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Just watch, Twine man
When investment guru Robert Prechter recently predicted that the Dow Jones Industrial Average will drop to 1,000, many dismissed him as being very unrealistic.
After all, that would be a 90 percent drop from the recent level of 10,680. Not so fast, says fellow investment icon Marc Faber.
In his newsletter, "The Gloom, Boom & Doom Report," Faber points out that people also rolled their eyes at Prechter in 1978, when he predicted the Dow would more than double to 2,300, CNBC reports. "Prechter is right when he says that when manias come to an end, prices tend to retreat to where the mania started,” Faber writes. “So from this point of view, a Dow Jones at 1,000 should not be excluded."
The implications of Dow 1,000 will be positive for one industry – printing, Faber says. “Does anyone really think that the money printing presses won't run 24 hours a day?” Faber has an interesting suggestion for investors if the plunge comes to pass.
With tongue apparently in cheek, he says buy a farm you can tend to yourself way out in the boondocks. And protect it with high voltage fences, barbed wire, booby traps, military weapons and Dobermans. Star economist David Rosenberg is bearish on stocks too, though he sees them as “only” 20 percent overvalued. “The market is overbought, and there is a renewed sense of complacency that could get shattered pretty quickly,” he told Yahoo’s Tech Ticker.
I have warned time and again that the market rally was BS.
Moreover, I have stated in plain terms that the talk of economic
recovery was nonsense and the market was trading on borrowed
time.
Canny, you are one of the best, but get out
COTH is a scam and the key players are short
Big SPX Dumper Yesterday- back to 1020, then to 800
OT-Odd, a two time WS MVP treated as a cast away
Just not fair, he got the appreciation that Red Sox fans feel for a guy who is a team player, a leader and a real hero JMHO
Lee, you're the real Maven- a stalwart
But we are in for a real S*storm and I've followed markets for 45 years.
Not gonna be long pre Iran War
ASSEMBLING THE EVIDENCE FOR HIGH LIKLIHOOD OF COMING THIRD WORLD WAR
By crescentandcross 121 Comments
Categories: Uncategorized
David Edward Standridge, 30 July, 2010
In no particular order, these are the salient points that are converging, rapidly, screaming out our inexorable collision with National disaster:
–Very high levels of saber-rattling by lots of influential people, both in the US and abroad, both “allies” and “enemies” in recent weeks, moreso than usual.
–Huge build-up of Naval forces, US and Israeli, munitions, in Gulf AO.
–Key positions in US military, all branches, held by Israeli dual citizens
–Israeli control of communications in US, most other vital infrastructure; –”Mysterious” series of mass pollution disasters in Gulf of Mexico, Mississippi River and Great Lakes region—(NOTE–Israeli companies “guard” or control many of the United States’ fresh water supplies, as well as many other critical strategic infrastructure components. Frighteningly, they even are in charge of security for our nuclear arsenal! Remember the “missing” nuke a couple of years ago-still unaccounted for?)
–American dollar, the entire US economy, on the verge of collapse;
–Chinese high-ranking finance official publicly declaring the US is “insolvent” (NOTE–as oil is mostly priced in dollars, war in Persian Gulf would raise the dollar, as price of oil would skyrocket. Would also destroy threat of Iranian Oil Bourse)
–American Majority nearly in open revolt over relentless Socialist policies of Obama Administration and Congress, i.e., Tea Parties, anti-illegal invasion movement, the militia movement growing larger than ever in the past two years alone. The Majority is finally standing up, and they are mad as hell.
–A revolution is, for the first time since 1861, a very real possibility.
–High potential for violent confrontation, racial tensions. Black/White and White/Mexican antagonism being stoked by government and media to the boiling point…record arms and ammo sales since Obama inaugurated-possible Mossad assassination or birth certificate scandal becoming mainstream. Gun-owning Majority Americans MUST be decimated for realization of the “Jewish Utopia”…and they are already behind schedule, largely due to internet.
–Wikileaks black-op by Mossad/CIA to push for Lieberman bill to “regulate” internet-gatekeeping, at best, kill-switch at worst…MUST be accomplished before the conflagration begins.
–US combat troops may be cut-off and annihilated overseas, leaving skeleton crew for CONUS.
–Huge civilian “shortage” of critical battlefield medications, many for nuke treatment, also some for euthanasia; vast numbers of cheap coffins in holding areas all over US.
–Easy to blame Obama for open border policy if “backpack” WMD hits US city/i.e., stampede the herd into Holy War against Islam, possibly impeachment, revolution, CWII.
–Many Israeli embassies read “hot” for nuke material, blackmailing government. Also, with 9-11.
–Agitating North Korea in blatant attempt to stir-up hostilities, full-scale war. Could be used as excuse to destroy our main creditor, China, and wipe out the debt to them.
DEDUCTION:
Israel adheres to the Talmudic doctrine that THEY are the “chosen”, and all others must submit to their rule, period, no matter the scope of destruction, death and suffering (even of their own, “lesser brethren”).It is well known to many that Israel is quite willing to embroil the major powers in a suicidal war, leaving them to pick up the pieces, and assert themselves as the sole superpower in the world. They, the “Learned Elders” have always throughout their history, sought nothing less than total domination of the entire WORLD, and everyone in it. Remember, the blue stripes on the Israeli flag represent the Nile and the Euphrates rivers, again even though their entire raison d’etre is global conquest, Eretz Israel is simply their “heartland”, with the Temple “rebuilt” at Jerusalem, at the site of The Dome Of The Rock.
A likely scenario, considering the above evidence, is that the US will have one or more cities attacked–probably with nukes or some other WMD.
It will, necessarily, be a mass-casualty event, dwarfing the “shock and awe” of 9-11.
Iran, N Korea, possibly Russia, China, someone will be blamed (they may even resuscitate Osama Bin Laden for the event, as Wikileaks says, “yeah, he’s been hangin’ out in Pakistan all this time(!)”) but it is, of course, the Mossad and their US collaborators who are the ones who will carry out this mass slaughter of Americans.
It is very alarming that the Jewish controlled media could steer us into conflict with Russia and/or China (wipe out our unpayable debt obligation), as well as Iran, or whomever else the Jews command us to “sic”. After all, despite even the power of the internet, Americans were brought onboard to invade Iraq, FOR NO REASON. The media is, today, MUCH less influential than then, therefore the necessity of clamping down on the internet.
Massive retaliation by US/Israeli forces…The next, most opportune time for any air assault is 10 August-a new moon. It should be considered, also, that the US/Israel may simply strike Iran around that date, whether we have been attacked yet or not-but, the System is, definitely, preparing for mass-casualty events and radiological casualties, perhaps as “retaliation by turrsts”-right-o.
Something is just around the bend, America, something that will utterly change our world forever!
Just my analysis of geopolitical events and the stories being pushed by the MSM, and studying our national political situation; could be wrong, of course-AND I HOPE SO! If not, though, it can’t hurt to do what we should be doing, anyway : physically, mentally, and spiritually PREPARE!
David Edward Standridge, 30 July, 2010
A bit- nice place- prefer Culebra
watch out for that DU
Lee, 13 months of equity redemptions and $14T debt to WHOM?
And Red Sox gonna win the pennant this year w/o Youk?
US Treasury Projects A $13.9 Trillion Debt Balance At December 31, Anticipates Debt Ceiling Breach Some Time In February 2011
Submitted by Tyler Durden on 08/02/2010 14:33 -0500
The Treasury has just released its most recent quarterly borrowing estimate for fiscal Q4 2010 and Q1 2011 (or the next two quarters in normal speak). The government now anticipates a funding need of $350 billion and $380 billion in the next two quarters. While the $350 billion number is a slight reduction from the prior estimate of $376 billion, historically the Treasury has been unduly and overly optimistic in determining its debt issuance requirements. With the June 30 total debt balance of $13.203 trillion, it means the Treasury itself now anticipates total debt at just under $14 trillion (or $13.93 trillion to be precise). This equates to about $13.88 trillion in debt subject to limit (which at last check was $14.3 trillion). Looks like the Treasury will not need to raise the debt ceiling before the midterm elections after all: perhaps this is what the market is celebrating today: nothing less than the latest and greatestexample of news slightly better than a worst-case scenario. We also learn that, "during the April - June 2010 quarter, Treasury issued $344 billion in net marketable debt, and finished the quarter with a cash balance of $290 billion, of which $200 billion was attributable to the SFP. In May, Treasury estimated $340 billion in net marketable borrowing and assumed an end-of-June cash balance of $280 billion, which included an SFP balance of $200 billion. The increase in the cash balance related to higher net cash flows and net marketable borrowing." And with every new auction pushing the US debt further higher into "never repayable"territory , the Bid To Cover grows ever higher. And in fact, don't look now, but the last time the market was at 1,125, the 10 Year was just 45 bps higher than the current 2.96%, confirming that all is perfectly illogical with the world.
Fannie Mae: Home Prices To Decline Into Next Year
Home prices will decline into next year, Fannie Mae said Thursday, reversing earlier projections that the housing market would stabilize this year. Former Federal Reserve Chairman Alan Greenspan said Sunday on NBC's "Meet the Press" that a so-called double-dip recession was possible "if home prices go down."
Fannie's forecast, disclosed in its latest quarterly report filed with the Securities and Exchange Commission, shows that the government-owned mortgage giant has turned bearish on the housing market. Fannie Mae, the federal mortgage association, along with its sister entity, Freddie Mac, own or guarantee about half of all U.S. mortgages.
"We expect that home prices on a national basis will decline slightly in 2010 and into 2011 before stabilizing, and that the peak-to-trough home price decline on a national basis will range between 18 percent and 25 percent," the bailed-out behemoth said in its filing.
Some housing market analysts, notably John Burns, Mark Hanson, and Dean Baker, have been expecting price declines for some time, but a review of Fannie's recent regulatory filings show that the firm's expectations at the start of the year were more positive but have grown grim as time has passed.
Put another way, Fannie Mae says the housing market is getting worse.
In February, the Washington-based firm said in its annual filing that it expected "home prices to stabilize in 2010."
Story continues below
In May, Fannie said it expected home prices "will decline slightly in 2010 before stabilizing."
The firm also forecast in May that it saw the peak-to-trough decline in home prices nationwide to be in the 18-23 percent range. Fannie changed that to 18-25 percent in its latest filing. The company uses its own formula, eschewing the popular S&P/Case-Shiller Home Price Index.
"They are basically going with consensus thinking all three times," John Burns, a housing industry consultant based in Irvine, Calif., said of Fannie's last three forecasts. Burns also expects home prices to drop.
"It's a good sign they're getting a little more in touch with reality," said Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. Baker expects home prices to drop an additional 15 percent, arguing that the housing bubble has yet to fully deflate. He cautions, though, that part of that decline could be the market over-shooting its correction.
Baker is one of a few prominent economists that had been warning about the housing bubble during the boom and to have predicted the mortgage meltdown.
Mark Hanson, a housing industry analyst based in California, said in an interview last week that he expects home prices to continually decline in each of the next four years.
Greenspan, though, said the data "don't show" a nationwide decline.
"Home prices, as best we can judge, have really flattened out in the last year," he said Sunday. "And while it is true that most economists expect a small dip from here largely as a consequence of the ending of the [temporary homebuyer] tax credit, the data don't show that at this particular stage.
"If home prices stay stable, then I think we will skirt the worst of the housing problem," the former Fed chairman added.
While the Obama administration has talked up the stabilized housing market and the rise in home prices since the beginning of the year, it, too, has begun to note the possibility housing prices will drop.
In its annual Economic Report of the President sent to Congress in February, the White House's Council of Economic Advisers, referring to vacant homes that are intentionally being held off the market -- part of the so-called "shadow inventory" -- said that the "overhang may lead to some additional price declines, although prices are unlikely to fall at the same rate as they did during the crisis."
On Monday, Alan B. Krueger, the Treasury Department's assistant secretary for economic policy and its chief economist, also noted that the "large inventory of homes on the market relative to the sales pace, along with a significant number of homes in foreclosure also poses a downside risk to prices," he said in a statement.
In the spring, Krueger spoke of "stabilizing home prices" and said that "housing market futures point to flat housing prices through 2010," according to a May 3 statement.
The Federal Reserve's main policymaking body has also turned bearish, warning in June about the possibility of declines in home prices.
"With the expiration of [temporary tax credits for homebuyers], home sales and starts had stepped down noticeably and could remain weak in the near term," participants noted during the Federal Open Market Committee's June 22-23 meeting, according to minutes released last month. "With lower demand and a continuing supply of foreclosed houses coming to market, participants judged that house prices were likely to remain flat or decline somewhat further in the near term."
Borrowers are losing their homes at a record pace. Banks have repossessed about 1.4 million homes since Obama took office, according to data provider RealtyTrac.
And foreclosures, though down from their 2009 highs, still average well over 300,000 homes per month. While it takes a record 461 days to complete a foreclosure, an average according to Jacksonville, Fla.-based data provider Lender Processing Services, for the more than 2.8 million homes that were foreclosed on last year that day of reckoning has either passed, or is approaching soon.
Fannie said Thursday that it expects its inventory of repossessed homes "to continue to increase significantly throughout 2010."
This Market is F*ed- Manipulated, Overstated "earnings", bonuses paid to idiots who fire productive employees, and LIES LIES LIES- CNBS is the worst and Mark Haynes and NYSE floor boy are dead already. They need Rick S and Dylan to revive the reality trade IMHO
20% DROP COMING: A Phony 1.5% SPX Jam is Bernanke on PCP as Fat(her)Fred Scams Some
EXTEND & PRETEND: Confirming the Flash Crash Omen
http://home.comcast.net/~lcmgroupe/2010/Article-Extend_and_Pretend-Flash_Crash.htm
The highly discussed and quickly forgotten Flash Crash was an omen of what lies ahead for the financial markets. It was a uniquely distinctive occurrence relative to anything we've ever experienced. Likewise, what we are about to witness will be startling and never before observed by this generation of investors. After only thirty days the Flash Crash signal has become unambiguous and historians will wonder why the public didn’t react sooner to its clarion call.
Prior to the May 6th Flash Crash I laid out what to expect in “Extend & Pretend: Shifting Risk to the Innocent” . The ink was barely wet before its predictions began to rapidly unfold. The basis for the predictions was the similarities between the rally we have experienced since March 2009 and the rally prior to the 1987 crash. It was striking in comparison to the amount of rise, the rate and the pattern, but more importantly the reason for both rallies. The 1987 crash was attributed to Portfolio Insurance. In 2010 it's about what is referred to as the ‘son-of-portfolio insurance’ or Dynamic Hedging.
Over the last ten years we've systematically accelerated the shifting of risk through the advancement of three new strategies; Dynamic Hedging, Capital Arbitrage and Regulatory Arbitrage. Individually they may seem sound but when pyramided as we have done over this period of time, they set the stage for systemic instability. The underlying bedrock of this shaky pyramid is Dynamic Hedging.
The three new strategies:
Dynamic Hedging
Reduces Risk further through recent advancements in High Frequency Trading and Dark Pools (1)
Capital Arbitrage
Hides Risk by removing it from financial balance sheets
Regulatory Arbitrage
Moves Risk to Sovereign entities.
I won't explore in this article how these strategies are being used and how they are building upon themselves (see “Extend & Pretend: Shifting Risk to the Innocent”) but rather I want to focus on what the Flash Crash is signaling and how it relates to the three critical flaws of all modern trading algorithms.
The chart above and the May 17th Wall Street Journal confirmed the rational for our April predictions:
On May 6, "The velocity of the volatility was stunning, beyond anything I had ever seen, with the exception of October of 1987, when I was on the trading floor," said Ted Weisberg, president of Seaport Securities in New York. "There's a strong parallel between the Black Monday crash and the flash crash," said Michael Wong, an analyst at Morningstar who tracks stock exchanges. On Oct. 19, 1987, the Dow Jones Industrial Average tumbled more than 20%, and the swoon extended into the following day, before a rebound. Floor traders, working by telephone, dominated the action and computer-generated trading was still in its infancy. Dark pools and high-frequency trading were the stuff of science fiction. Trading reached 600 million shares, according to the SEC.
Fast forward to May 6, 2010: The worst part of the lightning descent lasted roughly 10 minutes and the decline hit 9.8% at its worst. Trades, many executed in milliseconds, reached 19 billion shares. In both cases, troubles first appeared in the stock futures market, which precipitated a decline in the regular "cash" market. The two created a feedback loop, dragging both markets lower. Perhaps the most concerning parallel was how professionals abandoned the market. In 1987, some human market-makers on the floor of the exchange stopped providing bids for certain stocks.
Two decades later, in a market dominated by technology, high-speed traders who often provide liquidity for the market, just switched off their computers. Other big players, including fast-trading hedge funds, also pulled out of the market, according to traders and exchange officials.
"Go back to the 1987 crash, every major firm pulled out," said Chris Concannon, a senior partner at Virtu Financial LLC, a New York electronic market making firm, which continued trading during the May 6 turmoil. "In every break you find evidence of major firms withdrawing their buying and selling interest from the market." (2)
The Financial Times on June 1st wrote:
Traders were stunned. “We thought a big European bank was about to go under, that this was it,” says a dealer who was on one of the big trading floors at the time. “Everyone got on the phone. Then, traders quickly realised that the falls were due to lots of automated sell orders. At that point we all just wanted to reach for the emergency button and press stop.” While there have been times in equity markets where some stocks have moved wildly, the afternoon that has become known as the “flash crash” was the first time that the entire US equity market was convulsed by such turmoil. But 20 minutes later prices had bounced back. Trades that took place during that dramatic slice of the hour where the movement was more than 60 per cent were cancelled. Yet the impact of the flash crash will be felt for a long time to come, not least because it showed that the equity markets do not have such an emergency button, or any way to halt trading when something goes haywire. (3)
MESSAGES OF THE FLASH CRASH:
Liquidity Driver
Dynamic Hedging and Portfolio Insurance are both based on trend following mechanics. Consequentially both have a strong bias towards momentum correlation and the ability to adjust to changes in momentum.
One of three flaws in most mathematical algorithms is the assumption of market liquidity. When markets breakdown, liquidity quickly evaporates and this often makes execution impossible. The more serious the breakdown the more serious the liquidity problem will become. Also, the liquidity issue is often simultaneously seen across multiple markets where modern dynamic hedging operates.
The Flash Crash confirmed that Dynamic Hedging has now been modified by major players to take this into account and this is why the algorithms ‘grabbed’ as much liquidity as fast as it could, at accelerating rates - while liquidity was still available. The employment of High Frequency Trading has now emerged as a strategic imperative within state-of-the-art Dynamic Hedging Systems.
Counter Party Risk Driver
A second flaw of trading algorithms and markets is counter party risk or the sudden failure of a counterparty to deliver a contracted obligation. With banks & financial institutions still having serious amounts of off balance sheet risk tied to Structured Investment Vehicles (SIVs) and corporations to Special Purpose Entities (SPEs) the ability to rapidly shift hedging on any early indications is now paramount.
Shifts in LIBOR, TED Spread, and OIS-Swap spread must now be acted upon in milliseconds. The Flash Crash occurred when all these input drivers were moving as a result of the Euro crisis.
Sovereign Debt
Changes in Sovereign Debt Ratings have a profound impact on collateral calls associated with the $430 Trillion Interest Rate Swap market. Collateral Calls are typically tied to Credit Ratings, LIBOR, Spreads and Asset Values. Hedge positions on Trillion Dollar portfolios must now be repositioned in minutes versus days or even hours while high volume liquidity and price is available.
Instability
A third flaw of trading algorithms is their assumption of ‘continuity’ or continuously operating markets. Instability of any system can lead to compounding results or exponential change until the function reaches a point of discontinuity. The Flash Crash was the most severe of a number of market moves lately that evidenced higher amplitudes, shorter frequencies and steeper rates of change which are signs of instability in the market.
As much as the market became fixated on the Flash Crash, what has received little attention are the dramatic “Flash Dashes” where markets on close for example are seeing 20 handles on the S&P. For long term traders these are worrying tell tales. To others they are evidence of accelerating and compounding Dynamic Hedging issue.
“The real shocker is that it was nothing nefarious that caused the crash,” says David Weild, senior adviser to Grant Thornton and former vice-chairman at Nasdaq. “It was acceptable investor behaviour – people trying to put on hedge transactions,” he believes. “The market had a mini-meltdown in an instance when it appears no one was intentionally trying to manipulate the market. It’s disturbing that it does not take a lot to cause these markets to cascade.” (3)
The flash crash confirmed the suspicions of those investors and regulators who had long worried that complicated trading systems, fragmented trading across some 40 different venues, and the enthusiastic embrace of super-fast trading with computers spitting out thousands of buy and sell orders in microseconds, could threaten disaster.
Indeed, the flash crash taps into a debate that has been simmering for years between those who see benefits created by the rapid advance of technology – by lowering barriers to entry for new participants and boosting liquidity for investors who wish to trade – and those who fear it has introduced unknown risks into the system.
The events of May 6 revealed that while getting rid of old-style “specialist” market makers has reduced the cost of trading by narrowing bid-ask spreads, the benefit has come at a cost. Now, no one has an obligation to provide prices for all shares all the time during a trading day, as trading has fragmented across an array of electronic trading venues and traders. The moment the markets grow too risky, many new electronic market makers appear only too willing to head for the exit. (3)
CATALYST
It is readily apparent that present day markets have built across-market dynamic hedging machinery with a hair trigger. This trigger is designed to launch unimaginable trading volumes in less than 250 microseconds, across global exchanges, operating under different & still uncoordinated rules. The activation could be any number of events but my sense is it will stem from the dramatic contraction in money supply. Despite massive central bank actions, money supply as measured by MZM, M1, M2 is still de-accelerating and in the case of the difficult to obtain M3, is contracting. All of which is presently going unheralded by the mainline media.
When a highly leveraged system is built on the basis of liquidity and liquidity is shrinking, it is only a matter of time.
CONCLUSIONS
Flash Crashes and Dashes will become more apparent. By their very nature they are de-stabilizing. When certain natural frequency boundary conditions are broken the markets will eventual seize up, despite all circuit breakers and attempts by authorities to stabilize markets. These boundary conditions are not presently understood nor seen to exist. For practitioners of Chaos Theory they are a basic tenet to understanding any phase shift.
We are nearing a ‘phase shift’ in what I will refer to as the energy level of the markets. Elliott Wave practitioners would refer to it as a ‘higher degree pivot’. W D Gann practitioners would call it a Gann Cardinal. Economists call it a “Tipping Point”. I call it a ‘Critical Point’ or ‘Chaotic Transient’.
A trader would just call it a market melt-down or melt-up! Few alive have ever witnessed either.
For further insight I would refer you to my previous article: EXTEND & PRETEND - Manufacturing a Minsky Melt-Up
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SOURCES:
(1) 05-18-10 Financial markets regulation: The tipping point VOX
(2) 05-17-10 How the 'Flash Crash' Echoed Black Monday WSJ
(3) 06-01-10 Stock markets: That sinking feeling Financial Times
REFERENCES
Caplan, Keith, Robert P Cohen, Jimmie Lenz, and Christopher Pullano (2009), “Dark Pools of Liquidity”, PriceWaterHouseCoopers, Alternatives Newsletter.
Gorham, Michael, and Nidhi Singh (2009), Electronic Exchanges: The Global Transformation from Pits to Bits, Elsevier.
Krause, Reinhardt (2008), “Dark Pools Let Big Institutions Trade Quietly”, Investor's Business Daily.
Patterson, Scott, Kara Scannell and Geoffrey Rogow (2009), “Ban on Flash Orders Is Considered by SEC: Schapiro Sees Inequity While Exchanges Wrestle for Market Share in High-Speed Trading”, The Wall Street Journal, 5 August.
Schlegel, Kip (1993), “Crime in the Pits: The Regulation of Futures Trading, American Academy of Political and Social Science
Securities and Exchange Commission (2009a), “SEC Issues Proposals to Shed Greater Light on Dark Pools”, October 21.
Securities and Exchange Commission (2009b), “Strengthening the Regulation of Dark Pools”, SEC Open Meeting, October 21.
Younglai, Rachelle and Jonathan Spicer (2009), “US SEC says "dark pools" are emerging risk to market”, Reuters, 18 June.
You are RIGHT ON- BP News of Interest
Years of Internal BP Probes Warned That Neglect Could Lead to Accidents
by Abrahm Lustgarten and Ryan Knutson, ProPublica - June 7, 2010
http://www.propublica.org/feature/years-of-internal-bp-probes-warned-that-neglect-could-lead-to-accidents
Internal investigations warned BP for years that the company had created a culture of disregard for safety and environmental rules and risked a serious accident if it did not change its ways. While the investigations focus on BP's Alaska operations, the lessons apply to the Gulf as well.
Read the story.
• Document: 2007 BP Commissioned Study on Safety Culture
• Document: 2001 BP Operational Integrity Report
Bruins had a rough patch...OUT! Watch AIA/AIG
Employee flight? as "deal" collapses..NOTHING TO SEE
Oh, and the daily recall news on Chrysler, GM and other automakers is a FRACTION of the problems. Guess what, GM share sale could be an AIG moment...
Prudential managers defend Asia bid amid shareholder anger
4:09pm Tuesday 8th June 2010
http://www.thenorthernecho.co.uk/business/8207765.Prudential_managers_defend_Asia_bid_amid_shareholder_anger/
PRUDENTIAL’S bosses yesterday faced down calls to resign over the collapse of the firm’s Asian expansion plans.Several shareholders at the annual meeting said the board should pay the price of failure after its $35.5bn (£24.5bn) bid for Asian insurer AIA foundered last week. But chairman Harvey Mc- Grath said the board had confidence in the management of the company, although he apologised to shareholders for the “discomfort and worry” caused by the failed bid. The company was left with a £450m bill from the collapse of the venture, but chief executive Tidjane Thiam, who masterminded the failed bid, and Mr McGrath, have claimed they have the support of major shareholders.
A trading update published before the meeting boosted their fight for survival after it emerged that group-wide sales rose 27 per cent in the first five months of the year to £1.35bn. The performance failed to placate a section of private shareholders, some of whom called on the bosses to resign. Investor Anthony Watts fumed over the high price struck for the deal, which foundered when US parent AIG refused to renegotiate the deal, and said the board had failed to do its job properly. He added: “You’re a disgrace, a disgrace. You and the board made the judgement call, and got it wrong. It has been a shambles – you and the board should do the honourable thing.”
Fellow shareholder Tom Heath accused the firm of arrogance, while shareholder John Farmer said management had been irretrievably tainted by the failure. Mr Thiam, who has been chief executive for less than a year, admitted that some of his actions had put “significant strain” on relationships with shareholders and pledged to “begin the process of restoring your confidence”.
Mr McGrath said: “We believe that AIA would have accelerated growth, but we have no doubt that we will find growth without it.” Many shareholders also spoke up for the insurer’s strategy and one called on Mr Thiam to fight on. The chairman said the Pru would look to improve communications with shareholders and added: “One of the lessons we have learned is that large cross-border acquisitions in financial services are going to be very difficult.”
The AIA deal was announced in March but, alongside the price worries, the timetable for the rights issue was delayed when the Financial Services Authority raised concerns over the capital position of the enlarged group.
The biggest rebellion at the meeting came after nearly a third of shares voted – 31.6 per cent – were against renewing the Pru’s authority to create new shares for rights issues.
This represented a warning from major investors, as the original deal involved a UK record £14.5bn rights issue to finance the deal by selling newly-created stock to existing shareholders.
BMO & Machines IGNORE HeliBen-As should you...
BMO Has A Simple Message To Its Clients: Go To Cash Now
Submitted by Tyler Durden on 06/08/2010 08:38 -0500
www.zerohedge.com
In a surprising development, the most bearish, and easily most comprehensive, report that we have read in a long time comes from Canada, of all places, via BMO's Quant/Tech desk. The report's title is simple enough: Go To Cash - In Plain English. Not much clarification needed. Here is the gist: "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital...We advocate a zero weight toward equity, and that investors convert their equity positions to cash."
Fed's Fisher says WH WRONG- Unprecedented
(They get beat into submission in voting meeting)
:>} Can't cut rates any more?? Shaving Cream! Be Nice and Clean!
Richard Fisher, Senior Fed Official: White House Is Dead Wrong
http://www.huffingtonpost.com/simon-johnson/richard-fisher-senior-fed_b_602386.html
Richard Fisher, president of the Dallas Fed, has long been a proponent of serious financial sector reform. As a former commercial banker, he sees quite clearly that the legislation now headed into "reconciliation" between House and Senate versions amounts to very little. He also knows that pounding away repeatedly on this theme is the best way to influence his colleagues within the Fed and across the policy community more broadly.
He is now taking his game to a new, higher level. Couched in the diplomatic language of senior officials, his speech on June 3 to the SW Graduate School of Banking was both a carefully calibrated assault on the administration's general "softly, softly" approach to the big banks and a direct refutation of arguments put forward by Larry Summers in particular.
As the title of Mr. Fisher's speech implies, if the legislation is not real financial reform (and it is not, according to him), then our current policy trajectory amounts to facilitating further rounds of financial dementia.
As a statement of our true problems -- dismissing the red herrings and focusing on the core issues -- Mr. Fisher's speech is a succinct classic. Cutting to the chase:
"Regulators have, for the most part, tiptoed around these larger institutions [big banks]. Despite the damage they did, failing big banks were allowed to lumber on, with government support. It should come as no surprise that the industry is unfortunately evolving toward larger and larger bank size with financial resources concentrated in fewer and fewer hands."
This is most definitely not a market outcome.
"Based on these considerations, coupled with studies suggesting severe limits to economies of scale in banking, it seems that mostly as a result of public policy -- and not the competitive marketplace -- ever larger banks have come to dominate the financial landscape. And, absent fundamental reform, they will continue to do so. As a result of public policy, big banks have become indestructible. And as a result of public policy, the industrial organization of banking is slanted toward bigness."
This is an unfair, nontransparent, and dangerous taxpayer subsidy at work.[color=red][/color]
"Big banks that took on high risks and generated unsustainable losses received a public benefit: TBTF ["too big to fail"] support. As a result, more conservative banks were denied the market share that would have been theirs if mismanaged big banks had been allowed to go out of business. In essence, conservative banks faced publicly backed competition."
Mr. Fisher is agreeing with arguments sometimes heard from the left of the political spectrum, but he is most definitely coming at this more from what is traditionally -- and accurately -- regarded as the right (like Gene Fama of Chicago or Tom Hoenig of the Kansas City Fed).
"It is my view that, by propping up deeply troubled big banks, authorities have eroded market discipline in the financial system."
In this context, attempts to regulate big banks more effectively will fail because the underlying political economy dynamic (i.e., how the creditors understand government policy towards big banks) encourages excessive risk-taking and greater leverage one way or another.
"The system has become slanted not only toward bigness but also high risk. Consider regulators' efforts to impose capital requirements on big banks. Clearly, if the central bank and regulators view any losses to big bank creditors as systemically disruptive, big bank debt will effectively reign on high in the capital structure. Big banks would love leverage even more, making regulatory attempts to mandate lower leverage in boom times all the more difficult. In this manner, high risk taking by big banks has been rewarded, and conservatism at smaller institutions has been penalized. Indeed, large banks have been so bold as to claim that the complex constructs used to avoid capital requirements are just an example of the free market's invisible hand at work. Left unmentioned is the fact that the banking market is not at all free when big banks are not free to fail."
Add to this the deference of the US Treasury to the international negotiations on capital requirements, and the manifest problems of the G20 in this regard -- held to the lowest common denominator again over the weekend (i.e., no mention of capital requirements or other substantive re-regulation in the communiqué). Fisher's assessment is right on target: relying on regulation alone is unwise and most definitely the triumph of hope over experience.
"Regulatory reform discussions portray the need to control systemic risk as a new game in town -- as if it were a new responsibility that need only be assigned. This is not the case: Bank regulators have long viewed the containment of systemic risk as a primary rationale for capital requirements. The problem is that capital regulation has rarely been truly successful."
"'... While we do not have many examples of effective regulation of large, complex banks operating in competitive markets, we have numerous examples of regulatory failure with large, complex banks. "
And just saying, "let 'em fail", is also quite unrealistic as policy for megabanks -- because this has been proven, time and again, not to be "time consistent", i.e., you can promise to do this all you want, but:
"We know from intuition and experience that any financial institution deemed TBTF will not be allowed to fail in the traditional sense. When such an institution becomes troubled, its creditors are protected in the name of market stability. The TBTF problem is exacerbated if the central bank and regulators view wiping out big bank shareholders as too disruptive, extending this measure of protection to ordinary equity holders."
"... Even a combination of enhanced regulation and resolution would likely be inadequate. The temptation to use regulatory discretion to avoid disruptions is just too great."
But Mr. Fisher is most devastating when it takes on the arguments developed by Larry Summers (and used by many Senators) against imposing binding size caps on the largest banks.
Larry Summers, you may recall, argued that "most observers" agree that breaking up big banks would actually make the financial system more risky. It turns out that "most observers" are actually just a few commentators -- with what Fisher assesses as "hollow" arguments. For example, on the idea that smaller banks would all copy each other and follow identical high-risk strategies,
"... going by what we see today, there is considerable diversity in strategy and performance among banks that are not TBTF. Looking at commercial banks with assets under $10 billion, over 200 failed in the past few years, and as we have seen, failures in the hundreds make the news. Less appreciated, though, is the fact that while 200 banks failed, some 7,000 community banks did not. Banks that are not TBTF appear to have succumbed less to the herd-like mentality that brought their larger peers to their knees."
And reference to the banking problems of the 1930s is simply not relevant.
"Such a liquidity crisis among small banks would be unlikely today, as we now have federal deposit insurance, which protects deposits for funding. And, I might add, the Federal Reserve has demonstrated quite effectively over the past two years that we not only have the capacity to deal with liquidity disruptions but also the ability to unwind emergency liquidity facilities when they are no longer needed."
Overall, Fisher is blunt.
"...sufficient or not, ending the existence of TBTF institutions is certainly a necessary part of any regulatory reform effort that could succeed in creating a stable financial system. It is the most sound response of all. The dangers posed by institutions deemed TBTF far exceed any purported benefits. Their existence creates incentives that will eventually undermine financial stability. If we are to neutralize the problem, we must force these institutions to reduce their size."
This is most definitely not a retreat to some financial stone age.
"A globalized, interconnected marketplace needs large financial institutions. What it does not need, in my view, are a few gargantuan institutions capable of bringing down the very system they claim to serve."
And, he points out, if his fellow regulators could only think clearly about this issue, there is hope.
"...the financial regulatory reform bill has left regulators (specifically, the Board of Governors and the Federal Deposit Insurance Corp.) with the authority to impose greater restrictions on firms whose living wills are not credible. That authority, as I mentioned previously, could include "[divesting] certain assets or operations ... to facilitate an orderly resolution." I would argue that regulators should freely use this broad authority to commit credibly to resolution with creditor losses by reducing big banks' size and interconnectedness."
Sadly, the indications are that too few officials are likely to agree with Mr. Fisher any time soon.
Canny, Go Get a Burger and Beer! Seriously..
LUV YA, but even the machines will not buy what is coming. Refinance (if you can, swap out a car, do what you can to deleverage, or just sit on the sidelines and watch unless you can trade like the Gods Lee and CR.
Go Celts!!
Nice Post,F- Enjoy your input,Keep Safe
(you're smart, see what Volcker says...) (A PLEA- IGNORED)
I think we are going a lot lower FWIW since there is ZERO real economic growth in the US and EU with the latter about to collapse, as I have warned. There is a high level pressure on international fronts generated with the desire to collapse the economy and Bernie Madoff even called it from prison: "F**K my victims!"
So that's stark like the Goldman response to victims. Frankly, people used to believe their governments but have been lied to too many times-- guess what happens next? People go local, build local communities, grow their own food, defend themselves, and withdraw by boycotting BP, Coke, GS, BofA, JPM, and other payday lenders.
When the attack on Iran occurs, the whole system shuts down IMHO. Back to island life...
‘The Time We Have Is Growing Short’
June 24, 2010
by Paul Volcker
http://www.nybooks.com/articles/archives/2010/jun/24/time-we-have-growing-short/?pagination=false
Kevin Lamarque/Reuters
Paul Volcker, chairman of the Economic Recovery Advisory Board, at a meeting with President Obama at the White House, March 13, 2009
Some five years ago, at a conference of the Stanford Institute for Economic Policy Research, I lamented that “the growing imbalances, disequilibria, risks” were giving rise to “circumstances as dangerous and intractable” as any I could recall—intractable not just because of the combination of complicated issues, but because there seemed to be “so little willingness or capacity to do much about it.”
Part of the story is familiar. In the United States, savings practically disappeared as consumption rose far above past relationships to national production. That consumption was satisfied by rapidly growing imports from China and elsewhere in Asia at remarkably cheap prices, helping to keep inflation well subdued. The resulting seemingly inexorable increase in our current account deficit was easily financed by an equally large flow of short-term funds from abroad at exceptionally low interest rates. In fact, money was so easily available that it supported what became a bubble in housing, with rising home prices reinforcing a sense of prosperity and high consumption.
It was not so much that the imbalances were hidden or unknown. In particular, the Chinese surpluses and American deficits were widely thought to be unsustainable. But for the time being, the world economy was growing strongly. China in particular was mainly interested in developing its industry by encouraging exports, and the United States was not prepared to balance its national budget or to restrain the consumption and housing boom.
At the time, I suggested that the most likely result would not be well- thought-out and complementary policy actions. Rather, sooner or later, the necessary changes would be forced by a financial crisis.
I certainly did not anticipate the nature of the crisis that eventually ensued, its complexity, its force, or its impact right across the industrialized world. Subprime mortgages, credit default swaps, CDOs—squared, tranched, or otherwise—were not part of my world. Nor, I can add, had I ever imagined that the financial markets over those frightening weeks in the fall of 2008 would virtually freeze up. The sense of mutual trust upon which operating financial markets depend was lost.
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Now we know that trillions of dollars of official funds came to the rescue of the broken system in the form of loans, capital, and guarantees. Flows of finance have been restored, albeit with large areas of continuing public support. The residential mortgage market in the United States—by far the largest sector of our capital market for the time being—remains almost wholly a ward of the government. Now, another range of uncertainty has arisen. Sovereign credits have come into question, most pointedly in the Eurozone but potentially of concern among some of our own states.
Any thoughts—any longings—that participants in the financial community might have had that conditions were returning to normal (implicitly promising the return of high compensation) should by now be shattered. We are left with some very large questions: questions of understanding what happened, questions of what to do about it, and ultimately, questions of political possibilities. The way those questions are answered will determine whether, in the end, the financial crisis has, in fact, forced the changes in thinking and in policies needed to restore a well-functioning financial system and better-balanced growing economies.
The Stanford Institute prize announcement sets out a simple proposition I suspect we all would support: “Economics is fundamentally about efficiently allocating resources so as to maximize the welfare of individuals.” I think it is fair to say that for some time the dominant approach of economic theorizing, increasingly reflected in public policy, has been that free and open financial markets, supported by advances in electronic technology and by sophisticated financial engineering, would most effectively support both market efficiency and stability. Without heavily intrusive regulation, investable funds would flow to the most profitable and productive uses. The inherent risks of making loans and extending credits would be diffused and reallocated among those best able and willing to bear them.
It is an attractive thesis, attractive not only in concept but for those participating in its seeming ability to generate enormous financial rewards. Our best business schools developed and taught ever more complicated models. A large share of the nation’s best young talent was attracted to finance. However, even when developments seemed most benign, there were warning signs.
Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations? Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?
There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.
The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.
One basic flaw running through much of the recent financial innovation is that thinking embedded in mathematics and physics could be directly adapted to markets. A search for repetitive patterns of behavior and computations of normal distribution curves are a big part of the physical sciences. However, financial markets are not driven by changes in natural forces but by human phenomena, with all their implications for herd behavior, for wide swings in emotion, and for political intervention and uncertainties.
Important questions about the governance of businesses and the relationships between principals and their agents are being reexamined. Most obviously and appropriately, the role of regulation and supervision, their necessity, their methods, and their difficulties are being reconsidered.
Virtually all developed economies have long had official institutions responsible for regulating their banking systems. To a lesser extent, there has been oversight of financial markets and nonbank financial institutions. In the United States, there has been a particularly complicated and intrusive institutional structure. But as a broad generalization, these existing structures, in all their variety, largely failed to prevent cascading financial failures, with severe economic damage.
One response has been a broad international effort to review capital requirements, leverage restraints, and liquidity practices, extending even beyond the traditional area of commercial banking. These are matters that by and large are within the existing competences of national regulatory authorities. Over the past two years, there has been much useful analysis and large areas of conceptual agreement. But even with that concentrated effort, it has been difficult to reach operational consensus.
The fact is that the exercise of effective regulatory and supervisory authority is always difficult on a national level, and those difficulties are multiplied when dozens of countries are involved. There are large political constraints and industry pressure. Consider the ten-year effort by the G10’s Basel Committee on Banking Supervision to coordinate capital requirements—completed just in time to be largely rendered moot by the financial crisis.
To me, the lesson is clear. There are deep-seated structural issues that must be dealt with by legislation. Moreover, there should be common elements among nations hosting significant international financial markets and institutions. As this is written, the US Senate has passed one fairly comprehensive legislative approach. There are some parts of that bill that I would prefer to see changed, redrafted, or eliminated in the negotiations to reconcile it with the House bill during the coming weeks. This is particularly true in clarifying the limits on proprietary activity of commercial banks, including trading in derivatives. However, I do think that taken as a whole the bill does incorporate basic approaches that can and should be part of our international consensus.
The central issue with which we have been grappling is the doctrine of “too big to fail.” Its corollary is so-called moral hazard: the sense that an institution—its creditors, its management, even its stockholders—will be inclined to tolerate highly aggressive risk in the expectation that it will be rescued from possible failure by official financial support.
That is not a new concern. Commercial banks in the ordinary course of their business have deposit insurance and access to Federal Reserve credit in times of stress. In practice, creditors of the largest banking institutions have been protected. The quid pro quo has been extensive regulation to limit risk. The underlying assumption has been, quite correctly in my view, that these banking institutions perform absolutely critical functions in our economy. They manage the payment systems, nationally and internationally. They provide safe and liquid facilities for depositing money. They are an indispensable source of credit to most businesses.
Now, the situation has been changed. A vast “shadow banking system” has emerged alongside, and is importantly dependent upon, traditional commercial banks. Investment banks have become financial trading machines. Hedge and private equity funds are active, operating in large part on borrowed funds. Financial affiliates of some industrial firms have expanded into the capital markets to the extent, in a few cases, that the risks have jeopardized the entire company. Derivatives, including credit default swaps hardly known a decade ago, have become speculative vehicles, exceeding their use as hedging instruments. Fragmented regulation and supervision, if present at all, have been weak.
To a substantial extent, it was those “nonbanks” that were at the epicenter of the crisis. Contrary to well-established central bank practices and with active government support, many of those same institutions received extensive assistance to remain viable.
Dealing with this great extension of moral hazard has become the largest challenge for financial reform. Central to that effort in thinking both in the United States and in Europe has been the creation of a new “resolution authority” that could supersede conventional bankruptcy procedures when the potential failure of a “systemically important” financial institution threatens to undermine the stability of the financial system.
Essentially, an official agency following established procedural safeguards (in the US presumably the FDIC) could seize control of the failing institution, deal with its immediate obligations to maintain continuity in the market, but then promptly arrange for an orderly liquidation: stockholders and management would be gone, and creditors placed at risk, as in a normal bankruptcy. Ideally the path toward liquidation (including the sale of parts of the company) would be eased by setting out a “living will”—dissolution priorities prepared by large nonbank institutions and reviewed by their supervisors. Put simply, the concept is to prepare for a dignified burial—not intensive care with hopes for recovery.
The largest nonbank institutions would also be subject to supervision with respect to their capital, leverage, and liquidity—matters that, according to the Senate bill, would be overseen by the Federal Reserve. The intent is to permit the nonbanks to compete, to innovate, to actively trade, and to make profits free of highly detailed intrusive regulation. They should also be free to fail.
Put simply, there would continue to be a federal safety net implicitly subsidizing strongly regulated commercial banks, as has been the practice for decades, even for centuries—here and abroad. Other institutions, and their creditors, should not expect official protection. The clear possibility of failure without a “bailout” will be reflected in lower credit ratings, in higher financing costs, and in market-imposed restraints.
The logic of that approach is embedded in the Senate bill. Commercial banking would implicitly be supported in its wide range of relations with businesses and other customers. Proprietary trading, hedge funds, and other potentially profitable but risky activities not related to their essential responsibilities should clearly be prohibited for banks. The essential logic is that the taxpayers need not, and should not, be called upon to support essentially speculative activities within the protected, implicitly subsidized financial sector.
There are other key elements in the Senate bill. Importantly, there is a strong effort to force trading, clearance, and settlement of derivatives into organized exchanges and clearinghouses. New responsibilities for coherent oversight of the entire financial system are set out. Regulatory authorities are clarified. In all these areas, a high degree of international cooperation is necessary. My hope is that the legislative initiative underway will provide a solid foundation for strong American leadership in that effort.
None of these reforms will assure crisis-free financial markets in the years ahead. The point is to keep the inevitable excesses and points of strain manageable, to reduce their scale and frequency, and in the process more effectively contribute to the efficient allocation of our financial resources.
As we well know, the critical policy issues we face go way beyond the technicalities of law and regulation of financial markets. There is growing awareness of historically large and persistent fiscal deficits in a number of well-developed economies. The risks associated with the virtually unprecedented levels of public debts as we emerge from recessions are evident. In California, as in my own state of New York, it’s not a matter of intellectual awareness but of practical confrontation.
If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look to the struggle to maintain the common European currency, to rebalance the European economy, and to sustain the political cohesion of Europe. Amounts approaching a trillion dollars have been marshaled from national and international resources to deal with those challenges. Financing can buy time, but not indefinite time. The underlying hard fiscal and economic adjustments are necessary.
As we look to that European experience, let’s consider our own situation. We are not a small country highly vulnerable to speculative attack. In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs. Looking only a little further ahead, there are even larger questions of critical importance for those of less advanced age than I. The need to achieve a consensus for effective action against global warming, for energy independence, and for protecting the environment is not going to go away. Are we really prepared to meet those problems, and the related fiscal implications? If not, today’s concerns may soon become tomorrow’s existential crises.
I referred at the start of these remarks to my sense five years ago of intractable problems, resisting solutions. Little has happened to allay my concerns. But, of course, it is not true that our economic problems are intractable beyond our ability to react, to make the necessary adjustments to more fully realize the enormous potential for improving our well-being. Permit me a note of optimism.
A few days ago, I spent a little time in Ireland. It’s a small country, with few resources and, to put it mildly, a troubled history. In the last twenty years, it took a great leap forward, escaping from its economic lethargy and its internal conflicts. Responding to the potential of free and open markets and the stable European currency, standards of living have bounded higher, close to the general European level. Instead of emigration, there has been an influx of workers from abroad.
But now Ireland has been caught up in its own speculative excesses and financial deficits, culminating in a sharp economic decline. There is a lot of grumbling, about banks in particular. But I came away with another impression. The people I spoke to had an understanding that the boom had gotten out of hand. There seems to me a determination to do something about the situation, reflected not just in the words of the political leaders but in support for action among the public. And there is a sense of what is at stake, that the gains they made in recent years have been placed in jeopardy. The urgent need to get back on a sustainable budgetary and economic track is well understood.
I hope my quick impressions of Irish attitudes and policies will be borne out and that that small country will not be caught up by a European crisis beyond its control. In the United States, we don’t seem to me to share the same sense of urgency. We view ourselves as a huge and relatively self-sufficient country, in control of our own destiny. We have time to sort out our priorities, to decide what to do, and to do it. There are elements of truth in those propositions, but the time we have is growing short.
Restoring our fiscal position, dealing with Social Security and health care obligations in a responsible way, sorting out a reasonable approach toward limiting carbon omissions, and producing domestic energy without unacceptable environmental risks all take time. We’d better get started. That will require a greater sense of common purpose and political consensus than has been evident in Washington or the country at large.
—May 25, 2010
Burgers and Beers: In SDS XXX $34.10
Stocks jump after China shows confidence in Europe HA HA
Stephen Bernard and Tim Paradis, AP Business Writers, On Thursday May 27, 2010,
Stocks surged Thursday after China reassured investors it doesn't plan to sell any of the European debt it holds. The Dow Jones industrial average rose about 150 points in morning trading, while Treasury prices tumbled as traders pumped money into stocks. China's confidence in Europe overshadowed disappointing reports about the U.S. economy. The Labor Department said initial claims for unemployment benefits fell last week, but not by as much as economists had forecast. A report on gross domestic product indicated that the U.S. economy did not grow as fast in the first quarter as previously thought.
FA, get clear, would ya? Get SDRs, LOL
Goldman's Jim "BRIC" O'Neill Now Openly Taunting Market Skeptics
Jim O'Neill "Anyhow, dear grizzlies....bet your [sic] worried about today’s rally? See u later." Not sure this type of smugness by god's firm should be surprising, or even deserve to be pointed out, but we just wanted to store this for posterity, as we are confident we will return to this quote on many occasions in the future.
Full comment from the Joseph Cohen's transatlatnic twin.
Anyhow, I am off to sunny northern ( well at least, light) Sweden this pm for a client offsite, and back early next week. Some other thoughts;
1. China-US meetings. It certainly seems a much better tone exists between senior US policymakers and their counterparts in Beijing than earlier in the year. It is especially pleasing to see US policymakers stating that they recognize the signs of a rise in the contribution of Chinese consumption, and that global imbalances are easing. About time it was acknowledged.
2. The world 2010-19. As I mentioned last weekend, and in the piece I wrote in the Global Economics Weekly of 19th May, the China/US economic outlook is simply way more important than all this European stuff. So long as there is no major tightening of US financial conditions as a result of the European turmoil, from a global perspective, if Europe wallows in its own mess, then ……..I took another look at the chart Swarnali Ahmed created for me. We expect China to increase by $ 7 trillion this decade, nearly 2 x its current size, 2 times the change in the US, and equivalent to the change in the US and the other 3 BRICS put together. Not a single Euro area country will be in the top ten contributors.
3. The Euro area mess. It still seems to me there is so much emotional, subjective nonsense flying around. Irrelevant of the considerable challenges within many individual countries, in aggregate, the Euro Area is in modest, current account surplus, and its Broad Basic balance is in surplus too. And, even before the fiscal tightening announced in various Club Med countries in the past couple of weeks, the aggregate fiscal position appears better than the US.
4. Euro area issues. Despite the above, there is clearly a number of major challenges. And now the centre of attention is, now, rightly, Spain. Stopping Greek style financial market turmoil through Spain, and Spain dealing with its Cajas challenge is absolutely key. While calls for a US style stress test applied collectively across the Euro Area strikes me as a bit naïve, one for Spain seems a good idea. And if what our analysts think is true, the Spanish should be quite chilled about this. Javier PerezDeAzpillaga wrote a highly relevant piece on Tuesday on this topic.
5. UK issues. I had a dinner with a number of UK company CEO’s and Chairman last night, primarily retailers. I had dined with a number of them some months ago, and they acknowledged things had turned out better than they had expected back then. Despite that, virtually all of them were pretty negative about the future, worrying about VAT hikes, unemployment, how they might get home, global warming, Manchester City, you name it……….my answer was, we will stick to following the lead and coincident indicators. Couple of other issues. The UK PSBR- fiscal deficit in normal language- was revised down again in latest numbers. It is now £156bn, down from 167, which was down from 178 last December, i.e. 15pct lower than what was forecast just six months ago………amazing what a bit of growth can do for you…( no surprise there, UK –and other –deficits probably not as big as everyone worries about). UK GDP was revised up in latest quarter, continuing a pattern we have bored you about……..
6. Stop press on UK. Just as was about to move on to another topic, the latest CBI Distributive Trades survey shows a less healthy path. Guys from last night’s dinner will love that… See what Ben, Kevin and co have to say about it.
7. OECD forecasts for the world increased this week. Now they do have a tendency to move slowly, but it is quite interesting that a/they still went ahead with these upgrades, and b/ I noticed their China forecast for this year is 11.3pct now…………hurrah someone finally got to our vicinity.
8. SDR, constituents, usage and the Dollar. Mike Buchanan and I have just published a Global Paper on this important topic, exploring what currencies might be in it, as we go through the next decade ( definitely CNY, maybe RUR), and whether the case for suggesting it could and should replace the US$ is half decent or not- answer is, not really.
Anyhow, dear grizzlies…….bet your worried about today’s rally? See u later.
5
A MAJOR Crash is coming soon MO, Get clear and take care.
Tantal, You were right. Guess who will pay for the Gulf disaster?
Three guesses don't count
Culebra is not far enough from the US. Cops in DHS combat gear here in a little island with 1000 people. INSANE!!
On the Edge?
Bruce Krasting's picture
Submitted by Bruce Krasting on 05/26/2010 18:37 -0500
* CRAP
* Swiss National Bank
* Yen
Timmy G. is in Europe urging the financial leaders to, “ Do it Big and do it Fast!”. I think this was typical Dumb Tim. He is setting this up to come to a boiling point ASAP. That is the worst possible outcome. There are no short-term solutions to Europe’s problems. The EU has to buy itself some time to try to make adjustments. We need some cooler heads in charge. Instead "Cowboy Tim" starts shooting off a six-gun. As with most gunplay someone is going to get hurt.
The calendar is working against the Euro. With all that is going on I think positions are already light for the US interbank players. There is always risk for something to happen on a weekend. This weekend is no exception. To add to the problem is the three-day bank holiday. Based on past experience I would expect that the ‘commercials’ are likely to get involved in the market before the weekend begins. In this case I am referring to the hundreds of big time CFOs around the globe who have corporate Euro exposures. Almost all of them have natural long positions in either/or cash, inventory, earnings and profits, inter-company accounts and fixed assets. This crowd has been hearing the “rumor” of a change in Chinese reserve management all afternoon from the FX Corporate desks. They will look to lower risk before the weekend.
Of course there is no truth to the rumor that China is rethinking its holdings. It does not work like that. I would expect that China and many of the other big reserve countries will be reducing their incremental holdings of Euros for some time to come. That is a significant difference from big ticket selling. I am sure that there has been CB selling, there will be more in the future, but not the Chinese. That does not matter. Just the talk is going to keep the money moving.
NY equities were just a puke-out. That close is going to roll to Asia and later Europe. A bad day for Euro equities is going to put more visible pressure on the Euro against all crosses. It does not matter if this is logical or not. It just works that way.
If you measure sentiment by the talking heads, the markets are positioned for a “predictable” bounce off recent low levels. A 10-12% correction often brings that result. But we don’t have Europe blowing up very often either.
We took out the 110 level on the E/Yen today. I bet we will hear some silly statement tonight from a Japanese finance official, “A strong Yen is not desirable, MITI is monitoring market closely”. This crap talk will not work. But I doubt the Japanese will intervene.
We are playing with E/$1.2150 as Asia opens. There is a big black hole of uncertainty if we go under 1.21. I can’t imagine that we will not see this test soon.
The E/CHF is back to 1.4160. There was an explosion of trading a week ago in this cross. I maintain that the Swiss National Bank intervened very aggressively when the exchange rate fell to 1.4000. As with the $/E rate there is nothing blow 1.40. We have never seen that. Therefore by definition that is a high stress situation. Markets being markets I think it will have to go back to that 1.40 level just to see if the SNB is still around.
If the Swiss are not there, get a parachute.
4.666665
Okay- Here Comes the 40% haircut- this month
1) VAT tax, Rising property tax. home tax, carbon tax, Climate tax
2) Health insurance FORCED Purchase (what ever happened to "willing buyers"
3) Soaring 10 year yields, not borrowing window from China
4) Sharp dollar devaluation as yuan released, hyperinflation in 2011
5) Elimination of Medicare benefits w/o pre-approval
6) Cap and Tax Rules that force you to register your house with the EPA!!
7) Monitoring of everything you do, Biometric scanning at airports, churches, courts, schools (your heat signature!) and RFID chipping for everything (check your credit cards)
Good Luck, and Good Bye
That was Wednesday, The Joke's on us April Fools today!
Titanium Metals: The Trend Continues Up (TIE)
http://www.foxbusiness.com/story/markets/industries/industrials/titanium-metals-trend-continues-tie-2115010548/
Mar 31, 2010 (SmarTrend(R) Spotlight via COMTEX) ----SmarTrend identified an Uptrend for Titanium Metals (NYSE:TIE) on March 03, 2010 at $12.95. In approximately 4 weeks, Titanium Metals has returned 30.1% as of today's recent price of $16.85.
Titanium Metals is currently above its 50-day moving average of $12.96 and above its 200-day moving average of $10.51. Look for these moving averages to climb to confirm the company's upward momentum.
SmarTrend will continue to scan these moving averages and a number of other proprietary indicators for any shifts in the trajectory of Titanium Metals shares.
BOT XXXX TZA $6.94 (adding to similar position at $7.88)
Okay, I agree the move is over, Lee. Sunday night Sox ? Not too popular with the vendors, I hear...Better get some pitching :>)
Trade War with China, our biggest enabler not enough for you?
No more jobs coming back to US:
Chen, who has studied at Harvard University, said he didn't understand what the United States was attempting to achieve by threatening China with tariffs. "You're not going to get 1.3 billion Chinese to change by insulting them," he said. "Could it be related to upcoming elections? I don't know. Because economically, it makes no sense." Chen said if the U.S. actions were geared toward decreasing America's trade imbalance by limiting imports, it wouldn't work. Perhaps imports from China would decrease, but that wouldn't mean that Americans would start producing goods such as telephones and televisions again. "That production isn't going to return to America, that's just not practical," he said. "Globalization has changed all that."
How corrupt is it that we are mandated to BUY insurance from companies who consider insurance coverage as "loss ratios" and now have the IRS to enforce these ripoffs as their collection agents. Thank Sen. Chuck Grassley for "enlarging the pool"...to drown us in with 10-20% of YOUR INCOME skimmed off the top for these companies. Who bothers to enforce the century old Interstate Commerce Clause? NO MANDATED PURCHASES!
And China Will Demand US Advanced Technology-COCOM Violation
US WILL DECLARE China a Currency Manipulator on 16 April 2010 and there will be a trade war declared by China unless we give them our most advanced technology. And China demands we GIVE them our most advanced products IN VIOLATION OF COCOM Export Controls! ..JUST SAY NO!
China's commerce minister warned the United States on Sunday that if it launches a "trade war" against China by levying punitive tariffs on Chinese imports, the United States will suffer the most.
http://www.washingtonpost.com/wp-dyn/content/article/2010/03/21/AR2010032101111.html
Chen Deming also said the U.S. government's "obsession" with China's exchange rate could not be seriously addressed until it stopped blocking the export of high-tech products, such as supercomputers and satellites, to China.
China to lose ally against US trade hawks
By James Politi in Washington and Patti Waldmeir in Shanghai
Published: March 21 2010 19:28
http://www.ft.com/cms/s/0/97b29e4e-351c-11df-9cfb-00144feabdc0.html
The US business community can no longer resist political pressure for Washington to take a tougher stand against China on trade issues, according to a senior figure from the US Chamber of Commerce. Myron Brilliant, senior vice-president for international affairs, who has previously helped to protect Beijing from hawkish trade policies, told the Financial Times: “I don’t think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill].”
At Treasury discussions off line, officials stated internally that the yuan was manipulated, with nothing done, and US jobs exported overseas. Now we will have someone to blame for the recession- thanks Mr. Chen.
No,US Declares China a Currency Manipulator-16April
THAT'S IMPORTANT...How will your team respond? Got Gold?
China to lose ally against US trade hawks
By James Politi in Washington and Patti Waldmeir in Shanghai
Published: March 21 2010 19:28
http://www.ft.com/cms/s/0/97b29e4e-351c-11df-9cfb-00144feabdc0.html
The US business community can no longer resist political pressure for Washington to take a tougher stand against China on trade issues, according to a senior figure from the US Chamber of Commerce.
Myron Brilliant, senior vice-president for international affairs, who has previously helped to protect Beijing from hawkish trade policies, told the Financial Times: “I don’t think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill].”
Speaking on the eve of a trip to Beijing, where he will meet senior Chinese officials, Mr Brilliant added: “Certainly the chamber remains a bridge in support of the relationship but it is a difficult time to keep the wolves at bay. China shouldn’t take the American business community for granted.”
Mr Brilliant said corporate America’s attitude had changed in response to a range of “industrial policies” pursued by Beijing, including the undervaluation of the renminbi, which made it harder for US companies to do business and compete with China. He also cited the tough economic times in the US – particularly the near 10 per cent jobless rate – as making it more difficult to argue against tough action on China.
The political heat in the US surrounding China’s currency policy increased last week when a group of Democrats and Republicans in the House of Representatives urged the Treasury to describe China as a “currency manipulator” in its report due in April. This move could be followed by sanctions. In addition, lawmakers from both parties in the Senate last week proposed legislation designed to force China to allow the renminbi to appreciate.
Mr Brilliant said it was too early for the chamber to take a position on the recently unveiled Senate proposal. However, he did say the chamber understood the “frustration” of lawmakers. “We concur that this is a growing problem,” he said, while adding: “I don’t believe in an eye-for-an-eye. I don’t believe that protectionism should be met with protectionism.”
In the 1990s, Mr Brilliant helped lead the chamber’s lobbying efforts in favour of China’s accession to the World Trade Organisation, persuading thousands of companies to push for its inclusion in the global trading system. “I don’t think I could pull that coalition together now. Part of it is that China is not playing by the same rules”
Meanwhile, China vowed again on Sunday to resist pressure for a renminbi revaluation and threatened to retaliate if the US imposed trade sanctions.
Speaking as Beijing sent a senior official to Washington to ease trade frictions, Chen Deming, commerce minister, said China would “not turn a blind eye” if it was labelled a manipulator by the US Treasury. Mr Chen said if the US falsely called China a manipulator for domestic political reasons, and sanctions followed: “We will not do nothing. We will also respond if this means litigation under the global legal framework.”
He added adjusting the value of the renminbi would not solve global trade imbalances, predicting that China could see its trade balance turn to deficit in March.
Chickens Comin'Home to Roost,NEJM says HCR Bankrupt
(This is a blow off top Fabian, IMHO)
The Specter of Financial Armageddon — Health Care and Federal Debt in the United States
Posted by NEJM • March 17th, 2010 • Printer-friendly
http://healthcarereform.nejm.org/?p=3170&query=TOC
Michael E. Chernew, Ph.D., Katherine Baicker, Ph.D., and John Hsu, M.D., M.B.A., M.S.C.E.
The most important force shaping the U.S. health care system over the coming decades may well be the federal debt. The government now pays for approximately half of all health care costs in the United States, and projections of growing federal debt largely reflect anticipated increases in health care spending. Because federal debt and health care policy in the United States are so deeply entwined, it is important to understand the basics of deficits and debt and their implications for health care reform.
The deficit is the gap between expenditures and revenues in any given year ($1.4 trillion in the United States in 2009), whereas debt is defined as accumulated past deficits, or the stock of what we owe ($7.5 trillion at the end of 2009).1 Economists distinguish between two types of deficit: cyclical and structural. Cyclical deficits rise or fall in the short term in response to economic conditions. In economic downturns, tax revenue falls and government spending on public programs such as unemployment insurance increases, leading to larger deficits and higher debt. These deficits are not necessarily a problem: they can boost economic activity and mitigate economic downturns. When the economy expands, revenues rise and spending falls, creating a cyclical surplus that, holding all else constant, can reduce the debt.
In contrast, structural deficits represent an underlying, persistent imbalance between revenues and expenditures. The United States has a substantial, growing structural deficit, much of which reflects current and projected increases in federal spending on Medicare and Medicaid. This federal health care spending amounted to 5% of the gross domestic product (GDP) and 20% of federal outlays in 2009 and is forecast to reach 12% of the GDP by 2050.1 Health care spending is thus a key driver of long-term debt. This does not mean that we cannot run a structural deficit, but deficits must be small enough that debt grows more slowly than the GDP.
So why does debt matter, and how much is too much? Economists often measure the size of the debt relative to the overall economy, or the debt-to-GDP ratio. To finance this debt, the government issues interest-bearing bonds. Doing so imposes several economic costs. First, interest payments consume an increasing share of income (1.3% of the GDP in 2009, or 5.3% of total federal spending),1 thereby reducing the resources available for public programs. Second, growing debt can lead to higher interest rates for all borrowers (government, businesses, and individuals), thus impeding economic growth. Finally, high debt reduces our capacity to respond to sudden economic shocks and magnifies the detrimental effects of any deficit.
Economies can bear substantial debt without dire economic consequences, but there is a limit to how high debt can rise and still be financed without causing serious economic harm. Economists, however, do not agree on where the threshold lies. The European Union has set a target debt-to-GDP maximum of 60% for its member countries (although the table shows that a number of them exceeded this threshold in 20082), but some economic research suggests that levels approaching 90% can be managed without substantial economic harm. In 2009, the U.S. debt-to-GDP ratio was 53%, according to the Congressional Budget Office. Although this figure suggests that we have some short-term flexibility, our large and increasing structural deficits will push us past the 90% mark by the end of 2020, absent major policy changes.1
Baicker_t1
The consequences of high debt levels depend on the treatments that policymakers prescribe. One approach is generating inflation to erode the value of the debt, but the adverse economic consequences of this strategy can be severe. Another option is raising taxes. Taxes reduce economic growth.
Projections made by the Congressional Budget Office in 2007, before the current fiscal crisis began, suggest that to finance federal spending, the highest federal tax bracket would have to rise to 92% by 2050, assuming health care spending grows 2.5 percentage points faster than GDP, which is approximately the historical average.3 A final option is cutting spending on valued public programs. For Medicare and Medicaid beneficiaries, this approach could mean large increases in cost sharing, poorer benefits, limited eligibility, and diminished access. For health care providers, it could mean drastic reductions in Medicare and Medicaid payments.
Most likely, some combination of tax increases and spending cuts will be needed to avoid unsustainable debt, but the higher our debt climbs, the more likely it is that we will find ourselves in an economic crisis and the more painful the unavoidable response will be. The economic stresses apparent in Greece and in California provide some glimpse into what such a fiscal Armageddon might bring.
The clear implication for health care reform is that as we evaluate options (or the possibility of maintaining the status quo), we should focus on the path to a sustainable fiscal situation rather than on short-run deficits. Growth in health care spending is one of the primary contributors to increases in debt over the long run, so the long-term strategy must involve slowing that growth. The current reform proposals incorporate a number of promising strategies for controlling spending and raising revenue (see Proposed Strategies for Reducing Health Care Spending4). The impact of these strategies will depend on the details and the effectiveness of implementation, and no one knows which strategies will prove successful. Projections suggest that the reform package, including additional revenues, will reduce the deficit (relative to the unsustainable baseline).
If the entire reform package is required in order to achieve the deficit reduction — perhaps because of an interaction between expanded coverage and the fiscal effects of reform or perhaps because expanded coverage is needed to generate sufficient support for passage — then the fiscal case for reform is much stronger. However, if the provisions for cost savings and revenue gains can be implemented without expanding coverage, we must ask whether the money saved should be spent on coverage expansions (or any other policy goal) or on debt reduction.
The net impact of reform on the deficit should not be the metric of fiscal virtue. If all the money saved through reductions in future spending on existing health care programs were devoted to new health care programs, our fiscal situation would be little improved. Similarly, if other fiscal tools, such as tax increases, are used to cover new programs, those tools will not be available to achieve broader reductions of the structural deficit. Thus, although covering the uninsured is a laudable policy goal that would improve access to health care for many, it would also add substantially to our structural spending and thus necessitate more draconian fiscal austerity elsewhere.
This does not mean that we should not expand coverage — but rather that we must evaluate the cost of doing so in the context of the extent to which it will limit our options to address our broader fiscal imbalances, recognizing that the challenge posed by these imbalances is Herculean. Even if we halve the gap between the growth in health care spending and the growth in the GDP, some estimates suggest that our debt-to-GDP ratio would drop only from 300% to 200% by 2050.5
The goals of health care reform must therefore be addressed in light of our short-term and long-term fiscal situation. Our current debt is manageable, and we can afford projected deficits for several years, but our structural deficits place us on a path of debt growth that is unsustainable, largely because of health care programs. The sooner we start to rein in health care spending, the less painful the changes may be (since slowing spending now will help us avoid drastic cuts in the future), and the more time we will have to find the most effective strategies. Physicians and the health care community must play a strong role in this process, preparing their practices for the inevitable changes that will come as we address spending growth and helping to identify clinically informed strategies that permit quality to improve in an environment of slower spending growth.
1168 fails as RSI declines and EOQ game over
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=2&dy=0&id=p11906298393
When Risk-Return Makes No Sense: How To Deal With An Overvalued Market, ZeroHedge by Tyler Durden
As SocGen's Dylan Grice points out, we have gotten to the point where the Shiller PE demonstrates S&P valuations are now back in the highest valuation quintile: in other words the market is now more expensive than during 80% of the time. The risk-return at this point makes little sense, because as Grice points out the 10 year return using this quintile as an entry point is just 1.7%, compared to 11% for the lowest quintile. So what should one do: "Go take a holiday if you can. Avoid the ?boredom trades?." If those two are not an option, Dylan provides some trade ideas.
But before we get into it, some amusing observations by Dylan on the Fed's track record of fixing the economy:
It seems central banks botch exit strategies more often than not. In 1994 Greenspan?'s cack-handed removal of the emergency stimulus implemented during the S&L crisis triggered a bond market collapse which severely dented that year?'s equity returns. In 1998, the tardy withdrawal of the emergency stimulus implemented during the Asian crisis created the tech bubble. And in 2004, a similarly delayed withdrawal of the emergency stimulus implemented to combat the tech bust spawned the housing/credit bubble.
Dylan is confident, as are we, that the QE end in less than 24 hour is just a temporary blip in an otherwise determined push to kill the US middle class and especially the savers among it.
Will the botched exit from this emergency stimulus resemble that of the 1994 vintage (bearish for risk) or those of 1998/2004 (bullish)? I suppose central banks might get lucky and smoothly engineer a ?normalisation? without any painful withdrawal symptoms ? but in the real world credit growth remains subdued, as it did in Japan. If the economy doubledips -? and Albert makes a convincing case it will - and fading stimulus leaves the economy in default-deleveraging mode, there won?t be any exit strategy. There will be more QE...
And here we get to the meat of the matter: the market is now way overbought.
If only my crystal ball was clearer ... fortunately though, no crystal ball is needed to see that equity markets are expensive. According to Robert Shiller?s latest data, the S&P500 is back in its highest valuation quintile. The risk is there - as it always is - but the returns aren?t. So what do you do? Go take a holiday if you can. Avoid the ?boredom trades?. But if you have to do something ? some cheap stocks and sectors to think about are given inside.
A way to visualize the expected returns from a trade inception point in any given quintile:
The chart above shows the 10y real returns which have accrued to investors using each valuation quintile as an entry point. If history is any guide, those investing today can expect a whopping 1.7% annualised return over the next ten years.
The bottom-up picture tells the same story. Regular readers know that I use a residual income model to estimate the intrinsic value of each stock in our universe (developed market, large and medium cap non-financials in the FTSE World Index). I aggregate those into an intrinsic value for the market. A more detailed discussion of the calculation is given here, but all I really do is assume that a company which earns only its required return is worth no more than its book value. By capitalising expected excess returns (defined as RoE less required return) onto book value I arrive at an intrinsic value which I can compare to the market price. This gives me an intrinsic value to price (IVP) ratio, the market aggregate for which is given below. When the IVP ratio is 1.0, estimated intrinsic value equals market price. The market is ?fair value? which means it can be expected to deliver the required return (which I set at 10%). This was where we were a year ago. Today, the market is roughly as expensive as it?s recently been.
With Ben Graham investment principles now completely useless courtesy of momentum chasing algos, could the IVP be the next most useful way to shotgun investing?
The IVP ratio isn?t the perfect model by any means and there are a few things about it which make me uncomfortable (e.g. using forecasts to calculate future excess returns). But on balance I think it ticks more boxes than it misses. For one, I like the absolute (as opposed to relative) nature of valuations thrown out. For another, it seems to work. The following left chart shows the performance of stocks over time when sorted into deciles according to their IVP ratios: the higher the IVP ratio, the higher the returns. The right chart shows cumulative returns since 1986 of a hypothetical long-short strategy in which we buy the highest IVP decile stocks and sell the lowest. Both show that there is some sort of ?edge? to be had in purchasing stocks with higher IVP ratios.
Where should investors focus for potential cheap IVP values:
The next chart shows where the geographical value is. The UK has an aggregate intrinsic value above its market capitalization, while the Eurozone looks less egregiously expensive than the rest. I also find it interesting that Japan looks so expensive using an IVP framework. Funnily enough, I think there may be good speculative reasons for owning Japan (which I?ll try to write up shortly) but the investment case is weak. Even though PB and PE ratios are historically low, the earnings power of Japanese assets is even lower and by anchoring valuation on the earnings power of assets the IVP framework picks this up.
And if investing in "cheap" Chinese stocks is not the most appealing options, here are the sectors which make the most compelling investment proposition.
The following chart shows the sectors trading below intrinsic value. Although a cursory look reveals a heavy resource bias, some interesting sub-sectors emerge. For example, integrated oils are cheap. True, they always seem to be. They?re ?too big? and have gone ?ex-growth.? But the long-term growth numbers I'?ve used for them (e.g. Royal Dutch Shell) are actually negative so they allow for this. And if we overpay for strong growth, mightn'?t we underpay for weak growth? According to Factset, Integrated Oils have been one of the best-performing sectors over the last 15 years returning 12.3% annualized, against 8.5% for the World.
Refiners and construction materials are interesting too, with names like Valero and Lafarge operating in depressed sectors in sluggish developed markets. Surely these are interesting places to look? Among the drillers, Transocean ? the market leading deep-sea driller in an oil market increasingly reliant on deep-sea fields for future growth ? is trading below estimated intrinsic value on our IVP analysis and as such, statistically, it has a higher ?expected return? than other stocks in the market.
Although I exclude financials from my screen (as I?m not sure screening is the right way to look at financial stocks) it?s an interesting sector so I'?ve run the numbers. ?Diversified Financials? includes guys like ING, JP Morgan and BoA, the rest are self explanatory ? the results suggest potentially lucrative pickings here if you can get comfortable with the balance sheets. A big if, I know, but I guess fortune favours those who do their homework.
And finally, here are the names of the individual companies thrown up as having estimated intrinsic values higher than their market values. The names help show who?s driving the sector numbers above, but some notable names from sectors which don’t stand out as cheap include Kingfisher, Finmeccanica, AstraZeneca and Western Digital.
Our caveat: any valuation metric is ultimately merely an affirmative bias for an investor to proceed with putting down capital after already having decided to do so. Our contention, as has been for the past 12 months, is that the only real metrics investors should keep an eye out on are the Fed's H.4.1 and H.3 statements. Everything else is a first through 100th derivative of the greatest excess liquidity flood in the history of the world. When that dries out, babies and bathwaters will get the same March 2009 treatment as they always do when the market realizes the utopia of Dow 36,000 will not occur absent hyperinflation.
5
Agreed, and Greece now facing blackmail interest rates
"Greece needs $15.6Bn by the end of May and that much again in August and November. Seven-year notes sold by the government this week fell even after the European Union and the International Monetary Fund crafted an aid package that would be triggered should the nation be unable to raise sufficient cash from capital markets to cover its financing needs. Greece may pay about 13 billion Euros more in interest on the debt it sells this year than it would have to had yields stayed at their pre-crisis levels relative to Germany’s."
By late summer, more reports of Greece's shrinking GDP (austerity measures never work) will make Greece's deficit financing needs a bigger slice of GDP. Investors won't be very keen on lending more money I don't think except at high interest rates which Greece can't afford.
From http://seekingalpha.com/article/196435-wed...ch?source=hp_wc
JADA really running, Tuna, Thanks! And look at some of these others: WEDC, OPXA, VSR, ENCO, SIMO (own WEDC and SIMO) Picking nickels off the floor- XXXXX shares get me a few thousand
End of quarter window dressing in China? LOL
Strong out the gate this a.m.--looks like "resistance" will be broken
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_J/threadview?m=tm&bn=76432&tid=1919&mid=1919&tof=4&frt=2
Up to .84 this a.m. on IMMENSE VOLUME, once again, defying the perceived "resistance" around the .80. Of course, the stock needs to close significantly above .80 at end of day for this to be perceived as a breakout above the resistance price.
My own sense is that all the new buyers streaming in who heard about JADA from the Zack Buckley article don't give a fig about "reistance is at .80." All they see is a stock that will likely have 2009 revenues around 0.19 and thus today's "already-run-up-too-fast" price is showing a stock with a trailing P/E of 4.3 and a forward P/E of ~2.3.
Seriously, this stock could easily be double today's price right now and still be greatly UNDERVALUED.
Enjoy the ride!
13 Bankers- AUDIT THE FED, RESTORE GLASS-STEAGALL
http://urbansurvival.com/week.htm
Not too often that a new book comes out which becomes a lead item on a financially-oriented website like this one, but the headline "New Book by MIT Sloan Professor Warns of Next Financial Meltdown In 13 Bankers, Simon Johnson calls for breakup of nation’s biggest banks..." OK,. more?
"Channeling Thomas Jefferson and Theodore Roosevelt, MIT Sloan School of Management Professor Simon Johnson warns in a book being released today that a “new financial oligarchy” threatens not only the nation’s economy, but its political core. In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (Pantheon), Johnson, a professor of entrepreneurship and management, says the book provides “the back story” for the 2008 financial crisis “and for all the issues being raised now around financial reform. We hope the book helps people have a badly needed conversation about what we must do to push back against dangerous, narrow interest groups that now threaten our economic well-being.”
“That thought should frighten us into action.” In 13 Bankers, Johnson, a former chief economist for the International Monetary Fund, and co-author James Kwak cite historical precedents and offer financial analysis to conclude that a second financial shock is inevitable unless the financial and political stranglehold held on Washington by the nation’s biggest banks is broken. “The best defense against a massive financial crisis is a popular consensus that too big to fail is too big to exist,” the authors write. “This is at its heart a question of politics, not of economics or of regulatory technicalities.”
The book points out that the current concentration of financial and political power is not unlike other moments in American history. President Theodore Roosevelt, for example, challenged the monopoly powers of banker and industrialist J.P. Morgan. “No one thought he could win,” Johnson says in an interview, “but he did succeed in the first prosecution of a corporation under the Sherman Antitrust Act.” Roosevelt, he said, began a process that helped people understand the need to rein in the power of corporate giants, such as John D. Rockefeller’s Standard Oil, “which was arguably more important as a single company in 1910 than J.P. Morgan was then or J.P. Morgan Chase is now,” says Johnson.
Similar leadership is needed from the Obama administration and Congress now, according to 13 Bankers, which concludes that regulatory changes and other responses to date have been vastly inadequate. Johnson supports the administration’s proposed consumer protection measures, but overall, “You can’t just tweak a few rules and expect to rein in these big institutions.” Instead, the book calls for the six biggest banks to be broken up and for hard limits to be imposed so that banks cannot rebuild themselves into political and financial powerhouses. “Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies,” notes 13 Bankers. “That thought should frighten us into action.”
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown is available from Amazon for $18-bucks (*I always get something else to get the order up to $25 to get the free shipping...cheap is as cheap does...).
CA Treasurer Sees CDS's as Bet Against the State
(Bloomberg) California Treasurer Asks Six Banks for Swap Details. California’s treasurer asked six investment banks that underwrite the state’s bonds to explain why they also market credit-default swaps on them, saying such contracts may cost taxpayers by exaggerating credit risk. Treasurer Bill Lockyer asked JPMorgan Chase & Co.(JPM), Bank of America(BAC) Merrill Lynch, Barclays Plc(BCS), Citigroup Inc.(C), Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) to detail the extent to which they market the insurance contracts and to explain how trading in them affects the interest cost on the state’s general-obligation bonds, according to letters he released today. The cost of California 5-year credit-default swaps has risen 28 percent since Oct. 26 to $204,000 to protect $10 million of bonds, according to data compiled by Bloomberg. California sold $5.9 billion of taxable and tax-exempt general- obligation bonds this month. “Lockyer’s concerned about the general effect on our bond prices,” said Tom Dresslar, a spokesman for Lockyer. “It’s taxpayer money at stake. They have a right to know.”
Why 'Buy & Hold' Investing Is Dead And Recessions Are The New Normal: Lakshman Achuthan (VIDEO)
First Posted: 03-29-10 03:25 PM |
http://www.huffingtonpost.com/2010/03/29/buy-hold-investing-is-dea_n_517788.html
The classic "buy and hold" strategy for stocks is officially dead, according to Lakshman Achuthan, managing director of the Economic Cycle Research Institute, who sat down with Yahoo Tech Ticker recently. And, Achuthan said, investors should prepare themselves for even more frequent recessions. (We realize it's great news.)
Two big patterns moving like "big ol icebergs" will create more frequent recessions, Achuthan said. The first pattern, Achutan says, is the pace of each expansion after a recession actually gets weaker and weaker -- and this effect applies to GDP, sales and income. "On every count, the strength [of growth] weaker and weaker with each expansion," he added.
The second pattern is that volatility will be a fact of life. "We're going to see more boom and bust type cycles, I don't think it's going to be like the pre-Depression levels. It will be more like the cycles we saw in the 1970s, where we're going to have an expansion for a few years then another recession."
"We're going to have to reorient our thinking to maybe a little more whiplash," Achuthan said
Fed's Evans: Monetary policy not effective for pricking bubbles
On Tuesday March 30, 2010, 7:11 am EDT
NEW YORK (Reuters) - Monetary policy is not an effective tool for pricking asset bubbles, but central banks without authority to supervise banks may have no alternative, Chicago Federal Reserve President Charles Evans said Tuesday.
Evans made the comments as reform proposals move forward in Washington to strip the Fed -- the U.S. central bank -- of supervisory authority over small banks. The reforms would add to the Fed's role in supervising large financial institutions.
Regulatory reforms designed to prevent a repeat of the financial crisis, which was fueled by asset bubbles, should give central banks a supervisory and regulatory role so they have additional tools to promote financial stability, he said, according to the prepared text of a speech in Hong Kong.
A central bank, because it is the lender of last resort, should have a role in promoting financial stability, he said.
"If, however, central banks have no supervision and regulation tools, they are constrained to act with the only tool at their disposal - monetary policy," he said.
But because monetary policy is such a blunt tool for pricking asset bubbles, he said, using it to do so could put pressure on a central bank to raise rates faster than otherwise would be called for to ensure full employment and price stability.
"A central bank with three goals and only one lever is a recipe for producing some difficult policy dilemmas," he said.
What to do with central banks' supervisory authority is just one aspect of necessary regulatory reform, Evans said. Reforms should also put in place some kind of systemic risk manager that can spot small problems that on their own pose little risk but in the aggregate threaten the entire financial system, he said.
"Our goal clearly is to avoid another crisis of this magnitude," he said.
"We need a multi-pronged approach to a robust regulatory structure: a structure that takes full advantage of the existing tools supervisors have; a structure that supplements the existing one with dynamic capital requirements and a comprehensive approach to risk management; a structure that includes a macroprudential supervisor than can monitor and assess incipient risks across institutions and markets and, when necessary, impose higher regulatory requirements on firms that pose systemic risks," he said in the text.
While such a structure should help prevent financial stress, he said, regulators also need to establish a resolution authority able smooth an potential wind-down of a systemically important financial institution, he said.
What's so great about the iPad, Canny? It's just a low functionality laptop with some very expensive subscription schemes. I've been working a 64GB iPod touch for three months and am amazed that Apple collects data on every bit of media on my PC, including unrelated applications. For a $300 device, I've spent another $100 on videos for my daughter...nice Apple margin
Formation and defense of communities is a time proven response. Re-happening all over the U.S. Get to know your neighbors, if you don't already and start doing some barter favors for them. It will come back in spades and is seen everywhere in the Upper Valley and on little islands in the Caribbean :>)
(You are a keeper!)
Tried to pick up some TIE calls this AM. AMEX jerks just kept on moving the ask up (even on a match on May $16s at (9:45 AM). This is tantamount to being robbed to trade options. There is the Boeing Dreamliner premium and the takeover premium, blah blah, but intrinsic value on an ITM call isn't $1.00 or esp $1.85... Absurd
Tuna, any new JADA contracts? Mining info looks promising, anything on partner QZTX? TIA
QZTX is located in Hui'an, QuanZhou, which has been referred to as the "city of stone carving" in China. Currently, there are approximately 150,000 jade-carving factories in China. In this province alone, there are more than 1,000 large jade carving and processing factories, which generate about US$1.5 billion in annual production.
Through this agreement, QZTX will be purchasing SheTai Jade. SheTai Jade is sourced through JST's exclusive distribution right agreement with Wulateqianqi XiKai Mining Co., Ltd. ("XiKai"), enabling JST to sell 90% of the raw jade material produced from XiKai's SheTai Jade mine for the next 50 years. The SheTai Jade mine's reserves are unique, in that they include some of the oldest (formed approximately 1.8 billion - 2.4 billion years ago) jade ore found in China and are considered to be of the highest quality in terms of rigidity and relative size of its pieces. SheTai Jade is as hard as quartz, with a degree of hardness between 7.1 and 7.3 on the Mohs scale, which is much higher than that of most jade. In addition, SheTai Jade is abrasion resistant, smooth and highly reflective. The green is pure and the gems are translucent, with a glassy luster. Due to its characteristics, SheTai Jade has a broad spectrum of applications. It can be used in commercial construction, decorative jade artwork, as well as intricately carved jade jewelry.
Jupiter financials star puts half his fund in cash
http://finance.yahoo.com/news/Jupiter-financials-star-puts-rb-2197493317.html?x=0&sec=topStories&pos=6&asset=&ccode=
British fund firm Jupiter's high-profile investor in financial stocks, Philip Gibbs, has put more than half his fund into cash as uncertainty around the UK election and western government debt hamper visibility.
Gibbs, who made his name when a heavy cash position helped his financials fund turn a profit during the credit crisis, had 52 percent of the portfolio in cash as of end-February against 13 percent at the end of 2009, a factsheet showed.
Top holdings in the 1.2 billion pound ($1.79 billion) fund were HSBC (LSE:HSBA.L - News), DnB Nor (Oslo:DNBNOR.OL - News), Sun Hung Kai Properties (HKSE:0016.HK - News) and Bank of China (Shanghai:601988.SS - News).
The latest Financial Opportunities fund factsheet indicated Gibbs had sold down heavily his stake in Barclays (LSE:BARC.L - News). The UK bank was in fourth spot with 5.8 percent of his portfolio at end-2009, but does not feature in the top 10 holdings at the end of February.
The move mirrors that of GLG fund manager John White, who told the Reuters European Funds Summit last week he had sold his entire Barclays' stake on valuation grounds.
Gibbs also offloaded much of his stake in Prudential (LSE:PRU.L - News) in the first two months of the year. News of the British insurer's transformational deal to buy AIG's (NYSE:AIG - News) Asian business AIA began to emerge on February 27, sending the shares slumping from above 600 pence to as little as 475 pence.
A spokeswoman for Jupiter (JPAMG.UL) declined to give any updates on Gibbs' portfolio since the end of February.