Fourth Time Is The Charm For S&P 500 Which Finally Closes At A New Record High

The lucky number for the S&P500 was four, which after three aborted attempts to take out the January 15 all time high, finally succeeded on the fourth try materializing in a furious buying panic in Spoos in the last minutes of trading. However, in terms of catalyst, there was absolutely nothing to push the market to new highs: durable goods were a disappointment as we explained earlier (and led banks such as Barclays to further lower their GDP forecast for the year), while initial claims rose to the highest of the year. Which leaves only Yellen as the factor, although as can be seen on the chart below, one can just as easily say once US traders walked in today, the channel lift algo was activated, and with Spoos meandering all day in a straight line within the channel, finally burst through to highs with the closing print.

 

Of course, in a catalyst free world, it meant that something else was driving equities higher, and that something as usual was a carry funding pair, only today it was not so much the USDJPY as it was the AUDJPY shown below.

 

Not everyone bought it, however, with bonds trading in a tight range and closing at a lower yield once again, and now back to early 2013 levels. Then again, in the New Normal all that matters is the wealth effect, aka stocks. And what do bonds know anyway.

So with conflict in the Crimea, economic data continuing to deteriorate far beyond simply “weather”, emerging markets still unsettled and likely to get worse as the taper continues and the US current account deficit shrinking, and the Chinese economy set for a “volatile year” in its own words what can one say but… it’s all priced in.


    



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The “Institutional Investor” Housing Bubble Just Burst

It is by now well understood that the US housing market over the past year has not benefited from broad consumer participation, exhibited best by the unprecedented, 13 year low collapse in mortgage applications. And since bond yields which recently “soared” to 3.00% only to drop right back have not resulted in a spike in applicants for home mortgages, it is clear that the problem is far more broad and systemic and has to do more with affordability than any other aspect of the market. And yet one thing that did support the elevated, or as some call them, bubble prices, of US houses, was the bid from institutional investors: those “house flippers” who buy a home with the intent of either renting it out or selling it to a greater fool.

Alas, just like the rental bubble whose bursting we chronicled here just last week, so the institutional bubble has just popped, which we know courtesy of RealtyTrac data reporting that institutional investors — defined as entities purchasing at least 10 properties in a calendar year — accounted for 5.2 percent of all U.S. residential property sales in January, down from 7.9 percent in December and down from 8.2 percent in January 2013. This was the biggest one month plunge in history. It gets worse: the January share of institutional investor purchases represented the lowest monthly level since March 2012 — a 22-month low.

 

Some other RealtyTrac findings:

Metro areas with big drops in institutional investor share from a year ago included Cape Coral-Fort Myers Fla. (down 70 percent), Memphis, Tenn., (down 64 percent), Tucson, Ariz., (down 59 percent), Tampa, Fla., (down 48 percent), and Jacksonville, Fla., (down 21 percent).

Yet, unwilling to give up on this latest bubble craze, institutional investors are still hoping there is some last minute cash to be made in some remaining markets.

Counter to the national trend, 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share, including Atlanta (up 9 percent), Austin, Texas, (up 162 percent), Denver (up 21 percent), Cincinnati (up 83 percent), Dallas (up 30 percent), and Raleigh, N.C. (up 15 percent).

The rotation from one set of markets to another is shown on the chart below:

 

The following quote summarizes the situation best, and it also refutes the entire “harsh weather” excuse that has become so popular in recent months:

“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said Daren Blomquist. “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”

So with retail buyers long out, and cash buyers and institutional investors – which as readers know amount to about 60% of all purchases – on their way out, just what will be the next myth be that will be disseminated to percent the general public from realizing that the artificial housing market “recovery”, which was entirely driven by hot money, speculation, and hope of a quick profit? Because with QE also fading, and with it the MBS bid, not to mention the surge in foreclosure exits and the flood of foreclosed properties about to hit the market as we wrote yesterday, things for the US housing market are about to get very messy.


    



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American Flag Ruled a Disruptive School Influence

Can't we all just get along?Live Oak High School in Morgan
Hill, Calif., did not violate the free speech rights of students by
demanding that turn their shirts inside-out so that their American
flag images were not visible on Cinco de Mayo in 2010, a court
ruled. From the
San Jose Mercury News
:

In a unanimous three-judge decision, the 9th U.S. Circuit Court
of Appeals sided with the Morgan Hill Unified School District,
which had argued that a history of problems on the holiday
justified the Live Oak High School administrators’ decision to take
action against the flag-wearing students.

Live Oak officials ordered the students to either cover up the
U.S. flag shirts or go home, citing a history of threats and campus
strife between Latino and Anglo students that raised fears of
violence on the day the school was highlighting the Mexican
holiday. The school’s actions were reasonable given the safety
concerns, which outweighed the students’ First Amendment claims,
the court concluded.

“Our role is not to second-guess the decision to have a Cinco de
Mayo celebration or the precautions put in place to avoid
violence,” 9th Circuit Judge M. Margaret McKeown wrote for the
panel. “(The past events) made it reasonable for school officials
to proceed as though the threat of a potentially violent
disturbance was real.”

Hooray for the Heckler’s Veto. Now all students need to do to
suppress the free speech of others is to threaten to get violent.
Eugene Volokh over at the Washington Post notes how a
Supreme Court decision from 1969, Tinker v. Des Moines Indep.
Comm. School Dist.,
gives schools clearance to censor on the
basis of believing that an expression of free speech could cause
violence or disruption at the school. Such was the case here,
Volokh
notes
:

Yet even if the judges are right, the situation in the school
seems very bad. Somehow, we’ve reached the point that students
can’t safely display the American flag in an American school,
because of a fear that other students will attack them for it — and
the school feels unable to prevent such attacks (by punishing the
threateners and the attackers, and by teaching students tolerance
for other students’ speech). Something is badly wrong, whether such
an incident happens on May 5 or any other day.

And this is especially so because behavior that gets
rewarded gets repeated
. The school taught its students a
simple lesson: If you dislike speech and want it suppressed, then
you can get what you want by threatening violence against the
speakers. The school will cave in, the speakers will be shut up,
and you and your ideology will win. When thuggery pays, the result
is more thuggery. Is that the education we want our students to be
getting?

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Venezuelans Organize Protests and Avoid State Censorship With Walkie-Talkie App

Like with Arab Spring, protesters in Venezuela and Ukraine owe
their impressive organization to mobile social media apps.
Venezuelan authorities are particularly frustrated with Texas-based
Zello, a simple walkie-talkie app, for emerging as a leading tool
for the opposition. The government even tried to block it.

The peer-to-peer digital messaging app spread like wildfire to
600,000 Venezuelans last week after success in organizing Ukrainian
protests. Business Insider
reports
that it has “helped to mobilize marches, evade security
sweeps, and build barricades.”

The push-to-talk method allows users to communicate by pressing
a button and broadcasting to a group. The tool’s openness is a
tremendously popular feature (even if the government can listen
in). Groups can range from two to hundreds of thousands, although
only 600 can access a group at any given time. Additionally,
Business Insider
explains
:

Part of the appeal of Zello is the ability of the human
voice to carry so much more information than mere type, allowing
users to give impassioned speeches.

Zello can be used to circumvent state censorship. The app was
popularized during Turkish demonstrations last year to sidestep
state-imposed roadblocks. Similarly, Venezuelan authorities have

suppressed
speech in sporadic doses: it blocked picture and
video uploads to Twitter temporarily,
blacked out
Internet in the capital city for about 30 hours,
and removed neighboring Columbia NTN24 station from cable. There is
virtually no media coverage of the demonstrations in the state.

The government even
tried
to stamp out Zello through the publicly-owned
telecommunications company CANTV. But it hardly left a scratch. The
company re-released a functional version in under 24 hours.

Venezuelans are revolting for a variety of reasons, but
unaccountable government is a major motivation. Ed Krayewski of
Reason
explains
, “Maduro acted as if his government had a mandate to
do whatever it wanted, in the name of the people. Enough people
have now had enough intrusive government to push back.”

Social networks like Zello allow repressed citizens to retrieve
information and organize against unpopular measures or corrupt
behavior. The mix of digitally-situated free speech, protests
fueled by repression, and government censorship, seem to constitute
a formula in recent anti-government revolts, a feedback loop that
could inch nations toward transparency and improved governance. The
other day Google executive chairmen Eric Schmidt made a daring
prediction on CBS. Because of the Internet, state censorship “will
be effectively impossible,” he
said
. Perhaps “within a decade.”

Read more from Reason.com on Venezuela here.

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Rome Is On The Verge Of Detroit-Style Bankruptcy

With European peripheral bond yields collapsing every single day to new all time lows (primarily driven by Europe’s near-certainty that a US-style QE is imminent as we first showed here in November, despite Mario Draghi’s own words from November 2011 that a QE intervention is virtually impossible), increasingly more of Europe is trading just as safe, if not more, as the United States. And in keeping with the analogies, considering a major US metropolitan center, Detroit, recently went bankrupt, it is only fair that Europe should sacrifice one of its own historic cities to the gods of negative cash flows. The city in question, Rome, which as the WSJ reports, is “teetering on the brink of a Detroit-style bankruptcy.”

Rome, the eternal city, which survived two millennia of abuse from everyone may be preparing to lay its arms at the hands of unprecedented corruption, capital mismanagement and lies.

On the first day of his premiership, Matteo Renzi had to withdraw a decree, promulgated by his predecessor, that would have helped the city of Rome fill an €816 million ($1.17 billion) budget gap, after filibustering by opposition lawmakers in the Parliament on Wednesday signaled the bill had little likelihood of passing.

 

Devising a new decree that provides aid to Rome will now cost Mr. Renzi time and political capital he intended to deploy in promoting sweeping electoral and labor overhauls during his first weeks in office.

 

For Rome’s city fathers, though, the setback has more dire consequences. They must now face unpalatable choices—such as cutting public services, raising taxes or delaying payments to suppliers—to gain time as they search for ways to close a yawning budget gap. If it fails, the city could be placed under an administrator tasked with selling off city assets, such as its utilities.

 

“It’s time to stop the accounting tricks and declare Rome’s default,” said Guido Guidesi, a parliamentarian from the Northern League, which opposed the measure.

Alas, if one stops the accounting tricks, not only Rome, but all of Europe, as well as the US and China would all be swept under a global bankruptcy tsunami. So it is safe to assume that the tricks will continue. Especially when one considers that as Mirko Coratti, head of Rome’s city council said on Wednesday, “A default of Italy’s capital city would trigger a chain reaction that could sweep across the national economy.” Well we can’t have that, especially not with everyone in Europe living with their head stuck in the sand of universal denial, assisted by the soothing lies of Mario Draghi and all the other European spin masters.

So what is the catalyst that would push the city into default? Trash.

No really: an appeal for a €485 million transfer from the central government to compensate Rome for the extra costs it incurs in its role as a major tourist destination, the nation’s capital and the seat of the Vatican. “Rome is unique compared with other cities” and deserves state support because of huge numbers of visitors who use services but don’t contribute much to the economy, Mr. Marino said in a recent interview. But even before the government of Enrico Letta fell this month, the proposed transfer had prompted complaints that the aid was unfair, given the dire straits of other cities.

 

Rome has long struggled to balance its books. Because of its dearth of industry, the city depends heavily on trash-collection levies and the sale of bus and subway tickets. It struggles much more than other European cities to collect either one. About one in four passengers on Rome’s public transit system doesn’t buy tickets, costing around €100 million in lost revenue annually, compared with just 2% of passengers on London’s public transit network.

Meanwhile, employee absenteeism at Rome’s public-transit and trash-collection agencies runs as high as 19%, far above the national average.

But how can Rome’s clean up costs be a surprise? Well, they aren’t. What is however, is the severity of the recession that crushed the national economy.

Just six years ago, some €12 billion in city debts was transferred to a special fund subsidized and guaranteed by the national government in a move aimed at giving Rome a fresh start. But Italy’s economy has shrunk by almost 10% since then, eroding the tax base just as national austerity programs pushed extra costs onto local governments.

 

Even before the withdrawal of the “Save Rome” decree, Mr. Marino was facing unpalatable choices. He has already raised cremation and cemetery fees and plans to centralize city procurement, which he says will save €300 million a year.

 

Now, without the transfer from the central government, he may be forced to impose income and property tax surcharge—already among the highest in the country—and to cut salaries to the city’s 20,000 employees or trim city services such as child-care centers or job-training programs—also unpopular moves.

What would happen then is unknown, but hardly pleasant:

The political fallout could be severe. The mayor of Taranto, a southeast city that defaulted on €637 million in debt in 2006, has suffered some of the lowest poll ratings in the country after cutting back services.

Oh well, another government overhaul is imminent then, after all it is Italy. Just as long as it is not elected. Because then there woud be a chance that someone who actually sees behind the facade of lies, like Beppe Grillo for example, may just be elected PM, and then all bets are off.

Howeber, that will never be allowed, and instead Rome will almost surely be bailed out. That however would open a whole new can of worms as every other insolvent city demands the same treatment:

A new appeal for a special transfer to Rome could embolden demands that other cities in distress be helped, even though Italy’s public finances are already strained. Naples is close to having to declare bankruptcy. Reggio Calabria has been run by a special commissioner for the past three years, but may still default on €694 million in debt, according to Italy’s Audit Court.

And if all else fails, there is the nuclear option: “Some politicians say Rome should sell assets such as ACEA, the electric utility that is worth about €1.8 billion and is 51% owned by the city.

True: and Goldman, or some other bank filled to the gills with the Fed’s generous excess reserves, would be happy to swoop in and scoop up hard Roman assets providing it with just the right cover for creeping global encroachment. The benefactors? A select few equity shareholders. Because for every million or so peasants who suffer, a few rich men have to get even richer in the New Feudal Normal.


    



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Three New Zealanders Have Spent 2+ Months in Detention in the UAE, Still Uncharged After Drug Bust

patrick kennedy can move herePatrick Kennedy, the former congressman who
stopped using drugs in 2009 and launched Project SAM, a well-funded
marijuana prohibitionist group,
likes to say that
“incarceration is a powerful motivator.” As a
Kennedy, he must now this primarily from theory, not practice.
Nevertheless, even as a theory it’s a weak one. Forty years of drug
war has been a failure
by almost any measure
, even as America’s prison population
ranks as highest in the world. Incarceration doesn’t seem to be
motivating anyone outside of the drug warriors in law enforcement,
and elsewhere in government and out of it, who profit with their
very livelihoods from the criminalization of drugs. Could drug laws
be harsher?

Consider the United Arab Emirates (UAE), where
the New Zealand Herald
reports three citizens of New
Zealand have been detained since December after some kind of drug
bust, and none have yet been charged. One appeared for a ten-minute
hearing, which ended with an adjournment for three weeks. The
New Zealand Herald notes that the UAE has harsh drug laws;
one Briton in 2012 was sentenced to death by firing squad for
selling less than an ounce of marijuana. The threat of death
penalty hasn’t stamped out the UAE’s people engaging in non-violent
activity problem
“drug problem.”  Twelve people have
been sentenced to death in the country since 2007, though the
Herald stresses that an appeals process involving up to 19
judges means none of them have been executed, yet. And a UAE
prosecutor
claims
up to 30 men in the country of 9 million died of alleged
overdoses last year.

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Supreme Court Expands Police Power to Seize Your Assets Before Conviction

It’s been a banner week for law enforcement at the U.S. Supreme
Court. On Tuesday, in the case of Fernandez v. California,
the Court
broadened
the power of the police to conduct warrantless home
searches. But it was a decision handed down on Monday that’s likely
to have the greatest impact on our criminal justice system.

At issue in Monday’s ruling in
Kaley v. United States
is an area of the law known as
asset forfeiture. In essence, asset forfeiture is designed to help
law enforcement officials seize the ill-gotten fruits of criminal
activity, such as cash, cars, or homes. To that end, prosecutors
are permitted to freeze the assets of criminal suspects during
trial if there is probable cause to believe those assets constitute
“proceeds” of the alleged criminal activity. Notice that this
freezing occurs before the suspect has been duly convicted.

That timing matters a great deal to the plaintiffs in this case,
a married couple by the name of Kaley who have been indicted by a
federal grand jury on charges of selling stolen medical supplies.
That may sound like a finding of guilt, but in fact grand jury
proceedings are a non-adversarial process where the prosecution
alone is permitted to call witnesses and present evidence. The
suspects have no opportunity at that point to rebut anything the
government alleges against them.

In the wake of the grand jury indictments, the federal
government moved to freeze the Kaleys’ assets, including their home
and a $500,000 certificate of deposit the couple had recently
purchased in order to cover the anticipated legal expenses arising
from their trial. Put differently, the government has eliminated
their ability to pay their lawyer.

Writing for a 6-3 majority, Justice Elena Kagan sided with the
government. “The question here presented,” Kagan wrote, is whether
the Kaleys have a constitutional right “to contest a grand jury’s
prior determination of probable cause to believe they committed the
crimes charged. We hold that they have no right to relitigate that
finding.”

Writing in dissent, Chief Justice John Roberts zeroed in on the
dangers lurking in Kagan’s ruling. “The hearing the Kaleys seek
would not be mere relitigation of the grand jury proceedings,”
Roberts countered, it would be a hearing before a federal judge
aimed at determining if the prosecution had indeed proved probable
cause for the asset forfeitures. “And of course, the Kaleys would
have the opportunity to tell their side of the story—something the
grand jury never hears,” he added.

Furthermore, “the Court’s opinion pays insufficient respect to
the importance of an independent [criminal defense] bar as a check
on prosecutorial abuse and government overreaching,” Roberts
declared. “Granting the Government the power to take away a
defendant’s chosen advocate strikes at the heart of that
significant role.”

The chief justice got it right. Our criminal justice system only
works when both sides get the opportunity to put their best case
forward. Something has gone very wrong when the deck is stacked so
heavily against those who still remain innocent until proven
guilty.

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UK and US Collected Millions of Webcam Images … To Smear or Blackmail the Targets?

Newly-released Snowden documents show that the British and American spy agencies gathered and stored many millions of images from Yahoo web cam streams … and that a large percentage are naked or pornographic images.

Given that the spy agencies use porn to discredit activists – and apparently to blackmail critics –  it is worth asking whether that was the larger purpose for this spy program.

Indeed, Glenn Greenwald – who has seen all of the Snowden documents – tweets:

Regarding GCHQ/NSA collection of sex chat photos, remember they plot to use online sex activity to harm reputations ….


    



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Want To Outperform The Market? Just Trade Alongside The SEC

Goodbye SAC Capital. Hello SEC Capital.

A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and “that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular.” But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the “abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices.” In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!

From the study’s summary:

We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.

What questions? By now it is abundantly clear that enforcing a fair and efficient market is the last thing on the minds of SEC staffers. It is now also quite clear that in such times when said staffers are not browsing porn on the taxpayers’ dime, they are trading stocks on illegal, market-moving information.

And since not even the most sophisticated hedge funds can generate returns through shorting, maybe it is time for the government to do something right, and spin off SEC Capital as a standalone hedge fund.

The added benefit: the 2 and 20 fees said fund charges can be used to pay down a tiny fraction of US debt, and maybe hire real private sector regulators who will do the public agency’s job for a change.

Full study link here


    



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