views on markets, equities, bonds, derivatives, finance, investing, the economy

Birds, Boats, Bonds, Venice

Birds, Boats, and Bonds in Venice: The First AAA Government Issue | The Big Picture: "Venice never recovered from the devastating war with the Turks, not only because of the loss of its colonies in the Mediterranean, but because Portugal’s discovery of a sea route to India and Christopher Columbus’s discovery of America shifted the locus of economic power from the Mediterranean to the Atlantic. The ocean-faring sailing ships of France, England and the Dutch Republic replaced Venice’s oared galleys. Amsterdam replaced Venice as the financial center of Europe, and during the 1600s and 1700s the East India Company dominated the oceans around Asia the way Venice had dominated the Mediterranean until then. On May 12, 1797, Napoleon Bonaparte brought an end to the Venetian Republic. Though Venice is no longer a city-state, it has left us a beautiful city which tourists cherish. It also leaves us an important financial legacy: a record of the first international government bonds which were used throughout Medieval Europe by investors who wanted a safe place to store their wealth. Today, U.S. Government Bonds play the same role in the twenty-first century that prestiti played in the fourteenth century. Let’s hope U.S. Government Bonds can continue to pay that role for the century to come."

Inside the Fed (video)

Inside the US Federal Reserve video above from the BBC

Contrarian Caveat, The Crowd Is The Market

Knowing when to bet against the crowd is key --

Greenspan 3.0 and Other Random End-of-Year Thoughts - Bloomberg: "The death of contrarians has been greatly exaggerated. The reason is that the crowd is the market for most of any cycle. You cannot be contrarian all the time, otherwise you end up simply fighting the tape the whole way up (or down), therefore being wildly wrong. That said, there are small moments of intense uniformity of thought and widespread agreement in markets. That is when contrarians get fed. This is a state of mind that is exceedingly difficult for you social herd animals to inhabit. If it feels good and right, it's probably not that terribly uncomfortable contrarian moment."

Merry Christmas!

Merry Christmas from

Individual bonds, an investment

Bond investing? -- it depends --

Individual bonds are an investment, not an Ark | Reuters: " . . . As Toby Nangle, of Threadneedle Investments, pointed out earlier this year, no-one buys bonds because they actually think they are going to outperform other assets over the longer-term ( here ) The data is clear, over the longer term bonds underperform equities. Instead you own bonds because, when combined with equities in a portfolio, they are a complementary asset. Both long-dated US Treasuries and equities are about equal in volatility. But, if you own government bonds and equities together your portfolio volatility will be greatly reduced. And, as volatility is risky (after all, you may one day want access to your money) that complementary nature is extremely important. . . ." (read more at link above)

Online financial advice, lower fees, team investing

Disintermediation and disruption in the world of financial advice --

The brave new world of online financial advice – lower fees and team investing | Money |
" . . . Here are some names to scribble down, or better yet, tap into the closest note-taking app: Betterment, LearnVest, FutureAdvisor, Wealthfront, Jemstep. These are some of the frontrunners in a high-stakes race now underway on Wall Street: the battle to deliver investment advice and other financial planning services to ordinary Americans like you and me – not in person, but online. They're already attracting money, from Silicon Valley at least. Venture capitalists love the idea, since the low costs of providing online financial advice mean these businesses may prove very profitable. LearnVest, which wants financial advice portals to be as easy to use as your Tumblr account, has attracted $41.5m in startup funding in the last four years. Rival Betterment is getting $13m from bluechip backers like Bessemer Venture Partners and Menlo Ventures..." (read more at link above)

US mortgage troubles, pending wave of disaster

The US mortgage market never really completely cleared --

Insight: A new wave of U.S. mortgage trouble threatens | Reuters: "... some regulators, rating agencies, and analysts are alarmed. The U.S. Office of the Comptroller of the Currency, a regulator overseeing national banks, has been warning banks about the risk of home equity lines since the spring of 2012. It is pressing banks to quantify their risks and minimize them where possible. At a conference last month in Washington, DC, Amy Crews Cutts, the chief economist at consumer credit agency Equifax, told mortgage bankers that an increase in tens of thousands of homeowners' monthly payments on these home equity lines is a pending "wave of disaster."..."

Bill Gross, Federal Reserve, Quantitative Easing (video)

Gross Says Fed `Wants Out' of Quantitative Easing: Video - Bloomberg: "Bill Gross, co-chief investment officer at Pacific Investment Management Co., talks about the outlook for the Federal Reserve's program of quantitative easing, the state of the credit markets, investment strategy and the future of the City of Detroit following its bankruptcy. Gross speaks with Stephanie Ruhle and Erik Schatzker on Bloomberg Television's "Market Makers.” (Source: Bloomberg)"

Nobel prize economist warns of US stock market bubble

Nobel prize economist warns of US stock market bubble | Business | The Guardian: "Robert Shiller, who won the award with Eugene Fama and Lars Peter Hansen for research into market prices and asset bubbles, pinpointed the US stock market and Brazilian property market as areas of concern.

"I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets," Shiller told Der Spiegel magazine. "That could end badly," he said."

China In Peril

For China, no easy way out from hereon in --

RealClearMarkets - China's Growth Is In Peril, As Is Its Economy: "....Here's the dilemma: The old model may not be sustainable, but getting to a new model may be painful. Higher interest rates could bankrupt some firms dependent on cheap credit. A revalued renminbi could close some export companies. Stronger consumption might not instantly fill the void. Naturally, those benefiting from the status quo will fight to preserve it. This defines China's predicament. In 2012, its economy grew a respectable 7.7 percent. With good policies, Lardy thinks something like this could continue. Pettis sees a harder transition. At best, growth will average 3 percent to 4 percent . That's not much higher than the United States'. China remains a colossus, but its future is increasingly clouded."

Digital Assets, Estate Planning Questions

Digital Assets Raise Estate Planning Questions | Chambliss, Bahner & Stophel, P.C. - JDSupra: " . . . States are beginning to grapple with these issues. A few states have enacted laws, giving executors access to online accounts. In addition, every Internet provider has its own rules about access to user accounts, and generally users have agreed to these rules when they first enrolled, whether they actually read the service agreement or not. In April 2013, Google introduced the concept of an Inactive Account Manager who Google users can name to receive notice when a Google user has not accessed her account for a long period of time. The Inactive Account Manager has access to Google accounts designated by the user and can take whatever action is necessary to access them or shut them down. . . ." (read more at link above)

India, growth model (video)

Toward a uniquely Indian growth model | McKinsey & Company: For India’s economy to expand as rapidly and yet more sustainably than China’s, we need to make our differences into virtues rather than vulnerabilities. For too long we have clung to a mind-set shaped by the early independence years, when the areas in the northwest and northeast had become Pakistan, and India’s first government was struggling to weave a patchwork of provinces and maharaja-run kingdoms into a nation. In those days, the risk that India might break apart was very real. One of India’s great accomplishments is that no one worries about that anymore. Indeed, the idea of a united India runs so broad and deep that it allows us to consider a counterintuitive way of thinking about growth—that the best way to propel the economy may be to encourage different parts of the country to go their own way.

Investment bubbles

The next 10 investment bubbles - Slide Show - MarketWatch: " “Financial bubbles are not a purely psychological phenomenon. They have two components: a trend that prevails in reality and a misinterpretation of that trend. “ And he added: “I treat bubbles as largely unpredictable.”"

Twitter, a Risky Investment? (video)

Twitter, a Risky Investment - Video - "Twitter, a Risky Investment

Twitter began trading on the New York Stock Exchange on Thursday, November 7. Here are three reasons the company may be a risky investment."

Tracking Twitter

Tracking Twitter's I.P.O. - "Twitter investors may want to sign up for an account on the micro-blogging service to keep tabs on the company.

In its prospectus, Twitter noted, “We also intend to announce information regarding us and our business, operating results, financial condition and other matters through Tweets on the following Twitter accounts: @dickc, @twitter and @twitterIR.”

The first one, @dickc, is the account of Mr. Costolo, the company’s chief executive. The second is Twitter’s main account. The last one is a special investor relations account"

Jobs Report is Still a Bummer

Despite Mixed Headlines, Today’s Jobs Report is Still a Bummer | " . . . . when you take a step back and look at the long-term trends employment trends in the economy, we’re simply not adding enough jobs to get the economy back to full strength any time soon. So far this year, we’ve seen an average of roughly 186,000 new jobs per month. We averaged 175,000 and 182,000 jobs per month in 2011 and 2012 respectively. If the pace of job growth is accelerating at all, it’s doing so only very slightly. Four years into the recovery, we’re sill more than 1.5 million jobs short of peak jobs in 2008, and that’s after years of population growth. Adding more than 200,000 jobs in any given month is pretty good news, but any sober look at the bigger picture says it’s nowhere near good enough. . . ."

Fed Has to Taper says Calstrs Ailman (video)

Fed `Absolutely’ Has to Taper: Calstrs's Ailman: Video - Bloomberg: "Nov. 13 (Bloomberg) -- Christopher Ailman, chief investment officer of the California State Teachers’ Retirement System, talks about investment strategy and Federal Reserve policy. Ailman speaks with Erik Schatzker and Stephanie Ruhle Bloomberg Television's Market Makers. (Source: Bloomberg)"

Nassim Nicholas Taleb Says Debt Raises Risk of Catastrophe (video)

NYU's Taleb Says Debt Raises Risk of `Catastrophe': Video - Bloomberg: "Nov. 14 (Bloomberg) -- Nassim Nicholas Taleb, a professor at New York University and author of "The Black Swan" and "Antifragile: Things That Gain From Disorder," talks about risks created by government debt and Federal Reserve monetary policy. He speaks with John Dawson on Bloomberg Television's "First Up" on the sidelines of Barclays Asia Forum in Hong Kong. (Source: Bloomberg)"

Huszar Says Fed Should Have Stopped After QE 1 (video)

Fed Should Have Stopped After QE 1, Huszar Says: Video - Bloomberg: "Nov. 13 (Bloomberg) -- Andrew Huszar, a senior fellow at Rutgers Business School and former official at the Federal Reserve Bank of New York, talks about the Fed’s policy of quantitative easing and his role in the first phase of the program. Huszar speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's “Market Makers.” (Source: Bloomberg)"

Choose a Charity Carefully and Wisely

How to Choose a Charity Wisely - " . . . . donating to the most effective charity has never been more challenging. If you are a discriminating giver, you will need a set of guidelines that can tell you if your donation will mostly be spent on a charity’s mission and not peripheral activities. These days you have to use your head far more than your heart to see that your charitable dollars are well spent on causes you care about. There are services and strategies that you can use to make an informed decision. Most of them can help you determine if your dollars will reach the charity’s “mission” — and whether a nonprofit organization is effective in what it is striving to do. . . ." (read more at link above)

EU Following Path of Japan

Mish's Global Economic Trend Analysis: ECB Following Path of Japan, Including Similarly Ridiculous Statements: "Rather than writeoff bad loans at European banks, the ECB has chosen the bury your head in the sand, extend-and-pretend path of Japan. This is despite the fact the Japanese plan has taken multiple decades without producing meaningful results. . . ." (read more at link above)

New Normal, Consequential Morphing, Tapering

The ‘New Normal,’ And Its Consequential Morphing - JOI Articles: " . . . Absent comprehensive and coordinated policy responses, it is only a matter of time until the surface stability is overcome by the meaningful set of underlying disequilibria, resulting in a set of highly contrasting potential outcomes—all of which would constitute an eventual departure from the low-level equilibrium of the new normal. This morphing warrants equally consequential adaptation in investment approaches. Time is running short for the strategy of simply riding the wave of central banks committed to disconnecting market pricing from fundamentals. A much-less-certain investment outlook is ahead, and one that requires change not only in what investors do, but also in how they think about their overall investment positioning." (read more at link above)

QE Bubblicious Markets

Bubbles, Bubbles Everywhere | The Big Picture: " . . . Then, from Jolly Olde London, comes one Toby Nangle, of Threadneedle Investments (you gotta love that name), who found the following chart, created a few years ago at the Bank of England. At least when Mervyn King was there they knew what they were doing. In looking at the chart, pay attention to the red line, which depicts real asset prices. As in they know they are creating a bubble in asset prices and are very aware of how it ends and proceed full speed ahead anyway. Damn those pesky torpedoes. Toby remarks: This is the only chart that I’ve found that outlines how an instigator of QE believes QE’s end will impact asset prices. The Bank of England published it in Q3 2011, and it tells the story of their expectation that while QE was in operation there would be a massive rise in real asset prices, but that this would dissipate and unwind over time, starting at the point at which the asset purchases were complete. . . ." (read more at link above)

Invest Like a Psychopath for Success

Some crazy ideas turn out to be the truth --

Investing Like a Psychopath: " . . . In 2005, a team of researchers from Stanford, Carnegie Mellon, and the University of Iowa gave a group of participants $20 each. They were then made an offer: You can flip a coin up to 20 times. If you lose the coin toss, you owe $1. If you win, you get $2.50. Everyone in this situation should make as many tosses as possible, since there's a 50/50 chance of accurately guessing a coin toss, and the reward for winning is far larger than the penalty of losing. But the researchers found only one group of participants willing to make large numbers of tosses: Those with a lesion in the area of their brains that controls emotion. Participants with normal brains threw in the towel after flipping a few losses in a row. People don't like losing money, and even if you know the odds are in your favor, a couple losses will turn you off. But those whose brains suppressed emotions kept on betting, regardless of past losses. Not surprising, given the odds and payoffs of the coin-toss game, they ended up with more money. One of the co-authors of the study called these coin-flippers "functional psychopaths," since their damaged brains prevented them from being affected by emotions. The non-psychopaths with normal brains remembered how losing felt and became twice bitten, once shy. Their memories blocked rational behavior. . . . "

Apple's iPad Shot at Microsoft (video)

Gene Munster: Apple's iPad Is a Shot at Microsoft: "Evernote CEO Phil Libin and Piper Jaffray's Eugene Munster comment on Apple's new products unveiled today. They speak with Jon Erlichman on Bloomberg Television's "Bloomberg West." (Source: 10/22/2013 Bloomberg)

Three Generations of Buffett video

Together on set for a Bloomberg First, CEO of Berkshire Hathaway Warren Buffett, his son Howard Buffett and grandson Howard W. Buffett join Bloomberg's Betty Liu to discuss philanthropy, their plans for Berkshire Hathaway, and their new book "40 Chances." They speak on Bloomberg Television's "In The Loop." (Oct. 23, 2013 Bloomberg) Three Generations of Buffett: We're the Lucky Ones

Greenspan: No Apology for Missed Forecasts (video)

Greenspan: I Don't Apologize for Missed Forecasts: "Greenspan: I Don't Apologize for Missed Forecasts - Oct. 23 (Bloomberg) -- Alan Greenspan, former Federal Reserve Chairman, defends his actions on monetary policy, offering no apologies for missing economic forecasts. He speaks on Bloomberg Television's "In The Loop.""

Caveat Emptor Bond Investors

Repeat and Remember: when interest rates rise, bond prices generally fall

If You’re a Bond Investor, Beware of the Seesaw - " . . . . the S.E.C. has been giving a warning of a different sort. Bearing the general title “Interest Rate Risk,” this latest bulletin is a cry for understanding. It’s about bonds, and for most people, the subject is confounding. The problem isn’t a new scam but a lack of knowledge about how bonds work, which can be dangerous in a time of rising interest rates. In its bulletin, the agency points out that investors need to understand that when rates rise, bond prices generally fall. This inverse relationship is a fact of life in the bond market. Like gravity in the physical world, it’s constant, powerful and important. But outside trading floors, business schools, banks and brokerage firms, bond dynamics are fairly obscure, surveys find. That’s troubling in a time like this, said Lori Schock, director of the agency’s Office of Investor Education and Advocacy. “We’re not predicting what’s going to happen to interest rates or when,” she said, “but we do know that rates can’t go much lower. And we know that they can go a lot higher.”. . ." (read more at link above)

Marc Faber says No Safe Haven Left (video)

Faber: No Safe Haven Left, Gov't Wasting Money: Video - Bloomberg: "Oct. 14 (Bloomberg) -- Swiss investor Marc Faber, publisher of the Gloom Boom & Doom Report, speaks to Bloomberg's Tom Keene and Sara Eisen about where to invest amid market uncertainty. (Source: Bloomberg)"

Economist Warning, Bitcoin Backlash

Bitcoins, or any currency not issued by a legitimate government, will always draw scrutiny from regulators--after all, we have enough problems with governmental currencies!

Economist Warns a Bitcoin Backlash May Be Coming from Governments and Banks | MIT Technology Review: "Governments and established financial institutions are likely to launch a campaign to quash the decentralized digital currency Bitcoin, according to a leading economist and academic. Simon Johnson, a professor of entrepreneurship at MIT’s Sloan School of Management, expects Bitcoin to face political pressure and aggressive lobbying from big banks because of its disruptive nature. . . ." (read more at link above)

Big Banks, Bad Mortgages, Caveat Emptor

The American Banker newspaper is reporting that banks may be hiding losses from their shareholders:
The nation’s four largest banks are holding $57 billion of seriously delinquent loans that they’ve been slow to move into foreclosure over concerns that the Federal Housing Administration, the government mortgage insurer, will refuse to cover the losses and hit them with damages, according to industry sources.
The Guarantee That Banks May Fear to Invoke - " . . . Rebel Cole, a former Federal Reserve Board economist who is now a professor of finance and real estate at DePaul University in Chicago, says the banks could face heavy losses on the loans because the F.H.A. might refuse to cover them. The article adds: Some lenders acknowledge that they will likely end up eating losses on defaulted loans held on their balance sheets and settlements related to past claims. They are also likely to try to avoid the risk of getting hit with damages by forgoing the FHA claims process and absorbing some losses themselves. . . ." (read more at links above)

Internationally US $100 Bills Preferred (video)

These New $100 Bills Are Going to Be Huge Overseas - Businessweek" . . . .“The hundred is extremely popular in other countries,” says Tu Packard, a senior economist at Moody’s Analytics (MCO). “In countries that have high inflation, it’s a more trusted medium of exchange.” Where hundreds are concerned, she adds, “the fresher the bill, the better.” Older, beaten-up currency is often frowned upon in countries that have seen their own currency devalued quickly. Packard recalled having an easier time exchanging a hundred-dollar bill in Kyrgyzstan than her travel companion did because her own note appeared newer and less-weathered. The hundred typically has a longer lifespan than other bills because it is used less frequently. The average hundred circulates for about 15 years, according to the Fed."

The Fed has put itself and us in a QE Trap

At first we were in a liquidity trap as Paul Krugman so eloquently and repeatedly explained, but now the unintended consequence of Federal Reserve Quantitative Easing (to get us out of the "liquidity trap") has put us in perpetual slow-growth as the Fed cannot stop QE without fear of another recession --

"As soon as the economy picks up a bit, the authorities begin to talk about tapering, which sends long-term rates sharply higher and nips the recovery and inflation in the bud, effectively preventing them from winding down the policy. In this kind of world the economy never fully recovers because businesses and households live in constant fear of a sharp rise in long-term rates."(source infra)

Fed Faces Cost Of Quantitative Easing - Business Insider: ". . .Had the Fed not implemented QE, long-term rates would not have risen so early in the rebound, and the economic recovery would have proceeded smoothly. Now, any talk of ending QE pushes long-term rates higher and throws cold water on the economy, making it more difficult to discontinue the policy. That raises the possibility that by buying longer-term securities the central banks of the US, the UK and Japan have placed themselves in a QE “trap” of their own making and will be unable to escape for many years to come. I have previously described QE as a policy that is easy to begin and hard—even scary— to end. The recent drama over tapering signals the start of the less-pleasant second part. . . ."

Proof of this is the recent snafu over tapering --

It's Time For A Nonhuman Fed Chairman - Business Insider: ""Why bother with transparency when you can and do change your minds?" asked ED&F Man Capital managing director and bond market veteran Tom di Galoma, saying what it seemed like everyone was thinking following last week's FOMC decision."

And I wonder if anyone in the White House or Congress understands any of this?

High Frequency Trading, Wall Street, Rigged for Crisis

This Sociological Theory Explains Why Wall Street Is Rigged for Crisis - Bill Davidow - The Atlantic: " A good place to start would be to reduce the excessive trading volumes that lie at the root of accidents like the Flash Freeze, Flash Cash, and Goldman debacle. There is no valid reason for high frequency trading to make up more than 50 percent of all stock trades, and there is no pressing need for some $4 trillion in daily foreign currency transactions. A Tobin tax on transactions, first suggested by Noble laureate James Tobin in 1972, of as little as 0.1 percent, would significantly reduce these volumes. Smaller transaction volumes would reduce the size of accidents and possibly their frequency." (read more at link above)

Yellen, Bernanke, Fed (video)

Yellen to Make Bernanke Look Like Hawk, Faber Says: Video - Bloomberg: Sept. 18 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the Federal Reserve's decision to refrain from reducing its asset purchases and the outlook for the central bank's leadership. Faber, speaking with Trish Regan, Adam Johnson and Matt Miller on Bloomberg Television's "Street Smart," also comments on stock, bond and commodity prices. (Source: Bloomberg)

Trading bots, ultrafast extreme events, UEEs

To identify activities that might be triggered by automated systems, the authors defined something called an ultrafast extreme event (UEE). These are cases where a stock price moved at least 10 consecutive times in the same direction, all within 1,500 milliseconds. The total magnitude of these mini-crashes and rises had to be at least 0.8 percent. That may not seem like much, but it represents over 30 standard deviations from the normal run of trading. (source infra)

Trading bots create extreme events faster than humans can react | Ars Technica: "....the authors make a pretty compelling case that fast trading systems, coupled to a limited number of trading strategies, have caused a fundamental change in the behavior of the stock market. This shift leads to sudden changes in the value of stocks that aren't linked to any underlying financial factors. (In most cases, the change seems to be transient, and stocks return to their former value rapidly.) What's not at all clear is what triggers these UEEs, and whether changes in market regulations or trading strategies could eliminate them."

HFT, High Frequency Trading

In Which I Interview an HFT and Ask Him Some Tough Questions: " . . . We have ~13 “lit venues” (exchanges, ATS, ECNs) and something like 60 dark pools. Yet, it’s important to have a unified “best bid / offer” so that investors who are forced, because of choices their broker might make, to deal with just some subset of these 70+ venues aren’t being screwed by bad prices. There are lots of related issues, including what to do, if anything, about dark pools, and how to reduce the latency embedded in the NBBO (national best bid / offer). Also related is the issue of funky order types, against which Haim Bodek has become a very vocal opponent. His concerns aren’t unjustified. But most of these problems would be obviated with a minimally-latent NBBO and/or an end on the ban on locked markets. These issues can get pretty technical, but they do have some far-reaching implications. . . ."

Warren Buffett, The Intelligent Investor, Optimism

Buffett's top 'picks': Wedding licenses, investor 'bible': " . . . When one student asked for a stock tip, Buffett, widely considered the most successful investor of the 20th century, gave him a simple answer: Buy a copy of The Intelligent Investor, the investing bible written by Benjamin Graham, father of value investing. That and two wedding licenses, Buffett said, were his best investments. . . . Buffett's optimism was clear throughout. "If you look at the twentieth century, with two wars, the Spanish influenza, and the Great Depression, and the Dow went from 66 to 11,497. With all those terrible things happening, America works." (read more at link above)

Portfolio: Buffett adjusts Berkshire-Hathaway portfolio

Marc Faber, QE Unlimited (video)

Marc Faber: We Are in 'QE Unlimited': Video - Bloomberg: "Sept. 18 (Bloomberg) -- Gloom, Boom & Doom Report Editor Marc Faber comments on the Federal Reserve deciding not to taper QE today. He speaks on Bloomberg Television's "Street Smart." (Source: Bloomberg)"

Women, Wall Street

The real reason women are leaving Wall Street - Quartz: " . . . . “The business has changed,” she muses, “It is not as intellectually challenging as it used to be. It’s more like cage fighting. Long-term investment today means a month; mathematicians convince themselves they can quantify risk in their arcane products that no one can understand; and fee structures are out of line with investor returns. No wonder people are cynical about Wall Street.”" (read more at link above)

Quants, Algorithmic Trading, Individual Investors

Quants-R-Us? Algorithmic Trading Trickles Down To Individual Investors. - Forbes: "Armed with $4.5 million in funding, the 2011 Harvard grad recently launched a Web-based platform called Rizm, designed to let individual investors with no coding skills build computer programs that select and trade stocks automatically, similar to the trading programs used by quant funds and high-frequency trading firms. . . ." (read more at link above)

Shareholders, Supersized (video)

Shareholders, Supersized: "Shareholders, Supersized - The so-called activist investors flocking to Wall Street are major shareholders with hedge fund money, and they are using their clout to push around companies like Dell, Sony and Apple."

Predictions, Optimism Bias, Happy-Talking Gurus

Paul Farrell: Beware of Predictions, Optimism Bias | The Big Picture: "2007-2008 bank credit meltdown — the top . . . happy-talking gurus -- False predictions made before the 2008 subprime credit meltdown:
  • ‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.”
  • Ken Fisher: “This year will end in the plus column … so keep buying.”
  • Ben Bernanke: No “serious failures among large internationally active banks.”
  • Goldman Sachs: “Fear priced into stocks is likely to abate as recession fears fade.”
  • Barney Frank: “Freddie Mac and Fannie Mae are fundamentally sound.”. . . ."
(read more at link above)

Chinese Scrap-Metal Hunter, American Trash Is Treasure

To a Chinese Scrap-Metal Hunter, America's Trash Is Treasure - Businessweek: "He’s in the market to buy scrap metal he can ship to China, and this is the first stop of the day in the middle of a two-and-a-half-week road trip to regular suppliers that started in Albuquerque and will end in Spartanburg, S.C. But that, Zeng says, is nothing. “My last trip with Homer,” he recalls, referring to Homer Lai, the scrap importer in China’s Guangdong Province who provides him with most of his business, “we drove 9,600 miles in 26 days.” The result? Millions of pounds of metal worth millions of dollars left the U.S. for China."

Central bankers, storytellers, charlatans who have no shame

Central bankers ready if markets don't 'obey'- MSN Money Bill Fleckenstein - " . . . Four years ago Ben Bernanke and company talked about exit strategies. Now, they discuss only reducing the amount of monthly money printing from $85 billion to $70 billion -- and if they try to do even that, they are going to find out they have to reverse gears and go the other way. Only the bond market can put this insanity to rest. I believe we are very close to the world realizing that the Fed is trapped. The only question is when will people realize it and understand the consequences? . . . Speaking of trapped central bankers, an Aug. 22 article in the Financial Times by Gillian Tett, headlined "Central bank chiefs need to master the art of storytelling," concluded with what I thought surely had to be a spoof. "The next Fed chair also needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re)create trust and persuade us all to think in a manner that suits the Fed's economic goals, without us even noticing. "Somebody, in other words, who can cast spells with both their spreadsheets and words. In short, what is needed is nothing less than a monetary shaman.". . . "

Seek wisdom, constantly learn, read, develop independent views based on facts

Farnam Street — Seeking wisdom by mastering the best of what other people have figured out.: "In the world of investing, that means constant learning—which entails constant reading. So I would encourage my younger self to read widely, to constantly learn, and to develop points of view independent of what others say and based on facts. Specifically, I would recommend developing the habit of reading. Constantly ask good questions and seek to answer them." -- Michael Mauboussin

Nasdaq Shutdown, Software Malfunction

Shutdown at Nasdaq Is Traced to Software - "Though the Nasdaq market calls itself home for the stocks of the world’s biggest technology companies, the exchange acknowledged on Thursday that a three-hour halt in trading arose from a problem with its software. The Nasdaq OMX Group, the parent company, on Thursday released preliminary findings that provided the clearest official insight into what caused the trading halt, being called in trading circles as the “flash freeze.”"

HFT, NASDAQ, System Failure

In Markets' Tuned-Up Machinery, Stubborn Ghosts Remain - "Why is this happening, and happening so often? One reason is the need for speed. Another is increased competition. The need for speed comes from a market in which high-frequency traders expect to be able to get in and out of positions within a second. Any market that cannot offer such speed will be at a competitive disadvantage. But such speed is not compatible with safety features that could cause suspicious orders to be delayed while someone — a slow person, perhaps — checked to see whether something was amiss. The competition comes from the fact that there are now numerous exchanges for every stock. That has caused the cost of trading to plunge. But it has also meant that each exchange is under pressure to keep costs to a minimum, which itself could be a deterrent to safety features."

Income Inequality, Inflation, The Fed

Mish's Global Economic Trend Analysis: Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity: "....The Fed and its inflationary policies are directly responsible for the massive rise in income inequality, yet numerous economists promote more inflation and taxation of robots as the solution."

Merger makes second-largest U.S. stock exchange

Merger to create second-largest U.S. stock exchange: "The consolidation in the exchange business is a global phenomenon as 24/7 trading that begins in Asia, moves to Europe and finishes in the USA becomes entrenched. In addition to Kansas City-based BATS' U.S. business, it also operates BATS Chi-X Europe, the largest stock exchange in Europe. Direct Edge, based in Jersey City, N.J., has been working towards opening a stock market in Brazil. The IntercontinentalExchange (or ICE) is nearing the completion of its acquisition of NYSE Euronext, the NYSE's parent company. Banks and high-frequency trading firms were behind the creation of BATS and Direct Edge. Direct Edge's O'Brien summed up the deal's virtues this way: "Direct Edge and BATS were both founded on a commitment to create an optimal trading experience for a diverse member base, from retail investors to broker-dealers to institutions. Together, the best of both organizations will work to further improve how the world trades, consumes market data, and accesses capital markets.""

US QE, Emerging Markets

US to relax quantitative easing but emerging markets grow tense | Business | "Brazil last week became the latest country to take emergency action to shore up its currency as anxious investors piled out of emerging markets. India, Indonesia, Turkey: there was more than a whiff of panic in the air as policymakers tried to reassure financial markets they remain a good bet. The Brazilian real has lost 20% of its value against the dollar since the start of the year, the rupee is down 15% and the Turkish lira down 10%. The situation has alarming echoes of the catastrophic Asian financial crisis of 1997-98. "

Wall Street, Insurers, Fiduciary Duty

Why Wall Street, Insurers Don't Want Fiduciary Duty - Forbes: "For individual investors and retirement plan investors, requiring that brokers and advisers all be fiduciaries is a game changer. Fiduciaries have to disclose all investment costs, conflicts of interests and are legally bound to put their clients first. But brokers and the insurance industry hate the idea. It’s a disruptor that would alter their business models and change their bottom lines forever, which is why they are creating massive barricades for the Securities and Exchange Commission and Department of Labor in their efforts to mandate fiduciary rules."

US Equities Markets, Rube Goldberg systems

Pricing Problem Suspends Nasdaq for Three Hours - "While regulators and market participants have taken several steps to strengthen their systems, the problems this week suggest that the flaws in the markets have not been repaired, and may actually be getting worse. “You have a very Rube Goldberg system,” said Gene Noser, co-founder of the brokerage firm Abel/Noser. “We’ve just put patches on it without attacking the basic problems.” The persistence of technical flaws — each seemingly coming from a different part of the system — has been blamed on the complexity of the trading technology and the fragmentation of the market itself. In contrast to the days when the New York Stock Exchange competed only with the Nasdaq, today there are 13 public exchanges competing in a fast-changing and low-margin business." (read more at link above)

The Fed, Stimulus Effects

At a Fed Conference, Views Differ Sharply on Stimulus’s Effect - "Policy makers from developing countries urged the Fed to clarify its plans so they can prepare for potential disruptions. Low interest rates in the developed world have sent vast quantities of money sloshing into those countries. Ms. Lagarde said that net flows to those countries had risen by $1.1 trillion since 2008, about $470 billion above expectations based on long-term trends. As rates rise, history suggests that some of the money may come sloshing back, with hugely disruptive consequences. Investors already are selling foreign currencies and buying dollars in the expectation that the Fed will begin to decelerate its stimulus campaign, allowing the dollar to strengthen. The Indian rupee lost 4 percent of its exchange value in about a week, prompting the Reserve Bank of India to impose restrictions last week on the outflow of money. Agustín Carstens, governor of the Bank of Mexico, said, “Advanced country central banks should mind the spillover effects of their actions.” He added, “Otherwise the crisis will be reactivated with new actors.”"

Startup Bitcoin-only margin trading platform

Startup opens Bitcoin-only margin trading platform | ZDNet: "Currently, if an investor wishes to trade on a Bitcoin exchange like Mt Gox, they need to manage one or more traditional currencies along with their Bitcoin currency, increasing the complexity and potential risk to them. To overcome this, Lee has developed a margin trading platform,, that is completely void of all currencies other than Bitcoin. Trades are placed in Bitcoin, payouts are in Bitcoin, and the deposit required to open a position on the platform is in Bitcoin. The second core feature of Lee's platform is that it is focused on margin trading, allowing investors to use additional investment to leverage their existing Bitcoin and increase their payouts. As with all margin trading platforms, this multiplies the reward for investment decisions that pay off, and also multiplies the risk involved if the market turns sour. . . ." (read more at link above)

London Whale Trades exposes folly of Regulations

Would Better Regulations Have Prevented the London Whale Trades? : The New Yorker: "....But JPMorgan seems to have violated pre-Dodd-Frank laws by failing to properly disclose the London Whale trades, and the government’s failure to detect them resulted more from institutional shortcomings than from inadequate rules. JPMorgan was supposed to be an expert in risk management with a “fortress balance sheet,” as the bank put it. If the London Whale was able to swim undetected there, one has to wonder what problems are lurking in other financial institutions and whether—new rules or no—our government is up to the task of protecting the public interest."

London Whale Trades, Regulations

Would Better Regulations Have Prevented the London Whale Trades? : The New Yorker: "The risk-measurement tool known as “Value at Risk,” or VaR, emerged from the seismic changes that shook the financial industry during the last two decades of the twentieth century. Commercial and investment banks were merging, going public, and increasing in scale. Just as these financial supermarkets began attracting ever-larger pools of capital from investors, there was an explosion of trading in exotic and complicated securities based on mortgages and other consumer debt. After the stock-market crash of 1987, banks became much more interested in developing more sophisticated risk-control mechanisms for their increasingly large and volatile portfolios. ..." (read more at link above) 

London and UK, Sailing Away from the EU

“We would still be the world’s sixth-largest economy. Countries such as South Korea ... do perfectly without huge trading blocs,” he said. “Similarly, many of the world’s biggest financial centres — such as ... Singapore ... do not have huge domestic economies behind them.” (source infra)

Sailing away from the EU could be a boon for City, says Icap chief Spencer - Analysis & Features - Business - London Evening Standard: "Spencer, a former treasurer of the Conservative Party, made it clear that he would overwhelmingly prefer the UK to succeed in renegotiating its position in Europe — but it should pull out if that were to prove impossible. “I do think that the UK and the City could thrive outside the EU,” he said. “If we pulled out, we could quickly take away a lot of the regulatory burden which is imposed on the City.  There would not be an exodus of business, an exodus of banks or an exodus of staff.” Spencer, who created what was then Intercapital in 1986, says he believes David Cameron is right to have given renegotiation such high importance." (read more at link above)

Stock Markets, Insider Trading

George Gilder Explains Why Stock Markets Have Devolved Into A World Of Noise - Forbes:
.... George: “I agree. I mean, the whole goal of the SEC and all these fair-disclosure laws and insider trading rules is to create what they call a ‘level playing field.’ But a level playing field by definition is a playing field with no information in it. The result is that most of the returns in the economy, most of the profits, migrate to the legal insider traders. And the legal inside traders are venture capitalists and private equity companies that are dealing in whole companies — and thus are permitted to have intimate knowledge of every investment they make — and conglomerates like Berkshire Hathaway and General Electric GE +0.72%. Which aren’t truly companies in a usual sense; they’re aggregations of assets that are acquired through intimate inside knowledge. So, most of the returns in the economy go where inside trading and inside knowledge is permitted, and meanwhile the public is pushed to the random walk down Wall Street....

The Gray Art of Insider Trading

The gray art of not quite insider trading : ""We used to be able to talk to investigators on drug trials," says Source A, a hedge fund portfolio manager. Like all the analysts, research directors, and portfolio managers who cooperated for this article, Source A requested anonymity. People don't want their names in a story about gray areas of equities research that border on insider trading. . . ."

Yen Seen Weakening to 105 Versus Dollar by Year End (Video)

Yen Seen Weakening to 105 Versus Dollar by Year End: Video - Bloomberg: "Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotiabank, a unit of Canada’s Bank of Nova Scotia, talks about the yen, Australian dollar, Indian rupee and the Indonesian rupiah. He speaks with Zeb Eckert on Bloomberg Television's "On the Move." (Source: Bloomberg)"

Draghi Clever says Brooks (Video)

Draghi Has Been Incredibly Clever: Brooks: Video - Bloomberg: "'s Kathleen Brooks discusses the outlook for the euro and Japanese yen with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)"

Investors Still Cautious About China (video)

Investors Still Cautious About China: Hewin: Video - Bloomberg: "Standard Chartered's Sarah Hewin discusses the state of the Japanese and Chinese economies with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)"

US Recession Began in 2012 says ECRI's Achuthan (Video)

U.S. Recession Began in 2012, ECRI's Achuthan Says: Video - Bloomberg: "July 30 (Bloomberg) -- Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, talks about the U.S. economy. Achuthan speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." (Source: Bloomberg)"

Freud, Gold, the Fed, and the Dollar

Freud and the Fed - The New York Sun: " . . . Mr. Krugman would have his readers believe that the Sun and the Journal have objections to a woman chairman the Fed. That’s because he dasn’t open up the question of the value of the dollar in the terms the framers of our constitutional system intended. The fact is that the founders of America would be appalled at the monetary system that obtains in America today . . . So would the creators of the greenback and the founders of the Federal Reserve itself. One hundred years ago Congress established the Fed on the express condition that, as it was put by the Fed’s leading congressional supporter, Carter Glass, nothing in the bill should be construed as a repeal of the law “providing a gold parity for all forms of money.” We have our doubts about what Keynes himself would have made of a dollar valued at but a 1,300th of an ounce of gold. . . ." read more at link above

Successful Market Timing, Urban Legend, One Question, Eurocrisis Again

Successful Market Timing is an Urban Legend | Servo Wealth Management: " . . . . After the fact, it’s not uncommon to hear heroic stories of investors with perfect prescience in 2008—getting out of stocks prior to the worst of the decline, only to jump back in early on and participate in almost all of the recovery.  Upon further inspection, it turns out even a well-orchestrated entry and exit from stocks would not have proved profitable on a risk-adjusted basis compared to a more balanced asset class portfolio that was simply held and rebalanced periodically through the ups and downs.  As is so often the case, 2008 reminds us the legend of successful market timing is more of an urban legend." (read more at link above)

The One Question You Must Ask Before You Invest - Forbes: What is your edge as an investor? (read more at link)

Mish's Global Economic Trend Analysis: Former ECB Chief Economist Warns "ECB Will Soon Have to Support France with Bond Purchases": "The Euro crisis will worsen in late autumn" (read more at link)

Jeremy Grantham on the Charlie Rose Show (video)

Jeremy Grantham on Charlie Rose Charlie Rose, March 12 2013: Jeremy Grantham, co-founder and Chief Investment Strategist of Grantham Mayo Van Otterloo (GMO), discusses investing in a low-growth world and the outlook for the US economy.

Detroit Will Be In Bankruptcy For A Long Time (video)

Harvey Miller: Detroit Will Be In Bankruptcy 'For A Long Time'  July 24 (Bloomberg Law) -- Harvey Miller, partner at Weil, Gotshal & Manges, tells Bloomberg Law's Lee Pacchia that Detroit's recently filed Chapter 9 bankruptcy case will not be an easy restructuring. In addition to the profound economic challenges facing the city and the limited ability of a bankruptcy court to force changes on its government, the fundamental tension between bondholders, pensioners and taxpayers could mean Detroit will remain in tangled up in litigation for a long duration of time. "There's going to be a lot of legal fighting in this," he says.

"All bets are off in bankruptcy court because you cannot tax a hollow shell. And what is Detroit but a hollow shell? Triumph of Math Over Unions - As for pension claims and the Michigan constitution? Same thing: You cannot pay what you do not have. This is the triumph of math and common sense over union greed, arrogance, threats, and coercion. Future Rating Impact - The Bond Buyer says Detroit Filing Could Impact Future Rating Analysis Read more at "

Miami, magnet for gold, international banking

Miami is a magnet for gold - Business - " . . . Although Miami may have a reputation for glitz and bling, few people realize it is one of the hubs for the nation’s gold trade. Last year — for the first time — gold was both the top import and export from the Miami Customs District, which includes airports and seaports from Palm Beach County to Key West. But the reality is most of the gold entered and left via Miami International Airport. More gold arrived in Miami than any other U.S. customs district last year . . ."

Sabadell buying Lloyds bank business in Miami - South Florida Business Journal: "The deal will require regulatory approval. It is related to the previous transaction in which Lloyds sold its business in Spain to Sabadell in exchange for a minority stake in Sabadell. The Banco Sabadell international branch in Miami, which serves foreign clients seeking to do business in the United States, generated $36.1 million in net income in 2012 – making it the most profitable of the 22 foreign bank branches in the state."

China, GDP crumbles, financial bind

China’s Financial Bind: "China’s slowing economy is challenging the government to enact reforms without exacerbating the problem."

China risks deflation trap as true GDP crumbles - Telegraph"“It is too late to avoid a hard-landing,” said Patrick Chovanec from Silvercrest Asset Management and a former professor at Beijing’s Tsinghua University. “To keep growth going they have to push extremely high levels of investment to even more extreme levels, and that is becoming very hard to do and very hard to finance.” “The economic return on credit is rapidly declining. They increased loans by $1 trillion in the first quarter, but growth slid anyway and is now below levels seen in early 2009 after the Lehman crisis. It is no longer out of the question that GDP will actually fall,” he said. . . ." (read more at link above)

Slow Moving Debt Crises, Bad Equilibria, Fiscal Policy Rules

Slow Moving Debt Crises and Fiscal Policy Rules - "a country may find itself in a self-fulfilling “bad equilibrium” with high interest rates"

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