Month: September 2016

Would you trust a Tsukiji fish trader or the government to forecast the tuna market?


Believe all the propaganda from governments and central banks you want. This letter from Perry Capital tells us all we need to know. The fish smells off. This fish trader has had enough. They’re essentially saying the amount of manipulation in markets is too high and they can’t conscionably manage people’s money within that environment. Essentially they’re not prepared to advertise fresh deep ocean tuna to clients when it’s fished from a farm located downstream from a sewage plant and an oil tanker spill. At the same time we see Deutsche Bank shares make new lows and more clients ask for their money back. The run has started.

Dear Investors

Over 28 years ago, Paul Leff and I started a money management firm. Our catalyst oriented value approach combined financial analysis and active engagement with management teams to create attractive opportunities with asymmetric risk/reward. During this time, we provided capital to many companies and countries facing stress and distress. Our style worked well for many years and we had the pleasure of hiring, training, and working alongside some of the best people in this business who have significantly contributed to the success of Perry Capital. Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.

As a result, we have decided to wind down Perry Partners LP. We will manage the Fund’s wind down in the most effective way possible. We have been raising cash and plan to return a substantial amount of the fund’s capital in the beginning of October. The rest of the portfolio will be monetized in an orderly fashion and will be categorized by expected liquidation horizon: short term (2-3 months), medium term (6-12 months) and longer term (greater than I year).

We will prudently manage the remaining investments down over time. The short and medium term investments will be sold opportunistically but efficiently so as not to move markets or harm investment value. The longer term investments, for example the GSEs and some of the RMBS putback securities, will take time and energy to successfully realize an appropriate result. Our core team remains in place so that no effort or diligence will be compromised. We are committed to these investments and to you, our partners.

Going forward, we intend to return your capital quarterly. I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans. Our interests are aligned — the Perry funds represent almost all of my liquid capital.

Over the next few weeks, I hope to speak with many of you. I want to personally tell you how much I have valued your support and trust. Thank you for your partnership over the years.

All my best,

Richard Perry

Don’t forget Fox News is hosting the last debate


Has Trump been playing us for fools? Watching last night’s debate I could only think what a dreadful performance both candidates gave. On reflection if I had to score the debate I’d probably marginally award Clinton on the ability to string a sentence together but that’s looking with conventional eyes. Most media outlets awarded Clinton the win yet most online opinion polls (excluding the obvious outliers) scored Trump the victor. We know this election is anything but conventional. Is he testing the water? The last debate is being hosted by the conservative Republican biased Fox News. I’m sure questions on Benghazi, deleted emails, Clinton Foundation, pay for play related dirt plus anything Assange dredges up in October on Wikileaks could well be asked. What was said at the first debate will have been forgotten.

One would think Trump’s woeful performance would cause his minions to abandon hope and not bother showing up. Not so. I just finished watching Trump’s speech at the Melbourne, Florida rally the day after the first debate and 27,000 fans were hanging on every word. Chanting “USA USA USA” as he talks of American jobs, manufacturing, mining and oil.  If you watch the video even Wagner’s “Flight of the Valkyries” was being blasted as Trump’s Boeing 757 pulled up to the stairway in front of the hangar where his speech would be delivered. If only Hillary Clinton could get such crowds. Some conspiracy theorists argue she has been blue screening speeches with no crowds, one video showing her pointing to crowds that aren’t there but a flag instead. Regardless, Trump controls the mob  who are sick of the establishment.

I was interested in seeing the social media posts from Democrats on how she “whipped his azz” in the first debate. Pure common sense rationale would agree she took down Trump on tax returns and stiffing contractors as he didn’t answer well at all. Is this tactics? While Clinton was busy preparing to be a President, Trump was canvassing and stirring up the mob. His social media feeds dominate HRC’s. If the Democrats fall in to the trap of complacency after this debate we could well see The Donald get stuck in aggressively on Clinton’s long list of unethical activity. He mentioned everything in Florida the day after what he didn’t in the debate. A TelePrompTer might be one reason for his much smoother performance but his tireless travel to the poorer parts of America where people are hurting, places Hillary Clinton completely dismisses as Democrat-or-die voters, is where he’s winning. These people have had enough of the establishment. They know if they want change to their destitution and hardship Clinton will offer nothing. More than the emails which scored a direct hit on Clinton, Trump did make that point extremely well – why now after 26 years are you starting to think about it?” It struck a chord with many voters the ones many of us and certainly the establishment are probably so out of touch with. Deplorables or uneducated or whatever name tag that categories them would have felt that message the hardest. What have 40 years of presidents done for us?

I also argue that there are many people who are voting Trump but not prepared to admit it for fear of reprisal. At the ballot box they won’t need to past elections the Dems have always done better with higher voter turnouts. Something tell me 75%+ will show up at polls from the low 60% and below levels of the past but most will be using this election more as a referendum to boot the old guard out.

I had one exceptionally intelligent and well informed Republican friend who is thinking of voting Hillary but said if he didn’t stop watching her pathetic economic plan at the debate he might not be able to do it come voting time.

On reflection those Democrats thinking President Hillary Clinton is now in the bag because Trump made such a Horlicks of the first debate would do well to pay heed to the mood of the people. The mainstream media will write whatever they like with a sense of relief but Trump is a dangerous person to dismiss. He may have multiple shortcomings and speak with little grace but he knows how to play the media and while he acted this time as someone that didn’t get “baited by a tweet” he could well go into attack mode in debate 2 & 3 and have Fox News well and truly set the debate up to attack Clinton. Did you hear how much Trump cited Hannity? The protests from the media after the 3rd debate will go unheard just as they failed to tap into what is really going on in America all along – economic hardship and growing inequality. This is an election about the haves vs the have nots.

What we saw on Monday night may well have been a headfake. Almost as if he wanted to throw it away. There have been times before when Trump has behaved so irrationally (e.g.Khan taunts) then doubled down but he’s still ahead in the polls. It reminds me of the events leading to Czar Nicholas II of Russia. In the end the peasants had enough. They rose up and got change.

The only way to summarize is to say thinking conventionally about this election is the most risky method. Think deeply about all of the noise, lies, scams and biased media coverage you’ve seen since the middle of last year and ask yourself if “any” of it was even remotely normal. You see?

First Debate – Eddie the Eagle vs Eric the Eel in an Olympic biathlon

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What a miserable debate. No real winners but potentially 330 million losers. I akin the first debate to a show off between Eddie the Eagle and Eric the Eel in a fused summer/winter Olympic biathlon. Hardly setting the world on fire for raw talent or gripping viewing.

Both started the debate terribly. In the end both candidates couldn’t help themselves in focusing on ‘trust’ issues usually revolving around all of their respective scandals. Mud-wrestling was always expected but Clinton was rattled most at the “release 33,000 emails and I’ll release my taxes.” The audience even jeered against HRC.

Neither came across as “presidential”. Clinton retorted to Trump’s “rest” jibe with “I was preparing to be a president” again said with her trademark angry eyes. Truly irrelevant.

To me Clinton’s eyes did not project “confidence” ,certainly not “authority” something she has to do to stop the arrest in the polls. They project fear, anxiety or anger but not warmth and authenticity.

Trump repeated the word “jobs” too often. He did not bring the argument to any strong conclusions much like Clinton.

Trump’s best relevant points were talking of asset bubbles,  the risk of market crashes, $20 tn debt and the political biases of the Fed. The 33,000 emails was his most successful direct hit. Trump needed to continue on the “anti-establishment” tack. He started to but tailed off on it.

Clinton’s best points were rattling Trump on taxes and not paying his contractors. However I do not believe these issues are high enough up the voters issue list to be meaningful. Otherwise she didn’t dazzle.

Nobody won this debate convincingly. Hillary might have won oh so slightly on points but they were F-grade performances.  At the end Clinton jumped on the gender card – bad move. Once again moving away from the issues that really matter.

In closing, America is in such a parlous state and the fact we have these two candidates speaks volumes of how bad things truly are. Don’t forget that point.Also the last debate will be hosted by Fox which one would imagine plays to The Donald. By the way, Wikileaks next batch is due pretty soon.

They say young kids are always the best judges of people


They say kids are always the best judge of people. That their young minds do not have a filter so they process everything in black and white with no tact. Poor old Canadian PM Trudeau must be in deep shock at Prince George’s superior understanding of royal protocol.

The irony of it all is that Trudeau is the progressives’ champion of all that’s wrong with politics. The idea that he is so in touch with diversity and social issues created by the very policies he espouses. Idealism won’t fix the plethora of problems faced by the world, mostly economic. I thought his moral high ground speech at the UN was out of touch. Perhaps he could discuss with Merkel or Hollande at how diversity is working for them. I’d honestly suggest Orban but on reflection Trudeau may require a safe space if he got the message that straight.

Thank you, Your Majesty, for pointing out he isn’t as hip as he makes out.

Three absolute guarantees at the debate none relevant to facts


Three absolute certainties at this debate:

1) supporters from either camp will protest at the moderator’s hardness/softness on their/opponents questions. Even Jimmy Fallon was the subject of attack for not asking probing questions on a late night comedy show.

2) the mass media will spin completely irrelevant and biased commentary on their version of events and social media interpretations will “share” the same nonsense but wholly miss the point.

3) In reality most viewers are likely to be watching their baseball team on stage and regardless of the reality will back them.

I’m not sure if the reality is slowly sinking in for some seeing the polls reverse so suddenly but as I’ve pointed out countless times, Trump would never have seen the light of day had the state of the economy since GFC truly been a miracle. To turn that argument in its head do you not find it intriguing that Obama is so vigorously and frequently on the campaign trail trying to defend his legacy? If it were so crystal clear that his achievements were unquestionable he would be able to be working on his tee-off right now rather than furiously telling others that they’ll insult his legacy if they don’t vote. It’s very telling. Even more telling is WaPo’s poll putting Trump in the lead. Pretty sure it’s much wider.

Intriguing quote in Deutsche Bank’s funding sheet. What if all of a sudden there is a run?


By now most people know that Germany’s once gargantuan Deutsche Bank is trading at all time lows. Over the weekend Angela Merkel said the German government saw no grounds to bail it out although I’m sure if it comes to it Germany will be under so much international pressure to save it because of the systemic risks that a failure would pose to global financial markets. Europe’s fashionable bail-in concept means the ultimate victims are those that have lent to it – whether individual depositors or wholesale lenders. Is it any wonder Italian PM Renzi is ignoring the EU rules and likely to bail out the world’s oldest bank?

Deutsche’s most recent funding blurb says the following:

“Diversification of our funding profile in terms of investor types, regions, products and instruments is an important element of our liquidity risk management framework. Our most stable funding sources come from capital markets and equity, retail, and transaction banking clients. Other customer deposits and secured funding and shorts are additional sources of funding. Unsecured wholesale funding represents unsecured wholesale liabilities sourced primarily by our Treasury Pool division. Given the relatively short-term nature of these liabilities, they are primarily used to fund cash and liquid trading assets…

…Credit markets in 2015 were affected by continued political uncertainties in the euro zone, the ongoing low interest rate environment as well as the implementation in a number of jurisdictions, including Germany, of measures intended to reduce the levels of implicit sovereign support for banks, with a consequential impact on bank senior ratings. Our 5 year CDS traded within a range of 61 to 110 bps [trading at 247bps today], peaking in July. Since then, the spread has slightly declined and as of year-end was trading at the higher end of the range for the year…

…In 2016, our base case funding plan is up to € 35 billion which we plan to cover by accessing the above sources, without being overly dependent on any one source. We also plan to raise a portion of this funding in U.S. dollar and may enter into cross currency swaps to manage any residual requirements. We have total capital markets maturities, excluding legally exercisable calls of approximately € 22.4 billion in 2016.”

Naturally it presents an interesting question. If you are lending to DB how much faith do you put in the government to bail it out? Even if you weight the chances as high on a “too big to fail” argument (which is becoming somewhat hard to justify on grounds of market cap) premiums have to go up to compensate which at the ridiculous rates we are at has a far greater relative impact on profitability. I’m not sure how much of the € 22.4 billion in 2016 has been funded already but I’m sure those with money due in 2017 will have to take a longer look.

But we shouldn’t worry. Deutsche’s CEO is on record as saying “funding is not on the agenda”. I always love the way banks talk about their risks. Who could forget former Goldman Sachs CEO and Treasury Secretary Hank Paulson in March 2008 before GFC:

“We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible.”

Of course banks always push the denial line when in trouble. They have no choice. No doubt the internal emails at DB have a”message” to staff – where what is written doesn’t resemble anything like the reality faced everyday by the minions. That is the folly of working in an investment bank – the internal politics get ever nastier until there are no more lifeboat passes left and no life jackets to give.

Throw in a good Trump performance tonight and global markets will be even more skittish – then again it might be they are finally waking up to the reality of the disaster central banks have put the world into.

This is an election, not a coronation

Image result for napoleon self coronation

“This is an election, not a coronation!,” said  one of my learned friends cynically after being lectured to about which people would staff the coming Clinton Administration. It surprises me how  so many Democrat supporters believe this election is a done deal.

The pervading view is that Trump is completely clueless, certainly what the mass media would have us believe. An article written in March 2016 in the Australian said the following,

“What an indictment of the mainstream media the Donald Trump phenomenon is. How is it possible to so misunderstand the mood of the American people? How could they miss the obvious? Perhaps when your opinions are formed in an echo chamber and you allow blind prejudice to substitute for serious reflection, it’s not really surprising…”

Let’s put it this way, if Trump pulls off a half decent performance at the first debate that shows he can handle numbers and sound informed on issues that matter  (watch his Roanoke, Virginia speech from 1.25.00) rather than just rant slogans (as he is often accused of) Clinton is in for an election drubbing.

I don’t know if I speak for many but when watching political debates I look to see the authenticity in the candidates. The eyes are always a give away. If candidates don’t project ‘warmth’ it is very hard to believe whatever comes out of their mouths. This is the difference between Trump and Clinton. His hair ruffling moment on Jimmy Fallon showed the bully had ‘humility’ (8mn views). If you watched Clinton on “Between two ferns” (9mn views) in what was supposed to be a comedy sketch designed to show her humorous side it actually revealed her to be the cold and angry landlady yelling at you for letting your kids leave their bicycles in the front entrance.

Once again, this is an election, not a coronation. The only way I see Trump losing this is through a total meltdown at the debate or ‘something’ happens to him. Outside of that this election will be a true reflection of the realities of the state of the nation. On that count I think Hillary Clinton hasn’t got a hope.

The irony of this election is that it is a vote for Trump or a vote against Trump which does not automatically equate to an endorsement of Clinton. All the while I smell all of the same hubris that was prevalent at the time before Brexit. The constant moral and intellectual superiority arguments that demeaned rather than educated. The people are sick of being lectured to by the establishment. Prepare to be shocked. Perhaps this isn’t an election but a referendum.

President Trump – why it might not be as improbable as you think


This election has always been Hillary Clinton’s to lose

To date, US presidential election campaign spending on traditional formats (e.g.TV, radio, newspapers, billboards) have shown the Clinton camp has used up over $145mn versus the Trump team’s $4.4mn. Clinton even made the remark that “why aren’t I 50-points ahead? You might ask?” Effective use of social media seems to be a factor. The Clinton team should be concerned at the lack of impact. Anything short of a landslide win should be considered a large warning to the DNC.

I am not a fan of Twitter. Let’s get that straight. It is usually a cesspit of vile abuse with little or no content. However, our two US presidential candidates are furious tweeters. Since the results from the primaries for both parties, both Clinton & Trump were around the early 4 million follower mark, the highest among all candidates. Since then, Trump has streaked ahead, making far better use of the platform, garnering over 11.7 million followers versus Clinton’s 8.9mn. We remind readers of our elections piece where we showed the high correlation of Twitter followings to election victories. Of course it isn’t an exact science. If Twitter was all that mattered, then Katy Perry could easily be the first female president.

When we look at other social media sites the pattern is the same. Trump’s Facebook followers number 10.77mn vs 6.06mn for Clinton and Instagram puts the Republican nominee at 2.4mn followers vs 2.1mn for the Democrat nominee.

In short Trump has 5.4x the impact of Clinton on re-tweets (RT) and 4.3x on Likes. On Facebook Trump has 2.5x the impact on shares and 3.4x the reach on Likes.

The first debate is set to kick off this week on Sept 26th (or Sept 27th at 10am in Japan). With Trump likely to have his tail up in the polls and Clinton fighting against a wave of health, credibility and authenticity issues it will be an interesting debate. Perhaps blood sport might be a better way of describing the contest. Trump talks like someone from a bar stool. Clinton will try to remain polished and composed.

It will not be down to what is said but how it is said. Of course Trump is likely to go for the jugular and potentially turn the debate into a trial with defendant Hillary Clinton in the witness box. This will be unlike any presidential debate before. In the past, they have been somewhat Harvard Debating Society meets where eloquence and delivery are the order of the day.

Clinton must project warmth. To date she has struggled to do this effectively. I doubt that she will be able to avoid attacking Trump but the only way to remove wood from his fire is to direct the debate to her ideals and plans to persuade Americans she is the better choice. Targeting The Donald’s ‘incidents’ will detract from what voters want and invite the bully to pick off her numerous issues which she does not need to have raised. The crowd expects it of Trump and when it comes to slinging mud I’m afraid the reality TV man will win such an argument.

Clinton must also avoid making gender an issue in this debate. Americans don’t care. Should she raise it during the meet or afterwards she will only expose herself as desperate.

When reading the mood of Americans Trump has been far more effective and ‘fresh’. Clinton has played her cards very safe which in this election seems a dangerous strategy. Defending a lead was all she thought that was necessary to win but with this gone she has allowed Trump a much easier run to the Oval Office.

Let the fireworks begin.

State income taxes coming under fire


The Rockefeller Institute writes that income tax revenue has fallen in the US and the likelihood is that they have to revise down 2017. Once again all signs of the US economy underachieving.

“[Tax]  information was available and easily retrievable for seventeen states and the data are presented in Table 3 for the months of April 2015 and April 2016. In eleven out of seventeen states, personal income tax collections in April 2016 were below the forecast levels, and in fourteen states they were below the April 2015 levels. The negative April surprises would certainly push the states to revise the forecasts for fiscal 2017 in the coming months…Overall, the average growth rate in sales tax collections is low by historical standards. Many consumers are more cautious in their discretionary spending in the post Great Recession period and have had little wage growth to support spending growth. 

While there were some slight tax rate adjustments among states, none-the-less the prognosis was

“As discussed in previous State Revenue Reports, the median state forecasted a slight slowdown in tax revenue growth in 2016 relative to 2015. We believe the results will be even worse than had been expected when data for the weak first calendar quarter of 2016 and the negative second quarter are reflected.”

Interesting to look at the trend of tax declarations/payments in Table 9. Doesn’t look a happy table.


We should remind ourselves of the massive (unfunded) holes in US State run pension funds. That runs at $8.4 trillion. With a low inflation environment and long term returns looking much harder to achieve, lower tax receipts will only weigh down on the ability of states to be able to shore up the deficits.

Goldman Sachs to cut 30% of Investment Bankers in Asia


Goldman Sachs (GS) has  long been regarded as a leader in the financial services sector. Bloomberg reports that the company is looking to reduce 30% of its Asian Investment Banking (IB) team.  GS’s Return on Equity (ROE) can be seen here. They are 1/3rd of those at the peak in FY2007. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.


Looking at other juggernauts Deutsche Bank is awful on any measure. It has been on a long term slide since the blow up during GFC

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Even National Australia Bank with its tail up on housing in Australia has not exactly seen ROE improve.


In Japan,  Mitsubishi  UFJ Financial Group has not set the world on fire.


While central banks keep running the line that things are “pleasing”, financial services companies aren’t feeling the love.