US, Chinese Warships "Nearly Collide" In South China Sea

With the recent deployment of China’s air defenze zone, and the subsequent announcement of a comparable zone by South Korea which overlaps not only with China’s own, but with that of Japan, it almost seems like a scenario designed to provoke an escalating conflict on the tiniest of provocations is actively being produced. A scenario such as the one US defense officials revealed today, when a guided missile cruiser operating in international waters in the South China Sea was forced to take evasive action last week to avoid a collision with a Chinese navy ship maneuvering nearby.

Hold on: how can two massive ships, visible to the naked eye and certainly to radar from hundreds of miles away, “nearly collide”?

Reuters reports that the incident took place on December 5 and involved the USS Cowpens. The Pacific Fleet statement did not offer details about what led to the near-collision.

But it did say the incident underscored the need for the “highest standards of professional seamanship, including communications between vessels, to mitigate the risk of an unintended incident or mishap.”

The rest of the story is widely known:

Beijing declared the air defense zone over the East China Sea late last month and demanded that aircraft flying through the area provide it with flight plans and other information.

 

The United States and its allies rejected the Chinese demand and have continued to fly military aircraft into the zone, which includes air space over a small group of islands claimed by China but currently administered by Tokyo.

 

In the midst of the tensions over the air defense zone, China deployed its only aircraft carrier, the Liaoning, to the South China Sea for maneuvers. Beijing claims most of the South China Sea and is involved in territorial disputes in the region with several of its neighbors.

And so, the waters have been tested, so to speak, with a media “warning” on just how brazen China can be when it comes to its “aggressive” tactics in what we are confident the Chinese media will describe as its own maritime territory, begging the question of just who was provoking whom, especially since the response to a Chinese missile cruiser sailing idly by New York or San Francisco, even if in “international waters”, would hardly see the same controlled reaction by the US.

Then again, it has been only two weeks since China’s most recent “escalation.” We are confident that given time, this will be the least of the close shipping encounters that involve Chinese, US, Japanese and/or Korean navies in the East China Sea. After all, one must think of all that, GDP that as WWII taught us, can be easiest gained through some modest, or not so modest, international conflict.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/HmU28RkJt6M/story01.htm Tyler Durden

US, Chinese Warships “Nearly Collide” In South China Sea

With the recent deployment of China’s air defenze zone, and the subsequent announcement of a comparable zone by South Korea which overlaps not only with China’s own, but with that of Japan, it almost seems like a scenario designed to provoke an escalating conflict on the tiniest of provocations is actively being produced. A scenario such as the one US defense officials revealed today, when a guided missile cruiser operating in international waters in the South China Sea was forced to take evasive action last week to avoid a collision with a Chinese navy ship maneuvering nearby.

Hold on: how can two massive ships, visible to the naked eye and certainly to radar from hundreds of miles away, “nearly collide”?

Reuters reports that the incident took place on December 5 and involved the USS Cowpens. The Pacific Fleet statement did not offer details about what led to the near-collision.

But it did say the incident underscored the need for the “highest standards of professional seamanship, including communications between vessels, to mitigate the risk of an unintended incident or mishap.”

The rest of the story is widely known:

Beijing declared the air defense zone over the East China Sea late last month and demanded that aircraft flying through the area provide it with flight plans and other information.

 

The United States and its allies rejected the Chinese demand and have continued to fly military aircraft into the zone, which includes air space over a small group of islands claimed by China but currently administered by Tokyo.

 

In the midst of the tensions over the air defense zone, China deployed its only aircraft carrier, the Liaoning, to the South China Sea for maneuvers. Beijing claims most of the South China Sea and is involved in territorial disputes in the region with several of its neighbors.

And so, the waters have been tested, so to speak, with a media “warning” on just how brazen China can be when it comes to its “aggressive” tactics in what we are confident the Chinese media will describe as its own maritime territory, begging the question of just who was provoking whom, especially since the response to a Chinese missile cruiser sailing idly by New York or San Francisco, even if in “international waters”, would hardly see the same controlled reaction by the US.

Then again, it has been only two weeks since China’s most recent “escalation.” We are confident that given time, this will be the least of the close shipping encounters that involve Chinese, US, Japanese and/or Korean navies in the East China Sea. After all, one must think of all that, GDP that as WWII taught us, can be easiest gained through some modest, or not so modest, international conflict.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/HmU28RkJt6M/story01.htm Tyler Durden

5 Things To Ponder This Weekend – The Risk Edition

Submitted by Lance Roberts of STA Wealth Management,

"Twas the Friday before the Friday before Christmas…" and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering.  The optimistic view is an easy one.  While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital.  There is one simple truth about financial markets and investing:  what goes up must come down.   It is the downside risk that is most damaging to long term investment returns.  Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year. 

1) Three Very Bearish Charts via Pragmatic Capitalist

My friend Cullen Roche recently voiced this same view by stating: 

"I know it's not fashionable to be bearish about anything these days, but I guess I just can't kill the old risk manager in me. Given this predisposition, I wanted to highlight some potentially bearish indicators that have been popping up lately.  I'll highlight three such indicators:"

Those three indicators are:

1) S&P 500's negative to positive earnings guidance trends where the current reading of 11.4 is the worst reading since Thompson Reuters began recording the data.

 

2) Investors Intelligence bullish/bearish difference where the current reading is just shy of 40 where it was just prior to the sell-off in 2011.

 

3) S&P 500's year-to-date return broken down by EPS vs multiple expansion which shows that 21.9% of the total 26.5% return has been driven by individuals willing to pay more for less EPS growth.

As Cullen concludes; "Food for thought…"

2) Harry Dent's Demographic Cliff via Business Insider

In Dent's new book, "Demographic Cliff: How To Survive And Prosper During The Great Deflation Of 2014-2019," he makes some very interesting points:

"Young people cause inflation because they 'cost everything and produce nothing.' But young people eventually 'begin to pay off when they enter the workforce and become productive new workers (supply) and higher-spending consumers (demand).'

 

Unfortunately, the U.S. reached its demographic 'peak spending' from 2003-2007 and is headed for the 'demographic cliff.' Germany, England, Switzerland are all headed there too. Then China will be the first emerging market to fall off the cliff, albeit in a few decades. The world is getting older.

 

The U.S. stock market will crash. 'Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest.'

 

'The everyday consumer never came out of the last recession.' The rich are the ones feeling great and spending money, as asset prices (not wages) are aided by monetary stimulus.

 

The U.S. and Europe are headed in the same direction as Japan, a country still in a 'coma economy precisely because it never let its debt bubble deleverage,' Dent argues. 'The only way we will not follow in Japan's footsteps is if the Federal Reserve stops printing new money.'

 

"The reality is stark, when dyers start to outweigh buyers, the market changes.'"

 

It all comes down to an aging population, Dent writes. "Fewer spenders, borrowers, and investors will be around to participate in the next boom."  The U.S. has a crazy amount of debt and "economists and politicians have acted like we can just wave a magic wand of endless monetary injections and bailouts and get over what they see as a short-term crisis." But the problem, Dent says, is long-term and structural — demographics.

 

Businesses can "dominate the years to come" by focusing on cash and cash flow, being "lean and mean," deferring major capital expenditures, selling nonstrategic real estate, and firing weak employees now.

 

The big four challenges in the years ahead will be 1) private and public debt 2) health care and retirement entitlements 3) authoritarian governance around the globe and 4) environmental pollution that threatens the global economy.

 

"You need to prepare for that crisis, which will occur between 2014 and 2023, with the worst likely starting in 2014 and continuing off and on into late 2019," Dent concludes. "You can contribute to the solution by conserving your financial assets and reinvesting them after the crisis." 

3) Overcoming An Aversion To Loss via New York Times

Carl Richards recently wrote an important article discussing the need to overcome the aversion to loss.  For most investors, the biggest mistake that is made is failing to "cut their losers short" which ultimately results in severe losses which deteriorates portfolio performance over time.   If you have ever uttered the words "I'll just hold it until it comes back…;" then you suffer from an "aversion to loss."

"Turns out that most of us don't like losing. In fact, it's what the academics call loss aversion. We feel the pain of loss more acutely than we feel the pleasure of gain. In other words, we may like to win, but we hate to lose."

Aversion-to-Loss

"The psychologists Daniel Kahneman and Amos Tversky showed that even something as simple as a coin toss demonstrates our aversion to loss. In a recent interviews, Mr. Kahneman shared the usual response he gets to his offer of a coin toss:

 

In my classes, I say: 'I'm going to toss a coin, and if it's tails, you lose $10. How much would you have to gain on winning in order for this gamble to be acceptable to you?'

 

People want more than $20 before it is acceptable. And now I've been doing the same thing with executives or very rich people, asking about tossing a coin and losing $10,000 if it's tails. And they want $20,000 before they'll take the gamble.

 

In other words, we're willing to leave a lot of money on the table to avoid the possibility of losing.

 

We see this aversion to loss play out in the lives of real people when we try to make smart money decisions, especially when it's time to make a change to our investments. It almost doesn't matter what change we need to make. We hesitate to change from the current situation because it means having an opinion and making a decision. And with a decision comes the very real possibility that we'll make the wrong one. Sticking with the status quo feels much better even if we know it's costing us money."

4) Stanley Fischer Could Change The Game via The King Report

The majority of the arguments for a continuation of the bull market have fallen as interest rates have risen, valutions have climbed and earnings and revenue have slowed.  This has left the Federal Reserve's ongoing monetary interventions as a main driver of stock prices.  However, that may be about to change as recently noted by Bill King of The King Report:

"President Obama is considering a hawk, a central banker that hiked rates in 2009, to be the Fed VCEO.  He is close to nominating former Bank of Israel chief Stanley Fischer to become the vice chairman of the Federal Reserve, according to a person familiar with the matter…

 

Mr. Fischer is seen among economists as a dean of the central-banking community, who as a professor at the Massachusetts Institute of Technology professor in the 1970s and 1980s taught a number of the world's top policy makers in international economics. His students included Fed Chairman Ben Bernanke, European Central Bank President Mario Draghi, and Lawrence Summers, the former head of Mr. Obama's National Economic Council…

 

Stan Fischer saved Israel's economy. Can he save America's?

 

Fischer's results were more than enough to assuage any doubts. No Western country weathered the 2008-09 financial crisis better. For only one quarter — the second of 2009 — did the Israeli economy shrink, by a puny annual rate of 0.2 percent. That same period, the U.S. economy shrank by an annual rate of 4.6 percent. Many countries, including Britain and Germany, fared even worse. While they were languishing, by September 2009 Fischer was raising interest rates, all but declaring the recession defeated…

 

BN: Asked in an Oct. 11 Bloomberg Television interview when the Fed should begin tapering $85 billion in monthly bond buying, Fischer said, 'There is an efficient way to do it, which is to start doing it pretty soon and to do it gradually.'  He also bought up foreign currency in unprecedented amounts to drive down the value of the shekel and boost exports, more than doubling reserves…"

 

The Key to Forward Guidance? Don't Give It, Fischer Says   (September 23, 2013)

 

But Mr. Fischer said making such statements – known as forward guidance – can cause market confusion. "You can't expect the Fed to spell out what it's going to do," Mr. Fischer said. "Why? Because it doesn't know…We don't know what we'll be doing a year from now. It's a mistake to try and get too precise."

The game changer here is that if Fischer is indeed put into the position as Vice Chairman he could well throw a wrench into the plans Wall Street for endless injections of liquidity into the financial markets.

5) Corporations Haven't Raised This Much Money Since 2000 via Thompson Reuters

The title of this section alone should send up the warning flag, however, private equity firms and investment banks are bringing deals to market as fast as possible in order to maximum deal premium.  Historically, such a rush to market has been indicative of more important market tops and corrections.

"The amount raised by U.S. stock market listings so far this year has risen 38 percent on the same period in 2012, Thomson Reuters data showed on Friday, making it the strongest year since 2000.

 

This week's $2.4 billion IPO for Hilton Worldwide Holdings, which ranks as the third largest US listing this year after Plains GP Holdings ($2.9 billion) and Zoetis ($2.6 billion), pushed the dollar volume of US listed IPOs to $57.8 billion, a 38% increase compared to a year ago and the strongest year for US IPOs, by dollars, since 2000. Energy & power, healthcare, technology and real estate offerings account for 55% of overall activity so far this year, down from a combined 74% during year-to-date 2012.

 

Bank of America Merrill Lynch leads the r
anking of US listed IPO bookrunners with 12.5% market share, a 2.7 point increase compared to last year at this time. Credit Suisse, the top US IPO bookrunner at this time last year has fallen to eighth place, a decline of 3.5 market share points from 2012."

Investment-Banking-2013Things That Make You Go Hmm

I found this chart particularly interesting in light of the recent passage of the "Volker Rule" which in effect will make no substantative changes to how Wall Street operates or the risks taken that will ultimately create the next financial crisis.

Number-of-Vlocker-Rule-Meetings

Of course, if you are trying to keep the "fox out of the hen house" it is probably not the best idea to ask the "fox" how to best secure the roost. 

Have a great weekend.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6xlNiCbPl7A/story01.htm Tyler Durden

Safe-Havens Sought As Stocks Stumble To Worst Run In 4 Months

The small-cap-dominated Russell 2000 fell for the 2nd week in a row for its worst performance in 4 months (though bounced modestly off its 50DMA today). Stocks traded in a relatively tight range today – swinging around VWAP – following their only driver – JPY crosses, most of the day. NASDAQ 400 was rescued to ensure the headline-writers do not panic. Treasuries were flat to modestly better on the day but end the week mixed with 30Y -1bp and 5Y +5bps – collapsing the term structure to 6 week lows. Precious metals bounced to end the week +1%, which with the USD closing unchanged on the week, made them the outperformer across asset classes. VIX closed higher for the 4th day in a row (with the curve now its flattest in 28 months).

 

The S&P 500 is down 4 days in a row for the biggest drop in over 2 months and lowest close in a month but today was a VWAP dance…

 

Aside from a mid-afternoon, semmingly vol-driven dump and pump, stocks hugged VWAP and the flatline today (with Russell modestlly outperforming and NASDAQ underperforming)…

 

Gold and Silver were bid today (as WTI slipped)…

 

FX markets were volatile but JPY strength today dragged the USD back to unchanged on the week…

 

VIX closed at 2 month hghs and with short term risk the highest relative to medium term risk since August 2011…

 

 

The Treasury term structure has flattened dramatically in thelast week or so… to 6-week lows (and critical support)…

 

as it appears the bond market's "belief" in the recovery is fading…

 

Charts Bloomberg

Bonus Chart: The Nikkei and The Dow are fighting it out down here…


    



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42% Of Americans Know What Bitcoin Is

While 6% believe Bitcoin is an “Xbox game”, we are impressed that 42% of Americans polled by Bloomberg know what the virtual currency is. Furthermore, 55% believe it is “not better” that Bitcoin be regulated

 

 

Source: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/4hiW8OOqBtg/story01.htm Tyler Durden

Two Injured In Colorado School Shooting, "Active Shooter" On Scene

Another day, another school shooting. In a flashback to the Columbine tragedy, moments ago news broke that there were two people injured during an incident at Arapahoe High School in the 2200 block of East Dry Creek Road in Centennial, Colorado. According to Colorado’s 9news, Police are calling it an “active shooter situation.” No one is in custody at this time. The identity of the victims is not being released at this time. Arapahoe High School is a part of Littleton Public Schools. There are 70 different classrooms in the high school which covers a 254,000-square-foot area. There are 2,229 students that attend the high school. The school was built in 1964.

More as we see it.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9nX8SBZW564/story01.htm Tyler Durden

Two Injured In Colorado School Shooting, “Active Shooter” On Scene

Another day, another school shooting. In a flashback to the Columbine tragedy, moments ago news broke that there were two people injured during an incident at Arapahoe High School in the 2200 block of East Dry Creek Road in Centennial, Colorado. According to Colorado’s 9news, Police are calling it an “active shooter situation.” No one is in custody at this time. The identity of the victims is not being released at this time. Arapahoe High School is a part of Littleton Public Schools. There are 70 different classrooms in the high school which covers a 254,000-square-foot area. There are 2,229 students that attend the high school. The school was built in 1964.

More as we see it.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9nX8SBZW564/story01.htm Tyler Durden

Hedge Funds Underperform The S&P For The 5th Year In A Row

The $2.5 trillion hedge-fund industry is headed for its worst annual performance relative to U.S. stocks since at least 2005. As Bloomberg Brief reports, the funds returned 7.1% in 2013 through November; that’s 22 percentage points less than the 29.1% return of the S&P 500, with reinvested dividends, as markets rallied to records. Hedge funds are underperforming the benchmark U.S. index for the fifth year in a row as the Fed’s inexorable liquidity pushes equity markets higher (and the only way to outperform is throw every risk model out the window). Hedge funds (in aggregate) have underperformed the S&P 500 by 97 percentage points since the end of 2008.

 

 

Ironically, a glance at the chart should explain much of it – hedge funds are “hedge” funds and appear to have done a great job managing performance over time… but in the new normal world in which we live, where downside risk is irrelevant (until it runs you over), all that matters is return (not risk-reward)…

 

Chart: Bloomberg Brief


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ThsepxlDoC8/story01.htm Tyler Durden

Hedge Funds Underperform The S&P For The 5th Year In A Row

The $2.5 trillion hedge-fund industry is headed for its worst annual performance relative to U.S. stocks since at least 2005. As Bloomberg Brief reports, the funds returned 7.1% in 2013 through November; that’s 22 percentage points less than the 29.1% return of the S&P 500, with reinvested dividends, as markets rallied to records. Hedge funds are underperforming the benchmark U.S. index for the fifth year in a row as the Fed’s inexorable liquidity pushes equity markets higher (and the only way to outperform is throw every risk model out the window). Hedge funds (in aggregate) have underperformed the S&P 500 by 97 percentage points since the end of 2008.

 

 

Ironically, a glance at the chart should explain much of it – hedge funds are “hedge” funds and appear to have done a great job managing performance over time… but in the new normal world in which we live, where downside risk is irrelevant (until it runs you over), all that matters is return (not risk-reward)…

 

Chart: Bloomberg Brief


    



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