Tuesday, September 22, 2015

Why Volkswagen Is Systematically Important For Germany And Europe

why-volkswagen-systematically-important-germany-and-europe

Monday, September 21, 2015

Russians Buy 1 Million Ounces of Gold Bars In August

Russians Buy 1 Million Ounces of Gold Bars In August

Russia's gold reserves rose to 42.4 million troy ounces as of September 1 compared with 41.4 million troy ounces a month earlier, the Russian central bank announced on Friday.

The monthly accumulation of 1 million ounces in just one month was one of the more sizeable monthly purchases by Russia and equates to 31.1 metric tonnes in August alone.

The value of the bank's holdings rose to $47.68 billion from $44.96 billion a month earlier, Russia said in a statement on its website.

The amount bought was more than the 30.5 metric tons that Russia purchased in March, then the highest amount in six months.

Russia is now the seventh biggest holder of gold reserves after the U.S, Germany, the IMF, Italy and France and the rising gold power China. Russia has more than tripled its reserves since 2005 and holds the most gold bars since at least 1993, International Monetary Fund data shows.

Nations globally have been increasing their gold holdings in recent years, a reversal from two decades of selling. China, Kazakhstan, Ukraine and Belarus are among other nations that have been accumulating gold.

Gold remains a large part of many central banks’ reserves, decades after they stopped using it to back paper and the electronic currency of today.

Russia has been steadily buying bullion since 2007 and the advent of the global financial crisis. Russia was accumulating gold even prior to tensions with the West and international sanctions over the Ukrainian conflict.

Gold has protected the Russian reserves and acted as a hedge as gold priced in rubles has surged over 60 percent in the last 12 months. The plunge in oil prices contributed to sharp falls in the ruble.

Russia added about 13 tons in July and 24 tons the month before that. As tensions escalate with the U.S., the UK and the EU, Russia appears to be intensifying efforts to diversify out of their large dollar holdings and into physical gold.

DAILY PRICES
Today’s Gold Prices: USD 1136.85, EUR 1007.27 and GBP 732.86 per ounce.Friday’s Gold Prices: USD 1136.00, EUR 992.31 and GBP 726.25 per ounce.(LBMA AM)

Gold had a 3 percent weekly gain and silver had a 3.5% weekly gain. Gold ended with a gain of 0.73% on Friday while silver rose to as high as $15.43 before ending with a gain of 0.26%.

Going Back To What Works: Gold Is Money Again (Thanks To Utah)

As of today you really can pay your taxes, your credit cards, your mortgage, shop at Costco, and buy your groceries without so much as a bank account while using sound money.

As PopularLiberty.com explains,

The fact that Texas announced that it withdrawing its gold from Manhattan and is creating a state gold depository generated a good deal of interest because there would also be a way to transfer gold to others via said depository. So much interest that Texas received calls from all over the United States from folks that wanted to be part of such a system. The articles covering the future Texas depository cumulatively received millions of views. What was missed in all of this coverage is that a functional, and legal depository that allows anyone in the country to pay and save in gold dollars already exists. In Utah.

The United Precious Metals Association in Utah has gold and now separate silver accounts that act as checking accounts do at any bank or credit union.The way it works is that members deposit Federal Reserve Notes (or paper dollars) into their UPMA account which in turn translates them into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such. So if I were to deposit $1,200 FRNs then I would have $50 golden dollars.

UPMA is the only institution in the country that I know of that doesn't have a buy/sell spread on their Golden Eagles or Silver Eagles. This means that all my $1,200 FRNs once converted to gold could be spent the next day without losing anything to any sort of premium. The price of a Gold Eagle is 5.8% above spot but when you 'cash out' you do so at 5.8% above gold spot. This effectively removes that barrier from sound money.

This year the UPMA released a gold backed debit card via American Express. The way it works is that a member may spend up to half of their gold or silver dollars in any given month period using the card. When I interviewed the founder of UPMA today, Larry Hilton, I learned that the way the card works is that they have made a contract with American Express so that UPMA members can use what are technically credit cards as a debit card anywhere American Express is accepted. The members are added on as 'employees'. Right now there are already hundreds of people around the country using this method of payment. They are literally spending gold on groceries without losing anything to premiums or in transaction fees to UPMA. In fact they get 1% cash back in gold.

This service is available to anyone in the United States and requires no credit check whatsoever. Using the billpay service online one can pay for what American Express can't such as credit card bills, property taxes, or your mortgage. The golden dollars are simply converted right back into FRNs and paid out. When asked Mr. Hilton affirmed that there are many people that don't store anything in the banks anymore thanks to this service. They are obsolete if you want to use sound money. There are no fees associated with the use of the card. Members that store more than $50 in golden dollars do pay a small storage/membership fee of 10 golden cents or $2.50 FRNs and an additional 0.25 FRNs for every additional $50. These $50 Golden Eagles can also be withdrawn and sent to you directly.

The United Precious Metals Association has the full backing of Utah Attorney General Sean Reyes who also uses the service. The legal foundation was set up in 2010 and 2012 here in Utah where the vault is located. Many members of the board including General Counsel Larry Hilton are lawyers that specialize in law regarding the use of legal tender.

An elected board of members makes regular audits to assure that all of the gold and silver is there and reports to the general membership every year at the monetary summit. This year it will be held on October 17 in Salt Lake City. The vault is insured from theft and fraud via the Llyods of London. They hold a 100% reserve ratio.

And as UPMA summarizes, this is nothing new and it is not different this time...In fact we are going back to what works...

All very unmodern? The gold standard is not up-to-date only if we have a yen for running away from economic success in the form of stable prices and major growth. After Nixon went off gold in 1971, abrogating the conversion agreement with the foreign nations, and keeping gold-holding illegal in the United States, inflation did things that were unheard of. The price level leapt by 200% from the late 1960s to the early 1980s, a period also bedeviled by the economic sluggishness known as “stagflation,” where double-dip recessions came every few years and the long term growth rate sunk below 2%. In the 1980s and 1990s, the Fed returned to conducting monetary policy in view of the gold price, and sure enough the consumer price index stabilized at one-third the stagflation level and growth rebounded past 3.5% per year. The verification just kept on coming: key on gold stability – effectively making the dollar convertible on demand to gold at a fixed price – and watch prices stay the same and growth shoot the moon.

In the 2000s, we are witness to a Fed that has disdained the gold price now for a decade. The result has been the loss of that decade to economic growth, as well as stirrings in key commodities such as oil and food, if not the brutal comprehensive arrival of inflation. If the Fed decided today to target the price of gold as the pole star in its monetary operations, there is no historically conversant reason to believe that we would have unfold before us anything but yet another era of price stability and maximal economic growth. For this is the only thing that has ever resulted from gold standards and their approximations throughout our history.

The arc of time has revealed connections that we have the opportunity to re-forge today. The United States became the largest economy in the world in the 1870s, was two-and-a-half times larger than the second-place nation in 1913, boomed along with everyone else in the Bretton Woods era, and in the 1980s and 1990s did not succumb to the “Eurosclerosis” or any “Japan disease” that afflicted its major economic partners. In every episode of fantastic economic performance – in terms of both price stability and major growth – there was a commitment to gold.

Choice in currency is being recognized as a basic human right around the world. Utah was the first State to make gold and silver coins legal tender alongside the U.S. dollar on March 25th, 2011.

http://www.zerohedge.com/news/2015-09-20/going-back-what-works-gold-money-again-thanks-utah

Sunday, September 20, 2015

How the world spends

Have you ever wondered how much money Russians spend on alcohol and tobacco compared to the rest of the world? Or how much households in Saudi Arabia allocate to recreation?

Today’s data visualization from The Economist shows how much people in households around the world allocate to different expenses such as food, housing, recreation, transportation, and education.

The first thing to note is that this looks at private spending only, and does not include any public spending that could be allocated to each household. As a result, in places like Canada or the EU, spending on healthcare is much smaller than in comparison to the United States, where households spend 20.9% of their money.

Source: VisualCapitalist

Here’s a few interesting stats:

In Russia, where housing is subsidized, people spend way less on housing, fuel, and utilities with only 10.3% of money allocated. At the same time, they are the biggest relative spenders on food, alcohol and tobacco, and clothing.

Developed countries are more or less the opposite of Russia in this regard. In places like the United States, Canada, Japan, or the EU, about 20-25% of money is spend on housing, fuel, and utilities. Meanwhile, consumption of food, alcohol and tobacco, and clothing are on the lower ends of the spectrum. In fact, its actually the United States that spends the smallest portion on food altogether, at only 6.8%.

Contrast that to India, where GDP per capita is by far the lowest at only US$1498.87. With little disposable income, Indians spend a much higher proportion of money on necessities such as food (about 30%), while using much less income on things like recreation (1.5%) or restaurants and hotels (2.6%).

http://www.zerohedge.com/news/2015-09-20/how-world-spends

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Rousseff Coup Could Sink Brazil, Emerging Markets

Submitted by Shock Exchange

Rousseff Coup Could Sink Brazil, Emerging Markets

Brazil's President Dilma Rousseff's approval rating has plummeted to 8% amid the country's worst recession in two decades. Her job is at risk too. Earlier this week opponents filed a petition to impeach Rousseff due to allegations of corruption by former president Luiz Inacio Lula da Silva at oil giant Petrobras of nearly $2 billion:

This week opponents of Ms Rousseff, incensed by allegations that "pixulecos" mostly involving ruling coalition politicians have cost Petrobras at least R$6bn (US$1.5bn), took their campaign to congress by filing a petition for impeachment with the speaker of the lower house Eduardo Cunha ... The petition from Mr [Helio] Bicudo, which was backed by the opposition in congress, marks the start of what could be a long process to try to topple the former Marxist guerrilla only nine months into her second four-year term.

Rousseff - hand-picked by Lula da Silva to succeed him - appears to be caught up in da Silva's backdraft. Opposition parties also claim she violated Brazil's fiscal responsibility law when she doctored government accounts to allow more public spending prior to the October election last year. Rousseff in turn described the attempt to use Brazil's economic crisis as an opportunity to seize power a modern day coup.

Inopportune Time For A Coup

Petrobras In Dire Straits

Political turmoil could not have come at a worst time. The Petrobras debacle has been a point of contention for the populace. While the elite profited from bribes and kickbacks at the state-owned oil giant, Petrobras is laying off workers and cutting supplier contracts in order to stem cash burn.

And those efforts may still not be enough to stave off bankruptcy. With $134 billion in debt - $90 billion of it dollar-denominated - Petrobras is the world's most-indebted oil company. With oil prices 60% below their Q2 2014 peak, Petrobras will likely crumble under its debt load.

Budget Requires All Hands On Deck

Brazil's fiscal picture is not much better. The economy contracted nearly 2% in Q2 and the Brazilian real has depreciated against the U.S. dollar by nearly 40% over the past year. That said, the country will find it difficult to grow revenues amid declining commodities prices. Including interest payments, the country's budget deficit was projected to grow to 8%-9% of GDP, prompting S&P to downgrade the Brazil to junk status:

Source: The Economist

Brazil finance minister, Joaquin Levy, immediately did an about face; Levy put forth an austerity plan that suggested a R$65 billion mix of cuts and tax increases could generate a 0.7 percent surplus in 2016. The revival of the CPMF tax on financial transactions is expected to raise about R$32 billion, while healthcare, agriculture subsidies, low-income housing programs and infrastructure are expected to bear the brunt of the cost cuts.

The market reacted positively to the austerity plan - the Brazilian real rallied briefly after it was announced. However, Rousseff will need political capital to get the austerity plan approved by congress and supported by the populace. Any delays could prompt Fitch and Moody's to also downgrade Brazil to junk status. An impeachment of Rousseff would probably cause all three rating agencies to move; such act would surely cause more capital flight and pressure the currency further.

Why Brazil Matters

Brazil is a country of interest due to its bellwether status for emerging markets and its $300 billion in dollar-denominated debt.

If Brazil goes, other emerging markets could also get hit. A free fall in the Brazilian real could trigger defaults if dollar-denominated debt becomes too burdensome for Petrobras and others. Such defaults could leak into global bond funds, trigger margin calls or derivatives defaults for counterparties. According to hedge fund giant Bridgewater Associates, the impact is consideredunknowable, which could cause a selloff in global markets until the risk is contained. Investors should avoid Brazil and the U.S. stock market due to the risk of a coup or protracted impeachment process.

http://www.zerohedge.com/news/2015-09-20/rousseff-coup-could-sink-brazil-emerging-markets

Friday, September 18, 2015

FX: Debate on last look continues to rage

by Paul Golden Regulators might be suspicious of it, but even market participants who have shifted their stance on last look reckon clients should be allowed to make up their own minds. Over-the-counter markets famously suffer from a lack of transparency given the quote-driven model, feeding fears over dealers with spread-setting monopolies and a lack of transparency over execution process. On the latter, one practice has come under regulatory fire: last look, which refers to market makers having a final opportunity to reject an FX order after a client commits to trade at a quoted price. Eliminating last look would remove some liquidity from the market Jim Cochrane, ITG The final report of the UK’s Fair and Effective Markets Review referred to the need for improving the controls and transparency around this practice, which it says could be abused by market makers, either by asymmetrically accepting or rejecting orders based on market moves after the order is placed, or by using the order to inform other trading activity before acceptance. It calls for a global set of guidelines to supervise the practice. Both Thomson Reuters and Bats Global Markets have amended their use of last look in recent months, by reducing the time available to reject trades, while large FX banks have clamped down on the activity. In May, Hotspot reduced the time a liquidity provider has to accept/reject a trade from 200 milliseconds to 100 milliseconds, while FXall has implemented an unspecified reduction. Hotspot participants can choose the types of liquidity they would like to access, although Bill Goodbody, senior vice-president, head of FX at Bats, observes that a mix of firm and non-firm liquidity typically yields tighter prices. "For example, bid-offer spreads can be up to 80% tighter than spreads from firm liquidity alone," he says. Goodbody suggests that eliminating non-firm liquidity would be disruptive to the market and would likely lead to wider spreads for investors. "On the basis that non-firm liquidity provision is open, transparent and disclosed to the client, we don’t believe it should be restricted," he says. "Customers should be allowed to choose the way they want to trade." This point is made even more trenchantly by New Change FX managing director Andy Woolmer, who says the elimination of last look would cause spreads to widen to reflect the risk being taken by the market makers and the cost burden of actively policing the absence of last look. "All clients can see their fill rates and who honours their pricing and who doesn’t," states Woolmer. "If clients choose to use market makers with less than perfect fill ratios, that is up to them. They should be prepared to have meaningful conversations with their market makers where they aren’t happy with the service." Last-look pricing offers the hope – but not the guarantee – of a better execution fill rate, often compressing the top of book quote through aggregation and smaller deal sizes, adds ITG director Jim Cochrane. "Eliminating last look would remove some liquidity from the market," he says. "Since the advent of aggregation and high-frequency trading, the spot market has grown considerably – a portion of that growth would be put at risk." Customers should be allowed to choose the way they want to trade Bill Goodbody, Bats The counter-argument is that it would create a level playing field and remove the ability for orders to be handled in an asymmetrical manner, observes James Watson, managing director ADS Securities UK, who compares the ability to cancel orders to having phantom liquidity in the market. Watson describes last look as an appropriate tool for when pricing latency was high and a lack of computer power meant platform performance was often lacking, but also states the market still comes with risk for liquidity providers and that if they cannot guard against this, prices will have to be increased. ITG’s Cochrane says he understands why some observers feel the practice distorts the FX market, adding: "The top of book quote is only available for small trade sizes and if the market is thin, a dealer can move their quotes to a less risky level. "Large trades are therefore susceptible to considerable market impact if liquidity is low and volatility is high. A no-last-look price would be guaranteed for a short time; a last-look trade is not guaranteed at all." As a general principle, Deutsche Asset & Wealth Management is not in favour of last look, says its global head of fixed income and FX trading, Juan Landazabal. Further reading Financial regulation: special focus He rejects the view that eliminating last look would impact the market from a liquidity perspective and says it might even lead to better transparency and conduct, while acknowledging this could also leave the market without a legitimate mechanism to resolve situations where two or more counterparties were tied in price. According to Alex McDonald, CEO of the Wholesale Markets Brokers’ Association, tensions between market makers and counterparties could be reduced by the use of agreed market standards and codes of conduct. "These would be evidenced in the exchange of documentation, making the market fairer for the client whilst encouraging efficiencies in market making and providing narrower spreads for the dealer bank," he says. Watson at ADS agrees that greater transparency around the use of last look and a common standard for reporting the real price in the underlying market could go a long way to addressing concerns. "However, these are industry-wide issues that need to be addressed on a global scale," he warns.

Full article: http://www.euromoney.com/Article/3487423/FX-Debate-on-last-look-continues-to-rage.html?copyrightInfo=true
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Thursday, September 17, 2015

Former RBS FX Trader Claims Unfair Dismissal Following FX Rigging Scandal

The slew of dismissals in the wake of the FX market manipulation scandal is coming home to roost for a number of banks. Indeed, as banks came under investigation by UK and US regulators, subsequently incurring some $10 billion in fines, many big banks began a perhaps over-zealous bout of firing embroiled FX traders.

The dismissals may have been too much of a knee-jerk reaction from banks, who sought to save their reputations. Indeed, a number of those fired forex traders have taken legal action against their former employees, claiming that they were unfairly dismissed.

The newest case of a disgruntled former employee is that of Ian Drysdale, a senior FX trader who was suspended from the Royal Bank of Scotland (RBS) in February 2014 and later dismissed. He has filed a claim at a London employment tribunal against RBS for unfair dismissal and breach of contract, according to Reuters.

The Central London Employment Tribunal said in a filing that the hearing is scheduled to start on September 28 and will run for three days.

Indeed, the repercussions of the trials will likely be a further headache for the banks, who doubtless just want the issue to go away. Only last week, Perry Stimpson highlighted many of the plaintiffs’ concerns that the sharing of client information was widespread and condoned by senior management.

He went on to tell the East London Employment Tribunal that senior Citigroup staff manipulated the sterling rate to sink $35 million in illicit profits on an M&A deal that the bank was handling.

RBS, which has been heavily bailed out by the British government and remains 73% under public ownership, has been hit hard by $1.3 billion in fines related to market manipulation.

The new case by Mr Drysdale may come as somewhat of a surprise, as the bank was forthcoming in announcing that it was conducting enhanced investigations into the forex rigging scandal. RBS has said that in total it has dismissed three employees and suspended another two in relation to the scandal.

http://www.financemagnates.com/institutional-forex/regulation/former-rbs-fx-trader-claims-unfair-dismissal-following-fx-rigging-scandal/

Saturday, September 12, 2015

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Russian Bank Caught Using Fake Gold As Reserve Capital

Over the past several years, incidents involving fake gold (usually in the form of gold-plated tungsten) have emerged every so often, usually involving Manhattan's jewerly district, some of Europe's bigger gold foundries, or the occasional billion dealer. But never was fake gold actually discovered in the form monetary gold, held by a bank as reserve capital and designed to fool bank regulators of a bank's true financial state. This changed on Friday when Russia's "Admiralty" Bank, which had its banking license revoked last week by Russia's central bank, was reportedly using gold-plated metal as part of its "gold reserves."

According to Russia's Banki.ru, as part of a probe in the Admiralty bank, the central bank regulator questioned the existence of the bank's reported quantity of precious metals held in reserve. Citing a source, Banki.ru notes that as part of its probe, instead of gold, the "regulator found gold-plated metal."

The Russian website further adds that according to "Admiralty" bank's financial statements, as of August 1 the bank had declared as part of its highly liquid assets precious metals amounting to 400 million roubles. The last regulatory probe of the bank was concluded in the second half of August, said one of the Banki.ru sources. Another source claims that as part of the probe, the auditor questioned the actual availability of the bank's precious metals and found gold-painted metal.

The website notes that shortly before the bank's license was revoked, the bank had offered its corporate clients to withdraw funds after paying a commission of 30%. This is shortly before Russia's central bank disabled Admiralty's electronic payment systems on September 7.

Admiralty Bank was a relatively small, ranked in 289th place among Russian banks in terms of assets. On August 1 the bank's total assets were just above 8 billion roubles, while the monthly turnover was in the order of 40-55 billion rubles. The balance of the bank's assets was poorly diversified: two-thirds of the bank's assets (4.9 billion rubles) were invested in loans. The rest of the assets, about 30%, were invested in highly liquid assets.

Or at least highly liquid on paper: according to Banki.ru the key reason for the bank's license revocation was the central bank's insistence that the bank had insufficient reserves against possible loan losses.

The Russian central bank has not yet made an official statement.

The first question, obviously, is if a small-to-mid level Russian bank was using gold-plated metal to fool the central bank about the quality of its "gold-backed" reserves, how many other Russian banks are engaged in comparable fraud. The second question, and perhaps more relevant, is how many global banks - especially among emerging markets, where gold reserves remain a prevalent form of physical reserve accumulation - are engaging in comparable fraud.

Finally, what does this mean for gold itself, whose price on one hand is sliding with every passing day (thanks in part to what is now a record 228 ounces of paper claims on every ounce of physical gold as reported before), even as it increasingly appears there is a major global physical shortage. If the Admiralty bank's fraud is found to be pervasive, what will happen to physical gold demand as more banks are forced to buy the yellow metal in the open market to avoid being shuttered and/or prison time for the executives?

http://www.zerohedge.com/news/2015-09-12/russian-bank-caught-using-fake-gold-reserve-capital

Sunday, September 6, 2015

The True Cause Of The 'Black Monday' Crash

The market crash that sent the Dow Jones Industrial Average plummeting by more than 1,000 points within minutes of the opening bell on August 24 has been partially blamed on a SunGard software problem that led to a large number of ETFs temporarily trading at heavy discounts to their net asset values.

However, according to Ben Hunt, chief risk officer at Salient Partners, the real cause of the crash was not a computer glitch, but rather a larger problem with the prevailing ETF trading mentality.

Allocation Versus Investing

In a new note, Hunt discussed the difference between investing and portfolio allocation.

Investing involves buying shares of a stock that represent fractional ownership of a money-generating company. ETFs by definition are funds, which means that they represent an allocation to a particular theme, rather than an actual asset that buyers want to own.

“Like so many things in our modern world, the exchange traded nature of the ETF is a benefit for the few (Market Makers and The Sell Side) that has been sold falsely as a benefit for the many (Investors),” Hunt wrote.

ETF Trading Benefits Wall Street

Hunt pointed out that it is in the best interest of market makers and sell-side firms to generate trading volume in ETFs, and the idea that a large portion of the August 24 ETF trading volume consisted of stop-loss orders being taken out shows how investors are looking at ETFs in the wrong way.

“If you’re an Investor with a capital I (as opposed to a Trader with a capital T), there’s no good reason to put a stop-loss on an ETF or any other allocation instrument,” Hunt argued. The point of an allocation is to expose a portfolio to a return stream with a particular set of qualities, and the price of the ETF has very little to do with that purpose.

The True Cause Of The Crash

Hunt believes that investors have succumbed to pressures from market makers and sell-side firms to speed up their trading habits and shorten their investing time horizons. This behavior will likely continue to manifest itself in the ETF markets in the form of wild price swings such as the ones witnessed on August 24.

Image Credit: Public Domain

Friday, August 28, 2015

Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did

You can't say Nassim Taleb didn't warn you: the outspoken academic-philosopher, best known for his prediction that six sigma "fat tail", or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb.

The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.

The WSJ reports:

Universa Investments LP gained roughly 20% on Monday, according to a person familiar with the matter, a day when the market collapsed more than 1,000 points in its largest ever intraday point decline. Universa’s profits—some realized and some on paper—amounted to more than $1 billion in the past week, largely on Monday, as its returns for the year climbed to roughly 20% through earlier this week.

“This is just the beginning,” said Universa founder Mark Spitznagel, a longtime collaborator with Mr. Taleb, who advises Universa, lectures at New York University and is known for his pessimistic forecasts about the global economy. Mr. Spitznagel himself has spent the last several years warning of a coming correction, one he viewed as inevitable given accommodative policies by central banks around the world.

“The markets are overvalued to the tune of 50% and I’ve been saying that for some time,” said Mr. Spitznagel.

Universa gained renown for its outsize gains in 2008, racking up more than 100% profits for many of its clients. In 2011, it notched around 10% to 30% gains for clients. During the years in between it posted steady, small losses.

The firm focuses on finding cheap, shorter-dated options on the S&P 500 and other instruments it expects to rise in value amid a notable downturn.

During the past week, the value of such options that Universa bought over the past one to two months jumped, said people familiar with the matter.

The Miami-based Universa and some other “black swan” hedge funds that seek to reap big rewards from sharp market downturns have emerged as winners amid the world-wide volatility of the past week, say their investors, racking up double digit gains in roughly the past week.

Incidentally, this is precisely what a "hedge" fund should do: protect against massive, "fat tail" days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles. Needless to say this makes most of them utterly useless, especially since one can just buy the SPY for almost nothing, and avoid paying the hefty 2 and 20 (or 3 and 45) fee, which until recently was merely there to fund trading based on inside information aka "expert networks" and "idea dinner" thesis clustering.

And speaking of non-hedging "hedge" funds, the table below lays out the performance of some of the most prominent names through either Friday of last week, or as of mid-week. You will notice three things: i) a lot of minus signs for entities that supposedly "hedge" market drops, ii) Bill Ackman's Pershing Square, which until last month was among the best performers, was - as of Wednesday - down for the year, and iii) Ray Dalio's "risk parity" quickly has become "risk impairty" in an environment where both stocks were sold by the boatload, at the same time that China was dumping US treasurys - a scenario no "risk parity" fund is prepared for.

http://www.zerohedge.com/news/2015-08-28/nassim-talebs-fund-made-1-billion-monday-how-other-hedge-funds-did

Thursday, August 27, 2015

HFTs Are Overheating: CenturyLink Reports "Catastrophic" HVAC Failure At NJ2 Data Center, Starting "Safe Shut Down"

If today's ridiculous move is the kind that no retail investors would chase, it is precisely what HFTs around the globe love: nothing but momentum, momentum, momentum. In fact, HFTs are trading so much, they are literally overheating!

According to a notice mailed out moments ago by CenturyLink, its NJ2 data center has just experienced a "critical" HVAC data failure.

Incident Notification
All times listed are in Central time zone.

Time and Date of Event: 10:08, 08/27/2015
Location: ZZNJ2

Event Description: The south side of the NJ2 data center is having a critical HVAC event. Clients are being requested to begin a safe shut down of devices immediately.

Current Status: Steps are being taken by the data center to safely shut down client devices by request due to temperature concerns on the South side of the building.

Next Status Update: 30 mins

* * *

Here are some specifics on the NJ2 data center:

Real Estate Summary

    Located near Newark International Airport; 15 minutes from Manhattan, NY
    Four story building
    Total building interior (sf) = 223,022
    Raised floor (inches) = 12

Electrical Summary

    PSE&G provides power feeds
    Power density minimum (W/sf) = 150
    Generator configuration = N + 1
    Total Power Capacity = 16 MW
    Minimum two fuel replenishing companies

Mechanical Summary

Cooling system configuration = N + 1
CenturyLink manages temperature and humidity to strict ASHRAE standard

Fire Detection and Suppression Summary

VESDA provides early warning detection
FM200

How do we know HFTs are involved? Moments ago, BATS issued an advisory:

BATS Weehawken Network Point-of-Presence (NJ2 PoP) Advisory

August 27, 2015 12:26:21

Please be advised that the CenturyLink Weehawken, NJ data center (NJ2) maintaining a BATS PoP has reported a critical HVAC issue. Per CenturyLink, the cage will not have cooling over the next couple of hours at a minimum, so BATS would like to advise Members utilizing the BATS NJ2 PoP of potential impact that could result from overheating of equipment. BATS has shutdown all non-critical infrastructure at the NJ2 PoP at this time and will continue to monitor the situation. There is currently no customer impact but BATS will advise with material updates to this situation in NJ2 and if customer impact is expected.

IMPORTANT: There is no customer impact at this time in NY5 or NY4 (Secaucus) and all BATS exchange platforms are operating normally.

And while BATS may be safely offline and trading out of a redundant location, one wonders just how many other "wealth effect" mission critical HFTs clients of CenturyLink are about to go offline, and whether the entire market is about to go down with them?

This is a developing story: more as we see it.

http://www.zerohedge.com/news/2015-08-27/hfts-just-overheated-centurylink-reports-catastrophic-hvac-failure-nj2-data-center-s

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