Archives for January 2014

Matt Taibbi Asks Why Obama’s Regulatory Strategy in Reforming the Banks Is Such a Joke

Matt Taibbi Asks Why Obama's Regulatory Strategy in Reforming the Banks Is Such a Joke

Courtesy of Jesse's Cafe Americain

 
 

 

I was glad to see someone talk about this, because for whatever reason I did not see a strong reaction in the media to this arrogant defiance by the board of JPM. In fact, there were several 'stop picking on Jamie' sessions led by the pom pom spokesmodels on financial TV.

It is always hard, and often dangerous and unfair, to judge someone's motives.  But we can assess the effects.

The lack of actual reform led by the Obama Administration, and of course a corporate compliant Congress, is hard to understand except in terms of the corrupting power of campaign funding that is pretty much out of control, and undermining the character of the Republic.  

Yes, Mitt 'would have been worse.'  But that does not make Obama good, or effective. It makes him Brand Y to Mitt's Brand X.  But the hearts of both brands belong to the same Daddies.  And the same can be said of much of the governance of the developed nations, especially the English speaking peoples and their client states.

As outlined in This Town by Mark Leibovich, the primary occupation in Washington DC is now putting on the feedbag during and after your 'public service.'  This has always been a problem, but now it is widely accepted, and even fashionable.

Is Obama driven by ideology, bad advice, amoral ambivalence, or just plain old personal greed, a desire to 'get paid?' With Bush et al. there was no question about it. And pretty much the same goes for the Clintons, who accepted Wall Street's proposal of ongoing partnership.   

But Obama presented himself as something new to Washington, someone different, someone offering big changes from the past. 
 

 

And then he proceeded to bring in the same old people, and the same old failed policies towards financial regulation, and even continued quite a few Bush Administration policies.   And despite promises of transparency, he doubled down against whistleblowers.  

As a 'socialist' he is a moderate Republican, ideologically driven to bad policy decisions like Herbert Hoover, with a tinge of Nixonian insularity.  

It is funny but in rereading some pieces about Herbert Hoover, a basically decent man of significant personal accomplishments, I came across denunciations of him as a 'socialist' by the extreme neo-liberal Austrio-whacky wing of the economic spectrum.   He did blame the Democrats in the House for distracting him, and impeding his policies of fostering confidence by persuading business and the Banks to do more for the public good.

Hoover was bound by a particular ideology with regard to government that was basically laissez-faire in its character.  He just did not have the heart to actually starve people and throw out the victims of the financial system into the cold when push came to shove.  But some of his advisors certainly did, and their ideological descendants still do, and will.

Too often Obama seems to be a well-positioned corporate brand, promoted like any other product.  And this is what makes him particularly disappointing.  Bush, Carter, and Clinton could not have been tragic, because they had no heights from which to fall.  A manager makes peace with his times and situation, seeking the best he can get; a leader changes them,  including the tone of the conversation and the assumptions and direction of the deal.    

As for Obama, like Herbert Hoover, his presidency verges on the tragic, and the ending has yet to be written.  

Rolling Stone
Jamie Dimon's Raise Proves U.S. Regulatory Strategy is a Joke
By Matt Taibbi
January 30, 2014

If you make a big show of punishing someone, and when you're done they still don't think they have a behavior problem, you probably picked the wrong punishment. Every parent on earth knows this implicitly – but does the Obama White House finally get it, too, now, after Jamie Dimon's raise?

When the board of JP Morgan Chase gave its blowdried, tirelessly self-regarding CEO a whopping 74 percent raise – after a year in which the Justice Department blasted the bank with $20 billion in sanctions – it was one of those rare instances where Main Street and Wall Street were mostly in agreement.

Everyone from the Financial Times to Forbes.com to the Huffington Post decried the move. The Wall Street pundits mostly thought it was a dumb play by the Chase board from a self-interest perspective, one guaranteed to inspire further investigations by the government. Meanwhile, the non-financial press generally denounced the raise as a moral obscenity, yet another example of the serial coddling of Wall Street's habitually overcompensated executive class.

Both groups were right. But to me the biggest news was how brutal an indictment Jamie's raise was of the Obama/Holder Justice Department, which continues to profoundly misunderstand the mindset of the finance villains they claim to be regulating.

Chase's responses to Holder's record penalties have been hilarious. Their first move was to make sure people outside the penthouse boardroom took on all the pain, laying off 7,500 employees and freezing salaries for the non-CEO class of line employees.

Next, Chase's board members sat down, put their misshapen heads together, considered the impact of this disastrous year of settlements, and decided to respond by more than doubling the take-home pay of the executive in charge, giving Dimon about $20 million in salary and equity.

In the end, the fines left the decision-making class of the company not just uninjured but triumphant. Dimon's raise was symbolic of a company-wide boost in compensation following the mass layoffs, as average per-employee expenses rose four percent overall, to $122,653, despite the $20 billion burden imposed upon the firm by the state…

People like Holder still don't understand that the leaders of these rogue firms have no problem blowing up their own companies and/or imperiling the world economy, so long as they continue to personally get paid.

Regulators have been blind to this for years, decades. It's why the Fed, the OCC, the OTS, the Justice Department and a host of other agencies missed incoming icebergs like the AIG and Lehman disasters, once upon a time.

In fact, since the days of Alan Greenspan and his halcyon dreams of a future of pure self-regulation, the notion that corporate leaders will always act in the interest of their own firms – that they'll behave according to the principled corporate egoism that was an article of faith both for Ayn Rand and acolytes like Greenspan – has been a core basis for broad policies of regulatory restraint…

Take some time to read the entire article by Matt Taibbi here.

 

ADT’s Earnings Report – Not Really Alarming

ADT's Earnings Report – Not Really Alarming

Courtesy of Paul Price, Market Shadows

When others panic, we see opportunity.

Market Shadows established a new short put position today on home security company ADT Corporation (ADT).  

ADT was spun off from Tyco International (TYC) on Sep. 28, 2012.  It has traded independently on the NYSE since then.  In March of 2013 investor enthusiasm was running high.  ADT shares peaked at $50.37. At that pinnacle ADT's P/E was greater than 30x trailing earnings of $1.72 per share.

Earlier today ADT announced slightly lower than expected numbers for the December 2013,  fiscal Q1 of 2014. Trailing 12-month EPS, at $1.83, are now higher than they were in March of 2013 yet the stock  briefly tanked by more than 20%.  ADT bottomed intra-day at a new all-time low of $29.56.

When others were selling in despair we stepped in and sold 4 contracts of the January 15, 2016, expiration $28 strike price puts @ $4.10 per share. We collected $1,640 while agreeing to stand ready to buy 400 shares at a net cost, if exercised, of $23.90 ($28 strike – $4.10 put premium).

 ADT quote with Jan. 2016 put prices

We also placed an order to sell the 2016 series, $30 puts @ $5.20 but nobody hit our offer price.

 ADT   Chart since spin-off

Our break-even point is dollars below where any ADT shares have ever changed hands. That $23.90 ‘if put’ price would be 13.1x present-day trailing earnings. The 20-cent quarterly dividend would make for a 3.34% current yield at our theoretical entry level.

Track all Market Shadows’ closed-out and currently active option positions by clicking here–the Virtual Put Selling Portfolio.

Stocks for 2014: Fairly Valued Dividend Growth Stocks with an Emphasis on Dividends – Part 4

Courtesy of Chuck Carnevale.

Introduction

I am a firm believer that common stock portfolios should be custom-designed to meet each unique individual’s goals, objectives and risk tolerances.  With that said, I believe it logically follows that in order to create a successful portfolio, the individual investor must first conduct some serious introspection to be sure that they truly “know thyself.”  Therefore, I believe the first, and perhaps most critical step, towards designing a successful equity portfolio is to ask your-self, and honestly answer several important questions.

As an aside, I feel this first step is critical regardless of whether you are a do-it-yourself investor (DIY) or are inclined to hire professionals to manage your portfolio.  My point being, that even the best designed portfolio will fail if the person for whom it is constructed to serve is not emotionally capable of sticking with it through all market environments.  It is an undeniable truth that there is no such thing as a perfect stock portfolio that is capable of providing uninterrupted positive performance under all market and economic scenarios.  In other words, as investors, we must be prepared and capable of weathering the occasional storm.  To be clear, this paragraph is alluding to the inevitability of stock price volatility over time, and the respective individual investor’s ability to deal with it.

Consequently, a few of the most important questions that must be honestly answered are: How will I be able to handle the inevitable price volatility that goes hand-in-hand with the long-term ownership of stocks (businesses) in an equity portfolio?  Will I be able to stay calm or am I more inclined to panic during bad markets?  Am I comfortable being a long-term investor, or do I prefer investing as a swing trader?  These are the types of questions that must be honestly answered and considered carefully in order to build and manage an equity portfolio that’s ultimately successful and appropriate for you.

With the above thoughts in mind, this series of articles is offered in order to provide reasonably valued common stocks of various kinds providing the potential of something for everyone.  In part 2 and part 3 my focus was on providing ideas for investors most interested in total return.  Consequently, growth ideas trumped dividend ideas.  In this part 4, and all remaining additions, the focus will shift from growth to income.  Therefore, the emphasis of this and all remaining articles will be on dividend income and the growth thereof.  Hence, and to summarize, my second and third articles may be more relevant to investors seeking total return, whereas this and all subsequent articles should be more relevant to investors focused on maximizing their dividend income streams.

A Few Words on Total Return Performance Standards and Reporting

There are very rigid regulatory and industry standard performance reporting requirements.  The objective is to require and assure that any and all management firms, to include mutual funds, indices, ETF’s and RIA’s etc., calculate and report performance numbers that are apples-to-apples comparisons.  Therefore, all performance reporting is presented on a level playing field.  In a general sense, this is a very good thing that provides investors a level of confidence when comparing the performance of one group to another.

On the other hand, like most things in life, there are certain weaknesses and flaws with strictly adhering to these standards that can, in effect, be partially misleading.  The calculation of total return numbers represents a case in point.  Although I agree, that when the rules are strictly followed as they are required to be, total return calculations tend to be quite accurate.  In simple terms, the calculation of total return includes both the capital appreciation component and the dividend income component on equity portfolios over the time period being measured.  However, a total return calculation, though accurate, does not always or adequately tell the whole story regarding performance.

This point is especially relevant and important to retired investors with the objective of maximum current income.  The problem is that the two components of return, capital appreciation and income, are being reported in the aggregate.  However, for the income investor, total return calculations do not satisfactorily reflect the area of performance that is most relevant to them.  To these investors, the dividend yield or income component is what matters most.  However, total return calculations do not separately report the capital appreciation component and the dividend component.

I offer the following examples of calendar year 2013 performance on portfolios that I manage on behalf of clients to illustrate my point.  The dividend growth portfolios that I manage produced a total return of 31.64% in 2013.  In comparison, the S&P 500 produced a slightly higher total return of 32.39% during calendar year 2013.  Therefore, at first glance, it appears that the S&P 500 outperformed my dividend growth portfolios, albeit it only modestly. However, if the two components of return are looked at separately you would discover that my dividend growth portfolios outperformed the S&P 500 on the area of performance that mattered most – dividend income.

The current dividend yield and the total cumulative dividends paid in 2013 were substantially higher on my dividend growth portfolio than it was on the S&P 500.  To put it simply, it logically follows that the capital appreciation component on the S&P 500 was greater than on my dividend growth portfolios, but not the dividend income portion.  Since my dividend growth portfolios were designed to produce current income at reasonably controlled levels of risk, it is clear that they outperformed the S&P 500 where it mattered most – income. 

Furthermore, so far in early 2014, the current yield of my dividend growth portfolios is slightly over 3% whereas the S&P 500 is only offering a current yield of 2%.  Accordingly, the yield advantage continues on, regardless of whether or not capital appreciation turns out to be more or less than the S&P 500 in 2014.  In other words, I am confident that my dividend growth portfolios will continue to produce more yield in future time than the S&P 500, just as they have in past time. This is important because the dividend income is being distributed without the need to harvest principal.   

Moreover, the vast majority of stocks in my dividend growth portfolios are blue chips with long histories of increasing their dividend every year.  To be clear, the dividend income on my dividend growth portfolios increased from the prior year in 2007, 2008, 2009, 2010, 2011, 2012 and again in 2013.  In contrast, the S&P 500 had a sharp 21% decline of their dividend in 2009.  Of course, both my dividend growth portfolios and the S&P 500 experienced sharp declines in stock price (negative capital appreciation) in 2008 during the Great Recession.  However, the important difference was that my dividend growth portfolios continued to produce higher income each and every year, which is the primary investment objective of the portfolios.

The above performance examples are not offered to brag or as an excuse.  Instead, they are offered to illustrate an important principle that is often overlooked when comparing performance results, especially when the focus is only on total return.  Although everyone is happy to achieve high total returns on their portfolios, if the investment objective is dividend income, which is most relevant to retired investors, then total return does not tell the whole story.  However, current reporting standards do not accommodate the separation of the two components of return – capital appreciation and dividend income.

There is another important principle relating to capital appreciation that only focusing on total return tends to ignore or overlook.  The capital appreciation component of the total return calculation represents what is commonly called an unrealized gain.  In other words, capital appreciation is not captured unless and until the security is sold.  In contrast, dividend income is a realized return because it is paid in cash.  Consequently, to that extent, the capital appreciation component is potentially illusionary, while the dividend component is real.

Fairly Valued Dividend Growth Stock Research Candidates for Current Yield

The primary focus of this article is on dividend income, and the long-term growth of that dividend income.  Consequently, I screened the universe for high-quality dividend paying stocks with current yields above 2.5% and a history of increasing their dividend each year.  Of equal importance was identifying those high-quality dividend paying stocks that were at, below or very near fair valuation currently.

The following portfolio review generated in alphabetical order lists 20 potential research candidates that meet my criteria.  As a generalized and oversimplified statement, I believe that most of these candidates would represent sound purchases for the dividend growth investor at a P/E ratio of 15 or below.  Consequently, a few of these candidates have current P/E ratios that are modestly above that threshold.  However, I believe that the reader should consider that fair valuation should always be thought of as a range of valuation.  Therefore, my 15 P/E ratio objective could be thought of as a P/E ratio range of 14 to 16.  On that basis, they would all represent candidates that are at least worthy of further due diligence and/or consideration.

Portfolio Review: 20 Fairly Valued Dividend Growth Stock Research Candidates for Current Yield

In part 1 of this series I highlighted two sample candidates, Chevron and Wal-Mart Corporation.  With this article, I will highlight two additional above-market yielding dividend growth stocks.

Exxon Mobil Corporation: (XOM)

Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, as well as the manufacture of petroleum products, and transportation and sale of crude oil, natural gas, and petroleum products.  At this point, the reader should note that major oil producers have seen their earnings capitalized at a discount to companies in other industries with similar records of earnings and dividend growth.  Therefore, I believe that prospective investors should take that fact under careful consideration when considering investing in the integrated oil and gas sector.

Considering that the average company as measured by the S&P 500 is currently commanding a P/E ratio slightly above 16, Exxon Mobil Corp. with a P/E ratio of only 12.6 appears to be a bargain.  In truth and fact, this may be so.  However, as I previously stated, prospective investors should be aware of the typical discounted valuation these companies have received over the last decade or longer as depicted by the dark blue line (normal P/E ratio line) on the Earnings and Price Correlated Graph below.  The orange line represents the typical fair value P/E ratio of 15, which clearly illustrates that Exxon Mobil Corp.’s stock has rarely traded at a normal 15 P/E ratio since 2005.

Associated 10-year Performance Report – Focus on Dividends

Ingredion Incorporated:  (INGR)

My second example, Ingredion Incorporated, manufactures and sells starches and sweeteners derived from the wet milling and processing of corn and other starch-based materials to a range of industries, including the food, beverage, brewing, pharmaceutical, paper and corrugated products, textile, and personal care industries, as well as the global animal feed and corn oil markets.

Perhaps this company’s current low valuation can be attributed to a moderate drop in earnings for fiscal 2013.  On the other hand, current forecasts for a resumption of operating earnings growth to record numbers expected for 2014 might represent a great long-term buying opportunity.

Associated 10-year Performance Report – Focus on Dividends

10 High-Quality Blue-Chip Quality Premium Candidates

As regular readers of my work know, I am a stickler for only investing when I believe a company’s stock is trading at or below fair value.  As a general rule, I stand by that investing philosophy and belief.  However, there are exceptions to every rule.  Accordingly, there is a group of extremely high-quality blue-chip dividend paying stalwarts that arguably can only be normally purchased at a premium to my strictest definitions of fair valuation based on earnings.  I have previously written about these quality premium candidates found here.

Consequently, as a bonus of sorts, I offer the following 11 high-quality blue-chip dividend paying stalwarts that appear to be sound investments today, assuming you’re willing to pay a quality premium to invest in them.  However, perhaps a few explanatory remarks regarding the justification supporting these stocks’ commanding a quality premium valuation is in order.  First of all, by a quality premium I’m suggesting that these stocks are routinely awarded a higher valuation (P/E ratio) on their earnings than is awarded to the typical or average company.  In other words, the market is asking you to pay more for one dollar’s worth of these companies’ earnings, than it generally asks you to pay for other companies with comparable earnings records and growth rates.  This begs the simple question, why?

As a general tenet of investing, higher quality implies lower risk.  For example, with bonds, corporate bonds are generally required to pay higher interest rates than government bonds.  This is, in essence, the equivalent of the quality premium on equities.  More simply stated, investors are willing to accept less return for lower risk.  Paying a higher valuation for a blue-chip stock represents the same principle.  In theory at least, investors seem willing to pay up for quality.

The following 11 names are commonly considered as the crème de la crème of dividend paying blue-chip stalwarts.  These companies are all Dividend Champions or Aristocrats and offer consumers products and services that are among the world’s leading brands.  I believe that few could argue that these are all great and renowned publicly traded corporations.

Portfolio Review: 11 Fairly Valued “Quality Premium” Dividend Growth Stock Research Candidates

Earnings and Price Correlated Graphs Depicting Quality Premium Valuation

Although my quality premium valuation hypothesis is only a theory, real-world evidence seems to validate the premise.  The following Earnings and Price Correlated F.A.S.T. Graphs™ on four of these leading dividend growth stocks provide the evidence I am referring to.  There are three valuation lines on the graphs that I would like to direct the reader’s attention to.

The first is the orange earnings justified valuation line which depicts the theoretical fair valuation P/E ratio of 15, which commonly applies to the average company based on the rate of change of earnings growth.  By using this line as a barometer or guide to a typical measurement of fair value, we discover that each of these companies’ stock price (the black line) tends to be above this standard valuation metric.

This brings us to the dark blue line (normal P/E ratio line) that illustrates the valuation that the market has typically applied to each of these companies.  Here we discover that during normal economic times stock price has correlated more closely to this higher valuation line with these examples.  However, the reader should also note that the time period presented (calendar year 2005 to current) also includes the Great Recession of 2008 which brought the price of most stocks temporarily lower, and these quality premium blue-chips were no exception.  On the other hand, in each example below, we see that the stock price of these quality names is returning to their more normal valuations (the blue line).

The magenta valuation line on each graph is one that I added utilizing the P/E overlay option of F.A.S.T. Graphs™.  I included this line because it is more representative of the normal valuations of these blue chips over the past two decades.  In other words, the longer timeframe diminishes the temporary effects that were brought by the Great Recession.  Therefore, I feel that the magenta line is more representative of the typical quality premium valuation that the market has historically applied to these names.

The point of this exercise is to illustrate and provide evidence that a quality premium valuation is the norm for these blue chips.  Even so, it is up to the individual investor to decide for themselves whether this evidence supports investing in these high quality companies at their typical premium valuations.  On the other hand, a review of the performance reports included would support the notion that the decision to invest in these names at a quality premium valuation is a sound one.  This position is further supported by the impeccable dividend records of each of these companies.

Procter & Gamble: (PG)

The Procter & Gamble Company provides branded consumer packaged goods. The company’s products are sold in approximately 180 countries and territories primarily through retail operations including mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores and e-commerce. The company has on-the-ground operations in approximately 70 countries.

Associated 10-year Performance Report – Focus on Dividends

Coca-Cola:  (KO)

The Coca-Cola Company operates as a beverage company. The company owns or licenses and markets approximately 500 nonalcoholic beverage brands, primarily sparkling beverages and also various still beverages, such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.

Associated 10-year Performance Report – Focus on Dividends

PepsiCo, Inc.: (PEP)

PepsiCo, Inc. operates as a food and beverage company worldwide. Through its operations, authorized bottlers, contract manufacturers and other partners, the company makes, markets, sells, and distributes various foods and beverages, serving customers and consumers in approximately 200 countries and territories.

Associated 10-year Performance Report – Focus on Dividends

McDonald’s Corporation: (MCD)

McDonald’s Corporation franchises and operates McDonald’s restaurants in the restaurant industry. The company’s restaurants serve a menu at various price points providing value in 119 countries worldwide.

Associated 10-year Performance Report – Focus on Dividends

Valuation Based on Operating Cash Flows

The F.A.S.T. Graphs™ Fundamentals Analyzer Software Tool is currently testing the launching of our new and improved version based on Standard & Poor’s Capital IQ’s recently launched global database.  One of the many great benefits available from the new database is the addition of extensively more comprehensive estimates available for various fundamental metrics.  Our current legacy database only provided estimates for operating earnings, which is quite common for most available databases.  Therefore, our new version will include the option to evaluate stocks based on operating cash flows for C-Corps and reported FFO (funds from operations) on REITs, with two years of forward estimates.

Personally, I have always considered cash flows to be a vital and important fundamental to analyze in addition to, and in conjunction with, analyzing any given company’s earnings and price relationship.  However, many decades of researching and analyzing common stocks have convinced me that the correlation of price to operating earnings represents the most valid valuation measurement for most companies.  On the other hand, as I previously pointed out in this article, there are exceptions to every rule.

Therefore, since I was researching the above quality premium blue-chip dividend paying stalwarts for this article, I thought it would be interesting to review them based on my new toy utilizing earnings and operating cash flows.  What I discovered was astonishing.  The correlation between stock price and operating cash flows for this quality equity class is profound.  To be clear, the operating earnings and price relationship for most companies remains the standard, at least in my opinion.  However, the price and operating cash flow correlation on these quality premium dividend paying stocks is simply too remarkable to dismiss.

Consequently, I offer the four featured examples presented above based on stock price correlated to operating cash flows as a sneak preview.  Clearly, and for reasons that I am not yet certain about, valuing these businesses based on operating cash flows appears to be a valid option.  For disclosure, I am long all four of the following companies.  However, in the past I was unwilling to invest in them when their prices were above their earnings justified valuations.  Therefore, it took the Great Recession of 2008 to induce me to invest.  Perhaps I may alter my views after discovering the significant correlation that this additional research has uncovered.  Maybe this old dog can learn a few new tricks after all.

Procter & Gamble:  Fair Value Based on Price to Cash Flow

Coca-Cola Co:  Fair Value Based on Price to Cash Flow

PepsiCo:  Fair Value Based on Price to Cash Flow

McDonald’s:  Fair Value Based on Price to Cash Flow

Summary and Conclusions

Even after the stock markets’ run up over the past few years, I believe there are still attractive individual stocks (businesses) available.  Even though many of the dividend growth stock candidates presented in this article are trading at or near all-time highs based on stock price, that does not in itself suggest that they do not remain sound long-term investments.  The majority of the companies in this article are also generating all-time high levels of earnings and dividends.  Consequently, their valuations are not necessarily at all-time highs, only their stock prices.

Finally, this article is not intended to provide a comprehensive list of all potential dividend growth stocks that are fairly valued.  In my article next in this series, part 5, I will review dividend paying stocks with higher yields suggested for investors seeking maximum current dividend income.  Therefore, part 5 will include a few fairly valued select REITs, MLPs, utility stocks and other miscellaneous candidates with a focus on higher current yield.

Disclosure:  Long CL, CLX, EMR, GIS, JNJ, KO, MCD, PEP, PG, BAX, CSCO, CVX, DPS, DRI, GE, MSFT, RSG, TGT, WMT at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Please click here to read more articles at FastGraphs.com.

You’ll Never Grow Rich Taking A Profit

You'll Never Grow Rich Taking A Profit

Courtesy of Psy-Fi Blog
“I made up my mind to be wise and play carefully, conservatively. Everybody knew that the way to do that was to take profits and buy back your stocks on reactions. And that is precisely what I did, or rather what I tried to do…..They say you never grow broke taking profits. No, you don't. But neither do you grow rich taking a four point profit in a bull market.”
 

Orgasmic Trades
 

We hate taking a loss, so taking a profit is always good, we usually think.  After all, we’ve locked in our profits, so we can never take a loss on them.  Which is all well and good, if you have a continuous stream of brilliant investing ideas, such that you can replace the stock you’ve sold with one that’s better.

 
This is worse than loose thinking, it’s not thinking at all.  It’s not the profit we’ve made we should worry about, but the profit we’ve foregone.  It’s the opportunity cost of selling a profitable stock we should be concerned over, not the transient orgasm that comes with the brief thrill of a quick gain. 

 
Satanic Aphorisms

 
“You never go broke taking a profit” is a horrible, thoughtless, dumb investing aphorism that deserves to be consigned to the Satanic fires along with tipsheets and day trading.  It’s true, of course, but it justifies a whole raft of otherwise indefensible, idiotic and perverse trading behavior.  Worse still, it panders to one of our most fundamental behavioral weaknesses, loss aversion.  We just hate selling at a loss, so we will grimly hang on to loss making stocks. 

 
The disposition effect, which is an outcome of loss aversion, adds to this the nasty twist that we tend to sell our winning stocks too soon – which means we no longer run the risk of a loss on that stock (see Brains, Bulls and Lucky Tossers).  Of course, the problem is that we only track the stocks we hold.  So here’s a tip: keep tracking the stocks you've sold and see what the results are.  I can tell you one result – you’ll suffer from an alternative behavioral bias, regret. 

 
Utility Burned

 
The general idea about these biases is that they cause us actual pain.  So selling at a loss hurts, and we can avoid the hurt by refusing to sell.  And tracking the stocks we've sold and seeing them soar also hurts – and we avoid that particular experience by simply ignoring the stocks and hoping they'll go away.  Although if we do track them we still won’t repurchase them if they go higher, as Michal Strahilevitz, Terrance Odean and Brad Barber showed in Once Burned, Twice Shy.

 
That we engage in this peculiar behavior isn't really in question, but why we do it is another matter.  Economists would traditionally argue that we should operate in a way that ensures we gain the maximum utility from our trading behavior – which in that instance roughly equates to maximizing our capital.  But, as you might observe, even allowing for an element of hindsight and the limitations of our brains’ information processing abilities, it would appear that we fall some way short of perfect performance.

 
Realization Utility

 
One alternative possibility is that we actually gain utility not from the overall success or failure of our investing actions but from the act of realizing gains – or losses.  This was the idea behind a paper, Realization Utility, by Nicolas Barberis and Wei Xiong, who suspect that we’re more interested in how we evaluate our trades than in the total amount of money we make or lose.  They propose that we use a simple heuristic to guide us:

“Selling a stock at a gain relative to purchase price is a good thing – it is what successful investors do”
They also suggest that another cognitive process is at work – the idea of Event Segmentation, which originated with Jeffrey Zacks and Khena Swallow.  The proposal is that we “segment ongoing activity into meaningful events”:  this affects what we remember and is, largely, an automatic process.  Perhaps the easiest analogy is to think of our brains splitting up our continuous stream of experience into a series of discrete events – in effect, we digitize our own analogue lives.
 

Barberis and Ziong use this idea to hypothesize the idea of “investing episodes” – a continual stream of discrete events characterized by the investment name, its purchase price and its selling price.  And out of all this we gain utility not in terms of overall wealth but in terms of the pleasure (or pain) associated with the sequence of individual experiences of profits and losses from each of our investments. 
 

Moot Modelling

 

Whether the model is actually telling us something about our internal and unconscious processing of investments is moot, but it can certainly explain a raft of puzzling behaviors.  It shows why individual investors continually sell stocks which outperform those they buy and it offers an explanation for the disposition effect. It also predicts a range of other odd but demonstrable market anomalies – the facts that highly valued stocks are heavily traded or that stocks making historical highs tend to be sold quite heavily, for instance.

 

This latter point is particularly interesting, because the model expects that as a stock goes through a historical high we will see an inflection point.  As the stock approaches the high there will be little selling, because those investors who would gain so-called realization utility from selling at these prices will already have done so.  But once a new high is made there will be a wave of selling from investors who have liquidation points above that price.  Which is exactly what seems to happen in the real market.

 

Parasitic Memes

 

These psychological biases don’t prove that people tend to sell too soon, but the idea behind the “you can’t go bust taking a profit” meme is nastily parasitic.  A good parasite doesn't kill its host, because that tends to be a one-way ticket to oblivion.  What it actually does is siphon off enough sustenance to maintain itself and allow its host to continue to forage.  And, of course, this is exactly what the meme ensures – you can’t go bust taking a profit, but you can, and will, continue to provide the securities industry with an annuity income while ensuring that you have no chance whatsoever of growing rich.

 

The flip side of this, selling stocks that are losing, is equally difficult and equally valid.  But as The Babe Ruth Effect indicates many of the world’s greatest investors actually have more losing trades than winning ones.  But when they win, they win big.  But, of course, if we could all do this we’d all be filthy rich rather than simply not broke.

 

Psychic Pain

 

So here’s a challenge.  Don’t just forget about the stocks you’ve sold.  Create a portfolio of sold stocks and track their performance against the ones you’ve bought or continue to hold.  You will likely be surprised at the results.  You may also be consumed with regret and afflicted by waves of psychic pain.   This will cause you negative utility, I shouldn’t wonder.

 
Still, it’s all in a good cause.  No one said getting rich was going to be easy, did they?  Oh yeah, they did …  

Spain Misses Watered-Down Budget Deficit Targets Yet Again

Courtesy of Mish.

When you are about to miss budget targets, the easy thing to do is lower the bar, again and again until you can hit them. Spain did just that, and still missed.

Via translation from Libre Mercaado, please consider Spain Misses Budget Deficit Target for 2013.

Treasury announced a deficit of 5.44% of GDP in November, but official data elevate that number to 5.96%. Taking a December shortfall estimate into consideration, the deficit estimate is around 6.9% for 2013.

Economy Minister Luis de Guindos, chose his words are very careful in this regard. Guindos said yesterday that the 2013 deficit would “converge towards the target of 6.5%”, through improved tax collection and lower cost of debt (interest payments).

The defict is not the only accounting chicanery. Tax data used to estimate GDP has little or nothing to do with reality.

Accurately stated, the deficit would be around 5.96% of GDP to November, instead of the 5.44% announced by the Treasury, which is a deviation of 0.52% of GDP.

Also remember that until last June, the general government deficit target for 2013 was 4.5% of GDP and not 6.5%. The Government of Mariano Rajoy managed to smooth the path of fiscal consolidation after pressing insistently to Brussels.

In any case, the final deficit figure will not be known, quite possibly until the end of 2014, after the successive and traditional budget and GDP revisions specific to the Spanish authorities, as usual.

For grins, let’s take a look at a progression of events in 2013.

March 12, 2013 – Mish: Spain’s Budget Deficit Grew by 35.4% in January to 1.2% of GDP; Spain’s Tax Revenue Drops 20% in Face of VAT Hikes

Summary

  • Spain’s budget deficit for the month of January was 0.89% not counting regional deficits.
  • The target for the entire year is 3.8% of GDP.
  • On that basis, Spain went through 23.42% of its annual budget in a single month.
  • Spain’s deficit target including regions and transfer payment is 4.5% of GDP.
  • The deficit including regions and transfer payments was 1.2% of GDP.
  • On that basis, Spain blew 26.67 % of its budget in a single month.
  • Territorial government revenues declined 29.1%
  • Income Tax revenue (corporate + personal) fell 18.2%
  • Social Security payments grew by 40.2%
  • Overall transfer payments increased 23.3%

Odds of Success Zero Percent

Odds Spain hits its budget target of 4.5% in 2013 is precisely 0.00%.

In June, after begging Brussels for relief, the target was revised to 6.5% of GDP….

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Dear Twitter-Based Newsletter Sellers: The SEC Is After You

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Now that Twitter is officially the second coming of Yahoo Finance message boards, the inundation with offers from clueless hacks who have nothing better to do than sell you $29.95 newsletters with guaranteed get rich quick schemes (one has to be so grateful for this boundless supply of noble humanitarians who would rather see you get rich than follow their own advice, and invest with their own capital), even more guaranteed than Obama's MyRA ponzi scheme, has hit off the charts levels. However, there is some hope this is ending, and the regulators, as usual 3-5 years behind the curve – are finally be cracking down on these self-acclaimed financial Nostradami following an announcement today that the SEC "charged a New York-based money manager and his firm with making false claims through Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund they manage."

And while this description would fit roughly half the people who can't wait to share their copious financial "advise" on the social network (for a modest fee) in this specific case, the SEC was targeting Mark A. Grimaldi and Navigator Money Management (NMM), whom it found that they "selectively touted the past performance of the Sector Rotation Fund (NAVFX) and specific securities recommendations they made to clients.  They cherry-picked highlights but ignored less favorable recommendations and other data that would have made the facts complete."

The SEC’s order finds that Grimaldi also made misleading statements on Twitter.  He claimed responsibility for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years.”  However, Grimaldi made the claim even though he had no involvement in the model portfolio performance for the first three years.

Once again: a description that covers pretty much everyone seeking to retain new clients on "we-only-win-here" Twitter.

Grimaldi agreed to pay a penalty of $100,000, and he and the firm agreed to be censured and comply with certain undertakings including the retention of an independent compliance consultant for three years.  Without admitting or denying the SEC’s findings, NMM and Grimaldi are required to cease and desist from future violations of these sections of the securities laws.

No more Twitter-touting for him. But the worst news for all newsletter peddlers: "SEC exam staff notified NMM that the newsletters could be considered advertisements under Rule 206(4)-1, which generally prohibits false or misleading advertisements by investment advisers." This supposedly also includes his false and misleading tweets, which considering Twitter is a public venue, pretty much guarantee anyone who has been touting their performance is now SEC-fodder.

From the full SEC charge:

“The securities laws require investment advisers to be honest and fully forthcoming in their advertising to give investors the full picture,” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.  “Grimaldi and his firm are being held accountable for using social media and widely disseminated newsletters to cherry-pick information and make misleading claims about their success in an effort to attract more business.”

According to the SEC’s order, Grimaldi is majority owner, president, and chief compliance officer at NMM, which is based in Wappingers Falls, N.Y.  Grimaldi particularly used a newsletter called The Money Navigator to solicit clients for NMM and investors for the Sector Rotation Fund.  The Money Navigator had more than 60,000 subscribers.  In 2008, the SEC conducted an examination of NMM and a fund it managed.  SEC exam staff notified NMM that the newsletters could be considered advertisements under Rule 206(4)-1, which generally prohibits false or misleading advertisements by investment advisers.  SEC staff also noted that the newsletters could be considered advertisements under Rule 482, which governs advertisements for mutual funds and other investment companies and has specific requirements for ads containing performance data.

The SEC’s order details several misleading advertisements made by NMM and Grimaldi in newsletters following that SEC examination.  For example, they misleadingly claimed in a December 2011 newsletter that Sector Rotation Fund was “ranked number 1 out of 375 World Allocation funds tracked by Morningstar.”  However, a time period of Oct. 13, 2010 to Oct. 12, 2011 was cherry-picked to broadly acclaim that ranking, and Sector Rotation Fund had a poorer relative performance during other time periods.  From Jan. 1 to Nov. 30, 2011, the day before Grimaldi published the ad, at least 100 other mutual funds in that same Morningstar category outperformed Sector Rotation Fund.

And the full filing:

Housing Bubble 2.0: “More Flipping, Bigger Profits, in Less Time” with 156,862 Homes Flipped in 2013

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Late 2013 pending home sales may have been horrible, and were blamed on the weather (though as even Goldman notes "The broad-based declines by region suggest that colder-than-average weather was likely not the primary driver, given slightly warmer-than-average temperatures on the Pacific coast in December") , but it appears the weather had zero adverse impact on that other, most pernicious home "selling" activity: flipping.

The topic of home flipping is not new here ("Flip That House" In These Bubbling Cities, Housing Bubble 2.0 Edition: "25 Markets Where Flipping Homes Is Most Profitable", etc) – indeed that best-known flashback of the last housing bubble is easily one of the best indications just how fragile the current housing bubble truly is as investors gobble up real estate not with the intention of keeping it but merely to sell to the next greater fool, in the process setting marginal prices based purely on the availability of cheap money, money which has now been tapered by $20 billion in the past two months. However, to get the full picture on just how pervasive "house flipping" has become, we go to the source, RealtyTrac, which has just released its 2013 summary of this troubling trend.

In summary:

  • 156,862 single family home flips — where a home is purchased and subsequently sold again within six months — in 2013, up 16 percent from 2012 and up 114 percent from 2011.
  • Homes flipped in 2013 accounted for 4.6 percent of all U.S. single family home sales during the year, up from 4.2 percent in 2012 and up from 2.6 percent in 2011

Why are flippers flipping? Simple: they make a killing:

The average gross profit for a home flip — the difference between the flipped price and the price the flipper purchased the property for — was $58,081 for all U.S. homes flipped in 2013, up from an average gross profit of $45,759 in 2012. The average gross profit for homes flipped in the fourth quarter was $62,761, up from $52,746 in the fourth quarter of 2012.

Who is doing the flipping? Why the uber-rich of course, selling hot potatoes to each other, and betting the momentum continues:

  • The biggest increases in flipping nationwide occurred on homes with a flipped price of $400,000 or more. Although flipping increased across all price ranges, flips on homes with a flipped sale price above $400,000 increased 36 percent from 2012, while flips on homes with a flipped sale price at or below $400,000 increased 17 percent from 2012.

However, now that the bubble has likely burst, flipping is dlowing down:

  • Flips accounted for 3.8 percent of all sales in the fourth quarter, down slightly from 3.9 percent of all sales in the third quarter and down from 7.1 percent of all sales in the fourth quarter of 2012 — the highest percentage of sales represented by flips in a single quarter since RealtyTrac began tracking flipping data in the first quarter of 2011

And visually:

More from the full flipper report by RealtyTrac:

The average time to complete a flip nationwide was 84 days in 2013, down from 86 days in 2012 and down from 100 days in 2011.

“Strong home price appreciation in many markets boosted profits for flippers in 2013 despite a shrinking inventory of lower-priced foreclosure homes to purchase,” said Daren Blomquist, vice president of RealtyTrac. “For the year 21 percent of all properties flipped were purchased out of foreclosure, but that is down from 27 percent in 2012 and 32 percent in 2011. Meanwhile flipped homes were still purchased at an average discount of 13 percent below market value in 2013, the same average discount as 2012, indicating that investors are finding discounted buying opportunities outside of the public foreclosure process — particularly in those markets with the biggest increases in flipping for the year.”

Major metro areas with big increases in home flipping in 2013 compared to 2012 included Virginia Beach (up 141 percent), Jacksonville, Fla., (up 92 percent), Baltimore, Md. (up 88 percent), Atlanta (up 79 percent), Richmond, Va., (up 57 percent), Washington, D.C. (up 52 percent) and Detroit (up 51 percent).

Major markets with big decreases in home flipping in 2013 compared to 2012 included Philadelphia (down 43 percent), Phoenix (down 32 percent), Tampa (down 17 percent), Houston (down 17 percent), Denver (down 15 percent), Minneapolis (down 9 percent), and Sacramento (down 5 percent).

 

Broker perspectives

“Investors have not lost interest in purchasing and flipping homes. In fact, now that we are seeing home price appreciation they are more interested than ever,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, covering the Oklahoma City and Tulsa, Okla., markets.  “The challenge for many would-be flippers in our markets is a shortage of available inventory to flip, as evidenced by the decrease in the number of homes flipped in both Tulsa and Oklahoma City in 2013 compared to 2012.”

“New Hampshire home prices did not depreciate as much as other sections of the country, so we never experienced a tremendous amount of distressed inventory, which makes it difficult for people to find inexpensive properties they can flip. So it follows that gross flipping profits have fallen in our market compared to a year ago,” said Steve McGuire, vice president of business development at Berkshire Hathaway HomeServices Verani Realty, covering the Manchester, N.H., market.  “When considering whether or not to flip a home it’s also important to note that house flipping is not for the faint of heart, because there are so many variables that could affect the sales transaction, price and profit.”

“The Denver housing market is still experiencing record-low inventory levels, which causes the best potential flip properties to be few and far between,” said Chad Ochsner, owner of RE/MAX Alliance covering the Denver and Boulder, Colo., markets.  “We have seen a resurgence of opportunities for fix-and-flips in the Boulder market due to a strong increase in home price appreciation, but the distressed home market has dropped by about half making it a challenge to find the right property.”

“February and March can be a great time to buy a fix and flip home to realize the spike in homes values that usually occurs during the spring and early summer buying season,” he added.

MyRA: Making President Obama’s New Retirement Account Work for You and Not Wall Street

Courtesy of Pam Martens.

President Obama Signs the Presidential Memorandum Creating the MyRA at U.S. Steel in West Mifflin, Pennsylvania on January 29, 2014

Yesterday, the White House transported a little cherry table with the Presidential seal for a signing event in West Mifflin, Pennsylvania. President Obama was visiting workers at a U.S. Steel Corporation manufacturing plant there and used the occasion to officially sign the order creating the new MyRA, a retirement account with low dollar minimums for participation.

The Presidential Memorandum, surprisingly, was devoid of any salient details of how the MyRA would work and effectively gave the U.S. Treasury Secretary, Jack Lew, carte blanche to tailor the account as long as it complied with the following: “By December 31, 2014, you shall finalize the development of a new retirement savings security that can be made available through employers to their employees. This security shall be focused on reaching new and small-dollar savers and shall have low barriers to entry, including a low minimum opening amount.”

The President’s memorandum adds further that “within 90 days of the date of this memorandum, you shall begin work with employers, stakeholders, and, as appropriate, other Federal agencies to develop a pilot project to make the security developed pursuant to subsection (a) of this section available through payroll deduction to facilitate easy and automatic contributions.”

This is the first we’ve heard to date that the MyRA is just a pilot project and not going to be a full scale rollout. After speaking with the U.S. Treasury, and scouring fact sheets provided by the White House, this is the detailed outline of how the MyRA is currently envisioned.

Firstly, this is not a new retirement account. The President has no authority outside of Congress to start creating retirement accounts for the country. This is the existing Roth IRA account that is being offered a new investment product from the U.S. Treasury which has low dollar minimums in order to reach less affluent workers.

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What’s Going On: Market Pullback, Pump ‘n Dump?

Courtesy of Larry Doyle.

The consensus opinion by most market strategists coming into the year was that our equity markets would follow up the 25-30% gains of 2013 with another 8-10% gain this year.

The markets will have to experience a hellacious rally in the next two trading days or make an exception to an age old rule that January’s price action sets the direction for the year as a whole.

So what is going on with the markets? Are they simply experiencing a long overdue pullback? No doubt about that. Aside from a mild pullback last August and September of approximately 3-4%, the S&P 500 Index went straight up for the next 3 months to the tune of 12% to end the year with a 30% gain.

The 4% loss year to date certainly qualifies as a pullback but comes nowhere close to qualifying as a correction which market technicians define as a 10% decline.  The S&P 500 would have to retrace another 110 points on top of the ~75 points it has lost year to date to meet that definition. 

Although many holders of stocks might never like to see pullbacks or corrections, that is not the way markets work nor is it healthy. In order to build a stronger foundation so that the market can move to higher levels, it is not only good but, dare I say, necessary that the market retrace and ultimately retest prior levels that seemed to provide meaningful resistance prior to a market’s move higher. On this note, I think it is a good thing for our market as a whole if we do get a further decline.

But let’s take off the optimistic hat I was just wearing that is worn by most strategists on the street and ask, why is the market pulling back and will those factors continue to weigh heavily on the equity market?

We hear of dislocations and economic slowdowns in a variety of emerging markets from Argentina to Turkey to China. Did you know that these were coming? We hear of renewed anxieties and writedowns in the European banking system. Again, this news was not widely projected and hit the market as a surprise. We witnessed a mixed bag of earnings in the recent corporate releases on the heels of a weak employment report here at home. All of this news came to the market as disappointing developments, if not total surprises.

What is not a surprise and is certainly a huge factor in the market’s decline year to date? The Federal Reserve’s pulling back from its quantitative easing program. Ben Bernanke wants to go into the history books as having started the Fed’s winding down of the most aggressive central banking program likely — and hopefully ever — undertaken.

So while we do not know what the tarot cards might read for emerging markets, bank earnings, and our global economy going forward, what we do know right now is that the Federal Reserve intends on continuing to wind down its quantitative easing program over the balance of this year.

That program had been injecting $85 billion a month into the market and totaled an increase in the Fed’s balance sheet of ~$3 trillion. Having informed the markets that it would only direct $75 billion into the market in January and just this week announced that it would commit $65 billion in QE for February, those in the markets who have enjoyed the liquidity provided by the Fed should be aware that it intends to wind this program down completely over the balance of this year.

Rule #1 in the markets: ‘Follow the Fed,’ or in similar fashion, ‘Don’t fight the Fed.’

Heavy cynics might equate the overall price action in the market akin to a pump and dump scheme, but those engaged in such practices (like the wolf of Wall Street) do not tell you their plans.

The Federal Reserve is telling us exactly what it intends to do. This is not to say that the Fed might not change those plans especially if the market pullback creates serious dislocations and is perceived as negatively impacting the economy. But is that a bet you are willing to make?

Add it all up and what do we have? A market dynamic that remains in uncharted waters. So while Mr. Alfred E. Neuman may not be concerned, as always around these parts, we should navigate accordingly.

China Manufacturing Back in Contraction, Staffing Declines at Sharpest Pace Since March 2009.

Courtesy of Mish.

The HSBC China Manufacturing PMI shows China manufacturing is back in contraction, following six months of barely positive growth.

Key points

  • Growth of output eases to marginal pace
  • Quickest rate of job shedding since March 2009
  • Marked falls in input costs and output charge

January data signalled a deterioration of operating conditions in China’s manufacturing sector for the first time in six months. The deterioration of the headline PMI largely reflected weaker expansions of both output and new business over the month. Firms also cut their staffing levels at the quickest pace since March 2009. On the price front, average production costs declined at a marked rate, while firms lowered their output charges for the second successive month.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 49.5 in January, down fractionally from the earlier flash reading of 49.6, and down from 50.5 in December. This signaled the first deterioration of operating conditions in China’s manufacturing sector since July.

Production levels continued to increase in January, extending the current sequence of expansion to six months. However, the rate of growth eased to a marginal pace.

Employment levels at Chinese manufacturers fell for the third consecutive month in January. Moreover, it was the quickest reduction of payroll numbers since March 2009. Job shedding was generally attributed by panelists to the non-replacement of voluntary leavers as well as reduced output requirements. Despite the marked reduction of headcounts, the level of unfinished business at goods producers rose only fractionally over the month.

This is yet another sign of a global slowing economy.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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California Students File Constitutional Challenge to Teacher Firing Practices; Unions are the Child Molester’s Best Friend

Courtesy of Mish.

Three cheers for a group of nine California students who are fed up with tenure rules that protect not only incompetent teachers, but also sexual predators.

Reuters reports California students challenge teacher employment rules in lawsuit.

A group of nine California students will challenge employment rules they complain force public schools in the most populous U.S. state to retain low performing teachers, as opening arguments kick off on Monday in a lawsuit over education policy.

The lawsuit seeks to overturn five California statutes that set guidelines for permanent employment, firing and layoff practices for K-12 public school teachers, saying the rules violate the constitutional rights of students by denying them effective teachers.

Among the rules targeted by the lawsuit is one that requires school administrators to either grant or deny tenure status to teachers after the first 18 months of their employment, which they complain causes administrators to hastily give permanent employment to potentially problematic teachers.

“The system is dysfunctional and arbitrary due to these outdated laws that handcuff school administrators from operating in a fashion that protects children and their right to quality education,” attorney Theodore Boutrous of the education advocacy group Students Matter said in a media call.

The plaintiffs are also challenging three laws they say make it difficult to fire low-performing tenured teachers by requiring years of documentation, dozens of procedural steps and hundreds of thousands in public funds before a dismissal.

Lastly, the plaintiffs want to abolish the so-called “last-in first-out” statute, which requires administrators to lay off teachers based on reverse seniority.

The group says that the layoff policy disproportionately affects minority and low-income students, who are more likely to have entry-level teachers and poor quality senior teachers assigned to their district.

“When the layoffs come, the more junior teachers are laid off first, which ends up leaving a higher proportion what we call the ‘grossly ineffective’ teachers,” Boutrous said. “It’s really a vicious cycle.”

Teachers’ Union Response

“We don’t think stripping teachers of their workplace professional rights will help students,” said California Federation of Teachers President Joshua Pechthalt.”

Mish Translation of Teachers’ Union Response

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What’s Happening?

By Ilene

In its first unanimous decision since 2011, the Federal Reserve announced another $10 billion cut in its monthly bond purchases. It attributed the decision to the “growing underlying strength in the broader economy.” Read the statement (Citing Growth, Fed Again Cuts Monthly Bond Purchases).

As a result of the committee's action to reduce quantitative easing to $65 million/month, stocks tumbled (FED TAPERS AND STOCKS DIVE: Here's What You Need To Know).

In spite of the recent selloff in equities, Paul Price has been buying stocks and selling puts (SYY and IGT).

This might make you want to eat home, skip the ice and wash your hands after touching the menu: These Cringeworthy Restaurant Truths Will Make You Think Twice About Dinner

Watch chemicals turn into memories – the first time this has ever been recorded.

“All You Need for a Financial Crisis. . . are excess optimism and Citibank.”

That’s a saying that someone, probably Simon, repeated to me a few years ago. Crash of 1929, Latin American debt crisis, early 1990s real estate crash (OK, that wasn’t a financial crisis, just a crisis for Citibank), Asian financial crisis of 1997–1998, and, of course, the biggie of 2007–2009: anywhere you look, there’s Citi. Sometimes they’re just in the middle of the profit-seeking pack, but sometimes they play a leading role: for example, the Citicorp-Travelers merger was the final nail in the coffin of the Glass-Steagall Act and the immediate motivation for Gramm-Leach-Bliley.

Barry Ritholtz on Jon Stewart discussing Minimum Wage: TDS: Wage Against the Machine

The Daily Show
Get More: Daily Show Full Episodes,The Daily Show on Facebook

This weekend: The Saddest Super Bowl Ever, according to Joshua Brown. Guess he's not going to be there. 

For starters, it’s certainly going to be the coldest. Weather guys are talking about 2 to 7 degrees. Ticket prices are dropping by thousands of dollars. People are trying to get rid of their seats rather than sit through the pain of a sub-arctic February night outdoors. Not to mention the shlep. If it snows that day, the highways and byways between NY and NJ will become so impassable you’ll need to leave your family permanently and start a new one somewhere around Teaneck Township off of the I-80.

Why Are Banking Executives In London Killing Themselves?

Courtesy of Michael Snyder

Bankers committing suicide by jumping from the rooftops of their own banks is something that we think of when we think of the Great Depression. Well, it just happened in London, England. A vice president at JPMorgan's European headquarters in London plunged to his death after jumping from the top of the 33rd floor. He fell more than 500 feet, and it is being reported by an eyewitness that "there was quite a lot of blood."  

This comes on the heels of news that a former Deutsche Bank executive was found hanged in his home in London on Sunday. So why is this happening? Yes, the markets have gone down a little bit recently but they certainly have not crashed yet. Could there be more to these deaths than meets the eye?  You never know. There have been a lot of other really strange things happening around the world lately as well.

But before we get to any of that, let's take a closer look at some of these banker deaths.  The JPMorgan executive that jumped to his death on Tuesday was named Gabriel Magee.  He was 39 years old, and his suicide has the city of London in shock

A bank executive who died after jumping 500ft from the top of JP Morgan's European headquarters in London this morning has been named as Gabriel Magee.

The American senior manager, 39, fell from the 33-story skyscraper and was found on the ninth floor roof, which surrounds the Canary Wharf skyscraper.

He was a vice president in the corporate and investment bank technology department having joined in 2004, moving to Britain from the United States in 2007.

What would cause a man in his prime working years who is making huge amounts of money to do something like that?

The death on Sunday of former Deutsche Bank executive Bill Broeksmit is also a mystery.  According to the Daily Mail, police consider his death to be "non-suspicious", which means that they believe that it was a suicide and not a murder…

A former Deutsche Bank executive has been found dead at a house in London, it emerged today.

The body of William ‘Bill’ Broeksmit, 58, was discovered at his home in South Kensington on Sunday shortly after midday by police, who had been called to reports of a man found hanging at a house.

Mr Broeksmit – who retired last February – was a former senior manager with close ties to co-chief executive Anshu Jain. Metropolitan Police officers said his death was declared as non-suspicious.

On top of that, Business Insider is reporting that a communications director at another bank in London was found dead last week…

Last week, a U.K.-based communications director at Swiss Re AG died last week. The cause of death has not been made public.

Perhaps it is just a coincidence that these deaths have all come so close to one another.  After all, people die all the time.

And London is rather dreary this time of the year.  It is easy for people to get depressed if they are not accustomed to endless gloomy weather.

If the stock market was already crashing, it would be easy to blame the suicides on that.  The world certainly remembers what happened during the crash of 1929

Historically, bankers have been stereotyped as the most likely to commit suicide. This has a lot to do with the famous 1929 stock market crash, which resulted in 1,616 banks failing and more than 20,000 businesses going bankrupt. The number of bankers committing suicide directly after the crash is thought to have been only around 20, with another 100 people connected to the financial industry dying at their own hand within the year.

But the market isn't crashing just yet.  We definitely appear to be at a "turning point", but things are still at least somewhat stable.

So why are bankers killing themselves?

That is a good question.

As I mentioned above, there have also been quite a few other strange things that have happened lately that seem to be "out of place".

For example, Matt Drudge of the Drudge Report posted the following cryptic message on Twitter the other day…

"Have an exit plan…"

What in the world does he mean by that?

Maybe that is just a case of Drudge being Drudge.

Then again, maybe not.

And on Tuesday we learned that a prominent Russian Bank has banned all cash withdrawals until next week…

Bloomberg reports that 'My Bank' – one of Russia's top 200 lenders by assets – has introduced a complete ban on cash withdrawals until next week. While the Ruble has been losing ground rapidly recently, we suspect few have been expecting bank runs in Russia.

Yes, we have heard some reports of people having difficulty getting money out of their banks around the world lately, but this news out of Russia really surprised me.

Yet another story that seemed rather odd was a report in the Wall Street Journal earlier this week that stated that Germany's central bank is advocating "a one-time wealth tax" for European nations that need a bailout…

Germany's central bank Monday proposed a one-time wealth tax as an option for euro-zone countries facing bankruptcy, reviving a idea that has circled for years in Europe but has so far gained little traction.

Why would they be suggesting such a thing if "economic recovery" was just around the corner?

According to that same article, the IMF has recommended a similar thing…

The International Monetary Fund in October also floated the idea of a one-time "capital levy," amid a sharp deterioration of public finances in many countries. A 10% tax would bring the debt levels of a sample of 15 euro-zone member countries back to pre-crisis levels of 2007, the IMF said.

So what does all of this mean?

I am not exactly sure, but I have got a bad feeling about this – especially considering the financial chaos that we are witnessing in emerging markets all over the globe right now.

So what do you think?  Please feel free to share your thoughts by posting a comment below…

Humorous Reporting Regarding Effect of Tapering on US Treasuries; Robotic “Righting”

Courtesy of Mish.

I happen to like US treasuries on the basis the economy is slowing much more than anyone thinks.

Short-term, who knows? Certainly not those who intend to call every uptick or downtick as if it’s meaningful, especially on days of economic news, like today.

Here is an image that shows what I mean.

I did not stitch that together. The items were back-to-back on a news feed site I follow.

Which is it?

At 2:20 PM Bloomberg reported Treasuries Rise
At 2:20 PM MarketWatch reported Treasuries Fall

Here is another MarketWatch image.

Click on the MarketWatchTreasuries Fall” link and this is what you see.

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Hilsenrath’s 729 Word FOMC Post-Mortem (In Under 2 Minutes)

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

It took Hilsenrath 2 minutes after the FOMC announcement to release the following 729 word analysis of what Bernanke just did.

The punchline: "Overall, the Fed changed very little in its statement from the previous month. Neither a disappointing December jobs report nor recent turmoil in emerging markets was enough to diminish their positive outlook for the U.S. economy. The Fed reiterated their view that "risks to the outlook for the economy and the labor market as having become more balanced," language they added to the statement for the first time in December…. The Fed repeated its message that they will likely keep rates at that low level "well past" the unemployment rate reaching 6.5%."

Fed to Further Cut Bond-Buying Program

The Federal Reserve said it would further pare its signature bond-buying program next month, a move that solidifies the central bank's strategy for winding down the program in small steps at each of its meetings as long as the economy continues to improve.

The Fed's policy-making committee said in a statement Wednesday that it would trim its bond purchases to $65 billion per month in February, from a monthly pace of $75 billion in January.

The decision to pull back on the bond program was unanimous, marking the first time there wasn't a dissent at a policy meeting since June 2011.

The central bank announced it would start scaling back the program following its Dec. 17-18 meeting, and made the first $10 billion cut in January. At the time, Fed Chairman Ben Bernanke strongly suggested the Fed's preference was to whittle down its bond buying by $10 billion at each of its policy meetings this year, wrapping up the program altogether near the end of the year.

Overall, the Fed changed very little in its statement from the previous month

The Fed also voted to keep short-term interest rates pinned near zero, where they've been since late 2008. The Fed repeated its message that they will likely keep rates at that low level "well past" the unemployment rate reaching 6.5%. The Fed earlier set that as the threshold at which it will start considering raising rates, as long as inflation remains in check.

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How to tell if your dog is involved in a sex scandal

Credit uncertain. 

 

Where is US Foreign Policy these Days?

Where is US Foreign Policy these Days?

Courtesy of Claude Salhani of Oilprice.com

There is a remarkable absence of a comprehensive US foreign policy in the Middle East with the Obama administration missing the beat on just about every major event in the region.

Concentrated US presence is missing in Syria, where the civil war has now been raging for three years, killed 150,000, maimed probably twice that number and forced some nine million Syrians, out of a total population of 22 million people, into exile. Allowing this war to continue is not only a tragedy and a crime, but it is attracting radical elements from all over the world, many from Western Europe and the United States and among whom many will one day return to their home countries and engage in terrorist acts. See what FBI Director James B. Comey had to say about this issue:

“It is one of my greatest worries in the counter¬terrorism area,” Comey said. “The conflict in Syria has attracted so many people from so many places of so many motivations, including Americans, that it is an enormous challenge for all intelligence services, including the FBI, to identify the ones of bad intent, to figure out where they’re going, why they’re going and keep track of them.”

He added: “As long as people are flowing in, learning how to kill other people and meeting really bad people, it’s going to be a big worry.”

US presence is missing in Lebanon where the Syrian war is starting to seep over and where not much is required before rival Lebanese groups start fighting each other. All that is needed to unleash the violence there is only one misplaced gunshot. Allowing the seepage of mujahedeen fighters into Lebanon and within close proximity to Israel is a monumental mistake that all parties will live to regret.

A comprehensive US policy is missing in the Palestinian Territories. After the initial interest displayed in trying to reach a comprehensive agreement and find an acceptable settlement to the six-decade old conflict when he first came into office and prematurely won a Nobel Peace Prize, President Barack Obama has practically given up on further attempts at trying to reconcile Israelis and Palestinians. If overall the Palestinian territories are quiet on the surface, there is a potential demographic time bomb percolating below that surface. Particularly in Gaza. The longer the Palestinian issue is left on its own, the harder it will fall and the bigger the explosion is likely to be.

Likewise it is missing in the Gulf where ever since the end of World War II the United States had enjoyed a very special relationship with the local powerhouse, Saudi Arabia. Again, after a strong disagreement over military intervention the two fell apart when Washington refused to launch air strikes on Syria.                                                

In Egypt, where once strong ties with Washington existed have all but disappeared as Washington refused to support the military coup, although the Obama administration was careful not to call the forceful removal of  the democratically elected president by an armed military force, ”a coup.”

Now with American influence ebbing in the region, the Russians are making a comeback in places like Egypt, until recently a guarded US zone of influence. Now even in Saudi Arabia, where the Soviet Union was more detested than the devil incarnate, the authorities are flirting with the Russians and the Chinese.

The once tight relations that the United States enjoyed with many Arab countries is becoming a distant memory.  That critical absence of policy will be further felt when Egyptian army chief Abdel-Fattah El-Sisi is elected president in Egypt, as is now expected.

Sisi was cleared to run for president by the country's Supreme Council of the Armed Forces (SCAF), setting the stage for what is widely expected to be an easy glide into the presidency by the broadly popular military figure.

Sisi emerged as Egypt's most popular figure after the army's July 2013 ouster of then-president Mohammed Morsi and his Muslim Brotherhood-linked government, which came amid mass protest calling for Morsi's resignation and early elections. Egypt's English-language Ahram Online this weekend described Sisi as "the Brotherhood's arch-foe" and assessed that the Islamist organization is "more outcast than ever."

A win by Sisi may end up making relations with Washington even more complicated and complex. But then again, when were things not complicated in the Middle East.

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.

Cambridge University Study Calls For Increased Taxation Of Fracking Companies

Courtesy of Joao Peixe of Oilprice.com

A new study from the University of Cambridge has suggested that any companies attempting to frack for shale gas in the UK should be forced to pay £6 billion a year by the mid 2020’s in extra taxes that will compensate for the damage to the environment caused by the sectors activities.

The government has already laid out guidelines that require companies such as Cuadrilla Resources and IGas will pay communities local to their wells and fracking operations in order to compensate for the inconvenience, but Chris Hope, a special advisor to parliament and a reader in policy modelling at the Judge Business School in Cambridge, claims that these companies should also be charged for their contribution to climate change.

“Shale gas will contribute to climate change in two ways, from carbon dioxide emissions when the gas is burned, and from the fugitive emissions of underground methane that leak into the atmosphere when the gas is extracted.”

Hope states that the cost of carbon produced when oil and gas is burned has been well studied and is calculated at $100 per tonne of CO2. The cost of methane is less well known, but due to the fact that it is a much more potent greenhouse gas, Hope claims that the best estimate is $1,200 per tonne.

Using these figures, Hope estimated a fair tax to be levied against the industry. “Under the Institute of Directors' central production estimate and with a central methane leakage rate of 2%, the tax revenues for the UK will be about £6bn per year in current prices by the time shale really gets going in the latter half of the 2020s.”

He believes that creating the tax now would help any fracking companies thinking of operating in the UK to calculate their total costs, rather than be faced with additional charges in the future for environmental damage they have caused.

“Many prospects that initially look promising will turn out not to be worth pursuing once these taxes are factored into the equation. The better, cheaper prospects where fugitive emissions can be minimised will be favoured.”

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.

 

Disgusting Compromise on $956B Farm Bill; In Spite of Massive Howls, No Actual Cuts in Food Stamps

Courtesy of Mish.

Proving that neither party really wants to do anything about escalating costs of anything, in typical D.C. compromise action, the House Passes $956B Farm Bill in a bipartisan vote.

Speaker John Boehner (R-Ohio), and Majority Leader Eric Cantor (R-Va.), and Minority Leader Nancy Pelosi (D-Calif.) all voted for the bill.

Democrats are howling over miniscule cuts in SNAP (food stamps). For example, an inane headline on the Daily Koz reads House passes food stamp-slashing farm bill.

Supposedly there will be $8.6 billion in devastating food stamp cuts. Even if that happens it is less than a 1% cut in an economy that is supposedly in recovery.

Contrary to Popular Belief, No Cuts in Food Stamps

Will there be any cuts? I rather doubt it. In the “too stupid to make up category”, this is how they determined the cuts.

The bill finds $8.6 billion in savings by requiring households to receive at least $20 per year in home heating assistance before they automatically qualify for food stamps, instead of the $1 threshold now in place in some states.

Amazing!

Now what do you think will happen? If you can’t figure it out, I will tell you. States will give $20 per year in home heating assistance to everyone currently getting $1 per year in annual home heating assistance.

There will be miniscule (if any) savings at all at the federal level, and small increases at the state level.

Crop Subsidies Preserved

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Commodities Falling Despite QE: What Does That Mean?

Commodities Falling Despite QE: What Does That Mean?

"Charts tell the truth. Let's look at some charts." ~ Robert Prechter

By Elliott Wave International

During QE3, the latest round of the Fed's quantitative easing, the stock market rose. We all know that.

But did you also know that commodities fell?

That's right: QE3 had zero effect on commodities — or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.

That, of course, would be heresy to investors who believe that the Fed's actions have been inflating all financial markets.

What should you make of the fact that commodities have failed to respond to the massive, historic, unprecedented central-bank stimulus? We see it as a red flag.

What's more, you may be surprised to know that not one of the Fed's stimulus programs — QE1, QE2 and QE3 — pushed up commodity prices.

As Robert Prechter, the president of Elliott Wave International, wrote in his November 2013 Elliott Wave Theorist, "Charts tell the truth. Let's look at some charts." These four charts and analysis that he published in May, July, and November 2013 tell the story:

(Robert Prechter, July 2013 Elliott Wave Theorist)

The CRB index of commodities has been losing ground for more than two years, as shown in Figure 3. Notice the four short arrows on the chart. Based on their positions, you might think they would mark the timing of accurate sell signals generated by a secret indicator. But there's no secret indicator. These happen to be the times at which the Fed launched its inflationary QE programs!

Investors almost universally take news at face value rather than paradoxically as they should. So they believed the Fed's QE actions would be bullish for commodities. But — ironically yet naturally — every launch of a new QE program provided an opportunity to sell commodities near a high.

The first time the Fed bought a slew of new assets (QE0) was in 2008, and commodities went straight down during the entire buying spree.

QE1 (see below) was just a swapping of assets, not new buying, so it wasn't inflationary; ironically, commodities rose during this time.

Commodities rose a little bit after the inflationary QE2 started but ultimately went lower. Since QE3 and QE4 — the two most aggressive programs of inflating the Fed has ever initiated — commodity prices have been trending lower as well.

Are commodities just late and poised to soar? I don't think so. Figure 4 shows a chart of the CRB index published in The Elliott Wave Theorist back in May 2011.

It shows a three-step, countertrend rally … inside of a parallel trend channel … at a [Fibonacci] 62% retracement … thus giving three reasons to expect a peak at that time. [Indeed] the CRB index has trended moderately but persistently lower since then.

Prechter gave another update in his November 2013 Elliott Wave Theorist:

Commodities are in a bear market. Figure 1 proves that the Fed's feverish quantitative easing (QE) — i.e. record fiat-money inflating — is not driving overall prices of goods higher.

The bear market in commodities began two months before the Fed's massive asset-buying program began. Despite the Fed's inflating at a 33% rate annually for five straight years, commodities are still slipping lower.

Prechter's final point from the November 2013 Elliott Wave Theorist summarizes it best:

None of the believers in omnipotent monetary authorities and their pledges to inflate saw any of those changes coming. Meanwhile, we couldn't see how it could turn out any other way.

The largest inverted debt pyramid in the history of the world is the reason that QE won't work. The future is already fully mortgaged.

 


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Gold and Silver Ready To Rumble Higher?

Gold and Silver Ready To Rumble Higher?

Courtesy of David A Banister at www.MarketTrendForecast.com

We have been writing about the bottoming process of the Gold Bear Cycle (Elliott Wave Theory) since December 4th 2013, and our most recent article on December 26th reiterated that the best time to accumulate the Gold/Silver stocks was in the December and January window. Specifically this is what we wrote:

“These types of indicators are coming to a pivot point where Gold is testing the summer 1181 lows…at the same time, we see bottoming 5th wave patterns combining with public sentiment, bullish percent indexes, and 5 year lows in Gold stocks.  This is how bottom in Bear cycles form and you are witnessing the makings of a huge bottom between now and early February 2014 if we are right. 

"The time to buy Gold and Gold stocks is now during the next 4-5 weeks just as we were recommending stocks in late February 2009 with public articles that nobody paid attention to.  This is the time to start accumulating quality gold miner and also the precious metals themselves as the bear cycle winds down and the spring comes back to Gold and Silver in 2014.”

Since that article a few of our favorite stocks rallied 40-50% in just 3 weeks or so from the December timeframe of our article.  A recent pullback is pretty normal as we set up for Gold to take out the 1271 spot pricing area and run to the mid 1300’s over the next several weeks.  By that time, you will be kicking yourself for not being long either the metals themselves or the higher beta stock plays.

A few suggestions that we have already written about we will reiterate here again.  Aggressive investors can look at UGLD ETF, which is a 3x long Gold product that will give you upside leverage as Gold moves into elliott wave3 up.  Other more aggressive plays we already recommend a lot lower include GLDX, JNUG, NUGT and others.  Picking individual stocks can be even better and we have recommended a few to our subscribers that are already doing very well.

What will trigger this next rally up is sentiment shifts to favor Gold and Silver over currency alternatives. The precious metals move on sentiment, much more so than interest rates or GDP reports or anything else in our opinion. Sentiment remains neutral to bearish as evidenced by the larger brokerage houses running around in January telling everyone to sell Gold, so we see that as a buy signal on top of our other indicators.

 

Elliott Wave Theory Analysis

 

We expect the mid 1500’s by sometime this summer, but by then your opportunity will be long in the rearview mirror.  Join us for frequent updates at www.MarketTrendForecast.com

Bought the Dip & Sold a Put

Bought the Dip & Sold a Put

by Dr. Paul Price of Market Shadows

Market Shadows' Virtual Value Portfolio has been active this morning.

Today’s weak opening gave us the chance to put some capital back to work. We picked up 130 shares of good-yielding food service provider Sysco (SYY) @ $35.09, and 300 shares of slot machine manufacturer International Game Technology (IGT) @ $14.65.  

At our entry prices, SYY and IGT offer current yields of 3.31% and 2.73% respectively. The purchases amounts $4,561.70 (for SYY) and $4,395.00 (for IGT) will be deducted from our cash reserve.

 SYY quote  Jan. 29, 2014

Market Shadows Put Writing Portfolio also used IGT as an underlying stock. We sold 4 contracts of IGT's Jan. 15, 2106, $13 puts for $2.55 per share.  Our ‘if exercised’ price is a low $10.45 per share ($13 strike – $2.55 put premium). (I.e., if the shares get "put" to us, we end up buying them for a net $10.45 per share.)

 IGT quote with Jan. 2016, $13 put

IGT has not spent one day as low as our break-even/"if put" point since the dark days of early 2009. Buyers near IGT’s March 2009 nadir tripled their money within six months.

 IGT 4-year chart

 

Each previous sharp sell-off in IGT  has been followed by a relatively quick rebound. Resistance comes into play in the $18 – $20 zone.

The two new purchases will now be tracked in the Virtual Value Portfolio. 

The newly shorted IGT puts as well as all our previously completed and open option positions are detailed in the Virtual Put Selling Portfolio.

To sign up for free alerts when we make additions or close positions in our virtual portfolios, please type your email address into our "Subscribe to our Newsletter" box at the top left of the home page.

California Water Synopsis: Water Woes Just Beginning or About to End? Good News for California?

Courtesy of Mish.

Leaving aside religious debates on global warming, UC Berkeley professor B. Lynn Ingram says California water woes could be just beginning.

As 2013 came to a close, the media dutifully reported that the year had been the driest in California since records began to be kept in the 1840s. UC Berkeley paleoclimatologist B. Lynn Ingram didn’t think the news stories captured the seriousness of the situation.

“This could potentially be the driest water year in 500 years,” says Ingram, a professor of earth and planetary science and geography.

“These extremely dry years are very rare,” she says.

But soon, perhaps, they won’t be as rare as they used to be. The state is facing its third drought year in a row, and Ingram wouldn’t be surprised if that dry stretch continues.

The NewsCenter spoke to Ingram about the lessons to be drawn from her research as California heads into what could be its worst drought in half a millennium.

Q: California is in its third dry year in a row. How long could that continue?

A: If you go back thousands of years, you see that droughts can go on for years if not decades, and there were some dry periods that lasted over a century, like during the Medieval period and the middle Holocene. The 20th century was unusually mild here, in the sense that the droughts weren’t as severe as in the past. It was a wetter century, and a lot of our development has been based on that.

The late 1930s to the early 1950s were when a lot of our dams and aqueducts were built, and those were wetter decades. I think there’s an assumption that we’ll go back to that, and that’s not necessarily the case. We might be heading into a drier period now. It’s hard for us to predict, but that’s a possibility, especially with global warming.

Magic Words

With that, Ingram, just mentioned the unmagic words "global warming". Is that a contrary indicator?

Perhaps.

Here is another one: Ingram is the author of The West without Water What Past Floods, Droughts, and Other Climatic Clues Tell Us about Tomorrow….

 

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SocGen Takes Its Morning After Mea Culpa Pill

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

From the analyst (SocGen's Benoit Anne) who just over 12 hours ago (despite our various caveats) said this…

Hats Off To The CBRT

The CBRT did not disappoint tonight. The CBRT just announced a massive 425bp rate hike. Governor Basci, you have avoided a domino crisis in EM. The policy response to severe financial stability risks was punchy, aggressive and credible. An amazing job overall. The CBRT is now back in the game after going through a few tough weeks during which its credibility was heavily challenged by emerging market investors. Is Turkey out of the woods? Not quite of course. There are still two major issues. On the domestic side, the political environment continues to be quite challenging, with little sign this will improve anytime soon. Meanwhile, the global  backdrop remains quite challenging for GEM at this point, and we are still very much in the middle of our Doom phase. So while the CBRT has done a great job at containing financial stability risks, there is going to be more work to do. In any case, I definitely feel much better about the TRY, at least on a tactical basis. Hence we just entered a long TRY/ZAR targeting a tactical move to 5.10. The TRY crisis is over.

Comes this…

We take profit on our TRY/ZAR trade recommendation which we entered last night at a level of 4.92. At the time of writing, the level is 4.968 resulting in a gain of 1.0% before carry. The short-lived relief rally in the TRY was swiftly interrupted by a shift in market sentiment, with the updated policy implementation failing to deliver the intended improvements in clarity. On the other hand, an unimpressive 50bp hike from SARB on the heels of CBRT’s punchier response fell short of expectations. Overall, the market continues to trade in a panic mode, notwithstanding the monetary policy responses spreading fast across EM, as real policy rates come increasingly under scrutiny.

All one can say is: "LOL"