USO not the way to trade oil unless short term

stolen somewhere.

Spot Crude Oil: +26.2%

Crude ETF: -0.1%

see more: roll yield and more roll yield.

"The US Oil Fund (Ticker: USO) holds long positions in West Texas Intermediate crude oil futures contracts, and rolls these contracts forward each month. Like most futures traders, USO buys futures with leverage, putting up a small portion of the money to buy the contracts. The rest of the money is invested in Treasuries, which generates interest income for the fund.
Three factors play a role in determining the performance of USO: 1) changes in the spot price of crude oil, 2) interest income on un-invested cash, and 3) the 'roll yield'. The first two factors are easily understood, but the third factor, 'roll yield' should be examined further in order to determine the extent, if any, to which traders of USO will be surprised by its performance in relation to spot crude oil.
First some background: Oil futures are available for each month of the year, so you can buy a futures contract right now which gives you the right to buy oil in February 2009, March 2009, April 2009, and so on. Currently, the price of oil in February 2009 is less than the price of oil in April 2009, a condition which is referred to as 'contango'. (If the opposite were true, the market for crude oil would be in backwardation.) Most commodity funds, including the US Oil Fund (USO) buy what is called the 'near month' contract and, because they do not want to take physical delivery of the commodity, they sell the current month's contract before it expires and buy into next month's contract. This process is called 'rolling forward', and it can result in the ETF paying up if the forward month contract is higher than the current month (contango), or cashing out if the opposition condition exists (backwardation).
good read: http://www.marketfolly.com/2009/01/how-contango-affects-crude-oil-etfs-and.html#ixzz4HethZYLI

Fintech taking over

singapore pushing for fintech

See more at Source: Visual Capitalist

Facebook moving into ecommerce

Facebook moving into ecommerce.


http://www.reuters.com/article/us-facebook-emergingmarkets-idUSKCN10E1HT

Facebook Inc is to let small businesses in emerging markets sell to customers for free through their Facebook pages, the social media company said on Wednesday, marking a new effort to build up potential advertisers in its fastest-growing regions.
The move is Facebook's latest foray onto online commerce in emerging markets. The company launched a service last year allowing some merchants to sell items through paid ads on Facebook's app. The latest service will instead be free, and users can view products through merchants' own Facebook pages.

Soros: General Theory of Reflexivity

read more: 

https://en.wikipedia.org/wiki/Reflexivity_(social_theory)

http://macro-ops.com/understanding-george-soross-theory-of-reflexivity-in-markets/

transcripts: https://www.opensocietyfoundations.org/multimedia/george-soros-open-society-financial-crisis-and-way-ahead

by the way, reflexive is also a relation defined in mathematics.

 https://next.ft.com/content/0ca06172-bfe9-11de-aed2-00144feab49a#axzz4AQ9nyngv

Reflexive feedback loops have not been rigorously analyzed and when I originally encountered them and tried to analyze them, I ran into various complications. The feedback loop is supposed to be a two-way connection between the participant’s views and the actual course of events. But what about a two-way connection between the participants’ views? And what about a solitary individual asking himself who he is and what he stands for and changing his behavior as a result of his reflections? In trying to resolve these difficulties I got so lost among the categories I created that one morning I couldn’t understand what I had written the night before. That’s when I gave up philosophy and devoted my efforts to making money.
To avoid that trap let me propose the following terminology. Let us distinguish between the objective and subjective aspects of reality. Thinking constitutes the subjective aspect, events the objective aspect. In other words, the subjective aspect covers what takes place in the minds of the participants, the objective aspect denotes what takes place in external reality. There is only one external reality but many different subjective views. Reflexivity can then connect any two or more aspects of reality, setting up two-way feedback loops between them. Exceptionally it may even occur with a single aspect of reality, as in the case of a solitary individual reflecting on his own identity. This may be described as “self-reflexivity.” We may then distinguish between two broad categories: reflexive relationships which connect the subjective aspects and reflexive events which involve the objective aspect. Marriage is a reflexive relationship; the Crash of 2008 was a reflexive event. When reality has no subjective aspect, there can be no reflexivity.
* * *
Feedback loops can be either negative or positive. Negative feedback brings the participants’ views and the actual situation closer together; positive feedback drives them further apart. In other words, a negative feedback process is self-correcting. It can go on forever and if there are no significant changes in external reality, it may eventually lead to an equilibrium where the participants’ views come to correspond to the actual state of affairs. That is what is supposed to happen in financial markets. So equilibrium, which is the central case in economics, turns out to be an extreme case of negative feedback, a limiting case in my conceptual framework.
By contrast, a positive feedback process is self-reinforcing. It cannot go on forever because eventually the participants’ views would become so far removed from objective reality that the participants would have to recognize them as unrealistic. Nor can the iterative process occur without any change in the actual state of affairs, because it is in the nature of positive feedback that it reinforces whatever tendency prevails in the real world. Instead of equilibrium, we are faced with a dynamic disequilibrium or what may be described as far-from-equilibrium conditions. Usually in far-from-equilibrium situations the divergence between perceptions and reality leads to a climax which sets in motion a positive feedback process in the opposite direction. Such initially self-reinforcing but eventually self-defeating boom-bust processes or bubbles are characteristic of financial markets, but they can also be found in other spheres. There, I call them fertile fallacies—interpretations of reality that are distorted, yet produce results which reinforce the distortion.

Cashflow is the most important thing - Li Ka Shing interview

• the world changes a lot: you are doing well now, doesn't mean you should be set in your ways.
• always be very careful with cashflow 
• so you have the extra capital to get into any industry you want.
• cashflow is the most important thing.
• In development phase, don't forget about stability, in stability, don't forget about development.
• whatever industry I get into, I buy the books/publications about that industry.
• It got to the point, I was spending 20-30% of time in the factory and the rest thinking about what to do and planning for the future.
• Cheung Kong named after YangTze River.
• at 22, he seemed very humble but in his heart he was very arrogant, he said it is not good.
• Cheung Kong is named to remind him to stay humble to attract many 'streams' onto him.
• in company management use western management model with checks and balance.
• in internal philosophy, use the many useful parts of chinese Confuscian philosophy.

• wears seiko, cheap watch (comparatively) so he doesn't have to be careful with a $100K watch.
• his watch is 30min early.
• having money doesn't mean you will be happy but the reality is you can't do anything without money.
• view your charity as your own child and treat its assets apart from family assets.
• it is very important for people to have faith and religion.
• many wealthy people weighed down by mental stress.
• alway be industrious; the virtuous welcome onerous duties.
• seek improvement ceaselessly.
• tax companies extra 1% or 2%, poor people will benefit but important: no free lunches.
• education is primary purpose of his charity.
• 潮汕 has 17 million people but no university so he started Shantou University.
• happy person by nature, optimistic and driven. 

• he has a share certificate: AIG shares 2007 share price USD72.97 total market cap USD 189 Bn. in 2008 share price USD 1.25 market cap only USD 16.76bn down 91%
• he doesn't want to damage AIG reputation but just a lesson to his children.
• the lesson from this share certificate: be very careful managing company & don't invest like gambling.

Markets: are we there yet? - 2016

Recently, it looks as though we are coming to a crucial point in the markets. 

Both US Stocks (S&P 500) and Bonds (global government bonds) are at All Time Highs.

Normally, when you are worried, you divests your stocks into bonds, so risk off.

when you are greedy, you sell your bonds and buy more stocks, so risk on.

However, developed markets government bonds yields are at all time low while US stocks are at all time highs. This is compounded by the persistent devaluation of developed markets currencies (less Japan) by the actions of central banks. On the other hand, you have all time lows in commodities with agricultural lows, energy coming off an all time low and gold and silver seemingly resuming their climb from more than a decade ago after the recent 4-5 years bear.

Summing up, we know that generally that

for bonds,

• when bond yields go down, bond prices goes up
• when interest rates go up, bond yields go up and bond prices go down
• in 1998, 10 yr singapore govt bond yield can be 5.69%
• negative yields can result in capital losses
• bond cycles are seemingly reaching the end of the decreasing yield cycle
• half of the developed world govt bond yields are negative

for currencies,

• most european currencies and CNY are dropping vs USD while yen is increasing
• some emerging markets currencies are gaining vs USD (some are commodity producers)
• reallocation of currencies from fiat to gold and silver

for stocks,

• yields are now in stocks? (there's renewed buying in the top yields markets, from income funds?)
• sector rotation in US equities from financials to real estate.
• US S&P 500 just broke out to all time highs (notice the divergence from emerging markets)

Note of caution: in trending markets, they can trend for a long long time.

Where have the government bond yields gone?

swiss yields turned negative.

half the world turned negative

who's left?

Historical Bond Yields 1740 to 2010

I must have posted this before but couldn't find it. So here it is, for my easy reference and for you to ponder over.

Difference between knowing the name and what it is

https://www.quora.com/What-does-Elon-Musk-mean-when-he-said-I-think-it%E2%80%99s-important-to-reason-from-first-principles-rather-than-by-analogy

The next Monday, when the fathers were all back at work, we kids were playing in a field. One kid says to me, "See that bird? What kind of bird is that?" I said, "I haven't the slightest idea what kind of a bird it is." He says, "It's a brown-throated thrush. Your father doesn't teach you anything!" But it was the opposite. He had already taught me: "See that bird?" he says. "It's a Spencer's warbler." (I knew he didn't know the real name.) "Well, in Italian, it's a Chutto Lapittida. In Portuguese, it's a Bom da Peida. In Chinese, it's a Chung-long-tah, and in Japanese, it's a Katano Tekeda. You can know the name of that bird in all the languages of the world, but when you're finished, you'll know absolutely nothing whatever about the bird. You'll only know about humans in different places, and what they call the bird. So let's look at the bird and see what it's doing-that's what counts." (I learned very early the difference between knowing the name of something and knowing something.)

— Source: Classic Richard Feynman - The Difference Between Knowing the Name of Something and Knowing Something

A grey swan event coming to an end? and the shorting of credit - Bill Gross

We have had 40 years of a good run, 

bonds and real estate included!

He then goes on to explain why the "carry" trade will no longer provide the kind of returns investors are used to.

• Duration is unquestionably at risk in negative yielding markets. A minus 25 basis point yield on a 5-year German Bund produces nothing but losses five years from now. A 45 basis point yield on a 30-year JGB offers a current “carry” of only 40 basis points per year for a near 30-year durational risk. That’s a Sharpe ratio of .015 at best, and if interest rates move up by just 2 basis points, an investor loses her entire annual income. Even 10-year U.S. Treasuries with a 125 basis point “carry” relative to current money market rates represent similar durational headwinds. Maturity extension in order to capture “carry” is hardly worth the risk.

• Similarly, credit risk or credit “carry” offers little reward relative to potential losses. Without getting too detailed, the advantage offered by holding a 5-year investment grade corporate bond over the next 12 months is a mere 25 basis points. The IG CDX credit curve offers a spread of 75 basis points for a 5-year commitment but its expected return over the next 12 months is only 25 basis points. An investor can only earn more if the forward credit curve – much like the yield curve – is not realized.

• Volatility. Carry can be earned by selling volatility in many areas. Any investment longer or less creditworthy than a 90-day Treasury Bill sells volatility whether a portfolio manager realizes it or not. Much like the ”VIX", the Treasury “Move Index” is at a near historic low, meaning there is little to be gained by selling outright volatility or other  forms in duration and credit space.

• Liquidity. Spreads for illiquid investments have tightened to historical lows. Liquidity can be measured in the Treasury market by spreads between “off the run” and “on the run” issues – a spread that is nearly nonexistent, meaning there is no “carry” associated with less liquid Treasury bonds. Similar evidence exists with corporate CDS compared to their less liquid cash counterparts. You can observe it as well in the “discounts” to NAV or Net Asset Value in closed-end funds. They are historically tight, indicating very little “carry” for assuming a relatively illiquid position.

http://www.bloomberg.com/news/articles/2016-05-26/gross-trying-to-short-credit-to-reverse-four-decades-of-instinct

http://www.zerohedge.com/news/2016-06-02/bill-gross-explains-why-he-now-shorting-credit

https://www.janus.com/bill-gross-investment-outlook

Company borrow without needing to pay interest

http://www.bloomberg.com/news/articles/2016-04-25/unilever-to-join-zero-coupon-bond-club-as-ecb-expands-stimulus

Unilever sold euro-denominated bonds with a zero-percent coupon, the latest company to do so since the European Central Bank said it would expand its bond-purchase stimulus program.
The Anglo-Dutch maker of consumer products including Dove soap and Hellmann’s mayonnaise sold 1.5 billion euros ($1.7 billion) of securities in a three-part deal, according to data compiled by Bloomberg. The offering included 300 million euros of securities priced to yield 12 basis points more than benchmark rates and paying no coupon, the data show.
The ECB’s announcement in March that it will add corporate bonds to its quantitative-easing program has sent borrowing costs in the region toward record lows. Central bank President Mario Draghi said last week the expanded program will begin in June and it will include bonds from overseas companies with units based in the euro area.
“The ECB’s QE program has reduced interest rates to eye-wateringly low levels and its decision to buy corporate bonds has lead to extremely tight spreads,” said Conor Hennebry, managing director and co-head of northern European bond origination at Deutsche Bank AG, a bookrunner on the deal. “When you put together low interest rates, tight credit spreads and a great company, you get very cheap corporate bond deals.”
Unilever will use the proceeds from the sale for general corporate purposes, a spokesman for the company said by e-mail.  

http://www.bloomberg.com/news/articles/2016-05-10/latvia-undercuts-poland-with-longest-dated-bond-at-lower-yields

Poland, Belgium, Latvia, Spain ...etc all with 50 year bonds.




Why doesn't Singapore companies issue bonds with 5.15%?
http://www.straitstimes.com/business/invest/oxley-offers-4-year-retail-bonds-with-515-return

Oxley announced yesterday that it is offering up to $150 million in four-year bonds with a coupon rate - or annual return - of 5.15 per cent. The offer comprises $125 million in the public offer and $25 million for institutional investors.

Central Banks have no end game - Druckenmiller

I was reading the Sohn Conference notes and Druckenmiller's presentation struck out at me.

some points:

• in February of 1981, the risk free rate of return, 5 year treasuries, was 15%. Real rates were close to 5%.
• If the Fed was using an average of Volcker and Greenspan’s response to data as implied by standard Taylor rules, Fed Funds would be close to 3% today.
• despite the US global outperformance, we currently have the most negative real rates in the G-7.
• And smoothing growth over a cycle should not be confused with consistently attempting to borrow consumption from the future.
• As valuations rose since then, R&D and office equipment grew by only $250b, but financial engineering grew $750b, or 3x this! You can only live on your seed corn so long.  
•  unlike the pre-stimulus period, when it took $1.50 to generate a $1.00 of GDP, it now takes $7
• Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.

http://www.bloomberg.com/news/videos/b/3eef9cc2-25dc-4657-bc5c-470f2886d727

Druckenmiller: Bankers should be just making loans only.

more Druckenmiller:

http://www.valuewalk.com/wp-content/uploads/2015/04/Druckenmiller-_Speech.pdf