The Big Picture

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• Drones: A Booming Business?
• WTF Were They Thinking?
• Look Out Below, Cyprus Edition
• The “Fix” Is In for Gold and Silver Prices?
• How I Was Hacked
• Coming Back to Life: The Housing Market’s Vital Signs
• 12 Cognitive Biases That Endanger Investors
• 10 Sunday Reads
• The Right Skill Set

Drones: A Booming Business? Posted: 18 Mar 2013 03:30 AM PDT Unmanned aerial vehicles, also known as drones, may soon become commercialized. In Grand Forks, N.D., people are preparing for a coming boom in drones-related business. March 17, 2013

WTF Were They Thinking? Posted: 18 Mar 2013 03:00 AM PDT That's our System 1 (fast) thinking  kicking in after hearing the news of the Cyprus bail-in of depositors.  Our fast thinking really fears contagion and makes us want to vendere la casa!   We often get into trouble trading with System 1 thinking. Our System 2 (slow) thinking is more analytical and raises the following questions before we jump on the bandwagon with those who think the Cyprus bail-in is tantamount to financial thermonuclear war. 1)   Can a country with a GDP ($23 billion) only 1/10th the size of Detroit, Michigan  or one half of Tulsa, Oklahoma be a systemic risk to the global economy and clip, say,  $300 billion in value, off the U.S. stock market?   Seriously doubt it.   Detroit, for example, is on its way to bankruptcy and you hardly hear a peep from the Euro Bears or their American comrades. 2)   Will depositors in Italy, Spain, and Greece view their banking systems similar to Cypress and move their money?   That's the biggest risk, but no doubt the ECB will be there to provide the liquidity if they do.   Furthermore,  it is doubtful the OMT mechanism will include a depositor bail-in.  If I were an Italian, Greek, or Spanish depositor, however, and saw a bunch of Russians lining up at my bank,  then I'd be a little more scared.   No doubt some bank depositors will withdraw and ask questions later.  Will it be enough to overwhelm the ECB?  Nope. 3)  Would Cypriot depositors have lost more money by leaving the eurozone and suffering a currency devaluation?   We think so,   Ask the Venezuelan depositors  who had their currency devalued more than 40 percent a  couple weeks ago.   Then compare to the 6-10 percent deposit tax.  Seriously, folks, do you think Germans bailing out Russian depositors was really an option? 4)  Is it unprecedented?  No.  Here's a headline from a few years back: Banks Shut By Brazil For 3 Days AP, March 14, 1990 Brazil's central bank closed the nation's banks late today for the rest of the week until an emergency economic package is announced by President-elect Fernando Collor de Mello. The three-day bank holiday was decreed at the request of Zelia Cardoso de Mello, the nation's new Economic Minister, who is to take office on Thursday with the new President 5)  Could the deal have been structured better?  Absolutely.  Remember, the EU went through several painful iterations before completing the Greece PSI deal.   The first Greek haircut was not really a haircut and actually increased the country's interest costs and it was clear those who financial engineered the deal had absolutely no idea what they were doing.   See here.   Cyprus should be no different.  We doubt what we have seen is the final deal.   Don't expect the Eurocrats to deliver a clean first deal. 6)  Were markets overbought going into the weekend?   Very overbought.  The Nikkei, Dow, and Russell 2000 had RSIs over 70.   The Cyprus news gave markets an excuse to sell. 7)  Is it now risk off and a new bear market?    First,  risk on/risk off is so 2012.  Take a look of the returns this year.  Money is flowing into U.S. equities and some select countries with weak currencies,  mainly Japan and the United Kingdom.  The emerging markets are performing poorly, the BRICs are dogs, and commodities are doing nothing.   Risk on is now about as vogue as snail mail and for non-Twits.  In fact, the Cyprus deal only reinforces the 2013 trade.  The U.S. and its large cap stocks will be now viewed even more as a safe haven, in our open. Second,  we seriously doubt Cyprus' $20 billion economy is going to derail the fundamentals that have been driving the U.S. stock market.   Will it end fracking and cheap energy?  Derail the housing market?  Cause the Fed to remove quantitative easing prematurely and raise interest rates?   Get frickin' real, comrades. Finally,  could it dislodge some stock and cause some real selling?  Of course,  and probably some at the U.S. open by traders who were too long or leveraged.  Will the buyers disappear?  We doubt it but they may pull their bid to buy lower. The S&P futures are down over 20 points as we write.  We're not buying French dips but will buying this sell-off when it turns.   Could be wrong and always with a stop.

Look Out Below, Cyprus Edition Posted: 18 Mar 2013 02:40 AM PDT click for updated futures   Cyprus, according to the CIA factbook, is a former British colony with a population of 1,138,071 people, 77% of whom are Greek. The tiny island nation rarely moves markets, but is at the center of today’s weakness, as fears that Cyprus could kick off of the next European crisis. The Euro fell 1.1%, as the dollar rallied as monies poured into US Treasuries as a safe haven. European stocks slid on contagion fears. In Asia, markets were significant pressure. MSCI Asia Pacific Index (MXAP) sank 2%; Japan's Nikkei 225 dropped 2.7% (biggest decline in 10 months). Even Australia's S&P/ASX 200 Index got hit for 2.1%. Gold advanced past $1600 for the first time in 2 weeks. How significant is the Cyprus story to markets? Over the long haul, probably not much, but as of 5am this morning, the first 6 most popular stories on Bloomberg.com are all Cyprus related.     Most Popular Stories Euro, Stocks Drops; Gold, Treasuries Rally on Cyprus The euro weakened to its lowest level this year, while stocks and commodities slumped, as an unprecedented levy on Cyprus's bank savings threatened to throw Europe back into crisis. German two-year note yields dropped below zero as Spanish and Italian yields surged. 4:04 Asian Stocks Drop Most in 8 Months on Cyprus Deposit Tax Asian stocks headed for the biggest decline in eight months, led by raw-material producers, amid concern an unprecedented levy on bank deposits in Cyprus will plunge Europe back into crisis and that China will increase efforts to curb property prices. Euro Slides Most in 14 Months as Cyprus Turmoil Roils Markets The euro fell the most in 14 months against the dollar after an unprecedented levy on bank deposits in Cyprus threatened to throw Europe back into crisis. Gold Advances Above $1,600 for First Time in Two Weeks on Cyprus Gold rose above $1,600 an ounce for the first time this month, widening its premium over platinum, as an unprecedented levy on Cyprus bank deposits reignited concern over Europe's debt crisis and boosted haven demand. Cypriot Outrage Over Tax Could Derail Euro-Area Bailout Europe braced for renewed turmoil as outrage in Cyprus over an unprecedented levy on bank deposits threatened to derail the nation's bailout. European shares and the euro tumbled. Treasuries Rise as Cyprus Debt Turmoil Boosts Highest-Rate Bonds Treasuries gained for a second day as an unprecedented levy on bank deposits in Cyprus threatened to reignite the euro region's debt crisis, boosting demand for the safest assets.

The “Fix” Is In for Gold and Silver Prices? Posted: 17 Mar 2013 10:30 PM PDT Gold and Silver Prices Are Set In Libor-Like Daily Conference Calls Between a Handful of Big Banks   There is increasing evidence that the gold market is manipulated.  The amount of physical bullion may be greatly over-stated, and gold may be manipulated in the same way that Libor rates are: The Telegraph noted Monday: [Bank of England executive] Paul Tucker told MPs that Barclays' abuse of the Libor system may be only one part of the banks' dishonesty over crucial financial information, suggesting that other markets should now be investigated. An official inquiry into Libor – which helps determine interest rates for householders and businesses – should be broadened to include several over markets where banks are trusted to report their own data, he said. *** The Libor scandal could be repeated in a number of other "self-certifying" markets where prices are determined, he said. "Self-certification is clearly open to abuse, so this could occur elsewhere," he said. A Financial Services Authority inquiry into Libor should be extended to other self-certifying markets, he said. The Treasury said last night that the review, led by Martin Wheatley, was free to examine markets other than Libor. *** Some markets in gold and oil are also based on self-certification. Mainstream commentators are starting to publicly discuss manipulation in the precious metals markets.  See this, this and this. Avery Goldman noted last year: On March 15, 2011, the Commodity Exchange (COMEX) and the New York Mercantile Exchange (NYMEX) advised the CFTC that they had approved J.P. Morgan's application to become a licensed vault facility, using a "self-certification" process. The newly licensed vault, located at 1 Chase Manhattan Plaza, NY, NY, is ready to roll as both "weighmaster" and depository, for delivery of gold, silver, platinum and palladium contracts, as of March 17, 2011, two days later." ETFs, bullion banks, storage facilities and other holders of gold that are "self-certifying"  – without any checks by third party auditors – have been caught misreporting and raiding even allocated precious metals accounts, and using the loot to speculate or pay off other debts. As such, manipulation in the self-certifying portions of the oil and gold markets could have a huge impact on assessing the true health of financial institutions, the economy as a whole, and the assets of individual investors. Yesterday, the Guardian reported on the stunning similarities between the daily "fixing" of the gold price and of the Libor rate: London's financial sectorwas last night bracing itself for another official investigation into alleged price-fixing following reports that a US regulator is considering launching an inquiry into the City's gold and silver markets. The Commodity Futures Trading Commission is discussing whether the daily setting of gold and silver prices in London is open to manipulation, according to the Wall Street Journal, which stated that the CFTC is examining whether prices are derived sufficiently transparently. The system of setting gold prices in London is unusual and involves a twice-daily teleconference involving five banks – Barclays, Deutsche Bank, HSBC, Bank of Nova Scotia and Société Générale – while silver is set by the latter three. The price fixings are then used to determine prices worldwide. *** The fixing of the gold price in London dates back to September 1919, when the process involved NM Rothschild & Sons, Mocatta & Goldsmid, Samuel Montagu & Co, Pixley & Abell and Sharps & Wilkins. At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay this price to their customers. Based on orders received from them, the banks declare themselves as buyers or sellers at that price. Provided there are both buyers and sellers at that price, members are then asked to state the number of bars they wish to trade. *** If at the opening price there are only buyers or only sellers, or if the numbers of bars to be bought or sold does not balance, the price is moved and the same procedure is followed until a balance is achieved. The silver fix dates back to 1897.

How I Was Hacked Posted: 17 Mar 2013 03:30 PM PDT Source: dispeak

Coming Back to Life: The Housing Market’s Vital Signs Posted: 17 Mar 2013 12:00 PM PDT Click to enlarge Source: Column Five Media

12 Cognitive Biases That Endanger Investors Posted: 17 Mar 2013 09:00 AM PDT Before Todd Harrison created Minyanville, he was an options trader at Morgan Stanley, eventually becoming President of Cramer Berkowitz, where he toiled as head trader at Jim Cramer’s hedge fund. Todd has an excellent analysis of the various biases that endanger investors. Here is the full list: 1. Confirmation Bias 2. In-Group Bias 3. Gambler's Fallacy 4. Post-Purchase Rationalization 5. Neglecting Probability 6. Observational Selection Bias 7. Status-Quo Bias 8. Negativity Bias 9. Bandwagon Effect 10. Projection Bias 11. The Current Moment Bias 12. Anchoring Effect Check out his explanation and descriptions here.     Source: 12 Cognitive Biases That Endanger Investors Todd Harrison Minyanville January 17, 2013 http://www.minyanville.com/special-features/random-thoughts/articles/12-Cognitive-Biases-that-Endanger-Investors/1/17/2013/id/47441

10 Sunday Reads Posted: 17 Mar 2013 05:15 AM PDT Some Sunday morning reading to stimulate your brain pans: • The Smartest Man in Global Capital Markets on When the Music Will Stop (Minyanville) • Bad Omens: Mila and the Maestro (Barron’s) • 'It's Becoming Idiotic' — the Senate's Riveting Story of the London Whale (Bloomberg) see also  JPMorgan's Follies, for All to See (NYT) • As stocks rise, so do the number of millionaires (The Washinton Post) • Steering Clear of Stock Custodian Battles (WSJ) • China hacker’s angst opens a window onto cyber-espionage (LA Story) • East India Company: The Original Too-Big-to-Fail Firm (Echoes) see also Why Conservatives Want to Break Up the Banks, Too (New Republic) • Bruce Schneier: The Internet is a surveillance state (CNN) • After 15 years, Big Lebowski keeps getting bigger (Toronto Star) • Jim Gaffigan Is the King of (Clean) Comedy (WSJ) What’s for brunch ?   Overbought and Oversold Markets Source: Macroman

The Right Skill Set Posted: 17 Mar 2013 05:00 AM PDT What sort of skills do you need to work on our team of researchers, asset managers and financial planners? We look for people who are not only smart and talented, but also have diverse abilities and interests. With so many large firms laying off so many talented people, there is a huge talent pool out there. You need to be able to stand out from the crowd. Our entire staff all have something a little special (read “odd”) about them — something different that allows them to think outside the box. They all have various interests, backgrounds, abilities that give them a better worldview. There are disadvantages to becoming too specialized. For example, this is what Caitlyn, my administrative assistant, does on the weekends:

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