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Modern Portfolio Theory (MPT) is broken. That is how we interpret Niels Jensen's (Absolute Return Partners) latest missive as he draws a concerning line between the number of managers who rely sheep-like on the diversifying 'artifacts' of MPT in a new normal world of undiversifiable systemic risks. The shifts in intra- and inter-asset class correlations (both long- and short-term) have been incredible both in terms of direction change and magnitude - for example (as Nielsen notes) - In the 2000-03 bear market commodities were an excellent diversifier against equity market risk with the two asset classes being virtually uncorrelated (+0.05). Nowadays, the two are highly correlated (+0.69). This shift to a risk-on / risk-off world, fed by central bankers, makes the empirical Sharpe ratios of olde and track records of your favorite balanced-fund manager entirely useless for any investor seeking protection from not just volatility risk but ultimate risk - the permanent loss of capital.

• Romney dominates presidential debate (FT)
• What Romney’s Debate Victory Means (Bloomberg)
• Obama Lead Shrinks in Two Battlegrounds (WSJ)
• "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
• Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
• RBS facing loss after Spanish property firm collapse (Telegraph)
• Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
• The Woman Who Took the Fall for JPMorgan Chase (NYT)
• European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
• Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)

Americans Are Largely Responsible for Japan’s Ongoing Nuclear Policy

• No Joy on Wall Street as Biggest Banks Earn $63 Billion (Bloomberg)
• And more good news: IMF’s Blanchard Says Crisis Will Last a Decade (Reuters)
• Hobbit Returns to Find Middle Earth Has Become Expensive (Bloomberg)
• Freddie's Foreclosure Plan Hits Roadblock (WSJ)
• Who will buy the FT? Pearson CEO Scardino Will Step Down as Fallon Takes Over (BBG)
• Jeremy Lin Said to Be in Talks With Harvard on Licensing Deal (Bloomberg)
• Jon Weil tears apart the NYAG "prosecution" - Eric Schneiderman Will Have to Do Better Than This (BBG)
• Portugal Offers to Exchange Bonds as It Seeks Debt Market Access (Bloomberg)
• Is unlimited growth a thing of the past? (FT-Martin Wolf)
• European Bank Capital Results Overtaken by Tougher Global Rules (Bloomberg)
• China’s Slowdown Reverberates as ADB Cuts Forecasts (Bloomberg)
• Tokyo has no plan to extend currency swap deal with Seoul (Reuters)

Here are a few interesting tidbits to chew on...

The highlights from Bill Gross' latest monthly piece:

• Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.
• Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”
• If the fiscal gap isn’t closed even ever so gradually over the next few years, then rating services, dollar reserve holding nations and bond managers embarrassed into being reborn as vigilantes may together force a resolution that ends in tears. The damage would likely be beyond repair.
• The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.

• RBA Cuts Rate to 3.25% as Mining-Driven Growth Wanes (Reuters)
• Republicans Not Buying Bernanke’s QE3 Defense (WSJ)
• Spain ready for bailout, Germany signals "wait" (Reuters)
• EU says prop trading and investment banking should be separated from deposit taking (Reuters)
• Call for bank bonuses to be paid in debt (FT)
• Spanish Banks Need More Capital Than Tests Find, Moody’s Says (Bloomberg) ... as we explained on Friday
• "Fiscal cliff" to hit 90% of US families (FT)
• The casualties of Chesapeake's "land grab" across America (Reuters)
• U.K. Government Needs to Do More to Boost Weak Economy, BCC Says (Bloomberg)
• World Bank Sees Long Crisis Effect (WSJ)
• UBS Co-Worker Says He Used Adoboli’s Umbrella Account (Bloomberg)
• And more easing: South Korea central bank switches tack to encourage growth (Reuters)

There have been a few nations in the world over the last decade or so that have garnered somewhat mind-blowingly negative attention and have been forced to restructure, take losses, or default (semantics) on their debt (or financial system). Three of the best known are Argentina, Iceland, and most recently Greece. The following chart of GDP growth may have a lesson for every investor around the world (especially those in sovereign bonds) - and maybe more importantly for the Greek (and European) leadership. Is there something different about the post-restructuring growth in Greece that did not occur in the other two nations? Perhaps taking your medicine is indeed the right way to go - and enables growth to once again re-emerge - and the constant use of the M.A.D. argument is pure bluff.

26 times the GDP of Vermont!

• China accuses Bo Xilai of multiple crimes, expels him from communist party (Reuters), China seals Bo's fate ahead of November 8 leadership congress (Reuters)
• "Dozens of phone calls on days, nights and weekends" - How Bernanke Pulled the Fed His Way - Hilsenrath (WSJ)
• Fed won't "enable" irresponsible fiscal policy-Bullard (Reuters)
• PBOC Adviser Says Easing Restrained by Concerns on Homes (Bloomberg)
• Data Point to Euro-Zone Recession (WSJ)
• Fiscal cliff dims business mood (FT)
• FSA to Oversee Libor in Streamlining of Tarnished Rates (Bloomberg)
• Monti Says ECB Conditions, IMF Role Hinder Bond Requests (Bloomberg)
• Japan Heads for GDP Contraction as South Korea Weakens (Bloomberg)
• Moody’s downgrades South Africa (FT)
• Madrid Struggles With Homage to Catalonia (WSJ)

• Madrid Protesters March Again as Spain Braces for Cuts (Bloomberg)
• Euro Can Bear Fewer Members as Czech Leader Calls Greeks Victims (Bloomberg)
• Chinese Industrial Profits Fall 6.2% in Fifth Straight Drop (Bloomberg)
• China pours $58bn into money markets (FT)
• Beijing vows more measures on Diaoyu Islands (China Daily)
• Noda vows no compromise as Japan, China dig in on islands row (Reuters)
• Politico’s Paul Ryan Satire: The Joke’s on Them (Bloomberg)
• Electoral Drama Shifts to Ohio (WSJ)
• German opposition party targets banks (FT)
• Fed action triggers fear of new currency wars (FT)
• Ex-Credit Suisse CDO Boss Serageldin Is Arrested in U.K. (Bloomberg)
• Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit (Bloomberg)

• China To Maintain Prudent Monetary Policy (China Daily)
• Why Exit Is An Option For Germany (FT)
• China-Japan Ministers Hold 'Severe' Talks As Spat Damages Trade (Bloomberg)
• Eurozone Deal Over Bank Bailout In Doubt (FT)
• UBS Co-Workers Knew of Fake Trades, Adoboli Told Lawyer (Bloomberg)
• Banks Seek Changes To Research Settlement (FT)
• Secession Crisis Heaps Pain On Spain (FT)
• SEC: NY Firm Allowed HFT Manipulation (Bloomberg) - busted 'providing liquidity'?
• Germany To Tap Brakes ON High-Speed Trading (WSJ)
• Rajoy Outlines Fresh Overhauls (WSJ)
• BBC Apologizes To Queen Over Radical Cleric Leak (Reuters)
• British Banks Step Back From Libor Role (WSJ)
• Obama Seeks To Recast Ties With Arab World (FT)

As the media distorts the truth and the facts, I fight back with the Anti RDFun (Reality Distortion Field Ultimate Nullifier). Apple is outgunned in the data space, its maps product is simply the first in a long string of mishaps as it tries to transform from hardware to data, like Google.

• China carrier a show of force as Japan tension festers (Reuters)
• Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
• China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
• Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
• When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
• Italy's Monti Downplays Sovereignty Risk (WSJ)
• Portugal swaps pay cuts for tax rises (FT)
• Madrid faces regional funding backlash (FT)
• Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
• Race Focuses on Foreign Policy (WSJ)
• China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)

As we reported earlier, Camden may be broke, the local police may now be history, unemployment may be 50%, it may be nothing more than one big crack cocaine depot and driving through downtown at less than 88 mph may be hazardous to your health, but that wasn't always the case. In fact, back in 2009 the city had enough money to afford billboards. Such as this one on the intersection of Dr Charless Brimm Blvd and S. Broadway, courtesy of Google StreetView (sorry iPhone 5 users: you can't see this). Brought to you by www.joncorzine09.com