Archive - Jun 2014 - Story

Now that virtually everyone has figured out what we first said in 2012, namely that in the New bizarro Normal, the best trading strategy - the only way to generate alpha in a world in which hedge funds no longer can - is going long a basket of the most shorted names, one has to wonder how any hedge fund replicating, 13F-chasing service can remain in business. After all, the last thing anyone wants to do is copycat hedge fund groupthink in a world in which hedge funds have underperformed the S&P 500 for 6 years in a row, especially a world in which one can buy the SPY with virtually no fees instead of paying some bloated billionaire 20% for the privilege of underperforming the Federal Reserve-managed S&P500. Still, there are those who, for some inexplicable reason, believe in the infallibility of hedge funds and chase every opportunity imitate those who make their money by collecting 2 and 20 not by generating alpha. For all these, the following charts are for you.

Goldman Sachs, like most of the mainstream economists believes today's FOMC statement will likely be "broadly neutral" with no indication of sooner rate rises than expected (despite what we have noted as the timing not being better), some modest upgrades to the economic outlook (to keep the "everything's good and you don't need us anymore" meme alive), and continued taper at the same pace (with maybe some acknowledgemnet of the transitory pop in inflation). UBS, on the other side, suggests there is a chance of some FOMC surprises with Janet Yellen pulling a semi-Carney as Citi's Steven Englander has previously noted "the Fed needs more volatility in order to maintain its illusion of omnipotence."

Despite the White House seeming reluctance to see airstrikes as an imminent option (as AP reports, in part because there are few clear targets that U.S. could hit, officials said), Arabiya TV - citing Iraq's Foreign Minister Zarabi, has asked for help (seemingly triggered by ISIS attacks on the Baiji refinery):

*IRAQ ASKED U.S. FOR AIRSTRIKES AGAINST MILITANTS: ARABIYA
*IRAQ ASKED US TO GO AHEAD W/ AIR STRIKES AGAINST JIHADISTS: AFP

This has now been confirmed by the BBC reporting that Gen. Martin Dempsey confirms the request. So 275 boots on the ground are not boots on the ground and now the US will reluctantly but pin-pointedly accurately bomb the bad guys (and some good guys) in Iraq... how has that ended in the past?

We discussed earlier that China does not have the capacity to feed itself as it simply doesn’t have enough fertile land in production to support its population’s growing food demand. Theoretically this is fixable. With a bit of time, patience, and technology, barren soil can be rehabilitated In other words, China doesn’t have enough enough productive land capacity to support its population. But the far greater issue is China’s massive freshwater deficiency.

Yesterday's Katsuyama vs High Freaks battle was once again a game of distraction from the facts. However, despite one member of the panel's desperate attempts to show how great and good HFT was for poor old retail, it was Carl Levin that nailed TD Ameritrade - which handles massive amounts of retail stock orders - for "virtually always" having a conflict of interest in its decision to seek the market that paid them the most as opposed to the one that provided best execution for the client. Perhaps it was John McCain that summed up the farce best when he exclaimed, "Mr. Brennan [Vanguard's head], I don’t accept your allegation that everything is fine."

Now where have we seen this before? Who could have guessed that the weather-induced rebound exuberance would be slowly but surely reduced? US Economic Forecasting - where New Year's hopes go to die...

The tragic reality is the Bush II/Obama administrations have made the world a far more dangerous place.

What Obama wants, he appears to get. As AP reports, the U.S. Patent Office has ruled the Washington Redskins nickname is "disparaging of Native Americans" and that the team's federal trademarks for the name must be canceled. We note that this decision is based on the fact that 30% of Native Americans believed the term 'Redskins' to be disparaging (not a majority). Which leaves us questioning when the Federal Government will see the New York Giants as disparaging of tall people and The Oakland Raiders as disaparaging of pirates... welcome to the new normal. We wonder (rhetorically of course) if this latest Redskins escalation is supposed to distract from Ukraine, Iraq, Bergdahl, IRS, Benghazi, or approval ratings?

The battle between Islam's two major branches began over 1400 years ago when the Islamic prophet Mohammad died and the two sides clashed over who should succeed him. This centuries old 'war' is once again threatening Iraq's (and indeed the Middle East - and thus the world's) stability. The Washington Post's senior national security correspondent Karen DeYoung explains in 100 seconds just how we got here...

Following the release of the  "deeply troubling" 315-page "Valukas Report" and the firing of 'all' those responsible for multiple deaths from GM's 'Kevorkianesque' cars, CEO Mary Barra is back on the Hill to face the music once more from The Subcommittee on Oversight and Investigations. Having explained in her previous testimony that she could answer their questions as she did not have the information, Subcommittee Chairman Tim Murphy (R-PA) noted, now "we will have the chance to get those answers and compare the company's findings to our own." Of course, one wonders if the politicians will ask about how GM silenced a whistleblower.

"Simple Jack" is back. Yesterday it was the 4x oversubscription for Kenyan debt at 7% yield; today we see bailed-out Cyprus (yes that Cyprus - in "emergency situation" and still with capital controls) managed to sell EUR 750 million of 5 year maturity debt at a 4.85% yield. As Reuters reports, this is the fastest comeback to the public markets of any bailed-out European country. "People are searching for yield," said of Martin Wilhelm, founder of IfK, a German Kiel-based bond boutique, which runs a bond fund with Acatis; and that is clear as Cyprus just issed at a cheaper cost of funding than Greece (4.95% 2 months ago). In the understatement of the day, Michael Leister, senior strategist at Commerzbank.  said "the risk is that valuations and primary market dynamics aren't related to fundamentals anymore." Cyprus economy is expected to contract 4.2% this year. Like Greece's deal in April, the buyers are expected to largely British- and U.S.-based hedge funds.

In order to avoid even further questions about the true role of the NSA and thus risk even more embarrassment of the broken US government apparatus (because the IRS scandal is really symptomatic of a greater issue: the deteriorating of checks and balances in the US legislative branch), the man who has been most steadfast in his pursuit of Lois Lerner's, and the IRS', pursuit of conservative groups, House Oversight and Government Reform Committee Chairman Darrell Issa on Tuesday issued a subpoena to the Internal Revenue Service, ordering the agency to turn over the hard drive they claim is responsible for wiping out two years of critical email communications. According to the Washington Examiner, Issa is not only seeking emails, but wants equipment, “communication devices,” printed documents and just about anything else related to former IRS official Lois Lerner, who has refused to testify before Congress and who the GOP believes is a central player in the targeting scheme.

Moments ago Saudi Arabia fired back at Iraq's "harsh words" and warned that Iraq faced the threat of full-scale civil war with grave consequences for the wider region and, in a message to arch rival Iran, warned against outside powers intervening in the conflict. "This grave situation that is storming Iraq carries with it the signs of civil war whose implications for the region we cannot fathom," Foreign Minister Prince Saud al-Faisal told a gathering of Arab and Muslim leaders in Jeddah. He urged nations racked by violence to meet the "legitimate demands of the people and to achieve national reconciliation (without) foreign interference or outside agendas". It was unclear if "foreign interference" includes the US as well, or just limited to Iran.

The US Current Account deficit was larger than any of the 40 'qualified' economists expected and missed expectations by the most since Q4 2008 (Lehman). Of course, this will be shrugged off as 'weather-related' but if weather can do as much damage as Lehman (sending the deficit back to the biggest levels since Q1 2012) then one has to wonder just how 'stable' this recovery is.

Well that didn't take long. Home prices are not the only thing surging in Britain as Reuters reports British spot wholesale gas prices climbed over 7% after Ukraine and Russia failed to agree on the price of future gas deliveries. Britain gets around 5% of its gas from Russian sources and a mild winter and spring have prompted utilities to inject more gas into storage than usual. One analyst notes "as yet flows through Ukraine to Europe have not been disrupted but the market has become increasingly concerned that they will," and now, following the explosion in the largest gas transit pipeline in Europe, disruptions have begun.