by Market Shadows - February 22nd, 2017 10:45 am
Financial Markets and Economy
Understanding the Trump Rally (Bloomberg)
Experts and pundits predicted a stock market crash if Trump were to upset Clinton and win the presidential race, so the market's behavior seemed to confirm expectations. But then a funny thing happened — stocks came roaring back, almost immediately. Markets opened slightly down but quickly regained those losses and finished the day with gains of more than 1 percent as investors digested what Trump’s proposed infrastructure and tax policies would mean for the markets.
U.S. stocks fluctuated near all-time highs after rising in nine of the past 10 days, while Treasuries advanced as investors awaited Federal Reserve meeting minutes for clues on the pace of tightening. The euro extended declines political risk in the region increased.
Gold prices fell on Tuesday as renewed expectations of an increase in U.S. interest rates next month pushed the dollar higher, although political and economic uncertainties in Europe and the United States supported investor sentiment.
Institutional investors pulled $468.8 billion out of equities in 2016, a report by the research firm eVestment showed on Tuesday, notwithstanding a rally late in the year that drove stock markets to record highs.
The prospect of new rules in China on asset management products is sparking speculation that the worst corporate bond rout in a decade is about to get even worse.
China's red-hot housing market is now starting to cool (Business Insider Australia)
Chinese new home prices continued to moderate in January.
According to China’s National Bureau of Statistics (NBS), prices rose by 0.2% in January, continuing the deceleration that began in the final quarter of last year.
Investors Are Charging Into Emerging Market ETFs (Bloomberg)
U.S. President Donald Trump has supported many policies that could harm emerging market economies. But investors are betting that his bark will turn out to be worse than his bite.
by phil - February 22nd, 2017 8:28 am
"The 7% Solution" was the "lost" manuscript of Dr. John Watson recounting his famous patient's recovery from cocaine addiction. In a similar manner, we have a market that is clearly on crack and, coincidentally, the Nasdaq Composite is up exactly 7% (5,350) from it's 5,000 line since Jan 1st – time for a bit of reflection indeed!
The real story to the Nasdaq is, of course, Apple (AAPL), which is up 19% at $137 from $115 at the start of the year. AAPL is about 15% of the Nasdaq so it's responsible for 2.85% of the 7% gain in the Nasdaq, which is 40% of 7% – that's quite a burden for one company to carry. However, we feel the move in AAPL is justified so it's not AAPL's value we're questioning but whether or not AAPL should have dragged his 99 brother and sister stocks up the hill with him or are they all irresponsibly flying too close to the sun and investors are about to get burned?
There are a lot of overpriced (by normal standards) stocks on the Nasdaq but I think Tesla (TSLA) can serve as a good proxy this evening when they report Q4 results (or lack thereof) after running up 53% since Dec 2nd, when they were at $181.50 (now $277). That's a market cap of $44.6Bn, just shy of Ford (F) at $49Bn and GM (GM) at $56Bn – even though TSLA produces just 50,000 cars a year and lost approximately $2Bn doing it. That's a loss of $40,000 per car people! How on Earth are they going to sell $35,000 cars if they are losing $40,000 per $90,000 car they sell now?
We're short on TSLA in our Short-Term Portfolio as this Q should include the "earnings" of SolarCity, Musk's solar venture which had been bleeding cash before TSLA acquired it. Musk has to check a lot of boxes and explain how he's going to sell over 100,000 Model 3s in 2017 when there isn't even an actual car yet. Our short play is this:
by ilene - February 22nd, 2017 1:53 am
Can Trump resist the power of behavioral science's dark side?
More than two dozen governments, including the U.S., now have a team of behavioral scientists tasked with trying to improve bureaucratic efficiency to “nudge” their citizens toward what they deem to be higher levels of well-being.
A few recent examples include a push by the socialist French government to increase the numbers of organ donors, a conservative UK government plan to prevent (costly) missed doctor appointments, and efforts by the Obama White House to boost voter turnout on Election Day.
While the government’s use of our psychological quirks to affect behavior rubs some people the wrong way, most of us can agree that the above examples achieve positive ends. More organ donors mean more lives saved, fewer missed doctor appointments mean the government or health industry is more efficient, and increased voting means stronger citizen engagement in democracy.
But “nudges” themselves are value neutral. That is, they can be used to both achieve altruistic ends or more malicious ones. Just as behavioral science can be used to increase voter turnout, it can also be used to suppress the votes of specific individuals likely to favor the opposing side, as reportedly happened in the recent U.S. presidential election.
The nudge, in other words, has a dark side.
My research explores how behavioral science can help people follow through on their intentions where they make better or longer-term choices that increase their well-being. Because choices are influenced by the environment in which they are made, changing the environment can change decision outcomes.
This can be positive to the extent that those designing interventions have good intentions. But what happens when someone uses these insights to systematically influence others’ behavior to favor his or her own interests – even at the expense of everyone else’s?
That’s my concern with President Donald Trump, whose campaign appears to have exploited behavioral science to suppress the vote of Hillary Clinton supporters.
What’s in a nudge?
by ilene - February 22nd, 2017 1:39 am
Courtesy of Robert Reich
As tyrants take control of democracies, they typically do 7 things:
1. They exaggerate their mandate to govern – claiming, for example, that they won an election by a “landslide” even after losing the popular vote. They criticize any finding that they or co-conspirators stole the election. And they repeatedly claim “massive voter fraud” in the absence of any evidence, in order to have an excuse to restrict voting by opponents in subsequent elections.
2. They turn the public against journalists or media outlets that criticize them, calling them “deceitful” and “scum,” and telling the public that the press is a “public enemy.” They hold few, if any, press conferences, and prefer to communicate with the public directly through mass rallies and unfiltered statements (or what we might now call “tweets”).
3. They repeatedly lie to the public, even when confronted with the facts. Repeated enough, these lies cause some of the public to doubt the truth, and to believe fictions that support the tyrants’ goals.
4. They blame economic stresses on immigrants or racial or religious minorities, and foment public bias or even violence against them. They threaten mass deportations, “registries” of religious minorities, and the banning of refugees.
5. They attack the motives of anyone who opposes them, including judges. They attribute acts of domestic violence to “enemies within,” and use such events as excuses to beef up internal security and limit civil liberties.
6. They appoint family members to high positions of authority. They ppoint their own personal security force rather than a security detail accountable to the public. And they put generals into top civilian posts.
7. They keep their personal finances secret, and draw no distinction between personal property and public property – profiteering from their public office.
Consider yourself warned.
by Market Shadows - February 21st, 2017 11:35 pm
Financial Markets and Economy
The market bellwether has already reached the average year-end target of Wall Street analysts with a 5.5 percent gain since December, according to data compiled by Bloomberg.
A composite Purchasing Managers’ Index climbed to 56.2 from 54.1 in January, IHS Markit said on Tuesday. That’s the eighth consecutive reading above the 50 mark that divides expansion from contraction and above an economist estimate for 53.8.
Historically low interest rates are here to stay, making it much harder for central banks in wealthy countries to prevent and limit recessions in the future, according San Francisco Federal Reserve Bank President John Williams.
Why Does Economic Growth Keep Slowing Down? (Federal Reserve Bank Of St. Louis)
The U.S. economy expanded by 1.6 percent in 2016, as measured by real gross domestic product (GDP). Real GDP has averaged 2.1 percent growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3 percent per year).
Germany’s benchmark 10-year bond yield, which moved higher on Tuesday, may drop to levels seen at the beginning of this year because of weakening momentum indicators, technical studies suggest.
Goldman Sachs Group Inc. says the surge in confidence following Donald Trump’s November victory is reaching an inflection point. Investors counting on tax cuts and an economic boom to fuel a surge in corporate profits are getting ahead of themselves, according to the bank.
Britain is sliding towards Scoxit (The Economist)
Little more than half a year after the vote to leave the European Union, there is talk of another referendum in Britain. This time the people who could be offered the chance to “take back control” are
by ilene - February 21st, 2017 10:24 pm
Threats of violent Islamist and far-right extremism: What does the research say?
Courtesy of William Parkin, Seattle University; Brent Klein, Michigan State University; Jeff Gruenewald, Indiana University-Purdue University Indianapolis; Joshua D. Freilich, City University of New York, and Steven Chermak, Michigan State University
On a Tuesday morning in September 2001, the American experience with terrorism was fundamentally altered. Two thousand, nine hundred and ninety-six people were murdered in New York, Virginia and Pennsylvania. Thousands more, including many first responders, lost their lives to health complications from working at or being near Ground Zero.
The 9/11 attacks were perpetrated by Islamist extremists, resulting in nearly 18 times more deaths than America’s second most devastating terrorist attack – the Oklahoma City bombing. More than any other terrorist event in U.S. history, 9/11 drives Americans’ perspectives on who and what ideologies are associated with violent extremism.
But focusing solely on Islamist extremism when investigating, researching and developing counterterrorism policies goes against what the numbers tell us. Far-right extremism also poses a significant threat to the lives and well-being of Americans. This risk is often ignored or underestimated because of the devastating impact of the 9/11 terrorist attacks.
We have spent more than 10 years collecting and analyzing empirical data that show us how these ideologies vary in important ways that can inform policy decisions. Our conclusion is that a “one size fits all” approach to countering violent extremism may not be effective.
By the numbers
Historically, the U.S. has been home to adherents of many types of extremist ideologies. The two current most prominent threats are motivated by Islamist extremism and far-right extremism.
To help assess these threats, the Department of Homeland Security and recently the Department of Justice have funded the Extremist Crime Database to collect data on crimes committed by ideologically motivated extremists in the United States. The results of our analyses are published in peer-reviewed journals and on the website for the National Consortium for the Study of Terrorism & Responses to Terrorism.
The ECDB includes data on ideologically motivated homicides committed by both Islamist extremists and far-right extremists going back more than 25 years.
by ilene - February 21st, 2017 10:01 pm
Courtesy of Michael Batnick
A few weeks after the election, a friend of mine told me he sold all of his stocks in his 401(k). He was happy with the 13% his portfolio earned in 2016 and felt that stocks had gone too far too fast. He understands that he can’t time the market, but he just couldn’t help himself. His mind was made up and he would get back in when stocks came back down to earth.
I’ve had conversations with other friends and family members asking me if they should take similar measures. Now these are just anecdotes, indicative of nothing really, but it does seem like there is a giant disconnect. Civilian enthusiasm for stocks, at least from my perch, is nowhere near euphoria, but at the same time stocks are expensive on basically every single metric.
So people are paying more for stocks as they make new all-time highs, and yet the “feel” is more this is gonna end badly than I don’t care just get me in. How can these two contradictory things exist simultaneously and what is creating this disconnect?
Howard Marks commented on this recently in his interview with Barry Ritholtz and said interest rates are responsible:
I don’t believe most people are thinking very optimistically. I think most people have reservations, most people understand that economic growth is uncertain, most people understand that we don’t know how the central bank experiment with zero rates is gonna end up or how it gets reversed, and of course most people are concerned about the geopolitical developments in the world today. I believe that enthusiasm is not unrestrained, on the other hand, people may be thinking in not a bullish way but I think they’re acting in a bullish way. What accounts for the difference? Rates near zero. And when you live in a low return world, you have to take risk to get return. People are willing to take risk because they’re hand cuff volunteers. People who do things not because they want to, but because they have to.
by ilene - February 21st, 2017 9:55 pm
Courtesy of Michael Batnick
Not everybody can sit through a bear market. Sure, guys like Buffett and Munger never sell, but for the 99% of us who have emotions, we need to do something to de-risk when it looks like the world is falling apart. But what so many investors get wrong is that they don’t have a process for selling and then getting back in.
The pain threshold is different for everyone, but the trigger to sell is always the same, it’s overwhelming fear. We fear that the 20% correction becomes a 30% decline, that the 30% decline becomes a 40% crash, and that the 40% crash leads to a back-breaking 50% wipe out, and so on.
So you need a rules based system in place that supersedes these emotional reactions. Let me give you an example of what I’m talking about.
What if you have two separate accounts? One with the bulk of your assets, that you’ve locked and thrown away the key, and another that that’s a little more nimble, which gives you the flexibility to *attempt to dampen the deep market losses. Here is the strategy: after every 15% decline on a monthly closing basis, you take that portion of your portfolio to cash. You re-enter when the market is above the level at which you sold, a “coast is clear level,” if you will.
This is a bad strategy. I mean a really bad strategy. The model would have told you to sell in June 2008, after a 16% drawdown. It then would have told you to get back in at the end of August, only to sell two months later after another 24% loss. Sure you would have avoided another few months of selling, but you would not have gotten back in until July 2009, when stocks were already 40% off their bottom.
So how did this ridiculous, terrible, idiotic model perform? Since 1926, it returned 9.21% compared to the 10.05% return from the index.
I’m definitely not suggesting this is a strategy that you employ, in fact I would implore you to come up with something else, but the point is, having a sub-optimal emergency escape plan is a thousand times better than not having one at all.
by Market Shadows - February 21st, 2017 10:15 am
Financial Markets and Economy
U.S. stocks rose to records as commodities from copper to crude surged and retailer results topped estimates. The dollar resumed its advance amid fresh signs global growth has started to accelerate.
Dollar rises after Fed comments; euro weakens (Market Watch)
The dollar gained against its rival currencies Tuesday, as comments from a Federal Reserve official drove up U.S. Treasury yields in Asia, along with demand for the U.S. currency.
Oil prices rise as investors increase their bullish bets (Market Watch)
Crude futures moved higher Tuesday as investors held onto their bullish positions, betting on the supply to tighten as major oil producers cut their output.
The companies that President Trump tweets about get the attention (hello, Nordstrom), but those aren’t the ones whose stocks have been affected most by the White House agenda.
Asian stocks ended mostly higher Tuesday, with Japanese equities rising as the yen pulled back against the U.S. dollar while banking stocks bolstered gains in Chinese trade.
A gauge for economic activity rose to the highest level in almost six years in February, following previous signals that the region’s frail recovery is finally taking shape. National gauges showed France outpacing Germany for the first time since 2012 — a development that could signal growth in the 19-nation region is becoming more broad-based.
U.S. stock futures pointed to a moderately higher start for Wall Street on Tuesday, poised for another shot at record territory that may hinge on the outcome of manufacturing and service surveys due later.
Tax incentives such as low rates of corporation tax have fuelled
by Market Shadows - February 20th, 2017 10:37 pm
Financial Markets and Economy
The post-crisis years have not been good for real assets, the catchall term for commodities, energy, real estate and other investments based on selling real things instead of clever ideas.
Denise Shull is a decision coach and performance architect who consulted on Showtime’s BILLIONS for the Wendy Rhodes character, the in-house psychotherapist for Axelrod hedge fund.
China’s central bank has stepped up oversight of bitcoin exchanges this year, leading major trading platforms to impose halts on withdrawals and other checks to appease the regulator.
Warning signs are piling up that the bull run in stocks is nearing an end (Business Insider)
If it feels like this bull market has been going on for a long time, that's because it has.
In fact, the current market rally, which has lasted 2002 trading days, is the longest one since the rally that preceded the 1929 stock market crash.
Goldman: 'Cognitive dissonance exists in the US stock market' (Yahoo Finance)
Goldman Sachs analysts believe investors and traders in the stock market are acting irrationally.
“Cognitive dissonance exists in the US stock market,” Goldman Sachs’ David Kostin said. “S&P 500 (^GSPC) is up 10% since the election despite negative [earnings per share] revisions from sell-side analysts.”
2016 was an amazing year for the solar industry overall, even if it wasn't great for solar stocks. GTM Research recently reported that its upcoming U.S. Solar Market Insight Report done with the Solar Energy Industries Association will reveal a 95% jump in installations last year to 14.6 GW.
It’s hard to argue against automation when statistics are clearly illustrating its potential. The latest evidence comes out of a Chinese factory in Dongguan City.