The old cliche 'when America sneezes the world catches cold' still holds true. Look at the damage we did to the world with our housing and credit bubble, and subsequent crash. In the past decade or so the world has morphed into a single organism, a collection of interdependent countries thanks to cross-border trade. With countries such as the USA outsourcing it workforce to Asia, and financial markets becoming increasingly fungible across geographies, the knock-on effect of an event in one country can be devastating. The earthquake and tsunami in Japan earlier this year, for example, is still reverberating through supply chains and damaging revenues globally.
So, when I read today in the FT that property development in China is looking shaky I got a chill. There are half-built luxury residential properties dotted throughout China's largest cities, and demand for these apartments has all but dried up. If developers are forced to reduce the prices on them in order to sell, it could have an immediate impact on sky-high real estate prices across China. The knock-on effect of this could be significant. Demand for steel, cement, copper and other building materials could hammer prices globally. For a start, China is the world's largest consumer of steel and, according to the FT, real estate construction accounts for 40% of China's steel use. And because China hoards building supplies its demand for fresh stock could languish for years.
If a housing collapse could flatten the US economy, it could surely do the same for China. If China slides into recession - and I'm being kind, analysts think that it will have a hard landing - we could see the biggest knock-on effect yet. Global recovery would stop dead, and the worst-off economies (Greece, Italy, Spain, etc.) would teeter off the cliff. The US would sink like a stone - China is the largest investor in US treasury bonds, and further investment would likely be curtailed if it fell into recession.
I am not an analyst, but sometimes the writing is on the wall and this is written in neon. I think my 401K is about to be converted to cash.
Friday, September 30, 2011
Friday, August 19, 2011
High Frequency Trading and Your 401K
I have had a few people asking me lately about this phenomenon called high frequency trading or HFT. They are - quite rightly - concerned about their 401K's and their stock portfolios, and have been reading some of the sensational headlines about HFT causing the market plunges.
As a reporter, I started covering HFT and algorithmic trading about 10 years ago, so I know a little bit about it. Quite simply, it is electronic trading of stocks and other automated instruments such as oil and corn futures. What high frequency traders do is build clever computer programs, called algorithms, to dip in and out of these markets and shave off a penny here and there. If they do it enough times - and they do - they can make quite a bundle.
What is not entirely clear at this point is whether they are ripping off the average investor. My retail brokerage has a low latency trading platform, so in theory it stands a fighting chance of getting me a good price at any given moment. Having said that, last week when Apple shares were puking I put in an 'at market' bid (I know, stupid, but I'm lazy) when Apple was at $363 - I got filled at $366.79. Quite a difference, even though it was done in seconds - seemingly instantaneously. HFT's, however, can get a deal done in less than a millisecond - some a lot less because their trading machines sit right next to the exchanges' machines.
The jury is out whether regulators will throw their weight around and try to control HFT. The reason? That is where the money is. When the firms that own the big HFT machines trade more than 50% of the equities market volume, there is bound to be some pushback. My advice is this: if you can't watch your investments on a VERY regular basis - not daily but all day long - you are bound to get trampled when the machines take over. Once those magic stop-loss numbers are hit, they will sell all the way down. Until the computer says it is time to buy, that is. In the meantime you will be crushed.
As a reporter, I started covering HFT and algorithmic trading about 10 years ago, so I know a little bit about it. Quite simply, it is electronic trading of stocks and other automated instruments such as oil and corn futures. What high frequency traders do is build clever computer programs, called algorithms, to dip in and out of these markets and shave off a penny here and there. If they do it enough times - and they do - they can make quite a bundle.
What is not entirely clear at this point is whether they are ripping off the average investor. My retail brokerage has a low latency trading platform, so in theory it stands a fighting chance of getting me a good price at any given moment. Having said that, last week when Apple shares were puking I put in an 'at market' bid (I know, stupid, but I'm lazy) when Apple was at $363 - I got filled at $366.79. Quite a difference, even though it was done in seconds - seemingly instantaneously. HFT's, however, can get a deal done in less than a millisecond - some a lot less because their trading machines sit right next to the exchanges' machines.
The jury is out whether regulators will throw their weight around and try to control HFT. The reason? That is where the money is. When the firms that own the big HFT machines trade more than 50% of the equities market volume, there is bound to be some pushback. My advice is this: if you can't watch your investments on a VERY regular basis - not daily but all day long - you are bound to get trampled when the machines take over. Once those magic stop-loss numbers are hit, they will sell all the way down. Until the computer says it is time to buy, that is. In the meantime you will be crushed.
As Kyle Reese said in the Terminator movie: "Listen, and understand. That terminator is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until you are dead." Or broke.(Thanks for the line, Tim!)
Monday, July 18, 2011
Removing the Taint of News of the World
When it became public in 2007 that Rupert Murdoch's News Corp had taken over my one-time employer Dow Jones I was horrified. First because I used to work for Dow Jones. Second because I was then working for Financial News, which a year prior had been taken over by Dow Jones, which meant I was now somehow working for Murdoch's evil empire. And third, because Dow Jones and the Wall Street Journal were some of the last bastions of solid, honest financial news and I knew that Murdoch would damage that reputation. Luckily Murdoch's first move was to axe freelance budgets so I lost my Financial News gig. I was relieved not to have to watch from the inside as News Corp's culture slowly changed Dow Jones into a sensationalist stream of headlines; and the WSJ into USA Today with a fuzzy business angle.
I was saddened but not surprised that the Bancrofts, the ruling family board of Dow Jones, would sell to such a notorious publisher as Murdoch. The original phone hacking scandal was out there in 2006, so the Bancrofts had to have known what kind of company News Corp was. But money is money, and that is what they wanted. This generation of Bancrofts had never been interested in the newspaper business, only that the share price remained stable so that their fortunes were safe. (One of my favorite tales of the Dow Jones Board came from a London sales VP who attended a meeting. She said that one Board member got so bored that she rolled up her cardigan to use as a pillow and went to sleep on the boardroom floor!)
Some of my ex-colleagues at DJ were actually thrilled about News Corp, simply because they were hoping Murdoch would throw some money back into the company after years of the Bancrofts sucking it dry. I doubt that they are now so thrilled.The Bancrofts are now saying that they would not have sold to Murdoch if they had known about the extent of the phone hacking scandal. Murdoch's own senior executives who were in charge at the time claimed they didn't know either. This is absolute rubbish. I have never worked for an editor who was so bad as to not know where our stories came from - and I have worked for some clueless editors.
It may be pure schadenfreude but I am pleased that News Corp's true colors are being shown. News Corp, The Sun, NOTW, and now even The Times give journalism a bad name. There may yet be hope for the WSJ, since the Bancrofts’ agreement with News Corp included a clause to preserve the integrity not just of Dow Jones, but of all the company’s “publications and newsgathering services,”says the New York Times. A special Dow Jones committee, created to assuage concerns over News Corp tainting Dow Jones and the WSJ's journalistic integrity, is reportedly keeping an eye on the evolving phone hacking situation. But the committee, which inexplicably includes Nicholas Negroponte, co-founder of the Media Lab at the Massachusetts Institute of Technology, is largely toothless. But the rest of the media world is not, and it is pissed off. I think Rupert Murdoch should be afraid, very afraid.
I was saddened but not surprised that the Bancrofts, the ruling family board of Dow Jones, would sell to such a notorious publisher as Murdoch. The original phone hacking scandal was out there in 2006, so the Bancrofts had to have known what kind of company News Corp was. But money is money, and that is what they wanted. This generation of Bancrofts had never been interested in the newspaper business, only that the share price remained stable so that their fortunes were safe. (One of my favorite tales of the Dow Jones Board came from a London sales VP who attended a meeting. She said that one Board member got so bored that she rolled up her cardigan to use as a pillow and went to sleep on the boardroom floor!)
Some of my ex-colleagues at DJ were actually thrilled about News Corp, simply because they were hoping Murdoch would throw some money back into the company after years of the Bancrofts sucking it dry. I doubt that they are now so thrilled.The Bancrofts are now saying that they would not have sold to Murdoch if they had known about the extent of the phone hacking scandal. Murdoch's own senior executives who were in charge at the time claimed they didn't know either. This is absolute rubbish. I have never worked for an editor who was so bad as to not know where our stories came from - and I have worked for some clueless editors.
It may be pure schadenfreude but I am pleased that News Corp's true colors are being shown. News Corp, The Sun, NOTW, and now even The Times give journalism a bad name. There may yet be hope for the WSJ, since the Bancrofts’ agreement with News Corp included a clause to preserve the integrity not just of Dow Jones, but of all the company’s “publications and newsgathering services,”says the New York Times. A special Dow Jones committee, created to assuage concerns over News Corp tainting Dow Jones and the WSJ's journalistic integrity, is reportedly keeping an eye on the evolving phone hacking situation. But the committee, which inexplicably includes Nicholas Negroponte, co-founder of the Media Lab at the Massachusetts Institute of Technology, is largely toothless. But the rest of the media world is not, and it is pissed off. I think Rupert Murdoch should be afraid, very afraid.
Friday, June 24, 2011
The Silly Season in America; No Tennis or Pimm's
The Silly Season has begun. In England this season involves regattas and tennis and Pimm's at garden parties and everyone in the City is either a little bit hungover or on holiday. The papers are full of silly headlines involving the Queen or Fergie or shenanigans at Wimbledon. Here in America the Silly Season begins with dozens of little known Republican politicians declaring their candidacy for President. They shout and whinge about the economy, about jobs and about how terrible it is for the average American to pay $4.00 a gallon for gasoline while they walkie-talkie their limo drivers to wait out front.
Americans like cheap gasoline. They believe it is their God-given right to have cheap gasoline. They drive to the local corner market when they could walk, and they leave their engines running (even when the temperature outside is a tepid 70F as it was here last week). They buy pickup trucks and never use the back of them to carry anything but the family dog, while getting 15 miles to the gallon. They drive ATVs around and around my house in Maine, making me rethink my gun-control stance. They drive from NYC to northern Maine - an 8 hour drive - for a long weekend (they are renting said house).
The confluence of these two things - silly politicians and average Americans whinging about gasoline prices - led to the silliest of silly things yesterday. President Obama announced he had authorized the release of oil reserves from our SPR and from the IEA's stocks. We are to receive the 'gift' of 30 million barrels of US crude from the SPR and 30 million from the IEA. Oil prices puked, despite much head-scratching. US consumption is close to 20 million barrels per day, so that's a day and a half's worth from the SPR. The IEA link is more surprising, but it could be that it to try and hammer down the unnaturally high Brent/WTI spread.
I heard that the news of the SPR/IEA release leaked out (probably in Europe, the IEA has to notify the producing/holding nations before tapping its reserves). Some oddly anomalous spread trading was noticed about a week before the announcement. There's one for you Commissioner O'Malia....
Americans like cheap gasoline. They believe it is their God-given right to have cheap gasoline. They drive to the local corner market when they could walk, and they leave their engines running (even when the temperature outside is a tepid 70F as it was here last week). They buy pickup trucks and never use the back of them to carry anything but the family dog, while getting 15 miles to the gallon. They drive ATVs around and around my house in Maine, making me rethink my gun-control stance. They drive from NYC to northern Maine - an 8 hour drive - for a long weekend (they are renting said house).
The confluence of these two things - silly politicians and average Americans whinging about gasoline prices - led to the silliest of silly things yesterday. President Obama announced he had authorized the release of oil reserves from our SPR and from the IEA's stocks. We are to receive the 'gift' of 30 million barrels of US crude from the SPR and 30 million from the IEA. Oil prices puked, despite much head-scratching. US consumption is close to 20 million barrels per day, so that's a day and a half's worth from the SPR. The IEA link is more surprising, but it could be that it to try and hammer down the unnaturally high Brent/WTI spread.
I heard that the news of the SPR/IEA release leaked out (probably in Europe, the IEA has to notify the producing/holding nations before tapping its reserves). Some oddly anomalous spread trading was noticed about a week before the announcement. There's one for you Commissioner O'Malia....
Tuesday, June 21, 2011
Guest Post: The Story of the Carolina Wren
This was written by my Mum, Jeanne Wold. The bird's lessons should replace many a firm's 'mission statement'. Enjoy.
"When Spring arrived in Tellico Village, TN my husband, Just, moved his stained glass workshop out of the sun porch and into the garage. A few days later he noticed a small, brown bird flying around the space, then leaving. A short time later the bird came back with a twig in her mouth and landed on a plastic magazine shelf above the worktable. She made several trips despite Just's attempts to shoo her outside. She was making a nest.
Before he left the garage, Just tore out the nest and put it in the rubbish barrel. Back the little bird came the next time the garage doors were open. Again, Just destroyed the nest. This went on for several days. Every time the doors were left open the little bird was hard at work building another nest. It was evident that the persistent little Carolina Wren was building this nest where she wanted to, come hell or high water!
By this time Just was won over. Whenever he closed the doors he left one garage door open up high enough for the little wren to walk under and then fly to her nest. Although her mate was a frequent visitor, he never came into the garage unless he could fly in or out through a wide open doorway. Instead he stood guard outside while the mom did all the work.
One day I was surprised to see the mom-to-be land on my desk in the office upstairs, with a twig sticking out on both sides of her beak. She sat there for a moment and then retraced her flight path through the master bedroom and out of the terrace on the second floor. At the time I surmised that she must have mistakenly flown in the wrong door. However, maybe we had forgotten our agreement and had closed the garage doors tight. Could that have been? Was she reminding me? Yes, indeed. There was no opening for her to enter the garage.
As little and cute as this bird is she has a piercing call; one day last week she let out several screeches as she sat beside her nest. We knew that she had finished laying her eggs and the next phase had begun.
Both Just and I enjoyed this experience immensely. Our little messenger has taught us the following: She knows exactly what she wants and how to go about getting it. She shares her enthusiasm with others and invites them to participate. She makes each of us an intricate part of the plan by keeping us up to date on the progress and alerts us whenever we are forgetful. She never for a minute puts aside her goal and - happily - we make her goal our goal."
"When Spring arrived in Tellico Village, TN my husband, Just, moved his stained glass workshop out of the sun porch and into the garage. A few days later he noticed a small, brown bird flying around the space, then leaving. A short time later the bird came back with a twig in her mouth and landed on a plastic magazine shelf above the worktable. She made several trips despite Just's attempts to shoo her outside. She was making a nest.
Before he left the garage, Just tore out the nest and put it in the rubbish barrel. Back the little bird came the next time the garage doors were open. Again, Just destroyed the nest. This went on for several days. Every time the doors were left open the little bird was hard at work building another nest. It was evident that the persistent little Carolina Wren was building this nest where she wanted to, come hell or high water!
By this time Just was won over. Whenever he closed the doors he left one garage door open up high enough for the little wren to walk under and then fly to her nest. Although her mate was a frequent visitor, he never came into the garage unless he could fly in or out through a wide open doorway. Instead he stood guard outside while the mom did all the work.
One day I was surprised to see the mom-to-be land on my desk in the office upstairs, with a twig sticking out on both sides of her beak. She sat there for a moment and then retraced her flight path through the master bedroom and out of the terrace on the second floor. At the time I surmised that she must have mistakenly flown in the wrong door. However, maybe we had forgotten our agreement and had closed the garage doors tight. Could that have been? Was she reminding me? Yes, indeed. There was no opening for her to enter the garage.
As little and cute as this bird is she has a piercing call; one day last week she let out several screeches as she sat beside her nest. We knew that she had finished laying her eggs and the next phase had begun.
Both Just and I enjoyed this experience immensely. Our little messenger has taught us the following: She knows exactly what she wants and how to go about getting it. She shares her enthusiasm with others and invites them to participate. She makes each of us an intricate part of the plan by keeping us up to date on the progress and alerts us whenever we are forgetful. She never for a minute puts aside her goal and - happily - we make her goal our goal."
Thursday, June 9, 2011
Saudi Arabia and the Price of Oil
Yesterday's OPEC meeting ended with the Saudis being outvoted on raising production. This is a double-edged sword for the Kingdom, which is pumping billions into jobs and mosques in a bid to avoid a popular uprising. The Arab Spring, which started with Facebook and ended with Egypt, Tunisia, Syria, and Yemen in tatters, won't come to Saudi as long as the money holds out. A trader told me that Saudi tried to look like the "good guys" in yesterday's OPEC meeting, cajoling and pushing to raise the production ceiling. In truth, Saudi is angry with the US for supporting all the riff-raff rebels in the Middle East and loves that the current high price of oil is hurting the US economy. According to analysts, if Saudi keeps up its social and religious investments to keep the peace, the price of oil has to reach $300 a barrel to support it. Take that, American infidels!
And, although US demand for oil is said to be quite a bit below normal, you wouldn't know it on the road. I've been on Route 95 from MA to ME and back a bit lately and I haven't seen so many huge RVs in years. One caravan of about 10 RVs came all the way from Oregon - imagine their collective gasoline tab. And up in the North Woods of ME our peace and quiet was repeatedly interrupted by kids on ATVs going around in circles for hours. If Americans continue to believe that cheap oil is a national entitlement then the Saudis will get their wish. I'm putting a bet on at Ladbrokes that we reach $300 by the end of the decade.
And, although US demand for oil is said to be quite a bit below normal, you wouldn't know it on the road. I've been on Route 95 from MA to ME and back a bit lately and I haven't seen so many huge RVs in years. One caravan of about 10 RVs came all the way from Oregon - imagine their collective gasoline tab. And up in the North Woods of ME our peace and quiet was repeatedly interrupted by kids on ATVs going around in circles for hours. If Americans continue to believe that cheap oil is a national entitlement then the Saudis will get their wish. I'm putting a bet on at Ladbrokes that we reach $300 by the end of the decade.
Monday, May 16, 2011
Beware the Rush to Go Public
Today's rumors that Facebook is rushing to IPO are not surprising given that LinkedIn does so on Thursday. These are two of the biggest scams I have seen since the dot.com bubble pre-2001. Airware is what we used to call it when a company has little that is tangible to offer. But the public is familiar with what Facebook and LinkedIn do at least, so let the buyer beware.
Would that this were true with prospective investors in Glencore, the company born of Marc Rich and Clarendon (anyone remember that name?).Glencore is now wrapped up in a package that has pretty pictures of mining and metals all over it, but under the gift wrap it remains a speculative commodities trading company. The deals that it makes in some of the dodgiest regimes will be - ahem - difficult to achieve when it is under the public microscope. It therefore has to be said that making money for Glencore will be more of a challenge going forward. A trader tells me that he knew Glencore was serious about floating when it suddenly had a shiny new website. Previously, Glencore's website had a couple of office addresses and generic phone numbers.
So, what are we to make of Vitol's fancy new website? Last year when I was looking for a media relations contact there was nothing more than a phone number on the site, along with a couple of sentences describing Vitol as one of the world's largest oil trading companies. Now it has chapter and verse of what it does, along with THREE media contacts. Hmmm.
Would that this were true with prospective investors in Glencore, the company born of Marc Rich and Clarendon (anyone remember that name?).Glencore is now wrapped up in a package that has pretty pictures of mining and metals all over it, but under the gift wrap it remains a speculative commodities trading company. The deals that it makes in some of the dodgiest regimes will be - ahem - difficult to achieve when it is under the public microscope. It therefore has to be said that making money for Glencore will be more of a challenge going forward. A trader tells me that he knew Glencore was serious about floating when it suddenly had a shiny new website. Previously, Glencore's website had a couple of office addresses and generic phone numbers.
So, what are we to make of Vitol's fancy new website? Last year when I was looking for a media relations contact there was nothing more than a phone number on the site, along with a couple of sentences describing Vitol as one of the world's largest oil trading companies. Now it has chapter and verse of what it does, along with THREE media contacts. Hmmm.
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