Thursday, October 23, 2014

"Now That’s a Volatile Market: Dow Gains 216 Points, Ninth 200-Point Move This Month"

We're still of the opinion that we see new highs on the S&P 500 (above 2,019.26) before we re-visit the recent 1820.66 low. 1950.82 last.
From Barron's Stocks to Watch:
When they said volatility had returned to the stock market, they weren’t kidding.

The Dow Jones Industrial Average gained 216.58 points, or 1.3%, to 16,577.90 today, the ninth move of 200 points or more in either direction in 17 trading days so far this month. Not only is that more than the seven such days that had occurred previously in 2014, you have to go back to August 2011, when there were 10 such days, to find more (and that took an entire month to accomplish).

The S&P 500, meanwhile, gained 1.2% to 1,950.82, the Nasdaq Composite advanced 1.6% to 4,452.79 and the small-company Russell 2000 finished up 1.8% at 1,116.49.

Why is the market surging? Top-notch earnings from big Dow components like Caterpillar (CAT) and 3M (MMM), and a dividend increase from Visa (V) certainly have helped, as these are some of the priciest stocks in the price-weighted Dow. And then there’s the economic data. US jobless claims rose to 283,000, a tad bit higher than expected but still ridiculously low. Global purchasing managers’ indexes also showed signs of improvement, especially in Europe. If the recent selloff was a “growth scare,” then perhaps growth isn’t as scary as many investors thought.  

ISI Group’s Dennis DeBusschere, however, worries that the stronger-than-expected growth out of Europe could ultimately be bad news for the markets:
We have been of the opinion that Fed actions are less important today than they have been over the past few years as markets are now priced to a point where we need to see growth not just easy policy. That is not as true for the Eurozone, so these better than expected manufacturing data could be considered negative for risk assets if they further slow the progress of fiscal reforms and monetary stimulus.
Marketfield’s Michael Shaoul and team are pleased with the state of corporate earnings but worry that the market could retest its recent lows....MORE
Although the Energy Select Sector SPDR ETF (XLE) was up 1.86% to $85.90 we believe we'll have an opportunity to own the hydrocarbon equities cheaper.

"Testing for Ebola Vaccines to Start Soon, W.H.O. Says"

From the New York Times:
Health authorities and pharmaceutical companies are planning to test several new vaccines to prevent Ebola infection over the next few months, including one that is taken as a tablet, making it easier to deploy in West Africa.

The plans signify that a response to the Ebola outbreak is finally gathering steam. It is still unclear if any of these vaccines will work, however, and even if they do, they may not be ready in time to help stem the current epidemic.

Starting in January, two vaccines will be tested in large studies in the West African countries most affected by the outbreak, the World Health Organization said on Tuesday. At least three other vaccines will begin safety testing in healthy volunteers outside the outbreak zone in the first quarter of 2015.

One of those three is actually a combination of two inoculations being developed by Johnson & Johnson and Bavarian Nordic, a Danish company,

Johnson & Johnson announced early Wednesday that it was committing $200 million to the program, including making an equity investment of about $43 million in Bavarian Nordic to help pay for that company’s part in the project. It says it plans to begin safety trials in January and hopes to produce one million doses in 2015, with 250,000 available for broad application in clinical trials by May....MORE

Real Estate: "$5.6M Buys the Comely Garden Retreat of Napolean's First Wife"

From Curbed:
A part of the Château de Malmaison, the country estate that Napoleon's first wife, Joséphine de Beauharnais, bought for them in 1799, has been put on the market for €4.45M ($5.65M). The orangerie, which was converted to a private residence around 1830, has had a long succession of owners since 1814, when Joséphine's died, four years after Napolean divorced her for not bearing him any children. The current owners have lightly updated the 5,380-square-foot, 15-room house, repainting the exterior, replacing the floors with new oak panels, updating the heating and electrical systems, and most importantly (let's be real), installing fibre-optic cables for faster internet.

Not most important but certainly up there are original details like the Empire-period mural in the dining room depicting Joséphine's native Antilles. If that weren't regal enough, the Times reports that "tone sphinxes preside over a small terrace off the living room," and a "Napoleonic eagle preens from the ironwork balustrade of the main stone staircase." The dreaminess continues in the eight bedrooms, each overlooking some section of the 1.3 acres of Joséphine's gardens that come with the property, which borders the grounds of the Château de Malmaison, now a Napoleonic musée national....MORE

The Dramatic Decrease In Hurricanes, Tornadoes and Wild Fires Is Very Good For Insurers: Travelers Hits an All-time High (TRV)

The property/casualty boys are cleaning up.
TRV $96.77 up  $1.19 and just off the $97.03 all-time high set earlier this morning.
Allstate at $62.04 is just under its $62.59 all-time high set in September.

First up, the National Interagency Fire Center shows the lowest acreage burned in over a decade:

Year-to-date statistics
2014 (1/1/14 - 10/10/14) Fires: 41,790 Acres: 3,070,737
2013 (1/1/13 - 10/10/13) Fires: 40,070 Acres: 4,146,336
2012 (1/1/12 - 10/10/12) Fires: 49,682 Acres: 8,862,671
2011 (1/1/11 - 10/10/11) Fires: 61,993 Acres: 8,292,982
2010 (1/1/10 - 10/10/10) Fires: 59,464 Acres: 3,137,127
2009 (1/1/09 - 10/10/09) Fires: 70,796 Acres: 5,673,359
2008 (1/1/08 - 10/10/08) Fires: 58,530 Acres: 4,451,214
2007 (1/1/07 - 10/10/07) Fires: 75,020 Acres: 8,155,980
2006 (1/1/06 - 10/10/06) Fires: 84,767 Acres: 9,125,714
2005 (1/1/05 - 10/10/05) Fires: 54,520 Acres: 8,194,349
2004 (1/1/04 - 10/10/04) Fires: 61,964 Acres: 7,781,957
Annual average prior 10 years
2004-2013 Fires: 62,864 Acres: 6,796,329

Next up, NOAA shows this year's tornado season approaching the record low set last year:
tornado chart
Finally, with no hurricanes hitting the U.S. this season President Obama's yearly count will drop even further:
ScreenHunter_165 May. 04 12.50

Société Générale's Albert Edwards: There May Be Something Going On In China's Foreign Currency Reserves

Are they converting everything to gold?
From FT Alphaville:
Beware the Chinese FX reserve fall
The latest from SocGen’s Albert Edwards features this eye-catching chart:

As he notes, the most under-covered Chinese stat of the month is undoubtedly the $100bn decline in China’s Q3 FX reserves, the largest quarterly fall ever:
As I have explained, this reflects deterioration in Chinese competitiveness from its excessively strong real exchange rate and a deteriorating of its balance of payments. If we have been warning that slower growth in FX reserves represents monetary tightening, then a decline of this order of magnitude is like a credit crunch! These data will ultimately prove to be more important than last Wednesday’s US retail sales. As I said two weeks ago “sell everything and run for your lives”.
We’re not sure about selling everything and running for your lives (just yet), but we certainly agree that the key issue at hand is the market’s major misunderstanding about the renminbi’s real worth and why it is that the Chinese government doesn’t feel inclined to debase its way out of the problem this time around....

On The Passing Of Nelson Bunker Hunt, Two Words

"Liquidation only."

That is what Cassandra Does Tokyo was getting at in this morning's "In Memorium: Nelson Bunker Hunt":
...Your catchphrase 


have been: 

"Never squeeze

the people 

that can 

change the rules.
I've written dribs and drabs of my own, admittedly idiosyncratic, take on the events of early 1980.

July 2009
How to Break a Market Corner: Breeding Breakthrough Helps Sushi Baron Create Sustainable Tuna
...*In January 1980, as the Hunt Brothers were gunning the price of silver toward it's historic high, the CEO of one of the world's largest trading firms said "Those boys don't know what deep pockets are", rather an amazing statement when talking about billionaires.
Within 48 hours both U.S. silver futures exchanges had gone "Liquidation only", the corner was broken and the Hunt's had lost their fortunes.
I'll leave it to you to guess the CEO.
August 2010
"Wheat prices ease after Russia predicts stable exports" and "...Speculators ‘Hunt What’s Moving"
...Should prices see $8.50 the opportunities on the short side would almost be a lock.
I say almost because the serious money in commodities can pretty much get prices to where they want them, at least for short periods.

When the Billionaire Hunt brothers were attempting to corner the silver market in January 1980 the head of one of the world's largest grain traders said "Those boys don't know what deep pockets are". 
The "commercials" had been shorting into the Hunt bros. buying and the grain trader was at the top of the "commercial" heap.

On January 21 the COMEX went "liquidation only".
On January 22 the CBOT went "liquidation only".
On Tuesday the 22nd silver closed at $34, down 27% from its close the previous Friday.
The Hunt's still had enormous paper profits but any attempt to book them would smash the markets even further.

Prices declined to $17 by March, down 66% from the January high and the Hunt's were receiving calls of $60 Million per day in variation margin. On March 27 the price dropped from $21.62 to $10.80 and one of their brokers, Bache was in violation of net capital requirements and another, Merrill Lynch was on the brink. 
As the attorneys got involved over the next few years, oil prices headed south, destroying the value of Daddy's creation (and the brother's piggybank) Placid Oil.

Bunker Hunt filed for bankruptcy in September 1988 as did his brother and Placid.

At the time the grain trader spoke it is probable that the various branches of the Hunt families comprised the wealthiest "family" in America.

That's why I say "almost" a lock.
There have been a few others over the years.
"Still humping the American Dream, that vision of the Big Winner somehow emerging from the last minute pre—dawn chaos of a stale Vegas casino. Big strike in Silver City. Beat the dealer and go home rich. Why not? I stopped at the Money Wheel and dropped a dollar on Thomas Jefferson—a $2 bill, the straight Freak ticket, thinking as always that some idle instinct bet might carry the whole thing off. But no. Just another two bucks down the tube. You bastards! No. Calm down. Learn to enjoy losing.... 
-Hunter S Thompson
Fear and Loathing in Las Vegas

For another very idiosyncratic view of the silver action read "Henry Jarecki: Jarecki’s law", an interview with the owner of London based Mocatta & Goldsmid who "helped to unwind" the Hunt Bros. positions.

"Peak Google": Is Google Toast? (GOOG)

From Stratechery:
Despite the hype about disruption, the truth is most tech giants, particularly platform providers, are not so much displaced as they are eclipsed. IBM, for example, has been successfully selling and servicing mainframes for going on 50 years (although they are now in serious trouble (members-only)). During the PC era, though, they were eclipsed by Microsoft.
Mainframes didn't stop being a viable business; it was just a much smaller business than PCs
Mainframes didn’t stop being a viable business; it was just a much smaller business than PCs
The same happened to Microsoft: Windows still dominates PCs,1 and in all likelihood will for the foreseeable future (although there are certainly cracks in the foundation, a la IBM). The company isn’t going anywhere. PCs, however, have been eclipsed by smartphones, to the benefit of Apple (in terms of revenue and profit) and Google (in terms of market share).
PCs have in the past few years been eclipsed by smartphones. To see a similar graph with exact data, see this post by Benedict Evans
PCs have in the past few years been eclipsed by smartphones. To see a similar graph with exact data, see this post by Benedict Evans
These eclipses are obvious in retrospect, but the truth is few if any could have predicted them before they occurred. PCs were thought to be a tremendous boon for IBM, and they did profit greatly until Compaq copied their BIOS leaving Microsoft all the leverage; similarly, Microsoft looked set to conquer mobile (which was why Google bought Android in the first place) before a resurgent Apple introduced the iPhone. In both cases it turned out that the incumbents’ prior success resulted in misdirected incentives: IBM focused on selling and servicing PCs, instead of building a platform, while Microsoft focused on extending Windows to mobile instead of the user experience. If you’ll forgive a war analogy, both companies won the battle but lost the war.

And so, if one wishes to predict who might follow in this illustrious but ultimately tarnished path, it might be useful to look for similar characteristics: the company should be dominant in its field, and the company should seem to have an advantage in a far larger adjacent field, but that advantage, on closer inspection, should prove to be just as much a hindrance as a help.
The clear candidate is Google....
HT: Beyond Search

"Isaac Asimov Mulls 'How Do People Get New Ideas?”'

Published for the first time, October 20, 2014.
From MIT's Technology Review:
Note from Arthur Obermayer, friend of the author:

In 1959, I worked as a scientist at Allied Research Associates in Boston. The company was an MIT spinoff that originally focused on the effects of nuclear weapons on aircraft structures. The company received a contract with the acronym GLIPAR (Guide Line Identification Program for Antimissile Research) from the Advanced Research Projects Agency to elicit the most creative approaches possible for a ballistic missile defense system. The government recognized that no matter how much was spent on improving and expanding current technology, it would remain inadequate. They wanted us and a few other contractors to think “out of the box.”

When I first became involved in the project, I suggested that Isaac Asimov, who was a good friend of mine, would be an appropriate person to participate. He expressed his willingness and came to a few meetings. He eventually decided not to continue, because he did not want to have access to any secret classified information; it would limit his freedom of expression. Before he left, however, he wrote this essay on creativity as his single formal input. This essay was never published or used beyond our small group. When I recently rediscovered it while cleaning out some old files, I recognized that its contents are as broadly relevant today as when he wrote it. It describes not only the creative process and the nature of creative people but also the kind of environment that promotes creativity.

How do people get new ideas?

Presumably, the process of creativity, whatever it is, is essentially the same in all its branches and varieties, so that the evolution of a new art form, a new gadget, a new scientific principle, all involve common factors. We are most interested in the “creation” of a new scientific principle or a new application of an old one, but we can be general here.

One way of investigating the problem is to consider the great ideas of the past and see just how they were generated. Unfortunately, the method of generation is never clear even to the “generators” themselves.
But what if the same earth-shaking idea occurred to two men, simultaneously and independently? Perhaps, the common factors involved would be illuminating. Consider the theory of evolution by natural selection, independently created by Charles Darwin and Alfred Wallace.

There is a great deal in common there. Both traveled to far places, observing strange species of plants and animals and the manner in which they varied from place to place. Both were keenly interested in finding an explanation for this, and both failed until each happened to read Malthus’s “Essay on Population.”

Both then saw how the notion of overpopulation and weeding out (which Malthus had applied to human beings) would fit into the doctrine of evolution by natural selection (if applied to species generally).
Obviously, then, what is needed is not only people with a good background in a particular field, but also people capable of making a connection between item 1 and item 2 which might not ordinarily seem connected....MORE

Wednesday, October 22, 2014

"Newly Released Documents Show Former NSA Head Was Investing His Money in an Obscure Commodity Controlled by a Shadowy Cartel"

That's FP's headline. The commodity in question is not that obscure.
That said, Mr. Alexander is a scumbag of the first rank.
From Foreign Policy:

Why Was the NSA Chief Playing the Market?
At the same time that he was running the United States' biggest intelligence-gathering organization, former National Security Agency Director Keith Alexander owned and sold shares in commodities linked to China and Russia, two countries that the NSA was spying on heavily.

At the time, Alexander was a three-star general whose financial portfolio otherwise consisted almost entirely of run-of-the-mill mutual funds and a handful of technology stocks. Why he was engaged in commodities trades, including trades in one market that experts describe as being run by an opaque "cartel" that can befuddle even experienced professionals, remains unclear. When contacted, Alexander had no comment about his financial transactions, which are documented in recently released financial disclosure forms that he was required to file while in government. The NSA also had no comment.

Alexander's stock trades were reviewed by a government ethics official who raised no red flags, and there are no indications the former spymaster did anything wrong. There are also no indications that the trades did much for Alexander's personal wealth. Disclosure documents show that he earned "no reportable income" from the sale of commodity company stocks, meaning either that it was less than a few hundred dollars or that possibly he lost money on the deals.

Still, the trades raise questions about whether Alexander's job gave him insights into corporations and markets that may have influenced his personal financial investments. The NSA, which Alexander ran for more than eight years, routinely spies on foreign governments and businesses, including in Russia and China, where the agency has attempted to gain insights into political decision-making, economic strategy, and the countries' plans for acquiring natural resources.

The financial disclosure documents, which were released to investigative journalist Jason Leopold and published this month by Vice News, reveal nothing explicitly about why Alexander sold the shares when he did. On Jan. 7, 2008, Alexander sold previously purchased shares in the Potash Corp. of Saskatchewan, a Canadian firm that mines potash, a mineral typically used in fertilizer. The potash market is largely controlled by companies in Canada, as well as in Belarus and Russia. And China was, and is, one of the biggest consumers of the substance, using it to expand the country's agricultural sector and produce higher crop yields.

"It's a market that's really odd, involving collusion, where companies essentially coordinate on prices and output," said Craig Pirrong, a finance professor and commodities expert at the University of Houston's Bauer College of Business. "Strange things happen in the potash market. It's a closed market. Whenever you have Russians and Chinese being big players, a lot of stuff goes on in the shadows."

On the same day he sold the potash company shares, Alexander also sold shares in the Aluminum Corp. of China Ltd., a state-owned company headquartered in Beijing and currently the world's second-largest producer of aluminum. U.S. government investigators have indicated that the company, known as Chinalco, has received insider information about its American competitors from computer hackers working for the Chinese military. That hacker group has been under NSA surveillance for years, and the Justice Department in May indicted five of its members.

Alexander may have sold his potash company shares too soon. The company's stock surged into the summer of that year, reaching a high in June 2008 of $76.70 per share, more than $30 higher than the price at which Alexander had sold his shares five months earlier....MORE 
Some of the headlines of stories we decided against posting:

Sleezeball General Alexander
Here's Why the NSA's Keith Alexander Thinks He's Worth a Million Dollars Per Month
Lying Sleeze General Alexander

And one we did post:
Should You Attend The FT Alphaville Conference at £199 per cap or the Vanity Fair Conference for $5,000?

"WTI Crude Slides Below $81"

Following up on yesterday's "Oil Sell-off, the Goldman View (XLE; ERY)" wherein we said:
We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:

It's Too Early
More to come.
Even after oil bottoms there is going to be damage done to the equities.
And it's probable oil has not bottomed.

From ZeroHedge:
It appears some of the 'fundamental' legs of the face-ripping ramp in stocks are fading. Broken Markets - nope; Fed Speakers - nope (blackout period); Crude rising - nope (WTI back under $81)

Why it matters...


Kids, This Is How You Write a Poopy Pants Story

For no reason in particular other than it's been sitting in the "post when the market isn't psychotic" pile.
From Johnny Vagabond:

Three Mistakes on a Hot Day in Bangkok
 Post image for Three Mistakes on a Hot Day in Bangkok
I think I’m finally adapting to the heat and humidity here. By adapting, I mean that my entire body has transformed itself into a single, massive sweat gland.

Yesterday morning, as I dressed for my visit to the Amulet Market, I made the first mistake. I’d run out of clean underwear and decided to just go commando. I do it all the time at home, right? What could possibly go wrong?

My second mistake was wearing a fancy shirt I’d purchased from REI right before I left home. It was a high-dollar, high-tech, water-resistant short sleeve with an SPF of 30 (huh?). I think it even spoke Spanish. What it did not do, alas, was ventilate. At all. Wandering about the market in 96 degree temps and 100% humidity, I felt like I was wearing a $50 garbage bag.

I was soon drenched, with sweat running down my back and soaking my pants — I looked like I’d been bobbing for apples with my ass. Eventually making my way onto the grounds of a quiet university, I found a bench in the shade, and sat awhile to cool off — setting the scene for my third mistake.

Without even thinking, I leaned to the side to sneak a fart and… well, you probably can guess where this is going. I immediately lept up from the bench — dear God, had I caught it in time? Some cautious shifting of my cheeks told me nothing — everything was soaked and slippery.

This is when I realized that no matter how you turn and twist, you really can’t see your own ass. At least I can’t (and don’t bother writing to tell me you can, hippie). I didn’t have a mirror and I sure as hell wasn’t going to put my hand down there. The only solution I could think of was to find a bathroom where I could drop my pants and assess the situation. (no pun intended)

I set off for the Banglampoo district — with its tourist-oriented restaurants — hoping to catch a tuk tuk. For the first time ever, there were no tuk tuks to be found. Not a one. Dropping my backpack as low as possible to hide my hypothetical badge of shame, I did a crazy Charlie Chaplin duck-walk for over a kilometer, my stomach protesting and my butt cheeks clenched. A sped-up video of this with a Yakety Sax soundtrack would have been a YouTube sensation....MORE

China May Launch A Moonshot as Soon as Tomorrow

From CriEnglish:

New Lunar Mission to Test Chang'e-5 Technology
China will launch a new lunar mission this week to test technology likely to be used in Chang'e-5, a future lunar probe with the ability to return to Earth.

The experimental spacecraft launched this week is expected to reach a location near the moon and return to Earth, according to the State Administration of Science, Technology and Industry for National Defense on Wednesday.

The test model is currently ready and scheduled to be launched between Friday and Sunday from the Xichang Satellite Launch Center in southwest China, with the whole mission taking about eight days.
"The meteorological condition will meet the requirements for the launch," said Tao Zhongshan, chief engineer of the center.

It is the first time China has conducted a test involving a half-orbit around the moon at a height of 380,000 kilometers before having the craft return to Earth.

The return mission will involve the spacecraft entering, exiting, and re-entering Earth's atmosphere and landing, said the administration....MORE
This is a precursor to a 2017 sample-and-return mission:

A 3D illustration of Chang'e-5 lunar probe. [Photo:]

Minneapolis Fed: "Interview with Michael Woodford"

One of the big dogs.
From the Federal Reserve Bank of Minneapolis' The Region:
Interview with Michael Woodford
Columbia University economist on Fed mandates, effective forward guidance and cognitive limits in human decision making
Interview conducted July 23, 2014
Michael Woodford
Though pundits suggested otherwise, there was no straight-line causality from Michael Woodford’s presentation at the Fed’s August 2012 Jackson Hole conference to the FOMC’s December 2012 adoption of inflation and unemployment thresholds. While both involved “forward guidance” and stressed clear communication about a credible policy path, the timing was doubtless coincidental.

But there is also little question that Fed leaders were already well-steeped in Woodford theory, and quite familiar with the arguments he made in August. For nearly two decades, the New Keynesian model*—of which Woodford is a leading architect—has been a key framework for academic research in monetary economics, and bedrock for research and policymaking at central banks worldwide.

With this framework, Woodford and his co-authors have explored and explained the mechanisms by which monetary policy affects employment and production, as well as interest rates and prices, and because his work has such practical utility and intellectual power, the way policymakers think about policy—and arguably, design it—has shifted fundamentally. His insights into policymaking when nominal interest rates can go no lower have been particularly useful.

Woodford’s 2003 Interest and Prices—called a “bible for central banks” by some economists—discussed these ideas at length. “Immensely influential,” said Princeton economist Lars E. O. Svensson of the book, in awarding the 2007 Deutsche Bank Prize to Woodford for establishing “foundations for … models now being developed by the most advanced central banks [and] also providing central bankers with a practical framework [for thinking about] monetary policy, in particular the fundamental role of expectations and transparency.”

The Deutsche Bank award is one of many Woodford has received. While still a graduate student at MIT, he was selected by the MacArthur Foundation for its inaugural class of “geniuses” in 1981. He’s been recognized with fellowships from the Guggenheim Foundation, Econometric Society and American Academy of Arts and Sciences, and awards from numerous other institutions.

Woodford’s intellectual interests are unusually broad. He went to the University of Chicago initially to study physics, then majored in cognitive science, got a law degree at Yale and later chose economics—drawn by both its theoretical rigor and concrete application. “Central banking,” he observes, “is one of the human activities where I think there is some real use to relatively abstract theoretical contributions.”

* Developed in response to the potent 1970s rational expectations/flexible prices critique of then-dominant Keynesian theory and policy, the New Keynesian model accepted some of the critique but argued that rigidities in pricing caused markets to adjust slowly and could result in undesirable fluctuations in employment and production. Stimulative fiscal and monetary policy—if well-designed and implemented—could therefore be effective in counteracting economic downturns.

Region: I’d like to start with some questions about policy, in particular, forward guidance. In August 2012 at the Fed’s Jackson Hole symposium, you gave a very influential speech in which you compared two options for monetary policy when at the zero interest rate bound: forward guidance and quantitative easing (balance sheet) policies.

You argued that essentially both theory and data suggest that forward guidance is likely to be the more effective of the two, and you further recommended that policymakers should make “advance commitment to definite criteria for future policy decisions.”

Four months later, at the December Federal Open Market Committee meeting, the Fed did adopt forward guidance—in the form of thresholds for unemployment and inflation—along with continued quantitative easing. Did that approach meet the standards you would advocate in terms of definite criteria?

Woodford: It was certainly a step in that direction. Not only was it an attempt to shape expectations by making official statements about future policy, but it was in line with what I had been arguing for in at least one important respect, which is that it was saying something about criteria for making a future decision as opposed to trying to announce the future policy settings themselves in advance.

The Fed had already been using statements about future policy as an important part of its efforts to stimulate the economy, particularly dramatically since the previous summer, when it had begun making quite unprecedented statements about specific dates, as far as two years in the future, until which the FOMC anticipated being able to maintain its current unusually accommodative policy. But that approach didn’t involve stating criteria for making a future decision; instead, it only offered a guess about where the federal funds rate would be at specific future dates.

There are various reasons why I think such “date-based guidance” is a less satisfactory way to try to shape expectations about future policy. The most important problem is that it’s unlikely that a central bank would really be making a promise or declaring an intention about future policy and make it in this very specific form of saying where the instrument will be two years in the future.

And, of course, the FOMC wasn’t really making such a promise. If you looked at the fine print of what they said, they hadn’t said we intend to do this. They hadn’t said we will do this. They had said we currently anticipate that future conditions will warrant our doing it....MORE
Previously on the Woodford channel:

Goldman Sachs' Allison Nathan Interview with Economist Michael Woodford
Marginal Revolution's Tyler Cowen: "...Kaminska Wins"
Let's Just Proclaim Jubilee: "Quantitative easing should be used to write off government debt"
Evans-Pritchard: 'BIS and IMF attacks on quantitative easing deeply misguided warn monetarists'
Helicopter money as a policy option

Also Alphaville's Woodford and the QE tradeoffs, revisited.

Riding the Liquidity Premium: Liquidity As An Investment Style

"Liquidity is expensive but illiquidity is much more so, because it destroys the very existence of a firm"
I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book.

Swedroe: Targeting Liquidity As A Style
During the financial crisis of 2008, even sophisticated investors such as the Yale Endowment fund learned just how expensive liquidity can be when you need it most. So it should come as no surprise that less liquid stocks have outperformed more liquid ones.

There’s a logical, risk-based explanation for that outperformance. Investors demand a premium for taking liquidity risk. Less liquid stocks not only take longer to trade, but transaction costs are likely to be higher as well. That’s especially true if you must purchase liquidity during times of stress in the markets. Thus, investors with long horizons, who are also willing to trade less frequently, can earn an expected risk premium.
Roger G. Ibbotson and Daniel Y.-J. Kim—authors of the July 2014 study “Liquidity as an Investment Style: 2014 Update”—examined whether liquidity as an investment style meets the four criteria set down in 1992 by Nobel Prize winner William Sharpe.

According to those criteria, a benchmark investment style must be: identifiable before the fact; not easily beaten; a viable alternative; and low in cost. Using stock turnover as a measure of liquidity, the study analyzed the top 3,500 U.S. stocks from 1971 through 2013. Following is a summary of the authors’ findings:
  • First, the previous year’s turnover of stocks is identifiable before the fact. It’s also simple, easy to measure and has a significant impact on returns.
  • Second, liquidity is a distinct and viable alternative to the factors of size, value and momentum, because its impact is additive to each of them.
  • Third, first-quartile portfolios constructed using liquidity, momentum, size and value investment styles outperform the equally weighted universe portfolio.
  1. The low-liquidity quartile portfolio outperforms both the smallest-cap portfolio and the high-momentum portfolio, producing returns that are indeed “hard to beat.”
  2. The low-liquidity portfolios also generate statistically significant alphas in Fama-French four-factor models. The authors also found that as less liquid stocks become more liquid, their returns increase dramatically, and vice versa.
  3. However, migration cannot be known ex-ante. They write: “Nevertheless, these results demonstrate that changes in liquidity strongly correlate with changes in valuation.”
  • Fourth, forming portfolios once a year resulted in 78 percent of the high-performing, low-liquidity quartile of stocks remaining in that quartile. Thus, the liquidity portfolio doesn’t exhibit high turnover, helping to keep costs low. That’s especially true if one is a patient trader and refrains from forcing trades, such as index funds do on reconstitution dates.
Interestingly, the authors also found that there’s “little evidence that styles are related to risk, at least as measured by standard deviation.” For example, for value and momentum, the first quartile is less risky than the fourth-quartile portfolio....MORE
HT: Abnormal Returns

"Top 6 Happiest Countries In The World"

From AFNS:
SlideshowWorldLifestyle ISSUE 50•40 Oct 7, 2014

  • Bhutan
Population: 750,000 people who are one with all
National Anthem: 3 minutes of children laughing
Education: 97% of residents know the sound of one hand clapping
Economy: Mostly service industry jobs of either taking people up mountains or carrying their corpses down mountains
Demographics: 65% National Geographic freelance photographers, 35% ethnic Bhutanese
Geography: Once beautiful, diverse landscape destroyed by monastery construction boom over past few centuries
Main Source Of Happiness: Watching Western backpackers think they’re having spiritual epiphanies
    2 of 6


     Population: 750,000 people who are one with all

    National Anthem: 3 minutes of children laughing

    Education: 97% of residents know the sound of one hand clapping

    Economy: Mostly service industry jobs of either taking people up mountains or carrying their corpses down mountains

    Demographics: 65% National Geographic freelance photographers, 35% ethnic Bhutanese

    Geography: Once beautiful, diverse landscape destroyed by monastery construction boom over past few centuries

    Main Source Of Happiness: Watching Western backpackers think they’re having spiritual epiphanies


Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 6: Growth

From Stanford University:

Annotated transcript

Peter Thiel at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 5
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture 4
Paul Graham at Y Combinator's Online Stanford Class: How to Start a Startup-Lecture 3 
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture Two 
Y Combinator's Online Stanford Class: "How to Start a Start-up"--Lecture One 

"The Production of Investment Returns in Spatially Extensive Financial Markets"

From the SSRN by way of Institutional Investor:

Gordon L. Clark

Oxford University - Smith School of Enterprise and the Environment

Ashby H. B. Monk

Stanford University - Global Projects Center

September 16, 2014
Investment returns are produced by combining financial assets with human capital, the decision-making protocols of investment institutions, and the electronic infrastructure which supports the flow of information about investment opportunities. At the centre of the production process stand senior managers; their power and authority in the production process is fundamental to the performance of investment institutions. This paper provides a model of the production of investment returns in financial centres and spatially extensive financial markets. We begin with Ronald Coase’s theory of the firm, but go beyond models of the firm that represent commodity producing industries. Having substantiated the model of investment management, it is applied to institutions located that seek investment returns in geographically extensive financial markets. Operating in financial markets at a distance from home jurisdictions is an increasingly important aspect of investment management. Given recent turmoil in the financial markets of the global economy, financial institutions have sought higher rates of return from markets in which they have little direct experience. At issue is how different types of financial institutions (large and small, growing and declining) produce investment returns in this new environment.
26 page PDF

HT: Ritholtz@Bloomberg

Strange Bloomberg Headlines

Our quarterly visit to
Met’s Hot Dog Cart Infestation Calls for Assyrians
Robots to Crisis Scars Shape Papers: Jackson Hole Journal
Dumb Husbands Can Help Economy or at Least Macy’s Shares

Draghi Takes ECB to Land of Gomorrah as Naples Prays
And many more.

"Oil markets: Where’d the floor go?"

Although the FT's Mr. Cotterill delivers the expected virtuoso performance, the chorus, in the guise of the comments, is where the real action is at.
Smart crowd.
From the Financial Times' Lex Live:
World crude prices have stopped falling precipitously – for now. Plenty seem to be betting that prices can rise quickly from $85 a barrel, if a ‘floor’ is not far below. Lex isn’t so sure – and in this live note will look at the winners and losers of a longer oil slump. Join us at 12pm London for the discussion.
Hello. Welcome to Lex Live – and another of Lex’s experiments in writing a note ‘live’, giving you the ability to tell us how silly we are in real-time. EXCITING!

Today we’re looking at the oil market – and essentially, whether the recent end to the slide in prices actually is much of a turning point. That means I (with my colleague Alan Livsey) will be looking at:
- How the market is positioned
- Whether supply disruptions will boost prices
- How low a price Gulf producers can get away with, fiscally
- And something of an elephant in the room – demand in Asia.
We’ve been doing a few notes recently on these subjects. So first, let me bring them up …

Firstly – Lex’s big view on the oil price collapse last week was that Asia is a large factor, actually. Not least, Saudi Arabia’s price cuts seem to have been aimed at keeping market share in Asia. Here’s a taste:
This volatility has led to attempts at psychoanalysis. Saudi price cuts are “really“ about geopolitics, Russia or finding the lowest price at which US shale production becomes unviable ($80 a barrel, supposedly).
The conspiracy theories ascribe too much power to Saudi oil production. At about 12 per cent of the global total since 1975 (except for the mid-1980s blip), Saudi share in oil is roughly equivalent to Rio Tinto’s in iron ore: another market where big players overproduce because they cannot sustain an all-powerful cartel.
There is also a simpler explanation. The market share Saudi Arabia really cares about, for the medium term, is in Asia. The region will import far more oil over the next decade.
We’re quite keen on the ‘Opec isn’t actually much of a cartel’ point. What do faulty cartels tend to do? Overproduce.

But here’s a contrary view, via Oxford Energy today – Opec at least isn’t in as bad a spot as it was in the 1980s, when oversupply in the oil market really did blow up prices quite badly.
I guess the standard objection here is would be that ten years is nothing to the Saudis. They want a market that is oversupplied for a sustained enough period that lots of investment in marginal supply, from Iraq to the US, is dropped
Well, you can also see the point made by Oxford Energy there about the outlook for demand looking better in 2014 vs, say, 1984. Which would help Saudi while it’s busy knocking out swing barrels in shale.

Triumph Of The Optimists


The Official Dilbert Website featuring Scott Adams Dilbert strips, animations and more

Long time readers will recognize the headline as the title of the book by some of our favorite economists: Elroy Dimson, Paul Marsh and Mike Staunton.

Here's CXO Advisory's "Triumph of the Optimists (Chapter-by-Chapter Review)" last seen in our "What if everything we’ve come to think of as American is predicated on a freak coincidence of economic history? And what if that coincidence has run its course?" along with my commentary from the cheap seats:
Re Triumph of the Optimists, the main point to take away is how different your portfolio returns look if you were invested in the Berlin market in late 1944, the Chinese market in 1949 or the U.S. market over the last 150 years. As The Economist pointed out the authors deliberately excluded the Warsaw and Moscow Exchanges "since they were closed down under communist rule. That led to returns best described as “steeply negative”. If these markets were taken into account, the historical equity premium would be even lower"

Stay Classy Uber

One of the things the "create-a-corp" mentality highlights is the class or lack thereof of top management.
From Buzzfeed:

French Uber Promotion Pairs Riders With “Hot Chick” Drivers
“Who said women don’t know how to drive?” the Uber blog post asks. The post was deleted after an inquiry from BuzzFeed News. 
Yesterday, Uber’s Lyon office unveiled a new promotion with an app called “Avions de Chasse.” The deal pairs Uber riders with “hot chick” drivers as they make their way across the city. 

“It’s going to be the most beautiful thing on Earth,” the post suggests of the free ride promotion.
Using the promotion, a user can enter his (presumably) code “UBERAVIONS” in his Uber app and “become the luckiest co-pilot of Lyon,” which basically means that a model will pick you up and drive you around. There’s also the rather icky disclaimer in the post that the offer is valid for a maximum run of 20 minutes....MORE

Tuesday, October 21, 2014

A Quick Overview of Today's Action

As noted on Friday,* the 1905 level which we and others (just about anyone with a keyboard) thought would be support two weeks ago, wasn't and turned out not to be resistance either. S&P 500 1941.28 at the close.
From Between the Hedges:

Stocks Surging into Final Hour on Central Bank Hopes, Diminishing Ebola Fears, Earnings Optimism, Healthcare/Energy Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Substantially Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Outperforming
Equity Investor Angst:
  • Volatility(VIX) 16.63 -10.45%
  • Euro/Yen Carry Return Index 141.97 -.71%
  • Emerging Markets Currency Volatility(VXY) 8.27 -4.50%
  • S&P 500 Implied Correlation 61.13 -7.45%
  • ISE Sentiment Index 94.0 -31.39%
  • Total Put/Call 1.01 +16.09%
  • NYSE Arms 1.08 +21.96% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 65.88 -4.96%
  • European Financial Sector CDS Index 70.17 -7.35%
  • Western Europe Sovereign Debt CDS Index 33.30 -4.30%
  • Asia Pacific Sovereign Debt CDS Index 68.36 -6.77%
  • Emerging Market CDS Index 262.02 -.20%
  • China Blended Corporate Spread Index 344.71 unch.
  • 2-Year Swap Spread 25.5 -.75 basis point
  • TED Spread 22.75 +2.25 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -8.25 +1.5 basis points

*Friday's "Equities: Prior Support Is Now Resistance":
The 1905 line proved to be butter under the hot knife of sell orders and should not be much stronger on the way up. We are looking for new highs before the next major downturn. S&P 500 1885.91 up 23.15 on the day, DJIA 16,365.73 up 248.49. The 50% retracement of the entire downmove is 16,429.65.

Pimco: Bogle is Wrong

From LearnBonds:
Facing outflows amid the much publicised departure of longtime CEO Bill Gross and an increasing trend toward passive fund management. Pimco has come out fighting, saying some fixed income managers can meaningfully add to returns.
Pimco pensions strategist James Moore defended active bond management, in a piece posted on the firms website. In which he refutes comments made by the legendary advocate of index-based investing, Jack Bogle.
Moore was referring to a recent television appearance by Bogle in which he said the arguments for index investing hold just as much for bonds as stocks.
Bogle’s argument is based on some basic math: In sum, the performance of all investors aggregates to the performance of the markets. For every winner, there must be some loser who is subsidizing the winner’s gains. Throw in fees, and the average net return above the market for active investors is negative.
“The key question for investors is, ‘Do I have a strong reason to believe my active managers will add value in excess of their fees’,” asked Mr. Moore. “I would not argue that all do or even that a majority do, but those manager who understand and exploit the five reasons I list, plus a host of others, stand a good chance.”
Moore offered a series of reasons why “the common wisdom” about the superiority of so-called passive investing might not extend to bonds. Here are five important ones:
1. A significant fraction of investors in fixed income markets have primary objectives that differ from maximizing mark-to-market total returns.
2. Unlike equity indexes, where the market determines the weights, in bond indexes issuers principally determine the weights.
3. The new issuance market is much more important for bonds than equities.
4. Most bond trading is done via over-the-counter transactions and not on exchanges.
5. Individual bond returns are highly skewed versus stock returns, which are more symmetric.
You can read Moore’s full article here.
The rest of LearnBond's linkfest 

How 1 Doctor Saved Nigeria from Ebola Catastrophe

This doctor probably deserves a Nobel Peace Prize but the Norwegian committee that makes the call has become such a foul cesspit that it will probably go to another politician. The people on the committee are pigs.

It was bad when two old terrorists, Yasser Arafat and Yitzhak Rabin got it in '94 but then in 2007 when it went to Al Gore over Irene Sendler you knew the fix was in.

This gal saved 2500 children sometimes hauling one out of the Warsaw ghetto in a suitcase or a couple more under a caterers cart or a dozen in a truck. When the Nazi's caught and tortured her she came back to the saving-kids-biz despite two broken legs, broken ankles and broken arms.
Al Gore made a movie, got fat and rich and moves at the highest level of political finance:

Those Nobel Norwegians are a bunch of morons so don't expect anything sensible out of them.
From Yahoo News:
A day after the World Health Organization declared Nigeria free of Ebola, the doctor who treated the country's first case of the deadly virus and later died from the disease herself is being hailed as a hero for helping stop the outbreak.

Dr. Stella Ameyo Adadevoh, a doctor at First Consultant Hospital, oversaw treatment of Patrick Sawyer, Nigeria's Ebola patient zero, when he arrived sick in Lagos, Nigeria's former capital and Africa's largest city, on a flight from Liberia in July.

Adadevoh fought to isolate Sawyer, a top official in the Liberian Ministry of Finance who did not take kindly to isolation and lied about his symptoms, officials said.

"Immediately, he was very aggressive," Dr. Benjamin Ohiaeri, the hospital's director, told the BBC. "He was more intent on leaving the hospital than anything else. He was screaming. He pulled his intravenous [tubes] and spilled the blood everywhere."

Adadevoh, the Telegraph writes, "effectively saved the country from disaster by spotting that its first Ebola patient was lying about his condition, and then stopped him leaving her clinic."

Sawyer, who had been caring for his Ebola-stricken sister, was reportedly set on visiting one of Nigeria's Pentecostal churches "in search of a cure from one of the so-called miracle pastors," the BBC said.
"The Liberian ambassador started calling Dr. Adadevoh, putting pressure on her and the institution," Ohiaeri said. "He felt we were kidnapping the gentleman and said it was a denial of his fundamental rights and we could face further actions. ... The only way we could be sure and live up to our responsibility to our people, the state and nation — this is all about patriotism at the end of the day — was to keep him here."
Sawyer, 40, collapsed in Lagos on July 20 after getting off a plane from Liberia. He died just five days later. Adadevo and 11 colleagues were infected with Ebola.

"She was fine all along and then suddenly it became apparent," Adadevoh's son Bankole Cardoso told the news service.

She died on Aug. 19.

"We lost some of our best staff," Ohiaeri said. "Dr. Adadevoh had been working with us for 21 years and was perhaps one of the most brilliant physicians. I worked with her. I know that she was sheer genius."

Thanks to patient isolation and aggressive contact tracing (including 18,500 visits to 894 people), Nigeria had just 20 Ebola cases, including eight deaths — a far lower death rate than the 70 percent seen elsewhere....MORE

Oil Sell-off, the Goldman View (XLE; ERY)

We are seeing a lot of recommendations to buy hydrocarbon companies and want to note:
It's Too Early
More to come.
From FT Alphaville, Oct. 17:
Oil sell-off, the Goldman view
Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general.

When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side:
The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out.
In other words: this is not the oil market price crash you’re looking for. Move along, move along. The curve should not be in backwardation. It should be in lovely yield-generating contango. Why is the market being such a fool?...MORE
Oct. 15
Snapping Back At The Close: Energy, Biotech, Solar
Oct. 9 
"Energy Stocks Are Crashing As WTI Plunges Under $85"
Oct. 2 
Options: "Transocean LTD Trader Bets Big On Steeper Losses" (RIG) 
Sept. 30 
Chartology: "Energy- Worst performer over 90 days is on channel support" (XLE; ERY; XOP) 

Our Favorite Federal Reserve Bank Paper, "In Which the Downfall of a Prominent Speculator Rocks the Financial System, and a Prominent Millionaire Saves the Day"

Following up on the post immediately below, "This Week in History: The Panic of 1907".
First up "The Copper King's Precipitous Fall".
Here's the Smithsonian's Past Imperfect blog with another take on the story:

Frederick Augustus Heinze was young, brash, charismatic and rich. He’d made millions off the copper mines of Butte, Montana, by the time he was 30, beating back every attempt by competitors to run him out of business. After turning down Standard Oil’s $15 million offer for his copper holdings, Heinze arrived in New York in 1907 with $25 million in cash, determined to join the likes of J. P. Morgan and John D. Rockefeller as a major player in the world of finance. By the end of the year, however, the Copper King would be ruined, and his scheme to corner the stock of the United Copper Co. would lead to one of the worst financial crises in American history—the Panic of 1907.

He was born in Brooklyn, New York, in 1869. His father, Otto Heinze, was a wealthy German immigrant, and young Augustus was educated in Germany before he returned to the United States to study at Columbia University’s School of Mines. An engineer by training, Heinze arrived in Montana after his father died, and with a $50,000 inheritance he developed a smelting process that enabled him to produce copper from very low-grade ore in native rock more than 1,500 feet below ground. He leased mines and worked for other mining companies until he was able, in 1895, to purchase the Rarus Mine in Butte, which proved to be one of Montana’s richest copper properties.

In a rapid ascent, Heinze established the Montana Ore Purchasing Co. and became one of the three “Copper Kings” of Butte, along with Gilded Age icons William Andrews Clark and Marcus Daly. Whip smart and devious, Heinze took advantage of the so-called apex law, a provision that allowed owners of a surface outcrop to mine it wherever it led, even if it went beneath land owned by someone else. He hired dozens of lawyers to tie up his opponents—including William Rockefeller, Standard Oil and Daly’s Anaconda Copper Mining Co.—in court, charging them with conspiracy. “Heinze Wins Again” was the headline in the New York Tribune in May of 1900, and his string of victories against the most powerful companies in America made him feel invincible.

“He has youth and magnetism upon his side,” one Montana mining engineer said at the time, “and is quite the hero of the state today. He has had laws passed that benefit every smelter and independent mine owner.… The more he is threatened, the more he laughs, and the brighter his songs and his raillery, as he entertains at the   club the lawyers or the experts upon either side equally well.”

The miners in Montana adored him because he cut their working day from 10 hours to 8, and he navigated the political world with the same ease that he pulled copper from the earth. In 1902, with authorized capital of $80 million, he incorporated the United Copper Co. and continued to chip away at the position of Anaconda’s corporate successor, the Amalgamated Copper Mining Co., atop the copper market. Stock in his company was literally traded outside the New York Stock Exchange in “on the curb” trading that would later become the American Stock Exchange.

Heinze was a hard-drinking ladies man who liked to gamble, and he spent lavishly in Butte’s saloons. He was friendly with legislators and judges. (A “pretty girl” alleged to have connections to the Copper King once offered a judge a bribe of $100,000....MORE
And from the Federal Reserve Bank of Boston:

Panic of 1907
Federal Reserve Bank of Boston
Crash, Crash, Crash
Boston Post-October 19, 1907

Although the headline referred to events in New York, Boston Post readers knew exactly what it meant. Effects of the financial crisis were certain to reach beyond Wall Street....MORE

"This Week in History: The Panic of 1907"

We'll be back with our favorite Fed paper on aught-seven, for now Crossing Wall Street:
Today marks the 107th anniversary of the start of the Panic of 1907. Gary Alexander of Navellier Marketmail describes the tumultuous week:
This Week in History: The Panic of 1907
Here’s a day-by-day rundown of the week that made Mark Twain’s “October” prediction come true:
On Monday, October 21, 1907, depositors staged a run on Knickerbocker Trust Company, the third-largest mega-bank in New York City. John Steele Gordon wrote (in “The Great Game: The Emergence of Wall Street”), “Bedlam reigned as depositors fought to get to a teller and withdraw their assets from the bank’s imposing new headquarters on Fifth Avenue.” No luck. “The bank closed the next day after an auditor found that its funds were depleted beyond hope. The bank’s president, Charles Barney, shot himself several weeks later, prompting some of the bank’s outstanding depositors to commit suicide.”

On Tuesday, October 22, the president of Knickerbocker Trust Company bravely opened the doors of his troubled bank, but that was not a wise move. Within hours, depositors had withdrawn $8 million. By afternoon, Knickerbocker Trust Company announced its insolvency and closed its doors for good.
On October 23, lower Manhattan streets were choked with anxious bank depositors lined up in front of even the soundest of banks. On this day, the Trust Company of America looked suspect. By 1:00 p.m., they had only $1.2 million in cash on hand. By 1:20, it was down to $800,000. By 1:45, they had $500,000 and at 2:15 they were down to $180,000. About then, bank president Oakleigh Thorne (what a great name!) rushed over to J.P. Morgan’s office for help. When Morgan was convinced that the Trust Company was otherwise sound, he said, “Then this is the place to stop the trouble,” and he transferred enough cash to tide the bank over for the rest of the day. Morgan deposited roughly $30 million in major New York banks and told those banks to lend the money out to instill confidence among depositors....MORE

The Factors That Explain Market Returns: Probably Bogus

Except for dividends.
And momentum.
And equity risk premium. But that's argument by definition.

From Matt Levine at Bloomberg:

...Moneyball, but for money.
Did you know that you can use statistics to pick stocks? Hmm, you did? Well, did you know that you can sort of squint at those statistics and pretend that they're baseball statistics? Why would you want to do that, you ask? I don't know. Baseball! Sports metaphor! Just buy some stocks. That seems to be the thesis of a Goldman Sachs equity research note, and good lord. Elsewhere, Gawker's giving stock tips.
Here, on the other hand (via Tyler Cowen), is a new NBER paper (ungated PDF here) about research into the cross-section of expected stock market returns, finding that "most claimed research findings are likely false." The intuitive idea is that hundreds of academics (and hedge funds) write hundreds of papers trying to find factors that explain stock market returns and that can be used to outperform the broad market:
We observe a dramatic increase in factor discoveries during the last decade. In the early period from 1980 to 1991, only about one factor is discovered per year. This number has grown to around five in the 1991-2003 period, during which a number of papers, such as Fama and French (1992), Carhart (1997) and Pastor and Stambaugh (2003), spurred interest in studying cross-sectional return patterns. In the last nine years, the annual factor discovery rate has increased sharply to around 18. In total, 162 factors were discovered in the past 9 years, roughly doubling the 90 factors discovered in all previous years.
But since they keep mining the same data for the same sorts of factors, their statistical thresholds for significance are probably too low. If you use a t-ratio of 3, as the authors advocate, rather than the more popular 2, you find that most of the factors that have been identified don't actually work, for some value of "actually."...MORE
Sorry, no footnotes.

Financial Crisis Observatory: Global Bubble Status Report--Oct. 1, 2014

From Didier Sornette and ETH Zurich*:
 The Financial Crisis Observatory (FCO) is a scientific platform aimed at testing and quantifying rigorously, in a systematic way and on a large scale the hypothesis that financial markets exhibit a degree of inefficiency and a potential for predictability, especially during regimes when bubbles develop. 
*Swiss Federal Institute, Zürich

FCO homepage
Status report 21 page PDF

The Top 100 Landowners In the United states

It's time for our quasi-periodic visit to The Land Report for the lowdown on who owns what.
From PR Newswire:
The 2014 Land Report 100: America's Largest Landowners Making Even Bigger Investments
The Land Report releases 2014 Land Report 100 presented by Fay Ranches; Malone and Turner still largest, but Reed Family jumps to No. 5 with purchase of 600,000-acre JELD-WEN Oregon estate.
DALLAS, Oct. 15, 2014 /PRNewswire/ -- Continuing the trend of investing in some of America's most iconic viewsheds and working landscapes, The Land Report released the 2014 Land Report 100 presented by Fay Ranches highlighting the major investments and even bigger personalities of America's largest landowners. In all, private holdings increased by nearly 500,000 acres over the last year. 

Among the major movers is nationally known homebuilder D.R. Horton, founder and chairman of DR Horton Inc. (DHI), which acquired New Mexico's 457-square-mile Great Western Ranch. This transaction landed Horton at No. 32 on this year's list. Horton purchased the 292,779-acre Great Western from Denver investor Patrick Broe. But don't worry about Broe. Thanks to holdings in Colorado and Wyoming, he stayed on the list and is at No. 76.  

And that wasn't even the biggest sale. The Reed family, owners of Green Diamond Resource Company, acquired 600,000 acres of Oregon timberland from the estate of Richard Wendt, founder of JELD-WEN Windows & Doors. The purchase upped the Reeds from No. 10 in 2013 to No. 5 in 2014. This swath of rural Oregon is almost the same size as Rhode Island and is the largest land transaction in the U.S. since Liberty Media Chairman John Malone acquired more than 1 million acres of timberland in Maine and New Hampshire in 2011. That buy put Malone atop The Land Report 100, where he remains in 2014 with 2.2 million acres. His good friend and fellow cable entrepreneur Ted Turner is No. 2 with more than 2 million acres. Rounding out the top five are California's Emmerson family with 1.86 million acres, Kentucky billionaire Brad Kelley with 1.5 million acres, and the Seattle-based Reeds with 1.37 million acres.
The cover story dives into the intricacies of one of the largest ranches in the U.S., the 535,000-acre Waggoner Ranch that spreads across six North Texas counties. For over 150 years, the Waggoner family has stewarded this historic property, which was recently listed for sale for $725 million. The ranch runs thousands of cattle, breeds champion Quarter Horses, has oil and gas production and more – all attributes of this "super asset class."...MORE
For our European readers: 1000 acres equals 404.6 hectares.
Here's The Land Report's home page and the 2014 Land Report 100 via Fay Ranches, 37 page PDF

September 2014 
Largest Landowner In the U.S. Is Buying Hotels In Ireland
February 2014 
"Half of U.S. Farmland Being Eyed by Private Equity"
September 2013
Who Owns America's Farmland?
November 2012 
The Quietest Billionaire: "The Man With a Million Acres"
July 2012 
The 100 Largest Landowners in America
March 2012 
The King of California and the Largest Farm in the United States (BWEL pink sheets)