Friday, June 13, 2014

US Q1 GDP bad news for Obama -- maybe good news for the GOP?

Numbers as published are always subject to revision.  The initial Q1 U.S. GDP number has been revised as more information was made available.  Today, the US government revealed that Q1/2014 GDP growth was revised downward from -0.7% to -2.0%.  Apparently healthcare costs that were assumed to grow by 9.9%, and account for about 15% of overall GDP actually fell by 6% instead.  This is a truly terrible number, one of the worse (top 10) since the end of WW2.  If that provides some perspective!

It's going to make the 3.5% target set by Wall Street difficult to achieve!  

In other news the boys on Wall Street are suffering, low volatility and a scarcity of new deals in the 2nd half of the year means that banks are thinking of trimming traders numbers and even IB guys are looking around in fear (let's not exaggerate) nevertheless it is we'll know that the bonus pools are shrinking, and that the banks are mindful of their overheads!

The usual exit strategy into private equity and hedge funds is also closing.  It appears that sell side guys are not so hot when working for the buy side.  Moreover PE funds and HF have had a terrible time over the past few years -- a strong market makes acquisitions difficult and excessive liquidity (in the form of HFT players have hurt HFs earnings -- HF will not admit that what has really hurt is the lower leverage they can now get, the cost of shorting stocks has gone up!

2014 will be hard for bankers and traders, please start a compassionate fund for these poor millionaires!  They can no longer afford the rolls they will have to downgrade to a merk or a Beamer 
Tough times all around for the 1%


Wednesday, June 11, 2014

Christine Lagarde -- 2,000 Greek names with Swiss bank accounts

So Ms Lagarde was in Montreal yesterday for the "Montreal Conference" a watered down version of Davos that aspires to do... something.  Anyway, the lunch speaker was Christine Lagarde the current head of the IMF (Washington based) and all around cheerleader for capitalism!

The highlights was that the global economy is back on its feet, yep we're looking at 3.5% growth in America and "something positive in Europe"  China should be around 7% -- less than before but still respectable, shifting towards consumption...

Ok so there are a few things wrong here, Q1/2014 GDP growth in America was -0.7%, so to make the 3.5% target Q2/3 and 4 are going to have to be gangbusters.  Still, Europe is going to get something positive because the ECB is so brave -- they have entered into the land of negative interest rates.  If you accept a deposit from the ECB, you pay them interest.  There's no way that this can go wrong, and deflation is not just around the corner.  As for China there is no doubt that the leadership wants to shift from investment to consumption, they are just not too sure how to go about it.  Moreover, local governments' entire tax base is driven by capital expenditure -- they get property taxes up front.

So granted the US economy is seeing some interesting credit growth -- usually a signal that the economy is pumping, but and this is a big BUT! median income continues to fall... BTW interesting stat.  In 2013 average income in the US was $300,000 p.a. (placing America in third place), but it turns out that Median income is around $40,000 (placing America in 19th place).  The obvious reason for the massive difference is income inequality, which is a big today as it was in the 1930s.

Which brings me back to Lagarde, when she was minister of finance in France she gave to the Greek government a list of 2,000 names of Greeks who had Swiss bank accounts -- a part of a larger list that was sold to the German and French government by a Swiss national.  A local newspaper published the 2,000 names -- Government's reaction -- arrested the journalist for sedition (that was in 2009) continue to harass him to this day.  Number of Greeks that were questioned in connection with this list ZERO. Yep, and this is my favourite part Ms Lagarde said that governments have to continue to reform the banks (i.e. give banks time to sell their junk to the ECB, and to recapitalize).  One neat trick has been to reduce all forms of lending to a minimum -- so that their balance sheet shrink and meet their capital requirements.  Obviously the impact of that is to stop all possible growth.  And so next for the Euro-zone has to be deflation.

Granted Ms Lagarde has few options, and cannot speak the truth.  What would happen if she said that Europe is in for massive deflation and that the growth of the US economy is in  its past?  Not good for the capitalist system (or the stock markets).  No extend and pretend that the problems will go away.  In a sense its kind of working, as of last week Spain (85% debt/gdp) debt cost was below that of the US, in fact as of Monday Spain's borrowing cost are lower (in absolute terms) than they were in 1790.  Right now government borrowing in Spain is the cheapest it has been in more than 300 years.

Clearly the markets believe that Spain's economy has never been so healthy....

Monday, June 9, 2014

AAPL down 85% pre-opening

Sometimes I love the ticker!

Shares of AAPL in the pre-market are trading around $92 a share... sure the stock has lost 85% of its value overnight, there was big news today -- AAPL stock split 7:1.  So really nothing to see here.  All the automated news will show that AAPL is the biggest looser today -- some will correct the news to reflect the split.  Others will not.

My bet is that a few investors will call their broker in panic!  The stock is down, the stock is down sell it all!

It reminds me, a million years ago, my then firm had created a structured product for Nortel shares.  It was a strange instrument created in the early 00s (before Nortel went bust).  So in 2005 I get a call from this angry investor, because her structured note was not going up, and all her friends at bought Nortel at $8 and it "was going to $18" -- according to her friends.

I had to point out that she had bough the instrument when Nortel was at $85, we had offered to buy it off her at $100 and at $110 -- she had refused... "it was going up" for ever!  Now here instrument was worth the equivalent of $85, she had not lost a penny (granted she had not made much) but she didn't understand that her capital had been protected (she also got a nice coupon -- hence the note).  This investor could not understand what I told her, she didn't remember (we had recordings) she turning down our two offers -- calls and letters.  She was still pissed that she didn't get the "upside" from $8 to $18 -- actually Nortel went bust and was de-listed a year later.  There's just no pleasing certain investors.

Greece, The far right and the GOP!

Watching Greece over the past few months has been an education, and education in the rise of fascism! Turns out that the Greek population in general is not enamoured with its politicians and their current method of "saving the country"  The new favourite pastime for the middle class (well educated at that) is to support Golden Dawn a avowed  fascist  party that is "blaming the Jews" for all that has befallen the country.

Granted financiers have a lot to answer for, but they're not the ones who spent like drunken sailors -- yes bankers were enablers, but... at any rate in local election Golden Dawn which is just short of being thugs (actually not that short) and who have committed some rather appalling actions (and enjoy a bit of Nazi salut) got almost 10% of the vote.

It's really not that surprising; considering the state of the economy, the unemployment and destruction of the middle class that a far right party would take hold of the popular imagination.  They are not the first to blame the "foreigners" for their problems -- it was after all the reality faced by Germans after WW1 and the treaty of Versailles that made sure that Germany could never recover.  The hardship imposed -- the cost of reparation all made a radical Austrian's view sound reasonable and action necessary to remove the leadership of the country in favour of Nazism.  BTW its not because I understand the outcome that I support the outcome, but its somewhat predictable.

The far right (FOX news ha ha) has long been able to tap into the fears of ordinary people, especially when their values are no longer recognized (whether they were real or not to start with) by their government; abortion, gay rights,  gay marriage, immigration etc...  so the attractiveness of certain candidates that speak to your values your desire for some kind of "white picket fence", and small town sensibility -- or really some anti-Rambo phenomena!  Where the people that are different are kept away (or at least hidden).  The anti-immigration rant of the Tea Party is a case and point, its not so much that America doesn't like brown people is just they White America doesn't want to see them, clean my house mow my lawn, but you don't get to go to my kids school! America has found in local government a re-segregation tool that it has welded with impunity!  Schools in America (public schools) have not been as segregated since the 1950s -- all that by re-drawing school districts, keeping poor neighbourhood away from the all white schools.

The use of certain language in America's far right, the use of code word, something that the neo-Nazi groups have made into an art form, is now finding itself in the mainstream of the political process. Often the talk of "community" or "shared values" is used to exclude non-white from the discussions.  The current voter's disinfringement process via photo ID has been driven by the fear of "voter fraud", which simply doesn't exist in America. America's real problem is that people simply don't vote.  Amusingly some GOP politicians have admitted (on TV) that the real goal of voter ID is really a "keep the democrats away from the ballot box.

The GOP's problem is serious, an aging voter base, a pandering to fear and loathing has made the party generally unattractive to young voters and ethnic voters -- with rare exceptions if you are brown, black of Asian the GOP holds little real interest for you (despite the fact that the GOP's anti-abortion stand would usually play very well with the very catholic spanish speaking population), The GOP is facing a demographic problem -- its supporters are dying of old age!  If the GOP was a normal party it would be able to re-invent itself, but there are powerful forces that stop this move to the left:

  1. The hard right controls the GOP at the local level, these activists (supporter of the Tea Party) are able to push the current officer holder towards their views by threatening to support a more radical person.  In America politics is 100% local
  2. Talk radio's core reactionary values -- and dollars/cents livelihood depends on a sense of moral outrage.  Nothing has to be true, it can be a pack of lies, for the listeners it doesn't matter they will have forgotten the topic within 2 days.  Talk radio finds its "voice" in a reactionary (slightly racist -- like your grandmother) view of the world and it pays the bills too!
  3. The GOP doesn't have an Obama or Clinton that inspire (not saying these guys are/were perfect) but like Tony Blair in the UK they could shift their party -- GOP doesn't have those voices
  4. The GOP's new "anti-science" view of the world is a brand new expression of 'know nothing"  a desire for the world to be the way you want it to be, without any regards to how the world really works.  "I'm not a scientist" is the new (5/6 months) mantra of the GOP.  That way they can say stupid things "because they are not scientists" -- who they generally despise anyway
  5. On a more general note, lobbies have taken the complete control of America's political process.  The ability of lobbies (starting with the NRA) to scuttle elections makes them immensely powerful.  Forcing elected official in specific directions
The GOP's inability to find an alternative (anything at all) to the ACA "Obamacare" speaks volume to the GOP's breakdown.  Despite having the desire to strike down the ACA -- they tried over 50 times, when asked what would the GOP offer instead -- there's simply nothing available.  No ideas, no thoughts, no plan just nothing at all.  The GOP has ceased to be a national party -- any big ideas any shift in policy (aside from "supporting our troops" -- as long as it doesn't include the Veteran's administration) is simply absent.  There is no policy, there are no idea -- except to make government small enough so that it can be drowned in a bathtub!

Aside from being a "funny-ish" line about the role of government -- the reality is that governments have to play a roll in the economy.  It is often very efficient -- other times less so!

Friday, June 6, 2014

Guns in America

Yesterday's tragedy in Moncton (where 3 police officers will gunned down) just brings closer the whole firearm mess that is a constant headline grabber.  In the US the number of "daily" incidents is so large to make it almost farcical.  The number of American who manage to shoot themselves (or their family or friends) is simply depressing.

Interestingly enough gun ownership is in free fall in America.  Despite all the rhetoric and the crazies in Texas with their "Open Carry" demonstration gun ownership has dropped from around 40% in 1980 to around 25% today.  granted those who own guns tend to own many many guns!

Look at these two morons!  I mean you've got shorty on the right who's clearly got some "size" issue -- will anyone ever tell that guy that his assault weapon is some form of penis replacement therapy (well maybe not to his face), and as for the fat bastard on the left, you know he's wanted to be a soldier all his life but all the running was way too much for him, so he got a cute littl' hat and an AR-15 and he thinks he's the coolest and that all the girls want him.

Think about it, you walk into a Tim Horton, scratch that you walk into a Dunkin Donnut and these two cretins are right behind you what is your first reaction -- I know that I get the hell out of there.  Maybe that's the solution, to every none-nut Texan, as soon as one of these bozos' walk in, you get your check and you get the hell out of there.  let them enjoy themselves in an empty store.  I wonder can service staff refuse to serve these cretins, you know they may take the view that they may shoot you -- under stand you ground rules.  Then you call the cops you say there are two guys in the stores with guns and you think they are there to rob the joint... let the cops deal with that shit!

Anyway, all this gun nuttiness started when the NRA decided that the 2nd amendment was all about personal safety and not about a well armed militia
A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.
Now, over the years (the Supreme court) the meaning of type of arms and what use it could be made was changed.  After all it could be presume that if you have guns you should be part of a Militia -- but again that was changed.  it was so changed that the NRA changed its slogan to remove the idea of militia entirely, guns were to be own to protect oneself.  The advent of stand your ground laws (where apparently in America you can shoot a black guy if you feel threatened)

Americans don't seem to understand the following concept:

  1. You don't have to keep a bullet in the chamber
  2. You can lock the safety on your gun
  3. Its not a good idea to play with your gun while you drive
  4. Its not a good idea to stick your gun in your trousers (with a bullet in the chamber and the safety off)
  5. Guns and booze don't mix too well (EVER)
  6. Its not a good idea to leave you gun on your bed so that the kids can play with it
  7. Its not a great idea to scare off your friends with a revolver to win an argument
  8. You don't have to walk into a Target store with an AR-15 (with spare amos)
The only thing I don't really understand is the decision by several state senates to allow guns everywhere except in the capitol -- cause really guns in a debate situation between Tea Party nuts, GOP crazies and Democrats pot smoking morons is really a great idea.  Legislators are for guns everywhere except where "they" work...hypocrites!

Now up here in Canada we don't have "open carry", as a rule a greater percentage of Canadians own firearms, granted the vast majority are shotgun -- used in hunting, we don't have much of a gun lobby, although we do have a Conservative Party -- that among other things doesn't believe that firearms should be registered.  Not sure that would have changed anything to the tragedy that enfolded yesterday in Moncton.  Sometime people are crazy and will do crazy things that have horrible, horrible consequences.  

But at least we take some consolation that no Canadian politicians would ever say -- sorry about your loss, but if that's the price for me to keep my guns -- I'm alright with that!   

Monday, June 2, 2014

Polls, Politics and the Future

This morning the local French newspaper (called La Presse) released a new poll for 18-24 year old party affiliation/interest.  The result is both stunning and obvious; from the 500 young people who were asked, 34% would vote for the Liberal party, 23% each for the CAQ and QS and 16% for the PQ. What was obvious at my time in high school and college that the "cool and Hip" crowd supported the Parti Quebecois -- the party pushing for the independence of Quebec (maybe) is no longer true.  The Party Quebecois is GrandPa's party -- its no longer cool, and the people who run it are the same who were running it in the late 70s and early 80s!

The reality is that young Quebecers don't really see their future here -- 60% say that would like to work and live elsewhere!  Canada, the US doesn't matter -- they are considering a future (or at least dreaming of) that doesn't include Quebec and its "aspiration" to become a country.

For the PQ that is about to sit down for its first real discussion as to its future in about two weeks the poll has to be depressing -- first that the youth is no longer part of their support group, that 60% of young Quebecers consider the possibility of living elsewhere and that their major concern is the heath of the Quebec economy.

For the Liberals, if they play their cards right it could mean another decade in power.  With three opposition parties splitting the vote, the Liberals have a 5 year mandate to govern -- that could be easily be extended.  The CAQ could read some very positive outcome here, if they play their cards right they could see themselves as the true opposition to the Government -- for the next 18 month the PQ will be in full navel gazing mode -- with the race to replace the currently vacant leadership position.  As for Quebec Solidaire although they will be heart warmed that so many young people support their party, they are smart enough that an 18 year old who supports socialism (and a radical form at that) may not remain so when he/she enters the labor force and pays taxes...

What I think we are seeing is a new permanent shift in the role of Quebec in the Canadian federation.  It will take a while but I suspect that if Quebec is seen as a more engaged player in the federation then the resentment (that had been bubbling just below the surface for years now) will dissipate.  Already the rest of Canada has figured out that Quebec's stated dream of independence was the brainchild of too many journalists desire to sell copy!  The reality of the last election, the massive defeat of the PQ government after only 18 months in "power" is more telling than all the editorials that have been written.  The ballot box has spoken!

Now the next generation of voters are telling the pollsters that their future is not bound to the province!

On a side note, and rather depressingly the poll also showed the lack of knowledge about history -- and Quebec history at that.  Don't really understand how that happened, but it seems that young Quebecers know little about the history of the country in which they live -- it may have something to do with our education system I just don't know.