In an oddly familiar echo of Bernie Madoff's massive ponzi collapse, The Telegraph reports, a currency trader has vanished along with £130 million in investors’ cash in an alleged fraud that could be one of the biggest in recent British history. Joe Lewis, 59, is being investigated by police over almost $200 million which he claimed was in clients’ accounts (incluidng professional footballers and golfers) but now no longer exists. In a stunning email sent to clients 2 weeks ago, Lewis admitted that his company - JL Trading - had stopped operating in 2009 (after suffering heavy losses on disastrous FX trades), adding that "I have covered up my mistakes from everyone including my staff, no one else knew what was happening." The father of two has since failed to answer emails and phone calls, and at his Istanbul apartment a doorman said he had not been seen for a few weeks.
The five remaining equity bears on Earth are all saying the same thing: "We'll get 'em in 2015." To which I ask: why? What's going to change?
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
Once again oil is not even the biggest story today. It’s plenty big enough by itself to bring down large swaths of the economy, but in the background there’s an even bigger tale a-waiting. Not entirely unconnected, but by no means the exact same story either. It’s like them tsunami waves as they come rolling in. It’s exactly like that. That is, in the wake of the oil tsunami, which is a long way away from having finished washing down our shores, there’s the demise of emerging markets. And we're not talking Putin, he’ll be fine, as he showed again yesterday in his big press-op. It’s the other, smaller, emerging countries that will blow up in spectacular fashion, and then spread their mayhem around. And make no mistake: to be a contender for bigger story than oil going into 2015, you have to be major league large. This one is.
"Most investors go about their job trying to identify ‘winners’. But more often than not, investing is about avoiding losers. Like successful gamblers at the racing track, an investor’s starting point should be to eliminate the assets that do not stand a chance, and then spread the rest of one’s capital amongst the remainder." So as the year draws to a close, it may be helpful if we recap the main questions confronting investors and the themes we strongly believe in, region by region.
With 4 seconds to the close of yesterday's epic trading session, someone executed over $200 million and 1,147 trades in SPY - the S&P 500 ETF - in one-second, lifting the price to a S&P level of 2,130. This massive-loss-making "fat-finger" - resulting in millions of losses - would normally be followed by "probes" from the exchange into "erroneous trades" and then rapidly accompanied by the exchanges busting all the losing trades. But not this time! In all other cases of fat-finger'd and busted trades, we have learned who the counterparty was - even Goldman Sachs was exposed after regulators DK'ed its busted trades several years ago. So, the question is - why hasn't the other side of yesterday's berserk "fat-finger" buying spree in SPY spoken out in anger that its massive money losing trade will not be DKed?
"It’s hard to say what the right price is for a commodity like oil . . . and thus when the price is too high or too low. Was it too high at $100-plus, an unsustainable blip? History says no: it was there for 43 consecutive months through this past August. And if it wasn’t too high then, isn’t it laughably low today? The answer is that you just can’t say. Ditto for whether the response of the price of oil to the changes in fundamentals has been appropriate, excessive or insufficient. And if you can’t be confident about what the right price is, then you can’t be definite about financial decisions regarding oil." - Howard Marks
Yesterday's epic market surge, the biggest Dow surge since December 2011 on the back of the most violent short squeeze in three years, highlighted just why being caught wrong side in an illiquid market can be terminal to one's asset management career (especially if on margin), and thus why hedge funds are so leery of dipping more than their toe in especially on the short side, resulting in a 6th consecutive year of underperformance relative to the confidence-boosting policy tool that is the S&P. And with today's session the last Friday before Christmas week, compounded by a quadruple witching option expiration, expect even less liquidity and even more violent moves as a few E-mini oddlots take out the entire stack on either the bid or ask side. Keep an eye on the USDJPY which, now that equities have decided to ignore both HY and energy prices, is the only driver for risk left: this means the usual pre-US open upward momentum ignition rigging will be rife to set a positive tone ahead of today's session.
Around the world, unsustainable policies from the 20th century are beginning to fail in earnest. What will the future geopolitical landscape look like in their aftermath?
Russia supplies China with hi-tech military hardware. Russia has negotiated two major natural gas deals with China in the last year. China expects to double its gas usage by 2030. From a Chinese point of view, it is certainly expedient to keep Russia on its side.
"I just get annoyed with the ridiculous foolishness of people. We’ve got to start using our own brains. The Fed stopped using any benchmarks because while the benchmarks were improving, the economy wasn’t and isn’t. And so they were being railroaded by the transparency that benchmarks provide. And now it is just a black box of various indicators that will be analyzed in real time to form justifiable actions, far too complex for you and I but trust them that there is a definite method and it’s very quantifiable at that, they just can’t tell us what it is because it would just confuse everyone. Does anyone really not get it?? What is happening is the grandest con job in the history of the world."
The drop in oil prices is certain to cause some incremental unemployment in the U.S. energy industry; the question is simply how much and what that means for the American economy as a whole.
"Q4 GDP Below 2%, December Payrolls Under 200,000" Markit Warns As Service PMI Crashes To 10-Month LowSubmitted by Tyler Durden on 12/18/2014 09:54 -0500
"Another bumper month of non-farm payroll growth looks unlikely in December, with private sector payroll growth unlikely to breach the 200,000 mark," warns Markit after The US Services PMI plunged to 53.6, missing expectations of 56.3 by the most on record. This is the 6th straight month of declines. Job creation slumped to 8-month lows. The Composite (Services & Manufacturing) PMI plunged to its lowest level since October 2013. Still exuberant? Still hopeful? Here's Markit's summary, "A sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October 2013. The extent of the slowdown suggests that economic growth in the fourth quarter could come in below 2%"
Having started at noon Moscow time (4am Eastern), Putin's annual Q&A run for a massive three and a half hours, during which the Russian leader took numerous questions from the public and as expected, reiterated the key "rally around the flag" talking points that have permeated Russian rhetoric over the past few weeks as the economic situation in Russia deteriorated. As Bloomberg notes, the conference was attended by hundreds of reporters and carried live on television around the world, the event took on heightened importance this year as the president sought to reassure a Russian public unnerved by the ruble’s plummet. While he did acknowledge the difficult economic reality, Putin sought to reassure his countrymen that the current weakness "would last no longer than two years." Putin promptly pivoted against the west and accused the U.S. and European Union of trying to undermine his country and blaming external factors for the sharp plunge in the ruble, notably the drop in oil saying that “the economy will naturally adapt to the new conditions of low oil prices.”
This is it, folks; this is the endgame right in front of our faces. The year of 2014 is the new 2007, with all the negative potential but 100 times more explosive going into 2015. Our nation has wallowed in slowly degrading financial conditions for years, hidden by fake economic statistics and manipulated stock prices. All of it has been a prelude to a much more frenetic and shocking event. We expect a hailstorm of geopolitical crises over the next year to provide cover for the shift away from the dollar. Ultimately, the death of the dollar will be hailed in the mainstream as a “good and necessary thing.” They will call it “karma.” They will call it “progress.” They will even call it “decentralization” and a success for the free market. But it will not feel like a positive development for the American public, who will suffer greatly as the dollar crumbles.