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On Approximate Valuation Methods

TheAlephBlog - Wed, 04/16/2014 - 23:25

The growth of corporations is always constrained by something.  The trick is figuring out what the “something” is.  Tonight, I am here to simplify it for you.

Financial businesses that are regulated

We value these via book value or tangible book value.  Capital levels constrain business growth, so look at the return on equity to help modify what the proper valuation level should be.  Book value and return on equity are what govern.

Non-financial businesses that are regulated, such as utilities 

Look to the rate base that the regulators use.  Book value might be a good substitute, but look to see how companies might invest to increase their “rate base.”  Market Cap as a ratio to what the regulators allow profits on would be ideal.

Unregulated businesses that are mature

These are governed by sales per share, calculating the price-to-sales ratio.  In general, it is wise to buy these when the P/S ratios are low, and sell them when they are high.

Unregulated businesses that are not mature

This is the complex part of valuation, but in this case the PEG Ratio makes sense.  Companies that grow their earnings rapidly can justify high P/E multiples, but in general they need to grow earnings more rapidly than their P/E ratio expressed in percentage terms.

I don’t invest in many immature businesses, so this is not so relevant to me.  I look for places where businesses are neglected, and I buy, while selling businesses that are more then fully valued.

Summary

Think about compounding.   Ask what will best compound the growth of your capital.  I suspect that it will resemble what I have written here.  Focus on compounding and ignore Modern Portfolio Theory.  Compounding is real business.  MPT is fakery from men who could not build a business.

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ROFL NATO!

Zerohedge - Wed, 04/16/2014 - 20:39








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FBI Plans To Have 52 Million Photos In Facial Recognition Database By 2015

Zerohedge - Wed, 04/16/2014 - 19:52

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

I have highlighted the Electronic Frontier Foundation (EFF) and it great work on this website on many occasions. The organization has been at the forefront of many privacy and civil liberties related issues, including the increasing use of drones by the U.S. government domestically, unconstitutional NSA spying, as well as a host of other issues.

The latest article from them that caught my attention was published a couple of days ago, and shines light on the disturbing push by the FBI to create an extensive facial recognition database, which will include criminal and non-criminal photos alike. The information received by the EFF via a Freedom of Information Act (FOIA) request, demonstrates that the feds may have a mugshot database with up to 52 million photos by 2015.

The program is called Next Generation Identification (NGI), and the aspect of it that bothers the EFF most is the fact that non-criminal and criminal photos will be combined in the same database. So someone who has no criminal record can suddenly be flagged as a suspect just because an algorithm says so. What’s worst, research shows that the potential for false positive identification increases as the dataset increases.

To see if your state is participating, take a look at this map courtesy of the EFF.

Screen Shot 2014-04-16 at 10.52.50 AM

More from the EFF:

New documents released by the FBI show that the Bureau is well on its way toward its goal of a fully operational face recognition database by this summer.

 

EFF received these records in response to our Freedom of Information Act lawsuit for information on Next Generation Identification (NGI)—the FBI’s massive biometric database that may hold records on as much as one third of the U.S. population. The facial recognition component of this database poses real threats to privacy for all Americans.

 

NGI builds on the FBI’s legacy fingerprint database—which already contains well over 100 million individual records—and has been designed to include multiple forms of biometric data, including palm prints and iris scans in addition to fingerprints and face recognition data. NGI combines all these forms of data in each individual’s file, linking them to personal and biographic data like name, home address, ID number, immigration status, age, race, etc. This immense database is shared with other federal agencies and with the approximately 18,000 tribal, state and local law enforcement agencies across the United States.

 

The records we received show that the face recognition component of NGI may include as many as 52 million face images by 2015.

 

The new records reveal that the database will be capable of processing 55,000 direct photo enrollments daily and of conducting tens of thousands of searches every day.

 

One of our biggest concerns about NGI has been the fact that it will include non-criminal as well as criminal face images. We now know that FBI projects that by 2015, the database will include 4.3 million images taken for non-criminal purposes.

 

Currently, if you apply for any type of job that requires fingerprinting or a background check, your prints are sent to and stored by the FBI in its civil print database. However, the FBI has never before collected a photograph along with those prints. This is changing with NGI. Now an employer could require you to provide a “mug shot” photo along with your fingerprints. If that’s the case, then the FBI will store both your face print and your fingerprints along with your biographic data.

 

In the past, the FBI has never linked the criminal and non-criminal fingerprint databases. This has meant that any search of the criminal print database (such as to identify a suspect or a latent print at a crime scene) would not touch the non-criminal database.  This will also change with NGI. Now every record—whether criminal or non—will have a “Universal Control Number” (UCN), and every search will be run against all records in the database. This means that even if you have never been arrested for a crime, if your employer requires you to submit a photo as part of your background check, your face image could be searched—and you could be implicated as a criminal suspect—just by virtue of having that image in the non-criminal file. 

 

It is unclear what happens when the “true candidate” does not exist in the gallery—does NGI still return possible matches? Could those people then be subject to criminal investigation for no other reason than that a computer thought their face was mathematically similar to a suspect’s? This doesn’t seem to matter much to the FBI—the Bureau notes that because “this is an investigative search and caveats will be prevalent on the return detailing that the [non-FBI] agency is responsible for determining the identity of the subject, there should be NO legal issues.”

 

The FBI failed to release records discussing whether MorphoTrust uses a standard (likely proprietary) algorithm for its face templates. If it does, it is quite possible that the face templates at each of these disparate agencies could be shared across agencies—raising again the issue that the photograph you thought you were taking just to get a passport or driver’s license is then searched every time the government is investigating a crime.

 

Finally, even though FBI claims that its ranked candidate list prevents the problem of false positives (someone being falsely identified), this is not the case. A system that only purports to provide the true candidate in the top 50 candidates 85 percent of the time will return a lot of images of the wrong people. We know from researchers that the risk of false positives increases as the size of the dataset increases—and, at 52 million images, the FBI’s face recognition is a very large dataset. This means that many people will be presented as suspects for crimes they didn’t commit. This is not how our system of justice was designed and should not be a system that Americans tacitly consent to move towards.

Full article here.








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Special Forces Confront Chinese 'Investors' Demanding Failed Trust "Pay Back Our Money"

Zerohedge - Wed, 04/16/2014 - 19:16

"We have been cheated by CCB," exclaimed one Chinese investor who invested 1 million yuan ($160k) in China Construction Bank's Songhuajing River No.77 Trust (which offered returns of 9.8 to 12% per annum). It appears that a 12% yielding financial instrument was not hint enough of the risk to the dozens of investors who confronted police in troubled Sanhxi province yesterday demanding their money back from the trust which has missed 6 monthly payments in a row. People wearing white masks with the words "despicable bank" and "pay back our money" were among at least 30 investors facing special-forces officers in dark uniforms and the group dispersed soon after the bank had asked for more time, adding "the bank said they wouldn't risk their reputation."

 

"Investors" are not happy that their high-yielding incredibly risky asset has the potential for loss...

Chinese investors demanding their money back from a troubled 973 million-yuan ($156 million) high-yield product in Shanxi province were confronted by police in front of a China Construction Bank Corp. branch.

 

People wearing white masks with the words “despicable bank” and “pay back our money” were among at least 30 investors facing special-forces officers in dark uniforms in Taiyuan city, about 521 kilometers (324 miles) southwest of Beijing. The nation’s second-largest bank is the custodian of the Songhuajiang River No. 77 trust, which missed six payments as of last month, according to the Economic Observer.

 

We have been cheated by CCB,” said Wang Fengying, 60, a Shanxi resident who said her husband had invested 1 million yuan.

And here is the product...

State-backed Jilin Province Trust Co. created the Songhuajiang River No. 77 product to raise funds to finance mining projects for Shanxi Liansheng Energy Co., the biggest private coal miner in the province, according to a contract for the product obtained from Li Taishan, the leader of the investors gathering in Taiyuan.

 

The trust offered investors an annual return of 9.8 percent to 12 percent, depending on the investment amount, with a minimum of 1 million yuan, the product contract showed. Construction Bank currently pays 3.25 percent on one-year time deposits, according to its website.

 

“They told us the interest rate is three times the bank saving rate,” Wang, the woman whose husband had invested in the Songhuajiang River trust, said. “They said they wouldn’t risk the bank’s reputation. It’s our hard-earned money.”

But as Bloomberg notes...

The unrest underscores the stress in China’s $1.75 trillion trust industry as loans sour in an economy that grew at the slowest pace in six quarters.

 

...

 

Investors in the product also gathered at Construction Bank’s Beijing headquarters three weeks ago asking for their money back.

and still no payment...but

At least 20 trust products have run into difficulty making payments since 2012, according to Beijing-based China Securities Co. All have avoided default as issuers or third parties such as state-owned bad-loan managers and guarantee firms eventually repaid investors in full.

It seems the people have been 'trained' to expect the bailouts for now - but as we noted before, this can only make the inevitable reality even more dramatically bad as risk returns to the shadow banking system.








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Visualizing Taxes Around The World

Zerohedge - Wed, 04/16/2014 - 18:46

Not every person in the world has the same relationship with the taxman as Americans do. Let’s look at taxing throughout the globe, including what people pay and some of the more bizarre taxes around the world.

 

Taxes Around the World
 

Source: Online-Accounting-Degrees.net








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Martin Armstrong Warns American Civil Unrest Is Starting Right On Schedule

Zerohedge - Wed, 04/16/2014 - 18:17

Submitted by Martin Armstrong via Armstrong Economics blog,

dreamstimelarge_34158614

 

We have been warning that 2014 is the beginning of a new cycle that will see a highly unusual convergence between our domestic (civil unrest & revolution) data and our international war model. Both converge for the first time since the 1700s when there were US and French Revolutions and the fall of monarchy. This was the topic at our Cycle of War Conference (see also special report).

The civil unrest will develop first outside the USA and turn up more aggressively in the USA after 2015.75. Nonetheless, it still begins in 2014 for the USA as well. We are starting to see this in the West where memories of previous events still linger deep wounds from 1992.

Nevada-Protest

 

The confrontation in Nevada between Clive Bundy and the Bureau of Land Management, whose Director was Sen. Harry Reid’s (D-Nev.) former senior adviser, has turned into an issue of important cycle unrest. The government wants the land and demands Bundy gets his cattle off of the land his family has worked for over 140 years in order to make way for solar panel power stations. This dispute between a Nevada rancher and federal rangers over alleged illegal cattle grazing erupted into an Old West-style showdown on the open range this week, even prompting self-proclaimed members of militia groups from across the country to join the rancher in fighting what they say is U.S. “tyranny.”

Ruby-Ridge

This is a brewing resentment of federal government that goes back to Ruby Ridge, which was the site of a deadly confrontation and siege in northern Idaho in 1992 between Randy Weaver, his family and his friend Kevin Harris, and agents of the United States Marshals Service (USMS) and Federal Bureau of Investigation (FBI). It resulted in the death of Weaver’s son Sammy, his wife Vicki, and Deputy U.S. Marshal William Francis Degan. The Feds simply shot his unarmed family dead and it was alleged they even shot his son in the back. This is indeed the continued militarization of the police in America. The corruption was so bad in Ukraine that when someone saw the police, they trembled in fear. In the US, this trend is also underway and demonstrated by this video where the police began shooting at a minivan driven by a woman with children in the car over a traffic violation.








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BRICS Consider Creating IMF-Alternative As US Loses Credibility

Zerohedge - Wed, 04/16/2014 - 17:47

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), according to RBTH. As WSJ reports, the U.S. would lose its veto power on the International Monetary Fund's executive board under a plan being considered by some emerging economies. The countries are fed up with the United States' failure to ratify a four-year-old deal to restructure the emergency lender. Yet more loss of credibility on the global stage and, as Brazil's FinMin Mantega sums up, "the IMF cannot remain paralyzed and postpone its commitments to reform."

 

 

As The Wall Street Journal reports, the U.S. would lose its veto power on the International Monetary Fund's executive board under a plan being considered by some emerging economies.

The countries are fed up with the United States' failure to ratify a four-year-old deal to restructure the emergency lender.

 

Some members of the IMF's steering committee indicated at a series of weekend meetings their desire to act now, underscoring the growing discontent abroad about the U.S. Congress's delay in approving an international accord to overhaul governance at the fund.

 

...

 

The world's top finance officials gathering here this weekend chastised the U.S. in formal policy statements.

 

"We are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms," the Group of 20 largest economies said in its communiqué.

And the various countries that would benefit from greater say in the actions of the IMF are not waiting for the US...

"Alternatives to move forward with the reforms must be found whilst the major shareholder does not solve its political problems."

And that is worrying for global stability...

Singaporean Finance Minister and IMF steering committee chairman Tharman Shanmugaratnam said it could cause "disruptive change" in the global economy.

 

"We are more likely over time to see a weakening of multilateralism, the emergence of regionalism, bilateralism and other ways of dealing with global problems," he said in a news conference Saturday. That would make the world a "less safe" place, he said.

And, as RBTH reports, it seems the BRICS are not slowing down efforts to create their own IMF-alternative...

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

 

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

 

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory," Lukov said.

 

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries' economies.

 

...

 

The creation of the BRICS Development Bank has a political significance too, since it allows its member states to promote their interests abroad. "It is a political move that can highlight the strengthening positions of countries whose opinion is frequently ignored by their developed American and European colleagues. The stronger this union and its positions on the world arena are, the easier it will be for its members to protect their own interests," points out Natalya Samoilova, head of research at the investment company Golden Hills-Kapital AM.

Perhaps the following sums it all up perfectly...

Economists warn the IMF's legitimacy is at stake, and they say U.S. standing abroad is being eroded.

"Eroded" indeed...








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Federal Reserve Asks "Where Are The Jobs"

Zerohedge - Wed, 04/16/2014 - 17:17

Five years into the "recovery" and The Atlanta Fed thinks it's time to figure out where jobs come from (spoiler alert: there is no job tree). The Atlanta Fed has investigated trends in a variety of firm types to better understand why labor market progress continued to be slower than hoped for in 2013... the findings - when it comes to job creation, there is no simple solution. But Ben and Janet said?...

 

Who or What Creates the Jobs?

A striking feature of the Great Recession was not so much the rise in the number of firms cutting their payrolls—that always happens in recessions. What was unprecedented was the dramatic collapse in the number of firms that expanded. Early in the recovery, firms continued to have the lowest rate of job creation on record, and fewer new firms were created in 2009 and 2010 than in any other time in the previous 30 years. Although the unemployment rate fell faster than expected in the latter part of 2013—roughly four-and-a-half years into the recovery—hiring rates at firms were still relatively subdued.

The Atlanta Fed has investigated trends in a variety of firm types to better understand why labor market progress continued to be slower than hoped for in 2013. Researchers started by looking at small firms, since their economic struggles are often singled out as a major reason why the U.S. jobs engine has faltered. These researchers found that all businesses were hit hard by the recession. They looked at firms across a variety of dimensions—age, size, industry, and location—to determine where the jobs are.

Small firms versus large firms

Most businesses are small. Almost 96 percent (or 4.7 million) of firms had payrolls with fewer than 50 people in 2011 (the latest census data available). These firms accounted for 28 percent of all payroll jobs. They also create many new jobs—about 40 percent of new jobs each year, on average. However, the rate of gross job gains fell sharply for small firms during the recession and recovery, in part because fewer new firms were created but also because small firms sharply curtailed hiring as heightened uncertainty and a weak economy made them more hesitant to expand.

Large firms are also an important source of new jobs. The largest 1 percent of firms account for about as many new jobs each year as do all the firms with fewer than 50 employees. But large firms have also been creating jobs at an unusually slow pace.

New firms versus young firms

Start-ups gained a lot of attention in the aftermath of the recession, in part because of the dramatic decline in new business formation. These new firms are also important because they create an outsized share of new jobs. In 2011, 8 percent of firms were new—most of them were very small—and they contributed about 16 percent (or 2.5 million) of new jobs that year. But having a continual flow of new firms each year is important because the jobs that start-ups create can be fleeting. Indeed, more than half of young firms typically fail within their first five years of operation.

Gazelles versus gorillas

Although many firms fail in their early years, a small fraction of young firms grow very rapidly. These so-called gazelle businesses are also a significant source of job creation. A recent Atlanta Fed study looked at the properties of fast-growing Georgia firms during the 2000s and found that about half of the firms that had a high rate of employment growth were young. However, more jobs were generated by older, generally larger, fast-growing firms, sometimes called gorillas. On a national level, high-growth firms have declined as a share of all firms, from 3 percent in the late 1990s to 1.5 percent in 2011. During the same time, these fast-growing firms added fewer jobs, falling from 45 percent of jobs created at expanding firms to 34 percent.

While data on these and other characteristics provide a window into the types of firms that typically create jobs, they also underscore the fact that when it comes to job creation, there is no simple solution.

+++++++

One can't help but read this and consider the underlying pressure this implies to maintain the large companies at the expense of the small ones?








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Beef, Pork, Shrimp, Eggs, And Now Orange Juice

Zerohedge - Wed, 04/16/2014 - 16:48

Yesterday we reminded those who fear the dreadful deflation ogre and its extreme monetary policy supporting fantasy that food inflation was in fact soaring. Of course, for those that do not eat Beef, Pork, Eggs, or Shrimp - everything's fine... except today we add yet another 'staple' to the extreme inflationary dilution of the average consumer's pocketbook... orange juice!

  • *ORANGE-JUICE FUTURES RISE AS MUCH AS 1.5% TO TWO-YEAR HIGH

 

Charts: Bloomberg








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The Annotated History Of The Russian Empire

Zerohedge - Wed, 04/16/2014 - 16:16

The potential geopolitical, economic, and asset implications of the tensions between Russia and the West over the crisis in Ukraine are weighing on growth hopes around the world (and not just in Russia). Russia's promising outlook for 2014 is fading fast but a worst-case scenario that includes a disruption in energy flows would likely wreak more economic and asset damage. However, some context at the growth of the Russian 'empire' is worthwhile before extrapolating Putin's demise too soon...

(click image for huge legible version)

 

Source: Goldman Sachs








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NATO To Boost Air, Warship Presence Around Russia; Netherlands May Deploy F-16s To Ukraine

Zerohedge - Wed, 04/16/2014 - 15:45

If there is was one way to assure a certain escalation in Ukraine hostilities beyond what has already happened, it is for NATO to do precisely what Russia warned it should not do: build up its presence in the surrounding countries. Which is why we find it somewhat puzzling that NATO announced it would do just this when as the Guardian reported, the military alliance said it would step up its presence around Russian borders to "reassure eastern European member states."

The reinforcements on Nato's eastern flank will take the form of more air patrols over the Baltic states, greater numbers of warships in both the Baltic and eastern Mediterranean, and more troops deployed in eastern Europe.

 

The Nato buildup will also involve the redeployment of warships, some of them now participating in counter-piracy operations off Somalia, to the Baltic and the Mediterranean. A Nato official said the details of the naval measures were still being discussed.

 

The Nato commander in Europe, General Philip Breedlove, said several Nato member states had offered ground troops for deployment in eastern European member states and that he would be soon making recommendations on how they should be positioned. Breedlove said that the situation represented more than a crisis, adding: "For Nato, it's bigger than that. It's a paradigm shift."

It goes without saying that to Russia this will be seen as a hostile move on behalf of the western countries, which is why Breedlove said "he had attempted to call the Russian chief of general staff, Valery Gerasimov, to explain that the deployments were entirely defensive but had not been able to reach him."

Did he at least leave a voicemail explaining why the piling up of new troops is not to be seen as an offensive meneuver?

Furthermore, that this is happening today is no accident: tomorrow is the official start of international talks on the Ukrainian crisis in Geneva, and the NATO action is a way to increase pressure on Moscow. However, as has been seen repeatedly in the past month, the Kremlin does not handly increased pressure easily and instead, usually finds a way to re-escalate on its own.

What is the thinking behind what can only be classified as a short-sighted move? "A spokesperson for the US secretary of state, John Kerry, said his primary goal was to persuade Moscow to halt its destabilising activities in eastern Ukraine, and call publicly for separatist groups to disarm and stand down."

And just in case NATO's open action is not clear, "EU officials in Brussels said the list of Russians subject to visa bans and asset freezes would be expanded by the end of the week. The US state department also signalled it would co-ordinate a further tightening of sanctions with its European partners, but not before the Geneva talks."

"Don't expect any before tomorrow's meetings," Marie Harf, deputy spokesperson at the state department, said. "But if there are not steps taken by Russia to de-escalate, we will take additional steps, including additional sanctions."

 

The negotiations will bring together Kerry, his Russian counterpart, Sergei Lavrov, the Ukrainian foreign minister, Andrii Deshchytsia, and the EU's Ashton. It will mark the first time the quartet has met since the Ukrainian crisis erupted in February.

 

In addition to one four-way encounter, Kerry will conduct separate bilateral meetings with Lavrov, Deshchytsia and Ashton. Western officials, however, cautioned that the talks were unlikely to bring a diplomatic breakthrough.

 

Harf said that "top of the list" of US demands would be that Russia halt what the US alleges are destabilising activities in eastern Ukraine. The US wants Russia to publicly call on separatists exerting control in cities in eastern Ukraine to disarm and stand down.

Of course, in case Russia also misses all of this because nobody could reach the Russian chief of staff on the phone, the Netherlands announced it is looking into the deployment of F16 fighter jets as Ukraine crisis air support "to try and ease the conflict around Ukraine, defence minister Jeanine Hennis told a television talk show on Tuesday night.

While there is no question of Nato military action against Russia, ‘we want to be very visible as support to our Eastern allies’, the minister told the Pauw & Witteman show.

With orange colored F-16s it will be very difficult not to be visible:

The defence minister added: "We are looking at how we can increase our air support or sea support in, say, the Baltic or the Black Sea region,’ she said. ‘We are members of an alliance for a reason and we will take our responsibilities.'Asked specifically what form Dutch air support could take, the minister said 'it could mean sending an F16.'

Surely the expansion of NATO forces in the region will promptly force Russia to back down. In the off chance it doesn't, one wonders how NATO will respond if Russia instead adds some more tactical nukes to its arsenal along the Polish border. Puredly defensively of course. Will that, in turn, force NATO to back down? Somehow we doubt it.








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The Richest Man In Asia Is Selling Everything In China

Zerohedge - Wed, 04/16/2014 - 15:15

Submitted by Simon Black of Sovereign Man blog,

Here’s a guy you want to bet on– Li Ka-Shing.

Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor.

Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.

Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago.

Once the deal concludes, Li will no longer have any major property investments in mainland China.

This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?

Simple. China’s credit crunch.

After years of unprecedented monetary expansion that has put the economy in a precarious state, the Chinese government has been desperately trying to reign in credit growth.

The shadow banking system alone is now worth 84% of GDP according to an estimate by JP Morgan. The IMF pegs total private credit at 230% of GDP, jumping by 100% in the last few years.

Historically, growth rates of these proportions have nearly always been followed by severe financial crises. And Chinese leaders are doing their best to engineer a ‘soft landing’.

If they’re successful, the world will only see major drops in global growth, stocks, property, and commodity prices.

If they fail, the spillover could become pandemic.

This isn’t important just for Asian property tycoons like Li Ka-Shing. Even if you don’t know Guangzhou from Hangzhou from Quanzhou, there are implications for the entire world.

Here in Chile is a great example.

Chile is among the top copper producers worldwide, China among its top consumers. With a major slowdown in China, however, copper prices have dropped considerably.

Consequently, the Chilean economy has slowed. The peso is down nearly 10% against the US dollar in recent months, and the central bank is slashing rates trying to prop up growth.

There are similar situations playing out across the globe.

Not to mention, China could put the entire global financial system on its back just by dumping a portion of its Treasuries in order to defend the yuan.

Now, you’d think that a major credit crunch with far-reaching consequences in the world’s second largest economy, its largest manufacturer, and its largest holder of US dollar reserves, would be constant front-page news.

But it’s not.

Most traditional investors are unaware that what’s happening in China will likely have far greater implications to their investment portfolios than the policies of Janet Yellen and Barack Obama combined. At least for now.

And folks who don’t see this coming and keep buying at the all-time high may see their portfolios turned upside down. Quickly.

At the same time, some investors who are conservative and cashed up may realize a real ‘blood in the streets’ moment.

Again, using Chile as an example, I’m starting to see over-leveraged property owners coming to the market in droves ready to make a deal. This is great news because my shareholders and I are able to buy far more property with US dollars than we could even just six months ago.

I expect this trend to hold given that China is just at the beginning of its process.

It’s said that the Chinese word for “crisis” is a combination of “danger” and “opportunity”.

This isn’t entirely accurate. ‘Weiji’ can have several meanings, but is probably best translated as ‘dangerous’ and ‘crucial point’.

We may certainly be at that crucial point, and now might be a good time to take another look at your finances and consider selling before a major crash. The richest man in Asia certainly thinks so.








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Why IBM Is Tumbling: BRIC Sales Plunge, Total Revenue Lowest Since 2009

Zerohedge - Wed, 04/16/2014 - 14:43

Curious why after nearly touching $200 in early trading IBM is down 4% in after hours trading?

Perhaps this has something to do with it: as the chart below shows, in Q1 IBM reported only $22.5 billion in sales, well below the $22.9 billion expected by the street, and down 3.9% from a year ago. In fact, this quarter's revenue was the lowest for IBM since the first quarter of... 2009. Net Income (non-GAAP of course), which was $2.6 billion and which met reduced estimates, was down a whopping 22% from a year ago.

But the punchline, one which Cisco is very familiar with, was this:

Revenues from the company’s growth markets decreased 11 percent (down 5 percent, adjusting for currency).

 

Revenues in the BRIC countries — Brazil, Russia, India and China — decreased 11 percent (down 6 percent, adjusting for currency).

And so the Snowden curse strikes again, as countries which don't enjoy being constantly spied upon opt to not to business with the companies they believe are most instrumental in allowing the NSA into their midst.








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Obama And Biden Explain How Great The Economy And Stocks Are - Live Feed

Zerohedge - Wed, 04/16/2014 - 14:16

While Fed's Fisher explains how Fed policy has benefitted the rich, President Obama (and Joe Biden) are in front of the teleprompter to explain how great it all is for the rest of Americans... cue class warfare...

 








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Dow Soars 350 Points In 27 Hours

Zerohedge - Wed, 04/16/2014 - 14:04

Following yesterday's significant volume and major short-squeeze ('most shorted' ramped 4% off the lows), today saw neither with volumes light and equity performance prety much balance across the board. Most of the strength occurred overnight with stocks dumping off the open, ramped on Europe's close, modestly sold on Yellen's speech, then ramped into the close. The Dow and Trannies made it all the way back up to unchanged from the March FOMC statement/press conference.  Every status quo hugging asset-getherer heard what they wanted from Yellen - except that Treasuries sold off at the short-end and flattened dramatically to near 5-year lows (not exactly the dovish hype headlines are made of). Copper jumped and oil dumped with gold and silver treading water on the day. VIX was monkey-hammered lower and stocks tracked it. Bottom line, while stock bulls hear dovishness, bond traders are calling Yellen's bluff.

Who do you believe?

 

The only chart that matters...

 

Dow back into the green from the March FOMC...

 

and Trannies leading the way on the week

 

High beta growth hype stocks are back in the green on the week with TWTR just fucking awesome dude...(before you breeze by - look at the scale of performance shifts in th elast 3 days... that's a 24% swing)

 

VIX has roundtripped from last week's highs and stocks are trading tock for tick with it...

 

Treasuries changed course notably on Yellen's speech...

 

Talking heads prefer to believe that stocks strength was on the back of "dovish" talk from Yellen but the following chart shows the market's reaction... not exactly buying her talk...

 

5s30s dropped below 180bps to the lowest since oct 2009

 

"most shorted" stocks are up 4% off yesterday's lows (double the market's performance) as it seems the big push into shorts was just too much for the market to bear and the snap back was just as vicious. Notably today's flatness saw little to no focus on short-squezes...

 

 

Charts: Bloomberg

Bonus Chart: A reminder of the "costs" imposed on Russia (relative to the US)...








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IEX Records Its Highest Volume Day Yet

Zerohedge - Wed, 04/16/2014 - 13:59

In a curious departure from convention, the Goldman-backed, HFT-evading pseudo dark pool IEX, made famous in Michael Lewis' blockbuster "Flash Boys" has decided to post daily volume stats of its operations. And whether it is due to the advertising by the iconic bookwriter, or because increasingly more brokers are switching over to IEX, it appears that new trading venue is gaining traction: according to its own reporting, on April 15, IEX recorded its highest volume day yet, recording nearly 38 million single-counted trades.

Granted the data is only available for April, but what is clear is that unlike most other trading venues which are having significant problems with boosting their volumes, for IEX, at least early on, this is not an issue.

Of course, the overall orderflow still are tiny in context, but the early trend is visible, and as more traders migrate to IEX it is almost assured that the exchange will become an increasingly more popular venue for the likes of the Schwabs of the world who suddenly, after five years, figured out that HFT is nothing but a cancer and is demanding a non-frontrunnable venue.

The other statistics reported by IEX are as follows:








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Bail-Ins Approved By EU Yesterday - Coming In UK, U.S. And Globally

Zerohedge - Wed, 04/16/2014 - 13:53

Today’s AM fix was USD 1,299, EUR 938.58 & GBP 773.03 per ounce.               

Yesterday’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.

Gold dropped $23.80 or 1.79% yesterday, closing at $1,302.90/oz. Silver lost $0.37 or 1.85% yesterday to $19.62/oz.



Gold in U.S. Dollars - April 15 to April 16, 2014 - (Thomson Reuters)

Gold was pinned at $1,300 an ounce, well off Monday's high at $1,330.90. The sharp sudden price fall yesterday in early afternoon trade in London (see chart) was attributed to more peculiar computer-driven concentrated selling of huge tranches of gold futures contracts on the COMEX, which then saw heavy stop-loss orders placed by momentum traders.

Data from Nanex shows that gold futures contracts with a notional value of nearly $500 million dollars were sold in minutes. This, not surprisingly, hammered gold futures down over $12 and led to the futures exchange having to halt gold trading for 10 seconds. This sudden price fall resulted in gold falling  below its  200-day moving average (DMA) and to selling by momentum traders piling in and shorting gold.

Gold quickly recovered from the concentrated selling with buyers stepping up to take on the liquidators. Demand appears to be ticking up and holdings in the SPDR gold fund rose by 0.6 tons to reach 806.82 following a three-week downtrend in holdings. Assets rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th.

Gold’s losses were kept in check by fears of further escalation of tension in Ukraine. Our warning yesterday of conflict and a civil war in Ukraine was echoed by Putin and Medvedev overnight.

Gold in Euros - Jan, 2009 to April 16, 2014 - (Thomson Reuters)


Ukrainian forces began a military crackdown against what are being called pro-Russian separatists in the eastern regions of the country. The so-called ”anti-terrorist” operation is the new government’s response to people, some armed, taking control of administrative and police buildings in the East.

The local parliaments of the Donetsk and Lugansk regions elected the creation of independent, sovereign states, and called for referendums on ceding from Ukraine, much like the events in the Crimea.

Ukrainian troops retook state buildings from ethnic Russians in the eastern Donetsk region yesterday. White House spokesman Jay Carney said while the U.S. is considering military assistance to Ukraine, lethal aid isn’t an option at this time.


Thursday will see 4 way talks in Geneva, hosting senior representatives from Ukraine, Russia, the EU and U.S. It is hard to see how progress will be made given that economic sanctions remain and look set to intensify.

Yesterday, these not inconsequential geopolitical risks and robust physical demand internationally could not overcome the speculative selling and possible high frequency trading (HFT) manipulation on the COMEX.

Bail-Ins Approved By EU Parliament Yesterday - Deposits Over €100,000 Vulnerable
Yesterday the EU Parliament adopted three key texts outlining common rules on how to restructure and resolve failing banks.

The laws make up what has become more commonly known as Europe's banking union and include the creation of a Single Resolution Mechanism and a €55 billion Single Resolution Fund for banks in difficulty. The law was approved by the parliament with 570 votes in favour and 88 against.


Importantly and little commented on is the fact that they also include the Bank Restructuring and Resolution Directive, which seeks to shift the burden of bank failure from taxpayers to creditors - both bond holders and depositors.

Another key piece of legislation approved yesterday was the Directive on Deposit Guarantee Schemes, which says that bank deposits up to €100,000 will remain protected from any loss that a bank may incur. This means that deposits over €100,000 are now vulnerable to bail-ins and deposit confiscation.


Now shareholders and creditors including depositors over the €100,000 level will be the first to face losses from a bank failure and there remains a real risk of that in the EU.


goldcore_bloomberg_chart2_10-12-13.png (606×384)

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages - see here.


“Bail in will be the main way to solve the problems," said Swedish MEP Gunnar Hökmark. “Bank resolution will be funded by creditors via bail ins and will also by resolution funds which will be funded by banks for banks."

“Bail-in” enshrined in the two laws, means that the bank’s owners - the shareholders, and creditors -  the bondholders and depositors, will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon.

The two EU laws on bank resolution will also require banks to finance reserve funds to cover further losses, but only after bail-ins have been used.

Bail-In Regimes are coming in the EU, the UK, the U.S. and internationally  …
Bail-In Short Guide: Protecting your Savings In The Coming Bail-In Era
Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications








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New York AG Sends Subpoenas To HFT Firms Including Tower, Jump and Chopper

Zerohedge - Wed, 04/16/2014 - 13:46

Now the vacuum tubes are really in trouble. Bloomberg reports that the NY AG Schneiderman is making good on his threat to go after (it remains to be seen if this is more than a publicity stunt, and actual enforcement actions follow) several New York HFT firms. Bloomberg reports:

  • NY AG SAID SEEKING INFO ON SPECIAL ARRANGEMENTS WITH DARK POOLS
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING JUMP TRADING
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING CHOPPER
  • NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING TOWER RESEARCH

Surely Goldman was in no way aware of this coming crack down wave on HFT traders when it washed its hands of the entire industry, and effectively gave up on the trading space in its current format.

We doubt this will go anywhere - after all go after HFTs and the rigged market gets it - but the idea of a vacuum tube doing a perp walk is strangely appealing.








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"Pro-Russian Separatists" Attack Ukraine Soldiers With Guns, Molotov Cocktails, Local TV Station Reports

Zerohedge - Wed, 04/16/2014 - 13:36

Having been on the receiving end of Ukraine special forces for the past 48 hours, it appears the "pro-Russian separatists" have decided to fight back.

  • PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE SOLDIERS: HROMADSKE
  • PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE MILITARY BASE: HROMADSKE
  • SEPARATISTS USE GUNS, MOLOTOV COCKTAILS IN MARIUPOL: HROMADSKE
  • SEPARATISTS ATTACK SOLDIERS IN E. UKRAINE'S MARIUPOL: HROMADSKE

Considering the source is a local Ukraine TV station, one should take the news reported by Bloomberg, with a big grain of ketamine, however also considering the 3:30pm ramp appears to be late today (or was front run repeatdly earlier on in the day), this may just be the "bullish" catalyst the "market" needs to close at the day, if not all time, highs.

More as we see it.








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GM Seeks Immunity From Lawsuits Due To Bankruptcy

Zerohedge - Wed, 04/16/2014 - 13:14

While the law has been something the US government and General Motors have been willing to 'bend' or break in the past (absolute priority 'shifts' in bankruptcy), we suspect this latest move by Mary Barra's new GM will do more PR damage. Simply put, as many suspected given Barra's testimony and comments in the past, Reuters reports that General Motors Co will ask a bankruptcy court to block any litigation of the alleged deaths associated with the ignition switch problem since they are related to the automaker's pre-2009 bankruptcy. Of course, as we noted here, the Feds are probing the company over whether they knowingly committed bankruptcy fraud.

As Reuters reports,

General Motors Co said it would ask a U.S. bankruptcy court to bar plaintiffs from proceeding with lawsuits against the automaker for claims related to any actions before it filed for bankruptcy in 2009.

 

The plaintiffs have alleged that they bought or leased vehicles that contained an ignition switch defect. The defect has been linked to the deaths of at least 13 people and resulted in the recall of 2.6 million GM vehicles.

 

...

 

GM said it would shortly file a motion in the Bankruptcy Court for the Southern District of New York to enforce an injunction contained in its sale order, which the company said bars plaintiffs from suing the reorganized company for any claims related to the predecessor company.

Of course, there is still the bankruptcy fraud probe...as we noted before,

Federal authorities are investigating whether General Motors hid an ignition switch defect when it filed for bankruptcy in 2009, The New York Times reported on Saturday.

 

The Justice Department's investigation of the automaker includes a probe of whether GM committed bankruptcy fraud by not disclosing the ignition problem, a person briefed on the inquiry told the Times on Friday, the paper said.

 

Authorities are also investigating whether GM understated the defect to federal safety regulators, the Times said.

 

...

 

The investigation is being run by FBI agents and federal prosecutors who worked on the fraud case against Toyota that ended in a $1.2 billion settlement last week, the paper said.

We wait with baited breath for outcome of this decision and how GM will spin this - and if the US government will bend the law once more... this time in favor of the families of the dead.








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