Seth Klarman's comments on "The Truman Show" market and "born bulls" appeared to upset the status quo today on CNBC leaving none other than Joe Kernan and then later, Jim Cramer questioning Klarman's credentials with a passive-aggressive "when did Klarman turn negative? We should look into that..." question. We found it intriguing and wondered how much the investing public weights the differing views of these veritable titans of stock market wisdom. The answer - a market-based answer - lie in the purest measure of all... the cost of acquiring their knowledge...
While progress on the search-and-recovery efforts of the missing Malaysian Airlines jet continues to disappoint, the stolen-passport plot thickens considerably. While earlier we discovered that it was a mysterious "Mr. Ali" that purchased the tickets for the two passengers traveling on stolen passports (with cash), The Telegraph reports that BBC Persia confirms they were Iranian nationals. According to another Iranian friend (who had hosted them while in Kuala Lumpur) the two were "looking for a place to settle" in Europe (intending to complete their journey in Frankfurt and Denmark).
Rather than attempt to reduce a very complex system to a cartoonish "explanation" of events, we would be better served by seeking out the geopolitical linchpins that have proven key in every era and theater of operations. These include Energy, Transport routes, Military control of transport and geographical chokepoints, and The support or resistance of resident populaces
Early weakness and volatility was entirely suppressed once European markets closed and stocks traded in a shockingly low range amid dreadfully low volume. All the major indices closed red with the Russell underperforming (and Nasdaq outperforming) as stocks tracked (more loosely than normal) with AUDJPY once again. Treasuries ended the day very modestly lower in yield (30Y unch, rest -1bps). The USD traded modestly higher all day led by weakness in GBP and AUD (as JPY ended unch). Gold closed unchanged as copper (China), oil, and silver slipped. Credit markets remain skeptical and VIX closed higher on the day, despite the late-day ramp efforts to get the S&P 500 green - which failed.
Over the weekend we reported that even Goldman has now highlighted what has been clear to most, but certainly not the Fed, for quite some time: stocks are in such an epic bubble, with many of the key valuation metrics notably EV/sales, off the charts and at all time highs, that even Goldman's own clients are asking "When does the party end?" Goldman Sachs was kind enough to point out that while buying into undervalued stocks at this record high market junction may be a safe bet, the alternative, going long the most overvalued stocks usually ends in tears. So just what are these most overvalued stocks? To answer this question David Kostin screens for those Russell 1000 companies with the highest EV/Sales ratios, and finds 40 companies, with a ratio between 10x and 875x (median of 15x compared to the overall Russell's 2x), that fit the bill. The answer - the list of the America's most overvalued companies - is shown in the table below.
If the U.S. economy is getting better, then why are major retail chains closing thousands of stores? If we truly are in an "economic recovery", then why do sales figures continue to go down for large retailers all over the country? Without a doubt, the rise of Internet retailing giants such as Amazon.com have had a huge impact. Today, there are millions of Americans that actually prefer to shop online. But Internet shopping alone does not account for the great retail apocalypse that we are witnessing. In fact, some retail experts estimate that the Internet has accounted for only about 20 percent of the decline that we are seeing. Most of the rest of it can be accounted for by the slow, steady death of the middle class U.S. consumer. Median household income has declined for five years in a row, but all of our bills just keep going up. That means that the amount of disposable income that average Americans have continues to shrink, and that is really bad news for retailers.
While the mystery builds over the still officially unexplained disappearance of Malaysian flight MH370, or just who the two passengers with "stolen" passports may have been although we expect a revelation on this issue shortly, the FT has added yet another twist to what is sure to be a conspiracy thriller for weeks to come: the paper reports that the Thai travel agent who booked the tickets for the men in question said that she had been asked to arrange the travel by an Iranian contact. Adding to the confusion is the revelation that originally the mysterious Iranian, known only as Mr. Ali, tried to reserve seats for the two men on separate flights not to China, but to Europe, one on a Qatar Airways flight, and the other on Etihad. And the punchline: a "friend" of Mr. Ali's paid for the tickets in cash.
How much faith can we put in our ability to decipher all the numbers out there telling us the US is closing in on its cornering of the global oil market? There’s another side to the story of the relentless US shale boom, one that says that some of the numbers are misunderstood, while others are simply preposterous. The truth of the matter is that the industry has to make such a big deal out of shale because it’s all that’s left. There are some good things happening behind the fairy tale numbers, though—it’s just a matter of deciphering them from a sober perspective.
While central bankers and politicians alike celebrate the great recorvery in the UK, the nation is increasingly divided between the haves and have-nots (or Londoners and non-Londoners). In no way is that more clearly evident that a dreadful new trend that, as The Sunday Post reports, desperate Brits are turning to Facebook to advertise their organs for sale at up to $50,000 despite the medical and legal risks involved.
To believe that the housing bubble caused the 2008 crash was is to ignore its origin in Federal Reserve policies that forced investors to reach for yield. Tragically, the Federal Reserve has done the same thing again – starving investors of safe returns, and promoting a reach for yield into increasingly elevated and speculative assets. Thinking about the crisis only from the perspective of housing, investors and policy-makers have allowed the same process to play out more broadly in the equity market. On a quantitative basis, the overvaluation of the equity market is greater percentage-wise, and greater dollar-wise, than the overvaluation of housing in 2006-2007. Impatient, crowd-following investors are all too willing to wastefully scatter seeds onto this parched desert, thinking that this is their only chance to sow. To wait patiently in the expectation of fertile soil and rain is not an act of pessimism, but an act of optimism and informed experience.
For those who have been following every twist and turn of the Ukrainian political crisis ever since its start in November of last year, the following post is likely a recap of familiar facts and dates. For everyone else, or those who just wish to plug the occasional hole in their memory, here is a full timeline of events that led to the coup that replaced the elected president Yanukovich - despite the signing of an agreement memorandum which was endorsed by Europe and the West keeping him in power and calling for presidential elections - with an acting president who has been classified as illegitimate by Russia, in exchange for which, as well as for numerous other reasons, Moscow has completely occupied the Crimea and increasingly more cities in east Ukraine are telegraphing their alliance with Putin.
In what is one of the most disturbing private prison stories you’ll ever hear, a facility in Idaho run by Corrections Corporation of America (CCA) in under investigation by the FBI due to claims it was so violent inmates called it “Gladiator School.” So how does a prison transform into such a place? Apparently, CCA was so eager to cut costs that it chose to understaff the facility and hand over control to prison gangs.
Just when you thought the distractions in Russia, Malaysia, and Libya were enough to take the spotlight off domestic drama, Chris Christie's BridgeGate scandal bubbles back into the headlines. As WSJ reports, Manhattan federal prosecutors have subpoenaed records from the Port Authority of New York and New Jersey related to the business interests of its chairman, David Samson, people familiar with the matter said Monday. Samson, a close ally of Christie, is, according to sources, under investigation for potential conflicts between his private business interests and his actions as chairman of the sprawling bi-state authority, which oversees Hudson River crossings into New York City, airports, the PATH rail system and the World Trade Center complex.
Mere days ahead of Crimea's referendum to join Russia (or not) and following reports of shots fired between Russian and Ukrainian forces, the Ukraine Defense Ministry reports (via Facebook):
- *UKRAINE LIEUTENANT COLONEL DEFECTS TO RUSSIAN FORCES: MINISTRY
- *UKRAINE OFFICER IN CHARGE OF CRIMEA UNIT DEFECTS: UKR MINISTRY
- *OFFICER CONVINCES 'SEVERAL' SOLDIERS TO DEFECT: DEF MINISTRY
Lt. Colonel Sadovnyk is the officer reported as 'kidnapped' yesterday in Bakhchisarai. It would appear Crimea is annexing itself as this comes just one week after the head of Ukraine's Navy defected.
China's biggest blue-chip stock index - the CSI-300 - dropped over 3% overnight and fell to its lowest level since Feb 2009. Corporate bond and trust defaults (crushing confidence in credit markets), shadow-banking collateral unwinds (crushing commodity prices), and exports collapsing (crushing dreams of a global economic recovery) are all weighing on Chinese stocks. This comes, ironically as the US equity "market" celebrates the 5 year anniversary of the Mar 2009 lows and soars to new highs in the face of turmoil. There is, of course, another outlet for China's massive money-printing - that dwarfs the Fed's - its real estate market.. and that is the bubble that the PBOC is trying to tamp down.