Thursday, December 18, 2014

"Amazon Not as Unstoppable as It Might Appear" (AMZN)

From the New York Times' Personal Tech column:
Thanks to its ugly spat with book publishers, Amazon has lately been cast as the abominable boogeyman of American commerce.

As hundreds of authors took up arms against the giant, The New Republic declared in a cover article this fall that “Amazon Must Be Stopped,” insisting that the company’s unbounded retail ambitions would end up “cannibalizing the economy.”

But there’s another theory about Amazon’s future, one for which evidence began to mount this year: Despite fears of Amazon’s growing invincibility, the company’s eventual hegemony over American shopping is not assured. It might not even be likely.

That’s not just because investors began to question the company’s aggressive spending this year, or because its big new thing, the Fire Phone, turned out to be about as unwelcome as the flu.

Amazon may face a deeper problem. Like many of the local and big-box retailers it has displaced over the last decade and a half, Amazon could itself become increasingly vulnerable to the threat of technological upheaval.
Credit Stuart Goldenberg
The key to its vulnerability is the smartphone, a device whose scope and significance Jeff Bezos, the chief executive, has not yet managed to corral.

Phones have already radically altered both the way Americans shop and how retail goods move about the economy, but the transformation is just beginning — and it is far from guaranteed that Amazon will emerge victorious from the transition.

Phones are at the heart of the service offered by Postmates, one of several start-ups that are working with retailers and helping to change shopping experiences. “Everything that we’re doing is anti-Amazon,” said Bastian Lehmann, the co-founder of Postmates.

Postmates runs a network of couriers who, like Uber drivers, are dispatched by phones to deliver food, apparel, toothpaste and other goods from local stores in 18 American cities. The company recently announced a plan for retailers to build Postmates’ technology into their own technology systems, a way to give small stores the kind of logistical efficiencies that were previously available only to giants like Amazon.

 As local retailers adopt such mobile innovations, customers will be able to search stores’ inventories, purchase goods for same-day delivery, and navigate and search for help and reviews inside a crowded store. None of these technologies pose an existential threat to Amazon, but by giving physical stores some of the conveniences that Amazon has long had, they may limit its potential reach....MORE
HT: Value Investing World's linkfest
Also via VIW:
How levered was John Maynard Keynes' portfolio? (LINK)

"Dow Industrials Soar 300 Points as Easy Money Cheers Investors"

S&P up 30.64 at 2043.53, crude oil down a bunch, $54.95 last after getting to $59.04.
From Barron's Stocks to Watch:
Easy money has sent the Bears fleeing the rampaging Bulls.

The S&P 500 has gained 1.7% to 2,047.92 at 1:22 p.m. today, while the Dow Jones Industrial Average has risen 306.74 points, or 1.8%, to 17.663.61. If the Dow holds onto its gains, it will be the first time its gained at least 200 points in two consecutive days since Dec. 2008.

The Nasdaq Composite has advanced 1.8% to 4,728.20 and the small-company Russell 2000 is up 1.2% at 1,188.53.

Much of this has to do with yesterday’s decision by the Fed to say swap out the phrase “considerable time” and replace it with “patient.” Gluskin Sheff’s David Rosenberg calls it a “crafty” decision. He explains why:
But why did the Fed feel the need to have both “considerable time” and “patient” in the same press statement? The answer lies in what happened when the Fed removed “considerable period” back in January 2004 and replaced it with “patient”.
That day (January 28, 2004), the S&P 500 slid 1.4%, the 10-year U.S. Treasury note yield surged 11 basis points to 4.22% and the VIX spiked 9% to 17. Given everything that is happening around the world right now and the renewed market angst — in all markets — it is doubtful that this Fed was going to go out of its way to throw more fuel on the fire…
So what is important here is that “considerable time” is intact — this means no Fed rate hike for a very long time. And then when it does begin to raise rates, it is going to be patient which means that it will be a mild and truncated approach as opposed to the rapid fire tightening of cycles gone by.
So, if anything, this is a dovish press release and the equity markets have breathed a sigh of relief in the process — with everything else going on the world, at least a rate hike by the Fed as a source of concern has been taken off the table for the next several quarters, if not for all of 2015.
The Fed wasn’t the only one showing investors the easy money....MORE

Shipping: "Rates Under Pressure on Low Demand--Maersk"

A nasty factoid from FT Alphaville:
...the Baltic Dry Index ... It’s now fallen 20 days in a row.
...MORE
reminded me of this story from The Maritime Executive:

Maersk container ship at port
BY MarEx 2014-12-17 09:12:30
Container shipping firm Maersk Line said a fresh attempt made on Monday to raise freight rates on main routes from ports in Asia to those in northern Europe was already under pressure due to weak demand.
Maersk Line, a unit of Danish conglomerate A.P. Moller-Maersk, controls one-fifth of all transported containers from Asia to Europe. Like other shipping lines it has been trying to curb losses on the world's busiest route where an overabundance of ships is weighing on rates.

The company hiked rates on twenty foot equivalent unit containers (TEU) by $900 on Nov. 1.

However, this level was quickly dragged down by low demand, partly due to seasonally weaker demand in end-November towards the Christmas holidays, the company's head of east and central China told Reuters on Wednesday....MORE

Energy Stocks, Energy Credit and Crude (XLE)

The XLE is the energy sector of the S&P 500 ETF.
Opening at $79.06, trading as high as $79.35 I repeat our comment from yesterday's "Big Rebound for Energy":
Brent up 4.1% at $62.46 XLE $77.43 Up 3.42 (4.62%).
Thinking we'll see it here or lower a few more times, we're not buying it....
From ZeroHedge:

Just 3 Energy Charts
... but energy stocks are surging...

And while energy credit spreads are tighter, the move in energy stocks is exuberant to say the least.

We are sure stocks are correct... they always are, right?
And there goes crude, WTI down 91 cents at $55.88, the XLE is now in the red by a penny at $77.07.

"Natural gas falls after supply data, weather forecast still supports"

January's $3.679 down 0.023.
From Investing.com:
Natural gas futures were lower on Thursday, shrugging off data showing that U.S. natural gas storage fell more-than-expected last week and forecasts for colder year-end temperatures.

On the New York Mercantile Exchange, natural gas futures for delivery in January were down 0.84% at $3.674 per million British thermal units during U.S. morning trade, from around $3.757 per million Btu ahead of the supply data.

The U.S. Energy Information Administration said in its weekly report that natural gas storage fell by 64 billion cubic feet last week, compared to expectations for a decline of 60 billion after a drop of 51 billion in the previous week.

Inventories fell by 6 billion cubic feet in the same week a year earlier, while the five-year average change is a drop of 258 billion cubic feet.

Total U.S. natural gas storage stood at 3,295 trillion cubic feet.

The home heating fuel rose to session highs earlier after after the latest weather forecasting models indicated that temperatures in the Midwest, Great Lakes and mid-Atlantic regions of the country would be lower than normal from December 27 to December 31.

Approximately 49% of U.S. households use gas for heating, according to the EIA, the statistical arm of the Energy Department.
And from the EIA:
Weekly Natural Gas Storage Report
for week ending December 12, 2014   |   Released: December 18, 2014 at 10:30 a.m.   |   Next Release: December 24, 2014 
Working Gas in Underground Storage Compared with 5-Year Range
Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2009 through 2013.
Source: Form EIA-912, "Weekly Underground Natural Gas Storage Report." The dashed vertical lines indicate current and year-ago weekly periods.

...MORE 

"The Current Term Structure of Interest Rates"

From LearnBonds:
Over the past year, a lot of attention has been paid to the decline in longer-term bonds.  Today, I would like to look at what has happened to the term structure of interest rates during this period of decline.

Looking at just the yield on the 10-year United States Treasury note we see that in the middle of December in 2013, the yield was about 2.85 percent.

Note that I am using the actual yields on the notes, which are calculated on a stream of cash flows, and not the yield from “stripped” securities that are “bullet” investments that pay no interest payments but sell at a discount to the cash that will be paid the investor at the time the issue matures.  The yields on the “strip” securities provide a more “correct” estimate of the yield curve, but the current difference between the two measurements are so minor that I have just gone ahead and reported the yields from the regular securities.
Six months ago, in the middle of June 2014, the yield had dropped to 2.60 percent and only three months ago, this maturity was trading to yield about 2.55 percent.  A month ago, the yield was 2.35 percent, whereas one week ago it was at 2.15 percent.

This week, the yield on the 10-year US Treasury note was at 2.15 percent.  The yield on the 10-year note, therefore, dropped 70 basis points over the past year; 45 basis points over the past six months; 40 basis points over the past three months; and 20 basis points over the past month.

The yield on the 2-year note actually rose during this time from 0.32 percent one year ago and from 0.45 six months ago. Three months ago, the yield on the 2-year note was 0.59 percent, close to where it closed on Tuesday at 0.56 percent.

Consequently, there has been a substantial decline in the term structure of interest rates....MORE

How to Write In the 21st Century: Dear Russell Brand...

From Squander Two:

An open letter to Russell Brand. 
Dear Russell,

Hi. I'm Jo. You may remember me. You may even have filmed me. On Friday, you staged a publicity stunt at an RBS office, inconveniencing a hundred or so people. I was the lanky slouched guy with a lot less hair than you but (I flatter myself) a slightly better beard who complained to you that you, a multimillionaire, had caused my lunch to get cold. You started going on at me about public money and bankers' bonuses, but look, Russell, anyone who knows me will tell you that my food is important to me, and I hadn't had breakfast that morning, and I'd been standing in the freezing cold for half an hour on your whim. What mattered to me at the time wasn't bonuses; it was my lunch, so I said so.

Which is a great shame, because I'd usually be well up for a proper barney with you, and the points you made do actually deserve answers. Although not — and I really can't emphasise this enough, Russell — not as much as I deserve lunch.

Before I go any further, I should stress that I don't speak for RBS. I'm not even an RBS employee, though I do currently work for them. What follows is not any sort of official statement from RBS, or even from the wider banking industry. It is merely the voice of a man whose lunch on Friday was unfairly delayed and too damn cold.

So, firstly, for the people who weren't there, let's describe the kerfuffle. I didn't see your arrival; I just got back from buying my lunch to discover the building's doors were locked, a film crew were racing around outside trying to find a good angle to point their camera through the windows, and you were in reception, poncing around like you were Russell bleeding Brand. From what I can gather, you'd gone in and security had locked the doors to stop your film crew following you. Which left us — the people who were supposed to be in the building, who had work to do — standing around in the cold.

My first question is, what were you hoping to achieve? Did you think a pack of traders might gallop through reception, laughing maniacally as they threw burning banknotes in the air, quaffing champagne, and brutally thrashing the ornamental paupers that they keep on diamante leashes — and you, Russell, would damningly catch them in the act? ...
...MUCH MORE

HT: Business Insider

Chartology: Watching the Small Caps For a Breakout (IWM; RUT)

Or a nineteenth nervous breakdown.
The IWM is the iShares Russell 2000 ETF
From FinViz:


There is a lot of congestion in the 1180-1200 range:

Oil: "Future Of Shale -- December 17, 2014"

He's been blogging the Bakken since 2009.
From The Million Dollar Way:
In a long note like this there will be factual and typographical errors. There will be opinions mixed in with facts. Consider this entire "essay" nothing more than opinion within the guidelines expressed in the "welcome/disclaimer." This has absolutely nothing to do with investing in the Bakken. The main purpose of the blog is to help me better understand the Bakken. The Bakken is what it is. I'm not doing this for any reason other than the enjoyment I get out of following it. There is no hidden agenda. The essay is not complete. I will add to it when the spirit moves me. When it is complete, I will note that. 


*****************************
Preamble, Disclaimer, And All That Stuff

Rigzone's look at the future of shale in light of the oil glut and depressed oil prices.

I don't think I will post any excerpts of the linked article above. I have it saved elsewhere; most of these articles eventually "disappear," requiring a subscription later on to access them (a word to the wise).

I scanned the article linked above but I didn't read every word. I think there is a huge story line that was mentioned in another Rigzone article but not in this most recent one.

Looking at that previous Rigzone article and then at this most recent one (linked above), I think we will see an essay soon at Rigzone or elsewhere about another lesson learned with regard to US shale which I am trying to express in the rambling notes below. Developing an unconventional oil play is entirely different than what has gone on before.

What follows is personal opinion; what looks like facts may in fact be wrong; I'm not looking up staff to confirm (I discuss this in my "welcome/disclaimer" pages).

If any of this information is important to you, go to linked sources throughout the blog; don't take my word for it; I make a lot of factual and typographical errors.

*********************************
Initial Thoughts

There are three unconventional plays that account for about half of all unconventional oil right now: the Permian, the Eagle Ford, and the Bakken.

Of the three unconventional plays (remember, the Permian has both conventional and unconventional aspects) the Bakken is the most mature in terms of development and understanding of the geology.

Within the Bakken, the middle Bakken is well delineated. This is not true for the other payzones within the Bakken pool. A lot of work has been done on the upper bench of the Three Forks, the Sanish, and the Pronghorn Sand(s), but even those formations are not delineated as well as the middle Bakken.

The lower benches of the Three Forks are hardly delineated at all; that delineation was just beginning when the slump in oil prices began. And, of course, we know almost nothing about the Tyler or the Lodgepole (not the reefs) formations.

The Bakken is 90 - 96% oil across the Basin.

The Eagle Ford is still in the early stages of being delineated; I have no idea how many pay zones there might be in the Eagle Ford, just as we did not know how many pay zones there would be in the Bakken until several years into the boom. The Eagle Ford has areas that are predominantly oily and other areas that are heavier in condensate. The general areas are known but the Eagle Ford came in later than the Bakken and delineation is probably less clear than the middle Bakken.

The Permian is even less delineated with regard to its unconventional plays.

Then across the US there are several other unconventional plays; perhaps the Niobrara is #4. Then a half dozen others.

All figures below are 2014 US dollars. 

At $150 oil, operators will explore every shale play and every area within every shale play.

At $100 oil, operators will still explore the better shale plays but start to concentrate on development of delineated fields.

At $75 oil, operators will pretty much discontinue exploration in even the best plays and emphasize development and infill wells.

Somewhere between $80 and $65 oil operators will start to circle the wagons, not only discontinuing exploration in the newer shale plays but will discontinue exploratory drilling in the three big US shale plays.

At $50, the circling of the wagons will become obvious to even the most casual observer. It's possible oil could get so low that all drilling in all US shale might stop but that seems incredibly unlikely.
************************
$80 Oil 

Below $80, shale operators will start to demonstrate just how flexible they can become.

I don't now enough about the Permian or the Eagle Ford to comment, but I bet they are similar to the Bakken.

First, behind the scenes, the Bakken operators are going to extract savings from the oil service operators. Earlier I posted an example of where Sanjel was providing almost a 50% discount for some services. Sand and ceramic will come down in price (more on that later)....
...MUCH MORE

"Russia worries keep heat in wheat price rally"

March futures 663'2 +14'6
That kind of verticallity just begs to be shorted. High for the day: 677'0.
From Agrimoney Dec. 17, 19:14GMT:

Wheat prices soared again, hitting a fresh seven-month high in Paris and their highest for six months in Chicago, amid continued concerns of a squeeze on Russian exports of the grain.

The rouble, whose weakness has been one source of concern for wheat buyers, actually rallied more than 10% against the dollar, after the Russian finance ministry announced it would support the domestic currency by selling foreign ones.
Nonetheless, with rouble still down more than 20% against the dollar over the past month, fears remained that Russian farmers would hoard crops as a dollar-denominated hedge.
"Producers are using wheat as their currency," Don Roose, president of Iowa-based broker US Commodities told Agrimoney.com, adding that Russian wheat export prices had been driven up to the equivalent of about $12 a bushel in Black Sea ports.
There are also concerns of official moves to clampdown on exports, to ensure sufficient supplies for domestic use, with talk of restrictions, introduced on quality grounds, on shipments to countries beyond a handful of favoured importers.
'People lost millions'
At Minnesota-based Benson Quinn Commodities, Brian Henry said: "I think people are not prepared to go short on wheat in the current circumstances.
"Memories are pretty fresh of 2010," when a Russian export ban sent prices soaring, and denied importers access to grain they had acquired.
"People lost millions on that," Mr Henry said....MORE
And this morning:
Wheat prices soar anew, despite 'sceptics'. Corn, soy up too

Wednesday, December 17, 2014

"How the perfectly legal heists of a racehorse-trainer and former seminarian made him the bane of the bookies"

From The Economist:

Only fools and horses
INDUS VALLEY is an unremarkable horse, or so punters thought when it ran in the 4.25 at Kempton Park, a racetrack on the outskirts of London, on January 22nd 2014. Given that it had been beaten by an aggregate of 104 lengths in its previous four outings—and had not competed at all for two years—odds of 25-to-1 seemed generous. Indus Valley won. Two earlier, minor races at other English tracks that Wednesday had featured unlikely comebacks by mounts that had been out of action for months. The 6.25 at Kempton Park delivered a final surprise. Low Key—an aptly named horse given its lack of pedigree, more so since it was running its first race since being castrated—finished well ahead of the pack. Obscure midwinter horse-racing is often unpredictable; still, what were the odds of four horses who had not won a race between them since 2010 all triumphing on the same day?

The answer, as bookmakers soon discovered, was 9,000-to-1. Wagering just £112 ($184) on all four was enough to yield £1m. And thousands of pounds had indeed been wagered on two, three or all four no-hopers. Even before Low Key romped home with a length to spare, the writing was on the wall: the bookies had been hustled. And it wasn’t hard to guess the culprit: Barney Curley, a 75-year-old Northern Irishman, former aspiring Jesuit priest, low-grade horse trainer and professional gambler, had once owned three of the four winners. Their current trainers were former employees of his Newmarket yard or otherwise associated with him. Betting on horses blessed with a sudden improvement in form was as much a Curley trademark as the beige fedora on his bald pate.

Bookies denounced a “weapons-grade coup”. One, Paddy Power, said it had lost nearly £1m; pundits speculated about losses of £15m for the industry overall, though the true figure was probably nearer £2m (bookmakers exaggerate such hits to play up punters’ chances). Yet as in previous Curley plots—and there have been four decades’ worth of them—none found a reason not to pay up. Part of the ingenuity of the schemes, part of the chutzpah, is the way they mix subterfuge with respect for the letter of the law. This was a heist, but a perfectly legal one.

Play it again, Sam
When it comes to landing wagers on unlikely horses, Mr Curley has form (“Schemes, coups, call them what you like,” he says, amused by the mystique that surrounds him). The template is simple. A horse with proven ability is purchased, often from overseas. It disappears for months or years, perhaps recovering from injury. When it finally competes, its performance is appalling. Because, in most low-quality races, faster horses are given additional weight to “handicap” them, losing badly can help a horse in future events by lowering its rating. On its next outing, the bookmakers (having never heard of the obscure horse) lure punters with prices of 20-to-1 or higher. Lo and behold, the nag rediscovers its form, beats a field of weighted-down stragglers and enriches its backers—ie, Mr Curley....MORE

"Big Rebound for Energy"

Brent up 4.1% at $62.46XLE $77.43 Up 3.42 (4.62%).
Thinking we'll see it here or lower a few more times, we're not buying it.
From Crossing Wall Street:
It’s too early to call this a trend, but energy is bouncing back today. The S&P 500 is currently up 21 points, or 1.08%. The Energy Sector ETF ($XLE) is up more than 4.5%.
big12172014

Oil Bear Markets Since 1983

A repost from Nov. 7, 2013.
Brent futures on the ICE dropped $1.78, or 1.7%, to $103.46 a barrel while WTI settled at $94.20 down 60 cents.
From Bespoke Investment Group:

With oil currently down nearly 15% since its high on September 6th, it's getting close to the 20% threshold for a new bear market.  (A bear market is a 20%+ decline that was preceded by a 20%+ rally.)  For those interested, below is a snapshot of all oil bear markets going back to 1983.

There have been 31 oil bear markets since 1983, with the last one occurring from February 24th, 2012 through April 28th, 2012.  The average oil bear market has lasted just 108 days, and the average bear market decline has been 33.73%.

To reach official bear market territory, oil needs to fall $6 from here down to $88.40. 

Sony Hackers Threaten Terror Attacks On People Seeing Movie "The Interview", Carmike Pulls Movie From Theaters

First up, The Verge, yesterday:

Sony hackers threaten terror attacks against people who see The Interview in theaters
 
The Sony hackers are threatening an attack on people who go out to see The Interview, writing in a message that they "recommend you to keep yourself distant" from movie theaters and other screening locations. The hackers previously promised to deliver a "Christmas gift," and while that originally sounded like another trove of leaked data, they are now implying that it may be an attack. "Warning[.] We will clearly show it to you at the very time and places 'The Interview' be shown, including the premiere, how bitter fate those who seek fun in terror should be doomed to," the note says. The hackers also reference 9/11 in making the threat.
The full note reads:
Warning
We will clearly show it to you at the very time and places "The Interview" be shown, including the premiere, how bitter fate those who seek fun in terror should be doomed to.
Soon all the world will see what an awful movie Sony Pictures Entertainment has made.
The world will be full of fear.
Remember the 11th of September 2001.
We recommend you to keep yourself distant from the places at that time.
(If your house is nearby, you’d better leave.)
Whatever comes in the coming days is called by the greed of Sony Pictures Entertainment.
All the world will denounce the SONY.
The threat was included alongside the release of another set of emails, this time said to be those of Sony Entertainment CEO Michael Lynton. Because the hackers post this information anonymously and are contacting reporters through reusable email addresses, it is possible that a separate party is behind this threat. However, that seems unlikely. The communications have been consistent, and it should be clear soon whether the leaked emails are genuine, confirming the authenticity of this note....MORE
And from the Hollywood Reporter today:

Sony Hack: Carmike Cinemas Drops 'The Interview'
Carmike Cinemas will not show the Sony comedy The Interview, a source tells The Hollywood Reporter. 
The decision followed new threats from hackers issued Tuesday. During discussions with theater owners during the course of the day, Sony Pictures told exhibitors who had booked The Interview that it planned to move forward with the movie's release, but that they were free to decide not to show the film, and that the studio would support them in whatever decision they made.

Carmike's headquarters are in Columbus, Ga. It operates 278 theaters and 2,917 screens in 41 states.

The situation throughout the day was very fluid: Neither the National Association of Theatre Owners nor the individual national theaters chains have yet publicly spoken about the situation. But according to some insiders, exhibitors are wary of becoming liable if they show the movie and any violence occurs.

The discussions have also involved requests from theater owners that Sony provide heavy security if they do go ahead and play the film. At the same time, some exhibitors felt that Sony was throwing the decision about whether or not to show the movie into their laps when the studio itself should be making that call. However, Sony insisted it is not abandoning plans to release the movie, although it remains to be seen how wide a theatrical release the film will now have. Sony representatives did not respond to requests for comment....
...MORE 

Goldman Sachs on Today's Federal Reserve Open Market Committee Meeting

From ZeroHedge:
Goldman's Sven Jari Stehn answers the 11 most critical questions regarding to day's "most-important-FOMC-meeting-ever."

Q: Will "considerable time" be dropped?
A: Yes, we believe the "considerable time" language will be dropped.

December has for some time looked like the most natural meeting for modifying the guidance given the leadership’s expectations for liftoff in mid-2015, the typical translation of “considerable time” into about six months, and the absence of a press conference in January. Speeches by Fed Vice Chairman Fischer and New York Fed President Dudley two weeks ago confirmed that we are getting closer to the date when "considerable time" will be removed. Since then we have seen a strong employment report and a bounce-back in University of Michigan long-tem inflation expectations, which reinforce the expectation that the guidance will be modified.

We do not, however, think that a change in guidance is a done deal. First, while a number of Fed officials have explicitly or implicitly voiced support for switching the forward guidance towards “patience,” others including San Francisco Fed President Williams are comfortable with “considerable time.” Second, the October minutes suggest that some participants were worried that the removal of considerable time might be seen as a shift in the stance of monetary policy and therefore tighten financial conditions. The continued decline in oil prices and market-implied inflation expectations, as well as the recent turmoil abroad, might well reinforce these existing concerns.

Q: How will "considerable time" be modified?
A: Recent Fed communication has focused on two themes: the word “patient” has shown up frequently and Fed officials have continued to stress that policy is data dependent.

One possibility to combine these themes would be to follow Boston Fed President Rosengren’s formulation and state that the "committee expects to be patient in beginning the normalization of the target range for the federal funds rate until it is clear that the economy is on the path to achieving both the 2 percent inflation target and maximum sustainable employment.”

The leading alternatives, in our view, would be either to keep "considerable time" or adopt "patient" without the data dependence. The former would increase the likelihood of the first hike occurring in September of next year. The latter would raise the parallel with 2004--when "considerable period" gave way to "patient" in January and the FOMC hiked in June--and thereby increase the chance of a rate hike in June or even earlier....MORE

Bookmakers Suspend Betting on Whether the Queen Will Announce Her Abdication in Her Christmas Day Broadcast

Was Charles trading on material non-public information?
From City AM:

Betting suspended on Queen abdicating during her Christmas broadcast after "unusual" bets placed at Coral
Bookmakers Coral has suspended betting on whether the Queen will announce her abdication in her Christmas Day broadcast after a couple of “unusual” bets were placed today. 
 
A spokesman told City A.M two different bets had been made within half an hour of each other – prompting the team to question whether there had been a leak from Buckingham Palace. 
 
Coral had been offering 10-1 odds on the Queen announcing her abdication during the Christmas Day speech, but given how obscure and specific the market was, the bookie had not received any bets on it “for months” he said.  
 
“It's a big coincidence to have two people within half an hour.”
 
He noted that there had been a similar pattern to betting around the Duchess of Cambridge – nee Kate Middleton's - first and second pregnancies. “Betting on the Royal Family is very popular, but they do have their leaks.”...MORE

Some Improvement In the California Drought

I won't go into detail (now) on this type of measurement versus the rolling average/moving average measurement approach except to say this is one of the simpler and more straightforward ways to present the information.

From the Climate Prediction Center via Mike Smith Enterprises:
California Drought Improvement 
Drought in California improving due to recent rains.

Here is the National Weather Service's map showing how much rain (in addition to normal) needed to break the drought in California and surrounding areas as of December 13 at 7am.
http://1.bp.blogspot.com/-QORl1vwUGII/VJColg3G9lI/AAAAAAAAsGc/uaapegDrGMI/s1600/Screen%2BShot%2B2014-12-16%2Bat%2B3.47.40%2BPM.png
For comparison, the December 6 map:
http://2.bp.blogspot.com/-upzU0S33Tzs/VJCoMiDKp1I/AAAAAAAAsGU/PlhXgPncv_k/s1600/Screen%2BShot%2B2014-12-16%2Bat%2B3.46.02%2BPM.png
And, here is what the situation looked like on November 29:
http://4.bp.blogspot.com/-dIfPZnf0xxk/VJCn-n3UmzI/AAAAAAAAsGM/qQYEn1fLKLw/s1600/Screen%2BShot%2B2014-12-16%2Bat%2B3.44.40%2BPM.png
...MORE

Although the two storms were not "droughtbreakers" there are signs that for the first time in three years the winter rains will approach average seasonal amounts.

Russia and the Ruble: Analysts Weigh In

From MoneyBeat 5:56 am ET Dec 17, 2014:
Ruble Gyrates as Panic Spreads 
Russia isn’t getting any better.
Analysts say capital controls are moving into sharper focus. The chief Europe economist at the Institute of International Finance says Russia’s central bank has ‘just hours or days’ to get its currency crisis under control. Global banks are curtailing the flow of cash to Russian entities. Apple’s halted sales in the country, saying the fluctuations in the ruble makes it too difficult to price products.

All the while the ruble continues its sharpest selloff since the 1998 financial crisis. It rose as markets opened, but remained volatile.

Here’s what investors and analysts are saying now:

Steven Barrow, strategist at Standard Bank: “What has become a lot scarier in the last few days is the possibility that economically unrelated countries could see similar freefalling markets as risk aversion soars.  There is also the possibility of liquidity shortages which could occur as funding access diminishes for borrowers or because the depth of some asset markets proves to be far shallower than investors expect.”

Luis Saenz, trader at BCS Group: “The central bank is unwilling to support the ruble through interventions or via introduction of administrative controls which basically means that the currency is poised to take the major hit from the oil plunge. With Brent trading $55-60 a barrel we see current fair value for the ruble at 60 against the dollar and a market target of 63 to 65.”

Anthony Peters, strategist at SwissInvest: “The situation in Russia might be critical but the lack of liquidity makes it nigh on impossible to relate the economic and political realities to where markets are supposedly valuing both the ruble and Russian assets. There are plenty of sellers and no buyers. That said, we did see some bold privateers stepping out and taking small punts in some ruble-denominated paper yesterday. If they get it right, they could well have doubled their money within three months. I’m not sure they have.” ...MORE

UBER+PIKETTY=2014: "The secret to the Uber economy is wealth inequality"

Of course it is.
It is similar in concept to an overshot turbine whose potential energy is greater the greater the distance between the water source (headwater) and the discharge (tailwater).
From Quartz:
Of the many attractions offered by my hometown, a west coast peninsula famed for its deep natural harbor, perhaps the most striking is that you never have to leave the house. With nothing more technologically advanced than a phone, you can arrange to have delivered to your doorstep, often in less than an hour, takeaway food, your weekly groceries, alcohol, cigarettes, drugs (over-the-counter, prescription, proscribed), books, newspapers, a dozen eggs, half a dozen eggs, a single egg. I once had a single bottle of Coke sent to my home at the same price I would have paid had I gone to shop myself.

The same goes for services. When I lived there, a man came around every morning to collect my clothes and bring them back crisply ironed the next day; he would have washed them, too, but I had a washing machine.
These luxuries are not new. I took advantage of them long before Uber became a verb, before the world saw the first iPhone in 2007, even before the first submarine fibre-optic cable landed on our shores in 1997. In my hometown of Mumbai, we have had many of these conveniences for at least as long as we have had landlines—and some even earlier than that.

It did not take technology to spur the on-demand economy. It took masses of poor people.

Silicon Valley catches on
In San Francisco, another peninsular city on another west coast on the other side of the world, a similar revolution of convenience is underway, spurred by the unstoppable rise of Uber, the on-demand taxi service, which went from offering services in 60 cities around the world at the end of last year to more than 200 today.

Uber’s success has sparked a revolution, covered in great detail this summer by Re/code, a tech blog, which ran a special series about “the new instant gratification economy.” As Re/code pointed out, after Uber showed how it’s done, nearly every pitch made by starry-eyed technologists “in Silicon Valley seemed to morph overnight into an ‘Uber for X’ startup.”

Various companies are described now as “Uber for massages,” “Uber for alcohol,” and “Uber for laundry and dry cleaning,” among many, many other things (“Uber for city permits”). So profound has been their cultural influence in 2014, one man wrote a poem about them for Quartz. (Nobody has yet written a poem dedicated to the other big cultural touchstone of 2014 for the business and economics crowd, French economist Thomas Piketty’s smash hit, Capital in the Twenty-First Century.)

The conventional narrative is this: enabled by smartphones, with their GPS chips and internet connections, enterprising young businesses are using technology to connect a vast market willing to pay for convenience with small businesses or people seeking flexible work.

This narrative ignores another vital ingredient, without which this new economy would fall apart: inequality....MORE
We also linked to the re/code piece in "The Business Of Instant Gratification Appears to Have Promise".  

overshot waterwheel design

"Oil plunge sparks US credit market fears"

Former Alphavillein* Tracy Alloway now writing for the paper.
From the Financial Times:
Investors in securitised packages of loans are scrambling to determine how much the complex products are exposed to plunging oil prices as turmoil in the US credit markets spreads.

The price of oil has sunk almost 50 per cent since June with West Texas Intermediate crude slipping below $60 a barrel last week and Brent falling below the same level on Tuesday.

While the crude price has had a pronounced effect on the prices of corporate bonds sold by junk-rated companies, and to a lesser degree the investment-grade bonds issued by firms with stronger balance sheets, there are signs that it is beginning to slip into more esoteric corners of the credit market.

Investors have been rushing to analyse their holdings of collateralised loan obligations. CLOs are a type of bond that bundles together cash flows from loans made to highly indebted companies and then slices them according to risk.

Commercial mortgage-backed securities, which pool loans secured by commercial properties such as offices and industrial facilities, are also under scrutiny. Some 25 CMBS deals worth $251m have loans on properties in the Bakken formation of North Dakota — where shale drillers have been scaling back — according to Morgan Stanley estimates....MUCH MORE
*For folks with better things to do than crack jokes with obscure Medieval refs the villein was a feudal  class ranking between a cotter and a thane who was basically a slave to a manor, or more usually, to the Lord of a manor, but free in other respects.

If you picture Alphaville as a village on a medieval manor, with Paul Murphy as laird and the writers as villeins-in-gross you come up with one of the strangest organizational charts you are likely to find and I'm not even going to get into what they do to poor Joseph Cotterill...

Tuesday, December 16, 2014

Stocks Close Near Lows After Volatile Session

Just off the lows, not good.
From Investors Business Daily:
Major averages ended near session lows after a volatile session Wednesday that started with sliding oil prices and news before the open from Russia.

The Nasdaq sank 1.2%, the S&P 500 fell 0.8% and the Dow Jones industrial average gave up 0.7%. Volume tracked higher across the board in the stock market today, according to preliminary data.

The indexes opened sharply lower, then turned positive before slumping even further into the close. Russia hiked its interest rate overnight to 17% from 10.5%, but the ruble still sold off after an initial gain.

Oil and gas stocks, which started the session among the biggest losers, led the upside as oil prices bounced back. West Texas intermediate crude opened at a multiyear low, but ended little changed near $56 a barrel.
Other groups scoring gains included alcoholic beverages, newspapers and coal stocks. Internet content, consumer electronics retailers and online travel stocks underperformed....MORE

In Which Izabella Also Comments On Russia and Foreign Liabilities

We beat her to it, I think. Our post "Russian ruble's fall: A classic 'currency collapse'" and Why It's Such a Big Deal" was timestamped at 11:56 am PST while hers is 20:07 GMT. 11 minutes ahead.
Great minds and all that.

From FT Alphaville:

Russian foreign liabilities in perspective
Once upon a time there was a magical land called Ru, where the roads were paved with oil and the houses were built from kitsch gold blocks. Because its capital glistened with a red petroleum hue, it soon became known as the wonderful Crimson City of Ru.

There, all the residents rejoiced night and day safe in the knowledge their needs would forever be catered to. Why? Because the Wonderful Wizard of Ru, known by some as “Ru the great and the terrible”, would forever see to it that his kingdom would be defended from its greatest enemy: the Wicked Witch of the West.

Ru was the most wondrous place in the world.

Nevertheless, because the Wizard was keen to get rid of the Wicked Witch of the West once and for all, he went about making outlandish promises to all those who might be able to help him.

It was at this point that a scarecrow, a tin man, a lion, and even a little girl from another land took up the challenge, believing the Wizard’s claim that the Witch’s death would be in the best interests of all.

And so it was they killed the Witch! And all her quantitative winged monkeys that had blighted the land of Ru for far too long....MORE
Unfortunately pour moi she more than makes up the puny time differential with beaucoup style points.

WeWork Worth $5Bil., Weally

Wascally wabbit
From Wired:
Believe It: Co-Working Space Startup WeWork Is Now Worth $5B
http://www.wired.com/wp-content/uploads/2014/12/wework-inline.jpg

WeWork, the New York City-based startup that rents office space to entrepreneurs across the country, has just raised a $355 million round of funding. The deal values the company at a whopping $5 billion, according to The Wall Street Journal.

It’s a steep price for what is essentially an office leasing company. But WeWork’s business model, which combines real estate with technology, plays into the “sharing economy” trend that has captivated investors in recent years, thanks to hit companies like Uber and Airbnb. Both companies infused established industries (car services and vacation rentals) with a high tech touch, and as a result, both companies have garnered valuations far beyond their established predecessors (taxi and limo services and hotels). And so it goes with WeWork.

In addition to its massive physical footprint, which includes spaces in eight cities, across three countries, with more on the way, WeWork also recently debuted its own social network, called WeWork Commons. It’s similar to LinkedIn, in that it’s a business networking site, but it focuses on people in the earliest stages of business, offering members additional perks like access to office space, discounted services, and local events. 

As Kakul Srivastava, WeWork’s chief product officer, told WIRED when WeWork Commons launched, the goal is to accommodate all the people who fill up the waiting lists for WeWork’s co-working spaces. “We literally cannot build our physical space fast enough,” she said. “We got the feeling that there is much larger demand than we could possibly serve doing business as usual.”

Now, however, WeWork has a lot more money to build a lot more office space too. “We happen to need buildings just like Uber happens to need cars, just like Airbnb happens to need apartments,” WeWork co-founder Adam Neumann told the Journal.

But WeWork’s approach is substantially riskier than Uber’s or Airbnb’s. Unlike either of those companies, which essentially act as marketplaces for independent drivers and home owners, WeWork leases all the physical space, itself, and for now, that’s working out well for the company. Thanks to a cushy investing environment for startups, many of the entrepreneurs who occupy WeWork’s spaces are capable of raising the money to afford these high end office spaces....MORE

Updated--"Russian ruble's fall: A classic 'currency collapse'" and Why It's Such a Big Deal

Update below.
Original post:
From our Dec. 7 post: Evans-Pritchard: "Dollar surge endangers global debt edifice, warns BIS":
Two quick points*:
1) This is the second BIS warning in under six months.
2) It is very dangerous to borrow in a currency other than the one in which you earn your income.

True at retail, true at wholesale....
And from Fortune:

The decline of the ruble is the result of Western policy. The question now is how will Putin respond?

The Russian economy was already in the running for having the worst year in 2014, sandwiched somewhere between Congressional Democrats and Sony Entertainment Pictures.

Then the price oil—the commodity upon which the Russian economy is built—began to fall sharply, draining the nation’s economy of foreign money and crimping its growth. This dynamic drove the ruble sharply lower, culminating in an 11% drop on Monday, which forced Russia’s central bank to raise interest rates by a whopping 650 basis points, all but assuring a deep and painful recession in 2015.

But with strict sanctions in place against Russian companies—in response to Russia’s annexation of Crimea and hostilities with Ukraine earlier this year—and the continuous fall in oil prices, the interest rate hike did not satisfy traders, who sent the the ruble tumbling another 8% following the announcement.

The fall of the ruble has been swift and devastating. Carl Weinberg, chief economist at High Frequency Economics, referred to the currency’s plummet as “an unrecoverable spiral” in a note to clients on Tuesday. He argues that what we are seeing now is a classic “currency collapse,” brought on by both economic factors like sanctions and falling oil prices as well as financial factors like the Russian central bank printing money to help state-owned oil company Rosneft cover its debt denominated in foreign currencies.
What makes the situation in Russia that much worse is that the nation’s companies, both private and state-owned, hold $670 billion in debt denominated in foreign currencies. This debt is about one-third the size of the entire Russian economy, and it will become impossible for Russian companies to service it if the ruble continues to fall. Writes Weinberg:
The amount of rubles local borrowers have to give up to pay off foreign debt obligations just increased by 20 percent overnight, by 50 percent since the start of this month, and by 90% since the start of November…. The effective interest rate on foreign borrowing for Russians is over 6000%, enough to kill any economy.
Normally, when countries find themselves in a situation like Russia’s, they turn to the IMF, which would provide funding and debt restructuring in exchange for the enactment of economic reforms. But as University of Oregon economist Tim Duy writes, it’s tough to see either the IMF swooping in to help an international pariah like Russia or Vladimir Putin submitting to any reforms imposed by the West....MORE
Definitely related:
Oh Crap: There's An Oil Angle In The BIS' Warning On Market Instability

UPDATE: "In Which Izabella Also Comments On Russia and Foreign Liabilities

Oaktree's Howard Marks On Lessons From the Oil Crash, Russian Crisis

From our December 5th post "Jim Grant is (still) bullish on Russia, gold and private equity":
He's gone from serious analyst to...I don't know what. Gold's going lower and Russia is Russia, where people with an actual understanding of the place travel in armored Mercedes limos and have a hidey-hole in London....
From ValueWalk:
Howard Marks, co-chairman of Oaktree (NYSE:OAK) Capital Management, told Bloomberg Television’s Stephanie Ruhle and Matt Miller today that loose rule of law is a major concern for investors who are considering buying assets in Russia. Marks said: “In order to make investments, you have to believe that you will benefit from the rule of law…The underlying question about Russia is whether you will. The question is, if you put your money in the bank will you get it back in the end?”

Marks also said that he is “working on a memo…about the lessons of oil. And one of the lessons that we’re learning again now is how fast things can change in the investment world…now all of a sudden a few months into this oil slide that has evaporated and in some corners we’re seeing panic. Weak deals that could get done because the markets were complacent and generous now are being exposed as having been overleveraged, et cetera. So of course when that happens we go from being extremely reticent to being aggressive.”
TRANSCRIPT
MATT MILLER, BLOOMBERG: I want to talk more about what’s going on overseas, the currency there, the interest rate aspect of it, which I find fascinating, the investment play. Let’s bring in Howard Marks right now. He’s our co-host for the hour. He’s the co-chairman of Oaktree Capital Management, which has $93 billion under management. He’s using the plunge in crude prices to buy up energy company debt, which would be the most interesting thing we could talk to him about today except for the fact that the central bank in Russia did this. Howard, what does it say to you that you can make 17 percent on your money right now?

Are you sending it all to Moscow?

HOWARD MARKS, CO-CHAIRMAN, OAKTREE CAPITAL: I think that in order to make investments you have to believe that you will benefit from the rule of law. And the underlying question about Russia is whether you will. You (inaudible) used the expression a minute ago, he’ll steal it.
The question is if you put your money in the bank to make 17 percent, which sounds like a lot of money, will you get it back at the end? We like to make investments where the range of outcomes is from here to here. In Russia the range of outcomes is probably from here to here.

STEPHANIE RUHLE, BLOOMBERG: Is that because you simply can’t trust the rule of law?
HOWARD MARKS: That’s one of the most important reasons. That’s right. And does — will Russia according — operate according to international norms?

MILLER: So you have to assume that Vladimir Putin knows this. Even if he’s unpredictable he’s an intelligent, educated, thinking man. Why would he —

HOWARD MARKS: And thus he would never invade another country and (inaudible).
MILLER: Well exactly.

RUHLE: Ding, ding, ding, ding.

MILLER: Well unless he thinks that he has the right to do it and that it’s somehow by birthright his country. He might also think that he has the right to take $20 billion from Yukos and Mikhail Khodorkovsky and throw him in jail for a decade. He might think that he can do these kind of things without repercussion. So is this going to change his mind?...
...MUCH MORE
 

"What are the Odds of a Commodities-Led Global Financial Crisis?"

Very low but not zero.
The keys to any crash are the amount of leverage used to support the asset and the ability to continue borrowing.
From naked capitalism:
Yves here. While the odds of commodities-triggered 2008 style meltdown is still not the most likely outcome, recall that that pessimists like yours truly assessed the likelihood of Seriously Bad Things Happening as of early 2008 at 20-30%, which I then saw as dangerously high. In other words, tail risks are bigger than they appear.

Some of the things that favor worse outcomes than one might otherwise anticipate is investor irrationality, or what one might politely call herd behavior. For instance, a major news story today was how investors are dumping emerging markets assets willy nilly, when many are not exposed to much if any blowback from lower commodity prices and quite a few are seen as net beneficiaries. The offset is that central banks have been conditioned to break glass and overreact when banks start looking wobbly. But the Fed may be slow to get the memo, since it sees recent data (the last jobs reports and retail sales data) as strong, and is also predisposed to see its medicine as working even though it is really working only for those at the top of the food chain.

Note that this report is from Monday in Australia, and look how much oil prices have dropped since then. WTI is now at $54.28 per Bloomberg.

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Originally posted at MacroBusiness
Regular readers will know that I’ve been keeping tabs on the Loneliest Man at Davos, the Oliver Wyman analyst that in early 2011 predicted a second round GFC triggered by a commodity crash:
John picked up the phone. It was the bank’s legal counsel, Peter Thompson, calling. He had dramatic news. Garland Brothers, one of the world’s oldest banks, would declare bankruptcy tomorrow. As he lay there in his spacious air-conditioned bedroom, unable to return to sleep, John tried to reconstruct the events of the last four years…
During phase 1 we distinguish between two sources of demand affecting commodities prices: demand for use in the production of other goods (“real” demand) and demand for the purpose of price speculation (“speculative” demand). There are three major groups of players in our scenario. Firstly, there are economies, such as Latin America, Africa, Russia, Canada and Australia, which are the largest commodities producers. Secondly, there is China, which is now the world’s largest commodity importer. Thirdly, there are the developed world economies, such as the US, which are pumping liquidity into the financial system through their loose monetary policies.
As with any bubble, our scenario contains a compelling narrative that allows investors to convince themselves that “this time is different”. In this case it is a story of strong economic growth coming from China creating a sustainable increase in demand for commodities.
However, it is already apparent that increasing commodities prices are also creating inflationary pressure in China, which is exacerbated by China holding its currency artificially low by effectively pegging it to the US dollar. This makes commodities look like an attractive hedge against inflation for Chinese investors. The loose monetary policy in developed markets is similarly making commodities look attractive for Western investors. This “commodities rush” is demonstrated in the right-hand chart below, which shows the asset allocations of European and Asian investors. A recent investor survey by Barclays also found that 76% of investors predicted an even bigger inflow into commodities in 2011.
commodsrush-300x228
Based on the currently inflated commodity prices, commodity producers in countries such as Brazil and Russia have clear business cases for investing in projects to dig more commodities out of the ground. As competition to launch such projects increases, the costs of completing them also starts to rise, with the owners of mining equipment and laborers capitalizing on the increased demand by charging higher rates. Because a portion of the demand for the projects is not coming from the real economy, an excess supply of mining capacity and commodities will be created.
As with previous asset bubbles, we expect much of the debt financing for these projects to come from banks. And much of this bank financing is likely to be supplied by Western banks that are eager to preserve their diminishing return-on-equity and need to find lending opportunities that are sufficiently lucrative to cover their own increasing cost of funds. The balance sheets of life insurers will play a supporting role here, as insurers look for long-term investments that can match their liabilities and seek to earn additional illiquidity premia....MORE

Not the Onion: "Putin Named Russia's 'Man Of The Year' For The 15th Time In A Row"

Business Insider:
Vladimir Putin has been named Russia's "Man Of The Year" for the 15th time in a row, Interfax news agency reports.

Vladimir PutinThe Russian president won by a landslide, claiming 68% of votes. The runner-up got only 4% of votes. The poll was conducted by the Public Opinion Foundation and included 1,500 respondents in 43 regions of Russia, according to Interfax.

The propaganda channel Russia Today said of the poll: "The public affirmation about Vladimir Putin's major role in the life of the country looks even more decisive considering researchers within the same poll asked who among scientists and artists was worthy of the mantle. Some 75 percent of Russians said they had no answer to this question."...MORE

And from FT Alphaville:

Goodbye, Rouble Tuesday – Update
At pixel time, 73 and counting…
Update: 20 minutes later and it bounces off 80…

"Falling oil price poses new threat to banks"

One of the reasons the big banks, despite showing a bit of promise in November, have not caught a bid. XLF is the S&P Financial Sector ETF:
The 50-day moving average and the late October gap should be taken out today with the next possible stopping point at the congestion from September at $23.25.
Be wary of a bounce before then as it could just be setting up a sloppy head-and shoulders. There is no reason to chase, $23.92 at the close yesterday.

From the Financial Times:

Outstanding loans to energy sector could cause large-scale losses
The world’s big banks would like to draw a line under their recent troubles. The losses from the financial crisis, the costs of regulatory change and the fines from mis-selling and market manipulation scandals appear largely in the past.

For once, another sector is suffering a series of blows. Within a matter of months, the falling oil price has wiped as much as 25 per cent off the market values of the oil majors. But might the bankers be smiling too soon? Could the oil market turmoil become the banks’ next nightmare?

Last month, there was a hint of what might be around the corner, when it emerged that Wells Fargo and Barclays had exposure to big potential losses on an oil loan — specifically, $850m of funding granted earlier in the year to back the merger of US oil groups Sabine and Forest. Attempts to syndicate the loan had failed amid a falling oil price. The banks, which led the fundraising, were left holding mark-to-market losses estimated at as much as 40 per cent.

Since then, the oil price collapse has only worsened. Last week, Brent crude hit a new five-year low of barely $60. That is nearly 50 per cent down on its summertime peak. The slight rally on Monday — triggered by the closure of two Libyan terminals — reversed by the end of the day.

The trend is great news for consumers. And the big losers are equally obvious — namely, the oil majors. Less clear, but potentially more noxious, is the impact on the banks that have supported the industry’s breakneck expansion over the past few years.

That Sabine-Forest financing was just one of many. Oil and gas financing has spiralled over the past couple of years, dominating the riskier end of the bond market. According to data compiled by Barclays, energy bonds now make up nearly 16 per cent of the $1.3tn junk bond market — more than three times their proportion 10 years ago. Nearly 45 per cent of this year’s non-investment grade syndicated loans have been in oil and gas....MORE

"New York Mag’s Boy Genius Investor Made It All Up"

Well duh.
Exclusive from the New York Observer:

In an exclusive Observer interview, Mohammed Islam, said to have investment returns of $72 million as a hs senior, admits he invented the whole story
Damir Tulemaganbetov and Mohammed Islam (r) in the office of 5WPR, a public relations firm hired in the wake of a New York magazine story about Islam’s supposed investment genius. (Ken Kurson/New York Observer)

It’s been a tough month for factchecking. After the Rolling Stone campus rape story unraveled, readers of all publications can be forgiven for questioning the process by which Americans get our news. And now it turns out that another blockbuster story is —to quote its subject in an exclusive Observer interview—”not true.”

Monday’s edition of New York magazine includes an irresistible story about a Stuyvesant High senior named Mohammed Islam who had made a fortune investing in the stock market. Reporter Jessica Pressler wrote regarding the precise number, “Though he is shy about the $72 million number, he confirmed his net worth is in the “’high eight figures.’” The New York Post followed up with a story of its own, with the fat figure playing a key role in the headline: “High school student scores $72M playing the stock market.”
And now it turns out, the real number is … zero.

In an exclusive interview with Mr. Islam and his friend Damir Tulemaganbetov, who also featured heavily in the New York story, the baby faced boys who dress in suits with tie clips came clean. Swept up in a tide of media adulation, they made the whole thing up.

Speaking at the offices of their newly hired crisis pr firm, 5WPR, and handled by a phalanx of four, including the lawyer Ed Mermelstein of RheemBell & Mermelstein, Mr. Islam told a story that will be familiar to just about any 12th grader—a fib turns into a lie turns into a rumor turns into a bunch of mainstream media stories and invitations to appear on CNBC.

Here’s how it happened.

Observer: What was your first contact with the New York magazine reporter?
Mohammed Islam: My friend’s father worked at New York magazine and he had the reporter contact me. Then she [Jessica Pressler] called me.

You seem to be quoted saying “eight figures.” That’s not true, is it?
No, it is not true.

Is there ANY figure? Have you invested and made returns at all?
No.

So it’s total fiction?
Yes.

Are you interested in investing? How did you get this reputation?
I run an investment club at Stuy High which does only simulated trades....MORE

Dilbert's New Financial Advisor

From Dilbert.com:

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

...MORE

Monday, December 15, 2014

Gold: Huh. It Looks Like $1240 WAS the Top For This Go-round

It's not supposed to work like this. In mid-October, as the equities were a few hours from their v-bottom I mentioned a price on the chart:
"Fed's Plosser Says Monetary Policy Cannot Do Much About Economic Threat from Ebola"
-ZeroHedge

Trend Analysis:
A close below DJIA 15,000 would indicate the need to implement a guns & ammo hedge with either the prepper food or MRE overlay and, if your counterparty offers it, a bunker option might be wise to cover some black swan risk. Buy gold.
(just kidding, a gold short at $1240 sounds lovely)
Not because of any great insight. No hours spent comparing gold's recent chart action to that of July 2013 or some other date it was in that area. No intermarket analysis of gold and Indian guar futures.

No, it was simply because $1240 looked  like a place where "congestion" could develop on the chart.

That kind of thing is nervous-making because it was probably a vestigial pattern-recognition which is great, humans are really good at pattern recognition but which is dangerous because we are so good that if a pattern isn't readily apparent the brain will just make something up to tell ourselves a story.

Today's lesson: What's on your mind?

$1197.50 last, down a bunch. We'll have to see more downside to decisively clear all the buyers who came in at $1180-1195 on the way up but the series of lower highs is comforting to those with an ursine outlook.

The daily chart via FinViz:
Does the bit at the end look like a buzzard to you?

See also:
Dec. 1
"P.M. Kitco Roundup: Gold Soars to 5-Week High on Major Rebound; Bulls Regain Technical Momentum"
Crapski.
Kitco spot up $46.30 at $1214.80. We are bearish but this move could run to $1240-45 before it resumes the downtrend....
Dec. 9
Gold Flirts With $1240, Now What?
Today's top tick for the most active (Feb.) contract was $1239.00.
$1231.90 up $37 last....

Economics: "Uber's Sydney fiasco: the problem with surge pricing is everyone hates it"

Following up on this morning's "Uber Introduces Siege Pricing: Quadruples Rates During Australian Terror Evacuation".

If you should you still use the Uber, may I suggest a companion application?:
I've Got Your Disruptive App: How To Get Around Uber's Surge Pricing
And with a slightly less combative tone, Yglesias at Vox:
Taxi cabs often become scarce during bad weather or other scenarios that lead to a surge in demand. Uber has developed an economist-friendly solution to the problem — raise prices when demand spikes. But it's a solution that keeps getting the company into trouble, most recently when Uber Sydney tweeted that surge pricing would be in effect in the wake of the hostage crisis that unfolded over the past twelve hours.
The backlash was fast and furious and the company immediately backed down.

People hate variable pricing
The basic economic logic of raising prices when demand surges is hard to argue with. If you got a job offer at 2:00 PM, and then immediately got a second job offer at 2:05 PM you would negotiate with both potential employers (and your current boss) for the best overall job — not feel compelled to take the offer that happens to have come in first.

Cold hearted rationalists like me have often wondered why this logic is not more broadly applied in business life.

Why do concerts and sports events regularly sell out leaving thousands of fans out in the cold, rather than featuring prices high enough to roughly balance supply and demand? Why don't popular restaurants charge more for a 7:30 PM reservation on a Saturday night than for a 9:00 PM reservation on a Wednesday? Why does the hardware store run out of salt during snowstorms rather than hiking prices?

The endless cycle of backlashes provoked by Uber's efforts to apply variable pricing to a consumer good help us understand these puzzling economic questions — people really hate it and it hurts your brand. People would rather see inefficient allocations of scarce goods, lower overall supply, less total employment and job creation, and perennial shortages than let prices float up and down according to demand....
...MORE

Definitely related:
Big Storm For San Francisco Means Uber Jacks Prices to Highest Ever

The Dark Side Of Oil's Price Decline: Trouble in Producer Land

Although Mr. Davies notes the fragility of Russia there are some other locales that could get very interesting.

Venezuela will be defaulting in 2015. The odds are around 50/50 that Nigeria will descend into a civil war.
That is if you don't consider kidnapping schoolgirls and making them sex slaves is already civil war.

And if these prices last much more than than a couple years the rulers of Saudi Arabia will probably be moving to Switzerland as there are some very hard core religious types who would be taking control of the country and its oil.

From Gavyn Davies at the Financial Times:
The dark side of the oil shock
The financial markets saw only bad news in the oil shock last week. Despite extremely strong US consumer data, there is a reluctance to recognise the shock for what it is – a long-lasting structural change, with mostly beneficial consequences for aggregate demand in the developed economies.

As John Authers explains, weak Chinese data are causing concern, but there is little evidence that China has been the main cause of falling oil prices. Global oil demand has been fairly stable as supply has surged, and it is surely revealing that the latest oil price drop followed the Saudi decision to maintain oil output after the November OPEC meeting.

Like investors, economists have been thrown into confusion. Almost no-one in the profession (including myself) predicted the oil price collapse in advance. After the shock, it took months for oil price forecasts to be brought into line with the new reality. Futures prices in the oil market have performed no better: predicting oil prices can be a mug’s game.

More surprisingly, there has also been a disinclination to accept the potential benefits in the oil shock. Some economists have said it largely reflects an adverse demand shock in the global economy, so it is axiomatically bad news. Others have said that, even if it is a supply shock in the oil market, which would normally be beneficial, this time will be different, because it will be deflationary, and will therefore raise real interest rates.

There are some honourable exceptions, like Martin Wolf and David Wessel who have viewed it mainly as a supply shock with net beneficial consequences. But the pessimists have thrown up a lot of noise, reminding me of Professor Deirdre McCloskey’s maxim:
Pessimism sells. For reasons I have never understood, people like to hear that the world is going to hell, and become huffy and scornful when some idiotic optimist intrudes on their pleasure.
If the pessimists have a case, it is in oil producers in the emerging world, especially Russia. But, among oil importers in the developed world, it is hard to see too much of a dark side.


Let’s start with what Basil Fawlty would call “the bleeding obvious”. A fall in oil prices redistributes income away from oil producers, of whom there are relatively few, towards oil consumers, of whom there are very many. To a first approximation, the long run effect of this income transfer on the global economy should be small, but beneficial. The beneficial part comes from permanently lower production costs, which allow central banks to target lower unemployment rates while still hitting their inflation targets. This is a long run supply-side gain that is the direct opposite of the stagflation that occurred in the 1970s....MORE
 HT: FT Alphaville "The oddly subdued optimism about falling oil prices"