Tuesday, September 29, 2015

Eximbank: The fall out has begun

Well that was unexpected (NOT), GE today announced that its new $300 million engine plant, where all the new engines will be built (next generation) will be located in Canada!  People still cannot believe that US Export Import Bank has closed its doors, but GE has decided that it can no longer wait for the US government to figure out reality.

For Canada this is massive, because engines production line have a very very long life cycle; first the engines are developed for a new type, these are built for a number of years (eg the 777 was built for 15 years) but then new engines are required for the fleet going forward for another 25 years.  Moreover, once "one plant" has been moved, others will follow -- mainly because the specialised skills are there.  On the long run this is all good for Canada.  Granted we are only talking 350 jobs, but in reality there are a lot more jobs involved; GE does the final assembly, but a great deal of sub assembly is done by risk participants, these will want their core operations to be near the final assembly partner (very often but not always), bottom line we could be looking a several thousand jobs here; some will be Americans moving to Canada, but many will be Canadians.

I guess that in a market of 350 million americans, 300 jobs is nothing, but GE is the sharp end of the stick others will follow; Canada's labor is relatively cheap (especially with a cheaper Canadian dollar) health care costs are not a company's problem and the political landscape is subdued.

Now that GE has started how many more high tech companies will follow (either Canada or Mexico) in their footsteps?  These are very high paying jobs, because the degree of skills required here is substantial.

Anyway, I didn't think I would be proven so fast, turns out capitalism can turn on a dime

Were any markets not rigged?

Its beginning to sound insane, but this weeks's UBS "gold" scandal is just adding insult to injury. Turns out that for giving up its co-conspirators UBS will be given a "lighter sentence" on its manipulation of the gold market.

Now first off, I don't know what gold market they are talking about -- is it physical gold how did they cheat, I just don't know -- and don't want to give any excuse to the goldbugs to say"  See we were right".  

The list of markets that were rigged by the big banks -- we are not talking 2007 here, but 2015 is getting long (rather the number of market that were not rigged -- against customers is getting short):  So far the LIBOR market was rigged (interest rates), the Foreign exchange market was rigged, the treasury market was rigged [the VW diesel market was rigged...oops wrong industry -- they will go to jail for ever], and now the gold market (and I would venture the entire precious metal market) has been rigged.  My guess is that its the option market that was taken for a ride, its too hard (and frankly too small and volatile) to do this in the physical market.

Turns out big banks were making the money the old fashion way after all... they stole it!

Cannot think of a better reason to break up the big banks into smaller entities.  But of course everyone know that no such thing will happen; instead some lowly trader will be prosecuted (the guy who's bonus is less than $50,000 and all the senior guys walking away into early retirement will walk away with multi million exit bonus).  What a crock!

Monday, September 21, 2015

Maybe not Bush, but Walker is a gonner!

So I think we are back to 2012 at the time of the last Presidential primary when a "cycle" of bozo and unprepared circulated as the "candidate of choice" as the GOP crowd favorite "Republican candidate to the presidency".  It seems that Mrs Fiorina has jumped from around 3% to 15%, ahead of "I am falling asleep" Carson who is just ahead of Rubio.

Now Mr Trump seems to have sunk from 32% support last week to 24% this week -- could this be the sign that the GOP establishment has been hoping for; the end of the Trump nightmare?  At the last CNN 3 hours marathon debate she was poling around 3% -- so she's now #2 in the race at 15%.   Mr. Bush the favorite of the neo-con wing (also favorite of the Roosevelt Republicans) is nowhere to be seen (sitting around 9%) in 5th place.  He's apparently sitting on more than $100 million -- so he will not rush for the exit, but its got to be somewhat dispiriting to be with the also ran.

It also brings hope that if Carson is replaced with Fiorina than the 30 days cycle is now in replay mode from 4 years ago.  It gives some hope to the guys sitting at the bottom of the ladder that one day it will be their day.  The preeminence of Carson, Trump and Fiorina is a strange outcome, and it is more telling of the GOP troubles than anything about the outcome of this race.  All three have zero executive experience in government.  The first guy who's ever run public office is Rubio who polls at 9%; many suspect that he may pick up steam -- especially away from Bush as the two guys from Florida battle it out.

The cycle of candidates at the top of the heap (with Trump lording over everyone around) There are good odds now that Fiorina will do well for a while and then her weakness (to GOP voters -- e.g. she's a women) will outshine her "new car" smell that she has now. It speaks loudly to GOP's own troubles than about the candidates and much more about the GOP political climat that seems to be toxic to anyone who has ever held elected office (Rubio being the one exception)

The biggest loser is Scott Walker who went from 20%, to 15%, 12% 8% 5% and now 1% support. His collapse has been rather stark and has to do with being out-crazied by both Trump and Carson and then going Full Retard with negative results -- I mean even the most rabid minutemen don't take the treat of Canada seriously.  Trying to out-crazy he lost, and his lack of understanding of major issue (plus pissing on his base back home) just made matters worse.  I believe that after Perry, Mr Walker will be the next to exit stage right!

Could not happen to a more deserving guy!  He's be unspeakable for months now he can get back to Wisconsin cheese steak sandwich  (really not a delicacy)

Wednesday, September 9, 2015

The primaries is all bullshit?

When I heard Sara Palin refer to Native Americans as people who should go back to Nativia I suddenly realised that the objective was not to say anything smart, in fact saying something stupid made sure that you were in the news.  It seems that the new game plan for Republicans is to say stuff that is so dumb that it will bring notoriety to the person saying it, and coverage.  Scott Walker's Canadian Wall was a case of very stupid idea -- this is a country that cannot find money to maintain its bridges and overpasses and would spent 10 of billion building a wall.  It got Walker press for 24 hours -- granted unlike Teflon Trump (TT for short) it didn't work out as intended.  There use to be a saying good or bad press it doesn't matter as long as they talk about you!  It seems that the 1617 37 36 candidates to the GOP presidential primaries are now taking this strategy to heart.  Don't know if it will work -- it worked for TT and for Carson because they were the only ones really going "full retard" but if all of them try that strategy it may backfire; so many candidates saying stupid things will get lost in the overall noise.  However, what its doing to the Republican Party is something else entirely.  The nativiste racist and bigoted statement made by the various candidates will impact the party's brand for a long time:  

(1)  Walking back the stupid is going to be hard in the age of internet:  Eventually, one of these guys is going to be the GOP's candidate to the White House, and what's been said -- some of it simply terrible, is going to be hard to walk back.  Granted the electorate has short memory span, but this is not the 1990's we've got YouTube now -- so any pronouncement can be replayed as if they took place yesterday, and who's to say differently.  Jon Stuart was a brilliant user of the format.

(2) Citizen United is killing the GOP:  The stupid season will last a long long time.  Even candidates that are polling less then 1% support are staying in the race, because these candidates are funded by the "plutocrats"  who don't mind spending a bit of cash on their favorite candidate -- even if he doesn't resonate.  The likes of Perry, Santorum, Pataki, Gilmore and Graham have zero chance of going anywhere, and yet they stay in the race; and there's a long list of candidates who hardly resonate at all.

(3) PAC money is of poor quality:  The GOP is realising that PAC money is of little value; Karl Rove spent more than $100 million (Crossroad America) on a dozen races -- all for nothing, PAC spending had little impact on voting turnout.

(4) Donald Trump and Ben Carson are a real problem; the first is a loud mouth self promotor the second is simply nuts!  These two account for nearly 5053% of all primary voters! voting intention; and their crazy is keeping them on top of the more serious candidates.

(5) Summer polling is showing a distressing trend; All candidates (except the above)  are converging towards three groups:  5%, 3% 2% and lower.  The non traditional cash available to candidates from their favorite billionaires will make the race wide open, as there are few distinguishing features between the candidates (aside from the crazy remarks).  This will prolonge the race to the convention, with all these candidates and many proportional state races no one candidate will have enough votes to win the nomination prior to the convention.  A brokered convention could be interesting (and not in a good way as far as the GOP is concerned).

UPDATE:  Trump & Carson are now at 53% combined 33% and 20% respectively.  Perry is out -- first off its not his fault, secondly he didn't raise enough own money to pay his staff, and I forget the third reason...

Thursday, September 3, 2015

So what's really changed and why the panic

Its like the movie Airplane, when the overhead seat belt signs in the aircraft indicates:  Okay Panic. Being honest for a few minutes with ultra low interest rates, and weak(ish) world economy (US seems to be doing OK, but Europe and Japan are not) and a slowing China (maybe not slowing as much as growing less quickly), the world is not really floundering, its just not performing.

So what has really changed is volatility -- it could be a sign of something else, as it could be just a bout of volatility because there are changes afoot:

  • Oil prices are falling again -- accelerating the shift of ressources from producers (of oil) to consumers; a far more diffused group than the oil producers.
  • Fed Chairman has indicated that interest rate hike(s) are on the way, that makes bonds "one way bet for the past 20 years" done and gone.
  • China -- well the government seems to have lost control ; and has decided that the stock market was a proof of economic virility!  What they do next is anyone's guess.  But when you start arresting investors for doing their job, its a slippery slope
  • Europe (Greece) is showing the limits of democracy -- will the ECB intervene in all European election, when funds will be "held up" until the electorate makes the right decision?
  • Inflation is nowhere to be found (except in assets!); the working class has no pricing power -- and with no pricing power there's no possibility of inflation; median wages are still falling in America (they have been falling since the mid-80s).
  • The US primary process are showing a very ugly side to the American electorate -- who know there were so many racists and bigots there?  Apparently 63% of Trump supporters believe that Obama is a secret muslim born in Kenya (and that's true for 50% of the Republican party members)
When the 2008 credit bubble imploded what amazing everyone in the financial sector (include me) was the extent of the lies; we all assumed that portfolio sellers were "massaging" their portfolio a bit, what we didn't know was that most portfolios were total B.S. because everyone down the line was lying; the mortgage generator where lying, the aggregators were lying, the arrangers were lying. Think Sadam's WMDs where he convinced everyone in his country that he had WMDs.  The USSR in the late 80s, was lying to itself on its productivity, because if you didn't meet your target you got sent to jail! 

Bottom line there are real risks out there that present potential market down scenarios; and investors are freeking out, because after 6 1/2 years of market growth everyone is expecting a correction.  You don't have to be a genius to figure out that there's a huge bubble in the tech sector; many eye watering valuations are based on the same B.S. that was a feature of the  2001 bubble (then it was clicks) now its the number of (unprofitable/free) customers.  The Grill cheese Truck [OTC:GRLD] is the most insane example, but some of the valuations of Airbnb, Uber and others make no sense and little potential for real profits, and don't get me started on Amazon which has NEVER made any money (in a full year).

Anyway, enough of my rant, the only guys that are happy right now are those trading the VIX, banks are pissed because their portfolio just got more expensive to hold (in terms of capital) and harder to hedge.  So to Bill who's been trading VIX for 10 years, its finally your day in the sun (assuming you got it right).

Will the market crash, lots of punters are worried, there's always one "well respected" analyst or fund manager that says its time to buy gold, or go all cash.  The one thing I know for sure, don't panic.

Note:  no position on Amazon, Uber, Airbnb or GRLD.  No VIX position either