- 10 Weekend Reads
- Meltdown: Secret History of the Global Financial Collapse
- Faster Than Light Neutrino Particles ?
- Notes From the Bloomberg Markets 50 Summit (Dalio, Ross, Block, Gensler, Tilson…)
- BMW M5
- The King Report: Parsing the Fed
- Tangled Up In Blue
- A Word About Precious Metals Margins
- Suppressing Financial Instability Increases Risk of Market Breakdown
- Something Phenomenal Happened
Posted: 24 Sep 2011 01:30 PM PDT
Some interesting reads for Saturday afternoon:
What are you reading?
Posted: 24 Sep 2011 11:30 AM PDT
Posted: 24 Sep 2011 09:24 AM PDT
Posted: 24 Sep 2011 08:00 AM PDT
From Andrew Horowitz of the (The Disciplined Investor:
Last week I attended the Bloomberg Markets 50 Summit in New York. The setting for the event was the transformed Great Hall of the Community House at St. Bartholomew's Church. The room was full of "jackets and ties" from all of the major brokerages, hedge funds and others involved in the fine art of investing.
The Bloomberg Staff were more than accommodating, friendly and informed. Everything was on a tight schedule as the event was being televised, so timing was to the second for the start at 9:55am. First a few words from Dan Doctoroff, president and CEO of Bloomberg to start off the morning and then he introduced the moderator and first panel of speakers.
The even was structured as a panel discussion, where the various speakers were comfortably seated on a lush white couches. Each panel had a topic and the moderators would ask for their insights on a specific topic. Overall the day was full of excellent and topical commentary and opinion focused on items that ranged from the European Crisis to Hedge Funds.
I was able to get some one-on-one time with Carson Block of Muddy Waters to discuss some of his recent findings in China. Nassim Taleb, famed author of Black Swans was not so kind and only could spend a minute or two. Stephen Roach, who just about tells you that he is always right, spared some time to talk with me about the rampant food inflation in Asia. I congratulated the John Chambers, the Managing Director and Chairman of Standard & Poor's Global Sovereign Rating Committee for the work they are now doing in keeping the world's government's honest. We spoke about the continuing problems and specifically addressed the outlook for France. I asked about the recent AAA rating and what is the outlook. Of course he could not provide specifics, but mentioned that everything is up for review and nothing is permanent. I got the feeling that there is more to this story…
After the formal discussion/panel with Gary Gensler, Chairman of the Commodity Futures Trading Commission, I was able to have a few moments to ask him about the oversight of the CME. In particular, I questioned him about the recent plunge in Gold and Silver prices for no apparent reason, when later that same day a margin hike was announced. Was this leaked and is the CFTC looking at these? He replied that he was unfamiliar with the specific situation that I was referring to (was he kidding I thought?) but that they are "more interested" with leaks of government data prior to the official release. Take a listen to the actual recording of that conversation – HERE.
As for an overview of the day, it was interesting to see that there was a high level of disapproval of what the White House and Congress has been up to. That makes sense as this was a group of business and investment pros and they are in the cross-hairs of the government's ambitious business-unfriendly programs.There was also a rather palpable negativity about the U.S. equity markets due to the current financial crisis unfolding in Europe. While there were a few panelists that had some upbeat comments, overall there was a lack of bullishness that I had expected from this group.
What follow are the notes that I took during the day. These are in no way a complete transcript of the panel discussions, but provide highlights of what I believed were the important points.
9:00am – 9:40am -Bernanke's Balancing Act
Posted: 24 Sep 2011 06:00 AM PDT
Posted: 24 Sep 2011 05:00 AM PDT
As expected the Fed announced that it would extend the maturity on its portfolio. It will buy $400B of US debt with maturities of 6 years to 30 years; and it will sell $400B of 3 years or less US debt.
32% of the Fed debt purchases will be 6-8 years; 32% will be 8-10 years; 4% will be 10-20 years; and 29% will be 20-30 years. The Fed essentially targeted and will monetize the expected amount of US Treasury new debt issuance in coming quarters.
The most important point of the FOMC Communiqué is the Fed greatly lowered its current economic assessment and now asserts that "there are significant downside risks to the economic outlook."
The Fed said "economic growth so far this year has been considerably slower than the committee expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out…"
The second most important point about the FOMC is: the Fed has spent one of its few remaining symbolic bullets. Only QE 3.0 [any type of monetization] and lowering the IOER remain.
All the Fed did was a partial appeasement of market expectations. There was no reduction in IOER.
The extension of the Fed's portfolio is a craven submission to the demands of a few Street pundits to do something, anything. It will accomplish nothing good for US consumers or the US economy.
As we have been screaming for the past several weeks, the Fed did NOT do a reenactment of Operation Twist, which stated purposes were to drive short rates higher and long rates lower.
The odds of QE 3.0 diminish as the election approaches; so the Fed could be out of the market unless a big bank bursts or a major systemic problem appears.
Stocks tanked after several minutes of jerking around because the extension of the Fed's holding is innocuous and even though the Fed sees 'significant' economic risks there is little hope of any new Fed action unless something really bad occurs. The prop that kept sellers constrained and some traders and investors in stocks, the possibility that the Fed will 'do something', has been removed.
Furthermore, trapped stock, commodity and economic bulls that unfathomably thought QE 3.0 would be enacted due to the extension of the scheduled September FOMC meeting to two days, to allow for a fuller discussion of policies, don't have that canard to use anymore. And they were dead wrong anyway.
Bill Gross called for the Fed do to Operation Twist in early June, as QE 2.0 was about to end. Then parrot-like pundits and commentators joined the chorus and called for Twist. The Fed appeased them.
One wonders if Gross or some pundit calls for the Fed to start practicing voodoo and other Street pundits parrot that call, will the Fed announce that it will start practicing voodoo to satisfy Street expectations.
The DJ Transportation Average cratered 5.27% on Wednesday. Land transportation companies led the
Weekly and monthly technical indicators suggest stocks are in bear market mode.
S&P 500 Index, monthly – MACD on rare monthly sell signal, last triggered in December 2007
Please note the very ominous descending triple top formation, on the highly significant monthly basis.
"The race is not always to the swift nor the battle to the strong, but that’s the way to bet." Damon Runyon
The Dollar Index formed a similar pattern that marked a significant top in 2001-2002.
The bottom line
Stocks are in a bear market; the global economy is teetering; Europe is imploding; the global banking system is dysfunctional; most sovereign debt no longer is 'risk free'; nations have spent trillions trying to prevent the collapse of socialism and crony capitalism; central banks have monetized trillions trying to paper over collapsing living standards, unaffordable government spending and zombie banks.
So pray tell, what will possibly spark an economic rebound? Lower rates? Government deficit spending? Consumers taking on more debt? Trillions have been spent on a miserable economic dead cat bounce.
The only solution is a massive purge and then the restructuring of government, banks and consumer balance sheets and spending habits.
The facts are clear. The [perceived] painless fixes are exhausted. The trends are clear. Why should one bet any other way? We're going with the swift and strong until proven otherwise.
Posted: 24 Sep 2011 03:49 AM PDT
At dinner last night, our friend Giselle mentioned she was starting to get into Dylan. When I said Tangled Up In Blue was one of my favorite songs, she stunned us by saying she hadn’t heard it yet.
Here is Dylan’s live acoustic version, and a few surprising covers :
More videos, lyrics after the jump
The Indigo Girls
Early one mornin’ the sun was shinin’,
She was married when we first met
I had a job in the great north woods
She was workin’ in a topless place
She lit a burner on the stove and offered me a pipe
I lived with them on montague street
So now I’m goin’ back again,
Posted: 24 Sep 2011 03:21 AM PDT
There has been a bit of misinformation and faux outrage about the CME margin requirements for Gold, Silver, and other precious metals, as well as Copper.
I do not think people understand what this means, and why the CME is doing this.
To begin with, commodities are purchased with futures contracts, which offer enormous leverage to speculators. As of this Monday, the minimum cash deposit for trading gold futures will be $11,475 per 100-ounce contract — at $1700 per ounce, that is a $170,000 position. The leverage is nearly 15 to 1. Stocks and bonds, for comparison, trade at 2 to 1 maximum leverage using firm margin. At 15-1, a less than 7% move against you wipes out your capital entirely.
Put it in other terms, if you have $100,000 to speculate with, you can purchase $200,000 worth of stock, or using the same $100k, you can buy $1,481,481.48 in gold futures.
Back in Q1 2009, when Gold was $1000 per ounce, you only needed $5,807.70 to buy 100 ozs of gold in futures (worth $100,000); That’s a little more than 17 to 1 leverage. At those levels, a less than 6% move against you wipes out your capital.
Hence, as Gold has been purchased by more speculators who are highly leveraged, the exchange is trying to ensure that these gold traders have sufficient posted cash as a margin of safety in case of any significant move against them.
Given the vertical spike in Gold prices the past few months, this is merely prudent risk management. Call it managing margin and counter-party risk — something we haven’t seen in other non exchange traded items like CDS or CDOs. Had they been exchange traded with margin rules, perhaps the 2008 collapse would not have been as significant as it was.
The recent history of CME margin changes for Comex 100 Gold Futures is after the jump.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Following are the percentage changes in the Comex 100 Gold Futures <0#GC:> initial and maintenance margins since 2009 (in U.S. dollars per contract) EFFECTIVE DATE MARGINS FOR INITIAL MAINTENANCE PCTCHANGE Sep 26, 2011 Spec...Tier 1 11,475.00 8,500.00 +21.4 Aug 25, 2011 Spec...Tier 1 9,450.00 7,000.00 +27.3 Aug 11, 2011 Spec...Tier 1 7,425.00 5,500.00 +22.2 Jun 20, 2011 Spec...Tier 1 6,075.00 4,500.00 -10.0 Jan 21, 2011 Spec...Tier 1 6,751.35 5,001.00 +11.1 Nov 16, 2010 Spec...Tier 1 6,075.00 4,500.00 +05.9 Apr 30, 2010 Spec...Tier 1 5,738.85 4,251.00 -14.9 Mar 02, 2010 Spec...Tier 1 6,747.30 4,998.00 -- Feb 12, 2010 Spec... 6,747.30 4,998.00 +24.9 Dec 15, 2009 Spec... 5,402.70 4,002.00 +20.1 Aug 21, 2009 Spec... 4,499.55 3,333.00 -16.7 Jan 22, 2009 Spec... 5,398.65 3,999.00 -07.0 Jan 08, 2009 Spec... 5,807.70 4,302.00 -- (Reporting by Soma Das in Bangalore; Editing by Bob Burgdorfer) Source: Reuters
Posted: 23 Sep 2011 10:00 PM PDT
Financial analyst and author Nassim Taleb demonstrated that suppressing market volatility in the short-run leads to much more violent bursts of dislocation and chaos in the long run.
Taleb learned many of his ideas from mathematician Benoit Mandelbrot (who discovered fractals). As Scientific American noted in 2008:
Similarly, Graham Giller – from Oxford University in experimental elementary particle physics, then strategy researcher and portfolio manager for Morgan Stanley – writes today:
Of course, Taleb, Mandelbrot and Giller's analysis of volatility means that the Fed and other central planners' attempts to prop up some asset prices or drive some indicators down as a way to reduce volatility could well lead to a more explosive crash of the entire financial system.
Suppressing Political Volatility Increases the Risk of a Breakdown in Existing Social Order
This principle not only applies to markets and finance, but also to sociology and politics.
"Those who make peaceful revolution impossible will make violent revolution inevitable. "
"If you shut up the truth and bury it under the ground, it will but grow, and gather to itself such explosive power that the day it bursts through it will blow up everything in its way."
Indeed, Taleb co-wrote an article in May with Mark Blyth – Professor of International Political Economy at Brown University – stating:
So the efforts of governments, powerful corporations and mainstream media all over the world to stifle dissent could backfire … and lead to a wholesale dissolution of the entrenched systems of power.
Posted: 23 Sep 2011 04:30 PM PDT
Something phenomenal happened during our Austin City Limits Festival live webcast this past weekend.
Full disclosure: I produce the live webcasts and the video at the ACL Festival (and Lollapalooza and Coachella).
Here’s what happened.
In addition to the live webcast of 50 bands, we were asked by YouTube if we could clear at least 4 artist-approved songs for the online Archives by the end of Friday night.
The YT Home Page promo went up mid-Saturday.
All these videos and dozens more below:
I just like this story.
And it’s surely not our video genius that’s making this happen.
Cults are far from the only ones to benefit from Fest webcasts.
So what changed in 2011?
So good for Cults AND Coldplay.
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