Archive for the ‘Phil’s Favorites’ Category

News You Can Use From Phil’s Stock World

 

Financial Markets and Economy

Iron Ore Market Seen Collapsing Below Last Year’s Nadir: Chart (Bloomberg)

The iron ore market is about to swoon, according to Westpac Banking Corp., which forecasts benchmark prices may sink below last year’s nadir of $38.30 a metric ton. 

Fear! M1 Money Multiplier Remains Below 1.0 Since End Of Great Recession (And Financial Crisis) (Confounded Interest)

The M1 Money Multiplier is the ratio of M1* to the St. Louis Adjusted Monetary Base and it has been below 1.0 since June 2009, the end of The Great Recession (at least according to the NBER). The culprit? The massive increase in excess reserves.

Oil Rises as Investors Parse Yellen Remarks for Rate-Hike Clues (Bloomberg)

Oil closed higher after swinging between gains and losses as investors parse a speech by Federal Reserve Chair Janet Yellen for signs of when the central bank will raise interest rates.

Japan Stocks Fall Ahead of Yellen as Insurers, Carmakers Slide (Bloomberg)

Japanese shares retreated, erasing the benchmark equity index’s gains for the week, as insurers and carmakers led losses before Federal Reserve Chair Janet Yellen’s speech.

Existing Home Sales Fall -3.2% In July … Back To 2001 Levels (Inventory Has Declined For 14 Straight Months) (Confounded Interest)

Existing home sales are out for July and they were down -3.2% in July with 5.39 million units SAAR added.

Unfortunately, existing home sales are only back to 2001 levels.

China Tightening Risk Seen Looming as Bonds, Property Surge (Bloomberg)

Frothiness in parts of China’s financial markets is pushing the central bank closer to tightening monetary policy.

Mortgage Purchase Applications Fall -2.11% WoW (The Slow Recovery In One Chart) (Confounded Interest)

Hey, it is August! Mortgage purchase applications often peaked in April or May and then begin the long slide down until the end of the calendar year.

China’s Oil Industry Destined for Big Changes (The Wall Street Journal)

China’s largest oil fields are the stuff of


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One Million Market Beaters

Wow. If you’re planning to beat the market by being an exceptional stock picker, this article is a MUST READ.

One Million Market Beaters

Courtesy of Michael Batnick, The Irrelevant Investor

  • Uncertainty remains, but Florida is in the cross hairs.
  • What to expect today after tornado outbreak.
  • Why we’re watching Gaston closely now.

These headlines were pulled from a few articles today at weather.com. You could seamlessly replace Florida, tornado, and Gaston with a stock because like the weather, markets are highly complex with countless variables that can’t fully be modeled.

In his highly entertaining book, But What If We’re Wrong, Chuck Klosterman talks about how much money has been spent trying to predict the weather:

Somebody once told me a joke about meteorology. The premise is that we’ve been trying to predict the weather since 3000 BC. The yearly budget for the National Weather Service is $1 billion…Even a conservative estimate places the annual amount of money spent on meteorology at somewhere around $5 billion. And as a result of this investment, our weather can be correctly predicted around 66 percent of the time. As a society, we can go two out of three. Yet if some random dude simply says, “I think the weather tomorrow will be the same as the weather today,” he will be right 33 percent of the time. He can go one for three. So we’ve invested hundreds of billions of dollars and countless hours into meteorological research, with the net effect of becoming twice as accurate as some bozo who looks out the window and points at the sky.

The Wall Street Journal just reported that U.S. mutual funds spend more than $300 million every year to send investors written reports. This is an astonishingly large number, but it’s peanuts compared to how much they spend trying to beat their benchmark. And while the net effect of becoming twice as accurate as some bozo might be true with the weather, it’s the opposite with investing.

The chart below from Dimensional Funds shows that all a bozo has to do to beat the majority of professionals is buy an index fund.

index dimensional

There are a number of explanations as to why funds…
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China’s Great Divide: A New Cultural Revolution?

Courtesy of Charles Hugh-Smith of Of Two Minds

In Asia, it's generally seen as unpatriotic to criticize one's country in public, even if you disagree with its direction and leadership. The cultural norm is to maintain the "face" of one's country by hiding its ills from outsiders.

This reticence is especially evident in China, which suffers from the memory of being subjugated by the Western imperialist powers in the late 19th century and early 20th century.

As a general rule, you will rarely hear any profound criticism of China unless you are considered a trusted friend; giving China a black eye in public is frowned upon, even by its domestic critics.

For this reason, the majority of the Western media has very little grasp of what worries Chinese people. Recently, I have heard fears of a Second Cultural Revolution being expressed in private.

There is a Great Divide between generations in China: on the one side is the older generation that remembers the Maoist era with some nostalgia and the terrible adversities of the Cultural Revolution (1966 – 1976). On the other side is the young educated, prosperous generation which has only known consumerist prosperity and personal advancement.

The ideals of the old communes are an abstraction to the young generation, as are the terrible costs of the Cultural Revolution.

A resurgence of devotion to Mao has caught authorities off-guard; they can't very well suppress public displays of secular worship of the Party's founder, but raising Mao's revolutionary ideals from the dustbin of history implicitly challenges the Party's current leadership.

The older generation resents the young consumer-obsessed generation, and some would like to purge China of the excesses of wealth and consumerism.

It's not too difficult to see how rising unemployment (China's Hidden Unemployment Rate) and China's enormous wealth inequality could spark a new Cultural Revolution that would target Party leaders who have benefited from the state-managed neoliberal capitalism that has greatly enriched the leaders and their family dynasties.

In effect, a return to the party's Maoist roots would open divisive fissures in the Party and the nation. Farfetched? Perhaps not as much as the conventional sugar-coated media representation would suggest.

The status quo


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Fed’s Bullard Warns Yellen on Credibility, Sticks with Forecast “1 Hike in Next 2.5 Years”

Courtesy of Mish.

Today has certainly been entertaining.

First, Janet Yellen came out with a chart showing there was a 70% chance that rates would be between 0% and 4.5% in 2018.  Is the 90% confidence level -1.0 to 6?

This was followed up by a blast from St. Louis Fed president and FOMC voting member James Bullard that the Fed’s Forecast of Gradual Rate Hikes is Damaging its Credibility and the Economy.

Bullard 1 hike

The Federal Reserve’s forecast of gradual rate hikes is damaging the economy and the central bank’s credibility, said St. Louis Fed President James Bullard on Friday.

In an interview on CNBC, Bullard stuck to his forecast of one rate hike over the next two-and-a-half years.

Bullard, who is a voting member on the Fed’s policy committee this year, said he was “agnostic” about exactly when the Fed should take that one step but did not seem eager to move at the September meeting.

Bullard said he thought it would be best to raise interest rates after there had been some “good news about the economy.” While there has been two good jobs reports, “year-over-year GDP growth rate is very low,” he noted.

The St. Louis Fed head said he was trying to “break down” the Fed’s “on-the-cusp-of-200-basis- points story” for interest rates over the same forecast horizon.

Asked if he believed the Fed’s forecast was damaging the economy, Bullard replied, yes.

“I think that it is hurting our credibility. By the end of this year, we’ll be two years into the process since [quantitative easing] ended, maybe have moved twice at this point. So I think that is affecting global pricing. You’ve got this policy divergence story that has been in FX markets for a long time here,” he said.

“We want to line that up better with a more realistic assessment of what is going to happen over the forecast horizon,” he said.

Realism From Yellen

Jackson1

Isn’t that “realistic”?

Perhaps not. What are the odds rates go negative in the next downturn?


Continue reading here…





Rate Hike Odds Soar Following Yellen’s Speech: Before and After Snapshots vs. Yesterday

Courtesy of Mish.

Just for grins, I took snapshots of the rate hike odds for September and December from CME Fedwatch this morning, then again just a bit ago, after Yellen’s speech.

Here are the results from before and after her speech compared to yesterday.

September Rate Hike Odds

Fedwatch 2016-08-26B

December Rate Hike Odds

Fedwatch 2016-08-26A

The market does not seem to be too pleased with this idea, at least at the moment.

How Many Hikes Coming in 2016?

— Mike Shedlock (@MishGEA) August 26, 2016

Mike “Mish” Shedlock





Welcome To The Third World, Part 18: Pensions Overwhelm Public Services

Courtesy of John Rubino.

Citizens of the developed world are watching Venezuela’s descent into financial and political chaos mostly, it seems, with amused detachment, safe in the assumption that we’ll never end up hunting our cats and dogs for food.

But – since Europe, Japan and the US are making essentially the same mistakes as Venezuela’s past and present governments – we might want to question that certainty. Consider what’s happening in the third biggest US city:

Chicago’s detective force dwindles as murder rate soars

(Reuters) – Every two weeks, Cynthia Lewis contacts the detectives investigating the homicide of her brother on Chicago’s south side almost a year ago.

They have had no success finding who shot Tyjuan Lewis, a 43-year-old father of 15, near his home in the quiet Roseland neighborhood of single-family houses.

The death of Lewis, who delivered the U.S. mail for 20 years, is one of hundreds of slayings in 2015 that have gone unsolved as the number of homicides soared in Chicago, piling pressure on a shrinking detective force.

In a city with as many as 90 shootings a week, homicides this year are on track to hit their highest level since 1997.

Chicago’s murder clearance rate, a measurement of solved and closed cases, is one of the country’s lowest, another sign of problems besetting police in the third biggest city in the United States.

Detectives and policing experts interviewed this week said Chicago struggles to solve murders because of declining numbers of detectives, the high number of cases per detective and because witnesses mistrust the police and fear retaliation from gangs.

The number of detectives on the Chicago police force has dropped to 922 from 1,252 in 2008. One detective who retired two months ago said investigators are overwhelmed. “You get so many cases you could not do an honest investigation on three-quarters of them,” he said in an interview. “The guys … are trying to investigate one homicide and they are sent out the next day on a brand new homicide or a double.”

Why should a city as apparently affluent as Chicago have such a nightmarish crime situation? Because it’s not really that affluent. Like most of the rest of the formerly-rich world, Chicago ran out of money years ago and has been more-or-less secretly borrowing to cover the shortfall. Its public


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A Comprehensive Look at Dividend Growth Stock Valuations Sector by Sector: Part 2

Courtesy of Chuck Carnevale

Introduction

Finding attractively valued dividend growth stocks is getting harder and harder to do.  The overall market has been on a relentless advance for many years now, and high quality dividend paying growth stocks have been leaders.  Consequently, valuations have become extended beyond historical norms and I contend prudence.  Nevertheless, there are attractive dividend growth stocks available if you’re willing to look hard enough.

In part 1 of this two-part series I reviewed the prestigious S&P Dividend Aristocrats looking for attractively valued dividend growth stocks.  Although I was able to identify a few potentially attractive research candidates in the Dividend Aristocrats, I lamented that the pickings were slim.  I also presented examples of extremely high quality Dividend Aristocrats that have become significantly and uncharacteristically overvalued relative to their fundamentals.  I did this for perspective.

In this second installment I have broadened my scope looking for attractive dividend growth stocks wherever I can find them.  Later in this article I will present several examples of apparently attractive dividend growth stock research candidates across several sectors and subsectors.  One important aspect of this exercise is to illustrate that the best valuations are primarily limited and available in only a few sectors.  But most importantly, as should be expected in a strong bull market like we have today, the best valuations are generally found in the individual companies and sectors that are currently out-of-favor.  To paraphrase the legendary Warren Buffett, you can’t buy what’s popular and expect to do well.

When conducting my research and screening for attractive dividend growth stock research candidates, my primary focus was on attractive valuation.  However, I was also looking for companies with the most consistent and reliable historical records of earnings and dividend growth.  However, companies with perfectly consistent operating histories are rare.  Therefore, I included a few examples without stellar long-term records, but reasonably attractive records over the past five years or so.  Nevertheless, I did exclude several companies that were technically attractively valued, but in my judgment I did not like the significant inconsistency or cyclicality in their operating histories. 

Additionally, I limited my screen to companies offering a current yield of 2% out to a maximum of 5% for traditional companies, but I did include a few REITs with higher yields. 


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Another Warning Sign

Courtesy of Lance Roberts via Real Investment Advice

Would Another $4 Trillion In QE Work?

Just recently, David Reifschneider, deputy director of the division of research and statistics for the Federal Reserve board in Washington, D.C., released a staff working paper entitled “Gauging The Ability Of The FOMC To Respond To Future Recessions.” 

The conclusion was simply this:

“Simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in most, but probably not all, circumstances.”

In other words, the Federal Reserve is rapidly becoming aware they have become caught in a liquidity trap keeping them unable to raise interest rates sufficiently to reload that particular policy tool. As I have discussed in recent weeks, and below, there are an ever growing number of indications the U.S. economy is currently headed towards the next recession. 

He compares three policy approaches to offset the next recession.

  1. Fed funds goes into negative territory but there is no breakdown in the structure of economic relationships.
  2. Fed funds returns to zero and keeps it there long enough for unemployment to return to baseline.
  3. Fed funds returns to zero and the FOMC augments it with additional $2-4 Trillion of QE and forward guidance. 

In other words, the Fed is already factoring in a scenario in which a shock to the economy leads to additional QE of either $2 trillion, or in a worst case scenario, $4 trillion, effectively doubling the current size of the Fed’s balance sheet.

Here is the problem with the entire analysis. It assumes a normalized economic environment in which the Federal Reserve has several years before the next recession AND that large-scale asset purchases actually create economic growth. Both are likely faulty conclusions.

First, the current economic expansion is, by many measures, extremely long and is currently pushing the fourth longest expansion in history. Interestingly, this expansion is also the weakest of any expansion previously.

Economic-Recoveries-082516

Secondly, is the


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Next time you hear “Bond Liquidity Crisis”, show them this

 

Next time you hear “Bond Liquidity Crisis”, show them this

Courtesy of Joshua Brown, The Reformed Broker

I’m out all day at a Dimensional Funds applied investment workshop in midtown but I wanted to check in with something cool we’re discussing…

David Plecha, the global head of fixed income at DFA, doesn’t believe in the bond market “liquidity crisis” meme that the newspapers like to trot out every few weeks.

Rather, he views what’s going on as an evolution and not a crisis or a problem – the fixed income market is about 20 years behind the stock market’s evolution but headed in the right direction. Peer to peer trading between buyside shops is the future and the new source of liquidity. These days, buyers can also be sellers and anyone can submit a quote for bids or offers.

The dealers’ role, meanwhile, is changing to more of a frequent trader rather than an inventory provider / middleman.

What’s actually going on is that volume in the bond market is high, back to where it was pre-2008 crisis. This is counter to the narrative you typically hear from disgruntled dealer desks and reporters.

What is very different is that dealer inventories have shrunk considerably. This is because of capital requirement rules like Basel III that force banks to be less leveraged and to carry less risk. Banks have responded by shedding inventory and turning over their supply of bonds more frequently. Trading velocity is way up. Dealers are buying and turning around quickly to make a sale.

Here’s what it looks like:

Screen Shot 2016-08-25 at 2.20.48 PM

The next time you hear someone say “bond liquidity crisis”, show them this.

Okay, see you tomorrow.

Source:

Dimensional Fund Advisors
August 2016





Why is the Fed So Desperate to Hike?

Courtesy of Mish.

Yellen’s speech today in Jackson Hole shows a Fed that appears desperate to hike rates. Why?

Here are the last four quarters of GDP.

  • 3rd Quarter 2015: 2.0%
  • 4th Quarter 2015: 0.9%
  • 1st Quarter 2016: 0.8%
  • 2nd Quarter 2016: 1.1%

It’s highly unlikely the Fed believes 1% is the new normal for robust growth. So why is it so desperate to hike rates?

Top Reason Fed Wants To Hike

1. Asset bubble worry

2. Strong jobs inflation

3. So it can cut later

4. Fed clueless

— Mike Shedlock (@MishGEA) August 25, 2016

No Confidence

Despite wanting the hike, a Yellen slide from the Jackson Hole symposium shows the Fed has little confidence that it will hike.

Jackson1

For details please see Yellen Discusses “Tools”: She’s 70% Confident That Rates will Be between 0 and 4.5% in 2018.

Mike “Mish” Shedlock

[Originally published at MishTalk.]





 
 
 

Zero Hedge

Recession Odds Spike To 37%, JPM Calculates, Highest Yet For This Cycle

Courtesy of ZeroHedge. View original post here.

While not as dire as the recent analysis by Deutsche Bank which calculated that a recession over the next 12 months is more than likely, with odds rising to 60%, overnight JPM released its latest recession probability analysis, and - somewhat unexpectedly following the last two stellar job reports and a full court political press that the recovery has rarely been stronger going into the election - now sees a 37% chance of a recession in the next 12 months. This is the highest ...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Iron Ore Market Seen Collapsing Below Last Year’s Nadir: Chart (Bloomberg)

The iron ore market is about to swoon, according to Westpac Banking Corp., which forecasts benchmark prices may sink below last year’s nadir of $38.30 a metric ton. 

Fear! M1 Money Multiplier Remains Below 1.0 Since End Of Great Recession (And Financial Crisis) (Confounded Interest)

The M1 Money Multiplier is the ratio of M1* to the St. Louis Adjusted Monetary Base and it has been below 1.0 since June 2...



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Phil's Favorites

One Million Market Beaters

Wow. If you're planning to beat the market by being an exceptional stock picker, this article is a MUST READ.

One Million Market Beaters

Courtesy of Michael Batnick, The Irrelevant Investor

  • Uncertainty remains, but Florida is in the cross hairs.
  • What to expect today after tornado outbreak.
  • Why we’re watching Gaston closely now.

These headlines were pulled from a few articles today at weather.com. You could seamlessly replace Florida, tornado, and Gaston with a stock be...



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ValueWalk

IMF knew the euro had serious flaws, Sacrificed Greece

By Mauldin Economics. Originally published at ValueWalk.

BY JOHN MAULDIN

There’s a new chapter in the ongoing tale of IMF incompetence. Take a look at this UK Telegraph headline that recently caught my eye.

The love affair was no surprise. Nor was the fact that the IMF had taken part in the immolation of Greece. No, the surprise was that the IMF would publicly disclose the extent of incompetence and massive rule breaking that had taken place.

The Ambrose Evans-Pritchard byline told me this would be a good story. Here’s his lead:

The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleade...



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Chart School

S&P 500 Snapshot: A Modest Loss Follows the Jackson Hole Drama

Courtesy of Doug Short's Advisor Perspectives.

This morning's Second Estimate of Q2 GDP at 1.1% was a ho-hum event in advance of Fed Chair Yellen speech at Jackson Hole. And indeed the intraday range volatility of today's session was at the 70th percentile of the 165 market days of 2016 and the widest in 37 sessions. The S&P 500 opened higher, rallied with the opening of her speech, and then sold off sharply during with Vice Chairman Stanley Fischer's suggestion that a couple of rate hikes this year were possible. The index bounced back later in the afternoon to its -0.16% Friday close. The index is down 0.68% for the week.

The yield on the 10-year note closed at at 1.62%, up four basis points from the previous close.

Here is a snapshot of past five sessions in the S&P 500.

...

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Kimble Charting Solutions

Basic Materials attempting breakout says Joe Friday

Courtesy of Chris Kimble.

Basic Materials stocks can often times give a decent snap shot of how an economy is doing from a growth or lack of perspective. Below looks at Basic Materials ETF (IYM) over the past decade.

CLICK ON CHART TO ENLARGE

IYM remains inside of an upward sloping mult-year rising channel (1), since 2009. It hit the bottom of this channel earlier this year and has bounce off support. Currently IYM is testing f...



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Biotech

Epizyme - A Waiting Game

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...



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OpTrader

Swing trading portfolio - week of August 22nd, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

Man Who Introduced Millions to Bitcoin Says Blockchain Is a Bust

 

Man Who Introduced Millions to Bitcoin Says Blockchain Is a Bust 

By  at Bloomberg

Excerpt:

Stefan Thomas, who introduced millions of people to bitcoin, has had a change of heart.

Blockchain, the ledger software that makes the digital currency possible...



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Mapping The Market

Illusion of Choice

From Jean-Luc:

Looks like we are down to about 10 companies for our consumer goods:

http://www.visualcapitalist.com/illusion-of-choice-consumer-brands/

Just like banks, airlines and cable companies! 

The Illusion of Choice in Consumer Brands

Explore the full-size version of the above graphic in all its glory.

If today’s infographic looks familiar, that’s because it originates from a well-circulated report that Oxfam International puts together to show consolidation i...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Promotions

PSW is more than just stock talk!

 

We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more!

PhilStockWorld.com features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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