Tag: finance

“Hitler took over the Sudetenland with such methods,” warned German Finance Minister Wolfgang Schaeuble over the weekend, drawing parallels between Putin’s push into Ukraine and the start of the Nazi occupation of Europe. This did not go down well in Moscow and German Ambassador Ruediger Freiherr von Fritsch was summoned to the Russian Foreign Ministry as the Russians lodged an official protest. Merkel was quick to distance herself from the remarks (which Russia calls a “trick”) demanding that “a high-ranking official should take more responsibility for his words.”

Schaeuble’s comments…

“Nobody will be there to maintain order [in Ukraine],” Schaeuble said. Should such chaos ensue, Russian authorities may reason that “now we have some fascists threatening the population; now we have to protect them. We all know this from history. Hitler took over the Sudetenland with such methods.”

As Bloomberg reports,

Russian Foreign Ministry condemns German Finance Minister Wolfgang Schaeuble for drawing “pseudo-historical” parallels between annexation of Crimea and Hitler’s pre-war seizure of Sudetenland from Czechoslovakia.

 

The Hitler analogy is a “gross distortion of historical events and facts,” ministry says.

Russia’s foreign ministry statement:

A few days ago the German Finance Minister Wolfgang Schaeuble, speaking to students a Berlin school, spent unacceptable historical parallels between the reunification of the Crimea with Russia and Hitler’s seizure policy in 1938, the Sudetenland was then Czechoslovakia and the subsequent transfer of control of the whole Czechoslovak territory.

 

We believe this kind of pseudo-German Minister provocative digressions. Admitted they are rough analogy juggling historical events and facts. Occupying high government official ministerial post in Germany must give an account of his words. It is noteworthy that this trick from Schaeuble distanced themselves Chancellor Angela Merkel and Foreign Minister Frank-Walter Steinmeier.

 

Today, the Russian Foreign Ministry, Ambassador of Germany in Moscow appropriate representation was made.

And now Schaeuble is out defending himself…

• *SCHAEUBLE SAYS HE’S NOT `STUPID’ TO COMPARE HITLER WITH OTHERS
• *SCHAEUBLE SAYS GERMANY WANTS `GOOD PARTNERSHIP’ WITH RUSSIA
• *SCHAEUBLE SAYS HE WASN’T COMPARING HITLER AND PUTIN MAR 31

Hhhm, you decide if he was or was not…

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From Goldman’s just released annual shareholder letter:

The quality and breadth of our client franchise are a direct by-product of our ability to attract and retain high-caliber professionals. As an investment bank, our main asset is our people and the advice and solutions that they provide to our clients. Great people build great relationships. And, we are fortunate to have a diverse group of young people from around the world who continue to view Goldman Sachs as a great place to begin and sustain their careers. For our latest analyst class, more than 43,000 candidates applied for 1,900 positions. We accepted about four percent of those applicants and of those receiving offers, more than 80 percent accepted.

Or a lower acceptance ratio than Harvard with 23 applicants for every open position. Something tells us the average wage offered at Goldman is higher than that for line cooks, or for anesthesiologists for that matter. Yup:

… And with so few trade offs too.

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What did Janet Yellen do? Judging by the talking-heads or your favorite business media channel (or your friendly local asset-gatherer), she promised the Fed would hold everything up for longer and recovery (thanks to escape velocity growth at any moment) will be here any quarter… So what did she do that spanked all the high-growth hopes…

12 days in a row of dumping Biotechs…

But it’s the entire high-growth bubble hype that is popping…

Charts: Bloomberg

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Has the United States ever experienced a time when a foreign nation has attempted to buy up so much of our land all at once? As Michael Snyder details below, it appears the Chinese are on a real estate buying spree all over America as they are now the dominat 'buyers' of investment green cards. This is occurring as private equity buyers and hedge funds exit the buy-to-rent business en masse and are, as Mike Krieger explains, are desperate to pitch American property to anyone willing to keep Housing Bubble 2.0 inflated… it seems Zillow is more than happy to enable that, "Zillow agreed to make its U.S. property listings available to Chinese consumers through a partnership with a Beijing-based website."

As The American Dream's Michael Snyder explains, the Chinese are on a real estate buying spree all over America.  In fact, in some cases large chunks of land are actually being given to them.  Yes, you read that correctly.  China is on the way to becoming the dominant land owner in the entire country, and that is starting to alarm a lot of people.  Do we really want a foreign superpower to physically own so much of our territory?

There are some that are playing down this threat by making a distinction between the Chinese government and Chinese corporations, but things work differently over in China than they do here.  In China, the government is involved in everything.  In fact, 43 percent of all corporate profits in China are produced by companies that the Chinese government controls.  And all of the rest of the companies are very careful to follow the lead and direction of the Chinese government.

That is why what is going on in places such as Thomasville, Alabama is so alarming.  Small communities such as Thomasville are so starved for jobs that they are willing to give land away for free to Chinese companies in order to entice them to build factories…

Gov. Robert Bentley said Friday that he will announce an economic development project in Thomasville, Ala., Monday morning.

 

That project is likely a copper tube plant to be built by Golden Dragon Precise Copper Tube Group. A legal notice published Thursday indicates that the city of Thomasville and others intend to give land and other incentives to GD Copper USA, which state corporation records identify as a Florida-based subsidiary of Golden Dragon.

And in this particular case, we are not just talking about a small plot of land.  We are talking about a 40 acre chunk of land worth 1.5 million dollars…

The legal notice indicated the city plans to give Golden Dragon a 40-acre site. Thomasville Mayor Sheldon Day has said that land is in a city industrial park south of Thomasville High School. It includes a $1.5 million, 50,000-square-foot building that the city constructed in 2009 to attract businesses.

But in most cases, the Chinese actually have to spend money to acquire our real estate.  And they are starting to make some really high profile acquisitions in some of our most expensive cities…

China Vanke and Tishman Speyer signed a deal for a $620 million luxury condo project in San Francisco this winter. In April, another deal for a cool $1.5 billion was inked in Oakland between Zarsion and Signature Development Group.

 

In June, several big deals in New York City went down. Zhang Xin, CEO of Soho China , joined forces with the wealthy Safra family (of Banco Safra fame) of Brazil to buy a stake in the General Motors Building in Midtown, The New York Times reported on June 25. Dalian Wanda Group, another Chinese developer, is planning to build a greenfield luxury hotel in Manhattan.

In other cases, the Chinese are gaining control over vast tracts of U.S. territory by buying up our large corporations.

For example, when the Chinese purchased Smithfield Foods, they suddenly owned 460 large farms and became the top employer in dozens of communities all over the United States…

Smithfield Foods is the largest pork producer and processor in the world.  It has facilities in 26 U.S. states and it employs tens of thousands of Americans.  It directly owns 460 farms and has contracts with approximately 2,100 others.  But now a Chinese company has bought it for $4.7 billion, and that means that the Chinese will now be the most important employer in dozens of rural communities all over America.

And the Chinese seem to have a particular interest in economically-depressed areas of the country.  Perhaps they feel that now is the time to gobble up companies and properties in such areas for bargain-basement prices.  For instance, the following is from a CNBC article that detailed how the Chinese are aggressively “putting down roots in Detroit”…

Dozens of companies from China are putting down roots in Detroit, part of the country’s steady push into the American auto industry.

 

Chinese-owned companies are investing in American businesses and new vehicle technology, selling everything from seat belts to shock absorbers in retail stores, and hiring experienced engineers and designers in an effort to soak up the talent and expertise of domestic automakers and their suppliers.

Speaking of Michigan, one company known as “Sino-Michigan Properties LLC” actually had plans to buy up 200 acres of land near the town of Milan, Michigan.  The goal was to build an entire “China City” with artificial lakes, a Chinese cultural center and hundreds of housing units for Chinese citizens.

But that is nothing compared to the “China City” that was being planned for New York state.  The following is a short excerpt from one of my previous articles…

The Chinese have made trillions of dollars flooding our shores with super cheap products, and now they are using some of that money to buy land and property all over America.  For example, there is now a proposal to construct a multibillion dollar “China City” that would span approximately 600 acres in a remote area of New York state.  This “China City” (that is actually what it would be called) would be located on Yankee Lake in Sullivan County, New York.  The plans anticipate large numbers of Chinese businesses, plenty of homes for Chinese immigrants, a Chinese high school, a college, a casino and even a theme park.  And the first 600 acres is only for “phase one” of the plan.  Ultimately, the goal is for “China City” to cover more than 2,000 acres.  Those promoting this plan say that it will be a great way for New Yorkers to learn to appreciate Chinese culture.

But of much greater concern is the huge wave of real estate purchases that are quietly happening all around us every single day.

The following is from a recent CNBC article entitled “Chinese buying up California housing“…

At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, but the customers are largely Chinese.

 

“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”

So what happens when we get to the point when the Chinese government and/or Chinese citizens own 10 percent of all the real estate in the entire country?

Will it be a problem then?

What about if we get to 20 percent or 30 percent?

At what point will we be forced to admit that we have a major problem on our hands?

Many of our leaders seem resigned to the fact that the future will be dominated by communist China.

For example, the President of the St. Louis Federal Reserve recently stated that “attitudes in the U.S. are going to have to change” because America “will not permanently be the global leader”…

That’s according to Federal Reserve Board of St. Louis President James Bullard, who spoke to the Wall Street Journal on the sidelines of a conference during a recent visit to Hong Kong.

 

“Attitudes in the U.S. are going to have to change, because the U.S. will not permanently be the global leader,” Mr. Bullard said.

In fact, Bullard insists that it is inevitable that the U.S. will end up playing second fiddle to communist China…

In that case, “the U.S. would be playing a role to China similar to the role the U.K. plays to the U.S. today,” Mr. Bullard said. “People think it’s 50-75 years away but it’s probably only 25 or 20 years away, something like that.”

And this is one of the guys that is running the U.S. economy?

There is more than one way to dominate your enemy, and the Chinese understand this.

Sadly, most Americans have absolutely no idea what is happening.

And now, as Liberty Blitzkrieg's Mike Krieger adds, it appears Zillow is more than happy to hold the floodgates of Chinese buyers open in roder to keep the housing bubble 2.0 inflated…

…just last year I covered how corrupt Chinese are laundering their money through U.S. real estate in my post: Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate.

This is a very important trend that we must keep our eyes on in the years ahead. Particularly since private equity buyers and hedge funds can no longer make a return on buy-to-rent, the real estate industry will become increasingly desperate to pitch American property to anyone willing to keep Housing Bubble 2.0 inflated.

From Bloomberg:

Zillow Inc. agreed to make its U.S. property listings available to Chinese consumers through a partnership with a Beijing-based website.

 

E-House Holdings Ltd.’s Leju real estate site will carry Zillow listings that include homes for sale by agent and owner, units in projects under construction and foreclosures and short-sale properties, Seattle-based Zillow said today in a statement.

 

Chinese buyers spent more than $11 billion on U.S. real estate last year, with an average $425,000 purchase, Zillow said. The Leju-Zillow site, to be operated by the U.S. company, will be ready around midyear, according to the statement.

 

“Brokers and agents with listings on Zillow are now able to reach Chinese home shoppers who are ready to invest in the U.S. market, with no additional cost or effort,” Errol Samuelson, Zillow’s chief industry development officer, said in the statement.

Have fun being a peasant under your Wall Street and Chinese feudal lords.

Full article here.

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Tthe real backlash against HFT begins:

• INTERACTIVE BROKERS TO OFFER CUSTOMERS ACCESS TO IEX: CNBC
• INTERACTIVE CUSTOMERS CAN SPECIFY TRADE BE DONE VIA IEX: CNBC

And from CNBC which broke the news:

Interactive Brokers is launching a new service that will for the first time allow retail investors to specify that their orders only go on the new IEX trading platform.

 

IEX, whose founder Brad Katsuyama is the core character in author Michael Lewis’s new book “Flash Boys,” has said that its structure is designed to keep high-frequency traders from getting ahead of others’ orders.

 

IEX, which some have called an exchange, does not post public prices and as such is more like a “dark pool” for private trading.

 

Interactive Brokers is an online discount broker perhaps best known for its founder and CEO, Thomas Peterffy, the Hungarian-born billionaire who stars in the brokerage’s commercials.

And this is how the Goldman-backed IEX exchange proceeds to slowly take over lit markets, and take all important frontrunnable order flow – the lifeblood of HFTs of course- away from the vacuum tubes.

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Preseted with no comment…

Via Illinois State Police

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While we fail to see any occupations listed for “insider trading hedge fund managers” or “high frequency market manipulators” in the just released list by the BLS listing the number of workers and wages earned for all official US occupations, we supposed it will have to do, incomplete as it may be.

Below, sorted by average annual wage, are the Top 20 best paying jobs in the US including the average hourly wage and also showing the number of people the BLS believes are employed in each,  seasonally adjusted of course.

And here are the bottom 20, or worst-paying, US jobs. It is here the the minimum-wage debate is most acute… As is the debate just how motivated the workers in these 20 occupations really are.

Curious how many total workers are employed in the Top and Bottom 20 jobs? Here is the answer:

What may be more surprising is that while there are 8 times as many workers in the worst paid bucket as best-paid, the total compensation paid to these two buckets is virtually identical.

Moral of the story: Don’t become a line cook, kids.

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Bill Gross lost "Bob" this week. The death of his cat sparked some longer-term reflection on the hubris of risk-takers, the mirage of magnificent performance, and the ongoing debate in bond markets – extend duration (increase interest rate risk) or reduce quality (increase credit risk). As the PIMCO boss explains, a Bull Market almost guarantees good looking Sharpe ratios and makes risk takers compared to their indices (or Treasury Bills) look good as well. The lesson to be learned from this longer-term history is that risk was rewarded even when volatility or sleepless nights were factored into the equation. But that was then, and now is now.

Via PIMCO's Bill Gross,

Bob

There is a tragic end to all living things: They stop living. Our Maine Coon “Kitty” of 14 years stopped living last week. Her name was “Bob” and one of the sweetest animals that anyone could have had. I don’t think she minded having a boy’s name, at least she never mentioned it. We brought her home one afternoon after visiting our 3^rd cat show in as many months and asked the inevitable question – what shall we name her? Struggling for an appropriate label for a brown and black cat that to be honest looked more like a dog, and having just seen the Richard Dreyfuss and Bill Murray comedy of the same name the night before, I said “What about Bob?” We all laughed, but it stuck. She was Bob.

 

Aside from sleeping, Bob loved nothing more than to follow me from room to room making sure I was OK. It got to be a little much at times, especially when entering and exiting the shower. I’m not a particularly shy guy, but then why was a female cat named Bob checking me out all the time? Her obsession carried over to the TV, sensing when I was on CNBC and paying apt attention no less. I often asked her about her recommendations for pet food stocks, and she frequently responded – one meow for “no,” two meows for a “you bet.” She was less certain about interest rates, but then it never hurt to ask.

 

But before Bob, there were a number of loving pets in the Gross household. Most of you have had some as well; loved, and then lost them. For the Grosses there was Honey the golden retriever of all time, or at least the 20th century champion. She roamed the neighborhood in the more relaxed 1980s, bringing home stale loaves of bread like they were floating ducks on a pond. It wasn’t the bread so much (although it was that), as it was the praise for a good “find” and a pat on the head. Honey also loved rocks, some so big that it seemed her jaws would crack from the weight. Retrievers love retrieving, even if they’re loaves of bread or rocks. And then there was Wiggles and Daisy and Budgie – lovable pets every one of them and perhaps just as importantly – pets that loved us. I know you’ve had some too. So here’s to them and here’s to Bob. We buried her ashes in the backyard. Her gravestone reads just – “Bob”. What a girl, what a kitty girl that Bob.

Stanford’s Professor Emeritus William Sharpe was one of the originators of the capital asset pricing model, a class I took on the way out the door at UCLA’s Anderson School of Management and barely passed. A “C-” in business school is really an “F.” Guess I flunked it. He had another idea later known as the “Sharpe ratio” or, as amended, the “information ratio.” His logic said that higher returns from riskier assets such as stocks or high yield bonds must in some way be measured against their up and down volatility, and his ratio tries to do that for entire asset classes measured against Treasury Bills as well as individual portfolios measured against various indices. The higher the Sharpe ratio the better in general, and a ratio of .5 was generally considered an acceptable measure of an asset’s expected return vs. Treasury Bills or a manager’s ability to outperform an index over time via the “information ratio” hybrid.

 
Chart 1, courtesy of an exhaustive study by CreditSights, shows Sharpe ratios for various asset classes over the past 15 years. All assets shown in the chart exhibited positive Sharpe ratios. In a sense this is just a history lesson. The chart says that even when volatility (risk as commonly accepted) is accounted for, when those sleepless nights during 2000’s dotcoms or the panic of 2009 is factored into the wrinkles on your aging face, that you were better off holding anything but cash. Well yes, such is the long-term history of capital markets as we know them. “Assets for the long run” would make for a thin but rather informative book. Write one!

But on one of those thin pages the prospective author should introduce the caveat that the past 15 or even 30 years have been a rather remarkably short and non-volatile period of time, and future Sharpe ratios or other measures of risk/return may not exceed Treasury Bills in the same amount as before. A rather familiar graph of 10-year Treasury yields as shown in Chart 2 would hint at this. What I hope the reader will note is not only the dramatic decline in yields since the early 1990’s but the relative linear (non-volatile) path that they followed. Granted, for other asset classes such as stocks, there was 1987 and the aforementioned dotcoms and subprimes, but the linear path is clear: higher asset prices over long periods of time generated in part by the steady decline of 10-year Treasury yields to a 2012 bottom of 1.39%. A Bull Market almost guarantees good looking Sharpe ratios and makes risk takers compared to their indices (or Treasury Bills) look good as well. The lesson to be learned from this longer-term history is that risk was rewarded even when volatility or sleepless nights were factored into the equation. But that was then, and now is now.

 

This doesn’t seem to be very helpful for a bond investor at first blush. It implies that if you want more return than a Treasury Bill and a positive Sharpe ratio, then extend your duration. Yet “how much to extend?” would be an active manager’s question. Chart 3 provides some perspective although as noted, no positive conclusions, other than today is different than the past 15 years!
 

What Chart 3 implies is that today’s reward relative to risk – yield per unit of duration is more or less half of what it has been for the past 15–20 years. In order to get the same yield today for a single unit of duration for AAA, BBB, and HY bonds, an investor has to take twice the price risk! Since duration and correlated maturities are simply measures of interest rate risk, that may simply be pointing out that yields are historically low, and yes – they still are. But in order to capture other elements of return such as credit, curve, volatility and currency, the average bond investor must generally attach those elements of “carry” to a bond with a duration. Swaps, CDS, and FRN’s provide a partial escape but for the cash investor, today’s yield per unit of duration is only half of the markets’ 15–20 year historical measure, and that is very, very low dear reader.

How to confront this? There are at least two ways at the extreme, I suppose. Either double your position – double your duration – and maintain the same yield as historically noted or maintain or even lower your duration as a concession to an overpriced market that may continue to suffer increasing yields and lower prices. Do you want to “double up to catch up” as Vegas blackjack dealers used to encourage me, or are you willing to suffer the lower yields, wait for “mean reversion” as do some of our competitors, and hope that the client cash outflows don’t cash you out before you have a chance to play another game? Future Sharpe ratios and investment management firms hang in the balance.

Well, as Bill Sharpe’s contemporary Harry Markowitz? pointed out long ago, investing is a process of compromises involving diversification, and many times the compromise provides a return relative to risk that is more “efficient” than any other. If a portfolio were to seek a high Sharpe ratio using a Markowitz efficient portfolio, what might it look like today?

PIMCO recommends overweighting credit and to a lesser extent volatility and curve. Underweight duration. Although credit spreads are tight, they are not as compressed as interest rates, which are now in the process of normalization. While PIMCO agrees with Janet Yellen that such normalization will be a long time coming (the 12^th of Never?), probabilities suggest that as the Fed completes its Taper, the 5–30 year bonds that it has been buying will have to be sold at higher yields to entice the private sector back in. The 1–5 year portion of the curve, beaten up recently due to Fed “blue dot” forecasts and Yellen’s “six months after” comments, should hold current levels if inflation stays low, but 5–30 year maturities are at risk. Overall, because 2014 should be a relatively positive growth environment, carry trades in credit, curve and volatility should produce attractive Sharpe/information ratios. Return expectations however, for all unlevered assets and Markowitz generated portfolios will be in the low- to mid-single digits.

And what would Bob have meowed? Well, like I wrote, she was always more certain about pet food stocks, but then maybe kitty heaven has given her some additional insight. I shall have to ask her in my dreams. Sometimes dreams come true you know.

“Bob” Speed Read

1) High Sharpe ratios have been due to a long-term bull market. They will be lower in future years, as will asset returns.

2) Yields per unit of duration are historically low – half of their 15–20 year averages as shown by CreditSights.

3) Favor credit spreads and to a lesser extent, curve and volatility carry trades.

4) Treasure your pets and all living things. Eventually we all stop living.

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