Thursday, October 10, 2013

Out of the office

Belfast, Northern Ireland:

Dubai, UAE:


Kuwait City, Kuwait:

Saint-Émilion, France:

Cap Ferret, France:


Pryénées, France:
Nice, France:


Rhône, France:
Lyon, France:

Paris, France:
Lille, France:
Leuven, Belgium:
Cologne, Germany:
Strasbourg, France:
The darkness is what makes the Christmas lights special. 

Luxembourg, Luxembourg:

Brugge, Belgium:



Madrid, Spain:

Lisbon, Portugal:



Tibidabo, Barcelona, Spain:
Casa Batllo, Barcelona, Spain:
Sagrada Familia, Barcelona, Spain:

Vigeland Park, Oslo, Norway:
Tuscany, Italy:
Pont Neuf, Paris, France:
Nice, French Rivera: 

Ventimiglia, Italian Rivera:
Autumn in the Jardin du Luxembourg:

Autumn in the Tuileries:
Jardin des Plantes: 



Friday, October 4, 2013

October 4, 2013 Update


DJIA:14,996 S&P 500:1,679 NASDAQ:3,774 Gold:$1,316 Oil:$103.69 EURO:$1.36 YEN:97.20


Investing on Overextending
The global economy is facing a unique combination of exogenous pressures. The markets have become reliant on central’s bank ability to provide liquidity and manipulate interest rates, the old  financial and political problems are beginning to resurface throughout the Eurozone, and the source of growth in the global economy over the past decade is beginning to slow down as the emerging markets face a credit crunch and see an increase in NPL. Since the Fed has depressed yields, the search for return in this market environment is real. No one is being properly compensated for the risks they’re taking, which has consequently caused investors to increase their appetites for risk and alter their perceptions of appropriate return. It seems to me that the best opportunities in this market environment would be to invest around the central bank’s ability to encourage borrowing and inflate the asset market. The financial sector, for instance, are reaping all the benefits of the central bank’s dishonesty. Because of the Fed’s ability to skew risk premiums, the banks can pay low interest rates to their depositors and then lend those deposits to borrowers multiple times and receive a higher interest rate than they’re incentivizing savers with. By nature, banks are highly leveraged institutions and the forward guidance brings the cost of leverage to zero. The incentive to use financial leverage to bolster returns is strong, which creates temptation to increase and overextend exposures. Forward guidance has make leveraging free by eliminating roll-over risk on short-term funding positions. Since banks borrow short and lend long, they’re positioned well as long as quantitative easing continues. Credit expansion accelerates economic growth. The low incentive to save and temptation to borrow could temporarily relieve some exogenous pressures and points to signs of recovery in the economy. If this is true, then cyclical sectors should outperform this quarter and ride tails of an stronger economy. The recent speculation and concern over when the Fed will begin to scale back the asset purchasing program has placed downward volatile pressures on the market, which could provide a solid opportunity to get enter the market. In addition to cyclicals, higher returns could also be seen in consumer durable and technology companies that have a large presence in the emerging markets. As the demand for commodities from developing countries begins to weaken, I think it could be time to focus on how the emerging markets are developing. A rise in per capita income could shift spending trends, and cause an increased demand in durables and technological goods as the countries continue to modernize. Since a weak dollar is good for international equities, EEM could also be an investment that could continue to lift as central bank’s dishonesty continues. Buying the VIX would be a good hedge against these bets, as it trades inversely and will spike when the Fed tapers (and both financials and EEM are extremely sensitive to tapering speculations). The market is currently experiencing the largest manipulation of interest rates in history, and as long as it continues to expand credit the printing presses remain hot the economy and market will show signs of improvement. Betting on financials and spending shifts in the emerging markets (despite their credit crunch), and using VIX as a hedge could be an investment that overextends returns without having to adjust risk appetites.The economy is facing pressures that have no precedent, investing on the incentive for consumers and corporation to overextend their positions and increase leverage could provide the return investors are hungry for. 


Domestic News
  • Market Update Futures are trading up as investors wait for speeches from the Federal Reserve. 
  • Due to the shutdown, the government will not be releasing data on nonfarm-payrolls. I always thought the data came in earlier than the release date, not releasing employment figures is fishy. 
International Updates
Asia
  • Market Update Markets traded up from yesterday’s upbeat economic data, despite the continues shutdown of the US government. 
Europe
  • MMarket Update Markets are up despite the US political contagion. 

Thursday, October 3, 2013

October 3, 2013 Update


DJIA:15,133 S&P 500:1,694 NASDAQ:3,815 Gold:$1,309 Oil:$103.67 EURO:$1.36 YEN:97.77


Keeping the System Solvent
The American housing finance system has collapsed twice over the past three decades. The most recent and memorable crash was the one that ultimately led to the downfall of the entire global financial system in 2008. At the height of the crisis in 2009, Fannie Mae and Freddie Mac were put into conservatorship to protect the housing market and its’ investors. As the story is told, the two companies received $188 billion in bailout money from taxpayers in order to stay solvent. And it’s only because of the taxpayers’ money that Fannie and Freddie were able to make full recoveries and generate record profits in today’s bubbly market environment... or at least that’s the story central bankers want people to believe. The Fed wants consumers to think the market is rebounding. It’s their job is to restore confidence and encourage borrowing to fuel economic growth, regardless if its sustainable or not. And they’re doing a good job, so far. The housing market is showing signs of recovery. People are taking advantage of low interest rates and borrowing and building for cheap. But it’s not the current taxpayers that bailed out Fannie and Freddie, and it’s certainty not the demand for more housing units that are responsible for the recent signs of recovery. Unfortunately for both the housing market and its’ investors, the truth, like the economic recovery, is not as rosy as they are led to believe. When Fannie and Freddie were failing, the Federal Reserve ballooned its balance sheet and lent the companies money. The bailout was purely an accounting move that had relatively no effect on taxpayers of this generation. The burden of the bailout will weight more on the the future generations of taxpayers, not the working Americans of this generation. The government stepped in to save the GSEs, and hasn’t been able to step out yet. The US housing market is on life support. The majority of the funding for GSEs come from the federal government, they’re keeping the music playing in the markets. Before the government shutdown a few days ago, there was a flurry of activity in Congress that called for GSE reform. The Corker-Warner Bill actually proposes to wind down GSEs within the next five years, and turn the function of the secondary mortgage market back into the hands of the private sector by eliminating any government guarantee on most home loans. The government wants the private sector to bear more of the credit risk of the mortgage market, and make private companies more accountable for their lending decisions. Like the global financial system, the housing market is essentially a house of cards with nothing put faith, good luck, and gravity holding it together. The government will not be able to walk away from GSEs until long after the Fed raises interest rates, and the shock has been priced into the market (if that ever even happens). The Fed has skewed risk premiums and the government has encouraged borrowing, so a rise in rates could be the wind that knocks down the structure and blows the confidence out of the system while leading the American housing financial markets into its third collapse. Fannie and Freddie have a peculiar way of privatizing their profits and socializing their losses. A reform of the GSEs are definitely needed, but reforming without distorting the $10 trillion MBS market and exposing the country to the next Minsky Moment will be tricky to do, and whether the government will do so efficiently and properly is highly uncertain. All things aside, the Fed and the government together do an incredibly efficient job of manipulating the markets. I am sure that the choices made in reform will affect the availability, sustainability and affordability of mortgage credit for years to come, but I don’t think the Corker-Warner Bill will see the light of day again for a long while. And whether reform will even be possible without putting the country at risk for another recession is a question that has yet to be answered. 

Domestic News
  • Market Update Future fall as the government moves into their third day of shutdown. 
  • Data on the initial jobless claims will be released at 8:30 since it’s collected by the states, 313,000 are expected to have filled new applications for unemployment for the week ending 9/28, an increase from 305,000 in the week prior. 
  • The ISM non-manufacturing index will be released at 10:00, and is expected to have slipped to 57.5% in September from 58.6% in August.
International Updates
Asia
  • Market Update Markets traded mostly higher after upbeat economic data from China.
  • China’s services PMI of 55.4 is a six-month high and contrasts with downbeat manufacturing PMI. 
Europe
  • Market Update Markets were mixed with pressures from the US weighted on stocks while upbeat PMI data from the eurozone and U.K. eased tension 
  • U.K. services PMI fell to 60.3 in September from 60.5 in August and the Eurozone services PMI rose to 52.2 in September from 50.7 in August, which sends more signs of recovery.

Wednesday, October 2, 2013

October 2, 2013 Update


DJIA:15,192 S&P 500:1,695 NASDAQ:3,818 Gold:$1,295 Oil:$101.73 EURO:$1.35 YEN:97.53


More Dovish Signs 
The U.S. federal government has partially shutdown for the first time in nearly two decades. And consequentially, congress’ inability to overcome stubborn partisan deadlock will create horrendous effects that will take years to fully ripple throughout the US economy. The short-term implications of this partial shutdown is the revenue loss of $300 million a day from the failure to produce economic output, as noted by IHS. This seems bad, but a $300 million loss is negligible for the $15.7 trillion US economy. To offset the loss, the government experienced a unique combination of incurred savings; which included not employing 800,000 federal workers, not funding the cost of operating national parks, and not having to financially support select government sponsored services. The costs curbed by a partial government shutdown are unknown, but likely outweighed the revenues lost. The long-term implications of the congressional inefficiency are far more serious and threatening to the well being of the country and economy than the short-term problems it created. The failure to negotiate will change the meaning of doing business with and in the United States. There will be a significant loss in trust and credibility in the full faith and credit of this country. The distrust in the system runs a high risk of prompting a second downgrade of the US sovereign credit rating. There’s also a sizable possibility that a partial shutdown of the federal government will result in layoffs in the public sector, which would, as such, increase the unemployment rate. A rise in unemployment would not only revert the recent signs of recovery in the labor market, but would send additional mix messages to the asset markets, which continue to confuse bad news with good news. Higher unemployment would further enlarge the disconnect between the Fed’s target jobless rate and the  actual level of employment in the US, forcing the central bank to keep buying risk-less securities at an enormous monthly pace. And since the public sector would be driving the unemployment rate upwards and forcing the Fed to continue providing liquidity to the markets, quantitive easing would become more entrenched in the political process than ever before. The more political QE becomes, the more difficult it will be to implement tighter monetary policies. But maybe this is what politicians are after. Maybe this is what lobbyists are pushing for. American corporations and investors who are using financial leverage to bolster returns are enjoying a free lunch while the Fed keeps the printing presses hot. Maybe corporate entities want QE to become more woven in the political process in order to prolong the monthly asset purchases. Or could it even be possible that the central bank is more politically connected than they lead investors to believe? Could the Fed be using politicians to mask their dishonesty, manipulation of interest rates, and distortion of financial markets? In a recent survey by Reuters, only 27% of Americans knew what QE was. Politicians are doing a great job of keeping Americans in the dark. This is speculation, but I just don’t believe the government does anything by accident. But even if there is no connection between the intentions of the central bank and the White House, I think it’s inexcusable for elected officials to increase the risk of weakening the country’s credit profile. The economic and financial effects of the partial government shutdown are going to be felt in the markets for some time to come. And unlike the government, the markets won’t partially shut down because they’re inefficient, even in the most bullish or bearish of times. 

Domestic News
  • Market Update Futures are down as uncertainty about the debt ceiling builds.  
  • The ADP employment report will be released at 8:15, and private payroll for September is expected to have increased to 180,000 from August’s 176,000. 
International Updates
Asia
  • Market Update  Markets sold off as investors worry that the American government shutdown will continue longer than originally anticipated. 
Europe
  • Market Update Most markets rallied in Asia, fueled by strong ISM manufacturing data in the US. Japanese equities sold off, dropping 2.3%, as new policy measures weigh on investors and the yen rises against the dollar.

Monday, September 30, 2013

September 30, 2013 Update


DJIA:15,258 S&P 500:1,692 NASDAQ:3,782 Gold:$1,337 Oil:$101.42 EURO:$1.35 YEN:97.80


The Rise in American-Chinese Chicken 
Chinese consumers are losing confidence in the products manufactured and produced within their own country, especially when it comes to the quality of their food. In April 2012, Chinese officials closed 13 underground “recycled” cooking oil production plants when it became clear that they were “recycling” oils from dead animals and garbages. Shortly after that in June 2012, was the infamous mercury contaminated baby milk incident that resulted in the deaths of newborns. The irrigation system was badly adulterated in March 2013 when over 22,000 pig and 1,000 duck carcasses were found floating in polluted rivers in Shanghai and Sichaun. Two months later in May, police halted a group of eastern Chinese traders who were buying fox, mink, and rat meat and selling it as mutton. May 2013 was also when SFDA officials discovered that rice had been contaminated with significant amounts of cadmium, a heavy metal that can lead to cancer. Clearly, substandard food quality is a major Chinese epidemic. In 2011, The Chinese Journal of Food Hygiene estimated that each year roughly 94 million Chinese people suffer from various bacterial food-borne diseases and 8,500 people die from contaminated foods. Unlike other Chinese exports, consumers internationally jump through serious hoops in order to avoid purchasing food exported from China. Yet, despite these facts and consumer biases, the USDA announced that it would allow poultry slaughtered in Canada, Chile, and the US to be sent to China for processing so that it can then be shipped back to the states and put on shelves to be sold to American consumers. From what I understand, the poultry processing procedure is gruesome and cannot be wholly automated. Outscoring the responsibilities of poultry processing to China could provide a low-cost advantage for the US, and could potentially destruct the barrier of entry that blocks American exposure in the lucrative Chinese beef market. Yet despite the cheap labor, some American corporations are reluctant to make the switch right now. Global consumers do not completely trust Chinese practices, so the immediately outsourcing the poultry processing job could weaken brand trust. As of today, the biggest American chicken processing companies, Tyson Foods Inc. (TSN) and Purdue, have no immediate plans of shipping business to China; nor does Sanderson Farms (SAFM) or McDonald’s Corp. (MCD). But once the political uproar silences, the subtle integration of Chinese processed chicken is probable and likely will be done so quietly. Meat is most exposed to food safety risks, and poultry is the “riskiest meat” according to the Center for Science in the Public Interest. Shipping poultry to and from China for processing increases exposure for American corporations and consumers to the risks involved in Chinese food preparation. And according to the Chinese recent meat trade history, there is no guarantee that the poultry sent to China will be the same processed meat that gets shipped back or, for that matter, that the meat will even be poultry at all. It is also uncertain how much cost savings will be realized after increased shipping costs are accounted for. With the rise of food-borne diseases and scandals over the past five years, substandard food quality is a huge driver in the lack of consumer confidence in China. Americans may be the consumers of last resort, but how long will the agreement last before similar outbreaks and scandals are suffered on American soil? Food safety is a serious but underplayed risk in American society, and the increase in American grown-Chinese processed chicken could potentially lower our animal spirits, too.

Domestic News
  • Market Update Futures are down while fear of a government shutdown rises among investors. 
  • The Chicago PMI will be released at 9:30, and is forecast to rise to 54.4 in September from 53.0 in August. 
  • The Dallas Fed will announce their general business activity index at 10:30, which is expected to have increase to 6.0 in September from 5.0 in August. 
International Updates
Asia
  • Market Update Markets sold off as fear about the US government and sluggish Chinese growth spread. 
  • The Chinese Purchasing Managers’ Index for September was 50.2, which is lower than expectations of 51.2, but higher than August’s 50.1 reading (further indicating slowed  growth). 
Europe
  • Market Update Markets fell from political uncertainties in the US and Italy.

Friday, September 27, 2013

September 27, 2013 Update


DJIA:15,328 S&P 500:1,699 NASDAQ:3,787 Gold:$1,335 Oil:$102.60 EURO:$1.35 YEN:98.41


The Natural Proxy for Economic Disaster 
Mother nature has her ways of warning her tenants that an unfortunate event is about to transpire. Whether it’s a red sky in the morning, fruits that begin to soften, or an onset of violent waves, she puts caution in the winds when she plans on lashing out. Japan has a rather hilly economic history that has been stained by environmental disaster. In the 1950s and ‘60s, the Japanese economy was growing rapidly. Significant investment in industry and infrastructure from both the private and public sectors were the main drivers of growth. Industrialization increased manufacturing capacity, created a strong labor market, and led to a rise in household savings and disposable income. The investment in industry made factory productivity more efficient and, for the first time in a long while, Japan was able to achieve more output per unit of input. The shift from a low-producing agriculture driven economy to high-producing manufacturing, mining, and construction driven economy caused Japan’s economy to swell. However, the industrial revolution left horrendous affects on the Japanese people. Outbreaks of Minamata disease became more prevalent throughout the island as more fish were poisoned from rising mercury levels in the waters. Chisso, a Japanese company, killed hundreds of local people when they dumped methymercury into the sea. The air in a port in Mie Prefecture became so polluted from nitrogen and sulfur dioxide emissions that it gave people asthma and bronchitis. Photochemical smog from automobile and industrial manufacturing also contributed to the increase in respiratory conditions. The consequences of Japan’s environmental irresponsibility from the 1970s are still felt by the Japanese people today. It was only until the government faced extreme civil unrest and had to deal with the devaluation of the yen that officials began to regulate corporate practices. And when the problems were finally addressed, investment dried up, taxes increased, and the economy tumbled. The spoiled environment was a warning sign that the economic growth was unsustainable, and I think China can learn from Japan’s environmental negligence. China consumes more coal than any other country and is responsible for over a quarter of the world’s carbon dioxide emissions. This year, Beijing hit 900 on the Air Quality Index- 875 points higher than the 25 points recommended by the World Health Organization. China is the most polluted country in the world, and it’s people are suffering as a result. Although China’s inflationary pressures are much milder than Japan’s in the 1970’s, social unrest in China will be far worse than Japan’s. The Chinese government is trying to mask the credit crisis, while continuing to produce signs of growth by artificially inflate the housing market. The economy is slowing down, despite the distorted statistics that lead the market to believe otherwise. Ironically, the Chinese government has passed laws that could keep the country clean. But unlike Japan, China’s government is so decentralized that the state cannot enforce them on the local governments. Like Japan in the ‘70s, China’s economic forecasts are starting to resemble its’ weather: a high of smog today, tomorrow, and next week (or “fog”, as it’s known in the Chinese media). The ecological disasters in China a sign that it’s rapid economic growth is unsustainable. By overlooking the inconvenient truths, Japan ignored mother nature’s warning signs that unfortunate events were about to transpire. Luckily for China, they have time to listen to the warnings that the smog is whispering and make strides towards an ecological change before it’s too late. 

Domestic News
  • Market Update Futures are down, which could be an indication of lower consumer confidence. 
  • The University of Michigan/Reuters consumer sentiment index will be released at 9:55, and it expected to decline to 78 in September from 82.1 in August. 
International Updates
Asia
  • Market Update Markets are up, despite a firmer yen weighing on Tokyo shares. 
Europe
  • Market Update Markets are down after Carney comments that he sees no need to extend QE.

Thursday, September 26, 2013

September 26, 2013 Update


DJIA:15,273 S&P 500:1,693 NASDAQ:3,761 Gold:$1,338 Oil:$103.04 EURO:$1.35 YEN:98.69


A Bratty Little Market
Teaching a child independence seems to be one of the toughest parts about parenting. Children know the power that lies in a tantrum, and how easy it is to rely on the figure that will always be there to provide. Parents, who never want to their children to suffer, invest significant resources so that their child will smoothly transition into adulthood. The contrasting interests creates a disconnect between the aspirations of the parent, who only want the best for their kid, and the demands of the child, who do not yet understand what is best for them. And it’s this division of interests that prompts periods of emotional volatility that has the potential to lead to severe dependency. For instance, if a parent gives their child candy every time he faces discomfort then the child will begin to hope for signals of pain simply because he knows it will lead to more candy. And eventually the kid will become so dependent on the sugar that the thought of not eating candy will become inconceivable to the naive child, who doesn’t understand the danger too much sugar. The child will cry when he wants it, start to panic when he doesn’t get it, and sob when the parent hints about cutting back on the habit. And it’s exactly this disconnect of interests that make parenting so hard, because what is a parent to do when bad news for them becomes good news for their child? This parenting style is a metaphor for today’s market environment. Through the tools of quantitive easing, the Federal Reserve has developed a unique relationship with market. The US central bank stepped in shortly after the crash of the housing market to provide relief. And like a parent, the Fed has held the market’s hand, stuffed it with liquidity, sung it dovish lullabies, and invested significant resources in order to help it climb the mountain to reach new highs. But like keeping a child happy by handing it candy when it faces hard times, the Fed is not solving any problems by throwing liquidity at the system. The Fed is sending mixed messages to investors who have begun to read signals of economic slowdown as indications that the market will rally. Even setting interest rates seem to be getting out of the Fed’s hands since the market refuses to behave if it doesn’t get what it wants. Markets are refusing to move in line and have begun to rely so significantly on the Fed for liquidity that it has, in fact, manipulated the operation to get what it wants and is wresting for control from the central bank. Interest rates have backed up across the world, especially the yield on the 10 year government bond which has shot up internationally. Keeping interest rates low have created misleading signs of economic recovery. The only reason the housing market is “picking up” is due to how cheap it is to build and buy homes. The Fed has distorted the markets and violated the laws of economics. Other developed countries who have found themselves in similar stressful economic situations have adopted their own methods of quantitative easing. But unlike other countries, the US dollar is the word’s reserve currency. All other’s currencies are backed by the dollar, so if US markets are getting what they want than all other markets will misbehave until they are handed liquidity, too. And there we have it, a system of severe dependency the Federal Reserve has created and set a precedent for other developed countries to follow. The market, on other hand, is very happy with the Fed’s dishonesty as it has experienced growth by eating up all the free lunches. The disconnect that exists between a parent and child is the same disconnect that has developed between the central bank and the market. And what is the mother of central banks to do when it has overfed the market, confused investors, and encouraged other central banks to do the same? Unfortunately, many investors are choosing to ignore the fundamentals, like the fact that debt to leverage ratios are still too high. Due to the amount of debt issued by the US, it seems to me that rising rates back to the average of 5.25% is simply out of the question. Nothing the Fed does can reassure investors that tapering won’t end in disaster. The Fed has raised the market to new high in a bubble environment, and once the liquidity stops the bubble will pop and like weaning a child off his sugar habit, it will end in tears. 


Domestic News
  • Market Update Futures are moving higher, despite the uncertainty about a government shutdown, ahead of economic data and speeches from Federal Reserve officials. 
  • Data on the weekly jobless claims will be released at 8:30, which are forecast to rise to 327,000 from 309,00 the week prior.
  • Figures for Q3 GDP growth will also be released at 8:30, which is expected to show growth of 2.7% vs. a prior estimate of 2.5% (likely a result of people taking advantage of the low interest rates).
International Updates
Asia
  • Market Update Markets fell across the board as uncertainty rises about various economic and financial issues. 
Europe
  • Market Update Markets are quiet except in Italy, where the MIB index sold off due to political disturbances that resulted in social unrest. 
  • U.K. Q2 GDP with in line with expectations at 0.7%, and up from Q1’s 0.4% growth rate.