Saturday, January 12, 2013

Important message: DHS advises all computer users to disable Java immediately

The U.S. Department of Homeland Security is advising people to temporarily disable the Java software on their computers to avoid potential hacking attacks.

Here's an AP article on Yahoo! Finance.

Basically, a bunch of script kiddies have worked a Java zero-day exploit into their hackware packages. You'll soon come across a webpage that's been hacked, and get infected through the Java. I guarantee it.

Here is a link to a PCMag article on how you can disable Java on your own computer.

Disabling Java won't hurt your computer. There might be a few browser-based Java games that you won't be able to run anymore, or the odd horribly-overdesigned webpage might no longer run properly. But generally if you disable Java it won't be missed.

A few security professionals whose podcasts I've followed over the years have always advised their listeners to uninstall Java, because it's such a horrible security hole in your system. I disabled Java on my own computer years ago and it never bothers me. (I can log into my work email without Java, for example.) So I suggest you don't bother with the "temporary" above: just disable Java permanently, uninstall it from your computer entirely, and be done with it. You won't notice the difference.

Note, this has to do with Java, not Javascript. Javascripts are something very different. If you also want to block Javascript you can install Firefox with the NoScript plugin. It's a good idea in any case to never run the scripts on a webpage you don't trust.

If you absolutely have to run Java for some reason, like your workplace has an IT department made up of fucking morons, then you can quarantine yourself by running your browser (Firefox with NoScript) within a virtual machine that gets killed after every session.

If you don't know how to do that, then just disable Java.

Friday, January 11, 2013

The morning's newsbits, this time all from the Sinocism letter

Had to check out a bunch of other things before getting around to this news update, so again today it's late-ish. No worry.

All of these links come via the Sinocism daily letter, which is a fantastic go-to place if you want to follow what's happening in China.

Reuters - China's carbon intensity falls over 3.5 percent in 2012. Y'know, sometimes these synchronistic things happen to me, and the only explanation I have is that the world is one great cosmic intelligence, which loves me so much that it goes out of its way to help demonstrate that I'm just so much smarter than you. In this case, read it and weep:

China's carbon intensity, or its emissions relative to economic output, fell more than 3.5 percent in 2012, outperforming its average annual target, China's chief climate change official said on Thursday.

Which is a number you have to take into account when, say, you try to suggest that Chinese GDP growth corresponds directly to power usage growth. As in, it probably imparts a negative skew to things: the formula isn't F(δGDP) ∝ F(δP), but rather F(δGDP) ∝ F(δP+x), where x is the delta carbon intensity per unit GDP, and is a number close enough to δGDP to begin with that you have to take it into account to avoid significant error.

I'm only sayin'. Bitch.

Bloomberg - Meanwhile, Benford's law suggests that Chinese economic data is fudged. So, fine, then the universe forces me to become humble again, but that's okay. A little humility is a good thing. Just not too much. Cos the upshot of the article is that while the Chinese data is fudged, they're only really fiddling with it by half a percent either way.

By the way, do go read up on Benford's law. It's really amazing, and it's one of those ninth-order or tenth-order sciences that is so far beyond our ability to intuitively comprehend it that it almost looks like magic or the hand of Gerd or something. That, and Bayesian analysis, are super-powered analytical methods that more people should learn about.

NYT - Macau is where Chinese oligarchs launder their money before fleeing with it to Toronto. Again, quite probable, and simply something to keep in mind.

ABC News - China refuses to help stop investment scams. Again, as Bill Bishop from Sinocism notes, it's probably good that this is now getting play in the mainstream US media: maybe now the SEC will have the guts to finally clean up the utter fucking joke of the accounting practices of US-listed Chinese companies?

BI - there's so much more to the China story that you're missing. Quote sums it up best:

"China construction growth can slow, buts its capital goods demand can accelerate," said Bianco.

For years, China has focused its efforts on building airports, highways, and cities. However, it still needs to deploy capital goods for all of that infrastructure.

"China demand for capital goods should accelerate as urban living standards improve. China still needs more airplanes, trucks, engines, climate control and automation."

Mark Cuban on the disconnect between price and fundamentals

Mark Cuban's mailing it in nowadays, reposting old blog posts from 2004.

This one's a great post, and rather than link to it, I decided to reprint it in its entirety because it points out one of those brutally but constantly true things that every value/fundamental investor needs to keep in mind.

Stocks go up cos people buy them, and they go down cos people sell them. No other reason.

Haven’t blogged in a while. So I decided to look back and pull out one of my first blog posts, from 2004. An oldie, but goodie !

The Number. I recommend that anyone with an interest in the market jump at the chance to buy it.

In 1990, I sold my company, MicroSolutions which specialized in what at the time was the relatively new business of helping companies network their computer equipment to CompuServe. After taxes, I walked away with about $2 million. That was going to be my nest egg, and my goal was to protect it at all costs, and grow it wisely.

I set about interviewing stockbrokers and settled upon a broker from Goldman Sachs, Raleigh Ralls. Raleigh was in his late 20s, and relatively new to Goldman. But we hit it off very well and I trusted him. As we planned my financial future, I made it clear that I wanted my nest egg to be invested not like I was 30 years old, but as if I were 60 years old. I was a widows and orphans investor.

Over the next year I stuck to my plan. I trusted Raleigh, and he put me in bonds, dividend-paying utilities and blue chips, just as I asked.

During that year, Raleigh began asking me a lot of questions about technology. Because of my experience at MicroSolutions, I knew the products and companies that were hot. Synoptics, Wellfleet, NetWorth, Lotus, Novell and others. I knew which had products that worked, didn’t work, were selling or not. How these companies were marketed, and whether or not they were or would be successful.

I couldn’t believe that I would have an advantage in the market. After all, I had read A Random Walk Down Wall Street in college. I truly thought that the markets were efficient, that any available knowledge about a company was already reflected in its stock price. Yet I saw Raleigh using the information I gave him to make money for
his clients. He finally broke me down to start using this information to my advantage to make some money in the market. Finally after more than a year, I relented. I was ready to trade.

Notice I didn’t use the word invest. I wasn’t an investor. I just wanted to make money. The reason I was ready to try was that it was patently obvious that the market wasn’t efficient. Someone like me with industry knowledge had an advantage. My knowledge could be used profitably. As we got ready to start, I asked Raleigh if he had any words of wisdom that I should remember. His response was simple. “Get Long, Get Loud”.

Get Long, Get Loud. As we started buying and selling technology stocks, most of which were in the local area networking field that I had specialized in at MicroSolutions, Raleigh put me on the phone with analysts, money managers, individual investors, reporters, anyone with money or influence who wanted to talk technology and stocks.

We talked about token ring topologies that didn’t work on 10BaseT. We talked about what companies were stuffing channels – selling more equipment to their distributors than the distributors really needed to meet the retail demand. We talked about who was winning, and who was losing. We talked about things that really amounted to the things you would hear if you attended any industry trade show panel. Yet after hanging up the phone with these people, I would watch stocks move up and down. Of course as the stocks moved, the number of people wanting to talk to me grew.

I remember buying stock in a Canadian company called Gandalf Technologies in the early 90s. Gandalf made Ethernet bridges that allowed businesses and homes to connect to the Internet and each other via high-speed digital phone lines called ISDN.

I had bought one for my house and liked the product, and I’d talked to other people who’d used it. They had decent results, nothing spectacular, but good enough. I had no idea Gandalf was even a public company until a friend of Raleigh’s asked me about it. What did I think about Gandalf Technologies? It was trading at the time at about a buck a share. It was a decent company, I said. It had competition, but the market was new and they had as much chance as anyone to succeed. Sure, I’ll buy some, and I would be happy to answer any questions about the technology. The market size, the competition, the growth rates. Whatever I knew, I would tell.

I bought the stock, I answered the questions, and I watched Gandalf climb from a dollar to about $20 a share over the next months.

At a dollar, I could make an argument that Gandalf could be attractive. Its market was growing, and compared to the competition, it was reasonably valued on a price-sales or price-earnings basis. But at $20, the company’s market value was close to $1 billion – which in those days was real money. The situation was crazy. People were buying the stock because other people were buying the stock.

To add to the volume, a mid-sized investment bank that specialized in technology companies came out with a buy rating on Gandalf. They reiterated all the marketing mishmash that was fun to talk about when the stock was a dollar. The ISDN market was exploding. The product was good. Gandalf was adding distributors. If they only maintained X percentage of the market, they would grow to some big number. Their competitors were trading at huge market caps, so this company looks cheap. Et cetera, et cetera.

The bank made up forecasts formulating revenue numbers at monstrous growth rates that at some point in the future led to profits. Unfortunately, the bank couldn’t attract enough new money to the stock to sustain its price. It didn’t have enough brokers to shout out the marketing spiel to entice enough new buyers to pay the old buyers. The hope among the “sophisticated buyers” was that one bank picking up coverage would lead to others doing the same. It didn’t happen. No other big investment banks published reports on the stock. The volume turned down.

So I did the only smart thing. I sold my stock, and I shorted it to boot. Then I told the same people who asked me why I was buying the stock that I had shorted the stock. Over the next months, the stock sank into oblivion. In 1997, Gandalf filed for bankruptcy. Its shares were canceled – wiped out – a few months later. I wish I could take credit for the stock going up, and going down. I can’t. If the company had performed well, who knows what the stock would have done?

But the entire experience taught me quite a bit about how the market works. For years on end a company’s price can have less to do with a company’s real prospects than with the excitement it and its supporters are able to generate among investors. That lesson was reinforced as I saw the Gandalf experience repeated with many different stocks over the next 10 years. Brokers and bankers market and sell stocks. Unless demand can be manufactured, the stock will decline.

In July of 1998, my partner Todd Wagner and I took our company,, public with Morgan Stanley. used audio and video streaming to enable companies to communicate live with customers, employees, vendors, anyone with a PC. We founded in 1995, and we were well on our way to being profitable. Still, we never thought we would go public so quickly. But this was the Internet Era, and the demand for Internet stocks was starting to explode. So publicly traded we would become and Morgan Stanley would shepherd us.

Part of the process of taking a new company public is something called a road show. The road show is just that. A company getting ready to sell shares visits the big mutual funds, hedge funds, pension funds – anyone who can buy millions of dollars of stock in a single order. It’s a sales tour. 7 days, 63 presentations. We often discussed turning up the volume on the stock. It was the ultimate “Get Loud.” Call it Stockapalooza.

Prior to the road show, we put together an amazing presentation. We hired consultants to help us. We
practiced and practiced. We argued about what we should and shouldn’t say. We had Morgan Stanley and others ask us every possible question they could think of so we wouldn’t look stupid when we sat in front of these savvy investors.

Savvy investors? I was shocked. Of the 63 companies and 400-plus participants we visited, I would be
exaggerating if I said we got 10 good questions about our business and how it worked. The vast majority of people in the meetings had no clue who we were or what we did. They just knew that there were a lot of people talking about the company and they should be there.

The lack of knowledge at the meetings got to be such a joke between Todd and I that we used to purposely mess up to see if anyone noticed. Or we would have pet lines that we would make up to crack each other up. Did we ruin our chance for the IPO? Was our product so complicated that no one got it and as a result no one bought the stock? Hell no. They might not have had a clue, but that didn’t stop them from buying the stock. We batted 1.000. Every single investor we talked to placed the maximum order allowable for the stock.

On July 18, 1998, went public as BCST, priced at 18 dollars a share. It closed at $62.75, a gain of almost 250 percent, which at the time was the largest one day rise of a new offering in the history of the stock market. The same mutual fund managers who were completely clueless about our company placed multimillion orders for our stock. Multimillion dollar orders using YOUR MONEY.

If the value of a stock is what people will pay for it, then was fairly valued. We were able to work with Morgan Stanley to create volume around the stock. Volume creates demand. Stocks don’t go up because companies do well or do poorly. Stocks go up and down depending on supply and demand. If a stock is marketed well enough to create more demand from buyers than there are sellers, the stock will go up. What about fundamentals? Fundamentals is a word invented by sellers to find buyers.

Price-earnings ratios, price-sales, the present value of future cash flows, pick one. Fundamentals are merely metrics created to help stockbrokers sell stocks, and to give buyers reassurance when buying stocks. Even how profits are calculated is manipulated to give confidence to buyers.

I get asked every day to invest in private companies. I always ask the same couple questions. How soon till I get my money back, and how much cash can I make from the investment? I never ask what the PE ratio will be, what the Price to Sales ratio will be. Most private investors are the same way. Heck, in Junior Achievement we were taught to return money to our investors. For some reason, as Alex points out in The Number, buyers of stocks have lost sight of the value of companies paying them cash for their investment. In today’s markets, cash isn’t earned by holding a company and collecting dividends. It’s earned by convincing someone to buy your stock from you.

If you really think of it, when a stock doesn’t pay dividends, there really isn’t a whole lot of difference between a share of stock and a baseball card.

If you put your Mickey Mantle rookie card on your desk, and a share of your favorite non-dividend paying stock next to it, and let it sit there for 20 years. After 20 years you would still just have two pieces of paper sitting on your desk.

The difference in value would come from how well they were marketed. If there were millions of stockbrokers selling baseball cards, if there were financial television channels dedicated to covering the value of baseball cards with a ticker of baseball card prices streaming at the bottom, if the fund industry spent billions to tell you to buy and hold baseball cards, I am willing to bet we would talk about the fundamentals of baseball cards instead of stocks.

I know that sounds crazy, but the stock market has gone from a place where investors actually own part of a company and have a say in their management, to a market designed to enrich insiders by allowing them to sell shares they buy cheaply through options. Companies continuously issue new shares to their managers without asking their existing shareholders. Those managers then leak that stock to the market a little at a time. It’s unlimited dilution of existing shareholders’ stakes, death by a thousand dilutive cuts. If that isn’t a scam, I don’t know what is. Individual shareholders have nothing but the chance to sell it to the next sucker. A mutual fund buys one million shares of a company with your and your coworkers’ money. You own 1 percent of the company. Six weeks later you own less, and all that money went to insiders, not to the company. And no one asked your permission, and you didn’t know you got diluted or by how much till 90 days after the fact if that soon.

When went public, we raised a lot of money that certainly helped us grow as a company. But once you get past the raising capital part of the market, the stock market becomes not only inefficient, but as close to a Ponzi scheme as you can get.

As a public company, we got calls every day from people who owned stock or had bought it for their funds. They didn’t call because they were confused during our road show, were too embarrassed to ask questions and wanted to get more information. They called because they wanted to know if the “fundamentals” – the marketing points – they had heard before were improving. And the most important fundamental was “The Number,” our quarterly earnings (or in our case, a loss). Once we went public, Morgan Stanley published a report on our company, as did several other firms. They all projected our quarterly sales and earnings. Would we beat The Number?

Of course, by law, we were not allowed to say anything. That didn’t stop people from asking. They needed us to beat the forecast. They knew if we beat The Number the volume on the stock would go up. Brokers would tell their clients about it. The Wall Street Journal would write about it. CNBC would shout the good news to day traders and investment banks that watched their network all day long. All the volume would drive up the stock price.

Unfortunately, patience is not a virtue on Wall Street. Every day, portfolios are valued by at closing
price. If the value of your fund isn’t keeping up with the indexes or your competition, the new money coming in the market won’t come to you. It just wasn’t feasible for these investors to wait till the number was reported by companies each quarter. The volume had to be on the stocks in you fund. To keep the volume about a stock up, and the demand for the stock increasing, you needed to have good news to tell.

Volume, The Number, whisper numbers, insiders granting themselves millions and millions of options -
these are the games that Wall Street plays to keep on enriching themselves at the expense of the public. I know this. I have tried to tell people to be careful before they turned over their life savings and their financial future to someone whose first job is to keep their job, not make you money.

Till I read The Number by Alex Berenson, I never had a book that explained how the market truly worked that I could tell my friends, family and acquaintances to read. I never had a book that would truly warn them that the market was not as fair and honest as mutual fund and brokerage commercials made them out to be. I may be a cynic when it comes to the stock market, but I am an informed cynic, and that has helped me make some very, very profitable decisions in the market.

If you are considering investing in the market, any part of it, or if you are considering giving your hard earned money over to someone else to manage, please, please read The Number first.

Mark Cuban, Dallas, Texas, January 2004

Dunno what's up so here's a Business Insider article

Here's BI on the dependency ratios for China, Korea and Japan.

Here's the chart:

And here's what happened in Korea and Japan when the demographic horse turned:

Something to keep in mind.

UPDATE: Had to download the charts from BI because it turns out the fuckers made hotlinking to their hosted pics forbidden. I find that to be quite ironic, considering all Business Insider did was take screenshots from a Morgan Stanley presentation.

Seriously, fuckers: if you're going to post stolen data on your news site, allow hotlinking to said stolen data. Otherwise you're being fucking pricks.

Or at least change the filenames from "screenshot[...].png" and photoshop out the Morgan Stanley name from the bottom left corner.

Friday videos - yet more Still Corners

Giving you the benefit of my experience here.

When you're on a pretty bad drug trip, and you start falling deeper in, and your perception starts spiraling around, and you're basically laying down glued to the floor, and you know you can't get off this ride now so you may as well just lay there, dissociate yourself and just watch from the outside and try to enjoy yourself?

It's sort of like Still Corners.

Thursday, January 10, 2013

A few newsbits

Beyond Brics - short article on car sales and the importance of diesel in India. Yeah, not actionable, but something to keep in mind when people spout of Indian car sales stats. Also important in that India is being fucking stupid subsidizing diesel at the pump; they should instead subsidize through a ration card. That'd help the poor (which is the point of their diesel subsidy) while taking away the rich's free ride.

Bespoke - oil takes out key resistance. That's one downside risk for 2013 - oil prices skyrocketing again. For more on that, look up "choke collar" in any NDD article.

Beyond Brics - Bhanu Baweja from UBS say not so fast, you who are making bets on Indian demographic-driven growth. Hey, I don't think India's a panacea; I think it's there.

Kotok - taxing the poor is buttfuck stupid. He agrees with me, therefore he is a smart person.

And I've been attracting too much attention with this blog recently. I'll be changing the default colours to red text on a magenta background for a while, to help illustrate the concept of keeping your fucking blog layout complaints to yourself.

Kaiser puts the boots to the gun nuts

One drawback of John Kaiser's site is that it's hard to find your way round. So it's only today that I came across this article by him:

On the stupidity, hypocrisy and cynicism of the NRA

Dude, I'm liking this guy more and more. He's purposefully alienating goldbugs.

An example:

[Gun nuts] tend to be loners with delusional, paranoid ideologies barely distinguishable from what is deemed normal in the world of apocalyptic gold bugs.


However, I have a problem with:

the culture of online video violence [is] encouraging a mindset of detachment from reality among young people who have never experienced the horror of actual violence.

I played EA Sports NHL Hockey religiously for ten years, and yet in real life I never became a 100-goal-a-season scoring sensation for the Toronto Maple Leafs. Even today, despite playing Civ4 a lot, I haven't become a world-ruling dictator with an army of wardroids, and despite the time I spent playing Sims 3 my real-life experience has not included living in a mansion full of hot bisexual lesbians.

What to wear at PDAC this year?

So I'm trying to figure out what sort of wackaloon I should try to look like for this year's PDAC (not the Nicaragua seminar Monday - that's serious and I'll dress like a normal for that). t-shirts are hideously fucking expensive - apparently "free trade" doesn't actually exist in Canada, so they charge us something like a 100% tax on t-shirts from the US. So I doubt I'll actually buy any of these. But here's what I had in mind:

Maybe I should wear this at PDAC. After all, it's kinda hopeful, no? What a nice message that would be to the people at PDAC: "If you buy junior mining stocks, you can become one of the 1%!".

That is, if by "1%" it means "fairly rich person" and not "homeless hobo subsisting on toe lint and cold gravel".

I mean, investing in juniors could turn you into one of those too, but that's usually not the intent.

This is the type of t-shirt I usually wear anyway.

In all seriousness, I'm strongly anti-surveillance and anti-tyranny.

Yeah... if I wear this one it'll definitely get me arrested.

But fuck dude, if you wanna be in-your-face, this is the t-shirt to wear!

I say, very witty!


Again, anti-propaganda, the type of thing I'd usually wear.

"Target the Illuminati". Somewhat sinister, but only for those who know the lingo of the movement, so less likely to get me arrested. An update to my CSIS file is still possible, though.

So it's hard to decide. I'll have to think about it. And as I said, they're all unconscionably expensive for t-shirts.

China power demand as NOT a proxy to true GDP

This is what Otto says:

China power demand as proxy to true GDP

The "Peru Electricity Demand vs GDP" post of the other day that showed the close releationship between power demand and GDP growth went down well, with one mailer asking whether I had the China electricity numbers so that a decent stab at the real rate of growth could be made. That mail slipped my mind at the time but I was reminded of it just minutes ago while flicking through this excellent set of charts on China from Reuters (there are loads and they're really good, go see). Here's the power output chart from the set:

There you go: Real, unspun GDP number for China today? 6.4%.

Nope, wrong. In fact, here are several reasons why you're wrong:

1. The China y-o-y power demand growth curve will have a negative component, because China's government is (at least pretending to be) intervening in the industrial sector to shut down marginal (i.e. high-power-consumption low-profit) businesses. All (purportedly) in the name of improving per-unit-power-consumption productivity across the economy. So China's real unspun GDP number today is not 6.4%.

2. If China's transitioning from export to domestic consumption, and from industrial production to domestic services, this will also put a negative component in the y-o-y growth curve, assuming services use less power-per-unit-GDP than industry.

3. This whole "ooh, let's follow the power use for a true GDP measure because China's government lies all the time" thing is so 2009. Since then, the Chinese authorities have heard about it, with the result that now the power consumption numbers themselves have also become massaged.

So as you can see, you're wrong. Neener neener.

Though in the case of a less obfuscated country like Peru, using power as a proxy is probably good - though I'd still ask what the per-unit-of-GDP power intensity of mining is, compared to some other kind of business, cos if most economic growth is in mining you'll this time get a positive skew. (What do you guys do down there for a living besides mine gold and grow oranges, anyway?)

And a great discussion on volatittlety from FT

And the $VIX has collapsed real real good. 13.81 as of right now.

So I bet a bunch of the "anal ysts" you follow have said OMG we're at a top, $VIX can only go up from here, and so on, right?

You can't use the $VIX as a contrary indicator. That's not what it's for.

Here's an article from FT Alphaville, where even the author (Paul Murphy, founder editor of FT Alphaville and long-term journalist) admits he has no fucking clue how $VIX works.

FT has more helpful readers than my blog, or most blogs actually, so in the comments you find several good explanations for the recent collapse of the $VIX.

Here's one:

The calculation for the Vix is the weighted average of all option strikes for which there is a bid price. This makes it quite sensitive to the price of the deep out of the money puts, in that if there is no bid for these "high implied" options (usually about 15% out of the money) then the vix is fairly low as they drop out of the calculation. Alternatively the vix will creep up as bids appear in these options, particularly if there is an upcoming "macro event day" such as the fiscal cliff, debt ceiling, election etc.

Currently we know the market can't crash in the short term as money is free and the debt ceiling is weeks away, hence no bids for the 15+% out of the money puts and a very low vix. Ironically, only a falling price for the S&P will cause the bids to reappear in the OTM puts as the bidders assume serial correlation. 

I.e., the $VIX actually works the other way around - a falling S&P500 is a predictor of upward $VIX moves as OOM puts are bid harder.

And a longer explanation:

More than one reason for this observation of yours. The simplest explanation begins with the fact that equity indices don't generally gap up, while they do gap down. e.g., Rallying markets generally grind up but "take the elevator down". This dovetails with the fact that there is usually more demand for puts than calls (in line with the fact that a large part of the market tends to buy index puts for protection (buy = demand = pushes up prices all else being equal, which means IV goes up) and sell calls as part of an overwriting strategy (sell = supply = pushes down prices (IV) of calls). This results in volatility skew in equity indices (vertical skew) where upside calls are cheaper (based on premium/implied volatility) than downside puts. Therefore, as the market rallies, there is less demand for protection (implied vol of puts goes down). That reduced demand for protection (which reduces the value of the vix) isn't usually offset by massive upside call buying by market participants who don't want to miss out on the upside. Therefore, Its those downside puts in SPX that have the biggest effect on the vix because they generally have higher implied volatility (higher prices) than the equivalent delta call. So while puts and calls may be weighted similarly in the vix calculation, the puts naturally have a bigger effect on its value. So if the SPX sells off and results in greater demand for put protection, the overall vix tends to go up. If SPX rallies and results in less demand for put protection, the overall vix tends to go down.

Where the author even gets cleverer:

Note that you can use this understanding of how the vix works (as a practical matter) as a "tell" in the market [I am not the first person to point this out - Kudos to Tom Sosnoff and his team; I'm also not suggesting anyone make trading decisions based on this tell - how you trade is up to you]. Where the SPX rallies, say, at least 5 points, and the vix not only fails to sell off but actually rallies itself at least .5 point, more often than not the SPX will sell off in the short term (for the sake of argument, lets say the next 1-7 days). The opposite is true as well - if the SPX sells off at least 5 points, but the vix also sells off (say, at least .5 point) more often than not that is a bullish short term signal for SPX. Why so? I suppose one could argue that participants in the options market are more sophisticated and knowledgeable and therefore IV is a better predictor of direction IN THE CASE THAT PRICE (cash SPX) AND IMPLIED VOLATILITY (VIX) DISAGREE.

Basically, then, if I've understood this right, the $VIX is truly not a fear index. It is to a large extent an index of OOM put premium, and while that sometimes is an indicator of fear you still have to make a further assumption to get there. It's best to keep things simple and limit assumptions.

And OOM puts are less bid right now because a big question mark (the US deficit talks, and the fear that Obama might start actually taxing the stinking rich someday) has just been erased. (Plus, y'know, China fixed Europe fixed.)

So basically, if you've been poking through the blogosphere these past few days and your favourite authors have been screaming about how the $VIX indicates a top is nigh, you should probably kick that blogger off your reading list, for they know not what the fuck they do.

Some things to read again

Guardian - now even the IIF admits austerity was wrong. And by Josh Brown's theory of rich white people, that means the political support for austerity is disappearing. Because, of course, rich white people are finding that they lose wealth as a result.

Beyond Brics - will Putin finally get serious on reform? No. No he won't. Don't do business with Russians.

FT Alphaville - nice article on the issue-attention cycle. With links. Try incorporating some sociology into your trading! It's a great field. For example, it's about 5 times more scientific than economics.

Bonddad - grains dropping. That is bullish for EM growth, I guess, since food costs won't escalate so fast. Actually they still will since the market cost has nothing to do with the retail cost... but at least it'll look bullish, right?

Beyond Brics - Vietnam sucks. For Gary.

JC Parets - Richard Russell on gold going to da moon Alice. I'm not completely anti-goldbug; I just feel that if you're going to quote "important people" to support your stupid goldbug argument, you should quote the ones worth listening to, instead of johnny-come-lately fruitcakes and shysters like Eric Bloody Sprott.

Here's Rick Russell's take on gold:

The price of gold in terms of “dollars” has now risen thirteen years in succession.  But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market.  Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.
Yet this amazing bull market in gold stands alone, sneered at and almost hated.  I’ve been in this business for over 60 years, and I’ve never seen anything quite like it. 

However, I do think I know something about human nature.  What I’ve learned about human nature is that it doesn’t change.  For instance, if a stock creeps up year after year, sooner or later the crowd will discover it — and then they’ll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.

My belief is that somewhere ahead, the crowd will latch on to gold.  Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.

To da moon Alice!

Wednesday, January 9, 2013

Goddamn Swedish bastard made me look up music videos from 1981

Damn bastard!

I vaguely remembered Marillion, so I went and looked for them on YouTube, and came across this:

Frankly, Marillion's music doesn't really carry across the ages very well, does it?

By comparison, here's Canadian band Saga from 1981, playing not even one of their hits, but just the first song of the set:

The music ages nicely, though the fashion sense is another story. In case you're wondering, Michael Sadler's not trying to be horribly gay or anything, it's just that Queen was big back then too and... well... nobody told him at the time that it was wrong to act like Freddie Mercury on stage.

He got better.

Anyway, three bits of trivia here are

1) My brother in law once saw Saga open for FM. FM were blown not just off the stage, but off the face of the earth.
2) Ha! I also opened for Nash the Slash from FM once.
3) And I was once using the same studio as Steve Negus, Saga's drummer.

The Canadian music scene is very small.

Anyway, but if you were into music in Canada in 1981, you wouldn't have been as into Saga as you were into Aldo Nova:

Who, despite the leopardskin jumpsuit (WHAT THE FUCK WERE PEOPLE SMOKING BACK THEN), was way rockin.

Or April Wine:

Brilliant, classic song.

Now please get 1981 the fuck out of my head!!!!!

If you've still got enough braincells left to click on my blog, my work is not yet done

So you know how the Federal Reserve is teh ebil, right? And fractional reserve banking, and the global elite?

Well, it's all (...wait for it...) part of (...wait for it...) a (...wait for it...) Satanic (yesss!) conspiracy.

Watch these five videos:

This is your Amerikkka. People stringing together sentences made up of words they only vaguely understand, with childlike moralizing poured liberally over top, with the true intent of constructing apologia for guns and Lord Jesus.

They do this because they've heard of these strange new concepts, can't even begin to understand them, and are frightened by them. The people who speak these strange new words come from some weird alternate reality where there are gays and jews, and where negroes live near white people, and people do yoga and smoke weed and buy things from Yellow China and oh mah lawerd it's all topseh-turveh and where is Jesus in all of this?

More brain cells to kill - Alex Jones on Piers Morgan

Alex Jones had a famous brainfart on Piers Morgan, and you should watch it to inform yourself about what Americans are really like.

As long as Alex Jones is around, FOX News will by comparison remain a moderate source of information.

Just in case you have too many braincells and want to kill a few trillion....

Funny stuff on YouTube about the Newtown CT shooting.

Did you know that nobody got killed, and it's all just a conspiracy by the Rockefellers/Rothschilds/Trilateral Commission/CFR to disarm America before bringing in the one-world government?

Did you know there was a second shooter?

Even better - the Church of Satan is in Newtown!

It was a Satanic Illuminati sacrifice!

Yes, advanced countries can really breed this kind of stoopid. 

In more enlightened societies they lock them up in homes for the retarded or the insane. In the US, though, they give them YouTube accounts.

A few news bits

New Deal Democrat - 2013 outlook part two. Worth a read. He actually extrapolates based on data, instead of the more mainstream practice of pulling stuff out your ass.

Bespoke - the world remains overbought. I guess a healthy pullback here, when it'd scare everyone about some sort of impending doom, would be a good thing to thin the herd, eh?

JC Parets - consumer discretionary losing steam. Well, I guess when you jack up taxes by 2% on the working class and poor, like Osama Fartbongo just did, it really will kill consumer discretionary, no?

BI - some KWN/Sprott type nattering on about India and gold demand. I don't know who Doug French is, but I assume he's just another moron goldbug; but that makes it significant that he has written an article bullish on gold that concentrates on things that really exist (Indian gold demand) instead of on the psychosis of conspiracy theorists (OMG US collapse and teh race warz). That makes it two goldbug loons who've glommed on to the India idea now; I didn't know my blog was so popular!

60 Minutes - India's love affair with gold. A show from last February, referenced by the guy in the article above. Also read the comments, as actual Indians have waded in to clarify what the white trash at CBS News didn't grasp.

Tuesday, January 8, 2013

A few evening reads

Was at the doctor's this afternoon, so I scanned through the news, which I normally don't do til the evening, so here's a few relatively inconsequential links.

FT Alphaville - SocGen on what a Chine hard landing would mean for various assets. Funny that you're a little late to the party, guys. The "China hard landing" scenario is so 2012. Oh well, we'll keep it in mind for the next time China's about to crash.

BI - Alcoa doesn't suck, and thinks China doesn't suck. See, usually Alcoa sucks.

Bespoke - Transports closing in on all-time high. I.e., only 2.3% to go. I.e., tell every single blogger saying "OMG we're topped out doom doom" to go fuck themselves.

FT Alphaville - Greek government can't have a moustache or something. Basically, the European press have found something new to fret about. And Greece is so important, no? What's more important, though, is whether Merkel wants to bother getting re-elected in September: young people across Europe tend to talk to each other, and I doubt the fascist bitch will get anything out of the youth vote if youth unemployment stays high.

Vancouver Cambridge House thing

Oh god, there's the Vancouver Cambridge House thing coming up.

Look at the speaker list.

It looks like they invite everybody and his brother.

I guess there'll be a hundred interviews posted by Kitco by the end of the month.

GDX, GDXJ, and looking under the hood

Don't just use an ETF as an indicator. That's called being a lazy dumbass.

Look under the hood so you can comprehend in detail what it is you're looking at.


OMG iz teh doomz, right?

Wrong, dumbass.

Here's GDXJ:

It's holding on and looks ready to advance off a bottoming process.

What's the difference?

Here's GDX component Goldcorp:

Apparently the market doesn't like the cost creep at Cerro Negro.

And here's Harmony, not a GDX component but still a $HUI component:

They're down cos they're about to walk away from an operating mine in South Africa.

When you account for the impact of those two stocks on the major miners ($HUI and whatever ETF the cokeheads at the "hedge" funds would buy to follow it), GDX's drop to the -2SD line looks like a bottom and not like a continuing collapse. And that puts GDXJ's holding of the mean in a more positive context.

A new hero to worship - Pierre Lassonde from Frankie Goes To Nevada

While back at Cookie's post about the future gold supply shock, I noticed a link to a presentation by Pierre Lassonde from FNV at the Denver thingie.

I figured, since this guy's made money on gold, why not watch it?

Here's a link to his 20-minute video and powerpoint presentation.

Tangentially, I can also give you a link to a print interview of Lassonde on diamonds, which is more useful than it seems because he also says a bit about gold exploration.

Funny 'nuff, do you remember that chart that all the good analysts like to use, where the price of an exploreco skyrockets up on discovery, then falls back down for a few years, then only goes back up upon start of production? It looks a bit like this:

It's called "The Lassonde Curve".

Or at least Pierre Lassonde says it it's called that.

And who is the Journal of Economic Geology going to believe?

Lupaka and the art of reading what's unsaid.

Lupaka was digging itself out of its December price collapse this month. I thought that interesting. Wondered who was buying and why.

Well, here's this morning's Lupaka news release. Which I guess was expected by some, but not as far as the details were concerned.

Um, Eric? Can you answer a question for me? Whatever happened to the A2-A4 zones? The ones you were going to have drilled already? Cos all this NR seems to be telling me is that you sunk a new hole to the north at A1 and found a marginal 12m interval under a mountain.

I kinda thought nothing would come out of A2-A4 anyway, since they already started talking up Invicta - sorta like they were going to use that as a fallback in case A2-A4 were dusters.

So who is "Otto Rock", anyway?

Saw some intriguing searches on my blog this morning:

All of a sudden somebody cares!

Tuesday morning news

FT Alphaville - zombie credit mispricing. I got one of those "eureka moments" reading this. The article seemed to suggest to me an interesting macroeconomic principle: that the collapse of all debt yields to zero might just be a result of the moral hazard inherent in government backstopping. If you're an economist about to write a paper on this, you now have to carry me as a co-author.

Bonddad - overlooking the contribution of financial bloggers. Brilliant, and well in line with my general snit: the major economists were all fucktards who failed to see the housing bubble bursting, while the financial bloggers were all over it. Hale Stewart goes one further, and suggests the blindness of the "respected economists" could have been expected, since they've never had to put on a trade based on their little pet theories. Again, as I've said, always be prepared to jettison theory when it's wrong (i.e., when it loses you money).

Beyond Brics - Egypt is a clusterfuck. I'm only putting this out there if you want to play disaster-trading; EGPT is the ETF, and while it looks healthy now, maybe soon you'll be able to buy it after a 75% collapse?

Bloomberg - Will Japan's pension funds start buying gold? Well, if the Yen is devaluing, it seems like a good idea, no? And there's a lot of money there to pile in. And once they start piling in, it'll drive a virtuous cycle. Something to fantasize about.

Biiwii - on Apple. My own opinion? On the one hand, Apple could be worth even more than $600 per share if they execute things right. One the other hand, the various stories I've read suggest that Steve Jobs was a commonsensical and hands-on leader who single-handedly stopped the company from multiple embarrassing failures (like the time he forced them to change all their iPhone screens a few weeks before product launch because he had a prototype in his pocket and his keys had scratched up the screen); now that he's not there, the possibility of idiotic screw-ups has increased dramatically.

Also, tangentially but significantly, Apple is almost entirely fund-owned; retail has nothing to do with it. So you can't use rational thinking to determine where Apple's price is going to go.

And for some humour:

Fark - Subby just found out he is going to be a father today. What sage advice/snark do you have for the future dad? Among the useful suggestions re impending fatherhood:

  • Keep her off the pole.
  • Don't smell the umbilical cord stump.  Trust me on this.
  • Dishsoap will get puke and poop out of most fabrics.
  • Paternity test
  • Give the kid a name that doesn't suck.
  • Pull out next time.
  • Wait until he's at least five or six before his first tattoo.
  • The pageant world will teach her positive life skills that she will use in the real world.
  • If you drop your kid, blame it on the dog.
  • Sell it on ebay.
  • Don't forget to eat the placenta!!

Monday, January 7, 2013

Two things from Otto

Haven't posted today, other things to do.

I should really get around to writing that review of John Kaiser's website, especially since it seems the entire retail goldbug community has quit their shitty newsletter writers and all signed up with him. Otherwise I can't explain the sudden interest in NGE, a stock with an interesting story and oh such a nice hydrogeology database, but otherwise still a big pile of dirt with zero gold.

But it's taking off, quite nicely, so what the hell.

Anyway, two things from Otto:

IKN - The cost of building a mine in Argentina, Goldcorp (GG) Cerro Negro edition. So... where is all that gold going to come from? Y'know, that gold that all of Asia is buying? Y'know, when it's impossible to build a new mine because of the batshit huge year-to-year cost creep?

And something he forwarded to me:

Katchum - gold supply on gold price. The fellow has nice charts, and actually understands the concept of supply and demand. However, I wouldn't read his other articles too closely, since he seems to follow the writings of Sprott, Bass, Schiff, Faber, Turk, Morgan - the entire clown-car of ZeroHedge pundits. But he does put up good charts.

Sunday, January 6, 2013

SMBC on economics

Saturday Morning Breakfast Cereal continues its long downward spiral from the heady heights of dick jokes to the ironic proletarian seas of intellectual commentary:

As an illustration of what I mean, here's comic #12, from oh so many maybe something like seven years ago:

China and gold, re an old comment by comet52

Back in December, during one of many recent PM smackdowns by the globalist elite and their lizard-people stormtroopers (aided of course by chemtrails and Osama Fartbongo's secret UN armed invasion force), I posted a commiseration link to Andy Maguire's comments on King World News.

Anyway, user comet52 commented:

Funny, I read that before you posted the link. Somehow stumbled into the mud by accident which I don't usually do. The value in Shanghai might be high because the people there live in a kleptocracy with a failed banking system and a government that can and does devalue one's assets on a whim

As far as gold is concerned, I'm unsure if I've ever clearly stated before that the above is the entire basis of my opinion re China and gold.

I'm generally ignorant about Chinese culture and try to keep my biases out of the thesis, but this is what I gather is the background of wealth management in China:

1. Chinese people consider it vital to prudently save money. They also have a long view of history.
2. China had a few decades of civil war last century. There was also military occupation here and there by the roundeye barbarians and later the Japanese; then consolidation under Mao; then cultural revolution, etc.; I'd assume all this was bad for wealth retention.
3. Modern Chinese banking, while a damn sight better than the anarchy before, has still been typified by a repressive savings rate policy that guarantees losing money to inflation. Meanwhile their stock market is recognized domestically as a crooked game and their WMPs are structured to follow the very definition of "Ponzi".
4. Some Chinese are making a lot of money right now. They want that wealth to go somewhere safe. But not all into Toronto real estate.
5. Chinese people think things are more true when they are organized into five precepts.*

So if you're a newly-rich Chinese communist party kleptocrat, or even just an intelligent working stiff who's saved up a big pile, where are you going to put your wealth? With a long view of history you might conclude that Chinese fiat isn't dependable, equities aren't dependable, bank deposits aren't dependable, domestic real estate isn't dependable, private business isn't dependable.

China is really a loony ZeroHedger survivalist goldbug paradise: a government with a recent historical record (and therefore future possibility) of collapse, confiscation, anarchy, persecution, deprivation and murder. I.e., it really is what paranoiacs like Casey and Sinclair think the USA is.

Gold isn't extremely dependable, but at least it'll always be worth something, it's harder for governments to confiscate, and you can carry a few pounds of it onto a plane and fly it out to your new condo in Toronto.

Thus, above, the entire argument for gold demand in China.

Now, I'm looking at what I just wrote, and thinking.

When these Chinese people with all the money get old, what's going to happen to the price of gold? Age-rollover usually is associated with real estate crashes and bear markets in equities; China is coming up against a huge age rollover in 2015 or so; if gold is being used as the same kind of store of wealth as real estate, then maybe that gold will start to get sold back into the market.

Then gold descends to the marginal price of production, barring any increase in demand from India, Indochina or the Middle East. Middle East demand should drop as the oil boom dies off (have you been following US developments on shale oil and gas?); Indochinese demand drops if a collapse in the Chinese economy takes out their economies as well.

But then if EMs collapse, mining costs go down (cos a lot is mined in the EMs), so the marginal production cost of gold goes down.

That seems like a painting in broad brushstrokes that could just make some money at auction.

So I'm not saying gold is dead; it should see a resurgence in 2013.

But if you feel that this 2015 Chinese demographic rollover story is possible, then it might be good to prepare, no?

Certainly most of the goldbug newsletter writers out there had better start thinking about what they want to do when they grow up. Cos if they don't like how mommy and daddy have been treating them since the Puke of PDAC 2011, they sure ain't gonna like it when they come home one rainy day a couple years from now and find their possessions in soggy cardboard boxes on the lawn, and the locks changed on the doors.

That could happen by 2015, so you'd better start familiarising yourself with tech stocks for when the time comes.

* - Did they nick this from the Discordians, or was it the other way round?

Some Sunday newglobules

Bonddad - John Cornyn is an idiot of the highest ordure. Nothing actionable, just that Hale Stewart and New Deal Democrat are the people you go to if you want to cleanse your head of the utter bullshit that the LameStream media spreads about US deficit spending.

New Deal Democrat - weekly indicators. Always good to check in with him every week for the state of the US economy.

Bonddad/New Deal Democrat is the first and best item you should have in your RSS feed.

Kiron Sarkar - 2013 outlook and forecast. As I've noted several times, I think Sarkar hasn't a clue about Europe: I think he could learn a lot by reading through his own posts of the last 18 months and noting all the places he got the Eurocrisis wrong.

Because, e.g., he's been harping about Spain and Greece defaults for a while now and they haven't been happening. At some point you have to give up on a call, no matter how sensible it seems; that bullheadedness makes me leery of following Sarkar too closely.

But otherwise, I generally trust Sarkar's gut feelings, and still think he's the best free macro analyst I've yet come across. Again, definite RSS material, as long as you can put up with all the other trash on Ritholtz's feed.

And at least Sarkar is sometimes honest. Here's his outlook for gold, with his self-aware caveat at the end:

I do not believe that inflation will be a problem, especially in H1 of this year and, in particular, in DM’s. As a result, with improving growth in DM’s, I really do not see gold prices rising, ex any geo political issues. Furthermore, the latest FED minutes, which suggest that QE could be reduced, indeed stopped, in H2 this year is US$ positive, which generally is negative for gold. However, I have never understood or, indeed, really ever traded gold.

It's good for him to admit that to himself, because he'll be saving a lot of money. Because gold demand is now based on EM wealth growth which is dependent on global GDP growth, and gold supply is dwindling; and when dwindling supply and growing demand put their boy-parts and girl-parts together, with sufficient funkay, I would expect that they could soon give birth to rising prices.

BI - Fed's Bullard does some fingering in 2013. No seriously, it's about that new fear shaking the US to the depths of its cavernous transverse colon that QE will end and OMG iz 1994z!

That's the blather. By contrast, here's the moderate, thoughtful and intelligent truth:

"If the economy performs well in 2013, the Committee will be in a position to think about going on pause" with the asset buys, St. Louis Fed President James Bullard said on CNBC television. "If it doesn't do very well then the balance sheet policy will probably continue into 2014."

I bolded and underlined the part that the Wall Street cokeheads and their rentboys in the media aren't paying attention to. I.e., QE will get reined in once the US economy no longer needs it.

By the way... 1994? Really? That's the fucking fear? I'm playing a little side-game right now that involves looking at stock price history, and 1994 was a very good year for the stocks you'd have wanted to own. Look at the charts for BBY, DELL, OXY, ORCL, POT, MO, AMGN or EA - all gave you fantastic chances for trades. Sure the broader market did nothing special that year; but then in 1995 it went up 50% for fuck's sake. And after that it kept going up. Because the US economy was healthy.

So if the S&P went horizontal for all of 2013, the way it did in 1994, that would be the opportunity of a lifetime for the professional investors to dump all their cash and go all-in for equities. Does this sound like something you should fear?