marți, 29 noiembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Armageddon Delayed; All Quiet on the European Bond Front; Italy and Spain Bond Schedule through 2021; Belief in Fairy Tales

Posted: 29 Nov 2011 11:10 AM PST

European bonds had a good day today. A good day is when nothing blows up.

Italy 10-Year Government Bonds



Italy 2-Year Government Bonds



Germany 10-Year Government Bonds



Germany 2-Year Government Bonds



After a brief spurt higher, which sent S&P futures down a percent last evening, Italian bonds settled flat as did German bonds. In spite of the fact that Italian debt yields are above 7%, this was a "good" day.

Belief in Fairy Tales

Steen Jakobsen, chief economist from Saxo Bank in Copenhagen notes a huge belief in fairy tales. Steen writes via email ....
There is HUGE believe in the ECOFIN meeting producing news, good news on the fiscal union. Some commentator speculate we will be in EU Heaven.

Clearly these things takes a lot longer time wise than we would like but declaring the EU either dead-or-alive by the next EU Summit on December 9th is slightly overdone. The EU process continues and the politicians clearly feel they have ample time on their hands.

EU monetary history is full of delays and Germany giving in to pressure. Merkel's position is under pressure and the Bund Yield has become our barometer for pro-EU solutions – for now the trend is clear – we are on-route to Germany giving up and soon.

[Mish Note: See Germany 10-Year Bond Chart Above]

Meanwhile in the rest of the world ... Yes there is such a thing ... The OECD report was grime reading for anyone betting the house on a good 2012. [Mish Note: See OECD Global Economic Outlook: "Muddling Through" with Slow US Growth, Europe Entering a "Minor Recession"]

Again the theme of "Perfect Storm" comes to mind. [Mish Note: Please see Perfect Storm the Most Likely Scenario; Is Europe Set to Declare a Chapter 11 in Early 2012? for a discussion.]

Still short since last FOMC – market still oversold – could be 1210/1220 on month-end manipulation, but overall low volumes and stress-indicators continuing higher creates two-way risk.

Safe travels,

Steen
Italy and Spain Bond Schedule through 2021

Here are bond schedule charts from Bloomberg that highlight the difficulty for Italy and Spain for the next few years.

Italian Debt Schedule



Spanish Debt Schedule



Armageddon Delayed

I picked up those charts from Pater Tenebrarum who writes Apocalypse Postponed – For Now

Apocalyptic Unanimity
Yesterday, we were struck by the increasing convergence of the views of various market observers as to the outcome of the ongoing crisis. It seems now widely accepted as almost a fait accompli that the euro will disintegrate within weeks. Even Jim Cramer (euro bears please take note…) is now on 'Defcon 3', predicting imminent 'financial collapse'. The Economist writes 'Unless Germany and the ECB act quickly, the single currency's collapse is looming'.

We certainly agree that Mrs. Merkel is possibly underestimating the speed and ferocity at which a market panic could crush her ambitious integration plans. We also agree that there are a number of potential events that could become the triggers for such a panic. There is considerable risk that in the case of the failure of a big bank, a wave of cascading cross-defaults could engulf the system. As noted before, Italy and Spain are unlikely to be able to refinance their debts in the markets for very long with bond yields at 7% or higher. To be more precise, they may well be able to roll over their debt at such yields, but sooner or later market access would close down due to the arithmetic of the debt spiral these high yields would inexorably produce.

Meanwhile, speculators have certainly joined the bandwagon, increasing their net short position in euro futures to yet another 17 month high, with their exposure rising another 11% last week alone.

However, if you thought it cannot get any more apocalyptic than that, Zerohedge reports that Moody's is now reviewing the ratings of 87 banks in 15 countries with a view toward downgrading their subordinated debt. When it rains, it pours.

Considering all these panicked invocations of imminent collapse one is left to wonder though, why did the DJIA rise by nearly 300 points yesterday? If we are not completely mistaken about the meaning of positioning data, then we would argue that with virtually everyone already sitting on the same side of the boat, the markets will begin to do the unexpected – which in this case means the euro should at least see some short term strength, which in turn would have affect many other markets due to the well-known and well-worn inter-market correlations that the systematic black boxes and robots trade off.
The boat was too one-sided for now. However, a relief rally and a global recovery are two different things.

The euro-boat is filling up with water and will eventually sink, only the timing of when and how is unknown.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

OECD Global Economic Outlook: "Muddling Through" with Slow US Growth, Europe Entering a "Minor Recession"

Posted: 29 Nov 2011 10:29 AM PST

Inquiring minds are watching a short video on the OECD Global Economic Outlook.



Video Synopsis

  • Recovery that began in 2009 has faltered
  • Global economic outlook has deteriorated significantly
  • US is slowing
  • Japan reconstruction following the Tsunami has boosted growth [more broken window silliness]
  • Europe headed for recession
  • Emerging market growth is moderating
  • Confidence dropping sharper, trade growth weakening

The central OECD forecast is "muddling through" with US growth recovering slowly. Europe allegedly will enter a "minor recession"

Let me opine, that global "muddling through" is the absolute best one could conceivably expect and even that would take a near-miracle.

Is "muddling through" what the stock market is priced for? I think not. The idea Europe will have a "minor recession" is nonsense in and of itself.

Reflective of the Keynesian clowns they are, the OECD jumps on the fiscal stimulus idea, ignoring the fact we are in this mess precisely because of inane monetary stimulus by the Greenspan Fed accompanied by inane fiscal stimulus policies globally.

The Keynesian clown prescription is always more-more-more until and even after things blow sky high.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Treasury Secretary Henry Paulson Tipped Off Prominent Hedge Funds Regarding Fannie Mae While Telling the US Senate and General Public a Different Story

Posted: 29 Nov 2011 01:52 AM PST

I have on numerous occasions made the claim that Henry Paulson is guilty of coercion and fraud. For those actions, he should be arrested and criminally tried.

However, the latest disclosure in which hedge funds say they were tipped off by Paulson while he told Congress and reporters blatant lies is allegedly not even criminal behavior.

Bloomberg reports Paulson Gave Hedge Funds Advance Word
Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM)

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie's books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into "conservatorship" -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

Law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs' shares were rallying, with Fannie Mae's nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can't understand why Paulson felt impelled to share the Treasury Department's plan with the fund managers.

"You just never ever do that as a government regulator -- transmit nonpublic market information to market participants," says Black, who's a former general counsel at the Federal Home Loan Bank of San Francisco. "There were no legitimate reasons for those disclosures."

The fund manager who described the meeting left after coffee and called his lawyer. The attorney's quick conclusion: Paulson's talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies' stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac (FMCC) on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value.
Who Was at the Meeting?

  • Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004
  • Daniel Stern of Reservoir Capital Group
  • Singh, a former head of Goldman's proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd.
  • Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.
  • Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud;
  • GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008;
  • Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR);
  • Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government's Automotive Task Force.

Tipping Hands
Brosens and Rattner both confirmed in e-mails that they had attended and said they couldn't recall details. They didn't respond when asked whether they traded in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.

A Blackstone spokesman confirmed in an e-mail that GSO's Goodman attended the meeting. Blackstone doesn't believe market- sensitive information was discussed, and in any event Blackstone didn't take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.

Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin.

Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting.

The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.

That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer's advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.
What did PIMCO know and When?

Anyone who says they do not remember a meeting like that is a liar. Anyone who says "no comment" is indeed commenting and the possible interpretation is not pretty. So what else did Paulson say?

I would like to know who Paulson talked to outside the meeting.

Bill Gross at PIMCO put on a huge bet, buying not equity shares but Fannie and Freddie bonds in the belief their debt would be guaranteed by the government. Gross bet the firm and won his bet as shareholders were wiped out.

So, what did Gross know and when? Was it a guess, or a known deal?

Sadly, there is no way to avoid questions of this nature when treasury secretaries and other high-ranking public officials have routine conversations with former colleagues giving them valuable inside information while telling blatant lies to the public.

How many people were suckered into buying Fannie and Freddie while hedge funds were told in advance to dump shares?

What Paulson did may not have been illegal (acting on the information would have been), which makes the comment by William Poole, a former president of the Federal Reserve Bank of St. Louis seem downright bizarre.

Said Poole ... "It seems to me, you've got to cut the guy some slack, even if he tipped his hand. How do you prepare the market for the fact that policy has changed without triggering the very crisis that you're trying to avoid? What is he supposed to say without misleading these people?"

On second thought, Poole's comments are not bizarre, they are 100% inane, well beyond the inane idea that the market needs to be prepared for anything, even IF there was a legal way to do it.

Poole's idea of preparing the market means telling the big boys how to make billions, while screwing the little guy. Poole is another player deserving your contempt and scorn.

Rolling List of High Profile Fraud Targets

This list is incomplete. I have stopped updating it, it got so long.


Please note that last item on the list, the first chronologically (as well as the two right above it), all involving Paulson.

His actions are a disgusting tribute to the failed ethics of a man truly deserving of being spit in the face by every citizen in the country.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Publicat de 1 la 23:25 0 comentarii

Damn Cool Pics

Damn Cool Pics

Inside Look Into The Amazon's Warehouse

Posted: 29 Nov 2011 03:41 PM PST

Amazon is the world's largest online retailer. These pictures are from Swansea, Wales. The Amazon Swansea fulfillment center is one of the largest Amazon warehouses in the world. Hundreds of thousands of products come in and go out every day–millions per week.
























Images Source: Getty Images / Matt Cardy

Wrath of the Angry Birds [Infographic]

Posted: 29 Nov 2011 03:28 PM PST



The mobile game that has grabbed all eyeballs since 2009, that has broken all records and sold around 12 million copies. Guys, at Gizmowatch.com, have designed an infographic titled "Wrath of the Angry Birds" to help everyone understand the rage behind the popular and addictive game.


Source: gizmowatch

Jetman Flies in Formation with Two Jet Planes

Posted: 28 Nov 2011 11:00 PM PST



"Jetman" Yves Rossy recently flew in formation over the Swiss Alps alongside two jet aircraft from the Breitling Jet Team.

Rossy, outfitted with a sturdy wing and four jet engines, jumped off a helicopter to begin his flight. He flew alongside the two L-39C Albatros jets using only his body movements to execute the midair maneuvers. The jets and their pilots are part of the Breitling Jet Team, a civilian aerobatics team.


Source: Breitling

World's Tallest Lego Christmas Tree in London

Posted: 28 Nov 2011 06:59 PM PST

A giant Lego Christmas tree has been unveiled at London's St Pancras station, the tallest tree ever built with the toy bricks, Lego has confirmed that its the worlds tallest tree ever constructed using just Lego alone.

Spanning 10-meters tall, the project utilizes 600,000 Lego bricks to compose 172 branches. 1200 Christmas balls, also composed of LEGOs, were assembled by Elementary School children before being hung from the sculpture.

After two months of arduous construction, the tree is now on display in the main station at St. Pancras.














Source: thesun
Publicat de 1 la 20:12 0 comentarii

Building The Implicit Social Graph

Building The Implicit Social Graph

Building The Implicit Social Graph

Posted: 28 Nov 2011 12:58 PM PST

Posted by Justin Briggs

Google Plus is Google's latest attempt at building an explicit social graph that they control, but Google has been building out an implicit social graph for quite some time. This graph is still relatively naive compared to the maturity of the link graph, but search engines continue to develop this graph. Since it is already directly influencing rankings, and its value will increase, it’s important to understand how this type of social graph is being built. In this post, I’ll look at some of the methods for building the social graph, as well as looking at explicit vs. implicit social graphs.

You can be certain Google is building an implicit social graph:
 
“we studied the implicit social graph, a social network that is constructed by the interactions between users and their groups. We proposed an interaction-based metric for computing the relative importance of the contacts and groups in a user's egocentric network, that takes into account the recency, frequency, and direction of interactions” - Google
 

Building the Implicit Graph

This graph can be built by looking at Google’s link graph.
 
social graph via link graph
 
By looking at links between profiles, and reinforcing relationships based off content analysis (username, bio, etc), search engines can confirm ownership, or at least believe with a high degree of certainty that all of these web properties are in fact owned by one person.
 
The implicit graph can grow from one seed explicit relationship.
 
building the implicit social relationship
 
In this example, accounts A and B have defined an explicit relationship via reciprocal following on Twitter. The degree of this relationship can be gauged on interactions, but more on that in a moment. However, A and B have not continued this relationship across all networks, such as Facebook (or maybe the relationship is not crawlable).
 
Let’s say for example I’m user B and user A is Hello Kitty. Hello Kitty shares a link publicly on Facebook, and then later I perform the following search.
 
hello kitty in search results
 
The explicit relationship on one social network can be used to evaluate URLs based off the behavior on a different social network where I have not explicitly defined it. This brings up all sorts of questions about privacy, and Google will tread lightly here, as you don’t want Google displaying known relationships that you haven’t made public. However, displaying and knowing are independent. They might know your relationships, even if they never expose them to you.
 
In the Google paper “Suggesting (More) Friends Using the Implicit Social Graph” they clearly make a distinction here:
 
“we draw a sharp distinction between each user's egocentric network and the global or sociocentric network that is formed by combining the networks of all users. […] By showing users suggestions based only on their local data, we are able to protect user privacy and avoid exposing connections between the user's contacts that might not otherwise have been known to him”
 

Interaction Rank

Relationships can be further analyzed by computing Interaction Rank, which measures the degree of relationship between two users.
 
Interaction Rank: A metric computed by looking at the number of exchanges between users, weighting each interaction as a function of recency. The interaction weight decays exponentially over time. It also looks at the relative importance of ongoing interactions.
 
Note: In the paper, Interaction Rank is defined in terms of building an implicit social network on top of email interactions, which is a data set Google has a lot of access to, but could be applied to non-email social graphs.
 
Google may use three criteria to measure edge weights. In graph theory, edges are the connections between nodes (the blue lines in the image above).
 
1. Frequency: Users / groups that interact frequently are more important to those with infrequent interactions.
2. Recency: The change in interactions over time. Recent interactions should carry more weight than interactions in the past.
3. Direction: Interactions a user initiates are more significant than those a user does not initiate.
 
Criteria like direction, for example, can help determine spam relationships. Spam accounts send out more interactions than they receive.
 
One obvious short-coming of the model is that Interaction Rank is higher for active social media users than less active users. However, since Interaction Rank is used to sort relationships relative to one egocentric view of the graph, and not across a global graph, it can function as metric to sort the relative importance of relationships in regards to the central node/user.
 

They’ve Been Doing This for a Long Time

Google is getting a lot more attention regarding social recently, but Google has been doing this for quite some time. Google launched the Social Graph API back in February of 2008, which is an API that taps into one form of an explicit graph based off XFN and FOAF. This tool has been tracking reciprocal Twitter relationships, and many other things, for years.
 
Rand's twitter relationships
 
Some of the social network building they’ve done can be seen via the social graph API.
 
Rand's social networks via social graph API
 
Rand gave examples back in July of this type of deep dive crawl.
 
Social circle in Google
 
They crawl from this seed set of explicit opt-ins to build out a wider set of related connections.
 
Implicit Social Circle in Google
 
In the example above, Google is crawling multiple hops away from a seed node to build out an implicit social graph. In the example above, a relationship between Rand and Andrew can be defined, and this relationship analysis can be carried over to networks where that relationship isn’t explicitly defined. The Interaction Rank between Rand and Andrew on Twitter can set the degree that Google pulls signals from these implicit connections.
 

And Here Comes Google Circles

This all changes with Google Plus. One of the limitations of building an implicit social graph is that you don’t have the data to test against to confirm the predictions and relationships that graph discovers. It still has to depend on the data made public, but is limited by relationships that are held private (aka Facebook). Google Plus, among other things, creates a massive set of explicit social graph data, which can be used for machine learning and accuracy checking.
 
It’s easy to imagine that Google will use the implicit social graph to predict relationships with relative degrees of certainty about the nature and importance of that relationship. Now Google Plus data can be pushed into the algo, in the same way human reviews could be pushed into Panda. And not only that, but they’re bucketed into contextual based relationships using Circles. The implications of this are huge.
 
However, an explicit social network will not replace the implicit network.
 
From the same Google paper:
 
“One survey of mobile phone users in Europe showed that only 16% of users have created custom contact groups on their mobile phones. In our user studies, users explain that group-creation is time consuming and tedious. Additionally, groups change dynamically, with new individuals being added to multi-party communication threads and others being removed. Static, custom-created groups can quickly become stale, and lose their utility”
 
They go on to say:
 
“Our algorithm is inspired by the observation that, although users are reluctant to expend the effort to create explicit contact groups, they nonetheless implicitly cluster their contacts into groups via their interactions with them”
 
This clearly shows at least some of the shortcomings of the explicit social graph.
 
Pros and Cons of Implicit and Explicit Social Graphs
 
Even with publicly available, and privately available, explicit social data, there is still a strong incentive to build out the implicit graph. The explicit graph can be used to make improvements upon this graph. The implicit graph is one area where Google has a significant advantage over Facebook.
 
It’s no secret that the social graph appears to be the next evolution with increasing uses of social factors, social elements in search, and mechanisms that will lead into AgentRank/AuthorRank, which will tie directly into the implicit social graph.
 
p.s. Some great additional reading on this topic: Are You Trusted by Google? via SEO By the Sea's Bill Slawski.

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