Wildebeest

Geithner: All Banks Would Have Failed

with respect to derivatives, a good place to start would be to ban banks using derivatives if they do not have an interest in the underlying. Derivatives are valuable tools for risk management. But derivatives are a zero sum game, negative sum game after transaction costs. If you do not have a stake in the underlying, i.e. using them for risk management, you are gambling. It is no different to managers taking owners funds and playing roulette or going to the track. Presumably banks cannot gamble shareholders funds in casino's right (?). So whatever legislation prohibits that should be extended to derivatives trades that are made without an underlying stake.

What's the Point of Bashing Bernanke?

"To my way of thinking, Chairman Bernanke (and Secretary Paulson) deserve the highest praise for saving our financial system and avoiding another great depression."

If a guy lights a fire then turns up on the scene to put it out does he deserve praise?? Puuu-lease!!!

It is not about whether Bernanke and co are nice guys, are kind to their kids, pat their dog daily etc. It is about criminally neglectful behavior by public officials that have cost this country billions/trillions. The wall street banks and AIG etc. were the symptom, the neglect by the Fed and treasury were the disease.

(er, you wouldn't be closely associated with the Fed by any chance??)

Economic Data: Let’s Go Spin Some

@ Owen B

The U6 unemployment actually rose. It was the seasonally adjusted number that fell. The NSA number is actually lower than the SA number also. I wish they'd just do away with SA stuff and present raw (admittedly survey) data.

www.bls.gov/news.relea...

There is also 3.3 million people who claim they want a job but are not included in the statistics. A BLS official confirmed this to me in an email.

www.bls.gov/news.relea...

it is the "Persons who currently want a job" minus "Marginally attached to the labor force" number. You'll also note in that table that 3 million people have dropped out of the labor force since Nov 08.

Bernanke Is Not the Problem

Nice article Andy. It is presumably the contraction of credit that has so far prevented inflation from appearing despite the record rate at which money is being printed. Subsequent commenters might like to clarify this, but my understanding is that due to the fractional reserve system, the collapse in credit would be deflationary. What the Fed has done so far by printing money is balance the deflationary credit contraction. i.e. this is the reason inflation isn't rampant (yet). That has been my understanding anyway but it is not something I know much about. I'd be interested in what others think.

Not arguing in favor of the Fed by the way, frankly charges of criminal neglect should be leveled at Fed members and also many treasury officials.

"This kind of looks like a buying stampede ... It's just an awful popular trade." - One of a number of investment chiefs who have begun cutting holdings in gold and miners to take profits.

Long term the dollar looks doomed but it seems to have found a short term floor recently. Also no signs of inflation (yet), let alone rampant inflation. Gold seems to have got ahead of itself a bit.

What Commodity Prices Tell Us About the Economic Outlook

On Dec 04 07:12 PM Wildebeest wrote:

> Easily explainable when you dig. Here is the breakdown of this index:
>
>
> crbtrader.com/pdf/...
>
> the rise is due entirely to the scrap metal components. Why would
> that be? Simple, scrap metal prices track "raw" base metal prices
> and these are being bid up by speculators:
>
> seekingalpha.com/artic...
>
>
> So whether or not there are signs of a recovery cannot be determined
> from this index -- it is a poor choice. Nothing to see here. move
> along.
>
> (Incidentally scrap metal recyclers should be worth running the ruler
> over as potential buys in this market.)

The following links better illustrate my point. Above I linked to the 13 commodities in the index. Here is the way they are proportioned:

crbtrader.com/crbi...

okay we have 5 metals:

crbtrader.com/crbi...

these metals are up 350% since 2002 after having been up 500%.

we have 4 textiles:

crbtrader.com/crbi...

these are up, what 40% since 02, and maybe 20% this year?

that leaves hides, rubber, rosin and tallow which they don't combine in a single chart.

If someone can show prices indicating soaring prices in the above 4 commodities that get anywhere near the price rises in metals then please let me know.

The point I repeat over and over again with this guy, and he continues to ignore, is that to draw conclusions about industrial usage you need to monitor industrial consumption of inputs, NOT the price of inputs. Otherwise stuff like the PPI is all we'd need to see how the industry is doing.

What Commodity Prices Tell Us About the Economic Outlook

Easily explainable when you dig. Here is the breakdown of this index:

www.crbtrader.com/pdf/...

the rise is due entirely to the scrap metal components. Why would that be? Simple, scrap metal prices track "raw" base metal prices and these are being bid up by speculators:

seekingalpha.com/artic...

So whether or not there are signs of a recovery cannot be determined from this index -- it is a poor choice. Nothing to see here. move along.

(Incidentally scrap metal recyclers should be worth running the ruler over as potential buys in this market.)

Breaking Down the Employment Data

"If we include in the unemployment rate calculation "Part time for economic reasons" of 9.2 million and "Marginally attached to the labor force" of 2.3 million, we calculate an unemployment rate of 17.2%, which also decreased from last month's figure of 17.5%. "

The seasonally adjusted number decreased. Non seasonally adjusted actually increased. So I guess whether you view this as positive or negative depends on whether you believe the seasonal adjustment. The raw number increased though, albeit by 0.1%

www.bls.gov/news.relea...

Non-Farm Payrolls: Shockingly Good News

When you look at the BLS numbers, the reduction in unemployment seem to almost match the increase in the number of people defined at "not in the labor force."

...and the U6 unemployment number (NSA) actually rose for the month.

www.bls.gov/news.relea...

www.bls.gov/news.relea...

Rather than "good news" the best that can be said is that it is "less bad."

Former Fed Governor Mishkin Slams 'Paul Bill': Are We in Wonderland?

So the question now is what sort of media time proponents of this legislation can get ...guys like Paul himself and other people who share the sense of a need for governance. People need to be getting airtime to rebut idiots like Mishkin.

China Defensively Warns of a Gold Bubble

... they've just bought gold/copper producer Indophil (Australian based/Phillipines operations) for $525 Million. They also got a large Indonesian project (Matabe) from OZ Minerals at the bottom of the market. ...and so on.

So they can make their own gold!

Illegal Alpha

You can always try emailing them and see how they respond. I did that with a supplier of betas maybe 6-7 years ago but didn't get very far. I got informed about how they correct for debt and various other things that I cannot recall now but never got a measure of the standard error.

If you have the math skills you can work it out yourself providing you know the methodology e.g. do they sample monthly, weekly, daily and over what period. You should be able to get their sampling methods from them.

I'm quite cynical about the CAPM industry. Quoting errors in the numbers that they sell to people would alert the people that pay a lot for these services, to the futility of it all.

For the market premium I did a calculation at around the same time and got that it was between 2.6% - 9.1% at 95% confidence. I remember reading an article in Willmott that had a similar value. These sort of uncertainties convert to very large ranges of valuations.

this may be of interest:

espace.library.uq.edu....


On Dec 01 09:02 PM Skjellifetti wrote:

>
> I've always wondered about this. Morningstar, for example does not
> publish error stats for any of its risk measures. Thus there is no
> way of knowing if the values for alpha, beta, r**2, etc for a fund
> are at all meaningful.
>
> On Dec 01 06:05 PM Wildebeest wrote:

Australia Central Bank Has It Right

It's worth noting the the Reserve Bank of Australia is independent, not privately owned, and that its board contains a majority of industry representatives -- even a current Walmart director -- as well as bankers (and even had a union leader in the past):

www.rba.gov.au/AboutTh...

In other words, on the face of it, it is a much sounder structure than the US Federal Reserve. Maybe the USA could consider adopting that sort of model (??)

Illegal Alpha

A significant problem with the practical application of the CAPM (ignoring for the moment the theoretical rebuttals of it over the years) is that the standard error in the estimation of market risk premium, and of beta, is large enough to render the resulting number you get virtually useless ...if you take error estimates into account when performing a calculation that is.

Economic Recovery? Commodity Charts Don't Think So

<img class="authors_reply" src="static.seekingalpha.co...">

@ Kevin Mulhern
Bloomberg had a piece on the Chinese copper stockpile a week or two ago. Apparently even Chinese Joe Sixpacks are hoarding copper. The suggestion in the article was that China might start offloading some of it -- no sign of that happening though.

@Nobby73
Good point about China. Through the sheer volume of their commodity purchases they could manipulate prices, or attempt to anyway: Accumulate stocks at low prices, signal to the market that they are in a buying cycle, watch investors/speculators climb on board and push prices up, then start dumping physical stocks, repeat previous steps in what amounts to a pump and dump exercise. Their desire to keep the stocks rather than hold $ probably prevents that scenario though. The manipulation of commodity markets by China was a scenario that Marc Faber wrote about 4-5 years ago.

@prudentinvestor
It is not a matter of blame it is simply an explanation. Commodities are good hedge against inflation, but if peoples perception of inflation risk changes, fundamental demand is not strong enough (currently) to support the current prices should they (hedge against inflation investors) choose to bail from commodity markets.

@Marco G.
The stuff in the previous article you refer to is saying similar but the purpose was a focus on the current market trading conditions rather than a focus on underlying economic demand. ...price and stockpiles should be inversely correlated (in theory) but tend to fluctuate between positive and negative correlations -- correction can come for either the price or supply side.

@Joshua Hayes
These charts will NOT make you money TODAY. I am not a day trader and don't think in terms of daily movements. One of the points of the article is that you can make money following trends but if the market is not supported by fundamentals, i.e. based on speculation and sentiment, changes can be rapid. Be prepared.

@asceptic
I'm a longer term commodities bull but I really think aluminum is a horrible thing to be in at the moment. Stockpiles are at decade highs (ditto nickel stockpiles). Getting into aluminum nearly cost Rio Tinto its independence. $1.10 copper is profitable for the big Chilean mines but world supply cannot be met at those prices. It knocks out too many producers -- the copper oxide miners that use solvent extraction/electrowinning for starters. We saw what sort of floor copper is likely to have earlier this year.