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Market Update

Another #Bitcoin Site Bites the Dust After Being Robbed of Every Coin Held

“Another Bitcoin site disappears.

This time Flexcoin — which called itself a Bitcoin bank — has announced that it’s going out of business after a huge theft that has wiped it clean.

This is the announcement. There’s no sugarcoating it. Somehow all the Bitcoins were just taken.

On March 2nd 2014 Flexcoin was attacked and robbed of all coins in the hot wallet. The attacker made off with 896 BTC, dividing them into these two addresses:



As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately….”

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Global Markets Fall While Commodities Shoot Higher on the Developing Ukraine Turmoil

“U.S. stock-index futures fell, tracking a global selloff in equities, as Russia’s threat to invade Ukraine sent investors searching for havens.

Citigroup Inc. and Bank of America Corp. each lost 1.5 percent as financial stocks tumbled. The Market Vectors Russia ETF tracking companies from Gazprom OAO to OAO Lukoil dropped 8.2 percent. Yandex NV, a U.S.-listed online search engine operating in Russia, slumped 8.7 percent.

Futures on the S&P 500 (SPX) expiring this month lost 0.8 percent to 1,843.00 at 8:05 a.m. inNew York. Dow Jones Industrial Average contracts dropped 104 points, or 0.6 percent, to 16,203 today.

“We never know what will happen with Russia and this always makes people nervous,” said Michael Morris, head of equities at Mitsubishi UFJ Asset Management in London. “You have a president that is trying to expand Russia’s global political powers but the country may not have the capacity for this fight. It’s too soon to know what the outcome might be but I’m not at all surprised to see the markets down today.”

The tensions sent stocks tumbling around the world, with the MSCI All-Country World Index sliding 0.9 percent. Russian stocks had their biggest decline in five years and the Europe Stoxx 600 plunged 2 percent, its biggest slide in five weeks. Emerging-market stocks dropped 1.5 percent. Gold soared 1.8 percent and Treasuries rallied.

Ukraine Tension

Ukraine mobilized its army and called for foreign observers after Russian President Vladimir Putingot approval to use military force in Ukraine. Groups of as many as 100 Russian soldiers attacked Ukrainian army units in Crimea, where ethnic Russians comprise the majority, the border guard service said.

U.S. Secretary of State John Kerry is traveling to Kiev today after warning of possible sanctions against Russia. European Union foreign ministers will hold an emergency meeting today, while the Group of Seven nations suspended planning for the Group of Eight summit in Russia in June.

The geopolitical tension comes after the S&P 500 rose 4.3 percent in February, the most since October, to end the month at a record 1,859.45. Investors have been speculating that recent weakness in data from housing to jobs was caused by weather and that the Federal Reserve will continue to support the economy.

U.S. equities are set to enter the sixth year of a bull market that started March 9, 2009. Three rounds of stimulus have helped push the S&P 500 up 175 percent from a 12-year low.

Volatility Spike….”

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A Look at the Top 10 Emerging Technologies

“The World Economic Forum, famous for its annual Davos convention in Switzerland, has put out a new report identifying the top technological trends for the coming year.

“Technology has become perhaps the greatest agent of change in the modern world,” writes WEF’s Noubar Afeyan. “While never without risk, positive technological breakthroughs promise innovative solutions to the most pressing global challenges of our time, from resource scarcity to global environmental change.”

“By highlighting the most important technological breakthroughs….”

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High Speed Traders Employ Lasers to Trade Ahead

“As high-speed stock traders push to trade ever faster, their newest move involves harnessing a technology that U.S. military jets use to communicate as they soar across the sky: lasers.

In March, a small Chicago communications company plans to switch on an array of laser devices linking the New York Stock Exchange’s data center in Mahwah, N.J., with theNasdaq Stock Market‘s NDAQ +2.29% data center in another New Jersey community, Carteret.

The lasers, perched atop high-rise apartment buildings, towers and office complexes along the 35-mile stretch between the communities, are the first phase of a grid intended to link nearly all U.S. stock exchanges this way, zipping market data and rapid-fire trades.

It is the latest salvo in the “race to zero,” traders’ term for their efforts to whittle away the difference between the speed their orders travel at and the speed of light. Zero, the point at which that difference would disappear, has become a kind of holy grail to computerized traders, for whom nanoseconds—billionths of a second—can spell the difference between profit and loss in their algorithm-driven trades.

In recent years, so-called high-frequency trading firms, which account for about half of U.S. stock trading, have adopted first custom-built fiber-optic cables, then microwave and later millimeter-wave transmissions. Networks built on all three technologies operate today, tying together exchanges around the U.S. Internationally, fiber-optic cables laid across the oceans link America’s markets with Europe’s and Asia’s….”

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Small Business Optimism Upticks for a Third Consecutive Month

“Optimism among owners of small business in the U.S. crept higher in January, continuing a trend, amid hopes for higher sales.

The National Federation of Independent Business’s small business optimism index rose to 94.1 from 93.9 the previous month. It was the third straight month in a row that the index has improved.

Despite the upbeat direction, the NFIB said in a statement that the “index is still just treading water.” …”

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China Manufacturing Data Hovers Above Recessionary Levels Posting a Six Month Low

“A Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed, adding to signs that government efforts to rein in excessive credit will cool growth in the world’s second-largest economy.

The Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Saturday in Beijing. That matched the median estimate of analysts surveyed by Bloomberg News and compared with December’s 51 reading. Numbers above 50 signal expansion.

The survey showed jobs and export orders shrinking, amplifying risks of a deeper slowdown as Communist Party leaders clamp down on the $6 trillion shadow-banking industry and interbank borrowing costs rise. A separate manufacturing gauge released by HSBC Holdings Plc and Markit Economics last week pointed to the first contraction in six months.

“There is no doubt that the surging money-market rates have added uncertainty and dampened industry confidence,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. The central bank will “have to strike a delicate balance” between cracking down on shadow banking and maintaining financial stability, Liu said.

China was scheduled to issue a report on January’s non-manufacturing PMI Monday morning. That gauge fell to a four-month low in December.

Estimates for the official manufacturing PMI from 31 economists ranged from 50 to 50.9. The benchmark Shanghai Composite Index fell 0.8 percent on Jan. 30, capping the worst start to a year since 2010, on concern the economy is slowing as the U.S. Federal Reserve cuts stimulus. China’s markets are closed for the Lunar New Year holiday from Jan. 31 to Feb. 6.

Output Gauge

A gauge of output in January fell to a four-month low of 53 from 53.9, while the new-orders index declined to a six-month low of 50.9 from 52.0, according to government data.

The survey suggested manufacturing jobs are shrinking at a faster pace, with a gauge of employment declining to 48.2, the lowest since February 2013. HSBC’s survey showed companies eliminating jobs at the fastest rate in almost five years.

HSBC’s broader index, which showed a reading of 49.5 for January, is based on responses from more than 420 manufacturers and is weighted more toward smaller companies. The official PMI is based on questionnaires sent to about 3,000 companies.

Borrowing costs remain elevated, with the benchmark seven- day repurchase rate at 4.98 percent on Jan. 30, according to a daily fixing compiled by the National Interbank Funding Center, compared with the month’s average of 4.7 percent.

Tighter Credit….”

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Global Markets Get Hammered While U.S. Futures Erase Yesterday’s Gains on EM Volatility and Poor Data Out of Europe

“To cap a rough week, markets have fallen into “risk-off” mode once again this morning.

S&P 500 futures are down 0.8%, and have already completely erased yesterday’s big rally. Asian exchanges were mostly closed and European indices are getting hammered across the board.

Emerging-market currencies like the Turkish lira and the South African rand are tumbling against the dollar, and the dollar is sliding against the euro and the yen.

Meanwhile, gold and Treasury futures are turning in a strong performance.

The charts below show moves in various markets. Across the top from left to right are S&P 500 futures, the dollar-yen exchange rate, and the euro-dollar exchange rate. Across the bottom are gold futures, 10-year U.S. Treasury futures, and the dollar-lira exchange rate.

Major economic data releases this morning included unemployment out of the eurozone, which remained unchanged at 12.0%, and eurozone consumer price inflation, which came in at 0.7% year over year in December, below consensus expectations for a 0.9% rise.

The big surprise, however, was a 2.5% drop in German retail sales from the previous month in December, which is being cited as one driver of bearish sentiment this morning….”

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Wall Street Finds a New Windfall in the Housing Market

“Wall Street’s latest trillion-dollar idea involves slicing and dicing debt tied to single-family homes and selling the bonds to investors around the world.

That might sound a lot like the activities that at one point set off a global financial crisis. But there is a twist this time. Investment bankers and lawyers are now lining up to finance investors, from big private equity firms to plumbers and dentists moonlighting as landlords, who are buying up foreclosed houses and renting them out.

The latest company to test this emerging frontier in securitization is American Homes 4 Rent. The company talked to prospective investors at a conference in Las Vegas last week about selling securities tied to $500 million of debt, according to people briefed on the matter.

American Homes 4 Rent, which went public in August, has tapped JPMorgan Chase, Goldman Sachs and Wells Fargo as its bankers for a debt deal that is expected to be sold by the end of the first quarter, these people said.

While this securitization market is still in its infancy, a recent Wall Street estimate put potential financing opportunities for the single-family rental industry as high as $1.5 trillion. Already some members of Congress and economists are worried about another credit bubble….”

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Greenbacks No More for Nigeria

“It seems the “dollar is a reserve currency for ever and ever” propaganda has not reached Africa, also known as Southern China as explained heretwo years ago, where moments ago the Central Bank of Nigeria issued the following surprise announcement:


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The IMF Upgrades World Growth for 2014 to 3.7%

The world economy will grow by more than previously expected this year, the International Monetary Fund (IMF) forecast on Tuesday.

In an update to its “World Economic Outlook”, the IMF predicted global economic growth of 3.7 percent in 2014, an upgrade on the 3.6 percent growth it forecast last October.

“The IMF — which monitors the global economy and lends to its 188 member countries if they are in financial difficulty — attributed the raise to improving conditions in advanced economies.

(CNBC Explains: IMF)

“Financial conditions in advanced economies have eased since the release of the October 2013 WEO (World Economic Outlook) — with little change since the announcement by the U.S. Federal Reserve on December 18 that it will begintapering its quantitative easing measures this month. This includes further declines in risk premiums on government debt of crisis-hit euro area economies,” the IMF said on Tuesday.

Yoshikazu Tsuno | AFP | Getty Images
Shipping containers are unloaded from an international freighter while another cargo ship (R) arrives at the international cargo terminal in Tokyo on October 21, 2013.

Japan and Spain saw their outlooks upgraded by the IMF on Tuesday, and are now seen growing by 0.6 percent and 1.7 percent respectively in 2014.

The U.K.‘s growth forecast was also increased, a move widely anticipated by the country’s media.

“Activity in the United Kingdom has been buoyed by easier credit conditions and increased confidence. Growth is expected to average 2.25 percent in 2014–15, but economic slack will remain high,” the IMF said….”

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Making Things Safer, Basel Committee Lowers the Leverage Ratio Rule

“World banking regulators said they would soften the terms of a rule meant to ensure banks’ soundness, bowing to pressure from banks that had argued it would stifle their lending to consumers and businesses.

The Basel Committee for Banking Supervision, made up of banking regulators from around the world, said it had revised the definition of its leverage ratio in ways that will allow banks to report lower levels of overall risk. The leverage ratio measures capital held by a bank against its total assets, so the changes will lead to higher reported capital ratios. That will reduce the pressure on banks to either shed assets or raise more capital to meet the requirement.

The biggest beneficiaries of the changes appear likely to be banks most involved in securities and derivatives markets. Most important, the rules no longer require banks to count 100% of their off-balance-sheet assets. That not only includes most of banks’ derivatives exposures, but also the guarantees and letters of credit that are essential to greasing the wheels of international trade.

In addition, the changes allow for extensive “netting” of securities-financing transactions, such as repurchase agreements, or “repos,” for greater counting of margin payments received from counterparties. And they let banks eliminate double-counting of exposures involving central counterparties. Those changes will have the effect of reducing assets reported under the leverage ratio, increasing banks’ reported ratios.

The announcement is the latest in a series of amendments to the aggressive new rules that regulators drew up in reaction to the 2008 financial crisis, in an effort to make the financial system safer. Much of that fine-tuning has had the effect of softening the impact of the new rules, as the industry has managed to persuade regulators that their plans were overzealous. Sunday’s announcement follows a similar relaxation of a new rule on minimum liquidity standards at the start of last year. It also follows a significant dilution in the U.S.’s so-called Volcker rule, which is an attempt at curbing speculative trading by banks, and signs from the European Union that it will soft-pedal parallel plans of its own.

Banks will have to report their leverage ratios from 2015 onward, and regulators intend to force them to have a ratio of at least 3% starting in 2018, but there is no binding commitment to the latter….”

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Bulls Take Heed: $GS Declares Equity Valuations Lofty by Any Measure

“We imagine this call is going to get a lot of debate going about how expensive stocks are right now, and the durability of this rally.

Goldman equity strategist David Kostin declares in his latest ‘Weekly Kickstart’ note that the market is getting pricey.

These three paragraphs pack a major punch. Bulls should take heed:

The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7) nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

Reflecting on our recent client visits and conversations, the biggest surprise is how many investors expect the forward P/E multiple to expand to 17x or 18x. For some reason, many market participants believe the P/E multiple has a long-term average of 15x and therefore expansion to 17-18x seems reasonable. But the common perception is wrong. The forward P/E ratio for the S&P 500 during the past 5-year, 10-year, and 35- year periods has averaged 13.2x, 14.1x, and 13.0x, respectively. At 15.9x, the current aggregate forward P/E multiple is high by historical standards.

Most investors are surprised to learn that since 1976 the S&P 500 P/E multiple has only exceeded 17x during the 1997-2000 Tech Bubble and a brief four-month period in 2003-04. Other than those two episodes, the US stock market has never traded at a P/E of 17x or above.

As you can see in this chart, since 1976, the only times that PE ratios have been higher…..”

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The ECB and BoE Leave Rates Unchanged

“There has been talk in Europe that Mario Draghi might have make more noise about vigilant policy to prevent weakness from arising, but very few in the investor community were expecting much from the European Central Bank. Ditto for the Bank of England. Now we have interest rate decisions from both central banks, and frankly these almost feel like duds.

In a move widely expected, the European Central Bank maintained its interest rates steady. The interest rate policy statement said, “At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively.”…”

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Individual Stock Ownership Hits Fresh All Time Highs

“……Stocks experienced a notable jump to a 68% allocation from just 64% in November.  Bond holdings were down 2% to just 15% and cash holdings were down 2% to 16.5%.

Historically, stocks have averaged a 60% allocation…..”

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A Handful of Cities Witness Real Estate Prices Rising to Pre Bubble Territory

“Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy.

Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation’s 50 largest metropolitan areas, according to a Wall Street Journal analysis of price data from Zillow, an online real-estate information service. Prices are within 5% of their previous peak in San Jose, Calif.; Nashville, Tenn.; and Dallas.

Prices nationally remain below the highs of the past decade, and many of the cities that have seen the biggest gains largely escaped a boom and bust.

Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued.

The figures aren’t adjusted for inflation, but experts say they underscore the uneven nature of the U.S. housing recovery.

“The main story in a lot of these places is that they didn’t have much of a housing recession. It’s much easier to be back at peak levels when you didn’t have a big boom and bust,” said Stan Humphries, chief economist at Zillow.

But in those areas that did experience a downturn, he added, “I’m surprised that we are back to peak levels so quickly.”

Brian Long of Colorado was surprised, too. At the top of the housing bubble in 2006…”

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Holiday Retail Sales Fall Well Short of Expectations

“As the holiday spending season draws to a close, there has been a huge schism between hope and reality once again as captured by these two numbers: 3.9% and -3.5%. The first, aka hope, is how much the national retail federation predicted holiday sales would rise by at the start of the holiday season; the second, aka reality, is how much in-store retail sales declined by in the week before Christmas. So what is a despondent retail industry – which unlike the stock market can’t put off delivering results forever – to do? Why bet it all on a huge after-Christmas surge of course.

As USA Today reports, some online sales, including at Target.com and Kohls.com, start on Christmas Day. And for sales die-hards, many Wal-Mart and Kohl’s stores will open on Thursday by 5 a.m. “This is an especially big time for people who got gift cards to come and spend on what they didn’t get for Christmas,” says Sarah McKinney, a Wal-Mart spokeswoman. It is also the single-most popular day to redeem Target gift cards. Then again, one wonders just how hacked those are…

A quick summary of the panicked retailers’ biggest sales incentives and deals…”

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Happy Birthday Federal Reserve

“December 23rd, 1913 is a date which will live in infamy.  That was the day when the Federal Reserve Act was pushed through Congress.  Many members of Congress were absent that day, and the general public was distracted with holiday preparations.  Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don’t know what it actually is or how it functions.  But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems. 

Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98 percent, and the U.S. national debt has gotten more than 5000 times larger.  This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have.  If nothing is done, we are inevitably heading for a massive amount of economic pain as a nation. The following are 100 reasons why the Federal Reserve should be shut down forever…”

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