Tuesday, December 10, 2013
Sunday, December 8, 2013
Saturday, December 7, 2013
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During much of the real estate crash, it was said that the high end market was not affected, and even increasing when other demographics were struggling. Why then now are foreclosures on luxury homes soaring?
As the housing market improves, foreclosure activity has been steadily declining — with one exception: The number of multimillion-dollar homes going into foreclosure has spiked, new research finds.Foreclosure activity on homes worth $5 million surged 61% year over year through October, according to data released Wednesday by RealtyTrac, a real-estate data firm. In sharp contrast, overall foreclosures fell by 23% during the same period. While the number of these high-end foreclosures is relatively small — fewer than 200 homes, compared with 1.2 million properties overall — they may also represent a buying opportunity for high-net-worth home buyers, says Daren Blomquist, vice president at RealtyTrac.
Friday, December 6, 2013
Confirming the stocks-are-just-high-beta-FX meme, Japanese stocks in the Nikkei 225 have collapsed 800 points in the last 2 days as JPY began to strengthen against the USD (on better data bringing taper talk and potential capital outflows as hot money chases something else). Relative to the initial 4 months of Abenomics which saw a 'beta' of 2.3 NKY points per USDJPY pip; the last week's "beta" of 5 Nikkei points per 1 pip in USDJPY, the leverage is starting to get out of hand (with a correlation of 0.965).
From November to March, the Nikkei rallied from 8700 to 13500 and USDJPY from 79 to 100 (approx 2.3x beta)
That beta has done nothing but increase and this week's sell-off is peaking at 5x!!
It is amazing what a few short months of intense regulatory scrutiny, a few multi-billion fines, and the occasional janitorial arrest can do to fraudulent bank business lines. First, recall that as we showed a week ago, and as we have been saying for the past five years, banks were recently "found" to manipulate, in a criminal sense, pretty much everything. Then recall that yesterday the European Union lobbed the biggest monetary fine in history against bank cartel behavior, with the guiltiest party, at least based on monetary amounts, being Deutsche Bank. So now that outsized profits as a result of illegal "trading" become virtually impossible to procure, what is a self-respectable criminal enterprise to do? Why shut down all formerly infringing lines of business of course. Which is what Deutsche Bank just did, which announced a few hours ago that it has pulled the plug on its global commodities trading business, cutting 200 jobs in the process (200 jobs that will certainly be able to find a job in a jurisdiction where criminal trading behavior is still not as intensely scrutinized).
Germany's largest bank (whose total notional derivative exposure relative to German GDP has to be seen to be believed), which was one of the top-five financial players in commodities, will cease energy, agriculture, base metals, coal and iron ore trading, it said in a statement. What will DB keep? Drumroll: only precious metals alongside a limited number of financial derivatives traders. Because one always need to be able to sell "paper-backed" gold derivatives in order to keep the price of gold low while the NY Fed keeps procuring the hundreds of tons of physical gold demanded by the Bundesbank. That, and of course, because gold is the only product in the history of banking to have never been manipulated.
The cuts are expected to largely fall on its main commodity desks in London and New York.The move comes as the financial sector's role in commodity trading has been squeezed by lower margins, higher capital requirements, and growing political and regulatory scrutiny of the role of banks in the natural resources supply chain.
DB's justification for the shutdown is quite amusing:
"This move responds to industry-wide regulatory change and will also reduce the complexity of our business... The decision to refocus our commodities business is based on our identification of more attractive ways to deploy our capital and balance sheet resources," said Colin Fan, co-head of Corporate Banking & Securities at Deutsche Bank, in a statement.
Such as mortgage orgination? Just kidding. It's not as if anyone even pretends banks are anything more than just taxpayer-backed hedge funds.
Then again, Deutsche had figured out which way the wind blows as long as a year ago, when the head of global commodities trading David Silbert suddenly picked up and left:
Deutsche Bank was among the first financial firms to try and challenge the long dominance of Goldman Sachs and Morgan Stanley in commodities trading a decade ago, but suffered a series of ups and downs and personnel changes over the years, including the departure of global chief David Silbert a year ago.Silbert's departure was the first sign that the bank was withdrawing from the one-time billion-dollar business, which had included a substantial U.S. and European power and gas book, a major market-making operation in oil options, and base metals trading."Silbert built up Deutsche Bank's commodity group to make it a top five contender in the space of five years and then left rather than pull down the house he built," said George Stein, managing director of New York-based recruiting firm Commodity Talent LLC."The destruction of the commodities business at Deutsche Bank is one more sign that the large global banks no longer see commodities as viable," Stein added.
As for everybody else...
The bank announced the decision to staff at a meeting shortly after lunch on Thursday, with around half the 200 traders affectedclearing their desks and leaving immediately, according to a person familiar with the matter.
Supposedly these are the traders at high risk of being subpoenaed and with whom DB wants to cut ties as quickly as possible, so as to be able to claim full ignorance of all their actions (see: every other bank in history).
Finally, DB's loss is someone else's gain.
Not all banks are scaling back in the sector, however. London-headquartered Standard Chartered, which does a lot of its business in emerging markets, said this month it plans to double revenues from its commodities business in the next four years and plans to add 10-20 staff to its existing team of 100 in the next six months.Global commodity merchants such as Vitol, Glencore and Mercuria, which are not as affected by growing regulation, are also looking to step into the vacuum left by the big U.S. and European financial heavyweights. Asian-Pacific and South American banks, including Australia's Macquarie and Sao Paulo-based BTG Pactual, are also expanding their commodities businesses.
Then again, since these far smaller and non-government backed entities will hardly have the balance sheet to suppress commodity prices either up or down, even as equities trade in Bernanke's lala land, commodities may soon become the only market with some semblance of normalcy.
Thursday, December 5, 2013
“This generation of Americans is very likely to be the first generation in our history as a nation to leave a worse economy and a worse fiscal position than the one they inherited. THE INFORM ACT is a step in the right direction toward informing Americans of the magnitude of this problem.”
-- James Heckman, Nobel Laureate in Economics
-- James Heckman, Nobel Laureate in Economics
Dear Fellow Economists and Other Fellow Citizens,
Please join the 15 Nobel Laureates in Economics, prominent former government officials, and others listed here in endorsing the INFORM ACT.
The INFORM ACT requires the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation.
The INFORM ACT is a bi-partisan initiative. The bill was introduced Senators Kaine (Democrat from Virginia) and Senator Thune (Republican from South Dakota) and is being co-sponsored by Senator Coons (Democrat from Delaware) and Senator Portman (Republican from Ohio). The Bill will shortly be introduced on a bi-partisan basis in the House of Representatives.
The fiscal gap is a comprehensive measure of our government's indebtedness. It is defined as the present value of all projected future expenditures, including servicing outstanding official federal debt, less the present value of all projected future tax and other receipts, including income accruing from the government's current ownership of financial assets.
Generational accounting measures the burden on today's and tomorrow's children of closing the fiscal gap assuming that current adults are neither asked to pay more in taxes nor receive less in transfer payments than current policy suggests and that successive younger generations' lifetime tax payments net of transfer payments received rise in proportion to their labor earnings.
Neither fiscal gap nor generational accounting are perfect measures of fiscal sustainability or generation-specific fiscal burdens. But they offer significant advantages relative to conventional measures of official debt. First, they are comprehensive and forward-looking. Second, they are based on the government’s intertemporal or long-term budget constraint, which is a mainstay of economic models of fiscal policy. Third, neither generational accounting nor fiscal gap accounting leave anything off the books.
Fiscal gap accounting and generational accounting have been done for roughly 40 developed and developing countries either by their treasury departments, finance ministries, or central banks, or by the IMF, the World Bank, or other international agencies, or by academics and think tanks. Fiscal gap accounting is not new to our own government. The Social Security Trustees and Medicare Trustees have been presenting such calculations for their own systems for years in their annual reports. And generational accounting has been included in the President's Budget on three occasions.
According to recent IMF and CBO projections, the U.S. fiscal gap is far larger than the official debt and compounding very rapidly. The longer we wait to close the fiscal gap, the more difficult will be the adjustment for ourselves and for our children. This said, acknowledging the government's fiscal gap and deciding how to deal with it does not rule out productive government investments in infrastructure, education, research, or the environment, or in pro-growth tax reforms.
Your endorsement, together with those of the Nobel Laureates and former high-level government officials, will be included in an open letter to Congress, which will be printed in the New York Times in a full page ad in the Fall. A copy of the letter is provided on this site.
Please Endorse the INFORM ACT by clicking on the ENDORSE tab on this site. Please also forward the url to this site, tweet it, like it, share it and do anything else you can to encourage other economists and concerned citizens to endorse the INFORM ACT.
With deep appreciation for your consideration of this request,
Professor of Economics,Boston University
Professor of Economics,Boston University
The Intergenerational Financial Obligations Reform Act | THE INFORM ACT
Wednesday, December 4, 2013
Wednesday, November 27, 2013
Bitcoin just keeps going. The hearings in the US Senate certainly gave credibility to the digital crypto currency. For Bitcoin, the real value in USD is almost irrelevant, but for investors, and those looking to Bitcoin as an alternative, the higher Bitcoin price gives Bitcoin more credibility. From Zero Hedge:
Well that escalated quickly. Having broken above $900 yesterday to new record highs (and a 100% gain in a week), the crypto currency is not looking back now. On what is higher than average volume this morning, Bitcoin just broke above the magic $1000 level for the first time (at $1025). Meanwhile, the BTC China "arb'd" rate is around $950 for those playing at home; and Litecoin has just topped $26 (from $4 a week ago!).
Thursday, November 21, 2013
It's not news that China is moving towards the Yuan being fully convertible, and a major world currency for trade. But this is a bold move, and will fall hard on the US Dollar, struggling to keep it's position as the world reserve currency. From Bloomberg:
The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuanwrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.
Wednesday, November 20, 2013
With such a spectacular source of impeccably timed, if always wrong, FX trading recommendations as Tom Stolper, who has cost his muppets clients tens of thousands of pips in currency losses in the past 5 years, and thus generated the inverse amount in profits for Goldman's trading desks, the last thing we expected to learn was that Goldman's currency traders, who by definition takes the opposite side of its Kermitted clients - because prop trading is now long forbidden, (right Volcker rule?) and any prop trading blow up in the aftermath of the London Whale fiasco is not only a humiliation but probably illegal - had lost massive amounts on an FX trade gone wrong. Which is precisely what happened.
According to the WSJ, "a complex bet in the foreign-exchange market backfired on Goldman Sachs Group Inc. during the third quarter, people familiar with the matter said, contributing to a revenue slump that prompted senior executives to defend the firm's trading strategy. Revenue in Goldman's currency-trading business fell sharply in the third quarter from the second. Within that group, the firm's foreign-exchange options desk posted a net loss during the period, the people said." The trade in question: "A structured options trade tied to the U.S. dollar and Japanese yen steepened the decline, according to the people. It isn't clear how large the trade was or how long it was in place."
Curious: does this perhaps explain why just after Q3 ended, on October 3, Goldman's head FX strategist Tom Stolper came out with an FX trade in which Goldman "recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80." Obviously, we promptly took the inverse side: "The only question we have: will the length of time before Stolper is once again Stolpered out be measured in days, or hours?" Naturally, Stolper was stolpered stopped out in a few short days, leading to a few hundred pips in profits for those who faded Stolper... and yet we wonder: was Goldman merely trying to offload its USDJPY exposure gone wrong on its clients in the days after the "trade tied to the USD and the JPY steepened the decline"? If so, that would be even more illegal than Goldman pretending to be complying with the Volcker Rule.
As for the size of the total loss we had a hint that something had gone very wrong when we reported Goldman's Q3 earnings broken down by group. Back then we said "the only bright light were Investment banking revenues which were $1.7 billion, unchanged from a year ago, if down 25% from Q2. It's all downhill from here, because the all important Fixed Income, Currency and Commodities group printed just $1.247 billion, down a whopping 44% Y/Y, well below expectations." Indicatively, Goldman had made $2.5 billion in FICC the prior quarter, and $2.2 billion a year prior. Obviously something bad had happened.
We now know that that something was an FX trading crashing and burning in Goldman's face. Reuters added:
Goldman Sachs Group Inc lost more than $1 billion on currency trades during the third quarter, recent regulatory filings show, offering some insight into why the firm, considered one of Wall Street's most savvy traders, reported its worst quarter in a key trading unit since the financial crisis.Goldman's currency-trading problems came from the way the bank had positioned itself in emerging markets, two sources familiar with the matter said.Specific positions could not be learned, but the bank was anticipating that the Federal Reserve would begin winding down its monetary-easing programs, the sources said. When the Fed unexpectedly announced that it would keep its massive bond-buying program in place,Goldman was left with positions that, "absolutely got annihilated," as one person familiar with the matter put it.
Since as the WSJ first reported the position involved the USDJPY, which first spiked then plunged following the Fed's non-taper announcement, and kept sliding until it hit 96.50 in early October just when Stolper suggested putting on the short USDJPY trade (when USDJPY soared), it seems that at least this one time both Goldman's prop traders and the trade recommended by Stolper were on the same side.
Which resulted in a $1+ billion loss for Goldman.
Congratulations Tom: that in itself is worth ignoring that Goldman completely made a mockery out of any and all Volcker prop-trading prohibitions. In fact, keep it up and keep those trade recommendations coming.
Tuesday, November 19, 2013
Friday, November 15, 2013
The Forex market is the largest in the world and the least understood. Since the late 90's, traders and asset managers have flocked to it as an alternative to trade, compared to other common markets (Stocks, Bonds, Futures).
But due to the fact that the market is decentralized, and unregulated, it also attracted a large amount of fraud, on many levels. First, there was outright theft by groups such as the one led by Trevor Cook ($190 Million Ponzi scheme). Then there were sham brokers, in the most extreme case, like One World Forex, that simply didn't bother clearing client orders and used client funds to finance lavish lifestyles and a movie that was never released featuring Busta Rhymes. Those in the new growing retail market on both sides of the dealing desk developed a special bond going through a unique experience that just wasn't possible in other markets.
It was said that this was a retail problem, that serious institutional Forex was not aparty to such nonsense. But now the world's largest investment banks are under investigation by the Department of Justice for Forex market rigging. This includes names such as Goldman Sachs, Lloyds of London, JP Morgan Chase, Barclays, Citigroup, just to name a few (the full list of names has not been released).
It was always a question that Forex outsiders would ask, why the big banks didn't get into retail Forex trading. Now we know that not only were some banks charging 7% (700 pip) spread on deliverable transactions, they were 'banging the close' and had basically a near complete control over the price. So why would they take any risk?
But one of the most overlooked news stories is that of FX Concepts, known as the Rolls Royce of Forex funds, being the first in the business and eventually the largest FX hedge fund.
Less than a year before his currency-trading shop filed for
bankruptcy, FX Concepts founder John Taylor personally guaranteed a
chunk of the debt his firm owes to its largest creditor.Asset Management Finance, a Credit Suisse unit that has invested
in a number of prominent hedge fund-management firms in the past decade,
provided $40 million of debt financing to FX Concepts via two
revenue-sharing agreements in 2006 and 2010. But in December 2012, as
opportunities in the currency market continued to fade and redemptions
mounted, Taylor was forced to renegotiate the financing package. The
Credit Suisse unit agreed to defer eight quarterly revenue-sharing
payments in exchange for Taylor’s personal guarantee for those
obligations. As of Oct. 17, when the firm filed for Chapter 11, FX
Concepts owed Asset Management Finance $34.4 million, with Taylor on the
hook for $5 million of the total. “AMF is going to clearly try to get money out of John,” a source said. “By any stretch of the imagination, it’s not there.”The terms of the refinancing deal with Asset Management Finance,
spelled out in recent court documents, suggest FX Concepts was in even
worse shape than previously understood. The fact that Taylor had to
personally guarantee his firm’s obligations underscores a dramatic
decline for a business that for years was the world’s largest
currency-fund operator, with more than $12 billion of assets. As
recently as the first quarter, FX Concepts had $1 billion under
When traders would debate "is anyone making money in FX" - proponents of Forex investing and trading would point to FX Concepts as an example as a group that was continually successful. For years they had multiple products that continued to acheive above average returns in the mysterious FX market. Until now. Not only is FX Concepts shutting down, creditors are going after the founder who pledged personal guarantees on capital when performance started struggling.
Certainly not every Forex trader or strategy loses, but with the losses incurred by FX Concepts, we should rethink our approach to trading Forex.http://www.zerohedge.com/contributed/2013-11-14/forex-paradox-forex-net-loser
The Chicago Mercantile Exchange admits that in July it was hacked:
- *CME HAD CYBER INTRUSION IN JULY, SOME CUSTOMER INFO COMPROMISED
- *CME: SOME CUSTOMER INFO ON CME CLEARPORT PLATFORM COMPROMISED
- *CME GROUP NO EVIDENCE TRADES ON CME GLOBEX ADVERSELY IMPACTED
Algos # 0001 through #9999 now have their Vacuum Tube Security Number leaked
http://www.zerohedge.com/news/2013-11-15/cme-hackedIn a communication to certain customers today, CME Group confirmed it was the victim of a cyber intrusion in July, making it one of the many organizations subject to this type of crime in recent months.To date, there is no evidence that trades on CME Globex were adversely impacted, or that the provision of clearing services by CME Clearing or CME Clearing Europe, or trading in CME markets, were disrupted.CME Group takes these events very seriously and places a high priority on protecting its customers' information and ensuring the integrity of its markets. Though CME Group maintains sophisticated systems, teams and processes to prevent such incidents, and promptly took significant actions to address the incident, CME Group has learned that certain customer information relating to the CME ClearPort platform was compromised. To protect participants, CME Group forced a change to customer credentials impacted by the incident, and is corresponding directly with the impacted customers.The incident is the subject of an ongoing federal criminal investigation and CME Group is cooperating with law enforcement in its investigation into this matter.
Wednesday, November 13, 2013
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