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Seriously!! Again?


Charts: bloomberg

We warned last week that capital controls were inevitable and it apears the first steps have been taken (very quietly):


So, following the pension fund raid, the Greek government is now centralizing all Greek cash citing an “extremely urgent and unforeseen need.".

One wonders if this is per Krugman's advice?

As Bloomberg reports:

Govt decree issued today forces local govts, general govt sector entities to transfer cash reserves to the Bank of Greece.



But fear not: you are being "fairly compensated" for this forced capital reallocation:


From Reuters:

Greece issued a legislative act on Monday requiring public sector entities to transfer idle cash reserves to the country's central bank, as part of efforts to deal with a cash squeeze. Greece has been tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs.


Monday's act excludes pension funds and some state-owned firms. Cash reserves that are needed by these bodies for their immediate payment needs are also excluded from the regulation.


Athens' scramble for basic funds shows how extreme the financial constraints on Greek Prime Minister Alexis Tsipras have become as he tries to convince sceptical foreign creditors to extend his country new financial aid.


The cash-strapped country must repay the International Monetary Fund almost 1 billion euros due next month. It has said it wants to honour its debt obligations.

And as observed previously:

...if capital controls were imposed as a product of a stand-off between Greece and its creditors rather than in the context of agreement as to the way forward (as ultimately in Cyprus), Greek politics could lurch towards the need for a parallel / substitute currency rather than as hoped towards commitment to the euro at all costs.

  All the Trappings of a State Readers may recall that we have frequently pointed out in previous posts about ISIS that the organization really does have all the trappings of a State. It even has the typical origin of a State: it is now the force monopolist in a territory it has gained by […]

Greek Debt Crisis Coming To Head - Contagion?

- Greece Rapidly Running Out Of Cash - Soon Must Fold To Troika Or Default
- IMF Rebuff Greek Suggestion To Delay Repayments
- ECB's Draghi Warns Potential "Grexit" Puts EU In "Uncharted Waters"
- Despite Threats, Greece Remains Defiant, Won't "Budge On Red Lines"
- ECB Considering A “Second Currency” For Greece

The Greek government and its "partners" appear to be reaching the end of the road in their negotiations to release the final €7.2 billion of its €240 billion bailout deal.

Greek drachmas
Greek drachmas

Eurozone countries are demanding that the new Greek government produce a list of reforms that prove its credibility before releasing euros to them. However, Finance Minister Varoufakis is suggesting that Greece will not retreat from its red lines and did not rule out a referendum or early polls if talks remain deadlocked.

Greece is rapidly running out of cash with which to pay public sector wages, pensions and welfare payments. At the same time Greece is expected to pay €930 million which is due over the next few weeks.

It would appear as though the moment of reckoning is fast approaching.


The Greek government will likely maintain the support of the Greek population as they have have engaged with the Troika to the bitter end. If and when Greece finally defaults it will be able to place the blame squarely at the feet of the European elites.

"We will not sign up to targets we know our economy cannot meet by means of policies that our partners should not wish to impose," said Varoufakis.

"We will compromise, we will compromise and we will compromise in order to come to a speedy agreement  … But we are not going to end up 'being' compromised. This is not what we were elected for."

Various representatives of the Troika have tried to portray the Greek government as naive, unintelligent and disingenuous.

The consistent official narrative has been that Greece's "radical left-wing government" has not put forward realistic proposals for restructuring the  government to reassure the Troika that it would meet its repayment obligations in the future.

The discussions have been private and the specifics of Greece's various proposals since Syriza came to power in January have never been made public.

The track record of the Troika however, particularly with regards to Ireland, would suggest that their mandate is to protect the interests of banks -  at the expense of citizens - at nearly any cost.

With reference to a Greek request to delay its payments to the IMF Christine Lagarde told reporters, "It's clearly not a course of action that would actually fit," adding "We have never had an advanced economy ask for payment delays."

Such intransigence is hardly appropriate at such a crucial time for the future of the Eurozone.

Draghi  played down the effect of a potential "Grexit”.  Draghi stated, “The short-term danger of contagion [from a Greek exit] is difficult to assess, but we have enough buffers in place. And even though they were designed for different circumstances, they are sufficient." However, he did acknowledge that "we are entering uncharted waters.”

The European Central Bank has analyzed a scenario in which Greece runs out of euros and starts paying government employees with IOUs, creating a second currency within the euro bloc, people “with knowledge of the exercise” have told Reuters.

The ECB are considering the possibility that Greece will default in work undertaken by the so-called adverse scenarios group. Any default by Greece would force the ECB to act and possibly restrict Greek banks' crucial lifeline access to emergency liquidity funding from the ECB.

Contagion is an increasing concern. The IMF's Poul Thomsen warned “Nobody should think that a Grexit would not be without problems.” Bank “holidays” and capital controls are likely.

It is highly unlikely that the ECB has enough "buffers in place." European banks fared badly in the Federal Reserve’s stress test report released last month on the basis of poor risk management.

The fallout from a Greek default is difficult to assess especially with the strong political will to hold the Euro together. But the potential for contagion in the bond markets and through credit default swaps is very real.

The outcome of such a development would like lead to bank failures across Europe. Bail-ins are now the rule and as was seen in Cyprus and now in Austria, bank deposits are no longer sacrosanct.

Download Protecting Your Savings In The Coming Bail-In Era (11 pages)
Download From Bail-Outs To Bail-Ins: Risks and Ramifications –  Includes 60 Safest Banks In World  (51 pages)



Today’s AM LBMA Gold Price was USD 1,203.25, EUR 1,120.34 and GBP 806.31 per ounce.
Friday’s AM LBMA Gold Price was USD 1,204.55, EUR 1,113.83 and GBP 801.86 per ounce.

Gold rose 0.46 percent or $5.50 and closed at $1,204.50 an ounce Friday, while silver fell 0.18 percent or $0.03 closing at $16.26 an ounce. Gold and silver both finished down for the week at 0.31 percent and 1.39 percent respectively.


Gold held steady above $1,200 an ounce on a softer dollar today. In Singapore gold was unchanged at $1,205.30 an ounce in late morning trading in a tight range of $4.

China ramped up its QE program by slashing its reserve requirement ratio (RRR) by 19.5 percent to 18.5 percent for its largest banks, for the second time this year. In efforts to increase bank lending and prop up the falling Chinese property market and struggling Chinese economy.

The India Times noted that due to the low gold prices they expect to see at 25 percent increase in jewellery sales in Akshaya Tritiya.

A ‘Grexit’ may still be on the cards and the Eurozone finance ministers are scheduled to meet on Friday in Latvia. This should support gold this week.

The world's largest gold ETF, the SPDR Gold Trust or GLD, had an inflow of just under 3 tonnes on Friday, bringing its total weekly inflow to 4.8 tonnes, the biggest since early February.

In London gold for immediate delivery in late morning trading is up 0.04 percent at $1,204.40 an ounce. Silver is up 0.11 percent at $16.27 an ounce and platinum is up 0.16 percent at $1,165.89 an ounce.

Breaking Gold News and Research Here

The unfortunate consequence of not allowing the process of “creative destruction” to occur in banking and Big Business is that the historic forces behind it will seek expression elsewhere in the realm of politics and governance. The desperate antics of …

By definition, "pain trades" are those which could (and usually will) inflict the most pain on the largest number of speculators. They also tend to happen increasingly more often in a time when momentum ignition algos seek to punish the weakest hands who simply immitate the large money managers.

Add an illiquid, whipsawing market, and soon in addition to a short squeeze ETF there will be a "PAIN" ETF - one which takes positions counter to whatever is the prevailing conventional wisdom.

So what are the prevailing pain trades at this moment? According to BofA's latest fund manager survey, investors are positioned for i) more asset reflation, ii) stronger US$ and iii) rising rates. "So weak US growth, a rise in EU rates & stronger Chinese production would be painful in coming weeks."

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Submitted by KeepTalkingGreece,

In a special built courtroom and under draconian security measures, one of Greece’s most important political trials against current and former MPs and members of neo-nazi Golden Dawn started on Monday morning. Party leader Nikos Michaloliakos and 68 other defenders stand trial on felony charges for having established a criminal organization, having committed several racists attacks and murder and the procession of weapons.

The trial takes place in a special courtroom built inside high security prison Korydallos in western Athens, with several antifascists groups and GD supporters to have gathered outside the prison. In addition, groups of local authorities, traders and parents organizations had gathered to protest the trial in their suburb, claiming ‘disturbance of the every day life’.

GD trial court room

The trial began short after 9 o’ clock Monday morning in a courtroom packed with people many of them without a sitting opportunity.

25 of the main defenders, including GD leader Michaloliakos and 14 former and current MPs, being absent and represented by their lawyers. The defenders deny charges claiming that the trial was “politically motivated.”

The indictment is in fact against 70 defenders, however one of them has recently passed away, while a second one is a minor.

131 witnesses have been called to testify.

Murdered Pavlos Fyssas

pavlos fyssas

Present are also the parents of Pavlos Fyssas, the 34-year-old leftist rapper who was stabbed to death by GD member Giorgos Roupakias on 17 September 2013. Roupakias had claimed that he was never a registered member of GD.

It was Fyssas’ murder that forced Samaras’ government to take measures against the political party, put its leadership in custody and significantly reduce racist attacks against migrants.

Trial adjourned until May 7th

GD trial

More than 1,000 pages nicely packed in dozens of files are been unloaded and awaiting for the trial on the pavement. “If we call Greece a Banana Republic, we do injustice to bananas,” a Twitter user commented.

Two hours later the trial was interrupted and it is adjourned until May 7th 2015  for “procedural reasons.” One of the defenders appeared in the trial without a lawyer, the court had to appoint one and he on his turn needed time to read the indictment. Some wonder whether it was a tactical move by the GD in order to adjourn the trial.

Witness and antifa protester attacked by GD supporters

GD trial injured

Outside Korydallos prison, the atmosphere is tense between GD supporters and antifascists groups.

According to media, antifa groups the deputy major of Korydallos and hospital doctors, two people were slightly injured outside Korydallos prison by Golden Dawn supporters and were transferred to the hospital. Both have face and head injuries. The man is a witness to testify for the murder of his friend, Pavlos Fyssas. The woman is an antifa protester.

There are also reports that a lawmaker from To Potami was attacked by a group of people wearing hoods as he was walking to the court. Anti-authoritarians have reportedly beat a GD supporter.

Golden Dawn remains strong

Golden Dawn, a marginal far-right party of 0.1% – 0.3% in elections, catapulted to 7% in 2012 and became 5th in the Greek Parliament with its anti-austerity and anti-migrants policies. The provocative behavior of GD MPs in and outside the Parliament, their openly spoken insults and bullying attitude towards the Greek political system had secured them loyal voters amid the most severe economic crisis that had hit Greece.

In October 2013, 16 Golden Dawn MPs, including the party leader, were taken one after the other into custody. They were released in March 2015, after they had spent 18 months in custody without trial.

Despite the fact that the majority of its MPs were in custody during January 2015 elections, Golden Dawn remained strong even though it has suffered some losses. It was again third party with 6.3% and elected 17 MPs to the Greek Parliament.


GD leader Nikos Michaloliakos

The trial against the party of Golden Dawn is considered as one of the biggest political trials in Greece after restoration of democracy in 1974.

Defenders, lawyers, witnesses, journalists, representative of unions, a total of 1,000 people are been squeezed in the courtroom which is too small for a trial of such level. Some attendees had been standing during the two-hour session. The issue of the courtroom may be taken up on May 7th.

The trial is expected to last several months.

Some considered that justice had attempted to make a joke with Golden Dawn by setting the beginning of the trial on April 20th, the day the neo-nazis commemorate Hitler’s birthday.

For the 2nd day in a row, WTI crude prices are falling (back below $55) after Saudi Arabian Oil Minister Ali al-Naimi said production in the world's biggest crude exporter would stay near record peaks around 10 million barrels per day in April. The investment community remains divided over the future (perhaps more a reflection of time horizons): BofA notes Large Speculators bought crude contracts for the 3rd consecutive week - the longest streak since June 2014; but Blackstone (among other private equity firms) have stayed on the sidelines (despite plenty of cash to put to work) as public markets have exuberantly filled the void so far this year: Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch."

Oil prices have risen over the last few week prompting excitement that the 'slump' is over - but the last 2 days have seen notable selling pressure...


After Saudi Oil Minister Ali Al-Naimi noted:

“We will always be happy to supply to our customers with what they want. Now they want 10 million,”

But that hasn't stopped speculators piling in en masse... (as BofA notes)

Large specs bought Crude contracts for a third week increasing net long positioning. This is the longest crude buying stretch since the selloff began in June 2014.



Positioning remains stretched to the downside and our indicators suggest buying should continue.

But Private Equity shops are staying away for now. As despite massively expensive valuations...


Energy firms have managed to raise a record amount of money in the last quarter...


But, as Wolf Richter noted, Private Equity shops are staying away at these levels...

“We thought there would be a lot to do... That really hasn’t developed. We haven’t put as much new money out as we hoped or expected.”

Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch,” he said. These companies ended up not having to dump their assets at fire-sale prices, and didn’t need the costly rescue money PE firms were eager to offer. “Public markets took away a lot of opportunity,” he said.


“There’s still a lot of optimism oil prices are going to bounce back, and sellers are sort of biding their time in the hopes that they don’t have to face the music,” said James. So, Blackstone has invested more in conventional and renewable power projects, he said, instead of chasing after once again overpriced and oil and gas investments.

And that’s a chilling warning for the bottom pickers in the energy sector: if PE money, which has driven the sector ever higher during  the boom, fails to jump in with both feet, the rally in asset prices may not be sustainable and may have run its course.

Charts: Bloomberg and BofA

In January when we first brought news of one of China's largest developer's inability to cover interest payments on its debt, we raised the question of who's next. Now that it is official - China's first major developer to default on its US currency debt - and property prices are falling at a record rate, we suspect the likes of Wanda and Agile will also start to collapse once again (after being bid up incredibly amid China's latest exuberant bubble).


As one analyst noted, now that Kaisa has officially defaulted, “You never know where the skeletons in the closet are or what company will be next."


Kaisa 2018 bonds have ripped back from 25c on the dollar to over 70 since the default fears began in January...


As the NY Times reported:

Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market. Government data released this week showed that average new-home prices fell in February at the fastest pace on record.


Under Kaisa’s current restructuring proposal, about $800 million of bonds originally due in 2018 would instead come due in 2023, and the interest would be cut to 5.2 percent from 8.875 percent.

Things only got worse in March when housing prices dropped to a new record low:


As for the bond restructuring proposal, with this accelerating default, it is likely that any pre-pack agreement is now again in flux.

Also as noted previously, (away from the exuberant equity markets):

“Everyone is rethinking risk right now and so are we,” said Singapore-based Brayan Lai, the head of research and money manager at One Asia Investment Partners. The credit hedge fund has about $200 million of assets. “There are uncertainties about Chinese companies” amid concerns over Greece and U.S. debt markets, he said.

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Royal Caribbean Cruises Ltd (NYSE: RCL) shares ...

Full story available on Benzinga.com

In a recent blog post, Citadel's latest trader and part-time Brookings blogger, Ben Bernanke, asks "does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."We, on the other hand are skeptical of Bernanke's skepticism, for one simple reason: reality.

Below is a chart progression of the past 6 years of the FOMC's own "potential real GDP growth" estimates. It shows, without a trace of doubt, that even with the Fed's perpetual overoptimism, the US is now clearly in a phase of secular stagnation, one from which there is no escape until the issue which Bernanke dares not mention, i.e., a record debt overhang, is somehow resolved.

Here is BofA's commentary:

There has been a slow capitulation that the concept of normality has changed after this recession. Forecasts for potential growth have been slashed along with expectations for the equilibrium Fed funds rate. The consensus, based on the Blue Chip survey, has taken down its forecast for potential GDP growth from 2.8% pre-recession to 2.6% in 2010 and 2.3% today. The FOMC has similarly revision down its long-run GDP forecast.

And visually:

Aduro BioTech Inc (NASDAQ: ADRO) shares gained ...

Full story available on Benzinga.com

Pre-open movers

US stock futures traded higher in early pre-market trade. The Chicago Fed National Activity Index for March ...

Full story available on Benzinga.com

While this week sees the peak of Q1 earnings season, it will be a generally quiet week on the macro economic front for both EM and DM, with the emphasis on the latest seasonally adjusted manufacturing sentiment surveys, US durables and Japan trade.

It's a quiet start this morning in Europe with just German PPI due. It’s no less different in the US this afternoon with the Chicago Fed National Activity Index the only print.

The German ZEW survey will be of most focus in the European timezone on Tuesday and it remains quiet in the US with no data due out.

Things pick up on Wednesday however and we start in Asia where we get trade data due out of Japan and also inflation data out of Australia. In Europe, industrial orders and retail sales are due in Italy, consumer confidence is due out of the Euro-area and in the UK we should get the BoE minutes. Focus across the pond on Wednesday in the US will be on existing home sales and the FHFA house price index.

Thursday is flash PMI day for April where we get manufacturing readings out of Japan and China in the early morning, followed by manufacturing, services and composite prints for the Euro area, France and Germany. Business and manufacturing confidence is also due in France, while in the UK we get retail sales data. In the US on Thursday, jobless claims, new home sales, Kansas City Fed manufacturing activity and also the flash manufacturing PMI are all due.

We close out the week on Friday in Europe with the German IFO survey for April. In the US meanwhile, durable and capital goods orders are scheduled. With it being a fairly quiet week data wise, US earnings season will be of much focus with the calendar ramping up as 147 S&P 500 companies are due to report including Google, Facebook, P&G and Amazon. European earnings season will also kick into gear. Of course Greece will also continue to be front and centre with the Eurogroup meeting scheduled for Friday in Riga.

In table format:

A detailed breakdown of the main events daily from Goldman:

In DMs, highlights of next week include US Durable Goods; Australia and UK Minutes; Eurozone Consumer Confidence; Japan Trade.

  • [Monday] Japan Tertiary Industry Index; New Zealand CPI.
  • [Tuesday] Australia Minutes.
  • [Wednesday] Eurozone Consumer Confidence; UK Minutes; Japan Trade; Australia CPI.
  • [Thursday] DM Flash Manufacturing PMI; Singapore CPI.
  • [Friday] US Durable Goods; Singapore IP.

In EMs, highlights of next week include MP Decisions in Turkey, Hungary and Colombia; Poland Minutes; South Korea GDP, Economic Activity in Argentina and Mexico; CPI in Malaysia and South Africa.

  • [Monday] Ukraine IP.
  • [Tuesday] Hungary MP Decision.
  • [Wednesday] CPI in Malaysia and South Africa; Turkey MP Decision.
  • [Thursday] South Korea GDP; Poland Minutes; Mexico Economic Activity.
  • [Friday] Argentina Economic Activity and Colombia MP Decision.


Monday, April 20

Events: Speech by BoC’s Poloz.

  • Japan | [MAP 4] Tertiary Industry Index MoM (Feb): Consensus -0.80%, previous 1.40%
  • New Zealand | CPI YoY (1Q): GS 0.10% (-0.30% qoq), consensus 0.20% (-0.20% qoq), previous 0.80% (-0.20% qoq)
  • Poland | [MAP 3] Sold Industrial Output YoY (Mar): Consensus 7.20% (12.20% mom), previous 4.90% (1.30% mom)
  • Ukraine | Industrial Production YoY (Mar): Consensus -20.50% (1.80% mom), previous -22.50% (-1.60% mom )
  • Also interesting: [DM] US Chicago Fed Nat Activity Index; Eurozone Construction Output; Spain Trade Balance; UK Rightmove House Prices [EM] Philippines BoP; Taiwan Export Orders; Poland Retail Sales.

Tuesday, April 21

Events: Speeches by ECB’s Nouy, Riksbank’s Ohlsson and RBA’s Stevens.

  • Germany | [MAP 3] ZEW Survey Expectations (Apr): Consensus 55, previous 54.8
  • Australia | Minutes from MP Decision: The RBA left the cash rate, expression of its strong easing bias, and the vast majority of its description of economic trends/risks unchanged at April’s Board meeting.
  • Hong Kong | CPI Composite YoY (Mar): Previous 4.60%
  • Hungary | MP Decision: We expect a 15bp cut (to 1.80%, in line with consensus). We also think that the MPC maintains a dovish tone and indicates further easing. But we think the MPC will remain cautious, preferring not to cut too fast, too deeply, and the policy guidance will point toward only moderate easing. We expect the MPC will justify next week’s cut by the same arguments that underpinned the decision to restart the easing cycle in March, that is lower than previously expected inflation, a benign medium-term inflation outlook, and downside risks to the forecast arising from low inflation abroad, increased risk of second-round effects of the recent decline in commodity prices, and government measures to control prices of utilities and energy. A relatively strong Forint – and the NBH’s policy preference for some gradual depreciation – should also support the MPC’s dovish thinking.
  • Also interesting: [DM] Eurozone Govt Debt/GDP Ratio and ZEW Survey Expectations; Sweden Unemployment; Switzerland M3 and Unemployment Rate; Japan Leading and Coincident Index [EM] Korea 20-day Exports; Trade Balance in Israel and Argentina

Wednesday, April 22

  • United States | [MAP 2] Existing Home Sales (Mar): Consensus 5.02M, previous 4.88M
  • Eurozone | [MAP 4] Consumer Confidence (Apr A): Consensus -2, previous -3.7
  • United Kingdom | Minutes from MP Decision
  • Japan | Trade Balance (Mar): GS -¥80.0B, consensus ¥6.3B, previous (r) - ¥425.0B
  • Australia | CPI YoY (1Q): GS 1.10% (-0.10% qoq), consensus 1.30% (0.20% qoq), previous 1.70% (0.20% qoq)
  • Malaysia | CPI YoY (Mar): GS 0.90%, consensus 0.90%, previous 0.10%
  • South Africa | CPI YoY (Mar): GS 4.0%, consensus 4.10% (1.50% mom), previous 3.90% (0.60% mom)
  • Turkey | MP Decision: We expect rates on hold (overnight lending rate at 10.75%, the base rate (1-week repo) at 7.50% and the overnight borrowing rate at 7.25%, in line with consensus). We also think that there is a non-trivial chance of some additional macro-prudential measures, aimed at improving domestic FX market liquidity conditions. In particular, the Central Bank might increase the Reserve Option Coefficients (ROC) and the interest rates paid over TRY reserve requirements held at the CBRT. We also expect the bank to signal that it stands ready to further tighten domestic TRY liquidity conditions.
  • Also interesting: [DM] US MBA Mortgage Applications and FHFA Mortgage Applications; Denmark Consumer Confidence; Italy Retail Sales; Australia Westpac Leading Index [EM] Malaysia Foreign Reserves; Taiwan Unemployment; Turkey Consumer Confidence; Brazil CA and Foreign Direct Investment; Colombia Trade Balance.

Thursday, April 23

Events: Speeches by ECB’s Praet and RBNZ’s McDermott, Philippines Monetary Board Meeting Highlights.

  • United States | New Home Sales MoM (Mar): GS -3.0%, consensus -5.40%, previous 7.80%
  • DMs | Manufacturing PMI (Apr P): US (Consensus 56, previous 55.7); Eurozone (Consensus 52.5, previous 52.2); France (Previous 48.8); Germany (Consensus 53, previous 52.8), Japan (Previous 50.3)
  • DMs | Composite PMI (Apr P): Eurozone (GS 54.0, consensus 54.2, previous 54); France (Previous 51.5); Germany (Consensus 55.4, previous 55.4)
  • DMs | Services PMI (Apr P): Eurozone (Consensus 54.4, previous 54.2); France (Previous 52.4); Germany (Consensus 55.5, previous 55.4)
  • United Kingdom | [MAP 3] Retail Sales Ex Auto YoY (Mar): Previous 5.10% (0.70% mom)
  • Singapore | CPI YoY (Mar): GS -0.50%, consensus -0.50%, previous -0.30% (0.10% nsa mom)
  • China | HSBC China Manufacturing PMI (Apr P): Consensus 49.4, previous 49.6
  • South Korea | [MAP 5] GDP YoY (1Q P): GS 2.60% (0.80% sa qoq), consensus 2.30% (0.60% sa qoq), previous 2.70% (0.30% sa qoq)
  • Taiwan | [MAP 4] Industrial Production YoY (Mar): GS 5.00% (-0.50% sa mom), previous 3.32%
  • Poland | Minutes from MP Decision
  • Mexico | [MAP 5] Economic Activity IGAE YoY (Feb): GS 2.35%, previous (r) 2.00%
  • Also interesting: [DM] US Initial Jobless and Continuing Claims and Kansas City Fed Manf. Activity; UK PSNB; France Business/Manufacturing Confidence; Italy CA; Spain Unemployment; Switzerland Trade Balance; UK Public Sector Net Borrowing; New Zealand Consumer Confidence [EM] Hong Kong Unemployment; Mexico Core and Headline Inflation

Friday, April 24

Events: Speech by BoJ's Nakaso.

  • United States | [MAP 4] Durables Ex Transportation (Mar): GS -1.0%, consensus 0.30%, previous (r) -0.60%
  • United States | Durable Goods Orders (Mar): GS -0.8%, consensus 0.70%, previous -1.40%
  • United States | Cap Goods Orders Nondef Ex Air (Mar): GS -1.0%, consensus 0.30%, previous (r) -1.10%
  • United States | Cap Goods Ship Nondef Ex Air (Mar): GS -0.5%, previous (r) 0.30%
  • Singapore | [MAP 5] Industrial Production YoY (Mar): Consensus -7.10%, previous -3.60% (4.10% sa mom)
  • Argentina | [MAP 5] Economic Activity Index YoY (Feb): GS 1.20% (0.20% mom), previous 0.00% (-0.10% mom)
  • Argentina | [MAP 4] Industrial Production YoY (Mar): GS -1.60% (-0.40% mom), previous (r) -2.10% (-0.40% mom)
  • Colombia | MP Decision: We expect rates on hold (Overnight Lending Rate at 4.50%, in line with consensus).
  • Also interesting: [DM] Germany IFO Business Climate Survey; Japan PPI Services and All Industry Activity Index [EM] Hong Kong Composite Interest Rate; South Korea Consumer Confidence; Philippines Inflation Report; Czech Republic Consumer Confidence; Poland Unemployment; Brazil Bank Lending; Mexico Retail Sales

Source: Deutsche, BofA, Goldman

by Charles Sizemore, Sizemore Capital Management

Here is a sobering statistic for you: While the S&P 500 has generated annualized returns of 9.9% over the past 20 years—and a boring old asset allocation of 60% stocks and 40% bonds has managed to return a solid 8.7%—the average investor has eked out a measly 2.5%.

Inflation has averaged 2.4% over the past 20 years, meaning that in real terms the average investor has returned pretty close to zero. And this during one of the best periods in this history of the U.S. stock market.


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Source: JPMorgan

How are returns that bad even possible? If the Efficient Market Hypothesis is to be believed, investors should roughly track the S&P 500 over time, not underperform it by 75%.

There are a myriad of answers, including everything from overtrading to underdiversification, but the biggest contributing factor is peformance chasing. Investors don’t park their cash in the stocks or sectors promising the best value. They jump on whatever is trendy in a perpetual case of closing the barn door after the horse has already bolted.

Late last year, veteran financial writer Mark Hulbert crunched the numbers and found that following the investment newsletter portfolio that performed best during the previous calendar year resulted in annual losses of more than 17% per year. Not just underperformance, mind you, but actual losses.

In looking at mutual fund performance, the numbers get a little better but are still remarkably bad. In a study done by Vanguard, a strategy of buying the top-performing large blend mutual funds over a rolling three-year period underperformed a naive buy-and-hold strategy by 34%. And while the numbers varied slightly across mutual fund market caps and styles (small-cap value, mid-cap growth, etc.), a naive buy-and-hold approach outperforms across all. Though we see these words so often we become blind to them, experience proves them true: “Past performance is no guarantee of future results.” To be more accurate, the data here more or less guarantees that past performance is a guarantee of future results…it just so happens that the future performance in question turns out to be terrible.

So, what are we to do about this? Buy an S&P 500 Index Fund, hold it forever, and wash our hands of the entire investing process?

Well, we could do that. But there are better ways to skin this cat.

Take a second look at the chart at the top of this article. You’ll notice that a 60/40 portfolio of stocks and bonds came awfully close to matching the performance of the S&P 500, but what you don’t see here is that it did so while taking far less risk. This is the essence of asset allocation: Essentially sprinkling “a little of everything” into a portfolio and regularly rebalancing with the understanding that there will be years when some pieces of the portfolio perform very well and others perform very poorly.

There is an important catch that a lot of people seem to forget these days: Asset allocation works well when the constituent parts all have reasonably high expected rates of return and–importantly–returns that are not highly correlated.

Asset allocation is going to look a little different today than it did in years past because we are in a very different interest rate environment. I think you can make a very good case for eliminating most bonds altogether or at least for replacing a traditional long-only bond allocation with a tactically-managed one. This is what I have done in portfolios that I manage for clients. And for those clients that qualify, I’ve been incorporating low-volatility, absolute-returns strategies into the mix.

For a simple and easy-to-execute asset allocation, consider something along the lines of the following ETF allocation:

Domestic U.S. Stocks (45%)

  • 17% Cambria Shareholder Yield ETF (SYLD)
  • 11% iShares Select Dividend ETF (DVY)
  • 11% Vanguard Dividend Appreciation ETF (VIG)
  • 6% iShares Core S&P Small Cap ETF (IJR)

International Stocks (21%)

  • 7.5% Cambria Foreign Shareholder Yield ETF (FYLD)
  • 7.5% PowerShares International Dividend Achievers ETF (PID)
  • 3% EG Shares Emerging Markets Consumer ETF (ECON)
  • 3% Cambria Global Value ETF (GVAL)

Real Estate / Infrastructure (24%)

  • 12% Vanguard REIT ETF (VNQ)
  • 12% JP Morgan Alerian MLP ETN (AMJ)

Fixed Income / Cash (10%)

  • 5% PIMCO Total Return Active ETF (BOND)
  • 4% iShares TIPS Bond (TIP)
  • 1% Cash

There is nothing sacred about any of these specific ETF positions. I chose them because I believed them to be a solid proxy for the risk/return exposure I was looking for, but I periodically swap out ETF positions when newer, better alternatives come along. The takeaway is that, while the specific vehicles may change, the asset classes remain pretty constant.

For another perspective, check out The Gone Fishin’ Portfolio. Alex Green chooses a few asset classes that I would avoid–such as gold miners–but his recommendations are solid and simple to implement. And if you really enjoy digging into asset allocation strategies, check out Meb Faber’s latest, Global Asset Allocation. It’s a short read and worth many times over the $3 price tag.

There a million different ways to allocate a portfolio well, but most poorly-allocated ones have one point in common: They chase whatever has been recently hot.

Don’t do that.


Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.

Photo credit: Alex Prolmos

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Overnight Media Digest


* Jon Corzine, the embattled former MF Global Holdings chief executive, has discussed plans to start his own hedge fund in recent months, according to people familiar with the matter.(http://on.wsj.com/1cO9EAC)

* Comcast Corp and Time Warner Cable Inc are slated to sit down for the first time on Wednesday with Justice Department officials to discuss potential remedies in hopes of keeping their $45.2 billion merger on track, according to people familiar with the matter. (http://on.wsj.com/1cObmSA)

* The proposed Northern Gateway, a 730-mile pipeline to ship Canadian oil to a West Coast port, has hit opposition by native groups who say it threatens their environment and culture. (http://on.wsj.com/1cOdSIw)

* Target Corp's website went down Sunday morning, overwhelmed by shoppers clamoring for a piece of a Lilly Pulitzer collection that was selling for a fraction of the price of the Palm Beach label's luxury clothes. (http://on.wsj.com/1cOeuOg)

* Sports juggernaut ESPN is raising objections to Verizon FiOS's plans to break up the traditional TV bundle and offer customers more choice in constructing their package of channels. (http://on.wsj.com/1cOeUnE)

* Prologis Inc, a big owner of warehouses and distribution centers, agreed to buy industrial-property owner KTR Capital Partners for $5.9 billion, in one of the largest real-estate deals so far this year. (http://on.wsj.com/1cOfsdk)

* In a deal expected to be announced Monday, Aston Martin Lagonda Ltd will tie up with Chinese online entertainment company LeTV as part of the British luxury car maker's broader push to incorporate high-end Chinese technology into its vehicles. (http://on.wsj.com/1cOgqGo)



EU countries were under pressure to take further steps to prevent the loss of life of migrants in the Mediterranean Sea after as many as 700 refugees were feared dead in an accident off the Libyan coast.

David Cameron has promised that retail investors will take part in a 9 billion pound ($13.46 billion) post-election sell-off of Lloyds Banking Group shares.

IMF chief Christine Lagarde said she told Greek finance minister Yanis Varoufakis last week that he needed to accelerate reforms. She warned that patience was running out with the new Syriza government in Athens.

Deutsche Bank is preparing to divest its Postbank retail operation in response to sluggish markets. High quality global journalism requires investment. The divestment of Postbank, which has 1,100 branches, would be biggest strategic step yet for the bank under co-chief executives Anshu Jain and Jürgen Fitschen.

Big shareholders in UK banks want lenders to stop paying bonuses based on adjusted earnings that exclude fines, restructuring costs and non-core units, raising the prospect of protest votes at annual meetings starting this week.

Financial Times research shows that the stagnation of productivity in the UK since 2008 is largely explained by just four sectors - professional services, telecommunications and computing, banking and finance and manufacturing.



* International Business Machines Corp's partnership with Beijing Teamsun Technology Co Ltd, a Beijing company to provide key technologies is similar to ones it has made elsewhere, but it has collided with political and trade issues. (http://nyti.ms/1cO31OD)

* "Daredevil," the 17th Netflix Inc original series to make its debut this year, is part of an expanding range of original shows intended to position the company for a digital revolution in entertainment. (http://nyti.ms/1aJhtWq)

* China's central bank on Sunday freed roughly $200 billion for new lending, a widely expected stimulus measure devised to pump more money into the economy. It is the latest sign that economic growth may be slowing faster than the leadership in Beijing anticipated. (http://nyti.ms/1P29pja)

* Interpublic Group of Companies Inc is buying a minority stake in Samba TV, a start-up that provides television analytics, part of the advertising giant's effort to understand how consumers are watching television. (http://nyti.ms/1biwvns)

* The staff lawyers at the Justice Department reviewing Comcast Corp's proposed $45 billion takeover of Time Warner Cable Inc have raised concerns about the merger and are leaning toward recommending that it be blocked, according to a person with knowledge of the deliberations. (http://nyti.ms/1JXFEgA)

* Another Brazilian company has fallen to the corruption scandal surrounding Brazil's petroleum giant, Petrobras: Schahin Group requested on Friday a bankruptcy court's protection for 28 of its subsidiaries. (http://nyti.ms/1OwBwF5)


Hong Kong


- Chek Lap Kok airport could use a new method to space out aircraft landings to cut delays and allow additional flight movements, said National Air Traffic Services, a UK-based consultant that carried out an analysis of Hong Kong's airspace and runway capacity in 2008. (http://bit.ly/1GaEYG7)


- Support for lawmakers to pass the political reform package that adheres to Beijing's August 31 decision has been steadily rising, according to a survey by pro-establishment group New Territories Association of Societies. Around 55 percent initially supported the package before the number rose to 58 percent and then 61 percent. (http://bit.ly/1yIJOaR)

- Australian undergraduates under the country's New Colombo Plan have named Hong Kong as one of the more popular destinations for studies, an education-sector lawmaker Ip Kin-yuen said. Ip said Canberra was interested in further discussions with local universities about expanding the number of students who could study in Hong Kong. (http://bit.ly/1JkCp1C)

- Most Hong Kong people are in bed before 1 am and awake by 8 am. But many may not sleep for as long or as well as doctors recommend. Hong Kong ranked 17th in the global survey about sleep quality on a list compiled by smartphone app Sleep Cycle. Slovakians enjoy the best quality sleep, mainlanders the next and Hungarians the third-best. (http://bit.ly/1DBpqHI)


- U.S.-listed suitcase maker Tumi Holdings, a major rival of Samsonite, sees Hong Kong, which is a hot spot for tourists around the region, as an important city for the brand to further expand into other Asian markets, according to Asia Pacific chief Fernando Ciccarelli. The company now operates 380 points of sale in 15 countries in the region.



The Times

* Conran attacks BHS sale

Terence Conran has criticised Sir Philip Green's sale of the BHS store chain, which he once ran, describing it as "ridiculous". His comments came as a letter sent to members of BHS's pension scheme revealed its deficit stood at 207 million pounds ($309.67 million) last year - almost twice the level reported in the 2013 accounts. (http://thetim.es/1aIUpqM)

* HSBC set for revolt over chief's 7 mln pounds pay

The embattled banking giant HSBC Holdings Plc faces fresh criticism from investors over executive pay this week as it prepares to pare back its empire. Shareholders are expected to lash out against a 7.6 million pounds pay package for Chief Executive Officer Stuart Gulliver at the annual meeting on Friday. (http://thetim.es/1D3NTBO)

The Guardian

* Co-op Group: Competition means we cannot fully commit to Fairtrade

The Co-operative Group has told its members that it cannot make an enhanced commitment to stock Fairtrade products because of tough competition among supermarkets and its shift towards convenience stores. (http://bit.ly/1EhHIRU)

* April house price average at all-time high of more than 286,000 pounds

A lack of sellers and a huge surge in the number of people looking to buy a home has pushed the average asking price of homes coming on to the market in April up to an all-time high of just over 286,000 pounds, according to property website Rightmove. (http://bit.ly/1P0WUUU)

The Telegraph

* Europe ready for Grexit contagion as Athens gets closer to Russian cash

The European Central Bank has warned that a rupture of monetary union and Greek exit from the euro could have dramatic consequences but insisted that it has enough powerful weapons to avert contagion. (http://bit.ly/1D1ul0I)

* Wonga set to post loss amid clampdown on payday lenders

Wonga, the payday loan company is set to report in the first half of this week a loss of around 35 million pounds for 2014 after revenues fell by almost a third to 215 million pounds. (http://bit.ly/1Q77HhW)

Sky News

* Tories pledge Thatcher-style Lloyds sell-off

David Cameron is pledging an '80s-style privatisation if the Tories win the election, selling off the government's stake in Lloyds Banking Group. Only days after reviving Margaret Thatcher's right to buy policy in the Tory manifesto, he is now planning to win votes with a promise of cheap shares in a 10 billion pounds sell-off within a year of the General Election. (http://bit.ly/1HJ1DbU)

* Cable warns of CMA threat to Tory Lloyds sale

Conservative plans to sell billions of pounds of Lloyds Banking Group shares to the general public by May 2016 could be undermined by a competition inquiry into the industry, the Business Secretary Vince Cable has warned. (http://bit.ly/1HI9GFH)


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