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MF Global: Uncertain futures - Fullermoney
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MF Global: Uncertain futures - This is a good article (may require subscription registration) on a sorry and damaging saga, written by Hal Weitzman and Gregory Meyer for the Financial Times. Here is the opening: There should be a proper trial and if found guilty, Mr Corzine and others responsible should receive sufficient fines and jail sentences to serve as a deterrent to others who might be tempted to play fast and loose with their fiduciary responsibilities, not least clients' money.
"Talking about discipline... My comment - Many thanks for adding to the excellent contributions in this series. The first sentence above reflects the value of experience; the second shows great wisdom. In addition to this week's earlier comments, here are three points regarding trading which I think are important: This item continues in the Subscriber's Area.
Risk assets have had a good early start to 2012; the S&P 500 is up 5% year to date, while long-term US Treasuries are down 2%. We think this could continue for another week or two. Investor pessimism is receding, but has not yet been replaced by excessive optimism, which has tended to be the best environment for stocks according to Ned Davis Research's weekly Crowd Sentiment Poll. We expect that the S&P 500 will encounter technical resistance around 1360, its 2011 high, as optimism becomes excessive. My view - This issue of The Weekly View was released on Monday so markets have seen another week of mostly gains, further improving this year's performance to date. The technical action this January has been exemplary, and not just on Wall Street. It represents a continuation of the recovery which commenced at the beginning of 4Q 2011, following a period of support building near the August to early-October lows. This item continues in the Subscriber's Area.
"Thanks very much for your comments on "discipline in trading" which I appreciated a lot. "I would be most grateful if you would also share with us what you consider important for "discipline in investing" and/or any general comments you might wish to make for investing principals. Thanks again, and have a wonderful weekend." My comment - I am happy to talk about trading, on occasion, and there is always plenty of interest in the subject. However, give the steep learning curve and the risks involved, which have to be paid for in the markets, if you are not strongly drawn to trading, why consider it? The serious money should be channelled into sound investments, in my opinion. I suggest than no investor over the age of 50 should feel compelled to take up leveraged trading as well, unless they are in need of what on a bad day will feel like a particularly masochistic hobby. Further to my detailed thoughts in response to Email (1) above, in the manner of a naturalist, between the frustrating waits there will also be times when traders feel that they are 'in the zone', usually meaning that they have an intuitive feel for the way a particular market is behaving. This is often justified, for a while, in that consistent trends develop self-feeding rhythms which can also be observed on price charts. That can be a very useful affinity but it will also be temporary and traders need to be alert to any sudden and dynamic change in the price action capable of altering the prevailing market psychology. Students of the markets may also wish to read books on trading. These should come with the equivalent of a government health warning - this material can be hazardous to your wealth. Inevitably, there is more comment out there on trading which is mediocre rather than helpful, as in any other field. It may take an experienced eye to spot the difference. Fullermoney friend Puru Saxena mentioned two books on trading to me just before Christmas. I have yet to investigate them but I imagine someone else within the Collective will also have a view on these two books or others which they found of practical value. This item continues in the Subscriber's Area.
"On your comments about "Average is over". "I am 63 years old. When I was growing up nobody in my city in Turkey earned a living on cell phones, computers, air-conditioning, or TVs. Let alone fast food. "The amount of employment that has been created directly and indirectly in these industries is huge. Thanks again for the wonderful service." My comment - Thanks for the feedback. In the west, we too often hear about what people describe as the 'bad side' of globalisation. What you are describing in Turkey is the profoundly good side of globalisation and a market economy which is creating prosperity for your people. Long may it last.
Contender for leading meme of our time is the idea, fast becoming conventional wisdom, that capitalism is somehow experiencing a crisis. UK Prime Minister David Cameron (or his speechwriter) suggested last week that it is now the time to use the "crisis of capitalism to improve markets, not undermine them." If we draw a straight line back in time from the current financial crisis to the dawn of the same crisis, few would dispute that it was, and is, banks carrying the smoking gun. It was banks that made questionable loans to flaky borrowers - sovereign as well as individual - and it is banks that required extraordinary levels of involuntary taxpayer support to keep them "in business", that is to say, keep their senior executives in the manner to which they have become accustomed. Unfortunately, in saving the banks from themselves, sovereign governments have now largely destroyed their own balance sheets. There is not, and never was, a free or fair market for banks. A free market would have allowed insolvent banks to fail. A free market, for that matter, would have no need of a central bank dictating monetary policy: the genius of the market is that it is perfectly capable of pricing money and interest rates in the same way it makes a price, every day, without fail, for the value of Tesco plc, crude oil or wheat. If the Prime Minister were capable of framing the problem correctly, he would have said that it was now the time to use the "crisis of statism to introduce markets". Instead, career politicians in the coalition, with no practical experience of any world other than the political, have been busily urging the rest of Britain to become "a John Lewis economy" of motivated employee shareholders. As Martin Vander Weyer asked archly in "The Spectator?, "Have you wondered why there's only one John Lewis Partnership, Mr Clegg ?" But then criticising the Lib Dems (official financial policy: join the euro zone) for economic confusion is like criticising David Blunkett for being blind.
"Time ripens all things; no man is born wise." Cattle Herd Drop to 1958 Low Boosting Cost for McDonald's, Tyson - This article by Elizabeth Campbell for Bloomberg may be of interest to subscribers. Here is a section: Some herds grew in states unaffected by drought and in areas where there was less pressure to switch to growing crops, Robb of the Livestock Marketing Information Center said. Ranchers would prefer to sell heifers for slaughter at current high prices than hold them for breeding, said Lane Broadbent, a KIS Futures Inc. vice president in Oklahoma City. Ranchers earned an estimated $93.50 per cow last year, compared with $46.50 in 2010, Robb said. Even as rising profit provided an incentive to expand, that was overwhelmed by the impact of the drought, high grain prices and the potential for better profits in crop production, he said. Tyson Foods, the biggest U.S. meat processor, projects a “gradual reduction” of 1 percent to 2 percent in supplies of cattle available for slaughter during the fiscal year that began Oct. 2, according to a Nov. 21 statement. Supplies will be “adequate” in regions where the Springdale, Arkansas-based company operates beef plants, it said. Most of those are in the Midwest, according to Gary Mickelson, a company spokesman. Tyson Foods forecast profitability in its beef unit in the first fiscal quarter, though at a “lower level” than in the preceding quarter, James Lochner, the chief operating officer, said on a conference call with analysts on Nov. 21. My view – Feeder cattle broke out of a more than 6-year range in 2010, found support in the region of the upper boundary in May 2011 and continues to post a progression of higher reaction lows; finding support in the region of the 200-day MA on successive occasions. While somewhat overbought in the very short-term, a sustained move below $140 would be required to question medium-term scope for additional upside. Live Cattle has a comparatively similar pattern. (Also see Comment of the Day on June 17th). In nominal terms, prices have been ranging incrementally higher over the last few decades. However, the inflation adjusted picture is somewhat different. Prices trended lower from 1972 until 1996. The inflation-adjusted price mostly ranged between 1997 and late 2010 and broke upwards in early 2011. It has held the advance since; supporting the view that a new inflation-adjusted uptrend is in place. This section continues in the Subscriber's Area. “I've followed the post on the Baltic Dry Index in the 25.1.12 Fullermoney issue. Attached you'll find research from GS which might be of interest for the fuller-community!” My comment –Thank you for this illuminating report which distinguishes between the relative strength of freight and tankers rates compared to the weakness in bulk shipping. It is posted in the Subscriber's Area but here is a section: Asia-Europe/US container rates have increased sharply following an acceleration in supply adjustments. Interestingly, despite these increases capacity cuts continue at a fast pace, as evidenced by the rise in lay-ups to c. 5% of the fleet from 3.5% at the turn of the year. Crude tanker rates have also moved up, driven by fears of potential geopolitical tensions in the Strait of Hormuz. The exception to this is dry bulk rates, which have weakened in January due to lower iron ore shipments to China following a strong restocking phase in November and weather disruptions. This section continues in the Subscriber's Area. Email of the day (2) – on long-term cycles “I'm currently enrolling myself to do a PhD in Behavioural Finance. I have a number of research topics that I have in mind within this discipline. “Based on my personal trading experiences, I have learned a lot about myself in terms of discipline, emotion, and herding. “It was mentioned in comment last Tuesday that market histories are best viewed using a chart (I agree) and that markets undergo cycles where trading errors occur. “Behavioural research over a time series of, say, 30+ years will show up many cycles. Thus, the problem I'm encountering is testing a hypothesis that may be accepted over one sub-period or cycle but rejected over the entire sample period. I do not want to take a traditional academic and theoretical approach where I may be limited to testing linear models. “Are there any areas in the field of behavioural finance that would be interesting and also helpful to trading? My own personal interests stems from fractal markets and fat tails.” My comment – Thank you for this interesting email which I, suspect will elicit a response from the Collective. Your interest in the fractal nature of markets is very much in line with our own. The same patterns are as observable on an intraday chart as are evident over a much longer timeframe. One of the reasons we distinguish between secular and cyclical bull and bear markets is because of the difficulty you speak of. For example, the S&P 500 has been in a secular process of valuation contraction and rising dividend yields for more than a decade. However, within that secular bear, there have been a number of cyclical bulls. Therefore I see no contradiction between a theory working over one timeframe and not over another, provided one acquaints oneself with the big picture. This section continues in the Subscriber's Area.
“I am trying to study the term structure of volatility. Volatility traders tend to talk about this a lot. Could we please get the VIX futures prices for front month, 3 month,1 year and 2 year VIX? These should be freely available in Bloomberg. Any insights that you may have about the term structure of volatility and its relevance to markets would be appreciated. Thank you” My comment – Thank you for this question which others may also find of interest. There are 9 VIX futures traded on the CBOE. They are monthly contracts and run from February to September 2012. There are no 1-year or 2-year futures that I am aware of. I have added the 3-month and 6-month charts to the Chart Library. However, these are fairly esoteric requests and we are charged for each data packet we download. Therefore while I have added them to the Chart Library, if they are not being used by subscribers I will remove them, three months from now. This section continues in the Subscriber's Area.
“May I request you to kindly add GEOLOGIX EXPLORATIONS INC (GIX.TO) and Copper One Inc. (CUO.V) to our library?” My comment – Thank you for these suggestions which have been added to the Chart Library.
Where can economic policy be focused in order to boost productivity and GDP growth? One option might be to improve the conditions for innovation and encourage the establishment of rapidly growing, innovative companies from high-tech sectors in order to raise the share of high-tech exports. Examples of such strategies are to be found in Taiwan, Israel – and Ireland itself. Taiwan, Israel and Ireland have benefited from the booming global growth of the IT sector. At completely different junctures, the countries positioned themselves in world markets: Taiwan as a manufacturer of IT hardware components, Israel as an R&D and/or service centre, and Ireland as the European production centre of multinational companies. Their governments actively pursued policies to attract business: they offered financial incentives, for example in export zones (Taiwan) or in the shape of low (zero) corporate taxes for foreign investors (Ireland, Israel). Further-more, they developed technology parks and encouraged the formation of clusters (Israel, Taiwan). Foreign direct investment played a major role: for example, in the 1990s Ireland attracted foreign companies from the IT and pharmaceuticals sectors and thus laid the foundation of its economic upswing (see chart 9). Israel, in turn, is home to a large number of research facilities affiliated with international IT companies. Taiwan, by contrast, focused on international networking and integrated its domestic industry into international supply chains. This facilitated the technology transfer. Exports performed a key function in all these countries: Ireland served as a location for US companies which in turn exported to other EU countries. Israel has also strongly geared its IT sector to export business. In 2006, e.g., 72% of the IT goods and services produced in Israel were sold abroad. As a consequence of their incentive policies the countries have often developed very one-sided large sectors which can make them vulnerable to structural changes or cyclical swings. For example, the ICT sector in Taiwan generates 34% of that country's manufacturing output (2009).7 In Israel it accounts for roughly 11% of GDP and around 30% of exports (2009).8 One major challenge for all these countries is to generate spill-over effects for the domestic economy and create scope for broader-based growth. Even though critics in Israel continue to point to the risks of a dual economy, attempts have nonetheless been successful in establishing an entrepreneurial mindset around the IT sector. Some helpful aspects in this context were programmes to develop technology centres and incubators as well as funding to support the venture capital market. By contrast, in Ireland there are still major differences between the sectors dominated by FDI and those of the domestic economy. In all three countries, high public spending on education, currently totalling about 5-6% of GDP, provides underpinning for economic development.
I have also accepted an invitation to speak to the San Diego chapter of the MTA in the first week of April. A date and time has yet to be fixed but it will take place in the Del Mar area. I still have some space available on my itinerary. If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.
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