Third Steepest First-Second Month VIX Futures Contango Ever

via Vix and More

For a variety of reasons, investors seem unwilling to embrace the current rally and with each day the market rises, I see a scramble in the indicator forest to find some sort of proof that stocks are finally, inevitably going to correct…and soon. I need to give this phenomenon a name, so I am going to call it indicator hunting and define it as a companion to confirmation bias.

Read the rest here.

Thomas Sowell

Derrick Bell’s options were to be a nobody, living in the shadow of more accomplished legal scholars — or to go off on some wild tangent of his own, and appeal to a radical racial constituency on campus and beyond.

His writings showed clearly that the latter was the path he chose. His previous writings had been those of a sensible man saying sensible things about civil rights issues that he understood from his years of experience as an attorney. But now he wrote all sorts of incoherent speculations and pronouncements, the main drift of which was that white people were the cause of black people’s problems.

Bell even said that he took it as his mission to say things to annoy white people. Perhaps he thought that was better than being insignificant in his academic setting. But it was in fact far worse, because the real damage was to impressionable young blacks who took him seriously, including one who went on to become President of the United States.

Read the rest here.

“The irony is that he probably right now has the biggest audience he’s had in years, and the double irony of all this is sponsors that are fleeing, they’re missing out on the best advertising buy in radio…”

via Vix and More

With this in mind, I created a chart to show what happened the last time we had a sharp market selloff and a subsequent bounce that lasted three years. The graphic below shows the percentage change in the SPX as well as the absolute VIX level in the three years following the October 2002 lows in the SPX as well as the three years following the March 2009 lows. Note that from 2002-2005, the SPX rallied about 53%; the current rally in the SPX from the March 2009 close is over 100%.

Read the rest and see the chart here.

By Linette Lopez

So far, the only inside response to Greg Smith’s damning NYT op-ed on Goldman Sachs has been from the company’s PR department. They simply said they didn’t agree with Smith, no color, no context to why he would write this piece.

But a former intern who worked under Smith gave Business Insider a look into who Smith was at Goldman. Aveneesh Singh Saluja, a fellow Stanford alum, was willing to speak out for the guy most Goldmanites are probably fuming at…

Read the rest here.

Apparently, when Greg Smith arrived at Goldman Sachs Group Inc. (GS) almost 12 years ago, the legendary investment firm was something like the Make-A-Wish Foundation — existing only to bring light and peace and happiness to the world.

Smith, who was executive director and head of the firm’s U.S. equity derivatives business in Europe, the Middle East and Africa, does not go into details in his already notorious op-ed article in Wednesday’s New York Times, “Why I Am Leaving Goldman Sachs.” But one imagines Goldman bankers spending their days delivering fresh flowers to elderly shut-ins and providing shelters for abandoned cats. Serving clients was paramount. “It wasn’t just about making money,” Smith writes. “It had something to do with pride and belief in the organization.”

It must have been a terrible shock when Smith concluded that Goldman actually was primarily about making money. He spares us the sordid details, but apparently it took more than a decade for the scales to finally fall from his eyes.

Read the rest here.

WASHINGTON (AP) — The Securities and Exchange Commission says it is charging two financial advisors and three others connected to them with insider trading for more than $1.8 million in illegal profit gained from confidential information gleaned through an Alcoholics Anonymous relationship.

Read the rest here.

By MICHAEL J. BOSKIN and JOHN F. COGAN

Long a harbinger of national trends and an incubator of innovation, cash-strapped California eagerly awaits a temporary revenue surge from Facebook IPO stock options and capital gains. Meanwhile, Stockton may soon become the state’s largest city to go bust. Call it the agony and ecstasy of contemporary California.

California’s rising standards of living and outstanding public schools and universities once attracted millions seeking upward economic mobility. But then something went radically wrong as California legislatures and governors built a welfare state on high tax rates, liberal entitlement benefits, and excessive regulation. The results, though predictable, are nonetheless striking. From the mid-1980s to 2005, California’s population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.

California’s economy, which used to outperform the rest of the country, now substantially underperforms. The unemployment rate, at 10.9%, is higher than every other state except Nevada and Rhode Island. With 12% of America’s population, California has one third of the nation’s welfare recipients.

Partly due to generous union wages and benefits, inflexible work rules and lobbying for more spending, many state programs and institutions spend too much and achieve too little. For example, annual spending on each California prison inmate is equal to an entire middle-income family’s after-tax income. Many of California’s K-12 public schools rank poorly on standardized tests. The unfunded pension and retiree health-care liabilities of workers in the state-run Calpers system, which includes teachers and university personnel, totals around $250 billion.

Meanwhile, the state lurches from fiscal tragedy to fiscal farce, running deficits in good times as well as bad. The general fund’s spending exceeded its tax revenues in nine of the last 10 years (the only exceptions being 2005 at the height of the housing bubble), abetted by creative accounting and temporary IOUs.

Now, the bill is coming due. After running a $5 billion deficit last year and another likely deficit this year, Gov. Jerry Brown’s budget increases spending next year by $7 billion and finances the higher spending with income and sales-tax hikes. Specifically, he’s proposing a November ballot initiative raising the state’s top income tax rate to 12.3%, making it the nation’s highest, and raising the basic state sales tax rate, already the nation’s highest, to 7.75% from 7.25%.

Read the rest here.

By Josh Brown

Ya gotta admire the spirit of this whole thing – “The rules of the regular stock market and going public are too restrictive and annoying.  So let’s just make our own stock market based on the West Coast where only us venture guys and founders and our employees can trade amongst each other.”

Read the rest here.

Ken Major climbs the steps of a county courthouse in a San Francisco suburb with $500,000 in cashier’s checks in one hand and a list of addresses in the other. Major is a buyer for Waypoint Real Estate Group LLC, an Oakland-based investment firm that’s scooping up foreclosed homes in California.

On this December afternoon, he joins a dozen house flippers as an auctioneer starts hawking the latest batch of defaulted properties to hit the market. Major bids on a three-bedroom house in Antioch, and after other buyers counter, he wins at $147,600.

“We got it,” he mutters into a mobile-phone mic dangling from his ear. The house was valued at more than $400,000 in 2006, Bloomberg Markets magazine reports in its April issue.

Waypoint, a private-equity real-estate fund with $150 million in assets, is pioneering a new approach to making money from the housing crash. Since 2007, investors have been trolling the cratered suburbs stretching from California to Florida (SPCSMIA) for cheap houses to flip. And firms such as PennyMac Mortgage Investment Trust have sought value in subprime-mortgage-backed securities.

Waypoint, which owns 1,100 houses and is buying five more a day, is betting that converting foreclosures into rentals is a better way to make a profit. Other firms, such as Landsmith LP in San Francisco, are now cropping up and pursuing the same strategy in Arizona, California and Nevada.

Read the rest here.

Citigroup Inc. (C), the lender that took the most government aid during the financial crisis, will resubmit its capital plan to regulators after failing to meet some minimum standards in Federal Reserve stress tests.

SunTrust Banks Inc. (STI), Ally Financial Inc. and MetLife Inc. also fell short by at least one measure under the central bank’s most dire economic scenario, according to results released by the Fed today. Ally also intends to resubmit its plan, the company said in a statement.

Read the rest here.

On Friday, Prof. Allan Meltzer of Carnegie Mellon University, a well-known conservative economist, offered a commentary in The Wall Street Journal arguing against policies to equalize the distribution of income.

His key piece of evidence is the chart below, from a study by the Swedish economists Jesper Roine and Daniel Waldenstrom, that shows the share of income accruing to the top 1 percent of earners in seven Western democracies. They all follow the same trend line, Professor Meltzer says, and it proves that “domestic policy can’t be the principal reason for the current spread between high earners and others.”

Leaving aside the fact that the ultrarich have gained far more in the United States than any other country in his sample and that there is no upward trend at all in the Netherlands, he seems to have missed an important implication of his own conclusion.

If the rich are going to continue to get richer in low-tax countries and high-tax countries alike, then it must mean that high tax rates have far less of a disincentive effect on the rich than conservatives like Professor Meltzer continually proclaim.

Read the rest here.

Josh Brown, @thereformedbroker, drops his list of must-follows…

State Controller John Chaing continues to uphold the California Great Seal Motto of “Eureka”, i.e., ‘I have found it’. But what Chaing is finding as Controller is that California’s economy as measured by tax revenues is still tanking. Compared to last year, State tax collections for February shriveled by $1.2 billion or 22%. The deterioration is more than double the shocking $535 million reported decline for last month. The cumulative fiscal year decline is $6.1 billion or down 11% versus this period in 2011.

While California Governor Brown promises strong economic growth is just around the corner, Chaing proves that the best way for Sacramento politicians to hurt the economy and thereby generate lower tax revenue, is to have the highest tax rates in the nation.

California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The State Controller’s office did acknowledge that higher than normal tax refunds for February might have reduced the collection of some personal income taxes. Given that 2012 has an extra day in February for leap year, there might have been one day more of tax refunds sent out. But the Controller’s report shows personal income tax collections fell by $325 million, or 16% versus last year. Furthermore, leap year would have added another day for retail sales and use tax collection, but those revenues also fell during February-by an even larger $813 million, 25% decline from 2011.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

Derisively referred to as “Taxifornia” by the independent Pacific Research Institute, California wins the booby prize for the highest personal income taxes in the nation and higher sales tax rates than all but four other states. Though Californians benefit from Proposition 13 restrictions on how much their property tax can increase in one year, the state still has the worst state tax burden in the U.S.

Spectrum Locations Consultants recorded 254 California companies moved some or all of their work and jobs out of state in 2011, 26% more than in 2010 and five times as many as in 2009. According SLC President, Joe Vranich: the “top ten reasons companies are leaving California: 1) Poor rankings in surveys 2) More adversarial toward business 3) Uncontrollable public spending 4) Unfriendly business climate 5) Provable savings elsewhere 6) Most expensive business locations 7) Unfriendly legal environment for business 8) Worst regulatory burden 9) Severe tax treatment 10) Unprecedented energy costs.

Vranich considers California the worst state in the nation to locate a business and Los Angeles is considered the worst city to start a business. Leaving Los Angeles for another surrounding county can save businesses 20% of costs. Leaving the state for Texas can save up to 40% of costs. This probably explains why California lost 120,000 jobs last year and Texas gained 130,000 jobs.

Read the rest here.

Over the past weeks Megaupload has been looking into the various options they have to grant users temporary access. Interestingly enough, this quest revealed that many accounts are held by US Government officials.

“Guess what – we found a large number of Mega accounts from US Government officials including the Department of Justice and the US Senate.”

“I hope we will soon have permission to give them and the rest of our users access to their files,” Dotcom told us.

Read the rest here.

by firstadopter

I believe the market is underestimating the deteriorating underlying business trends, the impact of the secular shift of physical media to digital media along with the competition risk from Apple and Google, and the weak positioning of Amazon’s hardware tablet strategy.

To read the rest and see the charts, go here.

via Crossing Wall Street

How’s that for an eye-catching title?

But seriously, let’s take a look. Below is a chart of the S&P 500 along with its earnings. The index is the black line and it follows the left scale. The earnings is the yellow line and it follows the right scale.

Read the rest here.

It is clear from looking at the current landscape that volatility is rapidly becoming a key focus for asset management. Witness the birth of “low-volatility” ETFs and the popularity of minimum-variance portfolios borne from empirical studies that demonstrate their superior performance to alternative methodologies.  It seems obvious from the research that volatility is an important factor to consider in portfolio management, but it is neccessary to understand why this is the case.

Read the rest here.

This is the inevitable conclusion from looking at the state of the labour market today. It is a shambles.

Watch the video. You’ll never guess who is on the record calling this guy his “favorite congressman.”