China may or may not be building empty cities any more, but when it comes to the buildings it does, ahem, erect, it appears that the communist regime is either running out of ideas or is taking the symbolism of the skyscraper just a little too seriously. Behold the building that will house the new Beijing offices of the People's Daily, the official paper of the China Communist Party...
The reason for yesterday's late day swoon was a humorous tweet, which subsequently became a full-blown serious rumor, that the WSJ's Hilsenrath would leak the first hint that the Fed is contemplating preannouncing the "tapering" of its $85 billion in monthly purchases. Naturally, this did not happen as we explained. And yet, judging by the market's response there is substantial concern that the Fed may do just that. To be sure, it is quite likely that in addition to just rumblings out of economists, which are always wrong and thus ignored, that one of the Fed's unofficial channels may hint at some tightening in the monthly flow (if certainly not halt, and absolutely not unwind). Which makes sense: all previous instances of non-open ended QE took place for up to 6-9 months before the Fed briefly let off the accelerator to see just how big the downward response is. The problem now, however, is that even the tiniest hint that the grossly overvalued "market", which has risen only thanks to multiple expansion for the past year, would lead to a massive overshoot not only to whatever an ex-Fed "fair value" may be, but overshoot wildly as the liquidation programs kick in across a Wall Street that is more liquidity starved today than it has been in a decade. This is precisely what Scotiabank's Guy Hasselman thinks: "Few care about “right-tail” events, but should investors decide to pare risk in reaction to a hint of ‘tapering’, the overshoot to the downside may surprise many. The combination of too many sellers, too few buyers, and dreadful (and declining) liquidity means a down-side overshoot is highly likely."
No news is the best news. Quite a week across every asset class dominated by the last two days as USDJPY broke 100 and seemingly all hell broke loose (apart from in stocks). Spikes in Treasury yields (10Y and 30Y +15bps on the week); a surging USD (+1.3%) driven by major JPY and AUD weakness (-2.75%) and the biggest drop in EUR in 6 weeks; Gold and Silver sold off hard (-3.5%) before bouncing back this afternoon ending -1.5% on the week; crude oil plunged but the Brent Vigilantes were not so easily beaten and ripped back above $96 and higher to close the week. Bond-like stocks (Utes) were hammered as high-beta cyclicals (homebuilders) ripped and while stock indices rolled over a little they remain near highs. It's not all sunshine and ponies though... credit markets drastically underperformed (playing catch down from an exuberant few days but sending a clear message to stocks) and the VIX curve steepened rather significantly around the Labor Day horizon - a date that represents desk chatter for "tapering" and debt ceiling drama to re-appear). S&P futures exhibited a spooky 15-min cycle zig-zag pattern this afternoon - in a totally human way... and average trade size was very low (algos) - right before the late-day ramp.
More millionaires live in Tokyo than in any other city, according to a new report from WealthInsight, beating out New York and London. The Economist notes that the city, which boasts 460,700 individuals with net assets of $1m or more (excluding their primary residences), is home to over a fifth of Japan's millionaires. However, when it comes to real money (since who can get by on a mere million dollars worth of wealth these days), London tops the list with 4,224 multi-millionaires. But when it comes to the real BSDs, New York City and Moscow rule the world with 70 and 64 billionaires respectively wondering the streets. As The Economist also notes, should you wish to rub shoulders with the rich, heading to Tokyo, London, New York, or Moscow would be a mistake - it is Frankfurt that has the highest millionaires per capita (with 75 out of every 1000 people having at least a seven figure net worth).
There is a mathematical term used to describe a time series' propensity to mean-revert or not. Autocorrelation measures the tendency for today's price direction to be in the same direction as yesterday's. In a period of negative autocorrelation (such as today) when the market sells off one day it is much more likely to rebound the next. As Artemis Capital's Chris Cole notes, the current level of negative auto-correlation (often associated with positive for 'buy-the-dip' strategies in an upward trending market) has never been higher. Mean reversion and negative autocorrelations are one reason why many pure 'portfolio insurance' strategies are struggling with losses. If you are constantly shorting volatility this trend toward powerful mean reversion is your best friend. However, empirically, this high mean reversion is unsustainable; the potential for mean reversion regimes to ‘shift’ is driven by increasing leverage and interconnectedness in the system.
The man who is the chief advisor to the US Treasury on its debt funding and issuance strategy was just promoted to the rank of second most important person at the biggest commercial bank in the US by assets (of which it was $2.5 trillion), and second biggest commercial bank in the world. And soon, Jamie willing, Matt is set for his final promotion, whereby he will run two very different enterprises: JPMorgan Chase and, by indirect implication, United States, Inc.
And that, ladies and gentlemen, is how you take over the world.
David Einhorn's Q1 Investor Letter: "Under The Circumstances, It Is Curious That Gold Isn’t Doing Better."Submitted by Tyler Durden on 05/10/2013 14:27 -0400
Sadly, not much in terms of macro observations this quarter or discussions of jelly donuts, but a whole lot on the fund's biggest Q1 underperformer, Apple and the hedge fund's ongoing fight for shareholder friendly capital reallocation as well as proving Modigliani-Miller wrong. And then this cryptic ellipsis: "Under the circumstances, it is curious that gold isn’t doing better." Say no more, David. We get it.
Yesterday saw a lot of extreme volatility moves around the world. Most of them stemmed from Japanese actions - JPY plunging 3 big figures in 18 hours, JGB limit down and biggest yield spike in years against a JGB implied volatility collapse, NKY smashing exponentially higher - but there was also an unusual action in precious metals. While price has been notably set back in the last two days, yesterday saw the largest addition to IAU and GLD ETF holdings in 7 months (following a 10 million ounce reduction from mid-February highs). For equity investors, if this is considered a normal, calm operating environment for putting your capital to work, enjoy.
Just because you are a conservative and paranoid, doesn't mean the IRS is not after you. And, assuming the AP was not hacked again, this is precisely what happened. In a stunning disclosure, the supposedly impartial Internal Revenue Service has admitted and apologized for flagging and subjecting to extra reviews, conservative political groups - those that included the words "tea party" or "patriot" - during the 2012 election to see if they were violating their tax-exempt status. No such privilege was apparently afforded to groups identifying themselves as "liberal." It does make one wonder, just how far the IRS goes to make the lives of conservatives a living hell: will all 2012 tax audits be those who on their facebook profile admit to liking Ron Paul? And just how far does the IRS invade personal privacy to determine how any one tax filer is indeed, a "conservative?" But don't worry - aside from the obvious persecutions, America is a free country for one and all.
Earlier today, news crossed the wire that the Britsh Embassy was pulling all non-essential staff from its Libya embassy, with the release of this warning: "Given the security implications of the ongoing political uncertainty, the British Embassy is temporarily withdrawing a small number of staff, mainly those who work in support of Government Ministries which have been affected by recent developments." Moments ago, perhaps in an attempt to avoid the humiliation suffer by Hillary Clinton and the Benghazi fiasco, Fox News reports that "The U.S. military has alerted two elite military units in Europe to be on standby if needed to respond to a deteriorating security situation in Tripoli."
A funny thing happened on the way to the next Bull market: the price-earnings (P/E) ratio has entered bubble territory--again. So what if the Bull market is already 4+ years old--no reason it can't run another four years. Or 40 years. The Fed has found the key to a permanent Bull market. Dow 36,000 is for pikers: Dow 400,000, baby! Another funny thing might happen on the way to Infinite QE Nirvana: giddy "buy the dip, the Fed's got our back" participants tend to forget that major players profit from going short when all the other shorts have been terminated with extreme prejudice, and then taking the market down. Once they've driven the market down and taken out all the stops, then they can buy back in and launch the next melt-up. What's more profitable, a slow melt-up or a panic sell-off and sharp rebound? Definitely the latter, if you're heavily short, the market is teetering on record margin debt and you can kick out the critical 2X4 holding the whole contraption up.
Aside from being core long gold and oil on the basis of an ongoing global reflation effort by the myopic central bankers of the world; Eclectica's Hugh Hendry is long consumer Staples (as he explains - for a conservative investor, there is little choice but safest, least volatile, most liquid consumer non-discretionary blue chips), long USD (cleanest dirty shirt), long Japanese equities (extreme reflation efforts), and is long the short end of the curve in various sovereign bonds around the world (once again on the basis that weaker data combined with central bank intervention means this duration will benefit). Critically, the outspoken Scot notes that Japan's monetary pivot towards QE will not create economic growth out of nothing. Instead it seeks to redistribute global GDP in a manner that favors Japan versus the rest of the world. This is the last thing the global economy needs right now. His base view remains that there will be more central bank intervention, more debasement, that a sound money core is key, and taking advantage of liquidity flows in the meantime can be profitable.