by ilene - March 30th, 2015 3:01 pm
By Dana Lyons, Tumblr
Investment in the riskiest assets has been on a relative decline, a development which has preceded previous major tops.
"For the moment all discipline seems painful rather than pleasant, but later it yields the peaceful fruit of righteousness to those who have been trained by it.” - Hebrews 12:11
About 4000 years ago, the world experienced its most significant “risk-off” event of all time. Angered by the peoples’ wicked behavior, God flooded the earth, wiping out the entire human race, save for Noah and his family. One might consider Noah the original risk manager. Rather than dismiss the risk of rain — an event that supposedly had never occurred up to that point — he built an ark that would provide protection in the event of a flood.
It certainly helped having an advisor with inside information like God who not only warned Noah of the flood, but was also in charge of its implementation. Even so, it must have taken some serious faith and fortitude on Noah’s part to continue executing his risk strategy considering how lengthy the effort was before it finally revealed any benefit. From start to finish, it took Noah 100 years to build the ark. Can you imagine the taunting he must have endured (e.g., the “perma-bear” accusations in the social media circles)? To his credit, none of that interfered with the implementation of his risk management process. And in the end, the man lived for another 300 years while everyone else ended up under water, literally.
We have been implementing our risk management process to manage investments for over 40 years. Over the course of that time, we have seen all kinds of markets. However, never have we seen anything like the recent environment. While storm clouds in the market have been accumulating for the past few years, there has hardly been any rain, save for an occasional drizzle (June 2013, October 2014). So while we have not been shy in pointing out the growing potential risk in the market (we are active risk managers after all), this risk has not
by ilene - March 30th, 2015 2:46 pm
By Brian Nelson, Tumblr
In its biggest potential acquisition in history, newsletter portfolio holding Intel is reportedly in talks to acquire Altera, though deal terms have yet to be disclosed. We think Intel could pay up to ~$40 per share for the company on the basis of the high end of our fair value estimate range for Altera and still generate value for shareholders, though we wouldn’t expect Altera’s $2 billion revenue stream to be much of a needle-mover against Intel’s $50+ billion revenue base, at least initially. However, there are a few reasons why this would be a strategic win for Intel.
Altera is one of the top standard cell ASIC (application-specific integrated circuit) suppliers in terms of revenue. Due to the rising cost of transistors, however, the ASIC and ASPP (application-specific standard product) models have come under pressure as of late. Altera’s response has been to position itself as one of the two largest manufacturers of field-programmable gate arrays, FPGAs, a sub-segment of programmable logic devices (PLDs) that have much better economics than either ASICs or ASPPs and are poised to displace legacy technologies, almost across the board (ASSP, ASIC, DSP, MCU, CPU, and GPU).
Image Source: Altera
Full article: Brian Nelson's Tumblr — Why Intel Wants Altera.
by ilene - March 30th, 2015 1:52 pm
This caught my eye this morning. While the author confirms that the diet book, the Blood Type Diet (telling people what to eat based on their blood types), was junk science, she also explains that blood type is likely correlated to certain diseases and causes of death — the major ones. Essentially, type O blood doesn't clot as well as blood with the A and/or B antigens, making it better for heart disease, strokes (presumably not the bleeding variety), certain infections and certain cancers.
If lower clottability is indeed the mechanism for protection against heart disease, strokes and some cancers, that would support the practice of taking low dose aspirin on a daily basis.
By Cassie Shortsleeve at Yahoo Health
A trendy diet left blood type with a hard-to-shake reputation, but respectable research suggests that being A, B, AB, or O may matter — far beyond what you’re eating. (Photo: Getty Images/Kevin Curtis)
A few years back, the Blood Type Diet — a controversial nutritional plan that suggests eating a certain way based on blood type — was all the buzz. The gist, according to the book that popularized the idea, was that doing so could maximize your performance, boost health, protect from disease, build stronger emotions, and even help you live longer. Problem is, last year, the diet was debunked by a study in the journal PLoS ONE, leaving blood type with a bad rep and most people thinking it didn’t matter much beyond the need for a transfusion or donation some day.
But emerging research suggests that while your diet needn’t be so closely linked with your blood, your overall health may be. In fact, one blood type continues to emerge above the rest: blood type O.
Research suggests that people with type O blood are at alower risk for cardiovascular health issues like stroke and heart attack. A new study from the Karolinska Institute shows that people with type O blood are less likely to die from malaria. Science suggests that people with AB blood are at an increased risk…
by phil - March 30th, 2015 8:02 am
MORE FREE MONEY!!!
This time it's China's turn (again) as PBOC Governor Zhou Xiaochuan said "the authorities need to be vigilant for deflationary risks in the economy and have injected liquidity into the financial system." That was all it took to add 2.5% to the Shanghai Composite, which is now up 100% since last April. At the same time, Finance Minister Lou Jiwei said China will likely expand the recently announced local government debt relief program.
Adding to the optimism, Chinese officials fleshed out some details for plans to better connect the economy with the rest of Asia, Africa, the Middle East and Europe with more roads, railways, ports and other related projects. Meanwhile, flows into Hong Kong via the Stock Connect trading link were approaching a record high after Chinese mutual funds gained approval from the China Securities Regulatory Commission to start making use of the new channel, which has seen disappointing volumes so far.
The only thing not on China's list is building more empty cities, as they are still bailing out builders and Governments from that disaster. Still, China is on pace to have 82 empty airports by the end of 2015, which will bring them to 230 airports, most of which are extremely underutilized.
Academically, this is a very interesting excercise as we'll get to see how long Fundamental laws of Economics can be ignored before a country collapses. China is doing through uneccessary infrastructure and Japan is doing it through immense amounts of debt that they use to paper over their own stumbling economy and aging work-force. The airport math for China is simple, the per capita GDP in China is $6,807 vs $41,787 in the UK and $53,042 in the US yet airfare is roughly the same in all countries. In what possible way can the Chinese people afford to use these airports?
Supply with no demand. That's why China has dozens of entire cities with no people in them. They've been "building" their economy this way for years and that has created false demand for commodities (as they were using them to build things no one wanted or needed) and now they have a surplus that…
by phil - March 30th, 2015 7:38 am
And we're out!
After making a ridiculous 40.8% in 15 months, we decided on Tuesday morning to get back to cash in our Long-Term Portfolio. We still have 13 positions left, mostly in the materials space but, as you can see, our cash now exceeds our portfolio's total value ($703,885.23) because the positions we did keep were our "losers" (so far) that are down, as a group, by $73,780.
There is almost not a single position we sold that I wouldn't be happy to buy back if they get cheap again but we didn't make 40% in just over a year by chasing winners. The way we built this portfolio was first creating a Buy List (Members, see our Virtual Portfolio Section for our last list) and then choosing a bargain every few weeks to add to our Long-Term Portfolio. As we move through Q1 earnings, we'll be making a new Buy List for 2015 and, now that we're back in cash, we'll begin making new picks for our Long-Term Portfolio.
While it is our INTENTION in the LTP to hold our positions over time, when we get a ridiculous run in the market like the one we've had for the past year, it is simply foolish not to take advantage of it. The stocks we bought were targeted to make 40% in two years, not 15 months and, when you are that far ahead of the curve – it's wise to turn those unrealized gains into realized ones before they disappear on you!
In our last review (just 3 weeks ago) we were at $640,797 in the LTP so we gained 10% in 3 weeks on our positions – that's ridiculous. Never confuse being lucky with being good – gaining 10% in a month is lucky becuase, if we were that good, we'd be averaging 100% a year, right? Since we KNOW we're not that good, we need to take advantage of our luck – especially when we are worried about what lies ahead for the market.
by ilene - March 30th, 2015 3:07 am
From around the web:
Oil Companies Reap Large Gains After Cashing In Hedging Bets (The Wall Street Journal)
Rocked by months of plunging crude prices, oil producers are harvesting financial bets to raise, for some, much-needed cash. (Read More)
Woe Betide the Value Investor (Research Affiliates)
Research Affiliates is a value shop in the tradition of Ben Graham’s investment philosophy. As investors, we sell the popular securities that have become overpriced and we bargain-hunt for assets that have fallen out of favor. Today, however, we must acknowledge an inconvenient truth. The excess return earned by the average value mutual fund investor has been meaningfully negative.
Why We Feel So Poor (In Two Charts) (John Rubino at Dollar Collapse Blog)
Among the many things that mystify economists these days, the biggest might be the lingering perception, despite six years of ostensible recovery, that the average person is getting poorer rather than richer. Lots of culprits come in for blame, including the growing gap between the 1% and everyone else, negative interest rates (which starve savers and retirees of income) and the crappy nature of the new jobs being created in this recovery.
But one that doesn’t get much mention is the changing nature of the bills we’re paying. It seems that Americans are spending a lot more on health care, which leaves less for everything else. Here’s an excerpt from a MarketWatch report of a couple of weeks back, with two charts that tell the tale:
The percentage of money U.S. consumers spend on health care rose in 2014 for the third straight year to another record high, according to one government measure.
Some 20.6% of total consumer spending in 2014 was devoted to health care, including prescription and over-the-counter drugs, annual figures from the Commerce Department report on personal expenditures show. That’s up from 20.4% in 2013.
Health-care expenses has been rising for decades regardless of government efforts to control costs. The percentage of consumer spending on health care rose from 15% in 1990, topping 20% for the first time in 2009. (Full
by ilene - March 29th, 2015 8:19 pm
Courtesy of John Mauldin, Thoughts from the Frontline
“Everyone is a prisoner of his own experiences. No one can eliminate prejudices – just recognize them.”
– Edward R. Murrow, US broadcast journalist & newscaster (1908 – 1965), television broadcast, December 31, 1955
“High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.”
– The McKinsey Institute, “Debt and (not much) Deleveraging”
The world has been on a debt binge, increasing total global debt more in the last seven years following the financial crisis than in the remarkable global boom of the previous seven years (2000-2007)! This explosion of debt has occurred in all 22 “advanced” economies, often increasing the debt level by more than 50% of GDP. Consumer debt has increased in all but four countries: the US, the UK, Spain, and Ireland (what these four have in common: housing bubbles). Alarmingly, China’s debt has quadrupled since 2007. The recent report from the McKinsey Institute, cited above, says that six countries have reached levels of unsustainable debt that will require nonconventional methods to reduce it (methods otherwise known as defaulting, monetization; whatever you want to call those measures, they amount to real pain for the debtors, who are in many cases those least able to bear that pain). It’s not just Greece anymore. Quoting from the report:
Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (see chart below). That poses new risks to financial stability and may undermine global economic growth.
This report was underscored by a rather alarming, academically oriented paper from the Bank for International Settlements (BIS), “Global dollar credit: links to US monetary policy and leverage.” Long story short, emerging markets have borrowed $9…
by ilene - March 29th, 2015 7:59 pm
By John Mauldin
“Just a little patience, yeah…”
– Guns N’ Roses
Lastweek the FOMC essentially removed forward guidance and placed all options back on the table, and at the end of the day they’ve opened the door for further tightening. As Yellen recently explained in advance, the removal of the word patience from the Fed’s guidance amounts to fair warning to the rest of the world’s central banks: an interest rate hike is on the horizon. Govern your actions accordingly. (My personal guess, for those interested, is September, with the Fed proceeding exceedingly slowly and cautiously thereafter.)
The bigger story here is the sustained strength of the US dollar, which has traded wildly in the FOMC’s wake. A correction to the one-way trading prior to the meeting was well overdue and could last some time, but then the dollar strength will resume. (Euro) Parity or Bust! My young colleague Worth Wray and I have been writing for some time about the risks this trend poses, to emerging markets in particular, and now it seems that nightmare could happen sooner rather than later.
We’re already seeing profound FX pressures on countries like Russia, Brazil, Turkey, and South Africa, among many others; but, while clearly exacerbated by the strong dollar and/or weak commodity prices, recent stress in various emerging markets appears to have more to do with internal troubles than external shocks. Nevertheless, the dollar’s strength has not been fully absorbed by EM economies, so a BIG, broad-based, dollar-driven adjustment may be yet to come.
Until this Wednesday’s FOMC press conference with Janet Yellen, the growing consensus was that an eventual interest rate hike would lead to an even stronger USD. Now it seems most observers, including our own Jared Dillian, are doubting that a rate hike will come this summer… or anytime soon.
Worth and I have a different view. We believe that Federal Reserve Vice Chair Stanley Fischer has carefully laid out a framework for interpreting the FOMC’s opaque communications as the committee moves closer to a rate hike. In a speech last October, Fischer made it clear that the Fed would “recognize the effect of (its) actions abroad and … minimize the…
by ilene - March 29th, 2015 3:48 pm
From around the Web:
Business Insider presents the 10 things in tech you need to know today. Company mentioned include Apple, Google, Amazon, Yahoo, Facebook and Uber.
Alasdair Macleod at GoldMoney argues "though the Fed would deny it, it is clear from the minutes of the last Federal Open Market Committee (FOMC) meeting that a rise in interest rates has been put off indefinitely" in Central Banks Are Paralyzed At The Zero Bound. Macleod continues,
"The Fed Funds Rate, which is the interest rate the Fed targets to set all other rates, has now been less than 0.25% for six and a quarter years, gradually declining from roughly 0.15% to about 0.10% today. It was set at a target range of between zero and 0.25% in December 2008… If normalisation is the result of economic recovery we will be familiar with the playbook. Demand for money in the economy picks up, and instead of pyramiding bank credit on reserves held at the Fed, the Fed feeds back the excess reserves to the banks by selling government securities into the markets. The bear market in government bonds should be manageable because of underlying pension and insurance company demand coupled with a diminishing budget deficit. This is the long-understood theory behind withdrawing from deficit financing." (Continue)
Forbes explains: Why Oil Could Be Facing A 20-Year Bear Market.
In the past, the usual “oil crisis” was caused by self-serving news items of an oil shortage, causing soaring prices. Just 2-3 years ago, the fear mongers said that the world had “seen peak oil,” meaning that oil production would be on a long term decline and there would be big shortages. Instead, oil production is now at a high
The current crisis is one of plunging oil prices and a glut as far as the eye can see. (Read more)
Share Ferro at Business Insider writes that there is no shortage in oil storage capacity, and it's unlikely that there will be, in Sorry, but there was never an oil storage crisis:
Crude oil storage inventories in the US are at their highest levels in
by ilene - March 28th, 2015 2:12 pm
The Economist discusses the merits of Buffett's latest acquisition, Kraft Foods.
Berkshire Hathaway’s latest big deal is quite a mouthful
WARREN BUFFETT says he likes to buy companies that are easy to understand and are performing well. His latest deal, the $50 billion acquisition of Kraft Foods that was announced on March 25th, passes only one of those tests. Most people can get their heads around the slices of processed cheese and hot dogs that Kraft churns out—indeed Mr Buffett, known to favour plain fare, would probably like to get his lips round them, too. But as a business, Kraft is a bit of a mess.
Last year its revenues were stagnant and its volumes and profits fell. Its chief executive left in December. It generates 98.5% of its sales in the mature markets of America and Canada, where, the suspicion is, a new generation of healthier eaters no longer aches to scoff a Kraft Macaroni & Cheese, followed by a plate of Jello and washed down by a Capri Sun drink.
Kraft’s predicament is in large part a result of its turbulent ownership over three decades, in turn a testament to the hyperactivity of Wall Street’s dealmakers. It has been the subject of seven big mergers or spin-offs since 1980, including an unhappy spell under the ownership of Philip Morris, a tobacco firm, between 1988 and 2007. Most recently Kraft was separated from its global snack brands in 2012, which were renamed Mondelez International.
Reflecting Kraft’s troubled past and iffy present performance, Mr Buffett is not buying it alone, nor managing it. Instead he is working with 3G Capital, a buy-out firm with Brazilian roots which is the closest thing the consumer-goods industry has to a miracle-worker. In 2013 Berkshire Hathaway, Mr Buffett’s investment vehicle, teamed up with 3G to buy Heinz, another food company, with each taking 50%.
Keep reading Buffett buys Kraft Foods: A big bite | The Economist.