Tag: finance

Over the weekend, we reported that as Bitcoin’s unprecedented, Caracas-like surge continues, legislators are finally starting to pay attention to the digital currency, a process that will culminate with a hearing on November 18 titled “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies,” in which witness would be invited to testify about “the challenges facing law enforcement and regulatory agencies, and include views from “non-governmental entities who can discuss the promises of virtual currency for the American and global economies.” Which as everyone knows is code word for creeping, smothering regulation, especially since as was reported earlier, the FEC is debating allowing the use of Bitcoin for political donations (trust America’s corrupt politicians to always pay attention to anything that appreciates a few thousand percent in one year).

However, one person is not waiting that long: Ben Lawsky, the New York financial services superintendent, is looking to regulate Bitcoin now by issuing BitLicenses for business that conduct transactions in Bitcoin, and to that end he will conduct a public hearing to discuss the “burgeoning world of digital money.” Participants will discuss the feasibility of a license that would make the virtual currency market more like those for other forms of money. In other words: it will make BitCoin just like the fiat currency it is trying to replace, at least in the eyes of the government. At which point the primary utility of Bitcoin – as an unregulated medium of exchange- itself disappears.

 

Ben Lawsky with a Bloomberg terminal featured prominently in the background, photo credit NYT

From the NYT:

If the plans go ahead, it would be an important step in bringing bitcoin and other virtual currencies closer to the financial mainstream. In another move in the same direction, the Federal Election Commission held a hearing on Thursday in which it considered whether to legalize campaign donations made in virtual currencies.

 

Since bitcoin was created in 2009 by anonymous programmers, it has frequently been treated with derision by many financial insiders and authorities, who have described it as a speculative mania. Many authorities still hold to that position, but the currency’s online network, which is not controlled by any centralized authority, has survived several crises.

But the truth behind the scenes is simpler:

Several regulators have been looking at ways to make sure virtual money cannot be used for laundering money or other criminal purposes. In October, the federal authorities arrested the operator of an online marketplace where they said bitcoin could be used to buy drugs and other illegal goods.

 

“The cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running and child pornography,” Mr. Lawsky said in a letter announcing the hearing, which has not yet been scheduled.

So please everyone think of the children and some such hypocrisy.

And speaking of Hypocrisy, the last sentence of this paragraph has no peers:

“Virtual currencies may have a number of legitimate commercial purposes, including the facilitation of financial transactions,” Benjamin Lawsky, superintendent of financial services, said in the notice. “That said, NYDFS also believes that it is in the long-term interest of the virtual currency industry to put in place appropriate guardrails that protect consumers, root out illegal activity, and safeguard our national security.”

So, shouldn’t he be looking at the dollar instead?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_y-5YmfJyJk/story01.htm Tyler Durden

 

Janet Yellen, who will likely be the next Fed Chairman, is insane.

 

There is simply no other way to describe someone who claims inflation is below 2% today and that the Fed’s monetary tools can improve employment.

 

Here are her comments on these subjects.

 

We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.

 

For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.

 

http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm

 

First off, inflation is not below 2%. We’ve been over the fraudulent CPI data enough times for this claim alone to discredit Yellen as an economist. Even the former head of the BLS has stated that CPI is a joke and needs to be revised.

 

Secondarily, I fail to understand how inflation of 2% is acceptable. Why is this base assumption never challenged? At this rate, in 10 years you’ve lost roughly 20% of your purchasing power. And during the average worker’s lifetime, they will see a 40-60% decrease in purchasing power.

 

This is good?

 

Now let’s assess her claim that the Fed needs to continue its monetary policy tools to promote a robust recovery.

 

The official unemployment rate is highly charged politically as it is used by the media to gauge how well a particular administration is doing at generating job growth.

 

As such the unemployment numbers are routinely massaged to the point of no longer reflecting the true number of unemployed Americans. For this reason, I prefer to use the labor participation rate when gauging the health of the US jobs markets: this metric represents the number of Americans who are currently employed as a percentage of the total number of Americans of working age.

 

 

As you can see, the number of employed Americans of working age peaked in the late ‘90s. It has since fallen to levels not seen since the early ‘80s. Moreover, looking at this chart it is clear that job creation has failed to keep up with population growth.

 

This negates any claims of “recovery” in the jobs market.

 

In particular, I want to draw your attention to the last five years of this chart below. The US Federal Reserve began its first QE program, called QE 1, in November 2008. Since that time it has launched three other such programs, spending over $2 trillion in the process.

 

During this period, the labor participation rate has not once experience a sustained uptrend. Put another way, job creation has never outpaced population growth to the point of creating a significant turnaround in the jobs market. This has happened despite the recession officially “ending” in mid-2009.

 

 

The evidence here is clear. QE does not generate jobs in the broad economy. It failed for the UK, it failed for Japan. It’s failing here.

 

End of story.

 

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

 

Best Regards,

 

Phoenix Capital Research

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sHBljh-lKJ8/story01.htm Phoenix Capital Research

On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank – the Fed – but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 – as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.

Via Bullion Management Group's Nick Barisheff,

The Fed is, unlike any other federal agency, owned by private and public shareholders – mainly large banks and influential banking families. It operates with as much opacity as possible, and only in the past two decades has the public become aware of this deception, thanks in large part to former Congressman Dr. Ron Paul, and the advent of the Internet.

The build-up of massive amounts of debt will result in the end of the U.S. dollar as the world’s de facto reserve currency. This should come as no surprise: Previous world reserve currencies, starting with Portuguese real in 1450 and continuing through five reserve currencies to the British pound, which capitulated its position in 1920, have had a lifespan of between eighty and 110 years. The U.S. dollar succeeded the British pound, but its peg to gold was broken domestically in 1933, and internationally in 1971, when President Nixon closed the gold window. This resulted in unrestricted and exponential debt creation that will likely see the U.S. dollar’s reserve currency status end sooner rather than later.

Why the Fed Hates Gold

The Fed has many reasons for being at war with gold:

1. Gold restricts a country’s ability to create unlimited amounts of fiat currency.

 

2. The gold held by the Fed and the United States has not been officially audited since 1953; there are several credible indications that this gold has been leased or swapped, and probably has several claims of ownership. Germany’s Bundesbank was told in January 2013 that it would have to wait seven years to repatriate 300 tonnes of its gold currently held by the Federal Reserve Bank of New York. The only plausible explanation for this delay is that the gold is not available.

 

3. Gold is the only money that exists outside the control of politicians and bankers. The Fed would like to control all aspects of the global economy, and gold is the last defense of the individual who wishes to protect his or her wealth.

 

4. Historically, gold serves as the most stable measure of purchasing power. Gold owners begin to measure risk in terms of ounces of gold, and this provides a broader perspective — the “gold perspective.” It takes into account factors that are considered unquantifiable through the narrower “fiat perspective” that banks and financial media prefer to use. It also shows up real inflation.

Two Policies the Fed Uses to Rob Savers and Taxpayers

Under the gold standard, governments are more transparent in raising funds through direct taxation. Under a fiat system and a central bank, they have to be much more secretive. There are two policies or practices currently being used to transfer wealth from the public to the government. These are:

1. Financial Repression

 

Financial repression is a hidden form of wealth confiscation that employs three tactics:

 

(i) indirect taxation through inflation;
(ii) the involuntary assumption of government debt by the taxpayer (like the Fed’s purchase of Fannie Mae and Freddie Mac CDOs);
(iii) debasement or inflation brought about through unbridled currency creation and capital controls; and

2. Government’s Position on Bail-ins and the Illusion of FDIC Insurance

Many believe their bank deposits are insured against bank failure, as this is the Fed’s main argument for its existence. This is far from the truth, since the FDIC could only cover .008 percent of the banks’ derivative losses in the event of major bank failures. Banks legally see depositors as “unsecured creditors,” as proven by the Cyprus bail-in.

The Fed’s Real Accomplishment

When measured against gold, the U.S. dollar has lost 96 percent of its purchasing power since the Fed’s inception in 1913. This is mainly through currency debasement, which leads to inflation. Real inflation, if measured using the original basket of goods used until the Boskin Commission in 1995 changed the rules, is running about 6 percent higher than is officially acknowledged, according to John Williams of ShadowStats.com. The CPI used to measure a “fixed standard of living” with a fixed basket of goods. Today, it measures the cost of living with a constantly changing basket of goods, measured with metrics that are themselves constantly changing.

History shows countries following the gold standard have a higher standard of living, stronger morals, and an aversion to costly wars.

Thanks to the Fed’s irresponsibility, foreign governments and investors are exiting the dollar and U.S. Treasuries, leaving the Fed as the buyer of last resort. This has painted the Fed into a corner, because it will be difficult, if not impossible, to curtail its bond and CDO purchases through its QE program, or to raise interest rates without crashing the markets.

When economists and historians can objectively look back at this past century, they will likely find the Fed, as well as the world’s other central banks, indirectly or directly responsible for:

• Personal income tax (introduced the same year as the Federal Reserve Act)
• Two world wars
• Several smaller unproductive wars
• The expropriation of U.S. gold in 1934
• The Great Depression
• Loss of morality in money and government
• Expansion of government to unprecedented levels
• The many economic bubbles that left countless investors ruined
• The decimation of the U.S. dollar’s purchasing power
• The spread of moral hazard throughout the global financial community
• Destruction of the middle class
• Migration of gold from West to East
 

The main thesis  is that gold will continue rising because several exponential, long-term and irreversible trends will continue forcing the need for greater and greater government debt, and government debt is the main driver of the price of gold, as we can see in Figure 1. For the past decade, debt and the gold price have shared a conspicuously close relationship.

 

These trends—the rising and aging population, dwindling natural resources, outsourcing and movement away from the U.S. dollar—continue to develop.

As the following in-depth presentation notes, this has been going on since the Fed's inception:

 

The Federal Reserve Centennial Anniversary_Ext_Formatted_Final_13.11.13.pdf

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/huk8MLa4t3M/story01.htm Tyler Durden

On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank – the Fed – but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 – as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.

Via Bullion Management Group's Nick Barisheff,

The Fed is, unlike any other federal agency, owned by private and public shareholders – mainly large banks and influential banking families. It operates with as much opacity as possible, and only in the past two decades has the public become aware of this deception, thanks in large part to former Congressman Dr. Ron Paul, and the advent of the Internet.

The build-up of massive amounts of debt will result in the end of the U.S. dollar as the world’s de facto reserve currency. This should come as no surprise: Previous world reserve currencies, starting with Portuguese real in 1450 and continuing through five reserve currencies to the British pound, which capitulated its position in 1920, have had a lifespan of between eighty and 110 years. The U.S. dollar succeeded the British pound, but its peg to gold was broken domestically in 1933, and internationally in 1971, when President Nixon closed the gold window. This resulted in unrestricted and exponential debt creation that will likely see the U.S. dollar’s reserve currency status end sooner rather than later.

Why the Fed Hates Gold

The Fed has many reasons for being at war with gold:

1. Gold restricts a country’s ability to create unlimited amounts of fiat currency.

 

2. The gold held by the Fed and the United States has not been officially audited since 1953; there are several credible indications that this gold has been leased or swapped, and probably has several claims of ownership. Germany’s Bundesbank was told in January 2013 that it would have to wait seven years to repatriate 300 tonnes of its gold currently held by the Federal Reserve Bank of New York. The only plausible explanation for this delay is that the gold is not available.

 

3. Gold is the only money that exists outside the control of politicians and bankers. The Fed would like to control all aspects of the global economy, and gold is the last defense of the individual who wishes to protect his or her wealth.

 

4. Historically, gold serves as the most stable measure of purchasing power. Gold owners begin to measure risk in terms of ounces of gold, and this provides a broader perspective — the “gold perspective.” It takes into account factors that are considered unquantifiable through the narrower “fiat perspective” that banks and financial media prefer to use. It also shows up real inflation.

Two Policies the Fed Uses to Rob Savers and Taxpayers

Under the gold standard, governments are more transparent in raising funds through direct taxation. Under a fiat system and a central bank, they have to be much more secretive. There are two policies or practices currently being used to transfer wealth from the public to the government. These are:

1. Financial Repression

 

Financial repression is a hidden form of wealth confiscation that employs three tactics:

 

(i) indirect taxation through inflation;
(ii) the involuntary assumption of government debt by the taxpayer (like the Fed’s purchase of Fannie Mae and Freddie Mac CDOs);
(iii) debasement or inflation brought about through unbridled currency creation and capital controls; and

2. Government’s Position on Bail-ins and the Illusion of FDIC Insurance

Many believe their bank deposits are insured against bank failure, as this is the Fed’s main argument for its existence. This is far from the truth, since the FDIC could only cover .008 percent of the banks’ derivative losses in the event of major bank failures. Banks legally see depositors as “unsecured creditors,” as proven by the Cyprus bail-in.

The Fed’s Real Accomplishment

When measured against gold, the U.S. dollar has lost 96 percent of its purchasing power since the Fed’s inception in 1913. This is mainly through currency debasement, which leads to inflation. Real inflation, if measured using the original basket of goods used until the Boskin Commission in 1995 changed the rules, is running about 6 percent higher than is officially acknowledged, according to John Williams of ShadowStats.com. The CPI used to measure a “fixed standard of living” with a fixed basket of goods. Today, it measures the cost of living with a constantly changing basket of goods, measured with metrics that are themselves constantly changing.

History shows countries following the gold standard have a higher standard of living, stronger morals, and an aversion to costly wars.

Thanks to the Fed’s irresponsibility, foreign governments and investors are exiting the dollar and U.S. Treasuries, leaving the Fed as the buyer of last resort. This has painted the Fed into a corner, because it will be difficult, if not impossible, to curtail its bond and CDO purchases through its QE program, or to raise interest rates without crashing the markets.

When economists and historians can objectively look back at this past century, they will likely find the Fed, as well as the world’s other central banks, indirectly or directly responsible for:

• Personal income tax (introduced the same year as the Federal Reserve Act)
• Two world wars
• Several smaller unproductive wars
• The expropriation of U.S. gold in 1934
• The Great Depression
• Loss of morality in money and government
• Expansion of government to unprecedented levels
• The many economic bubbles that left countless investors ruined
• The decimation of the U.S. dollar’s purchasing power
• The spread of moral hazard throughout the global financial community
• Destruction of the middle class
• Migration of gold from West to East
 

The main thesis  is that gold will continue rising because several exponential, long-term and irreversible trends will continue forcing the need for greater and greater government debt, and government debt is the main driver of the price of gold, as we can see in Figure 1. For the past decade, debt and the gold price have shared a conspicuously close relationship.

 

These trends—the rising and aging population, dwindling natural resources, outsourcing and movement away from the U.S. dollar—continue to develop.

As the following in-depth presentation notes, this has been going on since the Fed's inception:

 

The Federal Reserve Centennial Anniversary_Ext_Formatted_Final_13.11.13.pdf

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/huk8MLa4t3M/story01.htm Tyler Durden

…so goes global GDP…?

 

 

(h/t @Not_Jim_Cramer)

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

On October 15, two weeks after the end of the third quarter, David Tepper appeared on CNBC for his semi-annual stock pumpfest, most memorable for his suggestion that a 20x P/E multiple on the S&P was perfectly acceptable. Which would suggest Tepper was very bullish on risk. Which would suggest buying more stocks, not selling. Yet selling is precisely what he did between June 30 and September 30 according to his just released 13F. Specifically, after having a total long equity AUM of $6.9 billion at the end of the second quarter, the Appaloosian lowered the dollar value of his AUM by nearly 10%, to $6.3 billion as of September 30. So what did he liqudate? Here are his biggest liquidations:

• Comcast ($61 million, 1.5MM shares)
• Microsoft ($48 million, 1.4MM shares)
• Weatherford ($31 million, 2.3MM shraes)
• NetApp ($24 million, 640K shares)

Just as notable is what he sold partially, of which his $665 million cut (4.3 million shares) in the SPY ETF is certainly quite dramatic. Other notable sales.

• Bank of America: sold $51 million, or 4.1MM shares
• Broadcom: sold $55 million, 1.2MM shares
• Hertz: sold $40 million, 1.5MM shares
• Sandisk: sold $39 million, 635K shares
• Carnival: sold $32 million, 876K shares
• Google: sold $18 million, 20k shares

And so on. What did he buy to offset all these sales? His new stakes are as follows:

• Freeport McMoRan: $58 million, 1.75mm shares
• Ingredeon: $20 million, 297k shares
• Community Health: $8.7 million, 210k shares
• Tenet healthcare: $8.7 million, 210k shares

and…

• a flyer for $6.5 million or 737k shares in JCPenney, in which he is nursing a substantial loss so far.

Tepper’s complete latest holdings are shown below, sorted by notional as of Sept 30. New positions in green.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vy4X8o1xtEE/story01.htm Tyler Durden

Submitted by Tim Price of The Price of Everything blog,

“No warning can save people determined to grow suddenly rich.” – Lord Overstone.

We have seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round – that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months’ grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.)

The market preferred to sit tight on the ride, for the time being. Three professors were awarded what was widely misreported as ‘the Nobel prize in economics’ for mutually contradictory research. What they actually received was the ‘Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’, which is not quite the same thing. But then economics is not a science, and Eugene Fama’s ‘efficient market hypothesis’ is not just empirically wrong, but dangerously so. History, it would seem, is clearing the decks. Perhaps the most intriguing development of the week was the news that Neil Woodford would soon be retiring from his role managing £33 billion of other people’s money at Invesco Perpetual to start up his own business. It was widely reported that Mr. Woodford nursed growing frustration at the short-termism of the financial services industry. We will return to this theme.

One of the sadder stories in the history of investment management is that of Mr. Tony Dye. The following extract is taken from his obituary in The Independent:

Tony Dye was one of Britain’s best known fund managers, becoming a household name in the late 1990s due to his controversial opinions about the outlook for global stock markets. At a time when markets were soaring, Dye insisted they were overvalued and on the verge of a crash – a view which put him at odds with most other investors at the time and earned him the nickname “Dr Doom”.

 

As early as 1995, as the FTSE 100 was approaching 4,000 points, Dye began to make the case that markets were too expensive. At the time, he was the chief investment officer for Phillips & Drew, one of Britain’s biggest asset management firms, and by 1996 he had begun to move large sums of clients’ money out of equities and into cash.

 

In the years that followed, however, stock markets continued to soar, driven by the technology boom. But Dye stuck to his guns, avoiding the high-growth, high-risk internet stocks, maintaining large positions in cash, and consequently ensuring that Phillips & Drew’s funds significantly underperformed their rivals. By 1999, the firm was ranked 66th out of 67 for performance amongst Britain’s institutional fund managers, and was haemorrhaging clients – and in February the following year, just weeks after the FTSE had broken through 7,000 points for the first time, Dye was sacked.

 

Days later, his prophesy finally came true. Markets collapsed, and settled into a three year slump, which saw more than 50 per cent wiped off the value of global stock markets.

Neil Woodford’s apparent concerns are well placed. There is a grotesque mismatch between the set-up of institutional asset managers and what is in the best interests of their end clients, the individual members of the public who pay their fees. The investment fund marketplace is grotesquely oversupplied. There is far too much, to use the dismal phrase, product. The problem is exacerbated by perhaps inevitable weaknesses in psychology – both on the part of the manager, and on the part of the investor. Stress points abound throughout the chain. The investment fund world is hopelessly balkanised, and brimming over with a degree of product specialisation utterly unwarranted by investors’ real needs. The fund management industry is a perpetual production line of novelty, or rather an endless rehash of the same old ideas. The point of absurdity was reached and surpassed when there were more mutual funds listed on the New York Stock Exchange than there were common stocks with which to populate them. The industry is a monstrous hydra, busily consuming its own, and its investors’, capital. New funds are launched daily. Failing older funds are quietly tidied away, merged, or destroyed. They are ‘uninvented’.

Alison Smith and Stephen Foley covered the news of Neil Woodford’s resignation for the Financial Times. They cited the FT’s own John Kay, who carried out a review of UK equity markets last year, and who said,

The short-term horizon is basically introduced by the intermediary sector.. Pension trustees [for example] are told they should keep reviewing managers, while retail investors get constant invitations to trade from independent financial advisers [for example] and the platforms set up to enable them to do so.

As they suggest, Neil Woodford’s past success means that raising money for his new business is unlikely to be much of a struggle. “But imagine the hurdles in the way of a manager who would like to purse long-term strategies but is just starting out.” In the words of Professor Kay,

How easy would Warren Buffett find it to set up now?

We have not been immune to the demands of clients frustrated at the performance of diversified portfolios lagging the broader equity markets (although this explicit benchmarking against stocks was never a mandate to which we subscribed). We struggle, in some cases, to make sufficiently clear our concerns about broader market valuation, or just as importantly the gravity of the global financial situation (including a potential QE-driven currency crisis), which makes a wholehearted commitment to the stock market in late 2013 seem to us a risky strategy. So where, if anywhere, does the fault lie? Sometimes it is not just asset managers who should be accused of being short-termist, or of missing the big picture.

Our thesis has been consistent for five years now. We believe we are at the tail end of a 40-years’ and counting experiment in money and the constant expansion of credit. This experiment is not ending well. Because government money, unbacked and unchecked as it now is by anything of tangible value, can be created at will, it has been. What is extraordinary is that despite trillions of dollars / pounds / yen of stimulus, there are few visible signs of what we would call inflation, in anything other than the prices of financial assets themselves.

We are living through a historic period of global currency debasement. The neo-Keynesian money-printers who dominate the world’s central banks have ‘won’ the debate, but are now scratching their heads, looking in vain for the economic recovery
that they were expecting all those trillions to have bought. They will continue to look in vain, because money creation and true wealth creation are polar opposites. As portfolio manager Tony Deden has asked,

If cheaper currency is the source of wealth, where has Bangladesh gone wrong? If cheaper money means economic prosperity, why not just print as much as we can and give it out to everyone? We have become fools. The customers know nothing and the advisers know even less. And then we have the idiot economists – the neo-classical Keynesian variety with solutions to problems they did not even anticipate; solutions that have, in fact, been long discredited. And so we lurch from crisis to crisis, eating our meagre capital in the hopes of becoming rich in money. It is a pity.

Those words were written four years ago. The printing presses have been run to exhaustion ever since. So far they have bought us an inflationary rally in the prices of financial assets, and not much else. It has been a lousy time for anyone focused on the disciplined and genuinely diversified pursuit of capital preservation in real terms (more recently, for anyone seeking to escape the inflationary insanity via the honest money that is gold). We have not, to any significant extent, participated in the ‘phony rally’. But then we are playing a longer game than most of our peers. Round and round and round she goes; where she stops, nobody knows. Fund manager Sebastian Lyon recently quoted another celebrated fund manager, Jean-Marie Eveillard:

I would rather lose half of my shareholders than half of my shareholders’ money.

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

Submitted by Tim Price of The Price of Everything blog,

“No warning can save people determined to grow suddenly rich.” – Lord Overstone.

We have seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round – that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months’ grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.)

The market preferred to sit tight on the ride, for the time being. Three professors were awarded what was widely misreported as ‘the Nobel prize in economics’ for mutually contradictory research. What they actually received was the ‘Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’, which is not quite the same thing. But then economics is not a science, and Eugene Fama’s ‘efficient market hypothesis’ is not just empirically wrong, but dangerously so. History, it would seem, is clearing the decks. Perhaps the most intriguing development of the week was the news that Neil Woodford would soon be retiring from his role managing £33 billion of other people’s money at Invesco Perpetual to start up his own business. It was widely reported that Mr. Woodford nursed growing frustration at the short-termism of the financial services industry. We will return to this theme.

One of the sadder stories in the history of investment management is that of Mr. Tony Dye. The following extract is taken from his obituary in The Independent:

Tony Dye was one of Britain’s best known fund managers, becoming a household name in the late 1990s due to his controversial opinions about the outlook for global stock markets. At a time when markets were soaring, Dye insisted they were overvalued and on the verge of a crash – a view which put him at odds with most other investors at the time and earned him the nickname “Dr Doom”.

 

As early as 1995, as the FTSE 100 was approaching 4,000 points, Dye began to make the case that markets were too expensive. At the time, he was the chief investment officer for Phillips & Drew, one of Britain’s biggest asset management firms, and by 1996 he had begun to move large sums of clients’ money out of equities and into cash.

 

In the years that followed, however, stock markets continued to soar, driven by the technology boom. But Dye stuck to his guns, avoiding the high-growth, high-risk internet stocks, maintaining large positions in cash, and consequently ensuring that Phillips & Drew’s funds significantly underperformed their rivals. By 1999, the firm was ranked 66th out of 67 for performance amongst Britain’s institutional fund managers, and was haemorrhaging clients – and in February the following year, just weeks after the FTSE had broken through 7,000 points for the first time, Dye was sacked.

 

Days later, his prophesy finally came true. Markets collapsed, and settled into a three year slump, which saw more than 50 per cent wiped off the value of global stock markets.

Neil Woodford’s apparent concerns are well placed. There is a grotesque mismatch between the set-up of institutional asset managers and what is in the best interests of their end clients, the individual members of the public who pay their fees. The investment fund marketplace is grotesquely oversupplied. There is far too much, to use the dismal phrase, product. The problem is exacerbated by perhaps inevitable weaknesses in psychology – both on the part of the manager, and on the part of the investor. Stress points abound throughout the chain. The investment fund world is hopelessly balkanised, and brimming over with a degree of product specialisation utterly unwarranted by investors’ real needs. The fund management industry is a perpetual production line of novelty, or rather an endless rehash of the same old ideas. The point of absurdity was reached and surpassed when there were more mutual funds listed on the New York Stock Exchange than there were common stocks with which to populate them. The industry is a monstrous hydra, busily consuming its own, and its investors’, capital. New funds are launched daily. Failing older funds are quietly tidied away, merged, or destroyed. They are ‘uninvented’.

Alison Smith and Stephen Foley covered the news of Neil Woodford’s resignation for the Financial Times. They cited the FT’s own John Kay, who carried out a review of UK equity markets last year, and who said,

The short-term horizon is basically introduced by the intermediary sector.. Pension trustees [for example] are told they should keep reviewing managers, while retail investors get constant invitations to trade from independent financial advisers [for example] and the platforms set up to enable them to do so.

As they suggest, Neil Woodford’s past success means that raising money for his new business is unlikely to be much of a struggle. “But imagine the hurdles in the way of a manager who would like to purse long-term strategies but is just starting out.” In the words of Professor Kay,

How easy would Warren Buffett find it to set up now?

We have not been immune to the demands of clients frustrated at the performance of diversified portfolios lagging the broader equity markets (although this explicit benchmarking against stocks was never a mandate to which we subscribed). We struggle, in some cases, to make sufficiently clear our concerns about broader market valuation, or just as importantly the gravity of the global financial situation (including a potential QE-driven currency crisis), which makes a wholehearted commitment to the stock market in late 2013 seem to us a risky strategy. So where, if anywhere, does the fault lie? Sometimes it is not just asset managers who should be accused of being short-termist, or of missing the big picture.

Our thesis has been consistent for five years now. We believe we are at the tail end of a 40-years’ and counting experiment in money and the constant expansion of credit. This experiment is not ending well. Because government money, unbacked and unchecked as it now is by anything of tangible value, can be created at will, it has been. What is extraordinary is that despite trillions of dollars / pounds / yen of stimulus, there are few visible signs of what we would call inflation, in anything other than the prices of financial assets themselves.

We are living through a historic period of global currency debasement. The neo-Keynesian money-printers who dominate the world’s central banks have ‘won’ the debate, but are now scratching their heads, looking in vain for the economic recovery that they were expecting all those trillions to have bought. They will continue to look in vain, because money creation and true wealth creation are polar opposites. As portfolio manager Tony Deden has asked,

If cheaper currency is the source of wealth, where has Bangladesh gone wrong? If cheaper money means economic prosperity, why not just print as much as we can and give it out to everyone? We have become fools. The customers know nothing and the advisers know even less. And then we have the idiot economists – the neo-classical Keynesian variety with solutions to problems they did not even anticipate; solutions that have, in fact, been long discredited. And so we lurch from crisis to crisis, eating our meagre capital in the hopes of becoming rich in money. It is a pity.

Those words were written four years ago. The printing presses have been run to exhaustion ever since. So far they have bought us an inflationary rally in the prices of financial assets, and not much else. It has been a lousy time for anyone focused on the disciplined and genuinely diversified pursuit of capital preservation in real terms (more recently, for anyone seeking to escape the inflationary insanity via the honest money that is gold). We have not, to any significant extent, participated in the ‘phony rally’. But then we are playing a longer game than most of our peers. Round and round and round she goes; where she stops, nobody knows. Fund manager Sebastian Lyon recently quoted another celebrated fund manager, Jean-Marie Eveillard:

I would rather lose half of my shareholders than half of my shareholders’ money.

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

Despite a 10% collapse in CSCO (which apparently is not a bellwhether anymore at all) – notching a mere 18 points off the Dow, Yellen's confirmation of everything we thought we knew (and bad macro data) was enough to send the S&P and Dow to new all-time highs. Treasuries rallied 2bps (5-8bps on the week) and gold lifted back to unchanged on the week. VIX limped lower. On the day, the USD closed higher (thanks to JPY weakness supporting stocks) but was lower from early highs. Credit markets rallied very modestly but remain hugely divergent in this supposed QEeen-fueled surge. And on it goes…

 

Stocks are unstoppable… credit not so much…

 

The Dow, Nasdaq totally ignored CSCO – so old school – and roared again…

 

Some context off the debt-ceiling lows…

 

and across the sectors…

 

Gold lurched begrudgingly today – back to unchanged on the week…

 

as Treasuries rallied (10Y back to 2.69%)

 

Before everyone gets too excited – we have seen this rampacious levitation 4 times this year now and each time it reached this pace – we turned lower…

 

You think this is funny… does it amuse you?

 

Charts: Bloomberg

 

Bonus Chart: It all makes sense somewhere…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cw33tsj9-Mw/story01.htm Tyler Durden

Despite a 10% collapse in CSCO (which apparently is not a bellwhether anymore at all) – notching a mere 18 points off the Dow, Yellen's confirmation of everything we thought we knew (and bad macro data) was enough to send the S&P and Dow to new all-time highs. Treasuries rallied 2bps (5-8bps on the week) and gold lifted back to unchanged on the week. VIX limped lower. On the day, the USD closed higher (thanks to JPY weakness supporting stocks) but was lower from early highs. Credit markets rallied very modestly but remain hugely divergent in this supposed QEeen-fueled surge. And on it goes…

 

Stocks are unstoppable… credit not so much…

 

The Dow, Nasdaq totally ignored CSCO – so old school – and roared again…

 

Some context off the debt-ceiling lows…

 

and across the sectors…

 

Gold lurched begrudgingly today – back to unchanged on the week…

 

as Treasuries rallied (10Y back to 2.69%)

 

Before everyone gets too excited – we have seen this rampacious levitation 4 times this year now and each time it reached this pace – we turned lower…

 

You think this is funny… does it amuse you?

 

Charts: Bloomberg

 

Bonus Chart: It all makes sense somewhere…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cw33tsj9-Mw/story01.htm Tyler Durden