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News You Can Use From Phil’s Stock World

 

Financial Markets and Economy

Crude Prices Fall on Dollar, U.S. Shale Output (The Wall Street Journal)

Crude prices fell Wednesday, weighed down by a stronger dollar and concerns that rising U.S. shale production may offset a move by major producers to cut global supply.

Retail stocks are getting crushed (Business Insider)

Retail stocks are under pressure on Wednesday after Target announced it was slashing its guidance as a result of "disappointing traffic and sales trends."

Higher gasoline, rental costs boost U.S. consumer inflation (Reuters)

U.S. consumer prices increased in December as households paid more for gasoline and rental accommodation, leading to the largest year-on-year increase in 2-1/2 years and signaling that inflation pressures could be building.

Oil Resumes Advance as Report Shows U.S. Crude Stockpiles Drop (Bloomberg)

Oil resumed gains after the biggest drop in more than a week as industry data showed U.S. crude stockpiles declined, while OPEC and other producing nations trim production to ease a global glut.

U.S. industrial output rises 0.8 percent as utilities surge (Reuters)

U.S. industrial production rebounded in December due to the biggest jump in utilities since 1989 as temperatures cooled across the country.

These maps show how different Red America is from Blue America (Business Insider)

America looks vastly different in Trump counties than it does in Clinton counties.

European Stocks Little Changed as Miners Climb, Pearson Tumbles (Bloomberg)

The Stoxx Europe 600 Index rose 0.2 percent at the close. Commodity producers advanced 1.4 percent, the most among industry groups, extending their 2017 gains. Media companies were the worst performers as Pearson plunged 29 percent, the most on record.

People in the US and Canada spent over $53 billion on marijuana in 2016 (Business Insider)

People in North America spent $53.3 billion on legal, medical, and illicit marijuana in 2016. That's more cash than Americans blow in a year at McDonald's and Starbucks combined.

Here's How the Stock Market Works (Fool.com)

If you're new to investing, the stock market can understandably seem confusing. However, understanding the stock market doesn't need to be too difficult. While it's impossible


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    In today’s “Single Best Chart,” Bloomberg’s Tom Keene and Francine Lacqua display median U.S. household income adjusted for inflation going back to …







How to beat a high frequency trader

 

How to beat a high frequency trader

Courtesy of Joshua Brown, The Reformed Broker

The madness around trading the tweeting of Trump has jumped the tracks and landed itself among ordinary investors across the country. The new game seems to be trying to anticipate which industry he’ll target next and somehow make money from the volatility in the related stocks. Or, perhaps worse, to trade the reaction after a tweet hits home. The naïveté here is adorable.

In the first place, there are algos specifically set up to pick up on these tweets and errant remarks in seconds, with trades pre-sized and planned, ready to execute immediately. Is this the game you want to play from the Fidelity app while you’re at a stop light?

Realistically, you may nail a trade or two from this kind of thing, but I wouldn’t be planning to retire from it. It’ll go away. Remember the Carl Icahn tweets about Apple? That was fun for a few months.

I gave my two cents to the Los Angeles Times on the topic. I have a few quotes in here…

When Trump tweets, Wall Street trades — instantly (Los Angeles Times) 

A better game to play might be to figure out how much you’ll need to spend over the coming decades, work out the math on what sorts of returns you’ll need, include things like vacations, taxes, charitable giving, catastrophic health care (knock on wood), any inheritance you’d like to leave behind, any insurance strategies you can employ to lessen the tax burden on your heirs, etc, etc. Then work out what sort of portfolio will give you the clearest, most optimized and least stressful route to arriving at these financial destinations.

This is a game you can actually win. And if you need help with the answers to these questions, tell us. We all only have so much time on this earth, and nothing is a given. How much of it do we want to spend speculating on the 3am tweets of a consummate showman?

(Picture of Ichan with an apple: source)
 




The Ignorance of The Future

 

The Ignorance of The Future

Courtesy of 

“Three causes especially have excited the discontent of mankind; and, by impelling us to seek remedies for the irremediable, have bewildered us in a maze of madness and error. These are death, toil, and the ignorance of the future” – Charles Mackay

People spend a lot of time thinking about the future, it’s part of what makes us human. The problem is we’re not very good at dealing with uncertainty. We assume too many constants and not enough change. We underestimate progress and we overestimate failure. The way that this manifests itself in many investors is thinking about how much companies will earn and how much the market will pay for them.

In general (hedging my words), earnings are what drive stocks. But knowing them ahead of time would not necessarily help us make money, at least not in the short-term. Take a look at the table below. The second column shows the full year earnings for the S&P 500 and the third column shows the average price-to-earnings ratio over the previous twelve months. The fourth column is the product of these two; what we would expect the S&P 500 to be at year-end if we knew how much it will earn and assuming that investors moods (P/E) are roughly constant.

year

The fact that the fourth and fifth column are different by an average of 11% tells you a lot about the difference between theory and reality. Sure, there are times when knowing what the S&P 500 will earn over the next twelve months told you all you needed to know. For instance, if at the beginning of 2008, you knew that they would drop 77.5%, a 38.5% decline would have been avoided. But that was the outlier. Earnings fell 25% in 1991 and stocks gained 26%. By and large, even investors with perfect information are hardly guaranteed perfect results.

Below is the reason why there is a permanent wedge between the implied year-end price and the actual year-end price.

price-earnings

There is no model that will ever consistently predict “Mr. Market’s” mood. Here’s why: Individuals have to worry about how much they’re spending and how


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The Final Results Are In

 

The Final Results Are In

Courtesy of 

Last week, Morningstar published their Asset Flows Commentary for 2016. As you can see in the chart below, active funds have had more outflows in each of the last two years than they did in 2008. Below, I pulled some of the notable numbers (emphasis mine).

flows

  • Among U.S. equity funds, passively managed funds–led by Vanguard’s offerings–took in $50.8 billion during December, which topped the previous monthly record of $41.9 billion set in November.
  • In December, investors pulled $23 billion out of actively managed U.S. equity funds, extending the group’s streak of outflows to 33 consecutive months.
  • But the preference for passively managed strategies was broader than just U.S. equity funds in 2016. Index-tracking international-stock funds took in $66.6 billion while their active competitors saw outflows of $59.8 billion.
  • Passively managed taxable-bond funds had inflows of $147.8 billion, far outstripping the $46.3 billion of inflows for active bond offerings.
  • AQR was behind Vanguard in active flows, bringing in over $10B.
  • Thanks to the record flows into passive U.S. equity funds, the overall inflows for U.S. stock funds hit its highest monthly total since April 2000, at $27.8 billion.
  • By far, 2016 belonged to Vanguard. The low-cost juggernaut dominated the flows landscape to a remarkable degree. The firm took in $277 billion in new money during the year, finishing at $3.4 trillion in long-term assets.
  • Franklin Templeton saw $42.5B in outflows, >10% of its AUM
  • In the last year American Funds, Fidelity, Blackrock, T.Rowe, Franklin Templeton, PIMCO and JPMorgan total outflows were $158B. Vanguard’s active funds took in $20.3B. Active management isn’t dead, but high-fee active managers have a serious problem on their hands.
  • Vanguard’s passive funds took in more in 2016 than iShares, SPDR, Fidelity, and Dimensional combined.
  • $3.4B came out of DoubleLine Total Return Bond Fund in December (AUM rose 7.8% in 2016).
  • PIMCO total return assets fell 15.7% y/o/y

U.S. active equity funds lost $263.8B last year Active U.S. equity funds and haven’t seen a calendar year of inflows since 2005. Assuming that $263.8B went into index funds, at an estimated cost savings of 80 basis points, that’s investors pocketing over $2,000,000,000 a year in fees.

Check out the whole thing: Morningstar 2016 Flows





The Most Powerful Force In The Universe

 

The Most Powerful Force In The Universe

Courtesy of 

Anyone can solve the equation 6+6+6+6. But ask somebody to calculate 6x6x6x6 without a machine and they’re going to look at you cross-eyed. The human brain was designed for linear, not exponential processing.

The other day I joked about the Dow reaching 2,000,000 by the year 2099, a one hundred fold gain from today’s prices. I was only kidding, but Morgan Housel told me for that to occur, the Dow would need to compound at 5.7% for the next 83 years. Considering the Dow has grown 7.14%  a year for the last 75 years, this seems totally within the realm of possibility.

This example from The Art of Thinking Clearly illustrates why the Dow reaching 2 million was completely beyond my comprehension (emphasis mine): “A piece of paper is folded in two, then in half again, and again and again. How thick will it be after fifty folds?…Take an astronomical guess. What would be a ridiculous number? Well, if we assume that a sheet of copy paper is approximately .004 inches thick, then its thickness after fifty folds is a little over sixty million miles. This equals the distance between the earth and the sun….Linear growth we understand intuitively. However, we have no sense of exponential growth.”

Let’s take a look at what compounding can do in the stock market. The chart below shows SPY since inception, with dividends included, versus the S&P 500 index, price only. The difference in returns over the last 24 years is an astounding 284%!

The cumulative dividend payout over this time is 46%, so this alone isn’t responsible for the gap. The remaining 238% is the magic of compounding; Dividends on top of dividends and returns on top of returns.

spread

The most powerful force in the universe, as Einstein referred to it, is something that eludes many of us for two main reasons. One, most people just don’t understand how it works. For instance, 10% growth for 25 years is not 250%, it’s 985%! The second reason why many fail to take advantage of compounding is because it takes time. Like,


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QOTD: Bob Shiller on the Trump Illusion

 

QOTD: Bob Shiller on the Trump Illusion

Courtesy of 

In the United States, two illusions have been important recently in financial markets. One is the carefully nurtured perception that President-elect Donald Trump is a business genius who can apply his deal-making skills to make America great again. The other is a naturally occurring illusion: the proximity of Dow 20,000. The Dow Jones Industrial Average has been above 19,000 since November, and countless news stories have focused on its flirtation with the 20,000 barrier – which might be crossed by the time this commentary is published. Whatever happens, Dow 20,000 will still have a psychological impact on markets.

- Robert Shiller

The Illusions Driving Up US Asset Prices (Project Syndicate)

Bob Shiller is America’s preeminent authority on market psychology and a Nobel prize winner on the topic to boot. Hit the jump above to hear his just-posted thoughts on both the “Trump Trade” and Dow 20,000.





Baby Boomers Retirement Begins To Drain Cash in the US

 

Baby Boomers Retirement Begins To Drain Cash in the US

Courtesy of 

Yves here. While this post flags a useful data point, it also repeats a widely-believed economic myth, that of the “dependency ratio” being a Serious Problem so that old people or young people or both can’t have nice things.

Now we do have other reasons that that will probably prove to be true, namely, resource constraints. But let’s put that aside.

There is tons of labor slack in advanced economies. Lots of people are willing to work, indeed need to work and can’t find jobs, or do have work yet are underemployed. Many older people who didn’t wreck their bodies during their prime years would also like to work in what what would normally be considered to be their retirement years, both to have a higher living standard and to get out of the house.

Dean Baker has pointed out that “fixing” Social Security, even using conservative assumptions, would require increasing the expenditure as a percent of GDP from 4% to 5%. The US did just fine going from the initial commitment of 1% of GDP to 4%. We have no trouble finding money for the next bombing run in Iraq. We can but don’t choose to prioritize social spending.

By Damien Klassen, a research analyst at Schroders. Originally published at MacroBusiness

The WSJ has a piece out on the demographic effects of the baby boomers retiring:

The largest generation in U.S. history has to start pulling its retirement money this year, kicking off a mandatory movement of cash that could total hundreds of billions in the coming decades.

U.S. law requires anyone age 70 ½ or older to begin annual withdrawals from their tax-sheltered retirement accounts and pay taxes on those distributions. The oldest of the nation’s 75 million baby boomers cross that threshold for the first time this month, according to a U.S. Census Bureau estimate of when that demographic group began.

The obligatory outflows from 401(k)s and IRAs are expected to ripple through the U.S. economy, the stock market and a money-management industry that relies heavily on fees from boomers’ tax-sheltered savings plans and assets.


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Trump snubs ethical norms because we’ve forgotten why they matter

 

Trump snubs ethical norms because we've forgotten why they matter

Courtesy of Elizabeth C. Tippett, University of Oregon

Let’s be honest. Conflicts of interest are boring.

The president-elect knows this. In fact, he’s banking on it.

Instead of addressing his conflicts in a meaningful way at his press conference last week, Trump pointed to a stack of folders behind him. He then turned the press conference over to a lawyer, who talked about Trump’s plans for long enough for viewers to lose interest. It sounded official and complicated, even though it’s an embellished version of his November announcement to turn the business over to his children.

Many condemned Trump’s plan to handle his myriad conflicts of interest as president as wholly inadequate, including the director of the U.S. Office of Government Ethics.

But most likely, Trump will get away with it – for now – and continue to ignore the warnings of government ethics officials, tasked with preventing things from going terribly wrong.

For decades, they’ve been so successful at preventing a major government ethics scandal, Trump’s conflicts of interest now seem academic and even soporific to the average voter. Unfortunately for Trump, his unwillingness to listen makes a disaster much more likely. On the upside, a scandal would at least remind Americans why ethics-based precautions matter.


 

Owning is knowing

Trump’s plan consists of handing management of the family business to his sons, Don and Eric, and a current Trump executive. Trump pledges not to discuss business with his sons.

Trump will not be divesting his golf clubs, commercial properties, resorts, hotels or royalty rights. The plan also provides for no “new” foreign deals, though new domestic deals will be permitted subject to a “vetting process.” Existing foreign and domestic deals will presumably continue.

Walter Shaub, who directs the Office of Government Ethics, condemned Trump’s plan as “meaningless.” Turning over management of the business to others – especially his own children – is not a “blind trust” because Trump “knows what he owns.” Trump’s own attorney used this fact as an argument that nothing could be done about the conflict.

Shaub…
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News You Can Use From Phil’s Stock World

 

Financial Markets and Economy

Oil Falls as IEA Chief Sees ‘Significant’ Boost to U.S. Output (Bloomberg)

Oil fell in New York, reversing earlier gains, after the head of the International Energy Agency predicted a rebound in U.S. supply.

European Stocks Hold Steady as Investors Prepare for ECB Meeting (Bloomberg)

European shares were little changed as investors prepared for the European Central Bank’s policy meeting on Thursday, when they’ll look for clues as to when the institution may begin curtailing its stimulus measures.

Pound Rescued by May Faces Choppy Waters as Political Risks Loom (Bloomberg)

The pound may have rallied the most since the 1990s after Prime Minister Theresa May promised a parliamentary vote on taking the U.K. out of the European Union, but the currency isn’t out of the woods yet.

Volatile Pound Stokes Life Into Emerging-Market Carry Trades (Bloomberg)

Investors are betting a trade that reaped returns of more than 20 percent last year for borrowing dollars to buy Brazil’s real, Russia’s ruble and South Africa’s rand has further to run — only they’re using the battered British pound to fund long positions in emerging-market currencies.

The 7 most inclusive European economies (Business Insider)

The World Economic Forum (WEF) has published its annual "Inclusive Growth and Development Report," a set of research which includes a ranking of countries according to the "inclusiveness" of their economies.

Asian Shares Gain, Led by Energy Companies on Higher Oil Prices (Bloomberg)

Asian stocks gained, led by a surge in energy companies after oil climbed above $52 per barrel. Japanese shares rebounded as investors picked up depressed shares.

China Charts Course for Opening to More Foreign Investment (Bloomberg)

China has released plans to relax restrictions on foreign investment and make it easier for overseas companies to list on domestic markets, as Premier Li Keqiang pushes ahead with efforts to open up the world’s second-largest economy.

10 things you need to know in markets today (Business Insider)

HSBC CEO Stuart Gulliver said trading operations that generate about 20% of revenue for the lender’s investment bank


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Phil's Favorites

Can Trump make real change as president?

 

Can Trump make real change as president?

Courtesy of Sharece Thrower, Vanderbilt University

Based on his erratic behavior during the campaign, many fear what Donald Trump will do in office. Some believe that his strong personality could lead to disastrous policies that could negatively affect health care, nuclear warfare and other aspects of our lives.

As a scholar of presidential power, I’d suggest such concerns are likely overblown. Despite his distinct individuality, Trump faces the same institutional constraints as any other president. In the end, he may be a more predictable president than many would believe.

From individual to the institutional

Political scientists have long been...



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Zero Hedge

Senate Confirms Mattis (Defense) & Kelly (Homeland) On Trump's First Day

Courtesy of ZeroHedge. View original post here.

Just hours after President Trump was sworn into office, amid Chuck Schumer's jabs over HUD, the Senate has confirmed retired Marine General James Mattis as defense secretary and retired Marine General John Kelly as homeland security secretary. They were both expected to be confirmed easily, and were, but Democrats promised fights over several other nominees.

Mattis was the first to be confirmed by a vote of 98...



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ValueWalk

Europe Rose Because Of Jurisdictional Competition

By The Foundation for Economic Education. Originally published at ValueWalk.

During the dark ages, nations like China were relatively advanced while Europeans were living in squalid huts.

Governments were forced to adopt better policies because labor and capital had significant ability to cross borders in search of less oppression.

But that began to change several hundred years ago. Europe experienced the enlightenment and industrial revolution while the empires of Asia languished.

What accounts for this dramatic shift?

I’m not going to pretend there’s a single explanation, but part of the answer is that Europe benefited from decentralization and jurisdictional competition. More specifically, governments were forced to adopt better policies because labor and capital had significant ability to cross borders in searc...



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Kimble Charting Solutions

Mr. President you want this to hold, says Joe Friday

Courtesy of Chris Kimble.

Consumer Confidence of late has continued to move higher, now reaching above the highs hit back in 2007. Long-Term S&P 500 returns are far below historical norms, when confidence is this high. We are not saying that high consumer confidence means the market is at a top!

Below is a look at the Advance/Decline line on a short-term basis.

CLICK ON CHART TO ENLARGE

Joe Friday Just The Facts; It could be important for support to hold, of this bearish rising wedge above.

...

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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Oil and Trump: Russians full of optimism in Davos (Reuters)

Twelve months ago, the mood of the Russian delegation at the World Economic Forum in Davos was distinctly gloomy, with oil prices near 12-year lows below $30 per barrel and Western sanctions depressing their economy and financial markets.

The Mortgage Market’s $1 Trillion Pocket of Worry (The Wall Street Journal)

Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market.

...



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Chart School

Small Cap Losses Accelerate

Courtesy of Declan.

Small Caps again took the brunt of the selling as Shorts took advantage of yesterday's small rally back to former support (turned resistance) to enter positions. With the 'bull trap' in full effect, the next target down for the index is 1,308. Of supporting technicals, only Stochastics [39,1] is left to break its bullish alignment,


The S&P took a modest loss, but not enough to break it out of its consolidation. Volume was also lighter. With the Russell 2000 on the way down, it's suggesting the S&P will follow suit....

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Members' Corner

How To Poop At Work?

Courtesy of Nattering Naybob.

Once again it's "in the Toilet Thursday" or "Thursday's in the Loo". 

In our last episode, How to Poop On A Date? we were graced with a delicate shituation: what ever to do when your finally back at her place, snuggling in for a little "brown chicken brown cow" and you get hit with "Love Potion #2".

This week in How to Poop At Work? ,what to do when your at a big fancy pants meeting, when out of nowhere, you need to download a brown load?



...

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OpTrader

Swing trading portfolio - week of January 16th, 2017

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

China's Bitcoin Exchanges Suspend Margin Trading

Courtesy of Zero Hedge

China's bitcoin traders who use the most popular bitcoin exchange not only in China, but also the entire world, BTCChina, were met with an unexpected warning on Friday:

Starting from January 12th, 2017, BTCChina has suspended margin loan service. If you have any questions, please contact Customer Service: support@btcc.com.

BTCChina, which commands over 37% of global bitcoin trading...

... wasn't alone.

Fo...



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Mapping The Market

If we try it enough, it will work.

Via Jean-Luc

Brownback wants Trump to emulate what he did in Kansas because it worked so well:

Sam Brownback Calls on Donald Trump to Mimic His Kansas Tax Plan

By RICHARD RUBIN and  WILL CONNORS

Sam Brownback, the Kansas governor whose tax cuts brought him political turmoil, recurring budget holes and sparse evidence of economic success, has a message for President-elect Donald Trump: Do what I did.

In 2013, Mr. Brownback set out to create a lean, business-friendly government in his state that other Republicans could replicate. He now faces a $350 million deficit when the Kansas legislature convenes in January and projections of a larger one in 2018. The state’s economy is flat and his party is fractured...

...

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Biotech

The Medicines Company: Insider Buying

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

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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Promotions

Phil's Stock World's Las Vegas Conference!

 

Come join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017.            

Beginning Time:  8:00 am Sunday morning

Location: Caesar's Palace in Las Vegas

Notes

Caesar's has tentatively offered us rooms for $189 on Saturday night and $129 for Sunday night. However, we have to sign the contract ASAP. We need at least 10 people to pay me via Paypal or we may lose the best rate for the rooms. (Once we are guaranteed ten attendees, I will put up instructions to call the hotel for individual rooms.)

The more people who sign up,...



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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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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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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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