Feb 02

Today’s News 2nd February 2016

  • America, Meet Your "Apolitical" Federal Reserve

    Moments after the “disestablishment” Ted Cruz (even if Goldman may have a lien or two on said disestablishmentarianism), was announced to be the winner of the Iowa Caucus, a most unexpected commentator appeared among the flood of the otherwise traditional Twitter noise with what can only be classified as the pinnacle of polarizing political commentary.

    What is most surprising is that the source of this commentary was none other than the entity that is, at least in theory, supposed to be the most apolitical organization in the US: the Federal Reserve, and specifically the Fed which spawned current Fed Chairwoman Janet Yellen: the San Fran Fed.

    The tweet in question appeared at precisely 10:56pm Eastern, or 7:45pm Pacific, and it was the following:

     

    Oh wait, that’s right: moments after the Tweet the Fed realized what an epic snafu it had done, and promptly deleted the tweet.

    Luckily, we caught it so everyone can observe and enjoy just how “apolitical” the Fed, and its employees, truly are:

    We wonder: does the San Fran Fed deny there is any truth to this tweet? Or maybe, like the Dallas Fed, it simply does not keep a log of what it tweets?

    That aside, perhaps the San Francisco Fed and its staffers can explain what “matters”?

    Is it Goldman Sachs? Or JPMorgan?

    Or any other bank that the “Board” has decided it is time to bailout?

    Because suddenly an entire nation is curious if not a state of 3 million Americans, then what exactly “matters” to the apolitical Federal Reserve whose purpose is to serve, well, the people of America?

  • Iowa Caucus Update: Cruz Tops Trump, Hillary-Sanders Too Close To Call – Live Coverage

    The Dow seems unhappy at the result…

     

    And the winner is…

    • *TED CRUZ PROJECTED TO WIN IOWA REPUBLICAN CAUCUS: ABC, NBC

     

    With NBC calling trump 2nd, and Rubio 3rd…

    • *HUCKABEE TO SUSPEND PRESIDENTIAL CAMPAIGN: DES MOINES REGISTER
    • *TRUMP SAYS HE’S HONORED TO COME SECOND IN IOWA REPUBLICAN VOTE
    • *PAUL SAYS `WE FIGHT ON’ AFTER DISTANT 5TH PLACE IOWA FINISH

    On The Democrat side, it remains too close to call… though the Hillary Campaign claims victory…

     

    *  *  *

    2125ET – *CLINTON LEADS SANDERS 51%-48%, HALF THE VOTES COUNTED IN IOWA

    *  *  *

    Update: The votes are coming in and Ted Cruz and Donald Trump are jockeying for the top spot on the Republican ticket. Clinton is still leading Sanders, although the race is close, as expected. 

    Update: As shown below, turnout is topping all expectations on both the Democratic and Republican sides. That should bode well for Trump and perhaps for Sanders, although the number of first time caucus goers is apparently lower than the Sanders campaign would have liked.

    Entrance polls: Trump 27%, Cruz 22%, Rubio 21%. 

    On the Democratic side: Clinton 50%, Sanders 44%.

    *  *  *

    It’s here, the moment of truth.

    The caucusing has begun in Iowa, the site of the first test for the bevy of candidates vying for the Republican presidential nomination and for Bernie Sanders and Hillary Clinton who are neck and neck for the Democratic nod. Here’s a live feed for those who don’t want to miss a second of the drama:

    ABC Breaking News | Latest News Videos

    Going into Monday evening’s proceedings, Donald Trump had surged ahead of Ted Cruz in the state for the first time since August. The latest poll from the Des Moines Register showed Trump polling at 28%, five points ahead of Cruz and 13 points ahead of Marco Rubio. The rest of the GOP field barely registered.

    “A victory for Trump would give him a huge head start toward the nomination, paving the way for him to achieve the unprecedented feat of winning both the first caucus voting in Iowa and the first primary in New Hampshire,” the Register said on Sunday. “A second-place finish for Cruz could make his path to the nomination difficult [as] he was expected to dominate in Iowa, where fellow religious conservatives make up a bigger bloc than in many other states.”

    “Donald Trump could win Iowa,” Stuart Stevens, a Maryland-based GOP strategist who the Register notes has worked on five presidential campaigns says. “But he has little room for error. He is almost no one’s second choice.”

    On the Democratic side the race was a dead heat between Clinton and Sanders going into Monday. The Register showed Clinton has a slight lead, but for all intents and purposes, the avowed socialist was tied with the embattled former First Lady.

    “We can’t afford to make a mistake,” Clinton told some 2,500 people gathered in the gym at Des Moines’ Lincoln High School on Sunday evening. “I want you to think for a minute about what the Republican candidates are talking about as they make their final appeals. They want to rip away the progress we’ve made. They want to rip back rights that have been extended. They want to go back to trickle-down economics that wrecked our economy.”

    “You know what, we’ve been burned too many times [by weak politicians]. We can’t be burned again. The stakes are too high,” Ted Cruz said, at his final rally before the caucuses.

    “We will stand up to the powers that be,” Sanders said in his final message to the electorate before Monday. “And we will create a nation that fulfills the dream and the vision that we know our country can be.”

    Remember, turnout is key for Sanders and Trump and so far, reports indicate that participation is set to be unusually high.

    Earlier today we showed who was ahead in the money race going into primary season. Clinton, we noted, benefited from a number of wealthy donors while Bernie Sanders – who has eschewed the super PAC – managed to haul in $34 million in Q4 on donations that averaged just $27 each. 

    For his part, Donald Trump essentially wrote himself a check for $11 million to spend on the campaign. His biggest expenditure: $941,000 on “Make America Great Again” hats. 

    Here’s a complete breakdown of the spending by candidate:

    And here’s a handy FAQ guide to the caucuses from The New York Times:

    Q. Cut to the chase, how will I know the results?

    The Democratic and Republican parties of Iowa are promising returns in almost-real time on their respective websites: www.iagopcaucuses.com andwww.idpcaucuses.com.

    Q. When do results come in?

    The state Republican Party says the first returns will be in around 7:30 p.m., and it promises to have results “fully reported back in just a few hours.” The Democratic results could take longer because Democrats caucus differently.

    Q. Wait, what are the differences?

    Republicans declare their candidate preferences by a show of hands or by writing out a secret ballot. The Democratic process is complicated: Groups of supporters for each candidate (or undecided attendees) sit or stand together in “preference groups.”

    A head count of everyone in the room is conducted. If any candidate (or the undecideds) don’t have enough supporters — in most cases, 15 percent of the caucusgoers — the group is ruled “nonviable.” Its members realign with other groups, and a final count is made.

    Q. What are the Democrats thinking?

    It’s a disputatious party, what can I say. The fun comes when supporters of candidates try to persuade people in nonviable groups or undecideds to join their team. There are chants, debates about policy and electability, or maybe just the offer of a beer later on. As the state party puts it: “There is a lot of debating and moving around. It is democracy in action.”

    Q. Do the Republicans get to argue for their candidates?

    Yes. Before voting, a supporter for each candidate can make a two-minute speech to all the caucusgoers. Anyone can speak for a candidate. That includes 11-year-old Allisyn Shelley, who will speak for Donald J. Trump in one Davenport precinct. Some candidates will even visit caucuses to speak for themselves — because Iowans may not have fully memorized every stump speech.

    Q. Do you have any videos of how it works?

    The parties and some campaigns have made videos to demystify a process that can be intimidating and has kept turnout abysmally low considering the number of eligible voters. See this one by the Democratic Party of Iowa, this one by Ivanka Trump on behalf of her father, and this one by members of Bernie Sanders’s Iowa field staff.

    Q. Can anyone caucus?

    Only registered voters who enroll as Republicans or Democrats. Voters can register for the first time at the caucus site or switch their affiliation.

    Q. Doesn’t that slow things down?

    It’s possible, if a wave of unregistered or unaffiliated supporters show up, especially for the two candidates drawing a lot of support from caucus newcomers, Mr. Trump and Mr. Sanders. Caucusgoers sign in on arrival and register at that time. Anyone not in line by 7 p.m. Central cannot participate.

    Q. How many people are at each caucus?

    From as few as a dozen in some rural precincts to several hundred. John Tone, the chairman of Republican precinct 62 in Des Moines, is expecting more than 300 at his middle school caucus site, and the Democrats from precinct 62, who are also meeting at the school, expect more than 600.

    Q. Pure democracy, one-person, one-vote, right?

    Only for the Republicans, who report the total vote counts for each candidate. The Democrats are electing delegates to county conventions, who in turn choose delegates to a state convention.

    The statewide winner on caucus night will be the candidate earning the most “state delegate equivalents,” which is reported as a percentage. That’s what you’ll see on the returns page for the Democratic Party.

    Q. With all the hullabaloo that began a full year ago, Iowa must be sending lots of delegates to the national nominating conventions in July?

    Of course not. It’s a tiny state, in terms of population. Democrats are electing 44 out of 4,763 delegates to their convention in Philadelphia. The Republicans are choosing 30 out of 2,472 delegates to their national convention in Cleveland.

    You have a choice of how to interpret that: The caucuses are much ado about very little. Or, because these are the first votes cast, there is a lot at stake in terms of popular momentum, news media attention and donor love.

    Feel free to spend the evening with “Antiques Roadshow.”

  • "Surely This Problem Won't Affect Me"

    Submitted by Jeff Thomas via InternationalMan.com,

    On a daily basis, I receive emails from associates in the UK and Europe that speak of the sheer madness of allowing refugees in the millions to pour into Europe. The riot in Cologne, Germany, by some 1,000 men who sexually assaulted 90 women, and robbed and threatened others, offers insight as to the scale of riots that we may expect to see in the future.

    And the immigration of refugees is just beginning. The shock and horror that my associates express evidences that never before in their lifetimes have events such as these taken place, and that far worse is yet to come.

    We tend to view this “scourge of the demon” as though it’s something new. Yet, in fact, it’s occurred many times before.

    Randolph Bourne:

    “War is the health of the State.”

    When there is warfare, people will subjugate themselves to the state as at no other time. They will allow themselves to be taxed and used as cannon fodder, and to have their rights stripped away, as they are in an “emergency” condition that requires sacrifice but will (hopefully) be over soon.

    Unfortunately, it’s not intended to be over soon. Perpetual conflict means perpetual increase in power by political leaders. Therefore, the leaders will claim that they want it to all be over as soon as possible, but they actually will seek the opposite. Of course, the people don’t desire conflict, so they have to be fooled into believing that it’s necessary. The Nazis had a thorough understanding of this principle.

    Hermann Goering:

    "Why of course the people don’t want war. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country."

    It’s pretty easy to stop the “invasion” by Muslims into Europe, yet we see the EU making threatening noises to all member countries that if they don’t open the floodgates and let them in, there will be hell to pay. The EU government itself is therefore creating the problem that it will later claim it’s trying to control. The wars (Afghanistan, Iraq, Yemen, Libya, Egypt, Palestine, Syria, and more) are intended, in part, to push tax dollars into the military industry and, in part, to create a distraction from the economic mismanagement of the central government. The creation of large numbers of refugees (both real refugees and opportunists) is an additional benefit to the government, as they will create disharmony and fear throughout Europe as they fail to assimilate.

    Hitler used the Jews as his excuse for creating a police state and going to war. The EU (and its allies) will create a crisis, then invoke martial law as an “unfortunate necessity” in order to contain the problem they’ve created. Goering, Goebbels, and Hitler knew quite well that you first have to create a demon, then you can subjugate your people in an effort to control that demon.

    But, in doing so, you need a good marketing programme. You need regular propaganda going out to work the people up into a lather.

    Joseph Goebbels:

    “Think of the press as a great keyboard on which the government can play.”

    On both sides of the Atlantic, governments, with the eager but blind assistance of the press, are creating a crisis of epic proportions. It’s essential that they do so, as they have already created an economic crisis of epic proportions and they need a distraction from that problem—one which allows them control over the people and the assurance of staying in power. Throughout history, warfare has provided that power for one group of political leaders after another.

    It’s also important to make the people feel helpless, so that they’ll turn to their government to solve the problem. Therefore, the ability for individual retaliation must be taken out of the hands of the people.

    Adolf Hitler:

    “This year will go down in history. For the first time, a civilized nation has full gun registration. Our streets will be safer, our police more efficient, and the world will follow our lead into the future!”

    The EU government are presently causing the problem through mass immigration by refugees. But, surely, the very idea that such an influx of uncontrollable people could be a good thing is preposterous. How could anyone ever believe that any good could come of this?

    Adolf Hitler:

    “Make the lie big, make it simple, keep saying it, and, eventually, they will believe it.”

    The “Muslim question” has been made into a political issue. Conservatives who see themselves as “sensible” will oppose the immigration, whilst liberals who see themselves as “caring” will support it. The extreme polarisation between factions will ensure that the lie (as absurd as it is) will receive the immovable support of roughly 50% of the population of Europe (and countries abroad).

    Still, intelligent people are saying to each other every day, “Don’t these politicians get it? Don’t they understand that this influx of Muslims is a disaster in the making?” Well, yes, actually, they understand that all too well, which is why they’re all on board.

    As in both of the previous world wars, we shall see the charade play out again. Each country in Europe will, in turn, join the war with “the enemy.” At some point, Russia will get dragged in, either through an overzealous military action, or through a false-flag attack, and a world war will be on.

    The US and Canada, at first, will just contribute armaments and advisors, but, eventually, the American people will be persuaded that, without their involvement, the Muslims will overrun America as well. If the Americans don’t fall into line on cue, false-flag incidents will be created that will cost American lives that point directly to Muslims. Again, this is nothing new. The Americans have been dragged into war repeatedly in the same way in the past.

    The question is not whether Muslims will overrun Europe. They will. (That’s the objective.) The question is not whether there will be war. There will be. The question is whether you live in a place that will be safe when it occurs or whether your present location will become unlivable at some point.

    Of course, there will be those who recognise that, in this game, their own government is not their friend. Some will choose to prepare an exit plan, should it become necessary. Internationalisation offers the greatest likelihood of insurance against the threat of an overreaching government.

    Insurance, after all, is purchased not due to a certainty that something will go badly wrong. It’s purchased when a disastrous outcome is likely enough to warrant having that insurance in place.

    *  *  *

    Unfortunately there’s little any individual can practically do to change the trajectory of this trend in motion.

    All you can hope to do is to save yourself from the consequences of all this stupidity.

    We think everyone should own some physical gold. Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

    But if you want to be truly “crisis-proof” there's more to do…

    Most people have no idea what really happens when a government goes out of control, let alone how to prepare…

    How will you protect yourself in the event of a crisis? This just-released PDF guide Surviving and Thriving During an Economic Collapse will show you exactly how. Click here to download the PDF now.

  • US Seeks "Maritime Hegemony", Is Acting "Irresponsibly" In South China Sea, Beijing Warns

    It’s now been nearly a year since the world woke up to what Beijing was doing in the South China Sea.

    Early in 2015, satellite images seemed to show that China had embarked on a rather ambitious land reclamation effort in the Spratlys a disputed island chain claimed by Brunei, Malaysia, the Philippines, and Taiwan.

    As the months wore on it became readily apparent that this was no small project. Ultimately, China would build 3,000 acres of new sovereign territory atop reefs in the area much to the chagrin of Washington’s regional allies.

    Especially disconcerting for the US was the construction of a giant runway on Fiery Cross Reef (one of the artificial islands).

    It’s long enough to land military aircraft and just last month, Beijing began to land planes on the man-made outpost.

    China also build a number of other things on the islands including cement factories, greenhouses, ports, and a lighthouse. 

    Beijing contends it has every right to continue its construction efforts. In fact, China says it can forcibly expel other nations from the area if it so chooses.

    As the summer wore on, the situation devolved into a war of words between Beijing and Washington with each accusing the other of acting “aggressively” in the Pacific. Each side also swore up and down that in the end, the “agression would not stand – man.”

    The staring contest lasted until late October when, after months of deliberation, the Obama administration sent a warship to the islands in what Washington called a “freedom of navigation” exercise. 

    Fortunately, China didn’t shoot at the vessel, but Beijing was profoundly displeased. The Pentagon patted itself on the back for reasserting America’s right to control the shipping lanes through which some $5 trillion in global trade pass each year and Washington promptly decided to conduct the exercises several times per quarter. 

    As it turns out the US has so far kept its promise. Late last week the USS Curtis Wilbur, a guided missile destroyer, sailed within 12 nautical miles of Triton island. 

    China is not happy.

    “The so-called freedom of navigation plans and acts that the United States has upheld for many years in reality do not accord with generally recognised international law,” Chinese Foreign Ministry spokesman Lu Kang told a daily news briefing on Monday.

    Lu didn’t stop there. He also accused the US of “ignoring numerous littoral states’ sovereignty and security and maritime rights [on the way to] seriously harming relevant regional peace and stability.”

    And just to drive the point home, Lu delivered the following sharply worded assessment: 

    “Its essence is to push the United States’ maritime hegemony in the name of freedom of navigation, which has always been resolutely opposed by most of the international community, especially certain developing nations. What the United States has done is dangerous and irresponsible.”

    What’s particularly interesting there is that it was just last month when we reported that Japan is set to build a missile blockade in the East China Sea in order to keep China from exerting complete control over regional waters. 

    In other words, both sides say the other is attempting to establish maritime hegemony. Of course there’s one glaring difference: these are waters are nowhere near the US mainland. Why should the US get to decide what goes on in China’s backyard? 

  • 10 Years After The Greenspan Fed

    Submitted by Peter Diekmeyer via SprottMoney.com,

    Ten years ago this week, Alan Greenspan left his post as head of the US Federal Reserve, facing disgrace among hard money advocates, which largely persists to this day.

    However gold investors can learn an important lesson from how little influence Greenspan, one of the gold standard’s most eloquent backers, had during his 18-year tenure. A lesson that provides important clues as to future central bank monetary policy and its effect on precious metals prices.

    That Greenspan was, and remains, a hard money advocate, is beyond doubt. His landmark article “Gold and Economic Freedom,” which was published in The Objectivist , an Ayn Rand-backed newsletter, fifty years ago this June, makes the case for a gold standard in layman’s terms, better than anyone before or since.

    “Gold and economic freedom are inseparable,” wrote Greenspan. “The gold standard is an instrument of laissez-faire (capitalism) and … each implies and requires the other.”

    Greenspan’s advocacy of the gold standard was a hugely controversial position in the 1960s and 1970s and remains so to this day. That this is so is in an illustration of the economics profession’s almost total support for policies that have turned all Western nations into de facto state-run economies.

    Why did Greenspan compromise?

    That Greenspan compromised his views on gold is well-known. During his time there, the US Federal Reserve spawned a series of bubbles, that sowed the seeds of the financial crisis of 2007-2008, as well as of instabilities that remain in the system to this day.

    However it is also fairly clear from comments that Greenspan made after his time in Washington, that he remains a hard money advocate. “Gold is a currency. It is still, by all evidence, a premier currency,” Greenspan told a meeting of the Council of Foreign Relations last year. “No fiat currency, including the dollar, can match it.”

    It is also almost certain that Greenspan held that position during his entire time in Washington. Indeed one of his first acts, after he was appointed chairman of the Council of Economic Advisors in 1974, was to invite Rand, author of Atlas Shrugged, a hard money advocate herself, to his inauguration dinner.

    Indeed according to a 2002 article in SmartMoney's Donald Luskin in a 2002, 40 years after publication of Gold and Economic Freedom, Greenspan apparently told Ron Paul that he stood by his text and "wouldn't change a single word."

    Why did Greenspan compromise his most profoundly held views? Like most people the Maestro, as he became known, is a complex individual. A desire to advance his career no doubt played a major role.

    However Greenspan, like many idealists, also likely believed that, by compromising his views, he might be able to change the system from within. Indeed there are signs that he was somewhat successful in that respect, as things got substantially worse after he left.

    When Ben Bernanke took over as Fed chair in January of 2006, he eventually halted the interest rate hike policy that Greenspan had begun. Later Bernanke reversed all those hikes, cut rates to zero, and began the massive Federal Reserve balance sheet expansion, the effects of which remain with us to this day.

    Redemption: lessons learned

    However Greenspan’s most enduring contributions to the gold community may have been the numerous mea culpas that he has issued after he left office. Unlike many politicians, including Bernanke himself, Greenspan has been increasingly candid regarding his challenges in Washington.

    For example the fact that even a brilliant hard money advocate like Greenspan, had little or no future, unless he towed the political line of those who appointed him, provides a strong signal that things are unlikely to change. Indeed in a widely cited background comment to Marc Faber, a newsletter writer, Greenspan denied that he ever said the Fed was independent.

    The upshot is that if you believe Greenspan, despite the Yellen Fed’s current pause, the growing currency debasement spiral we are in will likely continue.

    The question now is will be the effect of such policies on gold prices over the next five years? When asked that question last year at the New Orleans Investment Conference Greenspan had two words for the interviewer.

    “Measurably higher.”

  • John Cleese: Political Correctness Will Lead To An Orwellian Nightmare

    John Cleese says political correctness has gone too far, especially on America's college campuses, where he will no longer go to perform. As BigThink reports, the very essence of his trade — comedy — is criticism and that not infrequently means hurt feelings. But protecting everyone from negative emotion all the time is not only impractical (one can't control the feelings of another), but also improper in a free society.

    Cleese, having worked with psychiatrist Robin Skynner, says there may even be something more sinister behind the insistence to be always be politically correct.

    "If you start to say we mustn't, we mustn't criticize or offend them then humor is gone. With humor goes a sense of proportion. And then as far as I'm concerned you're living in 1984."

    157 seconds of Python-esque reality from Mr Cleese on just how silly all this PC-ness really is…

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  • Profit Taking in the Oil Market Feb. 1, 2016 (Video)

     

     

     

     

    By EconMatters

    There was a lot of profit taking on Monday in the oil market. Will we still finish the week higher after such a slow start to the trading week? Well we did last week, so it is not entirely impossible. Just another day trading in the oil markets. Actually pretty standard price action for a Monday.


     

     

     

     

     

     

     

    © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle

  • Hong Kong Housing Bubble Suffers Spectacular Collapse: Sales Plunge Most On Record, Prices Crash

    Two months ago, we observed the record plunge in Hong Kong home sales when according to Land Registry data, a paltry 2,826 registered residential transactions were record, down 14.4% from October and what we thought was an amazing 41.7% less than in November last year. This was the lowest print in the history of the series.

    Little did we know just how bad it would get just two months later.

    As we said in our last check on the HK housing market, the weakness was sharp and widespread, with sales of new homes declining to a three-month low. In the primary residential market, the number of home sales also declined 26.4 per cent month on month to 1,023 last month, according to Centaline. The total value reached HK$8.97 billion, down 15.4 per cent from October’s HK$10.6 billion.

    Latly we presented some comments from local analysts, who perhaps unwilling to accept the reality, remained optimistic:

    “The fall in transaction volume and value for new home sales due to an absence of big project launches early last month,” said Derek Chan, head of research at Ricacorp Properties. He expects to see an obvious increase in sales of new homes this month given more major projects are due to be offered for pre-sale.  Most of new projects launches will focus in the western New Territories ,” he said.

    We concluded in early December that while “optimism is good… if and when this global housing luxury weakness mostly due to the withdrawal of the Chinese marginal “hot money” buyer crosses back into the Chinese border, all bets about the so-called tepid Chinese economic will be off, and since it will be just the moment when China resumes cutting rates, devaluaing its currency and maybe even officially (as opposed to the ongoing unofficial iterations) launching QE, that will be when one should buy commodities, as China does everything in its power to keep the house of $30 trillion in cards from toppling and sending a deflationary tsunami around the entire world.”

    So far China has only devalued, and so far there has been no effect on boosting commodity prices; meanwhile the deflationary tsunami is just getting worse as a result of the BOJ entering currency wars most recently by launching NIRP last week.

    Which brings us to the latest Hong Kong housing data, and we can now officially say that any optimism about Hong Kong is officially dead.

    First, as the chart below show, January Hong Kong home prices tumbled the most since July 2013, and after a 12 year upcycle, prices are now down a whopping 10% from the recent peak just four short months ago. Some analysts expect prices to fall more than 30 per cent by 2017 according to SCMP. 

    In other words, the bubble has clearly burst.

     

    But not only has the Hong Kong housing bubble burst, it has done so in spectacular fashion: as quoted by the SCMP, the local Centaline Property Agency estimates that total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history!

    Total transactions are likely to have hit 3,000, it said in a survey released on Sunday. With developers slowing down new launches, only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

    A similar picture emerges from another survey by Ricacorp Properties, which shows 2,908 deals were lodged with the Land Registry in the first 28 days of January.

    In other words, the market is in shock from the collapse in demand, and has effectively been halted until it regroups as sellers, clearly not desperate to chase collapsing bids, simply withdraw offers.

    Sure enough, according to SCMP, “the recent withdrawals of government land sales as a result of poor bids and the return of negative-equity homeowners are adding to strains in a rapidly weakening Hong Kong property market, with analysts saying developers will be forced to cut prices aggressively to stay afloat.”

    What is causing this unprecedented collapse? One explanation is the infamous Fed butterfly flapping its rate hike wings and leading to a housing market crash half way around the world:

    Analysts said developers slowed down new launches after the US implemented its first interest rate in a decade. Hong Kong commercial banks are expected to follow suit in the coming months, pulling up mortgage rates.

     

    “Developers have to offer very attractive prices if they want to find buyers for their flats,” said Derek Chan, head of research at Ricacorp, adding that developers might even have to offer units at prices below the secondary market.

    There’s that, or there is the far simpler Chinese response to the Fed rate hike which has sent shockwaves everywhere from the Chinese forex market to the Hong Kong interbank market where liquidity a few weeks ago virtually disappeared overnight as the PBOC tried to crush and squeeze offshore Yuan sellers. It also means that mainland Chinese buyers, suddenly facing a draconian escalation in capital controls, are suddenly unable to park hot money in the HK market.

    As for the local housing market expect it to remain in a state of suspended animation for a long time.

    Developers are eager to add to their land banks when the market is good but may become more selective in tougher times, especially given the anticipated new supply set to hit the market in the next two to three years, said Chow. “More withdrawals will be seen if the government does not revise the reserved prices.”

    And then there was the issue of negative equity mortgages which somehow have appeared despite just a modest 10% correction from all time highs. One can only imagine the kind of leverage involved in these transactions:

    The Hong Kong Monetary Authority (HKMA) on Friday announced that the estimated number of residential mortgage loans that are in so-called negative equity had hit 95 as of December, according to its latest survey. The total value of these home loans amounted to HK$418 million.

     

    This was the first time the surveyed authorised instiatutions reported negative equity cases since the end of September 2014, said the HKMA.

     

    According to HKMA data, the number of homeowners with negative equity – before the phenomenon resurfaced again lately – had fallen to zero from its peak at 105,697 in July 2003 at the height of a property downturn when home prices plunged up to 70 per cent.

    Amusingly, last February, the HKMA supposedly tightened the loan-to-value ratio to 60 per cent from 70 per cent for flats under HK$7 million. New owners hence have a 40 per cent equity buffer, said Chow, but said some negative-equity cases would occur among those who have borrowed from non-bank financial companies. That, or the regulations of the monetary authority were simply ignored because, just like in the US in 2005, housing could only go up: just ask Ben Bernanke.

    Well, now it is not only not going up, but it is crashing, and if the situation on the margin is this bad in one of the world’s wealthiest enclaves, one can only imagine what is happening in mainland China.

  • World's Largest Silver Producer Slams LBMA's "Manipulated" Fix

    Last week's obvious silver market fix manipulation will not go quietly into the night, as we are sure LBMA would prefer.

     

     

    But it will not, as BullionDesk.com's Ian Walker reports, the world’s largest producer of silver, KGHM, has weighed in on last week’s hugely controversial silver price benchmark, which was set some six percent below the prevailing spot price on Thursday.

    The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce on January 28. This was 84 cents below the spot and futures price at the time.

    Since this has implications for any transactions based on the benchmark, there is a danger that the credibility of the process will be damaged and that users will seek other prices against which to do business, sources said.

    KGHM, one of the largest producers of copper and the single largest producer of silver in the world, called the difference between the prices “very alarming” and called on the London Bullion Market Association (LBMA) to provide an explanation.

    “The large discrepancy between the spot price and the fix is very alarming to us especially that it happened twice in a row,” KGHM head of market risk Grzegorz Laskowski told FastMarkets.

    “I think the LBMA needs to make every effort to explain why it happened and needs to help to develop a system that would help to avoid these kind of situations in the future,” he added.

    The ‘fix’ or ‘benchmark’, as it is now known, is still the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.

    While some traders continue to use the 24-hourly traded spot price, larger players prefer the snapshot-style daily benchmark to settle bulkier contracts on a traditionally over-the-counter (OTC) market.

     

    The price is set every day by five participants – HSBC, JPMorgan Chase Bank, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.

    KGHM produced 40.4 million ounces (1,256 tonnes) of silver in 2014, according to The Silver Institute’s annual report.

  • Caught On Tape: Chinese Investors Find Out They Got Fleeced By A $7 Billion Ponzi Scheme

    When it comes to all things China, the old adage “go big or go home” certainly applies.

    The country’s monumental expansion in the wake of the financial crisis was financed by borrowing on a massive scale, as the country’s debt burden rose from “just” $7 trillion in 2007 to more than $28 trillion today. That’s big.

    Last year, at the peak of the country’s equity bubble, margin financing outstanding amounted to 18% of the SHCOMP’s free float market cap. Also big.

    When the PBoC moved to devalue the yuan last August, Beijing ended up triggering an enormous amount of volatility that reverberated through global markets and culminated with an 8% one-day decline for the SHCOMP on August 24 and a 1,000 point drop in the Dow the same day. Again, big.

    On Monday we got the latest “big” news out of China when Beijing announced it had arrested 21 people over a $7.6 billion P2P fraud Ezubao. 900,000 people were defrauded, making the fiasco the biggest ponzi scheme in history by number of victims.

    Ezubao’s model was simple: they pitched the “business” as a P2P lending company through which investors could fund a variety of projects. The problem: 95% of the projects didn’t exist. Ezubao just made them up and used the new money to repay existing investors who were promised annual returns of between 9% and 15%.

    (the locked door at Ezubao’s office in Hangzhou)

    Zhang Min, the former president of Yucheng Group, Ezubao’s parent, calls the company “a complete Ponzi scheme.”

    Yes, a “complete ponzi scheme”, and one that was quite lucrative for Yucheng chairman Ding Ning who allegedly bought extravagant gifts for friends including a CNY12 million pink diamond ring and a CNY50 million green emerald.

    The company’s assets have been frozen since December. Investments were pitched to unsuspecting Chinese as “high yield, low risk.” 

    “According to more than one suspect confessed, Ding Ning and several closely related group of female executives, their private life extremely extravagant, spendthrift to suck money,” a highly amusing Google translation of the original Xinhua story reads. 

    Ding Ning paid his brother CNY100 million per month, Xinhua says.

    “Police used two excavators and dug for 20 hours to unearth 80 bags of evidence that Ezubo executives had buried six meters underground on the outskirts of Hefei, a city in the eastern province of Anhui,” Bloomberg adds.

    On thing we’ve discussed at length over the past year is the extent to which China is teetering on the verge of social unrest. Between the stock market meltdown, the cratering economy (which will invariably lead to massive job losses) Chinese policymakers are going to have their hands full explaining what went wrong to the country’s 1.4 billion people (see here for more).

    Needless to say, the revelation that 900,000 people were defrauded in a ponzi scheme run through China’s largely unregulated P2P space won’t help matters. “Cases of illegal fund-raising related to peer-to-peer lending have grown quickly in the past two years, according to the local authorities, and officials pledged in December to tighten regulation of the industry,” The New York Times writes. “Because of the enormous sums involved and the large investor base, the collapse of a major online-financing platform could raise concerns over confidence in the security of such investments.”

    Here’s a clip of Ezubao’s defrauded “clients” protesting late last month. Expect more of this to come. And not just as it relates to ponzi schemes.

  • Even Goldman Has Bailed On Bush

    Jeb Bush turned out to be such a bad investment for bankers at Goldman Sachs that the hundreds of thousands of dollars they threw at him has become a company joke, according to Bloomberg. After donating almost $900,000 in the first half of 2015 to four favorite candidates and their fundraising committees, the firm’s bankers gave about $243,000 in the second half, Federal Election Commission filings released Sunday show.

    As Bloomberg continues,

    Marco Rubio took over from Bush as the preferred candidate of Goldman Sachs donors, who gave the Florida senator about $118,000 in the second half of 2015, almost twice what he got in the first six months. Even so, the sum wasn’t close to the more than $700,000 that bankers at the firm gave Bush and his fundraising groups in the first half of the year. Their contributions plunged in the second half to about $47,000.

     

    “It’s like buying a stock and watching it fall,” said Steven Shafran, a former Goldman Sachs partner who contributed to Bush’s super PAC and was a senior adviser at the Treasury Department to Hank Paulson, once the head of the bank. “Putting good money after bad? He certainly has enough for now. I think people are waiting to see if there’s someone they can support and who has a chance to win. If Jeb has a good New Hampshire, my guess is Goldman guys will pile back in again.”

    As Jeb spent the most of anyone…

     

    “In hindsight, they may regret giving the money — or not, I don’t know. Maybe this isn’t over…” said Roy Smith, a finance professor at New York University’s Stern School of Business who was a Goldman Sachs partner until 1987, adding that “the money he raised early was largely in order to give him the chance to blow the others away early, which we know he did not do.”

    No he did not…

    Source: RealClearPolitics

    The early burst of money didn’t go as far as Goldman Sachs bankers would have hoped for Bush, Rubio and Ted Cruz, who trail billionaire Donald Trump in polls going into Monday’s Iowa caucuses. Even Hillary Clinton, their preferred Democrat, is locked in a close race in the Midwest state with Bernie Sanders, a self-described democratic socialist who unveiled an ad last week decrying the firm’s political clout.

  • The Democracy Of The Billionaires

    Authored by Nomi Prins, originally posted at TomDispatch.com,

    Speaking of the need for citizen participation in our national politics in his final State of the Union address, President Obama said, “Our brand of democracy is hard.” A more accurate characterization might have been: “Our brand of democracy is cold hard cash.”

    Cash, mountains of it, is increasingly the necessary tool for presidential candidates. Several Powerball jackpots could already be fueled from the billions of dollars in contributions in play in election 2016. When considering the present donation season, however, the devil lies in the details, which is why the details follow.

    With three 2016 debates down and six more scheduled, the two fundraisers with the most surprising amount in common are Bernie Sanders and Donald Trump. Neither has billionaire-infused super PACs, but for vastly different reasons. Bernie has made it clear billionaires won’t ever hold sway in his court. While Trump… well, you know, he’s not only a billionaire but has the knack for getting the sort of attention that even billions can’t buy.

    Regarding the rest of the field, each candidate is counting on the reliability of his or her own arsenal of billionaire sponsors and corporate nabobs when the you-know-what hits the fan. And at this point, believe it or not, thanks to the Supreme Court’s Citizens United decision of 2010 and the super PACs that arose from it, all the billionaires aren’t even nailed down or faintly tapped out yet.  In fact, some of them are already preparing to jump ship on their initial candidate of choice or reserving the really big bucks for closer to game time, when only two nominees will be duking it out for the White House.

    Capturing this drama of the billionaires in new ways are TV networks eager to profit from the latest eyeball-gluing version of election politicking and the billions of dollars in ads that will flood onto screens nationwide between now and November 8th. As super PACs, billionaires, and behemoth companies press their influence on what used to be called “our democracy,” the modern debate system, now a 16-month food fight, has become the political equivalent of the NFL playoffs. In turn, soaring ratings numbers, scads of ads, and the party infighting that helps generate them now translate into billions of new dollars for media moguls.

    For your amusement and mine, this being an all-fun-all-the-time election campaign, let’s examine the relationships between our twenty-first-century plutocrats and the contenders who have raised $5 million or more in individual contributions or through super PACs and are at 5% or more in composite national polls. I’ll refrain from using the politically correct phrases that feed into the illusion of distance between super PACs that allegedly support candidates’ causes and the candidates themselves, because in practice there is no distinction.

    On the Republican Side:

    1. Ted Cruz: Most “God-Fearing” Billionaires

    Yes, it’s true the Texas senator “goofed” in neglecting to disclose to the Federal Election Commission (FEC) a tiny six-figure loan from Goldman Sachs for his successful 2012 Senate campaign. (After all, what’s half-a-million dollars between friends, especially when the investment bank that offered it also employed your wife as well as your finance chairman?) As The Donald recently told a crowd in Iowa, when it comes to Ted Cruz, “Goldman Sachs owns him. Remember that, folks. They own him.”

    That aside, with a slew of wealthy Christians in his camp, Cruz has raised the second largest pile of money among the GOP candidates. His total of individual and PAC contributions so far disclosed is a striking $65.2 million. Of that, $14.28 million has already been spent. Individual contributors kicked in about a third of that total, or $26.57 million, as of the end of November 2015 — $11 million from small donors and $15.2 million from larger ones. His five top donor groups are retirees, lawyers and law firms, health professionals, miscellaneous businesses, and securities and investment firms (including, of course, Goldman Sachs to the tune of $43,575).

    Cruz’s Keep the Promise super PAC continues to grow like an action movie franchise. It includes his original Keep the Promise PAC augmented by Keep the Promise I, II, and III. Collectively, the Keep the Promise super PACs amassed $37.83 million. In terms of deploying funds against his adversaries, they have spent more than 10 times as much fighting Marco Rubio as battling Hillary Clinton.

    His super PAC money divides along family factions reminiscent of Game of Thrones.  A $15 million chunk comes from the billionaire Texas evangelical fracking moguls, the Wilks Brothers, and $10 million comes from Toby Neugebauer, who is also listed as the principal officer of the public charity, Matthew 6:20 Foundation; its motto is “Support the purposes of the Christian Community.”

    Cruz’s super PACs also received  $11 million from billionaire Robert Mercer, co-CEO of the New York-based hedge fund Renaissance Technologies. His contribution is, however, peanuts compared to the $6.8 billion a Senate subcommittee accused Renaissance of shielding from the Internal Revenue Service (an allegation Mercer is still fighting). How’s that for “New York values”?  No wonder Cruz wants to abolish the IRS.

    Another of Cruz’s contributors is Bob McNair, the real estate mogul, billionaire owner of the National Football League’s Houston Texans, and self-described “Christian steward.”

    2. Marco Rubio: Most Diverse Billionaires

    Senator Marco Rubio of Florida has raised $32.8 million from individual and PAC contributions and spent about $9 million. Despite the personal economic struggles he’s experienced and loves to talk about, he’s not exactly resonating with the nation’s downtrodden, hence his weak polling figures among the little people. Billionaires of all sorts, however, seem to love him.

    The bulk of his money comes from super PACs and large contributors. Small individual contributors donated only $3.3 million to his coffers; larger individual contributions provided $11.3 million. Goldman Sachs leads his pack of corporate donors with $79,600.

    His main super PAC, Conservative Solutions, has raised $16.6 million, making it the third largest cash cow behind those of Jeb Bush and Ted Cruz. It holds $5 million from Braman Motorcars, $3 million from the Oracle Corporation, and $2.5 million from Benjamin Leon, Jr., of Besilu Stables. (Those horses are evidently betting on Rubio.)

    He has also amassed a healthy roster of billionaires including the hedge-fund “vulture of Argentina” Paul Singer who was the third-ranked conservative donor for the 2014 election cycle. Last October, in a mass email to supporters about a pre-Iowa caucus event, Singer promised, “Anyone who raises $10,800 in new, primary money will receive 5 VIP tickets to a rally and 5 tickets to a private reception with Marco.”

    Another of Rubio's Billionaire Boys is Norman Braman, the Florida auto dealer and his mentor. These days he’s been forking over the real money, but back in 2008, he gave Florida International University $100,000 to fund a Rubio post-Florida statehouse teaching job. What makes Braman’s relationship particularly intriguing is his “intense distaste for Jeb Bush,” Rubio’s former political mentor and now political punching bag. Hatred, in other words, is paying dividends for Rubio.

    Rounding out his top three billionaires is Oracle CEO Larry Ellison, who ranks third on Forbes’s billionaire list.  Last summer, he threw a $2,700 per person fundraiser in his Woodside, California, compound for the candidate, complete with a special dinner for couples that raised $27,000. If Rubio somehow pulls it out, you can bet he will be the Republican poster boy for Silicon Valley.

    3. Jeb Bush: Most Disappointed Billionaires

    Although the one-time Republican front-runner’s star now looks more like a black hole, the coffers of “Jeb!” are still the ones to beat. He had raised a total of $128 million by late November and spent just $19.9 million of it.  Essentially none of Jeb’s money came from the little people (that is, us). Barely 4% of his contributions were from donations of $200 or less.

    In terms of corporate donors, eight of his top 10 contributors are banks or from the financial industry (including all of the Big Six banks). Goldman Sachs (which is nothing if not generous to just about every candidate in sight — except of course, Bernie) tops his corporate donor chart with $192,500. His super PACs still kick ass compared to those of the other GOP contenders. His Right to Rise super PAC raised a hefty $103.2 million and, despite his disappearing act in the polls, it remains by far the largest in the field.

    Corporate donors to Jeb’s Right to Rise PAC include MBF Healthcare Partners founder and chairman Mike Fernandez, who has financed a slew of anti-Trump ads, with $3.02 million, and Rooney Holdings with $2.2 million. Its CEO, L. Francis Rooney III, was the man George W. Bush appointed ambassador to the Vatican. Former AIG CEO Hank Greenberg’s current company, CV Starr (and not, as he has made pains to clarify, he himself), gave $10 million to Jeb’s super PAC. In the same Fox Business interview where he stressed that distinction, he also noted, “I’m sorry he is not living up to expectations, but that’s the reality of it.” AIG, by the way, received $182 billion in bailout money under Jeb’s brother, W.

    4. Ben Carson: No Love For Billionaires

    Ben Carson is running a pretty expensive campaign, which doesn’t reflect well on his possible future handling of the economy (though, as he sinks toward irrelevance in the polls, it seems as if his moment to handle anything may have passed). Having raised $38.7 million, he’s spent $26.4 million of it. His campaign received 63% of its contributions from small donors, which leaves it third behind Bernie and Trump on that score, according to FEC filings from October 2015.

    His main super PACs, grouped under the title “the 2016 Committee,” raised just $3.8 million, with rich retired people providing the bulk of it.  Another PAC, Our Children’s Future, didn’t collect anything, despite its pledge to turn "Carson’s outside militia into an organized army."

    But billionaires aren’t Carson’s cup of tea. As he said last October, “I have not gone out licking the boots of billionaires and special-interest groups. I’m not getting into bed with them.”

    Carson recently dropped into fourth place in the RealClearPolitics composite poll for election 2016 with his team in chaos. His campaign manager, Barry Bennett, quit. His finance chairman, Dean Parke, resigned amid escalating criticism over his spending practices and his $20,000 a month salary. As the rising outsider candidate, Carson once had an opportunity to offer a fresh voice on campaign finance reform. Instead, his campaign learned the hard way that being in the Republican hot seat without a Rolodex of billionaires can be hell on Earth.

    5. Chris Christie: Most Sketchy Billionaires

    For someone polling so low, New Jersey Governor Chris Christie has amassed startling amounts of dosh. His campaign contributions stand at $18.6 million, of which he has spent $5.7 million. Real people don’t care for him. Christie has received the least number of small contributions in either party, a bargain basement 3% of his total.

    On the other hand, his super PAC, America Leads, raised $11 million, including $4.3 million from the securities and investment industry. His top corporate donors at $1 million each include Point 72 Asset Management, the Steven and Alexandra Cohen Foundation, and Winnecup Gamble Ranch, run by billionaire Paul Fireman, chairman of Fireman Capital Partners and founder and former chairman of Reebok International Ltd.

    Steven Cohen, worth about $12 billion and on the Christie campaign's national finance team, founded Point 72 Asset Management after being forced to shut down SAC Capital, his former hedge-fund company, due to insider-trading charges. SAC had to pay $1.2 billion to settle.

    Christie’s other helpful billionaire is Ken Langone, co-founder of Home Depot. But Langone, as he told the National Journal, is not writing a $10 million check. Instead, he says, his preferred method of subsidizing politicians is getting “a lot of people to write checks, and get them to get people to write checks, and hopefully result in a helluva lot more than $10 million.” In other words, Langone offers his ultra-wealthy network, not himself.

    6. Donald Trump: I Am A Billionaire

    Trump’s campaign has received approximately $5.8 million in individual contributions and spent about the same amount. Though not much compared to the other Republican contenders, it’s noteworthy that 70% of Trump’s contributions come from small individual donors (the highest percentage among GOP candidates). It’s a figure that suggests it might not pay to underestimate Trump’s grassroots support, especially since he’s getting significant amounts of money from people who know he doesn’t need it.

    Last July, a Make America Great Again super PAC emerged, but it shut down in October to honor Trump’s no super PAC claim.  For Trump, dealing with super PAC agendas would be a hassle unworthy of his time and ego. (He is, after all, the best billionaire: trust him.) Besides, with endorsements from luminaries like former Alaska Governor Sarah Palin and a command of TV ratings that’s beyond compare, who needs a super PAC or even his own money, of which he’s so far spent remarkably little?

    On The Democratic Side:

    1. Hillary Clinton: A Dynasty of Billionaires

    Hillary and Bill Clinton earned a phenomenal $139 million for themselves between 2007 and 2014, chiefly from writing books and speaking to various high-paying Wall Street and international corporations.  Between 2013 and 2015, Hillary Clinton gave 12 speeches to Wall Street banks, private equity firms, and other financial corporations, pocketing a whopping $2,935,000. And she’s used that obvious money-raising skill to turn her campaign into a fundraising machine.

    As of October 16, 2015, she had pocketed $97.87 million from individual and PAC contributions.  And she sure knows how to spend it, too. Nearly half of that sum, or $49.8 million — more than triple the amount of any other candidate — has already gone to campaign expenses.

    Small individual contributions made up only 17% of Hillary’s total; 81% came from large individual contributions. Much like her forced folksiness in the early days of her campaign when she was snapped eating a burrito bowl at a Chipotle in her first major meet-the-folks venture in Ohio, those figures reveal a certain lack of savoir faire when it comes to the struggling classes.

    Still, despite her speaking tour up and down Wall Street and the fact that four of the top six Wall Street banks feature among her top 10 career contributors, they’ve been holding back so far in this election cycle (or perhaps donating to the GOP instead).  After all, campaign 2008 was a bust for her and nobody likes to be on the losing side twice.

    Her largest super PAC, Priorities USA Action, nonetheless raised $15.7 million, including $4.6 million from the entertainment industry and $3.1 million from securities and investment. The Saban Capital Group and DreamWorks kicked in $2 million each.

    Hillary has recently tried to distance herself from a well-deserved reputation for being close to Wall Street, despite the mega-speaking fees she’s garnered from Goldman Sachs among others, not to speak of the fact that five of the Big Six banks gave money to the Clinton Foundation. She now claims that her “Wall Street plan” is stricter than Bernie Sanders’s. (It isn’t. He’s advocating to break up the big banks via a twenty-first-century version of the Glass-Steagall Act that Bill Clinton buried in his presidency.) To top it off, she scheduled an elite fundraiser at the $17 billion “alternative investment” firm Franklin Square Capital Partners four days before the Iowa Caucus. So much for leopards changing spots.

    You won’t be surprised to learn that Hillary has billionaires galore in her corner, all of whom backed her hubby through the years.  Chief among them is media magnate Haim Saban who gave her super PAC $2 million. George Soros, the hedge-fund mogul, contributed $2.02 million. DreamWorks Animation chief executive Jeffrey Katzenberg gave $1 million. And the list goes on.

    2. Bernie Sanders: No Billionaires Allowed

    Bernie Sanders has stuck to his word, running a campaign sans billionaires. As of October 2015, he had raised an impressive $41.5 million and spent about $14.5 million of it.

    None of his top corporate donors are Wall Street banks. What’s more, a record 77% of his contributions came from small individual donors, a number that seems only destined to grow as his legions of enthusiasts vote with their personal checkbooks.

    According to a Sanders campaign press release as the year began, another $33 million came in during the last three months of 2015: “The tally for the year-end quarter pushed his total raised last year to $73 million from more than 1 million individuals who made a record 2.5 million donations.” That number broke the 2011 record set by President Obama’s reelection committee by 300,000 donations, and evidence suggests Sanders’s individual contributors aren’t faintly tapped out. After recent attacks on his single-payer healthcare plan by the Clinton camp, he raised $1.4 million in a single day.

    It would, of course, be an irony of ironies if what has been a billionaire’s playground since the Citizens United decision became, in November, a billionaire’s graveyard with literally billions of plutocratic dollars interred in a grave marked: here lies campaign 2016.

    The Media and Debates

    And talking about billions, in some sense the true political and financial playground of this era has clearly become the television set with a record $6 billion in political ads slated to flood America’s screen lives before next November 8th. Add to that the staggering rates that media companies have been getting for ad slots on TV’s latest reality extravaganza — those “debates” that began in mid-2015 and look as if they’ll never end. They have sometimes pulled in National Football League-sized audiences and represent an entertainment and profit spectacle of the highest order.

    So here’s a little rundown on those debates thus far, winners and losers (and I’m not even thinking of the candidates, though Donald Trump would obviously lead the list of winners so far — just ask him).  In those ratings extravaganzas, especially the Republican ones, the lack of media questions on campaign finance reform and on the influence of billionaires is striking — and little wonder, under the money-making circumstances.

    The GOP Show

    The kick-off August 6th GOP debate in Cleveland, Ohio, was a Fox News triumph. Bringing in 24 million viewers, it was the highest-rated primary debate in TV history. The follow-up at the Reagan Library in Simi Valley, California, on September 16th, hosted by CNN and Salem Radio, grabbed another 23.1 million viewers, making it the most-watched program in CNN's history.  (Trump naturally took credit for that.)  CNN charged up to $200,000 for a 30-second spot.  (An average prime-time spot on CNN usually goes for $5,000.) The third debate, hosted by CNBC, attracted 14 million viewers, a record for CNBC, which was by then charging advertisers $250,000 or more for 30-second spots.

    Fox Business News and the Wall Street Journal hosted the next round on November 10th: 13.5 million viewers and (ho-hum) a Fox Business News record. For that one, $175,000 bought you a 30-second commercial slot.

    The fifth and final debate of 2015 on December 15th in Las Vegas, again hosted by CNN and Salem Radio, lassoed 18 million viewers. As 2016 started, debate fatigue finally seemed to be setting in. The first debate on January 14th in North Charleston, South Carolina, scored a mere 11 million viewers for Fox Business News. When it came to the second debate (and the last before the Iowa caucuses) on January 28th, The Donald decided not to grace it with his presence because he didn't think Fox News had treated him nicely enough and because he loathes its host Megyn Kelly.

    The Democratic Debates

    Relative to the GOP debate ad-money mania, CNN charged a bargain half-off, or $100,000, for a 30-second ad during one of the Democratic debates. Let’s face it, lacking a reality TV star at center stage, the Democrats and associated advertisers generally fared less well. Their first debate on October 13th in Las Vegas, hosted by CNN and Facebook, averaged a respectable 15.3 million viewers, but the next one in Des Moines, Iowa, overseen by CBS and the Des Moines Register, sank to just 8.6 million viewers. Debate number three in Manchester, New Hampshire, hosted by ABC and WMUR, was rumored to have been buried by the Democratic National Committee (evidently trying to do Hillary a favor) on the Saturday night before Christmas. Not surprisingly, it brought in only 7.85 million viewers.

    The fourth Democratic debate on NBC on January 17th (streamed live on YouTube) featured the intensifying battle between an energized Bernie and a spooked Hillary.  It garnered 10.2 million TV viewers and another 2.3 million YouTube viewers, even though it, too, had been buried — on the Sunday night before Martin Luther King, Jr. Day. In comparison, 60 Minutes on rival network CBS nabbed 20.3 million viewers.

    The Upshot

    So what gives? In this election season, it’s clear that these skirmishes involving the ultra-wealthy and their piles of cash are transforming modern American politics into a form of theater. And the correlation between big money and big drama seems destined only to rise.  The media needs to fill its coffers between now and election day and the competition among billionaires has something of a horse-betting quality to it.  Once upon a time, candidates drummed up interest in their policies; now, their policies, such as they are, have been condensed into so many buzzwords and phrases, while money and glitz are the main currencies attracting attention.

    That said, it could all go awry for the money-class and wouldn’t that just be satisfying to witness — the irony of an election won not by, but despite, all those billionaires and corporate patrons.

    Will Bernie’s citizens beat Hillary’s billionaires? Will Trump go billion to billion with fellow New York billionaire Michael Bloomberg? Will Cruz’s prayers be answered? Will Rubio score a 12th round knockout of Cruz and Trump? Does Jeb Bush even exist? And to bring up a question few are likely to ask: What do the American people and our former democratic republic stand to lose (or gain) from this spectacle? All this and more (and more and more money) will be revealed later this year.

  • Here Are The 3 Trades Hedgies Are Using To Bet On A Yuan Devaluation

    With an ever-increasing horde of hedge fund "speculators" daring to confront The PBOC, here is how they are placing theirs bets on Yuan devaluation…

     

    Spot trades are simple but less levered and prone to direct interventionist manipulation. So traders turn to derivatives (more capital effective with their prime brokers) to place their bets.

    In the forward FX market…

    The FX forwards market has shown significantly more selling pressure than spot as traders place bets on timing and expectations of a devaluation.

     

    In the options market…

    As the following chart of risk reversals shows, the difference in volatility (i.e. demand for upside vs downside) between similar call and put options is surging towards the downside bets.

    Its is clear that while expectations are rising for short-term expectations of a devaluation, over the next year speculators are increasingly confident of the inevitable.

    The last time R/Rs were this skewed was right as China devalued in August.

     

    And in the CDS market…

    Perhaps the cleanest pure bet on devaluation – and least prone to direct government intervention – is the sovereign CDS market where China is trading 128bps and while everyone points to the manufactured "stability" in spot FX markets, it is clear that CDS (which is priced in USD) clearly shows investors betting on a devaluation…

     

    *  *  *

    Tracking these three indicators (CNH Spot-Forward spread and Risk-Reversals) will provide indications both of speculative positioning as well as market implied odds of a devaluation. Bank of America is speculating that China will devalue before the Feb 27th G-20 meeting in Shanghai and we also note that next week is Chinese lunar new year and Golden Week… with banks closed, perhaps the perfect time to do a major devaluation?

  • "Prospects For Social Disintegration Are Huge" As Wave Of Oil Refugees Looms

    Authored by Michael Meyer, originally posted at Project Syndicate,

    The idea that oil wealth can be a curse is an old one – and it should need no explaining. Every few decades, energy prices rise to the heavens, kicking off a scramble for new sources of oil. Then supply eventually outpaces demand, and prices suddenly crash to Earth. The harder and more abrupt the fall, the greater the social and geopolitical impact.

    The last great oil bust occurred in the 1980s – and it changed the world. As a young man working in the Texas oil patch in the spring of 1980, I watched prices for the US benchmark crude rise as high as $45 a barrel – $138 in today’s dollars. By 1988, oil was selling for less than $9 a barrel, having lost half its value in 1986 alone.

    Drivers benefited as gasoline prices plummeted. Elsewhere, however, the effects were catastrophic – nowhere more so than in the Soviet Union, whose economy was heavily dependent on petroleum exports. The country’s growth rate fell to a third of its level in the 1970s. As the Soviet Union weakened, social unrest grew, culminating in the 1989 fall of the Berlin Wall and the collapse of communism throughout Central and Eastern Europe. Two years later, the Soviet Union itself was no more.

    Similarly, today’s plunging oil prices will benefit a few. Motorists, once again, will be happy; but the pain will be earth-shaking for many others. Never mind the inevitable turmoil in global financial markets or the collapse of shale-oil production in the United States and what it implies for energy independence. The real risk lies in countries that are heavily dependent on oil. As in the old Soviet Union, the prospects for social disintegration are huge.

    Sub-Saharan Africa will certainly be one epicenter of the oil crunch. Nigeria, its largest economy, could be knocked to its knees. Oil production is stalling, and unemployment is expected to skyrocket. Already, investors are rethinking billions of dollars in financial commitments. President Muhammadu Buhari, elected in March 2015, has promised to stamp out corruption, rein in the free-spending elite, and expand public services to the very poor, a massive proportion of the country’s population. That now looks impossible.

    As recently as a year ago, Angola, Africa’s second largest oil producer, was the darling of global investors. The expatriate workers staffing Luanda’s office towers and occupying its fancy residential neighborhoods complained that it was the most expensive city in the world. Today, Angola’s economy is grinding to a halt. Construction companies cannot pay their workers. The cash-strapped government is slashing the subsidies that large numbers of Angolans depend on, fueling popular anger and a sense that the petro-boom enriched only the elite, leaving everyone else worse off. As young people call for political change from a president who has been in power since 1979, the government has launched a crackdown on dissent.

    On the other side of the continent, Kenya and Uganda are watching their hopes of becoming oil exporters evaporate. As long as prices remain low, new discoveries will stay in the ground. And yet the money borrowed for infrastructure investment still must be repaid – even if the oil revenues earmarked for that purpose never materialize. Funding for social programs in both countries is already stretched. Ordinary people are already angry at a kleptocratic elite that siphons off public money. What will happen when, in a few years, a huge and growing chunk of the national budget must be dedicated to paying foreign debt instead of funding education or health care?

    The view from North Africa is equally bleak. Two years ago, Egypt believed that major discoveries of offshore natural gas would defuse its dangerous youth bomb, the powder keg that fueled the Arab Spring in 2011. No longer. And to make matters worse, Saudi Arabia, which for years has funneled money to the Egyptian government, is facing its own economic jitters. Today, the Kingdom is contemplating what was once unthinkable: cutting Egypt off.

    Meanwhile, next door, Libya is primed to explode. A half-decade of civil war has left an impoverished population fighting over the country’s dwindling oil revenues. Food and medicine are in short supply as warlords struggle for the remnants of Libya’s national wealth.

    These countries are not only dependent on oil exports; they also rely heavily on imports. As revenues dry up and exchange rates plunge, the cost of living will skyrocket, exacerbating social and political tensions.

    Europe is already struggling to accommodate refugees from the Middle East and Afghanistan. Nigeria, Egypt, Angola, and Kenya are among Africa’s most populated countries. Imagine what would happen if they imploded and their disenfranchised, angry, and impoverished residents all started moving north.

  • Explaining The "Rise Of The American Protest Vote": It's The "Popular Discontent," Stupid

    One theme we’ve explored at length and on a number of occasions over the past 12 months is the global shift towards so-called “radical” political parties and candidates.

    Whether it’s Syriza in Greece, Podemos in Spain, or Donald Trump in the US, voters are increasingly turning to candidates outside of the establishment.

    Why is the electorate turning its back on the traditional bases of political power, you ask? Well, that is the question of the day and indeed it’s one quite a few people are trying to answer. BofA’s Michael Hartnett recently asked why, if the global “recovery” is real, are populist parties and politicians dominating the political landscape. For those who missed it, here’s a look at how these parties and politicians are polling:

    As hinted above, one reason for the political sea change may well be voter disaffection with the economy.

    While the general public is probably ignorant to the nuances, Main Street is in tune to a kind of inescapable suspicion that things aren’t what they once were and that the gap between the haves and the have nots is growing. That goes double in countries like Spain, where unemployment is still running above 20%.

    As RBS’ Alberto Gallo put it a few months back, “persistent low growth, high youth unemployment and increasing inequality have hurt Europe’s young generation.”

    The same can be said of America, although one could argue the problem is less acute.

    Ahead of primary season in the US, RBS’ Gallo is out with a fresh look at the rise of “the all-American protest vote” which he says is being driven by “the deeply imbalanced nature of the recovery.” Here’s how RBS describes the state of the American economy:

    The deeply imbalanced nature of the recovery could well be driving the protest vote. This US recovery is one of the most uneven on record, looking across both states and industries. In 2014 55% of states grew at a rate of 1.75% or less, whilst only a small number of states (12%) grew faster than 3.25%. This compares to 1988-2014 average of 24% growing less than or equal to a rate of 1.75% and 20% growing faster than 3.25%.

     

     

    Looking across industries, structural shrinkage in the manufacturing and construction sectors, where employment has been declining since the crisis, is contributing to pockets of structurally higher unemployment. With many parts of the economy not feeling the full benefits from the US recovery almost 8 years after it began, the protest vote seems to have grown strong enough within the two main parties to begin to challenge for power.

     

    And here’s a bit on where the “radicals” are enjoying support:

    Who is supporting “protest” candidates? According to YouGov Sep 2015 data, Trump’s supporters are older, less educated and earn less than the Republican average. Over one-third of his supporters earn less than $50,000 per year vs 11% earning over $100,000 per year. One half of his voters have high school education or less vs 19% with a college or post-graduate degree. This pattern was also seen by Civis Analytics data in December, which continues to show stronger support for Trump from older and less educated voters. For Cruz, support is the strongest among women and people over the age of 50. While there is no clear correlation between support for Trump and economic growth statewise, it is notable that the majority of the states that are still in recession or have below 1% growth have strong poll ratings for Trump (e.g. West Virginia, New Hampshire, South Dakota, Mississippi).

     

     

    Gallo’s conclusion: “The sustained growth in support for protest parties across Europe provides a lesson for the US – unless the root causes of popular discontent are addressed (uneven growth, pockets of high unemployment and weak wage growth), the protest vote is unlikely to go away. In fact, it may well grow.”

    Yes, it “may well” just do that, and the consequences of a protest candidate taking the White House “may well” be decidedly unpredictable.

    As we saw in Greece, attempts to rekindle “the dream” (so to speak) can end in new nightmares. That’s not to say America should resign itself to four more years of business as usual inside the Beltway. But we wonder if the old adage “be careful what you wish for” doesn’t apply to both Donald Trump and Bernie Sanders.

  • "They Want Us Dead & Gone" – Homelessness Surges Across The US

    While federal, state and local programs aimed at securing permanent housing for certain groups, such as veterans and the chronically homeless, have helped bring down the number of homeless people nationally, but amid Federal-Reserve-"wealth"-fueled gentrification, WSJ reports many cities are seeing the number of homeless soar. In New York, the homeless population increased nearly 42% to 75,323 from 53,187 and though the roots of the clashes vary, a common theme runs through many: The conflict between established homeless populations and new residents drawn by redevelopment.

    As once derelict or sleepy downtown districts in U.S. cities evolve into thriving hot spots, The Wall Street Journal reports, officials are grappling with what to do about homeless populations that have long inhabited them.

    The tension is “all over the country,” said James Wright, a sociology professor at the University of Central Florida who has researched the issue. “Its major effect is just to displace them to other places in the city.”

     

     

     

    Experts say a variety of factors fuel homelessness. Incomes aren’t keeping pace with rising rents in some high-price markets, and demand for affordable housing far outstrips supply, according to a 2015 study by the Joint Center for Housing Studies of Harvard University. In 2013, there were only 34 affordable units in the U.S. for every 100 extremely low-income renters, those earning 30% of the median in the area, the study found.

    Cities everywhere are facing this tension between established homeless populations and new residents drawn by redevelopment…

    The tension in San Francisco has led to allegations that the city is looking to move its homeless out of trendy areas. That is what “municipalities like to do when they have big events, … try to create this fairyland where no poor people are present,” said Jennifer Friedenbach, executive director of the city’s Coalition on Homelessness.

     

    Christine Falvey, a spokeswoman for Mayor Ed Lee, said the city has no plan for a crackdown and has stepped up efforts to end homelessness by getting people into permanent housing.

     

    In Miami, where downtown has become an increasingly vibrant area, the homeless population has crept up since 2013. The city’s Downtown Development Authority, which promotes the area, sparred last year with the Miami-Dade County Homeless Trust over how best to tackle the issue.

     

    Ronald Book, chairman of the homeless trust, said a DDA plan to provide mats for homeless people at a nearby shelter was merely an attempt to sweep them from the street—a claim Alyce Robertson, executive director of the DDA, denied. As the dispute grew heated, the DDA created a detailed “poop map” showing where human feces, presumably from homeless people, was spotted on downtown streets.

     

    Another fight is brewing in Atlanta, where a four-story homeless shelter sits amid a building boom in Midtown and downtown that is drawing new residents and businesses. Mayor Kasim Reed has vowed to shut it down, arguing it is a magnet for drugs, disease and crime and does little to help the homeless.

     

    Shelter board members say he is trying to push homeless people out of an increasingly chic area along Peachtree Street, the city’s main drag, at the behest of business leaders. “They want us dead and gone,” said Charles Steffen, one of the board members. Backers of the facility say it is serving Atlanta’s most-desperate people and needs to stay open near the city center so the homeless have access to public transportation and other services.

    As once derelict or sleepy downtown districts in U.S. cities evolve into thriving hot spots, officials are grappling with what to do about homeless populations that have long inhabited them. The tension is “all over the country,” said James Wright, a sociology professor at the University of Central Florida who has researched the issue. “Its major effect is just to displace them to other places in the city.”

    Oddly no mention of this in Obama's State of The Union?

  • As Voting Begins, Bernie Suddenly More Popular With Democrats Than Hillary

    In a stunning finding, moments ago Gallup reported that as voting begins in the 2016 presidential primary, suddenly Bernie Sanders, once seen as a long-shot bid for the Democratic nomination, has the edge over Hillary Clinton in net favorability among U.S. adults who identify or lean Democratic.

    For the two-week rolling average spanning Jan. 18-31, Sanders has a net favorable score of +53 – tied for his highest reading since Gallup began tracking candidates’ images in early July of last year. Clinton, long the leader in the popularity metric, has a score of +49.

    What makes this transition remarkable is that when Gallup began tracking the favorability scores of the presidential field in early July, Clinton had a substantial advantage over Sanders. Democrats were overwhelmingly positive about the former secretary of state and long-time political figure, as her +56 net favorable score demonstrated. Sanders, by contrast, held a net favorable of +29 in early July and, just as crucially, a majority of Democrats (52%) either did not know him or had no opinion about him. Virtually all Democratic adults, on the other hand, knew Clinton.

    In the meantime, something changed, and while Super-PACs have been pouring cash into the Hillary campaign, much of her original support appears to have shifted to Bernie:

    Clinton does still maintain the upper hand in overall familiarity with Democrats. For the most recent two-week rolling average ending Jan. 31, 93% of Democratic adults know Clinton well enough to have an opinion about her, while 75% of Democrats know Sanders. But Sanders’ name recognition has improved by 26 percentage points over the course of the campaign, and the vast majority of those who have learned about Sanders view him favorably.

    For the broad Jan. 1-31 time period, Democratic men, young Democrats aged 18 to 29 and whites like Sanders better than they do Clinton. Clinton has an advantage most notably with black Democrats, but also with women, Democrats aged 65 and older as well as Hispanics.

    The question for Sanders is whether he can translate this newfound popularity advantage over Clinton into a series of primary victories: with the first case occurring tonight in Iowa, we will have the answer in hours. But even if Clinton can muster out a victory tonight and beyond, she will, for the benefit of her general election run, want to find ways to arrest her sagging favorability scores with Democrats and national adults.

    Gallup’s conclusion:

    Iowa does not mark the end of the primary campaign, but it is, at least, the first benchmark in what could be a long primary season. Sanders finds himself arriving at this first marker in fine fashion: His popularity is on the upswing, and he is no longer an anonymous figure to most Democrats. Clinton’s campaign is, instead, limping into the first contest, making for an inauspicious beginning for a candidate who once seemed a sure-lock for the Democratic nomination.

    If Bernie does somehow manage to pull it off, however, and become the equivalent of the establishment shocker that Trump is shaping up on the right, then the Bernie-Donald debates will truly make for epic political history in a few short months.

  • How To Beat The Market: One Surprisingly Simple Trade

    Back in 2012 and then again in 2013, after repeatedly observing just how broken markets have become as a result of central bank intervention, a topic that back then was still taboo and is now wholeheartedly accepted even by the Davos billionaires (whose mood the WSJ summarized as “irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long“) we presented what may have been the “best alpha opportunity around” and how to outperform the “market” in a world in which not only fundamentals no longer matter, but in which hedge fund herding has led to relentless losses for the active investor community for 7 years in a row as a result of the omnipresence of central banks who have made hedging pointless: just do the opposite of what everyone is doing, and go long the most shorted stocks.

    From our September 2013 post:

    In a world in which nothing has changed from a year ago, and where fundamentals still don’t matter, what is one to do to generate an outside market return? Simple: more of the same and punish those who still believe in an efficient, capital-allocating marketplace and keep bidding up the most shorted names.

    As we documented both before and since, this trade has continued to generate alpha even as the smartest people in the room sat down during long idea dinners and scrambled to come up with ways to justify their 2 and 20 (and in the case of Bill Ackman last week, blamed precisely the same idea dinners for their underperformance).

    Today, none other than Bank of America’s chief equity quant Savita Subramanian throws in the towel and admits that the best trade over the past several years has been precisely what we first suggested in 2012: do the opposite of what the crowd does. To wit:

    We continue to urge investors to watch positioning: over the last several years, during which active inflows were weak to negative but passive inflows were heavy, the strategy of buying the 10 most underweight stocks and selling the 10 most overweight stocks at the beginning of each year has outperformed; this simple trade has produced alpha in excess of the typical long-short equity hedge fund.

    Indeed… and while BofA won’t go so far as to admit going long the most hated names leads to even higher alpha, the principle is the same: since fundamentals don’t matter, and since cash flow remains (or remained until the recent tremors in the energy space) irrelvant, the only catalyst is to wait and watch as grouped positioning unwinds.

    Here is more from Bank of America:

    Over the last several years, with outflows from active funds into passive funds, buying the most underweight stocks has been a source of alpha, and so far this year has generated over 5ppt alpha.

     

    While clearly late to the party, BofA believes the trade will still work:

    Why positioning will likely continue to drive alpha

     

    Flows out of active into passive have been extreme for the last several years, suggesting to some that the rotation may be close to over. Unfortunately, we think there is more to come. After the last few years of declining alpha from active funds coupled with strong years for the benchmark, outflows from active to passive have accelerated. And close to 70% of large cap AUM still resides in active funds, suggesting we are likely far from critical mass in passive. Moreover, regardless of flows, crowded stocks have chronically underperformed – stocks that are 3x or greater than the benchmark weight have underperformed by 12ppt ann. based on data back to 2008.

    So as our relatively under the radar idea that has resulted in substantial alpha for those who put it on becomes mainstream, here is BofA with its listing of the most concentrated stocks:

    We highlight the top 5 stocks within each sector by concentrated ownership. We assess concentrated ownership by two measures:

    1. Percentage of shares held by the top 10 holders; and
    2. The Herfindahl measure of concentration index (the sum of the squares of the percentage holdings of each individual fund).

    Stocks that are rated UNDERPERFORM are highlighted as having particularly high sell-off risk.

    Here is the full list:

     

    Finally, putting all this together, this is what BofA believes is the “trade for today” based on its proprietary index of most overweight (sell) and most underweight (buy) stocks among the active investor community.

     

    * * *

    We conclude with one big caveat: this strategy only works as long as the market is broken and as long as central banks, such as the BOJ and its NIRP stunner on Friday, remain the predominant “activists” in the market. However, if and when normality returns, if fundamentals once again matter, if the Fed and its central bank peers won’t inject trillions in liquidity every time there is a 10% correction or push global bond yields to record lows, the trade will lose.

    However, we are confident that even the most P&L-focused managers will be eager to part with a few basis points if it means that the market may finally return to its former rational self, one where picking winners and selling losers is what it is all about, and not this farce where the only thing that matters is which central banks will inject liquidity or how much in capital outflows will any given emerging market soak up this month to cover losses from waning commodity export revenues.

    For now, we are hardly in danger of entering the Untwilight Zone any time soon.

  • 10 Investment Rules From Investing Legends

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    I recently wrote an article discussing some of the issues of “buy and hold” investment advice as it relates to what I call a “duration mismatch.” The issue that arises is individuals do not necessarily have the “time” to achieve the long-term average returns of the market.

    As I stated in the article:

    “Most have been led believe that investing in the financial markets is their only option for retiring. Unfortunately, they have fallen into the same trap as most pension funds which is hoping market performance will make up for a ‘savings’ shortfall.

     

    However, the real world damage that market declines inflict on investors, and pension funds, hoping to garner annualized 8% returns to make up for that lack of savings is all too real and virtually impossible to recover from. When investors lose money, it is possible to regain the lost principal given enough time, however, what can never be recovered is the “time”  lost between today and retirement. “Time” is extremely finite and the most precious commodity that investors have.

     

    In the end – yes, emotional decision making is very bad for your portfolio in the long run.

     

    Emotions and investment decisions are very poor bedfellows. Unfortunately, the majority of investors make emotional decisions because, in reality, very FEW actually have a well-thought-out investment plan including the advisors they work with. Retail investors generally buy an off-the-shelf portfolio allocation model that is heavily weighted in equities under the illusion that over a long enough period of time they will somehow make money. Unfortunately, history has been a brutal teacher about the value of risk management.”

    Not surprisingly, the article generated numerous comments focused on why “market timing” does not work. However, I am NOT ADVOCATING, and never have, market timing which is being “all in” or “all out” of the market. Such portfolio management can not be successfully replicated over time.

    What I am suggesting is that individuals MANAGE THE RISK in their portfolios to minimize the destruction of capital during market down turns. 

    It is important to remember that we are not investors. We do not control the direction of the company, their management decisions or their sales process. We are simply speculators placing bets on the direction of the price of an electronic share that is heavily influenced by the “herd” that makes up the markets.

    More importantly, we are speculating, more commonly known as gambling, with our “savings.” We are told by Wall Street that we “must” invest into the financial markets to keep those hard-earned savings adjusted for inflation over time. Unfortunately, due to repeated investment mistakes, the average individual has failed in achieving this goal.

    With this in mind, this is an excellent time to review 10 investment lessons from some of the investing legends of our time. These time-tested rules about “risk” are what have repeatedly separated successful investors from everyone else. (Quote source: 25IQ Blog)

    1) Jeffrey Gundlach, DoubleLine

    “The trick is to take risks and be paid for taking those risks, but to take a diversified basket of risks in a portfolio.”

    This is a common theme that you will see throughout this post. Great investors focus on “risk management” because “risk” is not a function of how much money you will make, but how much you will lose when you are wrong. In investing, or gambling, you can only play as long as you have capital. If you lose too much capital but taking on excessive risk, you can no longer play the game.

    Be greedy when others are fearful and fearful when others are greedy. One of the best times to invest is when uncertainty is the greatest and fear is the highest.

    2) Ray Dalio, Bridgewater Associates

    “The biggest mistake investors make is to believe that what happened in the recent past is likely to persist. They assume that something that was a good investment in the recent past is still a good investment. Typically, high past returns simply imply that an asset has become more expensive and is a poorer, not better, investment.”

    Nothing good or bad goes on forever. The mistake that investors repeatedly make is thinking “this time is different.” The reality is that despite Central Bank interventions, or other artificial inputs, business and economic cycles cannot be repealed. Ultimately, what goes up, must and will come down.

    Wall Street wants you to be fully invested “all the time” because that is how they generate fees. However, as an investor, it is crucially important to remember that “price is what you pay and value is what you get.” Eventually, great companies will trade at an attractive price. Until then, wait.

    3) Seth Klarman, Baupost

    “Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.”

    Investor behavior, driven by cognitive biases, is the biggest risk in investing. “Greed and fear” dominate the investment cycle of investors which leads ultimately to “buying high and selling low.”

    4) Jeremy Grantham, GMO

    “You don’t get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you bought got pushed up in price simply because they were risky, then you are not going to be rewarded for taking a risk; you are going to be punished for it.”

    Successful investors avoid “risk” at all costs, even it means under performing in the short-term. The reason is that while the media and Wall Street have you focused on chasing market returns in the short-term, ultimately the excess “risk” built into your portfolio will lead to extremely poor long-term returns. Like Wyle E. Coyote, chasing financial markets higher will eventually lead you over the edge of the cliff.

    5) Jesse Livermore, Speculator

    “The speculator’s deadly enemies are: ignorance, greed, fear and hope. All the statute books in the world and all the rule books on all the Exchanges of the earth cannot eliminate these from the human animal….”

    Allowing emotions to rule your investment strategy is, and always has been, a recipe for disaster. All great investors follow a strict diet of discipline, strategy, and risk management. The emotional mistakes show up in the returns of individuals portfolios over every time period. (Source: Dalbar)

    Dalbar-2015-QAIB-Performance-040815

    6) Howard Marks, Oaktree Capital Management

    “Rule No. 1: Most things will prove to be cyclical.

     

    Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.”

    As with Ray Dalio, the realization that nothing lasts forever is critically important to long term investing. In order to “buy low,” one must have first “sold high.” Understanding that all things are cyclical suggests that after long price increases, investments become more prone to declines than further advances.

    SP500-Full-Market-Cycles-010516

    7) James Montier, GMO

    “There is a simple, although not easy alternative [to forecasting]… Buy when an asset is cheap, and sell when an asset gets expensive…. Valuation is the primary determinant of long-term returns, and the closest thing we have to a law of gravity in finance.”

    “Cheap” is when an asset is selling for less than its intrinsic value. “Cheap” is not a low price per share. Most of the time when a stock has a very low price, it is priced there for a reason. However, a very high priced stock CAN be cheap. Price per share is only part of the valuation determination, not the measure of value itself.

    8) George Soros, Soros Capital Management

    “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

    Back to risk management, being right and making money is great when markets are rising. However, rising markets tend to mask investment risk that is quickly revealed during market declines. If you fail to manage the risk in your portfolio, and give up all of your previous gains and then some, then you lose the investment game.

    9) Jason Zweig, Wall Street Journal

    “Regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.”

    The chart below is the 3-year average of annual inflation-adjusted returns of the S&P 500 going back to 1900. The power of regression is clearly seen. Historically, when returns have exceeded 10% it was not long before returns fell to 10% below the long-term mean which devastated much of investor’s capital.

    SP500-Reversion-3Yr-020116

    10) Howard Marks, Oaktree Capital Management

    “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.”

    The biggest driver of long-term investment returns is the minimization of psychological investment mistakes. As Baron Rothschild once stated: “Buy when there is blood in the streets.” This simply means that when investors are “panic selling,” you want to be the one that they are selling to at deeply discounted prices. The opposite is also true. As Howard Marks opined: “The absolute best buying opportunities come when asset holders are forced to sell.”

    As an investor, it is simply your job to step away from your “emotions” for a moment and look objectively at the market around you. Is it currently dominated by “greed” or “fear?” Your long-term returns will depend greatly not only on how you answer that question, but to manage the inherent risk.

    “The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

    As I stated at the beginning of this missive, “Market Timing” is not an effective method of managing your money. However, as you will note, every great investor through out history has had one core philosophy in common; the management of the inherent risk of investing to conserve and preserve investment capital.

    “If you run out of chips, you are out of the game.”

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