Posts Tagged ‘value’

“Sell the News” Bearish Flattening of Yield Curve Continues; Reflections on “Relative Value”

Continuing on the theme of stock market prices vs. real fundamental value, Mish writes: "This is what happens when investors chase "relative value" instead of asking if there is any real value at all…[This] applies to those chasing the stock market at these lofty levels on the basis ‘stocks are cheap relative to treasuries’ or some other nonsensical reason to justify valuations." – Ilene 

Courtesy of Mish

Curve Watchers Anonymous notes a continuing bearish flattening of the yield curve as shown in the following chart.

click on chart for sharper image

A bearish flattening occurs when the curve tightens with yields generally rising. Conversely, a bullish flattening occurs when the curve tightens with yields generally falling.

Since early November, 5-year treasury yields have risen about 60 basis point, 10-year yields about 45 basis points, and 30-year treasury yields have risen perhaps 5 basis points.

Once again we can see the results in today’s action with thanks to Bloomberg.

Buy the Rumor Sell the News

Note the continued unwind of the "sure-thing" treasury bet, with the Fed concentrating its purchases in the 3-to-7-year range hoping to drive down rates, and everyone front-running the trade. That trade is now unwinding.

Clearly this reaction is not what Bernanke wanted at all.

Reflections on "Relative Value"

Check out that .81 yield on 3-year treasuries. On October 18, investors scarfed up $750 million of 3-year Walmart Bonds yielding .75% for the stupid reason they yielded more than treasuries. Now treasuries are yielding more.

This is what happens when investors chase "relative value" instead of asking if there is any real value at all.

The same idea applies to those chasing the stock market at these lofty levels on the basis "stocks are cheap relative to treasuries" or some other nonsensical reason to justify valuations.

There is no value, only unwarranted bullishness.

Mike "Mish" Shedlock

Originally published at Mish’s Global Economic Trend Analysis, "Sell the News" Bearish Flattening of Yield Curve Continues; Reflections on "Relative Value".


Tags: , , , , , , , , , ,




Economic Value in Aitch-Two-Oh

Economic Value in Aitch-Two-Oh

Courtesy of Tim at The Psy-Fi Blog 

trout103001 -- Rainbow trout spawn in Hoyes Run in Garrett County Maryland.

Odd Water

"The world’s supply of fresh water is running out. Already one person in five has no access to safe drinking water. "

Well, so says the BBC. But water’s an odd thing. You can’t live without it but it’s not particularly valuable. In fact the stuff in your faucet is free, it’s just the cost of getting it there that we pay for.

Water is, perhaps, the pre-eminent example of the old truism that price is what you pay but value is what you get. Only thing is, how do you value something that has no market price? Fortunately teams of highly trained thinkers have been working on this, just so we know the price of everything even if we’re not willing to pay it.

Paradoxical Water

While we absolutely require water every day to survive we can live a lifetime without diamonds, although don’t tell my mother. Yet water’s effectively free while if you want a diamond you need to pay an arm and a leg. This is a paradox that Adam Smith noted:

“Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it”.

As ever, there’s a difference between price and value and that makes all the world of difference. Especially if you’re thirsty. Michael Haneman gives a fabulous review of the economic principles surrounding the use of water in The Value of Water, which we’ll only summarise here, but it’s a great starting point for anyone wondering why intangibles are invaluable.

Man Cooling Off

Marginal Value 

Basically the difference between value and price is a pretty important one for investors and economists because it makes clear that the economic value of something isn’t the same as its market price. There are things that have economic value that price doesn’t accurately measure and this fact makes investment analysis rather more tricky than simple share price followers would like.

The critical key to understanding the difference in valuation between water and diamonds is the idea of marginal value. If you have twelve litres of water to hand – which…
continue reading


Tags: , , , , , ,




WHY IS MONEY?

WHY IS MONEY?

Courtesy of The Pragmatic Capitalist 

Business people filling pockets and bag with fallen money

By Annaly Capital Management:

Back in June we wondered out loud, “What is a dollar?” That exercise—as well as the recent schizophrenic behavior of the currency market and the lamentations regarding the Fed’s “printing press”—has led us to wax philosophical on this Friday in August, and ask the question that is the title of our post today.

We tend to give the concept of money very little thought. For example, how many transactions does the average person engage in every day, and in how many forms? Our first transaction of the day is handing $1.25 in cash to a guy in a cart on 47th Street for our morning coffee. Throughout the day we buy lunch with a debit card, buy a book online with a credit card, transfer money to pay bills online and write a check to pay ConEd. In this parade of transactions, the relevant questions are “How much money do I have?” and “Do I have enough of it to pay for these things?” At no point during the typical day do we question the unit of exchange for all this activity, the US Dollar, or even wonder if it will be accepted as a form of payment (regardless of the form—cash, check, megabytes over an internet line).

The typical complaint about the dollar is that it is a fiat currency, one that is backed by nothing but the faith in America and its institutions. Some feel more comfortable knowing that their paper money can be exchanged at any time for a set amount of gold; it seems more grounded somehow, less faith-based. But a quick look at gold, despite it having a limited quantity (it can’t be printed at will), reveals that the major drawback of fiat money also applies to gold, meaning it only has value because we have always ascribed it value. Essentially, it is a malleable and ductile metal with a limited range of inherent utility. At the end of the day, you can’t eat it, or live in it (but you can wear it). As Willem Buiter, the chief economist at Citigroup and a gold bear, said, gold has benefitted from “the longest-lasting bubble in human history.”

Mackerel

So, with money, backed by gold or otherwise, what do we really have? Maybe we have something of a modified…
continue reading


Tags: , , , , , , , , , ,




Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?

Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?

Courtesy of Mish 

Digital composite of Tiananmen Gate of Heavenly Peace and one hundred Yuan banknotes

Pressure on China to do something about its allegedly undervalued currency is mounting by the day. Please consider the following articles.

World Bank Calls For Stronger Yuan

The World Bank Says China Must Pare Stimulus to Counter Bubbles

The World Bank indicated that China, the world’s third biggest economy, should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations.

The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, the Washington- based World Bank said in a quarterly report on China released in Beijing today. The group raised its economic growth forecast for this year to 9.5 percent from 9 percent in January.

The World Bank’s call echoes the assessment of private economists — analysts at Morgan Stanley this week said higher reserve requirements for banks may be “imminent” and interest rates could start to climb as early as next month. China’s economic rebound has also sparked increasing calls for an end to its exchange-rate peg to the dollar, adopted in mid-2008 to help shelter exporters amid the global recession.

Senate Considers Currency Manipulator Regulation

Bloomberg is reporting Senate May Force Obama to Take Tougher Yuan Stance

Five senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation yesterday to make it easier for the U.S. to declare currency misalignments and take corrective action. Even if the bill stalls, it may have “ripple effects” that lead the Treasury Department to declare China a currency manipulator, William Reinsch, president of the National Foreign Trade Council, said.

Obama’s goal of doubling U.S. exports in five years depends on his ability to get China to raise the value of its currency, said Sherrod Brown, an Ohio Democrat and co-author of the legislation. China’s intervention in currency markets to keep the value of the yuan, or renminbi, at a set value acts as a subsidy to exports and tax on imports, Brown said at a news conference yesterday.

Senator Debbie Stabenow, a Michigan Democrat, and Sam Brownback, a Kansas Republican, are also supporting the legislation. Graham is a Republican and Schumer is a Democrat.

The senators said the U.S. recession


continue reading


Tags: , , , , , ,




Anchoring, The Mother of Behavioral Biases

Anchoring, The Mother of Behavioral Biases

Courtesy of Tim at The Psy-Fi Blog

Anchors underwater

Behavioural Biases (5): Anchoring

Just as an anchored ship rarely strays too far away from its tethering point, a human being prefers to stick close to the references with which they feel most comfortable. Anchoring is an easy-to-demonstrate, hard-to-eradicate behavioural bias that has all sorts of nasty implications for investors, many of them not obvious. In fact, along with availability, it has the claim to be the mother of all biases.

The fundamental investment problem lies in the difficulty in deciding what something is intrinsically worth. A skilled negotiator will start from an extreme position, such as a very high price, in order to frame the subsequent discussions. Anywhere and anytime someone presents us with a number in order to start negotiations we’re being anchored. So if it really matters then you need to start from your own number or walk away.

Random Pricing

Anchoring is almost trivially easy to demonstrate and it’s been replicated many times by many researchers in many situations. Perhaps the simplest example is to use peoples’ social security numbers as a reference. As Dan Airely shows here, by simply getting people to write down the last two digits of the number and then asking them to submit mock bids it’s possible to get people with higher numbers to bid up to twice as much as their lower number companions. Unconsciously the brain sets the social security derived number as the reference point and then adjusts accordingly.

It’s worth dwelling on that. I think it’s simply astonishing and truly shocking that highly evolved, smart primates like ourselves can be fooled into utterly stupid behaviour through a trivial piece of misdirection. And it affects us all.

Anchoring is a particularly pervasive problem and occurs in all sorts of scenarios, being particularly beloved by opinion poll surveyors, real-estate agents, stockbrokers, car salesmen, supermarkets and, well, virtually everyone who wants us to buy things. Wherever and whenever anyone presents us with a number and then asks us to do something with it you can be sure we’re be tricked into behaviour that probably isn’t in our best interests.

Multiple Choice, Multi-Buys

Multiple choice surveys on some kind of sliding scale are an especially fun source of anchoring issues since people will invariably anchor


continue reading


Tags: , , ,




Willem Buiter Apparently Does Not Like Gold, and Why

Jesse debates Willem H. Buiter on the subject of Gold. Willem H. Buiter is a Professor of European Political Economy, London School of Economics and Political Science, former chief economist of the EBRD, former member of the MPC, and adviser to international organisations, governments, central banks and private institutions. He writes the FT’s Maverecon blog. – Ilene

Willem Buiter Apparently Does Not Like Gold, and Why

goldCourtesy of Jesse’s Café Américain

Dr. Willem Buiter of the London School of Economics, and advisor to the Bank of England, has written a somewhat astonishing broadsheet attacking of all things, gold.

I have enjoyed his writing in the past. And although he does tend to cultivate and relish the aura of eccentric maverick, it is generally appealing, and his writing has been pertinent and reasoned, if unconventional. That is what makes this latest piece so unusual. It is a diatribe, more emotional than factual, with gaping holes in theoretical underpinnings and historical example.

I suspect that commodities such as oil and gold are giving many western economists with official ties to government monetary committees a stomach ache these days. Perhaps this is just another manifestation of statists and financial engineers facing the music, as illustrated by the second piece of news from Mr. Buiter on the US dollar, from earlier this year.

Here are relevant excerpts from his essay, with my own reactions in italics.

Financial Times
Gold – a six thousand year-old bubble

By Willem Buiter
November 8, 2009 6:02pm

"Gold is unlike any other commodity. It is costly to extract from the earth and to refine to a reasonable degree of purity. It is costly to store."

This is inherent to its rarity. It is desirable because it is scarce and useful, and this requires greater protection against theft or accident. Euro notes are far more costly to store than the paper and ink which is used to make them, at least for now.

"It has no remaining uses as a producer good – equivalent or superior alternatives exist for all its industrial uses."

This is an absolute howler to anyone who cares to look into industrial metallurgy. Gold is one of the most malleable and ductile of metals, with excellent conductive properties, slightly less than silver but better than copper, and it is remarkably resistant to oxidation. It does not tarnish.


continue reading


Tags: , , ,




Who is going to buy gold?

Who is going to buy gold?

gold bug (edgar allen poe)Courtesy of Vitaliy Katsenelson at Contrarian Edge

This is the first in a series of what some may consider as “gold bashing” articles. I am not short gold in any shape or form. I have no axe to grind against gold bugs. I am simply presenting the other side of the argument in response to what I deem to be dishonest, gold-pimping commercials (e.g., “If gold prices went up to $5,000 this pile of gold would be worth $300,000”) that we are subjected to all day long on TV. I may be wrong, but I am honest.

Here is a trivia question for you: what country is the seventh largest holder of gold, ahead of China, Japan, and Switzerland? Well, it was a trick question: the seventh largest holder of gold is not a country, it is an exchange-traded fund, GLD. Yes, a fund that is not even five years old is the seventh largest holder of physical gold in the whole world, even ahead of mighty China.

When investors buy GLD, GLD in turn has to go out and buy gold, driving up the price. This raises a little question: who will be buying this gold from GLD when investors decide to sell it? Gold is one of those weird assets where nobody knows what it is really worth. You cannot run discounted cash-flow analysis to value it – it has no cash flows. It is an asset where perception and reality are deeply intertwined.

Investors buying the gold ETF (GLD) are influencing the price of gold, which is fair for the most part, as otherwise they’d be buying the real thing. The ease of buying GLD creates a higher, artificial demand – but GLD is still fair game.

The violent selloff in GLD will be caused by factors that are hard to predict today (e.g., hedge-fund liquidations) but that will drive the price of gold down dramatically unless a real buyer steps in (like another government sick of owning the US debt, for instance), and the gold price could get cut in half overnight. Suddenly, perception of not being a store of value will create the reality of gold not being a store of value. The gold game will be over.

Vitaliy N. Katsenelson, CFA, is a portfolio manager/director of research at Investment Management Associates
continue reading


Tags: , , ,




 
 
 

Zero Hedge

Missing Vegas Massacre Security Guard Resurfaces...

Courtesy of ZeroHedge. View original post here.

The mystery is over. After vanishing since last Thursday, wounded Las Vegas security guard Jesus Campos has been found... On the set of 'Ellen'.

...



more from Tyler

Phil's Favorites

World hunger is increasing thanks to wars and climate change

 

World hunger is increasing thanks to wars and climate change

Courtesy of Leah SambergUniversity of Minnesota

Smallholder agriculture in southern Ethiopia. Smallholder farmers are particularly vulnerable to food insecurity. Leah Samberg

Around the globe, about 815 million people – 11 percent of the world’s population – went hungry in 2016, according to the latest data from the United Nations. This was the first increase in more than 15 years.

Between 1990 and 2015, due largely to a set of sweeping initiatives by the global community, the proportion of undernourished people in the world was cut in half. In 2015, U.N. member countries adopted t...



more from Ilene

Insider Scoop

W W Grainger Wins With Sticky Contracts For Large Clients

Courtesy of Benzinga.

Related GWW Benzinga's Top Upgrades, Downgrades For October 18, 2017 The Market In 5 Minutes: Housing Star...

http://www.insidercow.com/ more from Insider

ValueWalk

Marc Faber's America in Black and White

By Steve Slavin. Originally published at ValueWalk.

It is truly amazing that even in our era of supposed political correctness, a respected financial advisor like Marc Faber, aka Dr. Doom, could publicly make the claim that the United States is much better off than it would have been if it had been colonized by blacks rather than whites. Even in the age of Trump, it seems that only the extreme rightwing hate groups have openly expressed such racist views.

In fairness, Faber did get one thing right: If America had been colonized by blacks instead of whites, our nation would certainly have been a very different place from what it is today.

...



more from ValueWalk

Chart School

More of the Same

Courtesy of Declan.

There was little change on the day-to-day machinations of the market. The S&P is riding along upper channel resistance with technicals still bullish.


The Nasdaq is caught in a halfway house with bullish technicals and a relative advantage of the index against the S&P.


The Russell 2000 is...

more from Chart School

Digital Currencies

BDC's Crypto Corner

 

BDC’s Crypto Corner

By Biodieselchris

Hello fellow PSW-ers. I've been interested in cryptocurrencies (informally, "cryptos" or "coins") since 2011 when I first heard about Bitcoin, Since that time I've become somewhat of a subject matter expert and personal investor in Bitcoin and other alternative cryptocurrencies ("altcoins").

I've been posting comments about cryptos in Phil's daily post from time to time. Recently, Phil and I got on a call and he asked if I would like to run a blog on his site specifically about cryptos, which I thought was a great idea. My goal would be to educate members on what I know about how coins work, how I research coins (what I find interesting), how exactly one can invest (buy, hold, and sell) c...



more from Bitcoin

Mapping The Market

Puts things in perspective

Courtesy of Jean-Luc

Puts things in perspective:

The circles don't look to be to scale much!

...

more from M.T.M.

Biotech

Circadian rhythm Nobel: what they discovered and why it matters

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

 

Circadian rhythm Nobel: what they discovered and why it matters

Courtesy of Sally Ferguson, CQUniversity Australia

Today, the “beautiful mechanism” of the body clock, and the group of cells in our brain where it all happens, have shot to prominence. The 2017 Nobel Prize in Physiology or Medicine has been awarded to Jeffrey C. Hall, Michael Rosbash and Michael W. Young for their work on describing the molecular cogs and wheels inside our biological clock.

In the 18th century an astronomer by the name of Jean Jacques d'Ortuous de Ma...



more from Biotech

Members' Corner

Day of Last Dances

News today has been relentlessly terrible. A horrific mass murder happened last night in Las Vegas. (Our politician's abject failure to address gun control is beyond sickening.) And today, reports that Tom Petty died of a heart attack, followed by reports that Tom Petty is not dead, and now reports confirming that Tom Petty has passed away. 

...

more from Our Members

OpTrader

Swing trading portfolio - week of September 11th, 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 ...



more from OpTrader

Promotions

NewsWare: Watch Today's Webinar!

 

We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...



more from Promotions

Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.

CLICK ON CHART TO ENLARGE

EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...



more from Kimble C.S.

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...

more from David



FeedTheBull - Top Stock market and Finance Sites



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...

Learn more About Phil >>


As Seen On:




About Ilene:

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.

Market Shadows >>