by ilene - May 20th, 2013 8:18 pm
Courtesy of Sober Look
|Total Assets (source: BOJ)|
The Bank of Japan is buying up REITs and stock ETFs to prop up both asset classes. The amounts are still relatively small, but the buildup is quite rapid.
|BOJ's holdings of ETFs|
|BOJ's holdings of REITs|
And with Keynesian economists cheering the BOJ on (see post), the policy is rapidly achieving the desired result. Japanese authorities are ecstatic – dollar-yen just broke 103 as the yen "printing presses" quickly debase the currency. Japan will quickly have a competitive advantage over South Korea, Germany, and in some cases even China. Japan's exporters are popping the Champagne corks …
|Yen per one dollar; source: Investing.com|
The nation's stock market is now up over 75% over the past year as investors celebrate the massive stimulus, BOJ's direct purchases of ETS and REITs, and a rapidly depreciating yen.
Japan's economy is quickly responding to this aggressive policy, with analysts frantically revising growth forecasts.
Goldman: – Strong Q1 growth, technical upward revision to our FY2013 forecast Jan-Mar real GDP growth came in at +3.5% qoq annualized, substantially outpacing the market consensus forecast of +2.7%. Consumption was the driver rising +3.7%, while exports turned positive for the first time in four quarters.
We raise our FY2013 real GDP forecast to 2.8% growth, from 2.5%, based on the strong GDP numbers for Jan-Mar.
The Bank of Japan's biggest achievement of course is pulling the nation out of the prolonged deflationary spiral. Market-implied inflation expectations have risen sharply over the past year, quickly approaching those in the United States.
|5y inflation expectations (source: JPMorgan)|
This is a great lesson for central banks around the world. If much
by ilene - May 20th, 2013 7:56 pm
Courtesy of Joshua M Brown, The Reformed Broker
Regular readers know I'm a huge fan of Felix Zulauf's career as a macro investor as well as his ongoing commentary. I always look forward to his remarks in the Barron's Roundtables and in his regular notes.
Felix has been bearish for years now but opportunistic in some regards. He now believes that equities are advancing toward some sort of "buying climax" to end the rally, rather than a rolling over. Both end badly in his view absent a fundamental economic improvement, from what I can surmise.
The below comes from his larger May note…
Entering Euphoria in Equity Markets
The problem with currently rising equity markets is not rising prices but the lack of fundamental improvement. Stock prices are driven primarily by this lack of alternative investment opportunities and the growing belief that central banks’ money printing can and will generate attractive investment returns for equity investors for a long time despite the lack of supporting fundamentals in the real economy. That is a risky assumption, but as long as rising trends remain intact, nobody worries. In fact, the momentum of the leading equity market indices (Japan, the U.S., Germany and Switzerland to name some) is very powerful and has the potential to carry further, potentially even into a buying climax. Similarities to the gold price in spring 2011 come to mind. At that time, the conviction that gold could only go one way because inflation will eventually rise was as extreme as is now the case for equities.
Once equity markets discover the emperor has no clothes, they could face a quick and painful adjustment to bring markets in line again with fundamentals. For the gold market it was when investors realized there was no rise in CPI inflation or the assumption that systemic risks are declining. It is true that equities look attractive relative to fixed-income alternatives from a valuation point of view, when depressed fixed-income yields are compared to dividend yields or earnings yields (reciprocal of P/E ratios). Those comparisons are all fine as long as economies do not fall back into a recession and earnings stay at least stable. As investors are not expecting a recession, they still believe equities are by far the best place to be, and they act accordingly.…
by ilene - May 20th, 2013 7:22 pm
The billion-dollar deal for Tumblr has stirred talk on the next big acquisition target in the sector, with cash-rich tech giants looking for the next potential star. Yahoo!’s blockbuster deal for the popular blogging platform comes amid a battle for eyeballs on the Internet among big tech firms such…
by ilene - May 20th, 2013 4:20 pm
James Surowiecki argues that this time is, actually, different. It really is.
With the stock market setting new highs on a nearly daily basis, even as the real economy just slogs along, there seems to be one question on everyone’s mind: are we in the middle of yet another market bubble? For a growing chorus of money managers and market analysts, the answer is yes: the market is a house of cards, held up by easy money and investor delusion, and we are rushing all too blithely toward an inevitable crash. Given that we’ve recently lived through two huge asset bubbles, it’s easy to see why they’re worried. But in this case the delusion is theirs.
The bubble believers make their case with a blizzard of charts and historical analogies, all illustrating the same point: the future will look much like the past, and that means we’re headed for trouble. Smithers & Company, a London market-research firm, says that, according to a number of market indicators, stocks are, by historical standards, forty to fifty per cent overvalued. The bears admit that corporate profits are high, which makes the market’s price-to-earnings ratio look quite normal, but they insist that this isn’t sustainable. They think that earnings will return to historical norms, and that, when they do, stock prices will be hit hard. Today, after-tax corporate profits are more than ten per cent of G.D.P., while their historical average is closer to six per cent. That’s a vast gap, and it’s why bears believe that the market is, in the words of the high-profile money manager John Hussman, “overvalued, overbought, overbullish.”
Obamacare Premiums 47% Higher But Deductibles 27% Lower Than Grandfathered Health Plans; Obamacare Lies
by ilene - May 20th, 2013 2:34 pm
Courtesy of Mish.
Here’s the question of the day: If you have a choice (and you many not for long because companies are abandoning grandfathered plans) Should you skip Obamacare and keep your old plan?
Any policy in place on March 23, 2010, the day health reform was enacted, falls under the grandfather exemption. As the Obama administration put it, if you like your plan, your doctor or both, you can keep them. Last year some 60 percent of employers, large and small, offered at least one grandfathered plan during open enrollment, according to the Kaiser survey. New employees can also join a grandfathered plan so long as the company has maintained consecutive enrollment in it.
For old plans as well as new ones, premiums are likely to rise next year – though the old plans still could be considerably more affordable than the newer ones.
Technically, a plan can stay grandfathered indefinitely, but few, if any, will. Most grandfathered plans have gone away already, according to the human-resources consultancy Mercer, which estimates only about a third of employers are expected to offer one in 2013.
Across the board, it is costs that will lead to the disappearance of most grandfathered plans. If employers or individual plans want to keep grandfathered status, they will have little leeway to pass higher costs along to policyholders. Any policy that increases co-payments, deductibles or co-insurance forfeits its grandfathered status.
- Grandfathered plans don’t have to provide full, co-payment-free coverage of preventive services, such as flu shots, mammograms and cholesterol screenings.
- Grandfathered plans don’t have to cover a government-designated “essential benefits package” of procedures and treatments.
- Grandfathered plans may require prior authorization for out-of-network emergency care, unlike with new plans.
- Grandfathered policies bought by individuals carry their own exclusions, like a $750,000 annual cap on reimbursement for the aforementioned essential benefits, including hospitalization, emergency services or pediatric care.
- The online insurance broker eHealthInsurance found that premiums were 47 percent higher and deductibles were 27 percent lower than for individual plans that will incorporate all of PPACA’s new rules.
- Average monthly premiums for individuals in plans without the newly required benefits — the closest equivalent to grandfathered plans — were $190 versus $279. Average deductibles for individuals were $2,257 versus $3,079.
Obamacare Lie: “You Can
by ilene - May 20th, 2013 1:19 pm
Submitted by Tyler Durden.
The last few years have been dominated by one theme and every trade has been a derivative bet on that theme. The idea that by inflating another asset bubble, a wealth effect will ripple through the market to the real economy, encourage animal spirits and spark a renaissance (in something, we are not sure what). Well, so far no good. The real economy, as discussed at length, is not recovering; but the question of just who is benefiting from the wealth effect is unclear.
As the following charts across the 100 largest G4 pension plans show, the asset managers have missed the trickle-down. Despite bad (and worsening) under-funding and a Fed repressing 'safe' assets to the point of ultimate risk, G4 pension funds have refused to partake of any mythical 'great rotation', remain avid bond buyers, are as drastically under-funded as ever, and finally, have maintained the same 'cash on the sidelines' for 14 years now…
G4 Pension funds and insurance company equity and bond flows… (it seems like the great rotation has been a theme for 14 years – from equities to bonds…)
G4 Pension funds and insurance company equity and bond allocations… (nothing has changed since the crisis in terms of allocation shifts – despite all the Fed's best efforts)
Pension fund deficits… (and even with huge and growing under-funding pension fund managers are unwilling to jump into risky assets)
G4 Pension funds and insurance company cash and alternatives levels… (keeping cash steady (so much for the cash on the sidelines myth; and not reaching aggressively into alternatives or riskier asset classes)
Of course, with volumes low, the marginal momentum buck entering this market is all that matters but it seems for now that broadly speaking, the biggest funds have not benefited the from the 'recovery' and as for the 'money on the sidelines' – well… that appears as 'real' as the economic recovery and the 'great rotation' – it is painful when facts get in the way of a good story…
by ilene - May 20th, 2013 1:03 pm
Courtesy of Mish.
Overnight action in gold and silver was interesting to say the least. Silver plunged 10% and was halted four times in a flash crash, of sorts, yet is now in the green.
Silver 10-Minute Chart
Silver hit as low as $20.25 and as high as $23.24. The maximum rally from the low was 14.8%
Gold 10-Minute Chart
Action in gold was also pronounced, but not quite as wild as silver. Gold fell $25 from the open but is now up $22 and and in the second-to-last 1--minute candle (about 10 minutes ago from this posting) was up another $10.
Time to Give Up Hope?
Louise Yamada says it’s Time for Gold Bulls to Abandon Hope. Is it? I think most already have. There is amazing pessimism in the sector already, and abandonment of hope is what it takes to set a bottom.
Are We There Yet?…
by ilene - May 20th, 2013 12:58 pm
The collective state of mind in the USA these days may be even more peculiar than what went on in Germany in the early 1930s, when the Nazis were freely elected to lead the country and reconstructed the battered national psyche into a superman cult that soon beat a path to mass death and ruin. America has its own way of going crazy. We don't goose-step to tragedy; we coalesce into an insane clown posse and stumble into it by pratfall — juggaloes dancing backwards off the cliff edge.
We've been softened up and made extra-stupid on a 60-year-long diet of TV and kreme-filled donuts. Instead of a "master race," our political fantasies revolve around a master wish – to get something for nothing. Want to feel good about yourself? Smoke some crank. Want to become economically secure? Buy a Powerball ticket or drive to the local casino. Want political esteem? Plug a flag pin into your lapel. Want status? Borrow free money from the Federal Reserve at zero interest and arbitrage it into massive earnings for your primary dealer bank. All these behaviors are the consequence of a culture that elevated advertising to such a high social good, it ended up drowning in its own manufactured bullshit.
A subset of our master wish has been on vivid display in recent months, namely the idea that God has blessed the USA with a limitless supply of new oil that will allow us to keep driving to WalMart forever. This propaganda from an oil industry desperate for capital investment has been swallowed whole by people in authority who ought to know better, just as that same class of people in Germany of 1934 should have known better about what they were bargaining for in economic well-being with the Nazi agenda. In our case, the propaganda drumbeat is being led by formerly respectable news organizations. The New York Times, National Public Radio, Bloomberg News, Forbes, and The Atlantic Magazine are media giants that have lately spread the "good news" that America will soon be 1) "energy independent," 2) the world's leading oil exporter (greater than Saudi Arabia is now!), and the "go-to nation" for cheap manufacturing.
by ilene - May 20th, 2013 12:30 pm
Courtesy of The Banker at Banker's Anonymous
Please see my earlier post: Cars I – On Not Getting Fleeced
Here’s several ideas that may help you pay the right amount for your car.
1. Cars are not investments. Unlike houses, cars only lose value over time. Cars are big consumer goods that depreciate quickly in value.
2. As a result, all money you put into your car evaporates over time. The more you pay for your car, the more money you’ve vaporized with consumption.
3. Paying more for a car at the lot does not make it more likely that you’ll avoid dings, scratches, accidents, depreciation, or food spills. In fact the monetary damage you inevitably suffer as a result of these events will be that much higher, based on your higher starting price.
4. Used cars are offered at a lower price than comparable new cars.
5. Buying a new car means you’ve got one day to enjoy your higher value consumer good. After that one day, you own a used car. The value of that car the next day, should you choose to sell, is significantly lower than it was when you bought it, yesterday.
6. Paying cash, rather than purchasing with a car loan, is not available to everyone, and it does not necessarily guarantee a better deal at the car dealership.
7. What paying cash does do, however, is make you a more disciplined buyer. If you have only a certain amount you’re willing to spend, and it comes immediately out of your bank account, you’re less likely to be fleeced in all the various ways the dealerships will try to fleece you.
On accessories, know that some car dealerships like to channel the Pentagon’s pricing scheme for paper clips, hammers, and toilets when it comes to car accessories. Accessories are a major profit center for some car dealerships.
“Those little floorboard carpets there? Hoo-boy, those will probably run you an extra $1,200.”
“Oh, you actually want windshield wipers? Well, that’s only available in the Deluxe model, which we sell for an addition $6,800 above the base model. Not everybody requires windshield wipers, as you know.”
Obviously the cure for this type of bullshit is the Interwebs, which – when consulted in advance – clear up exactly what is ‘Base Model’ and what is ‘Deluxe.’
The weird and amazingly annoying thing is how often – in the
by ilene - May 20th, 2013 12:18 pm
Courtesy of The Banker
This is a continuation of a theme started earlier, in this post On Entrepreneurship, Part I
Founding an investment firm
A friend from college once explained to me that, growing up, he didn’t realize his family was wealthy. His dad worked at an investment firm, and they had a comfortable lifestyle, but my friend noted no major extravagances about their life.
One day his father told him that he had in fact founded the investment company where he worked, and that while the salary he’d drawn for the past thirty years had made them comfortable, their family’s real net worth, as he approached retirement, was something much more significant.
The key, his dad explained, was that unlike other dads who worked for a salary and then retired after a few decades, he had, by contrast, built up something very valuable at the end – his equity in the firm he founded. He sold the majority of his investment business to a European bank for a considerable sum, which overwhelmed the regular salary he’d drawn over the years. Being an owner made all the difference.
Suddenly my friend realized his family was more than just comfortable, it was inter-generationally wealthy.
The Goldman IPO
In my own life, I joined Goldman Sachs shortly before the firm went public via an IPO. This event made hardly any difference to my career or net worth. As an analyst with very little service to the firm at the time, I hardly rated any notable equity gift.
For people with longer service at the firm, however the lesson of the IPO – in particular the difference between fixed income and equity – couldn’t have been any starker.
Managing Directors, the penultimate ‘rank’ at the firm, could expect a low seven-figure payout through the IPO award of stock and stock options. That was nice, and I’d be the last one to ever feel bad for a Managing Director at Goldman.
Partners, the highest rank at Goldman, owned the firm before the IPO. I estimate Partners generally received a payout 30 times higher than Managing Directors at the IPO. Amazing to me.
The Managing Director IPO amount was cool and comfortable, but probably didn’t change everything about the person’s life. The 30-times-higher partner payout, represented blow-your-doors-off-never-work-again type money. All because the partners owned equity, and the MD’s didn’t.…