Tag: finance

The capital markets have become artificial with all risk being mispriced due to Fed intervention.

 

The problem with this is that when the capital markets “break” due to a loss in credibility, the shift tends to be both swift and violent. I noted before that the yield on the ten-year Treasury is the basis for the pricing of all risk in the capital markets. With this yield being manipulated by the US Federal Reserve to the tune of $70 billion per month, the entire landscape for risk has become distorted.

 

This is not to say that there will not be substantial opportunities to make money in the capital markets going forward. Rather, I am stating that the capital markets will not be the safest, most stable places to do it. Risk in general is being mispriced today. There will be an adjustment and all investment in the capital markets needs to keep this in mind.

I wish to note that I’m not alone in the view that the capital markets are offering limited opportunities.

 

Stanley Druckenmiller founded his hedge fund Duquesne Capital in 1981. From 1986 onward he maintained average annual returns of 30%. He also managed George Soros’ Quantum Fund from 1988-2000. During that latter period he famously facilitated Soros’ “breaking of the Bank of England” trade: the legendary trade which netted over $1 billion in a single day.

 

Druckenmiller closed Duquesne Capital in 2010, stating that he was no longer able to meet his investment “standard[s]” in the post-2008 climate (he made money in 2008 before the Fed began to alter the risk landscape).

 

Druckenmiller’s key strength has always been macro-economic forecasting. That he would feel the capital markets were not offering him the opportunities he needed says a lot.

 

Seth Klarman is another investment legend who is returning capital to clients. Widely considered to be the Warren Buffett of his generation, Klarman recently cited a lack of “investment opportunities” as the cause for his decision to downsize his legendary Baupost Group hedge funds.

 

Other legends or market outperformers who have returned capital to investors or closed their funds to outside investors are Carl Icahn and Michael Karsch. Indeed, even value legend Warren Buffett is sitting on the single largest amount of cash in the history of his 50+ year career as an investor, stating that stocks are “fully valued” at current levels (Buffett largely does not believe in shorting the market, so his decision to be in cash is a strong indicator of opportunities).

 

These men are masters of the capital markets. They are voting with their feet and pulling their capital out of them. Given that their personal compensation is closely linked to assets under management and profit sharing, this decision is akin to the choice to forego additional wealth that could be made quite easily (none of these individuals would have trouble raising several billion more in capital) rather than trying to find opportunities in a challenging market.

 

For a FREE Special Report outlining how to protect your portfolio from this, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards

Phoenix Capital Research 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/BaD85UtIrG8/story01.htm Phoenix Capital Research

Just a few short weeks away, the opening ceremony of the Sochi Winter Olympic may go off with a bang, literally, judging by the amount of “terrorist” chatter surrounding the games. Today however, it is more than just chatter: earlier the Russian media reported that Russian security forces had come across multiple unexplained deaths and explosive devices in a region near Sochi, resulting in an aggressive “anti-terrorism sweep.”

The developments are bizarre to say the least:

A car with a body inside exploded as police approached it in Russia’s Stavropol Territory, reported Russia’s state-owned RIA Novosti, citing the Interior Ministry. In the same area, Russian authorities reportedly discovered a car containing the bodies of three men along with explosive material. The day before, two more bodies were found in the same region.

 

Russian officials are investigating the possible cause and motive for the deaths — a Russia analyst speculated to ABC News the deaths could be related to organized crime — but at any rate the mystery and the security sweep add to an already tense situation in southern Russia as the Olympics approach.

One person keeping a close eye on the developments is none other than president Obama, who as we reported yesterday, will unleash an ad blitz for Obamacare around the Olympics. The last thing he will want is for the participants in the games to have need of it. Which is why one can be certain that the NSA and various US security forces are already well aware of any potential sources of terrorism around the games. Sure enough, in a statement of condolences from the White House over the most recent Volgograd bombings, President Obama’s National Security Council slipped in an apparent jab at the Russian government over the security situation. “The U.S. government has offered our full support to the Russian government in security preparations for the Sochi Olympic Games, and we would welcome the opportunity for closer cooperation for the safety of the athletes, spectators, and other participants,” the NSC statement said.”

Some thoughts on who they may be:

Just 10 days ago more than 30 people were killed in dual suicide bombings in Volgograd, Russia, some 400 miles northeast of Sochi. By comparison, Moscow lies more than 850 miles north of Sochi. In October seven people were killed when a suicide bomber detonated explosives on a bus, also in Volgograd. The Stavropol Territory lies approximately halfway between Volgograd and Sochi – approximately 150 miles away from the Olympic site.

 

No group has publicly claimed responsibility for the bombings, but in the case of the October bus bombing, Russian authorities said the bomber hailed from Dagestan, a restive region in southern Russia to Sochi’s east that, along with Chechnya, is home to a violent Islamist insurgency that has fought Russian government forces for decades.

 

The leader of the insurgency, Doku Umarov, sometimes referred to as “Russia’s Osama bin Laden,” last June called on his followers to “do their utmost to derail” the Sochi Olympics, which he called a “satanic dance on the bones of our ancestors.” In the past Umarov has claimed responsibility for deadly attacks on Russian civilians, including the 2011 bombing of Moscow’s Domodedovo airport.

What is far more clear is who is providing the funding and supplies for the Islamists – the same puppetmaster who was behind the Syrian conflict. Recall:

Bandar told Putin, “There are many common values and goals that bring us together, most notably the fight against terrorism and extremism all over the world. Russia, the US, the EU and the Saudis agree on promoting and consolidating international peace and security. The terrorist threat is growing in light of the phenomena spawned by the Arab Spring. We have lost some regimes. And what we got in return were terrorist experiences, as evidenced by the experience of the Muslim Brotherhood in Egypt and the extremist groups in Libya. … As an example, I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us, and they will not move in the Syrian territory’s direction without coordinating with us. These groups do not scare us. We use them in the face of the Syrian regime but they will have no role or influence in Syria’s political future.”

Putin laughed in Bandar’s face, the Saudi natgas pipeline gambit in Syria failed, and as a result the escalation in Sochi is progressing just as Bandar implied it would. Naturally this puts Obama in a tough spot: he can’t openly act against Saudi interests once again after alieanting his ally in the region and take out the terrorist camps in Chechnya, but the last thing he would want is to cart home coffins of athletes.

Which means US participants are resorting to Plan B:

the U.S. ski and snowboard team this year will be overseen by a private security firm, which plans to have as many as five aircraft on standby in case of a medical or security emergency in Sochi. “This environment is unique,” Global Rescue CEO Dan Richards told USA Today Wednesday. “You just don’t have competitions in places like Sochi with any frequency. … In the last 10 years, there has been nothing like it.”

 

William Rathburn, who was the head of Olympic Security during the bombing of the 1996 Olympic Games in Atlanta, Georgia, told ABC News that while he’s confident Russian officials “have done everything they can” to secure the upcoming games, the odds of an incident are “very high.”

 

“It’s an opportunity for the Chechen [militants] or anyone else to embarrass Russia or [Russian President Vladimir] Putin, I think,” he said. “It’s far easier to protect against attacks on somebody who might be targeted, a group or country or delegation. [But] it’s clear that the people who conducted the two bombings in Volgograd are willing to indiscriminately kill people. It’s very difficult to protect against…”

And after last year in which Putin humiliated US and most western foreign policy on virtually every front, the number of people who want to embarass Putin is quite long.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/u1DtE-H_EaE/story01.htm Tyler Durden

Moments ago Alcoa reported Non-GAAP, adjusted EPS of $0.04, missing already meager and downward adjusted expectations of $0.06 while revenues declined to $5.585 billion from $5.898 billion a year earlier.

Additionally the company’s Free Cash Flow (EBITDA less Interest Expense less CapEx) dropped to just $143 million from $199 million a year ago. Which is understandable – after all the global economy is rapidly slowing down, and ultimately resulted in the biggest slap in AA’s face: the company’s expulsion from the DJIA.

But the one item that caught our attention in the just released earnings was the GAAP EPS: a whopping loss of $2.19/share. Ok so, Alcoa added back a few things to get the Non-GAAP number: about $2.1 billion in goodwill impairment and restructuring charges to be precise – happens all the time. The only problem is that for Alcoa, this indeed happens all the time! The chart below shows just how freely Alcoa abuses the non-GAAP EPS definition, and how adding back charges has become ordinary course of business for the alluminum company. Very much in the same way as adding back litigation charges for JPM is now a quarterly ritual.

In a nutshell: in 2013 alone, the company recorded $782 million in restructuring charges, all added back to non-GAAP earnings. This is more than the company’s operating income (excluding the goodwill impairment) for all of 2013… and 2012!

We wonder: at what point will anyone realize just how massive the schism between corporate GAAP and non-GAAP earnings has become?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/yLEQ8Cz9LfI/story01.htm Tyler Durden

Moments ago Alcoa reported Non-GAAP, adjusted EPS of $0.04, missing already meager and downward adjusted expectations of $0.06 while revenues declined to $5.585 billion from $5.898 billion a year earlier.

Additionally the company’s Free Cash Flow (EBITDA less Interest Expense less CapEx) dropped to just $143 million from $199 million a year ago. Which is understandable – after all the global economy is rapidly slowing down, and ultimately resulted in the biggest slap in AA’s face: the company’s expulsion from the DJIA.

But the one item that caught our attention in the just released earnings was the GAAP EPS: a whopping loss of $2.19/share. Ok so, Alcoa added back a few things to get the Non-GAAP number: about $2.1 billion in goodwill impairment and restructuring charges to be precise – happens all the time. The only problem is that for Alcoa, this indeed happens all the time! The chart below shows just how freely Alcoa abuses the non-GAAP EPS definition, and how adding back charges has become ordinary course of business for the alluminum company. Very much in the same way as adding back litigation charges for JPM is now a quarterly ritual.

In a nutshell: in 2013 alone, the company recorded $782 million in restructuring charges, all added back to non-GAAP earnings. This is more than the company’s operating income (excluding the goodwill impairment) for all of 2013… and 2012!

We wonder: at what point will anyone realize just how massive the schism between corporate GAAP and non-GAAP earnings has become?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/yLEQ8Cz9LfI/story01.htm Tyler Durden

Another day or 'spot the difference' between AUDJPY and the S&P 500 saw an odd overnight spike in stocks fade soon after the US open, bounce higher (again) at the European close then oscillate around VWAP (with the ever-ready-to-please 330 RAMP). Stocks remain red for the year and still the worst start since 2008. "Most Shorted" names continue to outperform. Copper and WTI crude were notable underperformers (both ending an oddly similar -1.75% on the week so far) with oil rebounding modestly off 8-month lows into the close. VIX and credit markets were quiet – ending practically unch ahead of tomorrow's NFP. CAD weakness continues (-2% on the week) but the USD leaked lower to unch on the week. Treasuries rallied 2-3bps (and the curve flattened very modestly) with 2Y unch and 10Y -3bps.

 

Spot The Difference

 

Stocks remain red for the year…

 

But on the week, "most shorted" names are significantly outperforming…. (squeezed each morning as usual)

 

Copper and oil have recoupled on the week (coincidentally) as gold ans silver limped higher on the day…

 

Credit markets have been flat for the last few days but hedgers were clearly worried early on…

 

Treasuries rallied all afternoon from the European close…

USD ended the week so far Unch – even after the vol today around Draghi's comments… CAD continues to get hammered…

 

Charts: Bloomberg

Bonus Chart: What is it with 5 oz of Silver for a barrel of oil?

 

Bonus Bonus Chart: The Baltic Dry is down over 25% in the last 2 weeks…

 

The worst post-Christmas Eve performance in over a decade!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7g29TxnFFNw/story01.htm Tyler Durden

Another day or 'spot the difference' between AUDJPY and the S&P 500 saw an odd overnight spike in stocks fade soon after the US open, bounce higher (again) at the European close then oscillate around VWAP (with the ever-ready-to-please 330 RAMP). Stocks remain red for the year and still the worst start since 2008. "Most Shorted" names continue to outperform. Copper and WTI crude were notable underperformers (both ending an oddly similar -1.75% on the week so far) with oil rebounding modestly off 8-month lows into the close. VIX and credit markets were quiet – ending practically unch ahead of tomorrow's NFP. CAD weakness continues (-2% on the week) but the USD leaked lower to unch on the week. Treasuries rallied 2-3bps (and the curve flattened very modestly) with 2Y unch and 10Y -3bps.

 

Spot The Difference

 

Stocks remain red for the year…

 

But on the week, "most shorted" names are significantly outperforming…. (squeezed each morning as usual)

 

Copper and oil have recoupled on the week (coincidentally) as gold ans silver limped higher on the day…

 

Credit markets have been flat for the last few days but hedgers were clearly worried early on…

 

Treasuries rallied all afternoon from the European close…

USD ended the week so far Unch – even after the vol today around Draghi's comments… CAD continues to get hammered…

 

Charts: Bloomberg

Bonus Chart: What is it with 5 oz of Silver for a barrel of oil?

 

Bonus Bonus Chart: The Baltic Dry is down over 25% in the last 2 weeks…

 

The worst post-Christmas Eve performance in over a decade!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7g29TxnFFNw/story01.htm Tyler Durden

"Remember the Greenspan/Bernanke put?" BNP's Julia Coronoado asks, well "welcome to the Bernanke/Yellen collar." As some expected, Coronada notes that there was substantial discussion in the December FOMC minutes about concerns about financial stability stemming from QE, and the role it plays alongside progress on their dual mandates in making monetary policy decisions.

As we noted, a number of participants stated concerns over small-cap multiples and cov-lite loans – and that shift to comprehending the costs of QE – as opposed to simply the 'apparent' benefits implies a regime change in the reaction function from a put under the market to a collar around the market – capping what was, until this point, thought an endless upside by many.

Via BNP's Julia Coronado,

The staff conducted a survey of the 17 FOMC participants over the inter-meeting period on the marginal costs and benefits of QE. The results suggested that "a majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue."

 

Among their financial market concerns, "several participants commented on the rise in forward price-to earnings ratios for some small-cap stocks, the increased level of equity repurchases, or the rise in margin credit."

 

In general "participants were most concerned about the marginal costs of additional asset purchases…pointing out that a highly accommodative stance of monetary policy could provide an incentive for excessive risk taking" and that "the risks to financial stability could be somewhat larger in the case of asset purchases than in the case of interest rate policy".

 

The Committee is not so concerned that they are not patient and data dependent, but in December the data were going in the right direction and "many commented that progress [in the labor market] to date has been meaningful, and some expressed the view that the criterion of substantial improvement in the outlook was…likely to be met in the coming year if the economy evolved as expected."

 

The baseline case seems to be tapering in measured steps completing QE around year-end if growth is in the vicinity of 3%, hiring continues or accelerates, inflation doesn't decline further, and financial markets stay reasonably well behaved.

Simply put – the Fed will react to falling asset values that destabilize economy, "and" asset values that rise too far and too fast or are fueled by leverage that may put economy at risk.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/TMYYB1dHFv8/story01.htm Tyler Durden

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

The following poll results from Gallup represent the most significant domestic news story I have come across in 2014 to-date. Gallup polling in 2013 showed that the highest number of Americans now identify as Independents since it starting asking the question 25 years ago. Specifically, 42% identify as Independents, versus 31% as Democrats and 25% as Republicans. Even more interesting, the trend accelerated as the year progressed. If we look at quarterly results, in 4Q13 46% identified as Independents, versus 29% Democrat and 22% Republican.

This is huge, huge news and it seems that my long held belief that both the Democrat and Republican parties are set to completely disintegrate during this current 4th Turning. Earlier in 2012, wrote a piece titled, The Seventy Percent, in which I predicted that no matter who would go on to win the Presidential election, 70% of the public would be disappointed.

This sets up huge opportunities for non-conventional candidates to gain control of local and national office in 2014 and beyond. While I hold out limited hope for traditional politics, we must fight on all fronts for secular reform and the window right now is wide open.

From Gallup.

Forty-two percent of Americans, on average, identified as political independents in 2013, the highest Gallup has measured since it began conducting interviews by telephone 25 years ago. Meanwhile, Republican identification fell to 25%, the lowest over that time span. At 31%, Democratic identification is unchanged from the last four years but down from 36% in 2008.

The results are based on more than 18,000 interviews with Americans from 13 separate Gallup multiple-day polls conducted in 2013.

In each of the last three years, at least 40% of Americans have identified as independents. These are also the only years in Gallup’s records that the percentage of independents has reached that level.

Democratic identification has also declined in recent years, falling five points from its recent high of 36% in 2008, the year President Barack Obama was elected. The current 31% of Americans identifying as Democrats matches the lowest annual average in the last 25 years.

The percentage of Americans identifying as independents grew over the course of 2013, surging to 46% in the fourth quarter. That coincided with the partial government shutdown in October and the problematic rollout of major provisions of the healthcare law, commonly known as “Obamacare.”

Americans are increasingly declaring independence from the political parties. It is not uncommon for the percentage of independents to rise in a non-election year, as 2013 was. Still, the general trend in recent years, including the 2012 election year, has been toward greater percentages of Americans identifying with neither the Republican Party nor the Democratic Party, although most still admit to leaning toward one of the parties.

The increased independence adds a greater level of unpredictability to this year’s congressional midterm elections. Because U.S. voters are less anchored to the parties than ever before, it’s not clear what kind of appeals may be most effective to winning votes. But with Americans increasingly eschewing party labels for themselves, candidates who are less closely aligned to their party or its prevailing doctrine may benefit.

Full article here.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Dkp0P4v1eyw/story01.htm Tyler Durden

2013 may have been a bad year for Bill Gross, but nobody had it worse than John Taylor. The former head of FX concepts saw his hedge fund – once an FX trading behemoth and the largest in the world with $14 billion in AUM in 2007 – crash, burn, and file for bankruptcy as we reported previously. But the cherry on top was the revelation that a year before its filing, Taylor personally guaranteed some $5 million of the FX Concepts’ debt owed to Asset Management Finance, a unit of Credit Suisse. Surely, such a sequence of events would be enough to turn even the staunchest financial addict away from the markets for ever. But not John Taylor – the former FX guru has a message for all of you: he is not only back, but is launching a newsletter…. oh and he has a Bloomberg terminal too.

From Reuters:

Three months after FX Concepts filed for bankruptcy protection, its founder John Taylor said he will manage funds again and focus on technical and quantitative research for the company that once ranked as the world’s largest currency hedge fund.

 

“The market is my home, not administration; I am back,” Taylor said in a letter to clients dated Jan. 9.

 

“The newsletter business will be the primary business asset and livelihood of John R. Taylor as it was years ago.”

 

In his letter, Taylor addressed FX Concepts’ troubles for the first time since it filed for bankruptcy protection on Oct. 17. He has not responded to requests for interviews and sources said he is currently in the midst of negotiations with banks.

 

“Things have changed and are still changin’ at FX Concepts where it is fair to say the world has been turned upside down,” said Taylor. “FX Concepts filed Chapter 11 in October, an ignominious end for our company.”

It sure was, but onward and upward to the best news:

“It is difficult to operate without phones, e-mail addresses, or even business cards, but I have rented an office and we have Bloomberg, CQG (market data provider), and friends in the banking world giving us information galore,” said Taylor.

Well in that case, where does one sign up for the $29.95 monthly newsletter. As for the newsletter’s contents: “a new series of updated medium-term and intra-day models have been created and will be launched as soon as Credit Suisse gives FX Concepts the approval.“

Will Credit Suisse also be a news letter client? Because there is nothing quite as liberating as paying someone with a virtual portfolio to tell you when to buy or sell based on sophisticated proprietary model that send out an alert anytime the 50 DMA trendline is crossed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/98jhR8mbBPo/story01.htm Tyler Durden

It’s official: as previously reported, Bitcoin is now accepted as Overstock.

Pleased to announce that #Bitcoin is live at #Overstock.com! http://t.co/mx9TFc8KNQ

— Overstock.com (@Overstock) January 9, 2014

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/owIVpXTV1e8/story01.htm Tyler Durden