MF Global

Guest Post: Ben Bernanke Must Be Hoping Rational Expectations Doesn’t Hold...

In the theory of rational expectations, human predictions are not systematically wrong. This means that in a rational expectations model, people’s subjective beliefs about the probability of future events are equal to the actual probabilities of those future events. Now, we think that rational expectations is one of the worst ideas in economic theory. It’s based on a germ of a good idea - that self-fulfilling prophesies are possible. Mainstream economic models often assume rational expectations, however. And if rational expectations holds, we could be in for a rough ride in the near future. Because an awful lot of Americans believe that a new financial crisis is coming soon - 75 percent of respondents said that it’s either very or somewhat likely that the country could have another financial crisis in the near future.

Guest Post: On Stockman & Liquidation

David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.

GoldCore's picture

Gold rose 1.1% in March, its first monthly rise in six. 

For the quarter, gold was 4.5% lower in dollar terms and 1.4% lower in euros. However, signalling that the demise of gold is greatly exaggerated, gold is 3.7% higher in Japanese yen and 2.6% higher in sterling.

As one astute financial journalist said to me “ ‘cash in the bank’ doesn’t have quite the same ring to it anymore.”

Marc Faber: "I Am Sure Governments Will One Day Take Away 20-30% Of My Wealth"

We cautioned readers in 2011 that in a broke world in which the ridiculously named "muddle-through" has miserably failed, a global wealth tax seeking to expropriate some 30% of all financial assets is coming. Few took it seriously, and why should they - after all the market has been blissfully rising before and ever since then, which implies everything was ok, right? Wrong, as those who are lining up right now in the Cyprus late of night not to buy a shiny new iTrinket, but to access a measly €300 of their own money would promptly admit. Naturally, if more of our Cypriot readers had paid attention, they would have far more of their own money at their disposal right now, instead of having to beg Merkel's emissaries for a €300 handout tomorrow. Now, a year and a half later, the realization that the global wealth tax is not only coming but is inevitable in practically every developed country, is finally sinking in, as this interview with Marc Faber confirms: "Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And from now onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money I am sure the governments will one day take away 20-30% of my wealth."

He is correct, but probably optimstic.

Frontrunning: March 20

  • Cyprus works on Plan B to stave off bankruptcy (AP)
  • Cyprus seeks Russian bailout aid, EU threatens cutoff (Reuters)
  • Freddie Mac Sues Multiple Banks Over Libor Manipulation (BBG)
  • Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg)
  • Italian president seeks way out of political stalemate (Reuters)
  • Chinese factories struggle to keep staff (FT)
  • South Korean banks, media report network crash (CBC)
  • BlackBerry Inventor Starts Fund to Make Star Trek Device Reality (Bloomberg)
  • Osborne Should Be Fired, Voters Say in Pre-Budget Poll (Bloomberg)
  • Obama Begins First Visit to Israel as President (WSJ)
  • Anadarko finds ‘potentially giant’ oilfield (FT)
  • Britain's Osborne boxed in by austerity on budget day (Reuters)
  • MF Global reaches agreement with JPMorgan (FT)

Frontrunning: March 6

  • Kuroda to Hit ‘Wall of Reality’ at BOJ, Ex-Board Member Says (BBG)
  • Venezuelans mourn Chavez as focus turns to election (Reuters)
  • South Korea says to strike back at North if attacked (Reuters)
  • Milk Powder Surges Most in 2 1/2 Years on New Zealand Drought (BBG)
  • As Confetti Settles, Strategists Wonder: Will Dow's Rally Last?  (WSJ)
  • Pollution, Risk Are Downside of China's 'Blind Expansion' (BBG)
  • Obama Calls Republicans in Latest Round of Spending Talks (BBG)
  • Ryan Budget Plan Draws GOP Flak (WSJ)
  • Samsung buys stake in Apple-supplier Sharp (FT)
  • China Joining U.S. Shale Renaissance With $40 Billion (BBG)
  • Say Goodbye to the 4% Rule  (WSJ)
  • Traders Flee Asia Hedge Funds as Job Haven Turns Dead End (BBG)
  • Power rustlers turn the screw in Bulgaria, EU's poorest country (Reuters)

Overnight Tensions Eased As Italy Sells 5, 10 Year Bonds

With little on the event calendar in the overnight session, the main news many were looking forward to was Italy's auction of €2.5 billion in 5 and €4 billion in 10 year paper, to see just how big the fallout from the Hung Parliament election was in the primary market. As SocGen explained ahead of the auction: "The target of Italy's 2017 and 2023 BTP auction today is a maximum EUR6.5bn, but in order to get to that tidy amount the Tesoro may be forced to offer a hefty mark-up in yield to compensate investors for the extra risk. Note that Italian 6-month bills were marked up at yesterday's sale from 0.731% to 1.237%. Who knows what premium investors will be asking for today for paper with the kind of duration that is not covered by the ECB OMT (should that be activated)? Will Italian institutions, already long BTPs relative to overall asset size, be forced to hoover up most of the supply?" The outcome was a successful auction which, however, as expected saw yields spike with the 4 year paper pricing at 3.59% compared to 2.95% before, while the 10 Year paper priced some 60 bps wider to the 4.17% in January, yielding 4.83%. The result was a brief dip in Italian OTR BTP yield, which have since retraced all gains and are once again trading in the 4.90% range on their way to 5%+ as JPM forecast yesterday. And as expected, talk promptly emerged that the auction was carried by "two large domestic buyers" in other words, the two big local banks merely levered up on Italian paper hoping furiously that they are not the next MF Global.

Frontrunning: February 21

  • China drains cash to curb liquidity (FT) - no longer just a New Year issue...
  • Hilesnrath speaks (but nobody cares anymore) - Fed Split Over How Long To Keep Cash Spigot Open (WSJ)
  • Chasm opening between weak French and strong German economies (Reuters)
  • JPMorgan Said to Seek First Sale of Mortgage Bonds Since Crisis (BBG)
  • China's Bo Xilai not cooperating on probe, been on hunger strike (Reuters)
  • Fed minutes send warning on durability of bond buying (Reuters)
  • Sony Seeks an Extra Life in New PlayStation 4 (BBG)
  • Rajoy pledges fresh round of reforms (FT) - and by reforms he means kickbacks?
  • Doubts loom over eurozone recovery (BBG)
  • China Extending Zhou Stay Seen as Aid to Financial Overhaul (BBG)
  • King Pulls Out Stops to Energize Economy in Carney Handover (BBG)
  • Central Banks Discussed Nominal GDP Targets at G-20 (Businessweek)
  • Grand Central Owner Opposes IPO of Empire State Building (BBG)

Frontrunning: February 1

  • 'London Whale' Sounded an Alarm on Risky Bets (WSJ)
  • Deadly Blast Strikes U.S. Embassy in Turkey (WSJ)
  • Abe Shortens List for BOJ Chief as Japan Faces Monetary Overhaul (BBG)
  • Endowment Returns Fail to Keep Pace with College Spending (BBG) - More student loans
  • Mexico rescue workers search for survivors after Pemex blast kills 25 (Reuters)
  • Lingering Bad Debts Stifle Europe Recovery (WSJ)
  • Peregrine Founder Hit With 50 Years (WSJ) - there is hope Corzine will get pardoned yet
  • Deutsche Bank to Limit Immediate Bonuses to 300,000 Euros
  • France's Hollande to visit Mali Saturday (Reuters)
  • France, Africa face tough Sahara phase of Mali war (Reuters)
  • Barclays CEO refuses bonus (Barclays)
  • Edward Koch, Brash New York Mayor During 1980s Boom, Dies at 88 (BBG)
  • Samsung Doubles Tablet PC Market Share Amid Apple’s Lead (BBG)

$600 Billion In Trades In Four Years: How Apple Puts Even The Most Aggressive Hedge Funds To Shame

Everyone knows that for the better part of the past year Apple was the world's biggest company by market cap. Most also know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world's most profitable companies. Many know, courtesy of our exclusive from September, that Apple also is the holding company for Braeburn Capital: a firm which with a few exceptions, also happens to be among the world's largest hedge funds, whose function is to manage Apple's massive cash hoard with virtually zero reporting requirements, and whose obligation is to make sure that AAPL's cash gets laundered legally and efficiently in a way that complies with prerogative #1: avoid paying taxes. What few if any know, is that as part of its cash management obligations, Braeburn, and AAPL by extension, has conducted a mindboggling $600 billion worth of gross notional trades in just the past four years, consisting of buying and selling assorted unknown securities, or some $250 billion in 2012 alone: a grand total which represents some $1 billion per working day on average, and which puts the net turnover of some 99% of all hedge funds to shame! Finally, what nobody knows, except for the recipients of course, is just how much in trade commissions AAPL has paid on these hundreds of billions in trades to the brokering banks, many (or maybe all) of which may have found this commission revenue facilitating AAPL having a "Buy" recommendation: a rating shared by 52, or 83% of the raters, despite the company's wiping out of one year in capital gains in a few short months.