Alternative Thinking on Today's Market Events
The Daily Alpha - 09.21.15

Alternative Thinking on Today's Market Events
The Daily Alpha - 09.21.15

Garrett Baldwin

Here are your five quotes of the day on Alternative Investment and the Global Markets

1. “All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realize they should be easing and not hiking,”

As noted on Friday, employment and inflation data stink.

But that didn’t stop the hawks from taking flight over the weekend. James Bullard at the St. Louis Fed came out and said he would have broken ranks against the dovish Fed on Thursday.

Is Bullard aware that it’s the St. Louis Fed’s data that show that we’re nowhere close to full employment? (For more, see Friday’s note on Americans 25-34 in the workforce.)

For political reasons, the Fed made no mention of “China” when it cited events outside of the U.S. and the impact on inflation. For economic reasons, it offered no mention of “deflation,” which now knocks on the door with official inflation levels hovering at 0.2%.

The Fed Chair even said that quantitative easing is not driving the income inequality in the U.S, a topic that is going to dominate the 2016 election cycle, but few Americans will understand the impact of government and Fed policy on this phenomenon.

With three rounds of QE, the U.S. economy received no median wage growth, little inflation movement, a lackluster employment sector with numbers are cooked, and 95% of income gains going to 1% of the nation.

What else has QE produced?

In an interview with the Financial Times, Passport Capital’s John Burbank says that QE produced a massive misallocation of capital around the globe. Afterward, a rapid flight to the dollar transpired after the central bank turned off the faucet. 

The hedge fund leader says that the Fed – and the markets -- are only now realizing the consequences.

Burbank makes a strong case that about the impact of QE on emerging markets then and now.

The only challenge to Burbank’s statements is that the Fed will realize that its policy was behind these events.

After all, the Chair blatantly denied that its monetary policy prescriptions have been the primary driver of wages to wealthy Americans over the last six years. So, is more QE on the way?


2. "It's certainly one of the largest Ponzi schemes that I can recall."

It turns out that Hollywood IS just like the rest of America.

A producer and director have been arrested and jailed for allegedly spearheading a massive Los Angeles film finance Ponzi Scheme. Michelle Seward and director Dror Soref – persuaded the former’s clients to invest into their projects, even though neither had any license to offer that sort of advice.

According to case records, “Defendants specifically targeted unsophisticated senior investors when offering and selling the above-described securities. In many instances investors entrusted their entire life savings to the Defendants with the hopes of earning substantial returns to protect them during their golden years, and to cover necessary expenses such as food, housing and medical care."
The jailed pair was best known for a feature flop called Not Forgotten, which featured Simon Baker of The Mentalist and the Devil Wears Prada. (Thanks IMDB)

Director Dror Soref was also the director of “Weird Al” Yankovic’s Ultimate Video Collection – so in his defense, hasn’t he suffered enough already?

Here’s the full story of the perp walk.


3. “It’s called ‘two-envelope problem’”

No doubt that hedge fund interviews are difficult. There’s a certain blend of mathematical prowess, logic and mental reasoning that funds seek in new hires.

But here’s a tricky question offered to eFinancialCareers by a former hedge fund trader.

Can you solve it?


4. "We've removed the apps from the App Store.”

Another day, another major security breach of a large international company.

Over the weekend, Apple announced that its App store experienced its first major breach by hackers who planted malicious software into several applications.

Want to know why it happened? Because human beings are easy to fool.

The malware was able to convince developers to use a modified version of Xcode, the software used to make iOS and Mac software. The technology looked authentic, had all the same functionality, and earned trust. These hackers used social engineering, a process outlined at the Alpha Pages last week, that exploits the human element of companies.

It’s a major theme in this month’s print edition of Modern Trader called Assume Breach.

Modern Trader sat down with four ethical hackers to explore how they could break into a Chicago trading exchange, why it’s much easier to break into your phone than mobile companies promise, and other issues that will surely keep Chief Information Security Officers up at night.

Read the story, right here.


5. “Meanwhile, private tech companies such as Uber boast valuations greater than $50 billion. Only 87 of the companies in the S&P 500 can say the same thing.”

Bloomberg provides the paper, Credit Suisse provides the match.

Over the weekend, the banking giant released a 52-page research note highlighting the massive valuations in the tech sector. As noted, big companies like Google and Ford are partnering with “sharing economy” companies in a number of emerging spaces.

In a “tell me something new” about tech evaluations piece, Credit Suisse and CB Insight provide two stunning images of the money pouring into technology “Unicorns” over the last six years.


As the writer explains, there’s a lot of fuzzy math behind many of the valuations that Credit Suisse highlights.

The most interesting sentence from the full article doesn’t come from any Credit Suisse or CB Insights data. It’s a random statement that appears to be proposed by the author – who according to her LinkedIn bio – was probably in elementary school the last time this became a problem.

“You also have some bigger funds investing in the startups simply because they know they will have to have them in their portfolio for clients at some point, so why not get in before they go public?”

Well, five reasons come to mind… and no one needs to rehash the 2000 bubble.

Unless we’re talking about A10 Networks (ATEN), COUPONS.com (COUP), Groupon (GRPN), Zynga (ZNGA), and Zulily (ZU).

But this time is different… didn’t you know that?

Another important statement here is that big corporations are partnering with sharing companies…

Though the writer makes no mention, they aren’t buying them outright. Back in 2000, there might have been rampant M&A dealings. Perhaps someone did learn from the madness of Y2K.


Editor’s Note: Remember, The Alpha Pages is seeking contributors from writers and companies on the alternative investment sector. Be sure to read our latest stories each day at Alphapages.com

And feel free to follow @garrettbaldwin.


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