  Over the past 159 years, there is not much evidence that an economic "soft landing" has ever occurred.  However, it is not without precedent that as the economy reaches the latter stage of the growth cycle that the words "soft landing" are uttered by economists and Federal Reserve members. Why do we bring this up?  Bihnamin Appelbaum, via the New York Times, recently interviewed John Williams, the President of the Federal Reserve Bank of San Francisco, who stated: "John Williams, president of the Federal Reserve Bank of San Francisco, is feeling pretty good about the economy. He is ready to continue the Fed’s retreat from bond-buying and forward guidance. And he says he’s optimistic that this time, the Fed will manage to produce a soft landing."

The last time the FT penned an article on the topic of gold manipulation, titled "Gold price rigging fears put investors on alert" it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that "Gold pricing scrutiny widens", hardly an update that will take the world by storm, however it is notable that "even" the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.

We knew that the legal market was in bad shape last summer when we came across the story that top law firm Weil, Gotshal & Manges announced its first mass layoffs in 82 years, but I had no idea it was this bad. As most will be aware, U.S. News & World Report publishes a widely anticipated ranking of undergraduate as well as graduate schools. It appears law schools are so consumed with performing well in these rankings that they are going to outrageous lengths to make it look like their students are performing better financially after graduation than they actually are. One of the most ridiculous ways they achieve this is by paying the salaries of their graduates upon graduation.