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

Given all of the interest in AG these days, perhaps we should look at something that might lead to some extreme scarcity: Honey Bees.

Or more specifically, the decreasing number of them. Daily Infographic has today’s digital delight: This monstrous graphic looks at the mystery of the Honeybee die offs:

This is the first 10% of it:

full graphic after the jump

Read the rest of this entry »

I found this report quite fascinating; he seemed to me more a hedged trader than a straight dice roller:

January 16, 2011 6:00 PM

Las Vegas sports betting legend Bill Walters has never had a losing year – a winning a streak that’s made odds makers call him the “most dangerous sports bettor in Nevada.” Lara Logan reports.

Sports Bettor Billy Walter’s Winning Streak
Las Vegas Professional Gambler Tells “60 Minutes” He’s Never Had a Losing Year
Jan. 16, 2011 http://www.cbsnews.com/stories/2011/01/13/60minutes/main7243443.shtml

Another interesting chart from Visualizing Economics:

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Nominal vs Real 3-Month Interest Rate: 1934-2010

click for ginormous chart

Home builder survey punk but we know that already
The Jan NAHB home builder survey came in at 16, 1 pt below expectations and flat with Dec and Nov. Both the Present Conditions and Future Expectations components were unchanged too with Dec and Nov. Prospective Buyers Traffic inched up 1 pt to 12. To put all these figures into perspective, 50 is the breakeven between expansion and contraction. NAHB Chairman said “a severe lack of construction financing, and widespread difficulties in obtaining accurate appraisal values, continue to limit builders’ ability to prepare for anticipated improvements in buyer demand in 2011.” Certainly in parts of the West and South, they also have the still competitive threat from foreclosures. Bottom line, we know housing remains depressed in many areas of the country and thus the data is neither a surprise nor market moving.

NY Fed survey about in line
The Jan NY Fed survey at 11.9 was about in line with expectations of 12.5 and up from 9.9 in Dec. The data is typically volatile and thus becomes much less of a market mover. For example, New Orders rose from +2 to +12.4 but was -23.8 in Nov and +10 in Oct. Backlogs rose 7 pts but is below zero for a 10th straight month. Employment rose almost 12 pts to 8.4 but was 9.1 in Nov. Inflation pressures were clearly apparent as Prices Paid rose 7 pts to 35.8, the most since May ’10 and Prices Received were up by 12 pts to the highest since Oct ’08 at 15.8. The overall 6 month outlook rose 10 pts to the best since Apr ’04. Bottom line, notwithstanding the monthly bounce around of this figure, the expansion in mfr’g in the NY region continues but let’s wait to see other regional indexes and the ISM in order to draw conclusions on the degree.

Visit msnbc.com for breaking news, world news, and news about the economy

January is halfway over, so it is once again time to look at the various errors, mistakes and wrong headedness that I succumbed to (damn human!) working in the asset management business in 2010. My mea culpas for 2009 can be found here.

Assessing the performance figures in 2010, there were plenty of things to be pleased with: The Macro calls and stock selection were both on target. We avoided most of the April to July downturn, caught most of the August to December rally.

However, in terms of managing assets, and the business of managing assets, there is lots of room for improvement. Even though these are two very different skill sets, they closely related.

Let’s have at it:

1. Running an Asset Management Business vs Running Assets: This may seem obvious, but it is far more complex than you might imagine. Running an asset management  business involves personnel decisions, marketing, raising assets, organization, scheduling, communications, accounting, legal, planning, follow through. I know plenty of great asset managers who are terrible business people, and terrible asset managers who are great business people, lots who are awful at both — and very few who excel at each.

Think about Morgan Stanley or Merrill Lynch — what do they do better, market or run money?

Possible solution: Be more proactive. Defer more of the nitty gritty operational decisions to our COO. Work on Time Management, delegation, and  division of tasks by expertise.

2. Too Much Cash:  Once again, we ran with too much cash on the books. Despite making the right calls in May (Sell!) and August (Buy), we continued to run too much cash all year. While we beat the benchmarks and had excellent risk adjusted returns, we could have handily outperformed with only 15% or 20% cash.

What I saw happen occasionally was it took a while to find stocks we really liked when we became bullish. Perhaps indecision was at play as well.

Possible solution: We could use ETFs more to increase exposure quickly so we carry less cash sooner and raise exposure more quickly; Better to own positions with tight stops, or to own half positions, than none at all;

3. Great Calls did not make enough money:  We picked some terrific stocks on the Institutional side. BWA, TDC, ISLN, RAX — But we did not own these aggressively in managed accounts. While some of this is a function of risk management — small volatile tech names are not suitable for everyone — we surely could have owned some of these..

Possible solution: Put together a basket of the most aggeressive names for managed account ownership. 8 or 10 names comprising a 5 or even a 10 percent position might be appropriate for many investors.

4. Time Management:  There simply aren’t enough hours in the day to do everything I want to accomplish. Between research, writing, conference calls, reading, media, etc. the day just doesn’t have enough hours.

Possible solution:  Prioritize: Do less of what matters least; TTD: Work on a daily check list, to make sure things get finished;  Focus.

5. Cynicism: Last year, I noted the downside of Undue Influence; This year, it is the opposite. There are plenty of very smart people who have outstanding ideas — the trick is knowing who to consider and who to dismiss. Indeed, even some of my least favorite strategists, economists and analysts have value to offer. The trick is knowing who to pay attention to (e.g., Jeremy Grantham) and who to read very selectively.

Possible solution: Don’t be so quick to dismiss others; the world is filled with many smart and accomplished people, be more circumspect and less quick to dismiss/judge others.

This is certainly not an exhaustive list — there are many other areas I hope to improve upon in 2011; Trust me when I tell you my list gets longer every year. However, it is what I have been thinking about over the past few months.

As always, ideas, suggestions, and hints for improving are always welcome!

Global Macro Monitor produces informed opinion about markets and the global economy. This was originally published on January 17, 2011

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During the 1990’s when the emerging markets were still emerging a friend of ours wrote a research report on pre-restructured busted Russian debt titled, No Rush to Buy, No Russians Buying.  The point was the Russians knew the prospects for the debt much better given the country’s lack of transparency and the general relative ignorance of foreigners.

Back then the market also traded Nigerian debt and Brady Bonds based on whether or not the country’s generals were actively buying the debt as the military was the ultimate insider as to whether the next coupon would be paid.  The same concept – insiders know best — applies for those who closely follow the buying and selling of stocks by company insiders or management.

Given our confessed lack of ignorance on what is really happening in China’s economy, we look at visible indicators to get a sense of what it truly going on, such as the stock market. Market indicators are far from perfect and not always reliable, but it sure the heck beats guessing, “shooting in the dark,” or trusting your capital to the market cheerleaders.

Last night the Shanghai Composite broke key support of the 200-day moving average and the neckline of a technical head and shoulders (H&S) pattern.  The chart below shows the price point of the current break is lower than the penetration of the 200-day in late December, which is reflective of the short-term downtrend.  The next key support level is 2, 600.

The markets have been flakey of late, however, as there have been several recent H&S topping patterns, including in the Hang Seng and the $/Euro, which have proved unreliable sell signals.  Given the seriousness of Asian policymakers to fight inflation and to limit property bubbles, however, we give the Shanghai H&S and 200-day cross a higher probability of following through.   P&G must be minting coin with all the traders reaching for the H&S these days!

This leads to our next concern.  Given the commodity story is driven and dominated primarily by the China theme, we think there is a pretty good chance this sector could roll over in the near term.  Commodities are a very crowded trade and our sense is the levered community is massively long.

Recent price action exhibits all the characteristics of a blow-off top and some of the leaders already seem to be trading at stall speed.  Furthermore,  as the chart below illustrates,  since November the Shanghai and commodities, which have in the past tracked each other relatively well, are in a huge Willey E. Coyote divergence.

Finally, we find the last chart on China’s money supply growth very interesting.  Not unlike other countries, when the growth of the broad money supply outpaces nominal GDP growth,  asset bubbles and eventually price pressures tend to develop throughout economy.   China’s  rapid money growth in excess of nominal GDP growth in 2005/6 helped to inflate the Shanghai Composite, which rose from around 1,100 in mid-2005 to an intraday high of over 6,100 in October 2007.  At the close on Monday,  the Shanghai is down 56 percent from its all-time intraday high.

The monetary expansion which drove the Shanghai is minuscule compared to what took place after the financial crisis, however.  The Fed is often demonized, including, sometimes by us, for printing money to help stabilize the financial and economic crisis.   But take a look at what happened in China.

In the U.S., the central bank printed and created money through the expansion of its balance sheet.  In China, the government pressured the  banks to create money through expanding and directing credit to specific sectors.

The chart illustrates as nominal GDP growth was collapsing in 2009, the broad money supply in China was growing close to 30 percent by the end of 2009.    This helped the Shanghai Composite recover a bit, but inflated other bubbles, including and mainly in the real estate markets.   We hear rumors of,  and see pictures of empty Chinese shopping malls and cities pinging around the internet, which is the result of the easy and nonmarket credit included in the latest round of China’s monetary expansion.

Doesn’t this sound a little familiar?  First a stock bubble, then a monetary driven real estate and construction bubble to stimulate  growth?

We’re not saying China is going to collapse anytime soon and they do have almost $3 trillion in foreign exchange reserves to help cushion any hardship as monetary policy downshifts.  But we know that a 30 percent growth in the broad money supply, coupled with just 10 percent nominal GDP growth, must have given birth to many bodies swimming naked, which will be exposed as the credit tide goes out.    Whether they’re allowed to officially surface for all is an open question.  We just hope the markets will be a clear enough signal as to their size and magnitude.

Like everyone else,  we are flying almost blind in this dimly lit world of the markets.  We realize our model and view of the world could be wrong and learned to try and have as  little of our ego as possible vested in our models and views.   The only thing we’re certain of is the markets, as they have in the past and will continue to do so in the future,  beat our egos  like a drum.   We’ll have no problem revising or ditching our view all together if we lack market confirmation.   We always try and heed the words of the great Todd Harrison over at Minyanville.com, “discipline always trumps conviction!”   Stay tuned!