Japanese real estate stocks were broadly speaking the worst global equity performers in the first quarter of 2014 along with broad weakness in Russia and China (note US consumer discretionary was the 25th worst equity index in the world). At the other end of the spectrum, the quarter belonged to everything Middle-Eastern with Dubai, Abu Dhabi, Egypt, and Qatar all soaring (along with – somewhat remarkably) Greece, Portugal, and Italy…
click image for colossal legible version
And the top and bottom 20 of the major indices that Bloomberg covers…
And in the US, here are the best and worst sectors…
Last week Congress overwhelmingly passed a bill approving a billion dollars in aid to Ukraine and more sanctions on Russia. The bill will likely receive the president’s signature within days. If you think this is the last time US citizens will have their money sent to Ukraine, you should think again. This is only the beginning.
This $1 billion for Ukraine is a rip-off for the America taxpayer, but it is also a bad deal for Ukrainians. Not a single needy Ukrainian will see a penny of this money, as it will be used to bail out international banks who hold Ukrainian government debt. According to the terms of the International Monetary Fund (IMF)-designed plan for Ukraine, life is about to get much more difficult for average Ukrainians. The government will freeze some wage increases, significantly raise taxes, and increase energy prices by a considerable margin.
But the bankers will get paid and the IMF will get control over the Ukrainian economy.
The bill also authorizes more US taxpayer money for government-funded “democracy promotion” NGOs, and more money to broadcast US government propaganda into Ukraine via Radio Free Europe and Voice of America. It also includes some saber-rattling, directing the US Secretary of State to “provide enhanced security cooperation with Central and Eastern European NATO member states.”
The US has been “promoting democracy” in Ukraine for more than ten years now, but it doesn’t seem to have done much good. Recently a democratically-elected government was overthrown by violent protestors. That is the opposite of democracy, where governments are changed by free and fair elections. What is shocking is that the US government and its NGOs were on the side of the protestors! If we really cared about democracy we would not have taken either side, as it is none of our business.
Washington does not want to talk about its own actions that led to the coup, instead focusing on attacking the Russian reaction to US-instigated unrest next door to them. So the new bill passed by Congress will expand sanctions against Russia for its role in backing a referendum in Crimea, where most of the population voted to join Russia. The US, which has participated in the forced change of borders in Serbia and elsewhere, suddenly declares that international borders cannot be challenged in Ukraine.
Those of us who are less than gung-ho about sanctions, manipulating elections, and sending our troops overseas are criticized as somehow being unpatriotic. It happened before when so many of us were opposed to the Iraq war, the US attack on Libya, and elsewhere. And it is happening again to those of us not eager to get in another cold — or hot — war with Russia over a small peninsula that means absolutely nothing to the US or its security.
I would argue that real patriotism is defending this country and making sure that our freedoms are not undermined here. Unfortunately, while so many are focused on freedoms in Crimea and Ukraine, the US Congress is set to pass an NSA “reform” bill that will force private companies to retain our personal data and make it even easier for the NSA to spy on the rest of us. We need to refocus our priorities toward promoting liberty in the United States!
It is perhaps little wonder that Virtu was in such a hurry to use the cover of the JOBS Act to IPO itself before the whole HFT ‘game’ was exposed. Just 5 years after we first drew the world’s attention to the potential damage that HFT could do; and mere minutes after we posted our article on how HFT is being set up to be the scapegoat for all that is broken with the market and conveniently distracting from the Fed, and god, or perhaps his agent on earth Goldman Sachs, ‘completely unexpectedly’ sends in the FBI:
*FBI SAID TO PROBE HIGH-SPEED TRADERS OVER ABUSE OF INFORMATION
*FBI Working With SEC, CFTC in High-Speed Investigation
*FBI Investigating Whether High-Speed Firms Trade on Nonpublic Information
Now, the question is: how many HFTs will stop trading for fear that any further trading on ‘non-public information’ will be deemed criminal from this point… or keep trading and lobby/hope that “a reasonable man” will believe their liquidity-providing lies.
London’s cobbled and quaint streets are no longer paved with gold as their fictitious character, Dick Whittington might have once believed in fairytale land. But, they certainly do attract the golden billionaire boys from around the world these days as London gets to the top position in the places to have a pad; but you don’t necessarily need to live there!
London is the new billionaires’ paradise according to new research that has just been released after analysis carried out on the high-end estate market by Beauchamp Estates ad Dataloft in the UK.
• There are 2, 170 billionaires in the world. • Net income combined stands at $6.46 trillion. • It stood at $3.08 trillion in 2009. • 60% are self-made billionaires. • 20% have inherited wealth. • 20% have a combination of inherited and acquired wealth. • 67 billionaires live in London, making it the top western capital. • Paris has 25 billionaires. • Geneva comes in at 3rd place in the list of cities in the western world that billionaires go to live in. But, it only has 18 of them and that’s despite the fact that it’s a tax haven.
What is the make-up of a typical billionaire, then? There are a few must-haves that every billionaire that has any self-respect needs:
• Over $83 million in real estate. • An average of four residences. • One of which must be in London to the tune of an average of over $38 million. • 42% of the wealth of a billionaire these days is in private holdings. • 35% is in publicly-held companies. • 18% in cash. • Just 3% in residential real estate. • 2% goes to artwork or travel expenses.
According to the study, if it’s under £10 million, then the residence is for the servants and not for the billionaires themselves.
But, will all the billionaires be staying in London, or will they be going there? Despite the financial crisis the safe haven of the world of real estate in London (in particular, in places such as Chelsea, Kensington, Knightsbridge and Mayfair) has risen by 23% since 2008 (the previous peak). London has seen super-prime properties change hands more often in London than in any other city in the world. In 2012, there were some300 super-prime sales made in the world and over 50% of them were in London. About one third of the people that bought those residences were British. The vast majority were from overseas.
According to recent studies, it’s the woes of the European Union periphery countries such as Greece, Portugal and Spain that have meant that the ultra-high-net-worth people have been moving their assets out of those countries and they have chosen London for the property increases that have been seen there. It’s the Russians who (until now!) have been the driving force also behind that market.
Apparently, each nationality has its idiosyncrasies when buying. Singaporeans need lots of staff and the quarters to go with it. The Russians need security and the Middle Eastern billionaires need elevators everywhere. Brokers make a standard commission of 1.5-2.5%, but that’s a hefty sum in itself. Although, along with immense wealth goes (hand in hand?) ‘pain-in-the-neck’ demands and 100% availability of the brokers. Remember that money buys anything and everything; it can buy your time and even gets its hands on you.
Just a few days ago data was released that showed that housing in London rose by an average of £11,217 in March 2014, meaning that they are now at an all-time high.
• That’s a 2%-increase. • The average property in London is worth £552,530, up 1.5% on October 2013 (previous high). • But, property in some of the most expensive boroughs fell. • Westminster fell by 2.3%, for example. • A slow-down in prime areas has occurred, and the price rises are now rippling out to other areas of London.
The oil magnates, Middle Eastern Royalty and heir’s to world power have a place on London’s most expensive street, also known as Billionaire’s Row (once it was just plain old Millionaire’s Row), The Bishop’s Avenue in north London. But, it is a derelict forgotten wasteland, where the owners buy and then never go there. The buildings fall derelict, but they go up in price.
Perhaps just like the fictitious character Dick Whittington, with accompanied cat in tow, when they get to London the billionaires band of boys might just realize that the streets are not at all paved in gold, but rather they are grimy and poverty stricken.
For all the talk about how High Frequency Trading has rigged markets, most seem to be ignoring the two most obvious questions: why now and what happens next?
After all, Zero Hedge may have been ahead of the curve in exposing the parasitism of HFT (anyone who still doesn’t get it should read the following primer in two parts from Credit Suisse), but we were hardly alone and over the years many others joined along to expose what is clear market manipulation aided and abeted by not only the exchanges but by the regulators themselves who passed Reg NMS – the regulation that ushered in today’s fragmented and broken market – with much fanfare nearly a decade ago. And yet, it took over five years before our heretical view would become mainstream canon.
One logical explanation is the dramatic and sudden about face by none other than Goldman Sachs, which from one of the biggest proponents of quant trading strategies including algo trading, and which used to make a killing courtesy of HFT (who can possibly forget Goldman’s charges against Sergey Aleynikov’s code theft which alleged “there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways“), has in recent weeks unleashed a de facto war on HFT, first with the Gary Cohn HFT-bashing op-ed, and then with the implicit backing of the IEX pseudo dark pool exchange, whose employee just mysteriously also is the protagonist of the Michael Lewis book that has raised the issue of HFT to a fever pitch.
So does Goldman know something the rest of us don’t that it is now ready to give up on the HFT goldmine which lost money on just one day in 1238? Why of course it does. And one would imagine that judging by the dramatic turnaround exhibited by Goldman that said something is very adverse to the ongoing future profitability of the HFT industry. The amusement factor only rises by several notches when one considers that Goldman also happens to be lead underwriter on the Virtu IPO offering: one wonders what they uncovered and/or what they know about the industry that nobody else does, and just how the VRTU IPO will fare now that Goldman is so openly against HFT.
But what does all of that mean for the big picture? We hinted at it yesterday, on twitter when we had the following exchange.
@LongOnlyTrader Only until market crashes. Then HFT will be the torches and pitchforks scapegoat. Not the Fed.
Could it indeed be that the only reason why HFT – which has constantly been in the background of broken market structure culprits but never really taken such a prominent role until last night, is because the market is being primed for a crash, and just like with the May 2010 “Flash Crash” it will all be the algos’ fault?
This is precisely the angle that Rick Santelli took earlier today, during his earlier monolog asking “Why is HFT tolerated.” We show it below, but here is Rick’s punchline:
Are regulators stupid when it comes to high frequency trade? Well, i think that there was a time where they were a bit slow to the party. But i don’t think it’s stupidity or ignorance or not paying attention. So let’s wipe that off. So the question i’m asking is, why do they let it continue?
Why is it that anybody would want HFT to be unchallenged or at least not challenge it now? My reason, this is just my reason, when i look at the stock market it’s basically at historic highs. When i look at what the federal reserve is doing, it’s mostly to put stocks on all-time highs. When i look at all the debt and all the programs that don’t seem to be making a difference except for putting stocks on all-time highs, i see that you have this tower of power with regard to the stock market. And nobody wants to challenge or alter hft because it is good to go that many days without having a loss. So my guess is when the stock market eventually deals with reality and pricing, which will come at a time when there’s not a zero interest rate policy and we’re long past QE, I think they’ll address it.
Rick’s full clip:
Precisely: when reality reasserts itself – a reality which Rick accurately points out has been suspended due to 5 years and counting of Fed central-planning – HFT will be “addressed.” How? As the scapegoat of course. Because since virtually nobody really understands what HFT does, it can just as easily be flipped from innocent market bystander which “provides liquidity” to the root of all evil.
In other words: the high freaks are about to become the most convenient, and “misunderstood” scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following…
Frontrunning: needs no explanation
Subpennying: providing a “better” bid or offer in a fraction of penny to force the underlying order to move up or down.
Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.
… will become part of the daily jargon as the anti-HFT wave sweeps through the land.
Why? Well to redirect anger from the real culprit for the manipulated market of course: the Federal Reserve. Because while what HFT does is or should be illegal, in performing its daily duties, it actively facilitates and assists the Fed’s underlying purpose: to boost asset prices to ever greater record highs in hopes that some of this paper wealth will eventually trickle down, contrary to five years of evidence that the wealth is merely being concentrated making the wealthiest even richer.
Amusingly some get it, such as the former chairman of Morgan Stanley Asia, Stephen Roach, who in the clip below lays it out perfectly, and explains precisely why HFT will be the next big Lehman-type fall guy, just after the next market crash happens. To wit: “flash traders are bit players compared to the biggest rigger of all which is the Fed.” Because after the next crash, which is only a matter of time, everything will be done to deflect attention from the “biggest rigger of all.”
Roach start 1:30 in the clip below.
So, dear HFT firms, enjoy your one trading day loss in 1238. Those days are about to come to a very abrupt, and unhappy, end.
Have you noticed the avalanche of IPOs in recent weeks? Remember the avalanche of IPOs in early 2000 and early 2007? John Hussman points out the inconvenient fact that 75% of the shitty recent IPOs lose money. Wall Street is dumping this crap on the muppets as fast as possible. They know it is late in the game and the party is just about over, but they will be dancing until the punchbowl is empty and everyone is puking in the bathroom. The lesson of history is that people never learn the lessons of history. Profits and cash flow matter in the long run. Accounting fraud and currency debasement have never sustained an economic system before and they won’t this time. Keep dancing if you choose, but you know the game is rigged and you aren’t part of the privileged rigger class.
As John Hussman explains in his latest note,
Fed-induced yield seeking is alive and well, but the desire for new “product” is being satisfied not with mortgage debt, but with low quality covenant lite debt and equity market speculation.With regard to the debt markets, leveraged loan issuance (loans to already highly indebted borrowers) reached $1.08 trillion in 2013, eclipsing the 2007 peak of $899 billion. The Financial Times reports that two-thirds of new leveraged loans are now covenant lite (lacking the normal protections that protect investors against a total loss in the event of default), compared with 29% at the 2007 peak. European covenant lite loan issuance has also increased above the 2007 bubble peak. This is an important area for regulatory oversight.
Meanwhile, almost as if to put a time-stamp on the euphoria of the equity markets, IPO investors placed a $6 billion value on a video game app last week. Granted, IPO speculation is nowhere near what it was in the dot-com bubble, when one could issue an IPO worth more than the GDP of a small country even without any assets or operating history, as long as you called the company an “incubator.” Still, three-quarters of recent IPOs are companies with zero or negative earnings (the highest ratio since the 2000 bubble peak), and investors have long forgotten that neither positive earnings, rapid recent growth, or a seemingly “reasonable” price/earnings ratio are enough to properly value a long-lived security. As I warned at the 2000 and 2007 peaks, P/E multiples – taken at face value –implicitly assume that current earnings are representative of a very long-term stream of future cash flows. One can only imagine that recording artist Carl Douglas wishes he could have issued an IPO based his 1974 earnings from the song Kung Fu Fighting, or one-hit-wonder Lipps Inc. based on Q2 1980 revenues from their double-platinum release Funkytown.
The same representativeness problem is evident in the equity market generally, where investors are (as in 2000 and 2007) valuing equities based on record earnings at cyclically extreme profit margins, without considering the likely long-term stream of more representative cash flows.
Corporate profits appear likely to contract over the next few years from a mean-reversion perspective. The chart below shows corporate profits relative to GDP, against subsequent 4-year growth in corporate profits (right scale inverted). While relationship is not exact, there is little reason to believe that the current near-record share of profits will be sustained indefinitely. A high share of profits relative to GDP is related, even in recent economic cycles, to weak subsequent profit growth over the next several years. Arguments that the economy that has “changed” in a way that invalidates this regularity had better identify something that has permanently invalidated all of economic history prior to about 2010.
And while some have thrown cold-water on Hussman's chart suggesting it is missing the key Foreign vs Domestic difference in corporate profits… as he additionally explains, here is the 'domestic profits only' version…
On the subject of profit margins, there’s no question that the difference between CPATAX/GDP and domestic profits/GDP (one can use GNP almost identically) is driven by foreign profits, which have increased as a share of U.S. profits in recent years (just as profits earned in the U.S. by foreign companies have increased). But even if we exclude foreign profits and focus strictly on domestic profits, we find their GDP share at a record high, and can still explain that outcome as the result of mirror-image deficits in combined government and household savings.
The disappointment on the faces of talking-heads everywhere is writ large as it appears Q1 2014 will be a flat quarter – the worst quarter in a year and a down one for the Dow. After promises of "as goes January" failed, and "it's just the weather", the promise of a magnificent H2 recovery remains firmly in traders' minds in spite of the total collapse in fundamentals during the last few months. Just how bad? Top-down economic data has plunged to its lowest in 19 months and bottom-up earnings forecasts… well, take a look…
Top-Down…
Bottom-Up…
h/t @Not_Jim_Cramer
Still believe it's all about fundamentals… and earnings are the mother's milk of stocks?
I’ve chronicled the saga of “buy-to-rent” for well over a year now. From some of its most exuberant phases to its now epic retreat (investment firm property purchases are now down 70% year-to-date).
It seems as if the pullback of private equity and hedge funds from this asset class is even more brutal in certain regions, with Blackstone now reporting its purchases in California down a staggering 90% this year.
Not to worry, I’m quite certain unemployed and deeply indebted recent college graduates will soon pick up the slack due to the anticipated resurgence of subprime lending.
From the LA Times:
This time last year, investment firms raced to buy dozens of single-family homes in neighborhoods from Fontana to South Los Angeles to lease them out, transforming the mom-and-pop rental business into a Wall Street juggernaut.
But now the firms themselves have all but stopped buying in Southern California, the latest evidence that home prices have hit a ceiling. The professional investors no longer see bargains here.
The real estate arm of Blackstone Group, the largest buyer, has cut its California purchases 90% over the last year, a spokesman said. Santa Monica company Colony Capital reports a similar retreat. Oaktree Capital of Los Angeles, meanwhile, is looking to cash out by selling its portfolio of more than 500 homes, many of them in Southern California.
But prices have since been flat in Southern California. Many families are taking a pass on the more expensive homes. And the math doesn’t work on Wall Street either.
“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it and still make a reasonable return,” said Peter Rose, a spokesman for Blackstone, which owns roughly 41,000 rental houses nationwide. “There was a moment in time where it made sense.”
On Wednesday, some of the bigger players launched a trade group, the National Rental Home Council, to advocate for their interests in Washington.
Yep, just what we need.
“People want to live here, whether they buy or rent,” said Gary Beasley, chief executive of Oakland company Starwood Waypoint Residential Trust.
“Most of the low fruit has been harvested, but there’s still plenty of fruit in the tree,” Beasley said. “And we’ve got fruit pickers.”
Another day, another disaster for GM. Moments ago, on top of the already previously reported numerous recalls by the car marker bailed out by the US government at a loss (but with so many votes for Obama won that who’s counting), here is the latest.
GM TO RECALL MORE THAN 1.3 MILLION VEHICLES IN THE U.S.
GM EXPECTS TO TAKE A CHARGE OF UP TO APPROXIMATELY $750M
GM CHARGE INCLUDES PREVIOUSLY DISCLOSED $300M CHARGE
And the punchline:
GM SAYS VEHICLES MAY EXPERIENCE SUDDEN LOSS OF POWER STEERING
Alas, as a result, hedge fund hotels may experience sudden loss of P&L, because as we reported previously GM just happens to be the most widely held hedge fund stock in the US currently, with some 194 brand name hedge fund holders according to Goldman Sachs, more than even Apple.
So what happens when the hedge fund hotel decides to exit only to realize that the name of the hotel is California? The answer will present itself quite soon.