Archive for the ‘Uncategorized’ Category

More Banking Mystifications

 

More Banking Mystifications

Courtesy of James Kwak, Baseline Scenario

Apparently, both parties have platform planks calling for the reinstatement of the Glass-Steagall Act of 1933, the law that separated investment banking from commercial banking until it was finally repealed in 1999 (after being watered down by the Federal Reserve beginning in the late 1980s). Bringing back Glass-Steagall in some form would force megabanks like JPMorgan Chase, Citigroup, and Bank of America to split up; it would also force Goldman Sachs to get rid of the retail banking operations it started in a bid to get access to cheap deposits.

In his article discussing this possibility, Andrew Ross Sorkin of the Times slips in this:

“Whether reinstating the law is good idea or not, the short-term implications are decidedly negative: It would most likely mean a loss of jobs as part of a slowdown in lending from the biggest banks.”

I looked down to the next paragraph for the explanation, but he had already moved on to another unsubstantiated claim (that the U.S. banking industry would be at a competitive disadvantage). So, I thought, maybe it’s so obvious that Glass-Steagall would reduce lending that Sorkin didn’t think it was worth explaining. I thought about that for a while. I couldn’t see it.

In fact, basic intuitions about finance indicate that Glass-Steagall should have no effect on lending whatsoever. Banks should loan money to borrowers who are good risks: that is, those who pay an interest rate that more than compensates for the risk of default. (I’m simplifying a bit, but the details aren’t relevant.) Common sense tells you that whether the bank doing the lending is affiliated with an investment bank shouldn’t make a difference.

To dig a little deeper, banks should be making loans whose expected returns exceed the appropriate cost of capital. So, maybe Sorkin thinks that grafting an investment bank onto a commercial bank will lower its cost of capital. I can’t think of any obvious reason why this should be the case. Even if it does, however, we do NOT want the commercial bank to now start making more loans than it did before it was affiliated with the investment bank. Capital markets are supposed to direct funds to households…
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Comment by Burrben

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  1. Burrben

    I need to find your broker that gives 200 for a flat short on /nq :)







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

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 in the mass consumer goods industry.

We are sharing it because we believe it is important for you to be aware of who is supplying the different brands and goods served on your dinner table.

More >





News You Can Use From Phil’s Stock World

 

Financial Markets and Economy

Janet Yellen, chair of the U.S. Federal Reserve, listens during a House Financial Services Committee hearing in Washington, D.C., U.S., on Wednesday, June 22, 2016. By offering a subtle change to her outlook from less than a week ago, Yellen on Tuesday before the Senate Banking Committee pushed the prospect of additional interest rate increases further into the future.The Fed Might Make a Big Mistake This Week (Money)

It’s virtually certain that at the end of their two-day meeting on Wednesday, Fed officials will leave interest rates exactly where they are—at near-record-low levels.

Commodities ‘At Bottom,’ Says World Bank as Rebound Seen (Bloomberg)

Commodities will probably rebound next year as demand strengthens, according to the World Bank, adding its voice to those including Citigroup Inc. who’ve forecast that 2017 may be a better year for raw-material prices.

Bull market in U.S. stocks ‘has a long way to go’ (Market Watch)

In the midst of winter’s gloom, when U.S. stocks looked like they had nowhere to go but down, even some bullish market gurus began to doubt that the nearly seven-year-old bull market could continue.

Oil Majors Lost One Engine; Now the Second One Is Sputtering (Bloomberg)

If Big Oil was a two-engine airplane, you could say it’s been flying on a single engine since energy prices crashed in 2014. Now, the second motor is sputtering.

A startup backed by the hero of 'The Big Short' is attempting to bring Wall Street to Main Street (Business Insider)

Eight years after the subprime crisis, news of a startup bringing institutional real-estate exposure to individual investors may be met with some skepticism.

Appetite for U.S. Debt Is Weakest Since 2009 in Lead-Up to Fed (Bloomberg)

For the second day in a row, an auction of U.S. Treasury notes drew the feeblest demand in years, before central-bank decisions this week that may spark volatility in financial markets.


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  1. Phil

    Income Portfolio – Not a full update but concentrating on moves that need to be made:  

    • TASR – No point to keeping Sept $7.50 put at .30 to make .10 per month.  Let's buy it back and see if we get a downturn we can sell Dec puts into (now .55).  
    • CZR – Big drop this month – great for a new entry (not today – maybe next week – goes for all)
    • RRD – Strong
    • FCX – CEO just bought more.  Good for new entry.  
    • CLF – Fine.  Good for new entry.  
    • HOV – Good for new entry.  
    • AA – Good for new entry. 
    • CSCO – Fine 
    • AGNC – Good for new entry.  
    • AAPL – Damn, we own that piece of crap?  Good for new entry.  
    • EWZ – Wow, what a drop!  
    • TSAL – Improving a bit.  
    • BRK.B – June $100 caller now $11.60, which is .40 less than we sold them for!  Those ran up a lot on us so let's just be happy to make .40 and see how that 50 dma holds up ($110) next week before selling again.  
    • DIA – Wow, that was stupid not buying those short Aug $149 puts back when we went bearish.  No one reminded me then and I forgot but, if we're naked short DIA in the STP, it's not likely we want to be long essentially the same position in the Income Portfolio.  No biggie, our Aug $147 puts are up $2.20 at $3.95 and the June $149 puts are down $1.13 at $2.  I'm bullish into the close so let's wait but, generally, I think I'm happy with the roll to the quarterly $148 puts at $2.05 as the .05 pays for the roll and we'll just see what happens over the weekend.  That's the official play by the day's end but no hurry as the Dow may rise 100 into the close and save us some money.  
    • PGH – Good for new entry.  
    • OIH – Fine. 
    • UNH – Fine
    • GLW – Fine
    • BRCM – Good for new entry.  
    • ABX – Arrrrgh!   OK, so we entered with a commitment to buy 1,500 at net $27 and now they are $16.  We can buy back the 2015


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Comment by Phil

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  1. Phil

    Income Portfolio – Not a full update but concentrating on moves that need to be made:  

    • TASR – No point to keeping Sept $7.50 put at .30 to make .10 per month.  Let's buy it back and see if we get a downturn we can sell Dec puts into (now .55).  
    • CZR – Big drop this month – great for a new entry (not today – maybe next week – goes for all)
    • RRD – Strong
    • FCX – CEO just bought more.  Good for new entry.  
    • CLF – Fine.  Good for new entry.  
    • HOV – Good for new entry.  
    • AA – Good for new entry. 
    • CSCO – Fine 
    • AGNC – Good for new entry.  
    • AAPL – Damn, we own that piece of crap?  Good for new entry.  
    • EWZ – Wow, what a drop!  
    • TSAL – Improving a bit.  
    • BRK.B – June $100 caller now $11.60, which is .40 less than we sold them for!  Those ran up a lot on us so let's just be happy to make .40 and see how that 50 dma holds up ($110) next week before selling again.  
    • DIA – Wow, that was stupid not buying those short Aug $149 puts back when we went bearish.  No one reminded me then and I forgot but, if we're naked short DIA in the STP, it's not likely we want to be long essentially the same position in the Income Portfolio.  No biggie, our Aug $147 puts are up $2.20 at $3.95 and the June $149 puts are down $1.13 at $2.  I'm bullish into the close so let's wait but, generally, I think I'm happy with the roll to the quarterly $148 puts at $2.05 as the .05 pays for the roll and we'll just see what happens over the weekend.  That's the official play by the day's end but no hurry as the Dow may rise 100 into the close and save us some money.  
    • PGH – Good for new entry.  
    • OIH – Fine. 
    • UNH – Fine
    • GLW – Fine
    • BRCM – Good for new entry.  
    • ABX – Arrrrgh!   OK, so we entered with a commitment to buy 1,500 at net $27 and now they are $16.  We can buy back the 2015


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News You Can Use From Phil’s Stock World

 

Financial Markets and Economy

'The ducks have aligned,' but the Fed will probably miss its biggest opportunity of the year (Business Insider)

Stand by for the Federal Reserve to do nothing.

 

screen shot 2016 07 18 at 1.01.05 pm

The Fed Is Manipulating Markets… (Value Walk)

“Yellen has distorted true price discov… yada-yada-yada”

Fed Doves Won't Be Able to Rule the Roost Forever (Bloomberg)

How long can doves at the Federal Reserve stand their ground?

Oil Dips on Oversupply Worries; U.S. Crude Hits April Lows (Fox Business)

Oil prices dipped on Tuesday, with U.S. crude hitting three-month lows, as oversupply concerns weighed on the petroleum complex ahead of data likely to show unseasonably high gasoline stocks despite the peak U.S. summer driving period.

Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that has hammered prices, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File PhotoRenewed oil weakness sparks demand fears (Reuters)

U.S. oil prices topped $50 a barrel in June, boosting optimism a two-year price rout might end. Six weeks later, the long hoped for recovery has yet to take hold.

Oil slumps on surging supply but global economy picks up speed (Telegraph)

Oil prices have tumbled to a three-month low as surging supply once again exposes the chronic global glut and threatens to perpetuate the energy slump for another year.

oil

Unemployment Is Low in Key Swing States (Wall Street Journal)

Republican presidential nominee Donald Trump has premised his campaign on the idea that the American economy is broken and jobs are hard to find. That could be a tough sell in key swing states where the unemployment rate is noticeably lower now than the national average.

What Japan's Economy Needs (Bloomberg View)

Spare a thought for Haruhiko


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Revisiting Price Compression – Long Bond Edition

 

Revisiting Price Compression – Long Bond Edition

Courtesy of Cullen Roche, Pragmatic Capitalism

If you’ve read my paper Understanding Modern Portfolio Construction you know that I like to think of all financial instruments as if they’re bonds. This is helpful for multiple reasons:

  • It helps provide a realistic timeframe for holding certain instruments.
  • It helps put the various risks of those instruments in the right perspective.

The thing about bonds is that they pay a specific coupon. So, a 10 year T-Bond paying 2.5% will pay you 2.5% for the next 10 years. If you have a 10 year time horizon then you can virtually guarantee that you’ll get 2.5% per year plus your principal upon maturity. That creates a really clean linear relationship between the time of issuance and maturity. In other words, if you buy the bond today and wake up in 10 years it will look like the bond exposed you to zero permanent loss risk over that time period. I apply the same sort of thinking to the stock market in my paper by calculating a 25 year duration.  The stock market, is a lot like a super long maturity bond paying 8-10% per year.¹

Of course, that’s not how bonds (or most other financial instruments) work. They do expose you to the risk of permanent loss in the short-term. And the big problem with low yielding bonds is that they expose you to a lot of potential interest rate risk which creates a lot of short-term risk. If you’re uncertain about your time horizon or you’re worried about generating a positive real return then holding that 10 year bond for 10 years might feel really uncomfortable. This is why I say that the current low yield environment has turned every bond investor into a trader. You’d have to be nuts to buy a long maturity bond and actually hold it to maturity when the risk of a negative real return looks high.

What I most like about thinking of everything like a bond is applying the concept of price compression. You might remember a post I wrote back in 2014 describing the price compression in Biotech stocks. Biotech stocks are akin to a super…
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Shrinking Slices, More Options, And Saying No

 

Shrinking Slices, More Options, And Saying No

Courtesy of 

Fifty-seven thousand, five hundred and twelve. That’s the number of global funds launched between January 2005 and 2013. Just to be clear, that is not the number of funds in existence over that period, it’s the number of brand new funds. This mind blowing number comes from an excellent new Morningstar study, The Rise and Fall of New Funds: Why some funds succeed and others don’t.

How is it possible that the market can support so many new funds? Here’s how: “Ah, this thing I purchased three months ago isn’t working, let’s try this instead.” Unfortunately, too many people behave as if the grass is greener on the other side of the field. This nugget from their study is really eye-popping, emphasis mine:

Globally, we find that new funds account for the preponderance of new asset flows. In 2015, global fund flows reached approximately $516.4 billion across the three asset classes in our study--equity, fixed income, and allocation. Of the total, new funds with less than 12 months of track record accounted for $379 billion, or 73% of all flows.

It’s no wonder why active management, from hedge funds to mutual funds, are having such a hard time. The size of the alpha pie never changes, but with more than 57,000 new entrants in just over an eight year period, the slices keep getting smaller. Below is a visual I created to show this.

the pie

With better technology, easier access to information, lower expenses, and more options than ever, it has never been a better time for the retail investor. However, because of the overwhelming options available today, paradoxically it’s becoming harder, not easier for investors to achieve average results. Here is Morningstar again, emphasis mine:

Second, the good news for investors is that their preferences have generally paid off in better outcomes. Funds that exhibit the types of traits listed above are generally the better cohorts of funds from the investor’s perspective. The main exception to this comes from investor preference for style tilts, which is directly contrary to their best interests. If portfolios have been disclosed, the investing populace tends to place a premium on funds that buy popular,


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Chart o’ the Day: Restaurants are Predicting a Recession

Courtesy of Joshua Brown, The Reformed Broker

Stifel this morning (emphasis mine):

Conclusion: Today, we adopt a Bearish outlook for Restaurants as we confidently believe that, at a minimum, the simultaneous -150bps to -200bps deceleration of Restaurant industry comps across all categories during 2Q16 (of +0.7%A vs. 3Q14-1Q16’s +2.4%A) within our most recent Stifel Sales Survey reflects the start of a US Restaurant Recession – which, may also represent a harbinger to a US recession in early 2017; and, if so, Restaurants have historically led the market lower during the 3-to-6-month periods prior to the start of the prior three US recessions(Restaurants -23% vs. S&P 500’s -10%). The catalyst for the current weak pre-recessionary restaurant spending trend is likely multi-faceted (US Politics; Terrorism; Social Unrest; Global Geo-Politics; Economic Uncertainty) but, if history is a guide, we warn investors that restaurant industry sales tend to be the “Canary that Lays the Recessionary Egg” (i.e. the current -2% cut-back in dining out sales is a possible harbinger of a -2%-plus cut-back in the US consumers’ entire spending basket within 3-to-9 months (which accounts for ~70% of the US Economy).

…and their chart:

Specifically, in the 3-to-6-month periods prior to the start of the prior three US recessions, Restaurants have declined an average of -23% vs. the S&P 500’s -10%. To note, most of us are unaware that a recession has begun until several months after economists go back and pick a start-date (See Figure 6).

Screen Shot 2016-07-26 at 11.37.25 AM

Josh here – is a sample size of three definitive enough to call a recession in advance? What happens if restaurant comps start improving / accelerating out of nowhere? Isn’t it possible that, like so many other data points, the reality on the ground of ZIRP, NIRP, globalization and demography could lead to the economy defying yet another historic trope that no longer applies?

Stay tuned!

Source:

Turn Bearish on Restaurants; Adopt a US Restaurant Recession Outlook
Stifel – July 26th, 2016





 
 
 

Phil's Favorites

Spot the Odd One: Gold Up, Silver Up, Oil Down, Dollar Down, Treasuries Up, Economy Strengthening

Courtesy of Mish.

In today’s FOMC Statement the Fed says the labor market has strengthened, household spending is growing strongly, and economic activity is expanding at a moderate rate.

Let’s see what the market thinks of that assessment.

Commodities Reaction to FOMC Statement

Gold Up, Silver Up, Oil and Copper Down

Bond Reaction to FOMC Statement

US Treasury Yields Lower

US Dollar Reaction to FOMC Statement

...



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Zero Hedge

Gold Jumps Most Since Brexit As 'Hawkish' Fed Sparks Dovish Bond Buying Spree

Courtesy of ZeroHedge. View original post here.

Overheard at the NYFed trading room this afternoon...

Post-Fed, Gold was the biggest winner...

Trannies were ugly all day but AAPL gains supported Nasdaq and The Dow... the efforts to stay green appeared to fail into the cash close...

The Dow ended the day down 1.37 points (0.01%)...

...

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Chart School

The "Real" Goods on the June Durable Goods Data

Courtesy of Doug Short's Advisor Perspectives.

Earlier today the Census Bureau posted the Advance Report on May Durable Goods New Orders. This series dates from 1992 and is not adjusted for either population growth or inflation.

Let's now review Durable Goods data with two adjustments. In the charts below the gray line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index for All Commodities, chained in today's dollar value. This gives us the "real" durable goods orders per capita and thus a more accurate histo...



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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...



more from M.T.M.

ValueWalk

Tesla Motors Inc And Mobileye NV Divorce - What Does It Mean For Investors

By Jacob Wolinsky. Originally published at ValueWalk.

It is a busy week for Elon Musk – Tesla Motors Inc (NASDAQ:TSLA) says it will need to raise more money for its new plans (shocker), the Gigafactory – by some metrics the largest manufacturer in the world is opening soon and Musk is making wild predictions about revenue on Model 3 sales (although little about earnings), and Tesla and Mobileye NV (NYSE:MBLY) parted ways yesterday in news which caused MBLY stock to tank before a bit of a recovery. With all the news it is hard to cover everything so below we will focus on the MBLY news and what it means for both companies. Many analysts note that Tesla is a small percentage of revenue for Mobileye so why focus on either? Because the news could be important and these co...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

The Fed Might Make a Big Mistake This Week (Money)

It’s virtually certain that at the end of their two-day meeting on Wednesday, Fed officials will leave interest rates exactly where they are—at near-record-low levels.

Commodities ‘At Bottom,’ Says World Bank as Rebound Seen (Bloomberg)

Commodities will probably rebound next year as demand strengthens, according to the World Bank, adding its voice to those including ...



more from Paul

Digital Currencies

Judge Rules Bitcoin Isn't Money Because It "Can't be Hidden Under A Mattress"

Courtesy of ZeroHedge. View original post here.

By Everett Numbers via TheAntiMedia.org

In a landmark decision, a Florida judge dismissed charges of money laundering against a Bitcoin seller on Monday following expert testimony showing state law did not apply to the cryptocurrency.

Michell Espinoza was charged with three felony charges related to money laundering i...



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Kimble Charting Solutions

Junk Bonds at important inflection point, should impact stocks!

Courtesy of Chris Kimble.

Junk bonds have been quality at sending Risk On and Risk Off message to the broad stock market. Below looks at Junk Bond ETF JNK over the past decade.

JNK finds itself at an important price point below and what it does in the upcoming couple of weeks could become a big influence on the Risk On/Risk Off trade.

CLICK ON CHART TO ENLARGE

...

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OpTrader

Swing trading portfolio - week of July 25th, 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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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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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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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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