BofA Alludes to Junk Bond Bubble; @SFFederalReserve; Venture Capital Returns; Australia

August 29, 2012

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“Politics is not the art of the possible. It is choosing between the unpalatable and the disastrous.” ~ John Kenneth Galbraith

"Using OTC derivatives is a completely nonsensical tail-hedge," says Claude Bovet of Lionscrest Capital, citing counterparty risk

And I thought I was smart with my Aussie Variance Swaps idea :(

It’s still good a good idea I think; banks are nationalized in one of the worst case scenarios, wiping out shareholders and bond holders, but honoring depositors and counter parties. This has precedent, like when the U.S. Government paid off Goldman Sachs for risks traded with $AIG.

A reader wondered why not options on the $EWA instead. It’s because implied volatility remained sticky following the 2008 crash, and the 2010 and 2011 corrections, unlike the implied vol implosion in equity options. ~ Bloomberg Live Insights

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Research:

Spot-futures correlation decreases with both the number of public news arrivals and the volatility of news sentiment ~ Sentiment News

Exclusive: Venture Capital Performance numbers ~ FortuneMagazine ~ also this chart:

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Comparing Machine Learning Algorithms ~ bigml

Quant model for forecasting short term returns ~ twitter

Asian Flu:

1. The Asian meltdown began on February 5th, 1997 in Thailand.

2. Somprasong Land, a Thai property developer, announced it had failed to make a scheduled $3.1 million payment on an $80 billion eurobond loan

3. In the aftermath of Somprasong’s default it became clear that not only were several other property developers nearing default

4. Finance One pioneered issuing eurobonds denominated in US dollars then using proceeds to finance lending to the country’s developers.

5. When the Thai property market began to unravel in 1996 and 1997, the property developers could not pay back Finance One.

6. Finance One was halted in February; when it reopened in May, it had fallen 70% in one day.

Central Banking

"In some ways, Bernanke is an open book." ~ Axel Merk. – agree 100%,highly recommend reading his papers – especially this one.

Fed recently mentioned as a possibility – ‘commitment to accommodating policy even as the recovery progressed’ ~ Merk $$

Ultra Easy Monetary Policy and the Law of Unintended Consequences ~ Zerohedge

@SFFedReserve ‘s Janet Yellen once warned cheap money can fuel asset bubbles, as reported by CNN.

Given this, does the @SFFedReserve have any comment on a BofA report hinting at a possible Junk Bond Bubble and QE’s contribution? ~ Bloombergprompts this discussion

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Is a central bank independent when it is handpicked for their belief that printing money for the government to spend leads to growth?

U.S.

More Evidence That Spending Cuts Are the Best Way to Shrink Our Debt – By Veronique de Rugy ~ National Review

At 5 year highs in bullish COT Treasury Positions ~ Bloomberglikely anticipating Fed buying

Rand Paul says the debt has increased $6 Trillion under this administration. You really don’t hear this figure much

"How to become a mobile app developer [infographic]"  ~ GuyKawasaki ~ bubble?

World:

The UBS/Bloomberg Ag Spot Index is up +25.0% since 6/1

‘Australia’s Terms of Trade to plunge on metals drop’ ~ Deutsche Bank in ~ Financial Times

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‘Australia may need to monetize debt should foreign investors pull out’ ~ Variant Perceptions via FT Alphaville

Gillard has been pressing RBA’s Stevens to lower rates ~ Bloomberg ~ central bank independence is a myth.

China:

"After credit booms, there are always Non Performing Loans" ~ Socgen on Chinese banks reporting 1% NPLs ~ FT Alphaville

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The Yuan has started to depreciate against the dollar, as predicted ~ Search HSnow, which Chinese firms borrowed in dollars?

Construction at China’s most famous ghost city grind to a halt ~ Also Sprach

China Construction Bank Exec: Bad Loans Rising Rapidly in East China ~ WSJ 

The state of China’s nuclear capabilities (pdf) ~ Union of Concerned Scientists

  • Article implies China wants the ability to retaliate, but China has a limited arsenal and does not see other strategic usage

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