Wall Street HFT firms buy NATO towers for even more speed

Still officially sanctioned and tolerated by regulators and law makers, HFT gets more and more brazen.

Bloomberg’s Jesse Westbrook reports on the purchase of NATO microwave towers by high-frequency traders. Here is a direct video link.

Sure this all seems perfectly fair, legal and transparent for public markets… “Might be trading ahead of others”??? Gee, ya think?

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Calling BS on the heavily sold myth of Warren Buffett

warren-buffett-103I have written many times about how the long-always financial sales machine uses the legend of Warren Buffett to dupe customers into buying their products and their passive buy and hold strategies. See my articles: Buy and hold Buffett necessarily perpetually bullish, and Buffett explains the single best measure of where valuations stand today and Buffett’s Berkshire: return-free-risk round trip, and Warren Buffett must be the most misinterpreted guy that ever lived , for just a few.

Today someone else offers a rare insightful article on the truth behind the much abused myth of Warren Buffett. Well worth the read, to wit:

“To a large extent, the myth of Warren Buffett has fed a stock market boom as a generation of Americans has aspired to make their riches in the stock market. And who better to sell this idea than financial firms? After all, a quick allocation in a plain vanilla “value” fund will get you a near-replica of the Warren Buffett approach to value investing, right? Or maybe better yet, reading six months of Wall Street Journals and reviewing the P/E ratios of your favorite local public companies will send you on your way to successful retirement.

By oversimplifying this glorified investor named Buffett the general public gets the false perception that portfolio management is so easy a caveman can do it. And so we see commercials with babies trading from their cribs and middle aged men trading an account in their free time.

And an army of Americans pour money and fees into brokerage firms trying to replicate something that cannot be replicated. Financial firms want us to believe the myth of Warren Buffett. In fact, many of their business models rely on our believing the myth of Warren Buffett.”  See: The myth of Warren Buffett is one of the greatest misconceptions in the financial world.

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Mortgage volume tanks

The reality of rapid asset inflation that disconnects prices from economic fundamentals is that the gains are destined for mean reversion because as affordability evaporates, higher prices become the cure for higher prices…

Mortgage rates are barely moving, but demand among mortgage-dependent home buyers is weakening, data show.

Total mortgage application volume fell 3.6 percent on-week for the week ending July 11th on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). Here is a direct video link.

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Consumer reports: stop spraying children with sunscreen

Too much sun is clearly a health (and wrinkle) risk, but I have long had a concern that too much sunscreen will also prove detrimental to health. Limiting exposure seems to be the safer plan.

Parents are being warned to stop using spray sunscreens on children following an FDA investigation into potential inhalation risks. Here is a direct video link.

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FRONTLINE: Separate and unequal, a look at segregation in the public school system

FRONTLINE examines the growing divide in the American school system. On its face this can look like a racial divide, and certainly many racial minorities are found in the group of disadvantaged students. But more than race, this divide is primarily socio-economic. Poor kids of all walks are at greatest risk of growing segregation in our society. This is a complex issue with responsibility and accountability needed on all sides; but the more poor kids are left behind, the more vulnerable and weakened “we” the people.

Sixty years after the Supreme Court declared separate schools for black and white children unconstitutional, school segregation is making a comeback. Here is a direct video link.

For more on the value of good teachers, also see: What teacher’s make

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Stark facts on the nonsense of “too big to fail” safeguards

Today Senator Elizabeth Warren pointed out Chairwoman Yellen’s nonsensical assurances that ‘too big to fail’ tax-payer-backed banks have been reigned within manageable risk limits. Au contraire… Here is a direct video link. Glass Steagall-like break ups remain the only reasonable course.

Gary Shilling’s July (subscription) letter this month offers a detailed update on the US banking sector: “Big Banks shift to lower gear” and points out that bank CEO pay is linked to size much more than performance and so CEO’s resist dismemberment and constantly plan to grow even bigger!

On the much over-praised and overpaid Jamie Dimon of JP Morgan, Shilling offers the following historical context:

“Interestingly, Dimon had been fired at Citigroup in 1998 by his former mentor, Sandy Weill. He then became CEO at Chicago’s Bank One, which was troubled after a series of large acquisitions. He returned to New York when JP Morgan bought Bank One and ascended to the top. It’s interesting that a small group of people rotate among big banks’ senior positions, and getting into trouble at one institution is no impediment to becoming CEO at another.

Furthermore, the London Whale fiasco has not hindered Dimon’s compensation, although he suffered a pay cut at the time. In January 2014, the JP Morgan board raised his pay 74% to $20 million for 2013, a year which the bank agreed to more than $20 billion in fines and other legal payouts and suffered its first quarterly loss in nine years.”

Lest anyone forget, the Citigroup from which Dimon was fired by Weill was the same National City Bank that was found to be a major contributor to the pump and dumps that led to the crash of 1929 and the Great Depression. The same National City Bank who’s activities revealed by the Precora Commission led to The Glass Stegall Act of 1932 which broke up the tyranny of the mega-banks. In addition Citi CEO Sandy Weill was the same guy that worked so tirelessly lobbying politicians and instigating the demise of Glass Steagall which was finally killed by Bill Clinton in 1999. The same Citi that blew up and was bailed out by the US government in 2008. Sandy Weill, the same now retired CEO who today says he was wrong and big banks are a menace, and we need to break them up again to protect taxpayers and the economy from the next big meltdown. See: The untold story of the Bailout of Citigroup for more.

It would be hard to believe such an incredible story, if it were not tragically true. And still our society applauds and reveres the banksters. The mind boggles.

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TSX: Back to the past

Michael J Fox in Back to the FutureHere we are July 2014 and as shown below, the Canadian TSX has manged to get “Back to the past” now within a stone’s throw of the level it last reached 6 years ago at the commodities cycle peak in June 2008. Of course that was just before the world realized that too much debt and financial leverage were toxic for families, banks, consumption, stability and economies.
TSX July 15 2014
But wait, the world now has tens of trillions more debt than it had in 2008. Global debt to GDP has now topped $260 trillion, some 430% of global GDP (without counting many forms of additional financial leverage and derivatives), and too big to bail banks are bigger and more concentrated than ever before….hmmmmm. Not to worry, surely this time will be different…

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Overcoming the student debt problem

When I was in secondary school, I knew that there was no family funding for my university studies. This helped me to become very focused. I maintained a couple of part-time jobs and began taking senior year credits in my junior years so that by the time I reached the last year of high school I only needed one semester to complete rather than a year. This left me 9 months of full time work waiting tables to save money before starting university. I also took out some government loans which were interest free during my studies and then reverted to market rates on graduation. Market rates were 11% when I graduated law school in 1991. Interest costs serve as a healthy prod where it keeps one motivated to pay down rather than continue to lever up. It helped me to focus on continuing to work while I studied and to keep the debt as low as possible and then repaid as quickly as possible after graduation. In retrospect it was a lot of work. There were no cars or cell phones or trips abroad. But investment for the future, requires present consumption denied, and there can be no doubt that investment in a meaningful education provides life long dividends.

Later on when my husband and I had two kids under 2 and were both working full time, I resumed my studies for three years to complete the CFA on nights and weekends. My husband began his post-graduate degree at the same time. It was an incredibly busy time. At that point, I realized that my previous student life while busy, had been a cake walk in terms of a luxury of time and focus compared with the concurrent demands of parenting, working, maintaining a home, volunteer hours and a pretty intense program of study.

The point is not what I did; the point is that we humans are so much more capable than we often imagine. Context is everything. If we train by running on flat ground, we find subsequent hills difficult. If we train on hills, we are capable of duration on the most challenging terrain.

Easy credit and low rates have enabled less output and efficiency. Many people and governments have come to think in an unduly entitled manner. They have been able to use credit rather than curtail spending or sacrifice present consumption for future strength. They have trained on lowlands and their sense of capability has flat-lined as well. At the same time, cheap credit has enabled for-profit schools to become bloated and inefficient with resources. Their costs have escalated and fees soared. Education costs and student debt levels have now reached crippling levels and new leaner, more resourceful thinking is required across the board. Yes we can.

Denver has come up with a new approach that allows high school students to start college early with no cost other than the investment of time, initiative and effort.

When it comes to student debt in the United States, the numbers are truly staggering – in 2012, 71 percent of new bachelor’s degree graduates had debt, averaging over $29,000. Over the last ten years, student debt has quadrupled – topping $1 trillion.

Congress crafted legislation last month that would have allowed for refinancing of student loans at a lower rate, but it went nowhere – and President Obama’s recent executive action doesn’t full solve the problem.

Here is a direct video link.

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More “egregious misconduct” from Citigroup: another fine and still no perp walk

Just as the US AG announces a $7 billion dollar fine settlement with Citigroup for another round of illegal, “egregious misconduct”, Citi today announces a flashy earnings “beat”. Executive bonuses are now assured another quarter. Clearly still zero deterrent effect on tax-payer subsidized, illegal acts by the banking cartel.

Bloomberg’s Keri Geiger and Phil Mattingly examine Citigroup paying $7 billion in fines and consumer relief to end a U.S. government claim that it misled investors about the quality of mortgage-backed bonds and what the agreement may mean for other banks facing possible probes and penalties. Here is a direct video link.

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A Monday smile on a serious topic

Will Ferrell brings us a Monday smile in this parody of George Bush and the climate change deniers. Here is a direct video link.

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Oh, oh, Canada

Confirmation this morning that Canada lost more jobs in June. In fact without the unsustainable oil-sand madness jobs added in Alberta this year, the other provinces have experienced no job growth at all now for the past 12 months. The loonie is taking a deserved blow on the news. As shown in the chart below, the elephant in the room (the one that nearly all Canadian-centric investment firms try hard to ignore) is: if a US led recession and credit crunch clobbered the Canadian dollar and stock market in both 2000 and 2007, how low might the loonie (and Cdn stocks, led by the Canadian banks) fall this time with the true north strong and free today enslaved by record domestic debt levels? Maybe Mark Carney is a genius after all…he certainly timed his exit to England last summer beautifully.

FXC July 11 2014

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Kaboom: the downside of epic leverage

When happy go lucky CNBC personalities start bantering about the risk, you know the suicidal leverage and anemic trading volumes must be outright freakish…

Big moves in a handful of stocks provided traders with a worrying signal—an “ultra-high” level of leverage in the stock market. “People must be three or four times normal leverage,” Cashin said. “We’ve seen margin accounts go up. We knew the hedge funds were playing. But to see extreme moves like that on nonspecific news tells me there’s a lot of leverage out there. … If we start to get a protracted move, it could get very volatile.” Here is a direct video link.

For some historical reference on just how ‘bat-shit-crazy’ current leverage levels are today, here’s the updated chart again since 1995. But gee…300%+ leverage worked out so well the past couple of peaks, what’s to fear this time, right?
Margin use June 30 2014

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The end of QE commeth…

In the Federal Open Market Committee’s June meeting, the Fed decided that it would likely look to end its asset purchasing program (known as quantitative easing, or QE) with a $15 billion reduction in monthly purchases in October, according to the meeting minutes released on Wednesday. The markets took the news in stride, and stocks actually closed higher on the day.

But Peter Boockvar, chief market analyst at The Lindsey Group, told CNBC’s “Futures Now” that equity investors are making a huge mistake. Here is a direct video link.

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Highest quality bonds quietly in demand

As unshorn sheep run blind with speculative shepherds, US treasuries are continuing to float quietly higher on a steady in-flow of investment capital focused on preservation now and coming opportunities ahead…Today back flirting with a 2.50% yield, the 2.30 to 2.50 band is critical support marked below. If yields manage to break below 2.30 once more, the bond market will have called the QE bluff and made the next decisive statement in favor of slowing growth and price deflation for risk assets. Let the big dog eat.
10 year July 9 2014

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The speculator’s guide to financial ruin

As Portugese credit markets jolt the world from the Fed’s “we got this all under our control” meme this morning, the charts in this clip and below offer a glimpse of where we are in terms of investor speculator psychology today.

Scarlet Fu examines Brean Capital Markets Peter Tchir’s hierarchy of a credit bubble. Here is a direct video link.

In the same clip Nuveen Asset Management Chief Equity Strategist Robert Doll counters with his usual perma-bullish slant for a little comic relief on this sunny July day.
Investor psychology cyle
What short-sighted humans always forget every 5 years or so, is that the market cycle is a cycle!! Prices go up on leverage and then come crashing down on leverage. The precise turning point is illusive and impossible to determine in advance, but the fact that it does turn down is never debatable. Unless of course, one is oblivious or works for the long-always financial industry who make their living trying to convince us that we are climbing a mountain of riches to infinity and beyond. Who’s riches is that again?

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