Tag: finance

It appears the appeal of ISIS-supporting beheadings in Oklahoma is growing. In what can only be described as an uncomfortable coincidence for the state, a 2nd Oklahoma man was arrested Friday for threatening to behead a co-worker. As The Oklahoman reports, Jacob Mugambi Muriithi, 30, who was recently fired from his job at a nursing home, threatened a female christian co-worker that he “represented ISIS and that ISIS kills Christians.” When she asked him why, he replied, “This is just what we do,” according to the affidavit.

 

 

Via The Oklahoman,

An Oklahoma City fired nursing home employee, Jacob Mugambi Muriithi, 30, is being held in the Oklahoma County jail on a terrorism complaint with bail set at $1 million, according to The Oklahoman.

 

“We take these threats very seriously,” Oklahoma County District Attorney David Prater told The Oklahoman.

 

The co-worker reported that Muriithi, a native of Kenya and self-described Muslim, threatened her while they were both working at the Bellevue Nursing Home last week, a police detective wrote in an arrest warrant affidavit.

 

The woman, who was not identified, said that Muriithi said he “represented ISIS and that ISIS kills Christians.” When she asked him why, he replied, “This is just what we do,” according to the affidavit.

 

“The victim said Jacob asked her what time she got off work and she replied by asking him in a joking manner if he was going to kill her,” the detective wrote. “Jacob told the victim, ‘Yes,’ he was going to cut her head off. The victim asked Jacob what he was going to cut her head off with and he said, ‘A blade,’ then told her after he did it he was going to post it on Facebook.

 

“The victim said Jacob was serious when speaking and never made any statements that he was joking or playing around.”

 

Muriithi repeated the threat in front of another employee that he was going to use a blade as the woman left work the detective reported, according to The Oklahoman.

*  *  *

Time to unleash the MRAPs… and ban machetes.

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From ConvergEx‘ Nicholas Colas

Financial asset price volatility gets a bum rap.  Everything in moderation, yes…  But the unusually quiescent capital market behavior of the last few years isn’t really doing anyone any favors over the long run. Today’s note reviews the benefits of a more volatile bond and stock market: everything from the possibility for truly skilled fund managers to make outsized returns to a very necessary reset of investor and corporate behavior.  As bond and stock markets get twitchier  – and that process is already underway – just remember that there are many silver linings in the storm clouds that are gathering. 
 
For much of the history of modern medicine, the function of the human appendix has been a bit of a mystery and common wisdom held that it was essentially useless.  About the only thing doctors knew was that it could become infected and that its removal caused no adverse health consequences. Medical professionals have been performing appendectomies since the 1730s, and one brave Soviet doctor managed to remove his own infected appendix in the 1960s while stranded on a scientific outpost in Antarctica.  Don’t try that one at home, kids.
 
More recently, the appendix has gotten a reprieve and some researchers believe it may have several useful functions after all.  As it turns out, that little sac in your abdomen acts as a back-up supply for the bacteria your body needs to stay healthy. It also serves a function in prenatal development, helping to balance hormone levels. Clever surgeons now use the appendix to reconstruct internal organs damaged by cancer or infection. In short, the appendix does have its uses – plenty of them, actually.
 
For capital markets, asset price volatility is much like the human appendix. The rally in both stock and bond markets – especially in the U.S. – has come with little in the way of wayward price action. It has been a “Set it and forget it” move for stocks for three years, with little in the way of classic 10% pullbacks to shake out weaker hands.  The rally in bonds, thought unlikely at the beginning of the year, has been similarly uneventful. It is as if investors have extracted the seemingly unnecessary appendix of volatility and, with the market seemingly unaffected, decided it has no real function. 
 
The problem is that volatility is actually important to the proper functioning of capital markets. In fact, it is critical to both effective societal asset allocation and as a way to judge the skill of managers on Wall Street and Main Street alike. It isn’t just price levels that define capitalism; it is the correlated spectrums of risk and return from sure bets to highly speculative ventures that keeps the machine running smoothly. The journey really is just as important as the destination. 
 
That may come as an unwelcome message to those accustomed to steadily positive returns over the last 5 years. For many investors, the 90% advance in the S&P 500 or the 86% return in the Russell 2000 have been a welcome salve after the burns of 2007-2008. All that has come with very low levels of both actual and expected price volatility, as expressed by measures like the CBOE VIX Index. Since rising volatility tends to drive asset prices lower, what will the harvest be when stocks finally do start to act more like their crankier old selves?
 
Spoiler alert (sort of): stock price volatility is rising, and October is historically a seasonal high water mark for zippy price movements. Hundred-plus point moves in the Dow now come regularly, and the CBOE VIX Index is up from 12 to 15 in the last month. In short, stock volatility is back and it wants to know why we changed the locks and threw all its clothes on the front lawn. 
 
And yet… There are several silver linings shot through those incoming storm clouds. Consider the following points:

• Imagine you are a public company Chief Financial Officer and you must explain your cost of capital to the rest of the organization and your Board of Directors. This is a tough concept for non-financial professionals, and they tend to look at the stock price as a way to shortcut the tedious math behind the calculation. High stock price equals “Things are going great!  Expand the business. Buy other companies. Grow, baby, grow.” 

  Price volatility is what keeps those animal spirits in check and forces corporate Main Street to watch their pennies. Now, the last five years haven’t exactly been a rapper’s birthday party of corporate spending, so incremental stock price volatility isn’t just about keeping the lid on profligacy.  Rather, it will be a warning shot to keep corporate America focused on the very best expansion projects and overall asset mix. And that’s always a good thing for investors and society as a whole.

• Then there’s the Wall Street side of the volatility equation. The last five years have been a boon to passive investing – why buy the active manager cow when you can get the milk of high returns for (almost) free? The recent news that the California Public Employees Retirement System plans to scale back their exposure to hedge funds is just one touchstone in that trend. So is the persistent move of capital from actively managed mutual funds to overwhelmingly passive exchange traded products.

  It’s all funds (sic) and games until someone loses an eye, as every parent warns.  Price volatility will allow active managers to feel some sunlight after the long eclipse of the last half decade. Truly skillful managers – long only or hedge fund, it matters not – welcome volatility since it allows them to find the babies mixed in with the bathwater.

• Economic volatility, to the degree it comes with asset price moves, also plays a productive if short-term painful role in capitalism. Consider that the times when the CBOE VIX Index ran consistently below its long run average of 20 (14.9 as of Friday) are all periods of bad capital allocation. The mid-1990s sewed the seeds of the dot com bubble. A decade later, the same VIX levels travelled hand in hand with the housing bubble and the setup for the Financial Crisis.  Low volatility and poor societal capital investment share a room in the orphanage of failure. 

The key question now is “Can the U.S./global economy handle a meaningful downturn in financial asset prices?” The short answer is that it may not have a choice. The Federal Reserve has done what it can to juice the American economy and has the balance sheet to prove it. Central banks, for all their power, do not control long term capital allocation or corporate hiring practices.  Fed Funds have been below 2% for six years.  If the U.S. economy can’t continue to grow in 2015 as the Federal Reserve inches rates higher, there are clearly larger issues at play.  And those private sector problems will need private sector solutions. 
 
In short, higher asset price volatility from current levels isn’t something to fear if you consider its function over the long run.  A little pain now will save a lot of trouble later. 

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The Nasdaq, Russell 2000, and Dow Transports have been rescued in their high-beta manner all the way back to green by an initial USDJPY ramp to ignite some momentum "off the lows". Treasuries and credit refuse to  play along and even USDJPY has decoupled as stocks surged on a VIX-slamming (from over 17 to 15.50) ramp to unch. Safe-haven buying of camera-on-a-stick continues (+8% today).

Back to green…

 

With camera-on-a-stick squeezing ever higher…

 

On a sea of USDJPY rampage…

 

and VIX-slamming (from over 17 at the open)

 

But bonds ain't buying it…

 

Charts: Bloomberg

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The Nasdaq, Russell 2000, and Dow Transports have been rescued in their high-beta manner all the way back to green by an initial USDJPY ramp to ignite some momentum "off the lows". Treasuries and credit refuse to  play along and even USDJPY has decoupled as stocks surged on a VIX-slamming (from over 17 to 15.50) ramp to unch. Safe-haven buying of camera-on-a-stick continues (+8% today).

Back to green…

 

With camera-on-a-stick squeezing ever higher…

 

On a sea of USDJPY rampage…

 

and VIX-slamming (from over 17 at the open)

 

But bonds ain't buying it…

 

Charts: Bloomberg

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Russia’s RTS Index has dropped over 20% from its post-Sanctions 1.0 highs in June, officially entering a bear market. The Ruble continues to slide, breaking above 39.50 against the USD – record weakness. Whether it is US/EU sanctions “costs” and/or merely EM risk-off hot money outflows is unclear, but what is clear is that Russian stocks are extremely cheap…

 

 

Chart: Bloomberg

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One would think that the world’s most important artificial waterway has working traffic lights and proper transit control. One would be wrong.

According to Egypt’s Al-Ahram website, two container ships collided on Monday morning in Egypt’s Suez Canal.

The German Colombo Express was coming in from the Mediterranean Sea when it hit the Singaporean ship Maersk Tanjong half a kilometre from the Port Said port, Al-Ahram said.

 

Both ships sustained minimal damage; four containers fell into the canal, which the Canal Authority retrieved. Navigation along the canal was temporarily interrupted for three hours.

 

The SCA sent vessels to lead both ships to the Al-Balah bypass so they could continue their journeys.

Ok, we get airplanes slamming into each other: 3 dimensions, clouds, all that. But two ships, sailing at a few knots, in water as smooth as glass, with virtually unlimited visibility… ?

And in other news, if ISIS had any doubts about how to adversely impact the world in the most actue manner, especially after the recent article “ISIS’ Next Target: The Suez Canal“, all such doubts should be gone now. Assuming, of course, ISIS actually is what the western media wants everyone to believe it is.

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Following last week’s explosion higher in new home sales (despite surging record high prices), it is somewhat intriguing that pending home sales would tumble over 4.1% YoY, and drop 1.0% MoM (missing expectations of a 0.5% drop) and the 2nd biggest drop in 2014.

The ‘stunning’ rationale for this miss, provided by NAR’s chief economist, is… “fewer bargain-priced homes’ (which is odd given record prices and record surge in new home sales), and a “rising rate environment” (except rates are collapsing), with hope for the future based on the “employment outlook for young adults improving and their incomes rising” (more lies) and a “shift to more traditional first-time buyers who need mortgages” (except mortage apps are at 20-year lows).

 

Just last week, New home sales rose the most since 1992:

 

but Pending Home Sales dropped almost the most in 2014…

 

Do not show NAR Chief Economist Larry Yun this chart…

 

“Exiting home sales are expected to be stronger in the second half of the year behind improved inventory conditions, continuously low interest rates, and slower price growth”

NAR, Lawrence Yun

 

Charts: Bloomberg

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Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015

Gokhran, the Russian precious metals and gems repository, said it has been buying gold bullion in 2014 and will likely to start buying palladium bullion in 2015, Interfax news agency reported this morning, citing the head of Gokhran, Andrey Yurin.

GOKHRAN, Russian State Precious Metals and Gems Repository

Gokhran has been buying gold bullion on the Russian market this year and has no plans to sell palladium from stock in 2014 , Yurin said.  

Gokhran’s palladium reserves are a state secret and analysts try to guess the level each year but they are widely believed to have been depleted according to Reuters.

Gokhran was influential on global platinum group metals (PGMs) markets in the 1990s and 2000s, when its palladium stocks, accumulated during the 1970s and 1980s, came to the market, depressing prices.

Gokhran is the State Precious Metals and Gems Repository which is a state institution under the Russian Ministry of Finance. It is responsible for the State Fund of Precious Metals and Precious Stones of the Russian Federation. It is responsible for the purchase, storage, sale and use of precious metals, precious stones, jewellery, rocks, and minerals by the State Fund.



Russia again added to its growing and increasingly substantial gold reserves in August, with the Russian central bank purchasing  232,510 ozs (7.23 tonnes) and bringing its total gold reserves to 35.769 million ozs or 1,112.5 tonnes.

Likewise, the National Bank of Kazakhstan purchased a very large 795,213 ozs or 24.7 tonnes in August bringing its total gold reserves to 5.848 million ozs (181.9 tonnes).



Palladium is already in a structural deficit and this new source of demand should result in palladium continuing to see gains in the coming months.


MARKET UPDATE
Today’s AM fix was USD 1,217.75, EUR 955.71 and GBP 750.54 per ounce.

Friday’s AM fix was USD 1,222.25, EUR 958.70 and GBP 749.11 per ounce.

Gold fell $3.50 or 0.29% to $1,217.50 per ounce and silver climbed $0.11 or 0.63% to $17.63 per ounce Friday. Gold and silver were both down on the week at 0.01% and 1.51% respectively.

Gold in Singapore was essentially flat, trading around the $1,219/oz level and remained tethered to this level in London trading. Palladium gained about 1% while silver and platinum were largely unchanged.

The dollar hit a four year peak against a basket of currencies this morning and this is pressuring the precious metals.

Gold Down 5.2% In September and Headed For Quarterly Loss Of Over 8%
September has been a poor month for precious metals. Gold is down 5.2%, despite it being gold’s strongest month from a seasonal perspective. The price fall means that gold is heading for the first quarterly loss this year.

Silver has fallen by a larger amount and is down 9.6%. While platinum is 8.3% lower.

Palladium’s 12.7% drop this month means that it is on track for its worst monthly performance since September 2011. It remains higher for the year and is 12.5% higher than the low in January 2014 at $693/oz.

Demand for physical gold could be affected by the Chinese holiday period that begins this week, MKS note this morning.

“Beginning on Wednesday this week we have Chinese Golden Week commencing, which will keep Chinese markets shut between 1-8 October,” it said. “Given the natural support derived from Chinese physical demand, their absence over this period, combined with another strong payrolls figure expected this Friday, could heap added pressure on the gold. This is a very similar scenario to last year where gold was aggressively sold by speculators during the absence of the Chinese.”


Gold in USD – 5 Years (Thomson Reuters)

Canny buyers  in Asia and globally will use further price weakness to dollar cost average into gold.

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Having rallied exuberantly on the back of hopes a reform-hungry hot-money-flow-encouraging Silva would take the Presidency in Brazil, a new poll this morning shows encumbent Rousseff back in the lead… and Brazilian markets are rapidly unwinding their exuberance. The Ibovespa is down 5% – its biggest drop in over 3 years. Brazil swap rates have spiked over 50bps and bonds bleeding as USDBRL jumps over 3 handles (to weakest since 2008). It appears just 48 hours after a strong rally on Friday, as markets ‘efficiently’ knew everything was great, Rousseff has realised a few well-placed, well-executed poll results and everything changes.

 

As Bloomberg reports,

Datafolha poll late Friday showing President Rousseff lead widening before Oct. 5 elections and amid broad USD strengthening.

 

Rousseff 4ppt ahead of Silva in runoff, up 2ppt vs previous poll; lead widens to 13ppt from 7ppt in 1st round: Datafolha

 

Record TV channel may release new Vox Populi poll, taken Sept. 27-28; last Vox poll showing Rousseff lead narrowing contrasts with Datafolha results

 

New polls from Datafolha and Ibope expected from tomorrow 

And this happens…

 

Individual stocks are getting crushed:

• *PETROBRAS FALLS 9.2% IN SAO PAULO TRADING
• *PETROBRAS EXTENDS DECLINE, FALLS MOST SINCE NOV. 2008
• *BANCO DO BRASIL SHARES FALL 8.3% TO BRL27.35 IN SAO PAULO
• *CYRELA FALLS 5.1% IN SAO PAULO TRADING

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