Marc Faber On Gold ‘Bugs’ And Equity ‘Cockroaches’

As he said all along “investors should have some exposure to gold” and Marc Faber has been adding recently as gold (and gold stocks) are so much cheaper than over-inflated stocks. Faber holds around 25% of his assets in gold becaquse he believes eventually the monetary policies of central banks will lead to a further loss of purchasing power in the value of paper money. The CNBC anchor is perturbed as the market is selling gold and buying stocks; to which Faber rebuffs; investors are shunning gold “because the media doesn’t like gold, nobody at CNBC owns gold. Nobody at Bloomberg owns gold. Gold is being constantly talked down by the media, and Fed officials, and economists, who also don’t own any gold. They’re all stocked up in equities.” “When people talk about people who are optimistic about gold, they call them ‘gold bugs.’ A bug is an insect. I don’t call equity bulls ‘cockroaches.’ Do you understand? There is already a negative connotation with the expression of ‘gold bug.’


via Zero Hedge Tyler Durden

Mortgage Applications Re-Plunge As Rates Tick Up 5bps

While the Fed’s magical money transmission mechanism in mortgages (and thus housing ‘wealth’) broke in the middle of last year, this last week’s move is a perfect summary of the sensitivity of whatever is left of the recovery. Mortgage rates rose a mere 5bps but this triggered a 7% plunge in refinancing activity. It appears clear from the chart below that, like most other ‘markets’ the Fed has intervened in, mortgages are broken – rising rates (from any Fed signaling of confidence in the economy or otherwise) will slump refi activity at the margin no matter how rosy the future; and lowering rates is now having no impact at all on the marginal homeowner’s ability to refi. That’s another fine mess you’ve got us into Bernanke/Yellen.



Charts: Bloomberg

via Zero Hedge Tyler Durden

Why ISIS Won’t Stop With Iraq

Submitted by Claude Salhani of,

The slaughterhouse that Iraq has become in the past week is the stuff that nightmares are made of. And this is just the beginning. 

The threat emanating from the group calling itself the Islamic State of Iraq and the Levant is so serious to the stability of the region — and beyond – that even Iran said it would not oppose U.S. military intervention if it were aimed at the Islamists who have embarked on a rampage of murder and looting across Iraq.

The stunning and unexpected victories by the Islamists are very worrisome. In a region that is no stranger to conflict, this one is particularly frightening and has far-reaching consequences, including the threat of spin-off groups similar to ISIS taking root in surrounding nations.

A militarily successful Islamist force straddling over parts of Iraq and Syria will pose a real threat to the security and stability of those countries’ immediate neighbors. Even Syria, where government forces are fighting their own civil war, has offered to send troops to Iraq.

Turkey, Jordan, Lebanon, and, of course, Israel, would be the first to feel the effect of a takfiri victory.  But so would Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE, Oman and Yemen. If ISIS is successful in Iraq, there is little reason to believe they would stop

Left unchecked, the Islamists could eventually threaten the stability of countries in Central Asia.

Here’s why the threat goes beyond Iraq and Syria.

In English-language news reports, there are at least two ways in which the group is referred to: Islamic State of Iraq and Syria, or ISIS, and the Islamic State of Iraq and the Levant, or ISIL.

In Arabic, of course, neither words – “Syria” or “Levant” — are used; instead, the word “Sham” is used. The closest translation of that into English is “Greater Syria.”

Many in the West are fooled by the use of the word “Syria,” and may fail to see the real dimensions of the threat because they think of Syria in the modern geographic sense. But that word, in Arabic, is “Souriya.”

Most Middle Easterners, when they hear, “Sham,” or “As-Sham,” know it refers to Greater Syria.

What’s the difference?

Modern Syria is bordered by Turkey to the north, Iraq to the east, Jordan and Israel to the south and Lebanon to the west.

“Greater Syria” incorporates most of the territories of each.

“This is what “Syria” means in the mind of Middle Easterners, says Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma, and author of the respected blog

“If we can teach people that so many Arabs still think of Syria as Greater Syria, they will begin to understand the extent to which Sykes-Picot remains challenged in the region,” said Landis.

Sykes-Picot, of course refers to the secret agreement drawn up by two British and French diplomats — Sir Mark Sykes and Francois George-Picot — at the end of Word War I dividing the spoils of the Ottoman Empires between Britain and France by drawing straight lines in the sand.

To this day, many Arabs refuse to accept that division and think of “Syria” as “Greater Syria.” Some go so far as to include the Arab countries of North Africa – which from the Nile to the Euphrates forms ‘the Fertile Crescent,” the symbol of many Muslim countries from Tunisia to Turkey. And some even go as far as including the island of Cyprus, saying it represents the star next to the crescent.

Given that, anyone who thinks ISIS will stop with Iraq is delusional.

via Zero Hedge Tyler Durden

Hillary Distances Herself From Obama Over Iraq, Iran, Syria, Russia, The IRS And NSA

You name the Obama administration scandal/screw-up and Hillary Clinton is distancing herself from it as she prepares to run in 2016 on a clean slate of 'well, I would have done it better/different'. As Reuters reports, recent interviews on Fox and CNN show her claiming she tried but failed to persuade Obama to arm the rebels fighting Syrian President Bashar al-Assad; that NSA spying was "absolutely uncalled for"; and that "changes need to be made at the IRS" seemingly disagreeing with Obama's claims that it was a "phony scandal." With friends (party colleagues) like this, who needs enemies.


As Reuters reports,

Potential Democratic presidential candidate Hillary Clinton pointed out her differences with President Barack Obama on Tuesday…


The former secretary of state said she, along with the then heads of the Pentagon and CIA tried but failed to persuade Obama to arm the rebels fighting Syrian President Bashar al-Assad, but that the White House resisted.


"It's very difficult, in retrospect, to say that would have prevented this," she said. She said it is too soon to tell whether American policy in Syria was a failure.

Iran and Russia

The former secretary of state, senator and first lady has been offering views that differ from Obama's on foreign policy in recent months, including on issues such as Iran's nuclear program and dealings with Russian President Vladimir Putin.


Clinton also said German Chancellor Angela Merkel had every right to be upset with disclosures that the National Security Agency had listened in on her cellphone as part of its large-scale surveillance of electronic communications in Germany.


"It was absolutely uncalled for," Clinton said, adding "That has nothing has to do with Angela Merkel's cellphone, and that should be off limits."


Fox News also asked Clinton about accusations that the Internal Revenue Service targeted the tax status of organizations with names linked to the conservative Tea Party movement and if she agreed with Obama's characterization that it was a "phony scandal."


"I think that any time the IRS is involved for many people it's a real scandal," she said. "And I think, though, that there are some changes that rightly need to be made to what is being said and I assume that the inquiry will continue.

With party colleagues and friends like this, who needs enemies…

Of course, other political allies are riding to Obama's defense… (via The Hill)

Senate Majority Leader Harry Reid (D-Nev.) said Republicans are wrong for blaming President Obama for the civil war in Iraq.


“This is an Iraqi civil war, and it’s time for the Iraqis to solve it themselves,” Reid said on the Senate floor Wednesday morning. “Those who say President Obama pulled troops from Iraqi too quickly are wrong and out of step with the rest of America. … It’s not worth the blood of the U.S. soldiers and the money of U.S. taxpayers.”


via Zero Hedge Tyler Durden

David Petraeus Warns Obama “There Is Great Risk” In Military Involvement With Iraq

The Army general who oversaw the U.S. military’s surge of troops into Iraq in 2007 issued a stark warning Wednesday on any further military action. As WaPo reports, Retired Gen. David Petraeus says a number of preconditions should be met before Washington intervenes in the growing crisis – the United States should not offer military support unless Iraqi Prime Minister Nouri al-Maliki (whoc has stated “it’s too late for regret,” is able to adjust political conditions there so that his Shiite-led government is seen as fair and representative throughout the country. The bottom line, he warns, “this cannot be the United States being the air force for Shia militias or a Shia on Sunni Arab fight. It has to be a fight of all of Iraq against extremists.”


As The Spectator reports,

The architect of the successful “surge” strategy that helped to quell the last great outbreak of sectarian violence in Iraq almost a decade ago said there was a great risk that the U.S. would be seen as picking sides in a religious battle that has been waged for generations.



If America is to support then it would be in support of a government against extremists rather than one side of what could be a sectarian civil war,” he said at the Margaret Thatcher Conference on Liberty in London. “It has to be a fight of all of Iraq against extremists, who happen to be Sunni Arabs, but extremists that are wreaking havoc on a country.”



Although Petraeus was careful not dismiss the idea of airstrikes entirely, he made it clear that his pre-conditions for support could not be met by the current government of Prime Minister Nouri al-Maliki.



You cannot have 18 to 20 percent of the population feeling disenfranchised; feeling that it has no stake in the success of the country, in fact it has a stake in the failure of Iraq.

But (as WaPo reports) it does not seem like Maliki is willing to compromise…

It seems unlikely that Maliki will move toward compromising with the Sunnis any time soon. He admitted on television Wednesday that his government has made some mistakes, but it was not the time to dwell on them.


“What has happened is a setback, but not all setbacks are defeat,” he said, according to The Washington Post. “It’s too late for regret.”

We are sure President Obama is listening, looking at his putt, listening, looking at his approval ratings, and will make the right decision.

via Zero Hedge Tyler Durden

What Growth?

So here we are yet again, another FOMC day, and more new all-time highs as Yellen goes on to say that all is well, the economy is growing (which according to the FED itself it is not), she doesn’t see a bubble in the stock market, and that we still need more highly accommodative policy for years to come. The Fed has yet again tapered, reducing the rate of purchases by $10B to $35B/month. Yet the SPX exploded to the 20th new ATH this year, while bonds also made a move higher. The funniest part about the whole press confernce, after the release of the statement, was that nobody asked Yellen how the economy is still growing despite the following headline: 

  • FED: 2014 GDP GROWTH OF 2.1%-2.3% VS 2.8%-3.0% IN MARCH





And the comedy doesn’t end there. She continues by saying:


So here is Yellen, saying that the low volatilty we are seeing across all markets, is not due to complacency. What is it due to then? Is she talking about the same markets that do not price in any risk, climb on a daily basis with no pullbacks, and rip higher on any chance of central bank intervention? Today we also saw the June VIX settlement, which came in at 11.74, making that the lowest print since Feb 2007. VIX cash also collapsed to Feb 2007 levels, closing at 10.61. We are truly doomed. Until then, just BTFATH’s. 


Yellen Sees No Bubbles, and “doesn’t see stock prices outside historic norms today”



Chart: @Not_Jim_Cramer


via Zero Hedge StalingradandPoorski

5 Cognitive Biases That Are Negatively Impacting Your Portfolio

Submitted by Lance Roberts opf STA Wealth Management,

George Dvorsky once wrote that:

"The human brain is capable of 1016 processes per second, which makes it far more powerful than any computer currently in existence. But that doesn't mean our brains don't have major limitations. The lowly calculator can do math thousands of times better than we can, and our memories are often less than useless — plus, we're subject to cognitive biases, those annoying glitches in our thinking that cause us to make questionable decisions and reach erroneous conclusions."

Cognitive biases are an anathema to portfolio management as it impairs our ability to remain emotionally disconnected from our money.  As history all too clearly shows, investors always do the "opposite" of what they should when it comes to investing their own money.  They "buy high" as the emotion of "greed" overtakes logic and "sell low" as "fear" impairs the decision making process.

Here are 5 of the most insidious biases that will keep you from achieving your long term investment goals.

1) Confirmation Bias

As individuals, we tend to seek out information that conforms to our current beliefs.  If one believes that the stock market is going to rise, they tend to only seek out news and information that supports that position.  This confirmation bias is a primary driver of the psychological investing cycle of individuals as shown below.


The issue of "confirmation bias" also creates a problem for the media. Since the media requires "paid advertisers" to create revenue, viewer or readership is paramount to obtaining those clients.  As financial markets are rising, presenting non-confirming views of the financial markets lowers views and reads as investors seek sources to "confirm" their current beliefs. Individuals want "affirmation" that they current thought process is correct.  As human beings, we hate being told that we are wrong, so we tend to seek out sources that tell us we are "right."

2) Gambler's Fallacy

The "Gambler's Fallacy" is one of the biggest issues faced by individuals when investing. As emotionally driven human beings, we tend to put a tremendous amount of weight on previous events believing that future outcomes will somehow be the same.

The bias is clearly addressed at the bottom of every piece of financial literature.

"Past performance is no guarantee of future results."

However, despite that statement being plastered everywhere in the financial universe, individuals consistently dismiss the warning and focus on past returns expecting similar results in the future.

This is one of the key issues that affect investor's long term returns.  Performance chasing has a high propensity to fail continually causing investors to jump from one late cycle strategy to the next.  This is shown in the periodic table of returns below. "Hot hands" only tend to last on average 2-3 years before going "cold."


I traced out the returns of the Russell 2000 for illustrative purposes but importantly you should notice that whatever is at the top of the list in some years tends to fall to the bottom of the list in subsequent years. "Performance chasing" is a major detraction from investor's long term investment returns.

3) Probability Neglect

When it comes to "risk taking" there are two ways to assess the potential outcome. There are "possibilities" and "probabilities." As individual's we tend to lean toward what is possible such as playing the "lottery."  The statistical probabilities of winning the lottery are astronomical, in fact, you are more likely to die on the way to purchase the ticket than actually winning the lottery. However, it is the "possibility" of being fabulously wealthy that makes the lottery so successful as a "tax on poor people."

However, as investors we tend to neglect the "probabilities" of any given action which is specifically the statistical measure of "risk" undertaken with any given investment. As individuals, our bias is to "chase" stocks that have already shown the biggest increase in price as it is "possible" they could move even higher.  However, the "probability" is that most of the gains are likely already built into the current move and that a corrective action will occur first. 

Robert Rubin, former Secretary of the Treasury, once stated;

“As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.


Most people are in denial about uncertainty. They assume they're lucky, and that the unpredictable can be reliably forecast. This keeps business brisk for palm readers, psychics, and stockbrokers, but it's a terrible way to deal with uncertainty. If there are no absolutes, then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.”

Probability neglect is another major component to why investors consistently "buy high and sell low."

4) Herd Bias

Though we are often unconscious of the action, humans tend to "go with the crowd."  Much of this behavior relates back to "confirmation" of our decisions but also the need for acceptance. The thought process is rooted in the belief that if "everyone else" is doing something, they if I want to be accepted I need to do it too.

In life, "conforming" to the norm is socially accepted and in many ways expected.  However, in the financial markets the "herding" behavior is what drives market excesses during advances and declines.

As Howard Marks once stated:

“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that 'being too far ahead of your time is indistinguishable from being wrong.'


Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian."

Moving against the "herd" is where the most profits are generated by investors in the long term. The difficulty for most individuals, unfortunately, is knowing when to "bet" against the stampede.

5) Anchoring Effect

This is also known as a "relativity trap" which is the tendency for us to compare our current situation within our own limited experiences.  For example, I would be willing to bet that you could tell me exactly what you paid for your first home and what you eventually sold it for.  However, can you tell me what exactly what you paid for your first bar of soap, your first hamburger or your first pair of shoes? Probably not.

The reason is that the purchase of the home was a major "life" event. Therefore, we attach particular significance to that event and remember it vividly. If there was a gain between the purchase and sale price of the home, it was a positive event and therefore we assume that the next home purchase will have a similar result.  We are mentally "anchored" to that event and base our future decisions around a very limited data.

When it comes to investing we do very much the same thing.  If we buy a stock and it goes up, we remember that event.  Therefore, we become anchored to that stock as opposed to one that lost value.  Individuals tend to "shun" stocks that lost value even if they were simply bought and sold at the wrong times due to investor error. After all, it is not "our" fault that the investment lost money; it was just a bad stock. Right?

This "anchoring" effect also contributes to performance chasing over time. If you made money with ABC stock but lost money on DEF, then you "anchor" on ABC and keep buying it as it rises. When the stock begins its inevitable "reversion," investors remain "anchored" on past performance until the "pain of ownership" exceeds their emotional threshold. It is then that they panic "sell" and are now "anchored" to a negative experience and never buy shares of ABC again.

In the end, we are just human.  Despite the best of our intentions, it is nearly impossible for an individual to be devoid of the emotional biases that inevitably lead to poor investment decision making over time. This is why all great investors have strict investment disciplines that they follow to reduce the impact of human emotions.

Take a step back from the media and Wall Street commentary for a moment and make an honest assessment of the financial markets today. Does the current extension of the financial markets appear to be rational? Are individuals current assessing the "possibilities" or the "probabilities" in the markets?

As individuals, we are investing our hard earned "savings" into the Wall Street casino. Our job is to "bet" when the "odds" of winning are in our favor. With interest rates at abnormally low levels, inflation rising, economic data continuing the "muddle" through and the Federal Reserve extracting their support; exactly how "strong" is that hand you are betting on?

via Zero Hedge Tyler Durden

Humpday Humor: The ‘Other’ Situation In Iraq

Via The Onion,


Violence has escalated in Iraq in recent weeks as the Sunni Islamist militant group ISIS has seized control of numerous cities and continued its advance toward the capital, Baghdad. Here is a primer to help understand the ongoing developments in the troubled nation:

  1. Valley gouged into earth by retreating Iraqi troops
  2. Truck not slowing down for checkpoint
  3. Ethnic, religious lines
  4. Field of wind turbines that this whole thing is really about
  5. Tantalizing mirage of sectarian unity
  6. Spot where American soldier lost four of his buddies for some vague, difficult-to-recall reason
  7. Lesser headache
  8. Brutal Chevron/BP infighting
  9. Charred remains of democracy
  10. Child given sweets by U.S. soldiers in 2006 steadying rocket launcher on shoulder
  11. Ancient Mesopotamian site known as the Cradle Of Disagreement
  12. Budding terrorist group we’ll have to worry about next year
  13. Lone Haliburton employee trying to rebuild entire nation
  14. NYU Basra Campus
  15. Area U.S. currently hoping to avoid at all costs

via Zero Hedge Tyler Durden

Fed CruciVIXion Sends S&P To New Record Highs

Having been told that there's no bubble in low quality credit, valuations are 'normal' in stocks, low volatility does not mean complacency, and there's no inflation (it's all noise you idiot); VIX was monkey-hammered to new cycle lows back to a 10-handle (lowest since Feb 2007). This smashing of vol led to a surging of "most shorted" stocks with the S&P hitting new all-time record highs. Post-FOMC, the S&P 500 rose 10 points, 10Y -4bps, 2Y unch, gold was unch, and the USD was -0.1%.


The CrucuiVIXion…


The short-squeeze…


The S&P surge…


tick for tick with VIX…


The broad stock market reaction…


The bond market reaction… (2Y unch)


The Gold reaction…


The USD reaction…



It is clear – The Fed would rather clean up the total disaster than attempt to avert it…

Charts: Bloomberg

Bonus Chart: WTF

via Zero Hedge Tyler Durden