- China worries chill markets, copper slumps (Reuters)
- Peak dot com dot two idiocy: Candy Crush Saga maker King seeks $7.56 bln valuation from IPO (BBG)
- Obama Meeting With Yatsenyuk Raises Stakes in Ukraine (BBG)
- Federal prosecutors open criminal probe of GM recall (Reuters)
- Pimco Cuts Government Debt on Outlook for Fed Buying (BBG)
- Missing Malaysian Jetliner Confuses World That’s Online 24/7 (BBG)
- Mortgage Giants Face Endgame (WSJ)
- Russia Calls U.S. Aid to Ukraine Illegal Amid Standoff (BBG)
- U.S. judge freezes assets of Mt. Gox bitcoin exchange boss (Reuters)
- Ousted Libyan PM flees country after tanker escapes rebel-held port (Reuters)
- Senate-CIA Dispute Erupts Into a Public Brawl (WSJ)
In order to determine if there is indeed truth behind the speculation that growth for the HFT space may have topped out, we decided to break down Virtu's 2013 net trading income by product line. We were not surprised to find that of the $45 million in total growth, the largest income category, US stocks growth was a tiny 5% of all, rising by $2.3 million in 2013, half the $4.5 million growth a year earlier. In fact, between EMEA, APAC and US Equities, there was very limited growth in 2013, while commodities posted an outright trading income decline. So indeed, it appears to be the case that growth in conventional products has indeed plateaued, as more and more HFT competitors rush in. And yet, one product stood out. It is highlighted on the chart below...
With 40% of the portfolio in cash and having returned $4 billion to clients at year-end, Seth Klarman's Baupost Group has "drawn the line in the sand" as they reflect on the diminished opportunities in the so-called "Truman Show" market we see today. In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, Klarman notes, the stock market, heading into 2014, resembles a Rorschach test - "what investors see in the inkblots says considerably more about them than it does about the market." From "born bulls" to "worry genes" and from Bitcoin to flash-mob-speculation, "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks... as every 'Truman' under Bernanke’s dome knows the environment is phony."
Gold Equities are on their way to a parabolic rise
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that's what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE's largest bank, was hoping for earlier today when they paid an exorbitant amount of money to hear the former chairman talk. Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed - "I can say whatever I want."
So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?
You hear that old saw that "the market is not the economy," a lot these days, and for good reason. As ConvergEx's Nick Colas notes, the S&P 500 breaks to record highs - but U.S. labor markets remain sluggish; investor portfolios do well - but over 47 million Americans (more than 15% of the population) are still in U.S. food stamp program – the same as August 2012. The important question now is: "Is the market TOO different from the economy?"
"If I ask you what’s the risk in investing, you would answer the risk of losing money. But there actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive. I think of it like a comedy movie where a guy is considering some activity. On his right shoulder is sitting an angel in a white robe. He says: «No, don’t do it! It’s not prudent, it’s not a good idea, it’s not proper and you’ll get in trouble». On the other shoulder is the devil in a red robe with his pitchfork. He whispers: «Do it, you’ll get rich». In the end, the devil usually wins. Caution, maturity and doing the right thing are old-fashioned ideas. And when they do battle against the desire to get rich, other than in panic times the desire to get rich usually wins. That’s why bubbles are created and frauds like Bernie Madoff get money." - Howard Marks
If they’re bailing on the market… what are the odds trouble is approaching?
Gold declined from $1,900 in September 2011 to $1,188 on December, 19, 2013. Silver declined from $48.50 to $18.50 over approximately the same time frame. Precious metal equities declined by approximately 70% over this period. This move down played out exactly as was scripted. However, let us review the causes of this decline. We start out with the most important words ever written by a regulator: BaFin, the German equivalent of the SEC, said that precious metals prices were manipulated worse than LIBOR. What are we to read into this, particularly the word “worse”? Obviously, worse than LIBOR could not mean that more money was fraudulently earned since the LIBOR markets are many orders of magnitude larger than the precious metals markets. Then it must mean that the egregiousness of the pricing dysfunction was materially larger in precious metals.
Fundamentally oriented investors tend to think that quants, like blondes, have all the fun. As ConvergEx's Nick Colas notes - it all looks like easy money - scalping trades with lightning fast computers, front running news with preferential access to press releases, or managing leveraged portfolios with thousands of small but profitable positions – but quants face their own significant challenges. Finding common rule sets that work in a wide array of stocks is not easy, and markets adapt quickly to close opportunities that seem historically profitable - the number of potential signals is seemingly endless; and regulators are now aware of quantitative investing and, in some cases, don't like what they see. Here are 10 reasons why why "it's not easy being a quant."
- Turkish PM says tapes of talk with son a fabrication (Reuters) but opposition confirms authenticity, and national TV carriers cut parliament when played live
- Inside the Showdown Atop Pimco, the World's Biggest Bond Firm (WSJ)
- Ex-Jefferies Trader’s Customers Say Lies Common Tactic (BBG)
- Bitcoin exchange Mt. Gox disappears in blow to virtual currency (Reuters)
- The messenger mania is spreading: SoftBank Said to Seek Stake in Naver’s Line Messaging Unit (BBG)
- Ukraine Replaces Central Bank Head (BBG)
- Yup, an actual headline: Harsh weather tests optimism over U.S. economy (Reuters)
- Hiring of Law Grads Improves for Some (BBG)
- Easy Currency Bet Gets Harder as the Chinese Yuan Tumbles (WSJ)
- In Ukraine turbulence, a lad from Lviv becomes the toast of Kiev (Reuters)
The MSM won't touch this topic, nor will the Fed. But it caused 2008 and it hasn't been fixed.
Step aside long-time hedge fund hotel darlings Apple and AIG, and make room for...
All you need to know about the New Normal breed of crony capitalism and unbridled hypocrisy is once again best exemplified by the following quote by Charlie Munger - the lifetime business partner of crony capitalist par excellence Warren Buffett - from May 2013, in which he said that "I think it is very stupid to allow a system to evolve where half of the trading is a bunch of short term people trying to get information one millionth of a nanosecond ahead of somebody else. It's legalized front-running. I think it is basically evil and I don't think it should have ever been allowed to reach the size that it did. Why should all of us pay a little group of people to engage in legalized front-running of our orders?" Noble, noble words Charlie. What Munger, however, did not disclose is that as part of the Berkshire Hathaway-owned Business Wire news service, the company was enabling just this "basically evil" frontrunning, by allowing some, those who could afford the hefty fee of course, to make Munger and Buffett even richer and to subscribe to BW's HFT direct news access which gave them a few millisecond headstart and in the process frontrun everyone else.