Medallions – the yellow metal plates that essentially represent the right to operate a for-hail taxi in New York City – now trade for over $1.3 million, an all-time record. Part of this dynamic is fixed supply – there are just 13,336 medallions available for a city of 8.3 million people. There is also a macroeconomic point, with a stronger NYC economy for those inhabitants who can afford the service... is this the real impact of trickle-down economics? Or yet another distortion?
Tonight at 7 pm Ben Bernanke will be speaking at the National Economists Club Annual Members Dinner. As Credit Suisse's Carl Lantz notes, nobody knows the topic or the title of the speech: we can only assume it is some variation of the now trite and generic "BTFATH" coming from the Fed endlessly for the past 5 years. However, we do know one thing: the menu of the dinner that will accompany Bernanke's remarks. We are certain that in a world in which a tweet by a 70 year old billionaire moves markets as much as a statement by a current or future uber CTRL-Peers, it is the details of what the glorious chairman eats that is the most marking-moving event du jour, and as such the menu will be today's most important "fundamental" news. Jon Hilsenrath will follow up with his detailed analysis shortly.
The best returning asset class traded in the NY Metro area is yellow but doesn't change hands on Wall Street. As ConvergEx's Nick Colas notes, over the last 12 months New York City taxi medallions have risen 49% in price, besting the relatively humdrum returns of the S&P 500 (up 21%), the NASDAQ (22%) and the Dow (18%). Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record. Part of this dynamic is fixed supply – there are just 13,336 medallions available for a city of 8.3 million people. There is also a macroeconomic point, with a stronger NYC economy for those inhabitants who can afford the service. The more surprising observation, however, is that new technology in the form of in-car credit card machines and more recently smartphone hailing apps both materially increase the value of owning a medallion. In a world where every technology is deemed “Disruptive”, here’s a case where the status quo has actually reaped much of the reward.
As every Olympic athlete knows, size matters. The London 2012 medals are the largest ever in terms of both weight and diameter - almost double the medals from Beijing. However, just as equally well-known is that quality beats quantity and that is where the current global austerity, coin-clipping, devaluation-fest begins. The 2012 gold is 92.5 percent silver, 6.16 copper and... 1.34 percent gold, with IOC rules specifying that it must contain 550 grams of high-quality silver and a whopping 6 grams of gold. The resulting medallion is worth about $500. For the silver medal, the gold is replaced with more copper, for a $260 bill of materials. The bronze medal is 97 percent copper, 2.5 percent zinc and 0.5 percent tin. Valued at about $3, you might be able to trade one for a bag of chips in Olympic park if you skip the fish.
Congratulations Centrally Planned Garbage Motors: GM slides to below its IPO price, hitting $32.75. And now we get to see if GETCO has been swimming with no bathing suit on the entire time.
All black market "arbitrageurs" listen up: it is time to stop selling bread in Zimbabwe and start importing beemers to Singapore. The reason: a baseline 3 Series BMW sells for $260,000 (US) in Singapore. Yes, that's more than a quarter of a million for a car that in the US leases for a few hundred a month. "Francis Goh sits in a bronze BMW 335i convertible in a Singapore showroom, waggling the wheel and feeling the leather. He isn’t fazed by the S$340,000 ($260,000) price tag, five times what the same car costs in the U.S. “I see the price of a BMW, to me it’s reasonable,” said Goh, adding that he may instead go for a Mercedes-Benz E200 or Audi A5 to replace his Subaru Impreza WRX." However, unlike pretty much everything else (and take a look at Cotton and Corn today to see our broad definition of "everything"), this particular price surge is not due to endless Fed liquidity. Or at least, not so much: buyers have the Chinese trillions in Renminbi loans and the Singapore economic miracle to thank for this one, as well as Singapore's unprecedented hatred of car ownership.
And some bad news for the world's worst car maker (recently bankrupt), which has bet its entire "growth" platform as per the recent IPO on the one market that is so far unfamiliar with said carmaker's "quality" reputation. In January, the Shanghai-based China Passenger Car Association reported that sales of passenger cars fell 10.3 percent in January from the month before to 965,238. Per Manufacturing.net: "Chinese bought 13.7 million passenger vehicles last year, up by a third
from 2009. But that robust growth is forecast to cool this year due to
the expiration of tax incentives for some vehicle purchases and a
renewed effort by cities to bring traffic under control."Is the recent collectivist action to cool off purchasing actually going to have an adverse impact not only on GM's margins but its sales as well? Why yes. But the market will be stunned when this is publicly announced shortly.
Bloomberg reports that "U.S. Securities and Exchange Commission Chairman Mary Schapiro said the agency’s enforcement unit has issued subpoenas as part of its investigation of last week’s stock plunge." Is the general population about to get our first unredacted, and unbiased look into the nuts and bolts of HFT operations like Getco, Medallion, Citadel and Goldman (yeah, we can name drop too)? And whatever happened with that SEC investigation of Renaissance (yeah, we haven't forgotten). We can't wait to see what public data the subpoena uncovers.
Rentech's RIEF investors can't be too happy. After underperforming the S&P by about 30%, and seeing AUM in the once fabled quant fund evaporate, they now have to contend with disclosure that there is "no assurance that trading of the Medallion Funds may will not have a negative effect on the trading of RIEF." Luckily for a now-retired Jim Simons (speaking of, what non-extradition countries has the billionaire code-breaker taken to vacationing in these days?), those same RIEF investors sure do seem to have a lot of patience.
Amusingly, of the top 10 large hedge fund winners in 2010, only 6 are above their high water mark. And if what we are hearing about some of the other "winners" is true, make that less than 50%. Curiously, Jim Simons who is currently enjoying his retirement in some country with no collocation facilities whatsoever, lost out to the robot onslaught: Medallion was up a mere 38%, roughly the same as RIEF's S&P underperformance in 2009. And speaking of, we will have some interesting things to say about Medallion/RIEF in a few days.
There is a sense of panic (not to mention a shift to unfiltereds from filtereds) coming out of the East Setauket lair of gazillions of teraflops in computing power. It appears one of the world's largest supercomputers keeps getting pantsed by 19 year old quants. Even as the S&P dropped almost 2% in October, and even though RIEF outperformed this performance by about 140 bps, investors apparently have had enough. With the magical line in the AUM sand of about $4 billion is likely to be crossed (in the wrong direction) very soon, your questions about the reasons behind Mr. Simons EOY retirement should be all laid to rest.
While certainly no Medallion (in anything but iambic pentameter), it appears that recently notorious and soon defunct hedge fund Galleon has been dabbling, among other things, in statistical arbitrage. One wonders if Moody's has been instrumental in providing the firm with any good VWAP "hot tips." Oddly, the firm's stat arb fund has performed an impressive 18% YTD, and had recorded just one down month in the past year. Perhaps the Feds should take a quick look at this particular strategy and discover how it has generated 64% since inception on a Jim Simons drool-inducing 0.96 sharpe, especially with such broad M/N indices as the HSKAX and HFRXEMN about to wiped out with impunity due to constituent underperformance.
JS to be replaced by Peter Brown and Robert Mercer
There are indications that the losses have gotten worse in recent days for some quants. Shares with the highest levels of short interest have been among the best performers in the past few weeks, according to Barclays Capital, while those with improving growth prospects are actually doing worse than the market. "Quality" stocks are on one of their worst streaks since 1950, Barclays said, causing problems for many quants.Rather than a sign that their whiz-bang computers should be chucked, quants' problems could be an early warning that the stock gusher is due
The rules of the game have changed. After the disaster of 2008, pension funds will be scrutinizing their investments a lot more carefully, especially their investments in alternatives like hedge funds, private equity, real estate and commodity funds. Those funds who refuse to adapt will find it extremely difficult to raise the money they need to compete.