The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Consuelo Mack’s WealthTrack aired this interview with David Einhorn of Greenlight Capital

Hat tip Pragmatic Capitalism

via the New Yorker:

By Ed Fisher, September 2, 1972.

~~~

By Peter Steiner, December 3, 2001.

~~~

By Robert Leighton, January 10, 2005.

~~~

Oh, and one other thing: Your emergency number:

TSA Public Affairs
(571) 227-2829

If you get stopped by security, and they are acting inappropriately — call the number

http://www.tsa.gov/contact/index.shtm

Members of the traveling public who believe that they have been unlawfully discriminated against by a TSA employee may contact the External Compliance Division in the Office of Civil Rights to have their concerns addressed, by sending an E-mail to TSA.OCR -ExternalCompliance@dhs.gov or by calling the Office of Civil Rights.

The Office of Civil Rights can be reached toll free at 1-877-EEO-4-TSA (1-877-336-4872) or (800) 877-8339 (TTY), or by E-mail at TSA-ContactCenter@dhs.gov

contact the Ombudsman, phone 1-571-227-2383 or 1-877-266-2837 toll-free.

E-mail: TSA.Ombudsman@dhs.gov

Exquisite sound engineering mixing a series of street buskers from around the world — recorded, overlayed & mixed with one another while singing the song “Stand By Me”.

The finished product is a marvel:

Stand By Me | Playing For Change | Song Around The World from Concord Music Group on Vimeo.

As noted yesterday, Stevie Cohen is a target of the FBI/SEC investigation.

Marketwatch is reporting that SAC Capital Advisors LP told investors in a letter that it got a government subpoena, according to a person who received the update from the hedge fund firm.

SAC said in the letter, dated Nov. 23, that the government served identical “extraordinarily broad” subpoenas on a number of investment managers of different sizes and descriptions, including SAC . . . The firm said the subpoenas don’t “shed much light on whom or what the government may be investigating.”

So much for a slow newsweek.

I have no idea how Cohen trades, but the rumors are already pinging around trading desks that where there is smoke, there is fire.

Call me old school, but innocent until proven guilty is still the law. If SAC is found guilty, you can tar and feather them, but until then, I’d rather reserve judgment until the evidence is out there (No, we don’t no any business with them).

~~~

On a less serious note, since the holiday season is about to kick off, for the hedgie on your list, the Brooks Brothers Wired collection is certain to be all the range amongst the 2 and 20 crowd. (Credit: Josh Brown )

>

While old news since we’re already half way done with Q4, Q3 GDP was revised to 2.5% growth vs the initial report of 2% and was a touch above the estimate of 2.4%. Leading the upward revision was a better than expected gain in personal consumption of both durable and non durable goods. Spending on equipment and software was revised up and trade and state and local gov’t spending added more to growth than expected. Spending on commercial structures was revised to a negative reading but residential construction wasn’t as weak as originally thought although was still very negative. The contribution to growth from inventories was a bit less than the initial figure. Real final sales, which take out the influence of inventory changes, rose 1.2%, twice the 1st Q3 look and the best since Q4 ’09. The inflation figures were left unchanged. Expectations for Q4 growth is 2%ish+, still growth but below potential.

My favorite chart, via Bill at Calculated Risk:

>

Chart courtesy of Calculated Risk

>

See also Existing Home Inventory increases 8.4% Year-over-Year

“Dude, you really love a good bloodbath, don’t you? You actually have fum when the market is getting killed.“

Prior to the collapse, there were few bigger bears than I. Kevin (my partner) constantly harangued me about it. That’s his quote above, and I admit to some level of guilt.

Understand why this was: The long hours of research put into identifying the variant perspective was a lonely path. There were no guarantees it would be correct. Worse still, it took a long time — years — to pay off professionally. I ate a lot of crow, and was mercilessly tortured by eejits over what I knew was a giant debacle in the making.

When the deluge came, I incorporated the collapse into my thinking. It changed the valuation calculus, the surprise factor, the psychology. I didn’t want to be one of those guys – the über bears who stayed negative regardless. This unfortunate crew missed the 1982 lows, the 1980s bull market, the tech boom, the 2003 post-dotcom-implosion rally, the commodity boom, the 2009 snapback.

After the flood, I started looking for the silver lining. We already had a massive crisis and collapse, so the worst of what came before was already reflected in equity prices and trader psychology.

Even after all this, these reflexive Bears refuse to flip. They will not admit the economy is getting better, albeit slowly. They insist the recession was a depression; they insist it never ended. These are the bears who cannot be killed. They will stay bearish, regardless of the data that all but insists otherwise.

These are the Zombie Bears . . . they cannot be killed.

As I write this, the market is off 1.5%, and some of our long positions will soon hit our sell discipline (We will stop ourselves out). This is the nature of asset management: One needs to be flexible, intellectually nimble, open minded. One cannot marry a position, ignore data that goers against it, and just hope for the best.

Markets on occasion appear irrational. They operate on different time scales than humans do. We are stuck in the moment, they exist across  longer arcs of time. So very often, we cannot adapt to their ways. We fight them . . . and we lose.

Meanwhile GDP was revised to 2.5% (more than previously calculated) on increased exports boosted domestic spending.

Bad news, bears The Recession is over . . .

>

Via Barron’s Econoday

by Prieur du Plessis, writer of the Investment Postcards from Cape Town

~~~

The prices of industrial metals find themselves at crucial levels as indicated by the Economist Metals Price Index in U.S. dollar – the latest number is my estimate. The upward trend since the market bottomed in the first quarter of last year is currently being challenged.

Sources: I-Net Bridge; Plexus Asset Management.

The U.S. dollar prices of industrial metals are heavily influenced by the US$/euro exchange rate, but the drop in the Metals Index significantly outweighed that of the strength of the U.S. dollar. The drop in the Metals Index resulted in a break in the uptrend of the Index in euro.

Sources: I-Net Bridge; Plexus Asset Management.

The marked drop in metal prices, especially those of aluminium and nickel, was also echoed by very weak steel and stainless steel prices.

Sources: I-Net Bridge; Plexus Asset Management.

Sources: I-Net Bridge; Plexus Asset Management.

Bulk shipping rates such as the Baltic Dry Index are in a free fall, while Chinese containerised freight indices continue to head south, with downward momentum on the U.S. West Coast route accelerating.

Sources: I-Net Bridge; Plexus Asset Management.

Sources: chineseshipping.com; Plexus Asset Management.

In my view the decline in non-U.S. dollar metal prices together with declines in bulk and containerised shipping rates are proof of a sudden weakening of global demand. The manufacturing PMIs for November (to be released next week) are likely to disappoint on the downside. I am still very concerned about how markets will react when China’s non-manufacturing PMI is released by the end of next week. If the seasonal trend over the past two years holds true the number is likely to indicate contraction in China’s services sectors.

I therefore expect volatility to increase in most financial markets over the next two weeks. Regarding short-term market movements, a possible scenario is as follows.

Stronger markets: U.S. dollar; yen; Swiss franc; mature-market bonds.

Weaker markets: industrial metals; silver; platinum; emerging-market equities; mature-market equities; commodity-related and emerging-market currencies; euro; British pound

Neutral markets: gold bullion

~~~

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

One of the odder aspects of the financial crisis was the full on correlation of various asset classes. During October 2008, normally non-correlated assets began moving in lockstep. As the psychology of the crisis shifted from denial to panic, stocks, bonds, commodities all moved towards a correlation of 1.0.

During the bull market from 2002 to 2007, a period when S&P 500’s price and profits doubled, the correlation averaged 0.15. As correlation moved higher — a relatively rare occurrence — it bode poorly for equity prices. (This has been the case often in the past during crises).

Bloomberg has the details:

“For the first time since the financial crisis started, U.S. shares are moving independently of the bond market, a sign that profits and valuations are guiding investors more than concern about the economy.

The 30-day correlation coefficient measuring how often the Standard & Poor’s 500 Index moves in tandem with 10-year Treasury yields fell to minus 0.42 from a record 0.89 in June, data compiled by Bloomberg show. Readings of 1 indicate prices are moving together, while zero shows no link and minus 1 means they are going in opposite directions. Stocks and debt are ending a lockstep relationship that began in July 2007 and lasted through the worst recession since the 1930s. . . .

The S&P 500 plunged 4.7% and yields on 10-year Treasuries tumbled 33 basis points on Sept. 15, 2008, after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy. The correlation jumped to 0.83 on Oct. 6, 2008, as the financial crisis intensified, reaching the highest level since a month after the Iraq War began in 2003.”

The break down in correlations had an impact during the Q’s earnings period. For the first time in three years, companies beating estimates rallied and those that missed fell on average.

>

Source:
Greed Beats Fear With Stock-Bond Correlation Falling
Whitney Kisling
Bloomberg, Nov. 22 2010
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aS7u8pyzshZ4&pos=13

See also:
Cash Best as Record Correlation Hints Herd Collapse (June 29 2010)

As if there weren’t enough things to focus our market minds on and in the category of ‘what can they possibly be thinking,’ North Korea has to play the part of jilted kid desperate for attention. I can think of no other explanation for their unprovoked attack on an island just off South Korea’s coast. After studying finance and having political science thrust upon me over the past many years, I’m not ready for a course such as Introduction to Warfighting (an actual class at West Point, I checked). Maybe Kim Jong-IL was short the Kospi because the news hit the tape only minutes after the Kospi closed overnight. I digress to Europe where the Irish bailout has done nothing to calm things down as Spanish CDS is at a record high and their 10 yr yield is near the highest since July ’08. Greek CDS is firmly above 1000 and Portugal is under pressure as well.