While some are shocked by Calpers' decision to abandon hedge funds as an investment class (the first of many such "exits"), there really should be no surprise here. As we have said year after year after year (and so on), it was only a matter of time before limited partners said "enough" and stopped paying 2 and 20 to overpaid asset managers in a world in which central banks have "guaranteed" there is no longer any risk, just to underperform the market for a whopping 6 years in a row now. And to showcase where Calpers decision came from here are just two charts.
The Puerto Rico Electric Power Authority (PREPA) Bond: Nondisclosure Agreement Creates Two Classes of BondholdersSubmitted by rcwhalen on 09/16/2014 03:07 -0500
Suddenly, we now have a new class: those bondholders who are under the NDA versus those who are not.
UPDATE: It appears the exodus is beginning - China FDI -14% YoY (vs +0.8% exp.)
As China's shift to a consumer economy progresses based on the urbanization of its agrarian 'poor' population, an odd thing is happening at the other end of the demographic wealth spectrum. As WSJ reports, nearly half of wealthy Chinese are planning to move to another country within the next five years, according to a new Barclays survey. The top reasons 47% of these individuals - with net worths over $1.5 billion - cite for fleeing China include educational and employment opportunities, economic security, and climate. Ironically, none mentioned 'running away from potential prosecution for graft'.
While Janet Yellen and her band of money printers work themselves into a tizzy over whether two buzz words - “considerable time” - should be dropped from their post-meeting word cloud, they might be better advised to just read the newspapers. This morning’s WSJ brings word that the lending boom which our monetary central planners are eager to stimulate is apparently off-to-the-races. Well, sort of. The item in question is a $122 billion globally syndicated loan to facilitate an M&A deal between the world’s two largest beer companies - AB InBev with a 20% global market share and SABMiller with 10%.
As always, the bottom line is about leverage and bargaining power. It is here that, miraculously, things once again devolve back to, drumroll, oil, and the fact that an independent Scotland would keep 90% of the oil revenues! As we showed several days ago, Scotland's oil may be the single biggest wildcard in the entire Independence movement. It is this oil that as SocGen's Albert Edwards shows earlier this morning, is what gives Scotland all the leverage.
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
Something appears to have changed not only because the USDJPY is not some 100 pips higher overnight on, well, nothing but because the S&P, which is treading water, has yet to spike on no volume reasons unknown. That something may be algos which are too confused to buy ahead of this week's Fed announcement which may or may not have some notable changes in language or the Scottish referendum on the 18th. Or it could simply be that algos are no longer allowed to openly manipulate and rig the market on the CME as of today now that "disruptive market practices" are banned (why weren't they before)? In any case, keep a close eye on the market today: not all is at it has been for a while, unless of course it is still just a little early and the rigging algos (which haven't gotten the Rule 575 memo of course) haven't woken up just yet.
Following ISIS blitzkrieg in which it took over nearly half of Iraq and a third of Syria in the blink of an eye, at which point it created its own Islamic State Caliphate resulting in Obama's own personal war against the jihadists, some have wondered what is ISIS' next step: surely its leadership will not merely stagnatte as one after another US predator drone bomb away the capital Reqqa until ISIS figurehead leader al-Baghdadi is killed or gravely wounded. To be sure, the one thing ISIS, which stunned the world with the speed of its ascent, can not afford is to stand still. So what is next on the strategic timeline for the Islamic State? According to one source, Al Arabiya, which cites Egyptian experts, the answer is none other than the Suez Canal, and the country it is located in: Egypt.
About a month ago, when Russia sent a humanitarian convoy to aid ethnic Russians in east Ukraine, the Western world, and of course media, screamed bloody murder, with everyone from NATO to the Kiev government declaring it, without a shadow of a doubt, an invasion, a Trojan Horse, and a convoy of arms deliveries for the rebels caught in the Ukraine civil war, not necessarily in that order. Nobody thought it could possibly be just that: a convoy of humanitarian aid delivering provisions to hundreds of thousands of civilians caught in the middle of a war. Then finally, after weeks of delays, the convoy was allowed in and after unloading its cargo, promptly returned to Russia without a single incident.
Getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages. This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally “overvalued” relative to their long-term “fair value.” The dominant risk for Wall Street is not bursting bubbles, but rather a long slow grind down in profit’s share of GDP/national income. And you can stick that into a Gordon Model, too! Bonds and stocks may at present be rationally valued, but borrowing from the lyrics of Procol Harum’s Keith Reid: Expected long-term returns are turning a more ghostly whiter shade of pale.
While a misnomer, if President Obama is to be believed, The Islamic State, according to The Institute for the Study of War, poses a grave danger to the United States and its allies in the Middle East and around the world. As they exclaim, reports that it is not currently planning an attack against the American homeland are little comfort. Its location, the resources it controls, the skill and determination of its leaders and fighters, and its demonstrated lethality distinguish it from other al-Qaeda-like groups..."It must be defeated," they conclude... and here's how.
Rents and housing costs make up 30% of CPI. They’re its largest component. They’re soaring in real life. But not in the CPI.
Today, the 13th Anniversary of 9/11 will see many people recall how things were. To remember that day and the heroes it spawned who better than UBS' Art Cashin - who thought it simplest to repeat what he wrote back then.
While hardly able to match the wit, sophistry or, allegedly, satire of yesterday's MarketWatch grandslam in market insight "Why This Stock Market Will Never Go Down", we are confident readers will enjoy the following interview from none other than the Nobel prize winner in Keynesianomics, Paul Krugman, who in this interview with Princeton Magazine, had some comments on bubbles, inflation, student loans, minimum wages, artificially low rates, the Fed's dual mandate, and, of all things, Bitcoin.
In a world of no consequences and where lying is justified "when it's serious enough," it is hardly surprising that mere hours after stating unequivocally that none of the law enforcement entities the league approached "was permitted to provide any video or other investigatory material to us," AP reports that, in fact, a law enforcement official says he sent a video of Ray Rice punching his then-fiancee to an NFL executive five months ago. More lies - but then we are sure, just as we have heard many times before, Roger Goodell was 'unaware' of the situation...