by ilene - March 10th, 2014 5:04 pm
Courtesy of Sober Look
1. Increasingly asset managers are bought by other asset managers in strategic acquisitions (and to a lesser degree by financial sponsors).
2. Banks have stopped acquiring asset management businesses. In fact what the chart doesn't tell us is that banks have been actively selling their asset management businesses (especially in alternatives such as private equity) mostly to established asset management firms (which is where the trend in item #1 above comes from). Here are some high profile examples:
- Blackstone buys secondary private equity fund called Strategic Partners from Credit Suisse (see press release).
- Grosvenor (fund of hedge funds) buys private equity fund of funds named Customized Fund Investment Group (CFIG) from Credit Suisse (see story).
- Aberdeen Asset Management buys Scottish Widows fund from Lloyds Bank (see story).
- SunTrust sells RidgeWorth asset management business to Federated Investors (see story).
- Credit Suisse blows out its mezzanine fund business called DLJ Investment Partners to Portfolio Advisors (see story).
- Deutsche Bank to sell its asset management business (see story) – likely to Guggenheim Partners.
- JPMorgan is still trying to sell its private equity business (see story), although the price tag has been a bit too rich for potential buyers (see story).
Why are banks selling these businesses? The obvious answer of course is the looming Volcker Rule. But these funds invest clients' money – why would it impact banks' balance sheets? The answer has to do with alternatives investors' requirement that banks that manage money put some serious "skin in the game". A typical general partner (fund manager) may put in say 1-3% into a fund it manages. A bank however is required to coinvest a much larger percentage with its investors. That's because investors worry that banks will stuff deals which are difficult to sell into their funds, focusing on lucrative investment banking deal fee income at the expense of performance. But the Volcker Rule only permits banks to commit up to 3% to their funds, making the business of managing funds untenable. That, combined with banks' relatively high cost structure and in some cases capital constraints (particularly for European banks), is driving them to shed asset management businesses.
by ilene - March 10th, 2014 3:51 pm
Courtesy of Mish.
The authors claim the current financial bubble is even bigger than the one in 2007.
I agree. But how does it end?
No one knows and importantly, Turk and Rubino don't claim to know either. Rather they outline a number of possible scenarios including a "Debt Jubilee", "Crypto-Currencies", a flight to tangible assets in general and gold in particular, currency wars, capital controls, wealth taxes, and bank bail-ins.
The book makes for interesting reading with historical references on fraction reserve lending, goldsmiths, and the evolution of the "Paper Money Experiment".
The authors intersperse an number of excellent quotes in each chapter, starting off with an important one: "The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant." – Maximilien de Robespierre
I have a number of minor quibbles with the book regarding some inflation stats, and also an alleged short-squeeze in gold or silver that I see as unlikely. Also, I expect at least one more asset-bubble deflationary collapse is coming up. Whether that happens before, after, or in conjunction with a huge global currency crisis is not knowable.
If that collapse happens before a crack-up-boom, as I strongly believe, debt-free is the way to be.
Actually, I was very pleased the book was not a huge hyperinflation rant from front-to-back that one might have expected.
by ilene - March 10th, 2014 3:03 pm
Here's an important article for day-traders and day-trader wannabes. In it, Wade Slome points out that 80% of traders lose money, and only 1% are consistently profitable. These are bad odds. And if you think you're good enough to quit your day job, consider the inherent human tendency to inflate one's skill set.
After the market has been handing out gifts for five years and money-losing companies are rewarding gambling by making higher highs, it's easy to mistake luck for intelligence. Problems start to arise when the market goes down. The financial industry spends millions figuring out how to exploit our greed-seeking tendencies while rigging the system in its favor. So while BTFD has been working well, and may continue to for another five years, keep in mind, nothing lasts forever.
Courtesy of Wade of Investing Caffeine
“Winning is a habit. Unfortunately, so is losing.”
- Vince Lombardi
And one thing is for sure…day traders have a habit of losing. Like a hamster on a spinning wheel, day traders use a lot of energy in creating loads of activity, but end up getting nowhere in the process. This subject is important because the animal (hamster) spirits are on the rise as evidenced by the 22% and 17% increase in average client trades per day reported last month by TD Ameritrade (TD) andCharles Schwab (SCHW), respectively.
The statistics speak for themselves, and the numbers are not pretty. An often citedstudy by Terrence Odeon (U.C. Berkely) and Brad Barber (U.C. Davis) showed that 80% of active traders lose money. The duo came to this conclusion over six years of research by studying 66,465 accounts. More importantly, they “found that if you were to look at the past performance of these traders, only 1 percent of them could be called predictably profitable.” Uggh!
How can this horrendous performance be? Especially when we are continually bombarded with the endless commercials of talking babies and perpetual software bells & whistles that shamelessly promote and pledge a simple path to prosperity. The answer to why active trading fails for the overwhelming masses is the following:
- Taxes/Capital Gains
Culture of Greed and Arrogance: Minutes Show Bank of England was Aware of Currency Rigging Eight Years Ago
by ilene - March 10th, 2014 1:35 pm
Courtesy of Mish.
Bank of England head Mark Carney faces a grilling from lawmakers tomorrow as Minutes Show Bank of England was Aware of Currency Rigging Eight Years Ago.
Bank of England Governor Mark Carney will face his toughest public testimony to date as he seeks to defend the integrity of an institution that’s become embroiled in the currency-manipulation scandal.
Lawmakers will grill Carney tomorrow after the BOE suspended an employee and released minutes of meetings showing officials knew of concerns the foreign-exchange market was being rigged almost eight years ago. The central bank said last week that an internal review has found no evidence so far that staff were involved in collusion.
It’s the second rigging scandal to hit the central bank following its entanglement in 2012 in the manipulation of the London interbank offered rate. Lawmakers criticized how it handled that affair, calling it naive.
“The statement on the internal review is only an early staging post in what is likely to develop into a very significant issue,” said Simon Hart, a lawyer at RPC LLP in London. “The statement left open as many questions as it answered. It was noticeably silent on what the Bank knew about other FX market participants.”
The testimony comes as regulators investigate allegations that traders at the world’s largest banks worked together to rig the $5.3 trillion-a-day foreign-exchange market. The U.S. Securities and Exchange Commission is investigating whether traders distorted prices for options and exchange-traded funds by rigging benchmark currency rates, according to two people with knowledge of the matter, Bloomberg News reported today.
More than 20 traders from banks including Deutsche Bank AG, Citigroup Inc. (C) and Barclays Plc (BARC) — the three biggest currency traders, according to a May Euromoney survey — have been fired, suspended or put on leave since Bloomberg News first reported in June that dealers said they shared information about client orders to manipulate foreign-exchange benchmark rates.
The suspended BOE employee, who hasn’t been named, is being investigated and “no decision has been taken on disciplinary action,” the central bank said on March 5.
According to minutes of meetings released alongside that statement, BOE officials knew of concerns the foreign-exchange market was being manipulated as early as July 2006, more than seven years before regulators opened formal
by ilene - March 10th, 2014 1:25 pm
Many investors, especially those new to precious metals, don't know that gold is seasonal. For a variety of reasons, notably including the wedding season in India, the price of gold fluctuates in fairly consistent ways over the course of the year.
This pattern is borne out by decades of data, and hence has obvious implications for gold investors.
Can you guess which is the best month for buying gold?
When I first entertained this question, I guessed June, thinking it would be a summer month when the price would be at its weakest. Finding I was wrong, I immediately guessed July. Wrong again, I was sure it would be August. Nope.
Cutting to the chase, here are gold’s average monthly gain and loss figures, based on almost 40 years of data:
Since 1975—the first year gold ownership in the US was made legal again—March has been, on average, the worst-performing month for gold.
This, of course, makes March the best month for buying gold.
But: averages across such long time frames can mask all sorts of variations in the overall pattern. For instance, the price of gold behaves differently in bull markets, bear markets, flat markets… and manias.
So I took a look at the monthly averages during each of those market conditions. Here’s what I found.
The only month gold has been down in every market condition is March.
Combined with the fact that gold soared 10.2% the first two months of this year, the odds favor a pullback this month.
And as above, that can be a very good thing. Here’s what buying in March has meant to past investors. We measured how well gold performed by December in each period if you bought during the weak month of March.
by ilene - March 10th, 2014 12:31 pm
ExxonMobil had a pretty rotten week. On March 5 it announced that it would reduce capital expenditures this year, after having “peaked” in 2013. Its 2014 spending will hit $39.8 billion, down 6% from $42.5 billion last year. While that may seem like a good thing (cutting costs), investors apparently didn’t like the idea – its stock price dropped 2.7% during midday trading as a result, ending the day as the biggest decline on the Dow Jones Industrial Average. Investors are growing concerned that ExxonMobil may be running out of good projects to invest in. Exxon’s production was down by 1.5% in 2013 from a year earlier, and the firm believes it will only remain flat through this year. Meanwhile Exxon’s costs on a per barrel basis are rising. It cost them $11.48 to produce a barrel of oil equivalent in 2013, sharply up from $9.91 in 2012.
But there troubles didn’t end there. Although great uncertainty remains, ExxonMobil may also suffer some damage from the unfolding Ukrainian crisis. Its biggest non-U.S. oil project is a collaboration with Russia’s Rosneft in the Arctic, where it has billions of dollars of investments at stake. If the U.S. and the EU slap sanctions on Russia for its incursion into Ukraine and its support for the pending referendum in Crimea, Exxon could face restrictions on doing business in Russia. This would imperil its plans to drill later this year. Exxon has the rights to drill on 11.4 million acres in Russia, which represent holdings for the company that are only surpassed by its acreage in Texas, its home state. ExxonMobil CEO Rex Tillerson tried to assuage concerns at its annual meeting with analysts, “There has been no impact on any of our plans or activities at this point, nor would I expect there to be any, barring governments taking steps that are beyond our control.”
In Ukraine too, Exxon has had to pull back. On March 5 company officials stated that their interest in drilling offshore Ukraine for natural gas will be put on hold. Fortunately for Exxon, it hadn’t yet sunk a lot of money in the prospect, but its opportunity there is effectively cut off for the foreseeable future. Ukraine has been eager
by ilene - March 10th, 2014 11:44 am
As I've discussed before, the uranium mining business has some unique global challenges.
Namely, that the industry cost curve is much more warped than for any other metal.
Worldwide, there is exactly one low-cost centre for producing primary uranium: Canada's Athabasca Basin. Looking at some recent numbers, it's easy to see why this locale beats every other spot on Earth. Last month, developers Fission Energy announced further drilling results from their Patterson Lake South property--showing remarkably high grade uranium intercepts, such as 38 metres grading 13.66% uranium oxide.
That grade is higher by orders of magnitude than for other projects being developed globally. We simply haven't found another place with the gifted uranium geology that Athabasca enjoys.
So how might this play out from an exploration standpoint? Is there little hope for creating new projects outside Canada?
News last week suggests there may be a potential alternative strategy in sourcing economic uranium mines in places like Africa. By producing uranium along with other metals.
That's what operators Barrick Gold are moving toward at their Lumwana Mine in Zambia. Where uranium is found in association with copper that is the primary mining target at the site.
Zambia's Minister of mines and energy has been reporting on development at the new copper project, according to local press. With the Minister noting that potential uranium production here is shaping up--with 5 million tonnes of uranium-bearing ore having been stockpiled so far at the site.
Barrick isn't yet processing uranium here. The major is reportedly waiting for the Zambian government to provide policy guidance for production of this potentially-controversial metal.
But previous feasibility studies at Lumwana showed that the mine could produce up to 2 million pounds a year of uranium, alongside copper output.
Such a situation might be a winning strategy in addressing the topsy-turvy uranium curve. Production of copper would help pay operating expenses, potentially making Lumwana…
by ilene - March 10th, 2014 10:32 am
Courtesy of ZeroHedge
One of the two men who used stolen passports to board the missing Malaysia Airlines jet has been identified according to the nation’s inspector general of police. Authorities are not releasing details of his nationality but confirmed he is neither Malaysian nor from Xinjiang, China (the home of the Uighur separatists who have come under suspicion following Taiwanese authorities tip last week warning that terrorists were targeting Beijing’s international airport).
Malaysian authorities have identified one of the two men who used stolen passports to board the missing Malaysia Airlines jet, the nation’s inspector general of police told local media Monday, as international search teams continued to look — so far unsuccessfully — for wreckage from the jet.
"I can confirm that he is not a Malaysian, but cannot divulge which country he is from yet," Tan Sri Khalid Abu Bakar told the Star, a major Malaysian newspaper. He added that the man is also not from Xinjiang, China — a northwestern province of the mainland home to minority Uighurs. Uighur separatists have been blamed for a knifing rampage in southwestern China this month that left 29 dead.
Meanwhile, a Taiwanese official said national security officials received an anonymous tip last week warning that terrorists were targeting Beijing’s international airport.
According to the report by Taiwan’s Central News Agency, a man speaking Chinese claimed to have information of planned attacks directed against Beijing’s airport and subway system by the East Turkestan Independence Movement, an Islamic-inspired group seeking independence for the Uighurs. The caller identified himself as a member of a French-based anti-terror network and said he had called Taiwan’s national airline because he couldn’t reach anybody in Beijing.
As of Monday evening in Malaysia, investigators have found no confirmed wreckage of the airliner despite an intensive search by more than 40 ships and nearly three dozen aircraft off the southern coast of Vietnam.
by ilene - March 10th, 2014 9:36 am
Submitted by Tyler Durden.
Iron Ore prices have dropped 25% since the end of last year, sending the key steel-making component into a bear market after slumping by over 9% overnight – its biggest daily drop on record. We warned last week this was likely to happen on the heels of Copper prices fell on monetary financing fears as we explained here how Iron Ore replaced copper as the collateral pool for new loans (following China's clampdown on cash-for-copper deals last year) and stockpiles hit record highs. What is further hurting the Iron ore prices are concerns over China's new anti-pollution reforms which are set to close thousands of furnaces.
Iron Ore Stockpiles are at record highs…
The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy.
As we warned last week…
If copper is plunging on monetary financing fears out of China, iron ore will be next http://t.co/D4JXQDM0fz
— zerohedge (@zerohedge) March 7, 2014
And what happened… Iron Ore prices are collapsing as the new monetary metal is delevered…
leading to lower collateral values and a rapid tightening of credit conditions which is simply a vicious circle for China's subprime borrowers (the massively over-supplied and under-demanded steel industry being front and center)
by ilene - March 10th, 2014 9:05 am
Submitted by Tyler Durden.
Moments ago McDonalds reported its latest monthly comp store sales numbers. Printing at -1.4% for the US, this was a nearly double miss to expectations of a 0.6% decline, and was the 4th consecutive monthly drop in annual sales – the longest such stretch in the past decade and likely longer. Looking at this data, there are two observations: i) Americans, courtesy of record obesity rates, are finally getting serious about their health, and have shunned the infamous 99 cent deep fried meals or ii) courtesy of the Fed's "Fed's recovery", the average American can no longer even afford sub-$1 deep fast food.
There is a third option: that it snowed… In fact it snowed so much, everywhere, and the weather was so harsh around the world, that global store sales declined by 0.3%, far below the modest 0.1% drop expected. Yup. Must have been the snow.