Archive for March, 2017

A Picture Says 1.2 Trillion Words

 

A Picture Says 1.2 Trillion Words

Courtesy of 

From 2007 through 2015, $835 billion was yanked out of active mutual funds and $1.2 trillion plowed into index funds. Below is the most compelling image I’ve seen to explain why this secular change is taking place.

screen-shot-2017-03-28-at-5-56-57-pm

Index funds aren’t perfect, as Ben recently laid out, but assuming you can control your behavior, which is more important than whether you own every stock in an index or only 20% of them, indexing gives investors the best chance of capturing whatever returns the market will deliver.

Check out the whole report from Vanguard, who, with $1 trillion in actively managed funds, knows a thing or two about the topic.

Vanguard: The Evolution of Active Management.





Multiple Bubbles Are Going To Bring America To Its Knees: “The Warning Signs Are There”

Courtesy of ZeroHedge. View original post here.

Authored by Daniel Lang via SHTFplan.com,

If you’ve been paying attention to the ongoing degradation of the American economy since the last financial crisis, you’re probably flabbergasted by the fact that our economy has managed to make it this far without imploding. I know I am. I find myself shocked with every year that passes without incident.

The warning signs are there for anyone willing to see, and they are flashing red. Even cursory research into the numbers underlying our system will tell you that we’re on an unsustainable financial path. It’s simple math. And yet the system has proven far more durable than most people thought.

The only reasonable explanation I can think of, is that the system is being held up by wishful thinking and willful ignorance. If every single person knew how unsustainable our economy is, it would self-destruct within hours. People would pull their money out of the banks, the bonds, and the stock market, and buy whatever real assets they could while their money is still worth something. It would be the first of many dominoes to fall before the entire financial system collapses.

But most people don’t want to think about that possibility. They want the relative peace and prosperity of the current system to continue, so they ignore the facts or try to avoid them as much as possible. They keep their money right where it is and cross their fingers instead. In other words, the only thing propping up the system is undeserved confidence.

Unfortunately, confidence can’t keep an unsustainable system running forever. Nothing can. And our particular system is brimming with economic bubbles that aren’t going to stay inflated for much longer. Most recessions are associated with the bursting of at least one kind of bubble, but there are multiple sectors of our economy that may crash at roughly the same time in the near future. For instance:

  • Eric Rosengren, the president of the Federal Reserve Bank of Boston, recently made a startling tacit admission. We may be in the midst of yet another real estate bubble. Major financial institutions in this country are in possession of over $14 trillion worth of residential real estate loans. That’s well over $40,000 for every man woman and child in America.
  • Low interest rates have fueled a bubble


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California Senator Forced To Pull Bill Banning “Fake News” After Realizing It’s Idiotic

Courtesy of ZeroHedge. View original post here.

California is known far and wide for it’s wacky regulations.  In fact, just last fall we wrote about SB 1383, a very significant piece of legislation signed into law by Jerry Brown which requires a 40% reduction in methane gas emissions from cow flatulence by 2030 (no, really…you can take a look here: “Here Are Some Of The Ridiculous New State Laws That Will Take Effect January 1st – Happy New Year!“)

But a recent piece of legislation introduced by California Assemblyman Ed Chau (D-Monterey Park), “The California Political Cyberfraud Abatement Act or AB 1104 for short, gives the “cow fart” bill a run for its money in terms of its complete idiocy.  The bill, filed Wednesday in the Assembly’s Committee on Privacy and Consumer Affairs, would have effectively made it a crime to be wrong on the Internet.

The text of the bill implicated anyone who writes, publishes or even shares news stories that could be false, if those news stories are later found to have had an impact on an election.  From the bill:

This bill would modify the definition of the terms “political cyberfraud” and “political Web site” to include Internet Web sites that urge or appear to urge the support or opposition of candidates for public office. The bill would also make it unlawful for a person to knowingly and willingly make, publish or circulate on a Web site, or cause to be made, published, or circulated in any writing posted on a Web site, a false or deceptive statement designed to influence the vote on any issue submitted to voters at an election or on any candidate for election to public office.

And even though author Ed Chau described AB 1104 as “an important step forward in the fight against ‘fake news’ and deceptive campaign tactics”, the Electronic Frontier Foundation (EFF), a digital-rights advocacy group, said the bill was “so obviously unconstitutional, we had to double check that it was real.”

Memo to California Assemblymember Ed Chau: you can’t fight fake news with a bad law.

On Tuesday, the California Assembly’s Committee on Privacy and Consumer Affairs, which Chau chairs, will consider A.B. 1104—a censorship bill so obviously unconstitutional, we had to


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Stress Testing Your Portfolio

 

Stress Testing Your Portfolio

Courtesy of 

I recently received an email about a piece of software that would allow us to stress test our portfolios. Some of the scenarios included:

  • What if interest rates rise back to historical levels or above, with 10-year treasury rates at 5%, as a result of renewed growth in the US economy?
  • What if the S&P has a strong correction and falls 20% over a short timeframe?
  • What if 10 year treasury rates rise 100 basis points as interest rates normalize?
  • What if a recovery in global economic growth drives demand for commodities and higher inflation?
  • What if economic growth pushes inflation up to the Fed’s target levels in the US?

This sounds appealing, why wouldn’t you want to know how your portfolio would respond in different environments? The better prepared you are, the more likely you are to remain calm when stress arrives. But there are a few drawbacks to going through this type of exercise:

  • These scenarios are front and center on every investor’s mind. Risk, by definition, is hard to identify in advance.
  • What if one of the scenarios does happen, but it’s not for the reason we assume. For example, what if the 10-year rises to 5%, but not as a result of growth?
  • What if the 10-year does rise to 5%, but it happens gradually over the next few years? And what if it happens in three months?
  • What if we experience a combination of these things? How many simulations should we run? And should we change anything based on the results?
  • What if your portfolio doesn’t respond the way the model predicts it will?

Stress testing your portfolio might sound like a good idea, but it can give investors a false sense of security and expose them to the biggest risk of all, what if your portfolio does respond the way the model predicts, but you’ve overestimated your true risk…
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Caught On Tape In Atlanta: “State Of Emergency, The Entire Bridge Is Compromised”

Courtesy of ZeroHedge. View original post here.

Authored by Mac Slavo via SHTFplan.com,

If you were looking for confirmation that the nation’s infrastructure needs a complete overhaul, a collapsing bridge in Atlanta may have provided it in stark imagery.

Around 6:30 p.m. Thursday night, a fire broke out under a section of the highway bridge on busy I-85 in Atlanta, Georgia. Just thirty minutes later, a huge section of that bridge burst into flames and completely collapsed.

Amazingly, no motorists were injured when this happened:

“This is as serious a transportation crisis as we could have,” Mayor Kasim Reed said, noting that he had spoken with the FBI and terrorism was not suspected at this time.

Authorities still don’t know what exactly caused the fire as the entire area is still too unsafe for crews to examine, but it is believed that PVC piping stored under the bridge (as shown on a screen capture from Google maps below) caught fire first.

screen-shot-2017-03-31-at-5-01-06-am

Georgia Governor Nathan Deal has declared a state of emergency, however, as authorities claim the entire transportation network in Atlanta has been significantly impacted, including five different public bus lines. In addition, DeKalb County Schools were canceled Friday, City of Atlanta government offices won’t open until 10 am, and all non-essential DeKalb County government workers will not be required to report in to work.

City officials have no idea when the bridge in what is otherwise a heavy traffic area will be able to be fixed.

In other words, traffic is going to be a bitch.

Meanwhile, how’s that aging American infrastructure working out?





Does ‘green energy’ have hidden health and environmental costs?

 

Does 'green energy' have hidden health and environmental costs?

Courtesy of Edgar HertwichYale UniversityAnders ArvesenNorwegian University of Science and TechnologySangwon SuhUniversity of California, Santa Barbara, and Thomas GibonNorwegian University of Science and Technology

Image 20170302 14690 o29d4o

Wind turbines require massive structures that are polluting to produce and can harm ecosystems, but these impacts compare favorably with those of fossil alternatives. www.shutterstock.com

There are a number of available low-carbon technologies to generate electricity. But are they really better than fossil fuels and nuclear power? The Conversation

To answer that question, one needs to compare not just the emissions of different power sources but also the health benefits and the threats to ecosystems of green energy.

Production of electricity is responsible for about a quarter of global greenhouse gas emissions, and demand is poised to rise as underserved populations connect to the grid, and electronics and electric vehicles proliferate. So stopping global warming will require a transformation of electricity production.

But it is important to avoid various environmental pitfalls in this transition, such as disrupting ecosystems and wildlife or causing air pollution.

In a research paper, we analyzed the impact of electricity generation from renewable sources, nuclear fission power plants and fossil fuels, with and without CO? capture and storage (CCS) technology for separating CO? and storing it underground. We accounted for the environmental effects associated with the production, operation and dismantling of facilities, as well as the production, transport and combustion of fuels. We then compared a baseline scenario to a low-carbon electricity scenario that would prevent global average temperatures from rising more than two degrees Celsius above preindustrial levels by 2050 – the point climate scientists say will avoid dangerous climate change.

Our study emphatically confirms that fossil fuels – mainly coal – place a heavy burden on the environment and that most renewable power projects have lower pollution-related impacts on ecosystems and human health. Nonetheless, no energy source is without adverse environmental side effects. Power plant siting, project design and technology choice are critical issues that investors and governments should consider…
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Why states are pushing ahead with clean energy despite Trump’s embrace of coal

 

Why states are pushing ahead with clean energy despite Trump's embrace of coal

Courtesy of Bill Ritter, Jr.Colorado State University

Image 20170329 8593 13p35fo

Alamosa Photovoltaic Plan, south-central Colorado. Energy.gov/Flickr

On Tuesday, March 28, President Trump traveled to the Environmental Protection Agency to sign an executive order rolling back a number of climate-related regulations that have taken effect over the past eight years. The president’s team claims this effort will help bring our nation closer to energy independence, and that it will begin the process of resuscitating a coal industry that has experienced serious decline in the past decade. The Conversation

In reality, it will do neither. We do not import coal into the United States. There are no jobs coming back from overseas. Moreover, and somewhat ironically, the chief reason for the decline in the coal industry is not Obama-era regulations, but a rapidly changing energy market.

Any energy market analyst will tell you that advances in hydraulic fracturing and horizontal drilling have provided us with cheap, abundant, natural gas. Add to that declining price curves in wind and solar generation, and one begins to appreciate that a difficult road lies ahead for coal. These are markets that are growing with rapid technological innovation.

USEIA

The shift is underway

The fact is that the Obama administration’s Clean Power Plan codified where the utility industry was already going. With publicly announced retirements, roughly 45 percent of the existing coal capacity in the western grid will be retired by 2030. According to utility integrated resource plans, by 2026, just shy of half of the total energy in the West will be generated from zero-emitting resources.

The 11 western states that my center had been convening around implementation of the Clean Power Plan are, collectively, in compliance with the plan’s 2026 targets under business as usual. Ironically, removing the Clean Power Plan just eliminates a potential for market-based emission trading that would lower costs to consumers and provide some states with a glide path to meet their targets.…
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American Jobs Once Again Flowing Into Mexico After Brief, Trump-Induced Pause

Courtesy of ZeroHedge. View original post here.

After Ford scrapped plans for a new facility in Mexico and continues to flood the White House with press releases detailing normal course capital expenditures to be made on domestic plants, investments that would have been made irrespective of their outsourcing ambitions, it seems as though economics are making a comeback in  guiding the capital allocations of other companies as ‘outsourcing’ is once again picking up steam among American companies.

Big announcement by Ford today. Major investment to be made in three Michigan plants. Car companies coming back to U.S. JOBS! JOBS! JOBS!

— Donald J. Trump (@realDonaldTrump) March 28, 2017

As Bloomberg points out today, after a brief pause, consultants who help American companies relocate to Mexico are once again finding themselves flush with business.

But now the pace is picking back up. Illinois Tool Works Inc. will close an auto-parts plant in Mazon, Illinois, this month and head to Ciudad Juarez. Triumph Group Inc. is reducing the Spokane, Washington, workforce that makes fiber-composite parts for Boeing Co. aircraft and moving production to Zacatecas and Baja California. TE Connectivity Ltd. is shuttering a pressure-sensor plant in Pennsauken, New Jersey, in favor of a facility in Hermosillo.

While Trump hasn’t stopped pounding his America First bully pulpit, and the future of Nafta remains uncertain, “there’s cautious optimism and a hopeful attitude that cooler heads will prevail in Washington,” said Ross Baldwin, chief executive officer of Tacna Services Inc., which facilitates relocations.

Baldwin has seen the evidence: After business ground to a halt back in November, he’s now juggling two Mexico-bound clients. San Diego-based Tacna helps manage 4,500 workers in Mexico, where factory wages are about a fifth of those in the U.S. That may explain why Mexican manufacturing jobs rose 3.2 percent in January from a year ago as they dropped 0.3 percent in the U.S.

In the end, of course, the massive wage divide between the U.S. and Mexico means that, even with a border tax, it’s still cheaper to manufacture certain products in Mexico.

Mexico

Moreover, we suspect that the renewed wave of outsourcing has been sparked, at lease in part, by Trump’s early failures to implement healthcare reform or impose his travel ban as companies grow increasingly comfortable that an import


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The Divergence Between ‘Hard’ & ‘Soft’ Data Explained (And Republican Bulls Won’t Like It)

Courtesy of ZeroHedge. View original post here.

Another dataset, another head-scratching disparity between ostensibly fulsome confidence and evidently sluggish activity.  While markets get whipsawed reacting to divergent hard and soft data points, the question that traders need to ask is whether this gap makes any sense.

Bloomberg’s Macro Strategist Cameron Crise may have the answer… If you’re willing to believe that survey respondents allow their political beliefs to color their answers, then it very well might.

I modeled U.S. economic growth since 1975 using the softest of the soft data releases: consumer confidence and the small business optimism survey. I omitted the ISM because it includes factual questions, i.e. are orders increasing?  The fit is actually pretty good for such a simple model, with an r-squared of 0.51.  As you can see, the model is now pretty upbeat.

I then disaggregated the data and compared the model forecast to actual economic growth for each president since Gerald Ford. The results were fascinating.

  • Under Republican presidencies, average annual growth has been 2.7%…but the model has forecast it at 3%.
  • Under Democrats, growth has been a little higher, at 2.8%…but the model has forecast growth of just 2.3%.

In fact, the model slightly underestimated growth during the Ford and Reagan years. Since George HW Bush, however, the trend is pretty pronounced: survey respondents have been optimistic relative to underlying growth for GOP presidents and pessimistic relative to growth for their Democratic counterparts.

It seems likely that at least some of the recent boost to confidence is evidence of the same phenomenon manifesting itself.  That being said, the model currently projects growth of nearly 3.5%, so even if we were to knock off the usual half a percent for a post-Reagan GOP presidency that would still imply a marked uptick over the post-crisis run rate.

Of course, achieving that growth will probably be contingent on the government enacting some of its more business-friendly campaign promises such as tax reform or deregulation. If they don’t, then the “optimism gap” may close, and not in a way that the White House might like.

Either way, traders will need to keep an eye on government policy and its implications. The efficacy of the Trump administration may not matter on a day-to-day basis for bond markets, but in


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Comment by angelcur

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  1. angelcur

    why is there such a hub bub about a like tariff for imprts price point?







 
 
 

Phil's Favorites

DARK TOWERS by David Enrich

 

In his best-selling book Dark Towers, David Enrich, finance editor at The New York Times, chronicles the complicated history of Deutsche Bank and its entanglement with Donald Trump. Reviewing Dark Towers, Roger Lowenstein writes, 

"Enrich’s most tantalizing nugget is that in the summer of 2016, Jared Kushner’s real estate company (which received lavish financing from Deutsche) was moving money to various Russians. A bank compliance officer filed a “suspicious activity report,” but the report was quashed and she was fired. The suggestion that maybe the money was payback for Russian campaign meddling isn’t one that Enrich can prove. Similarly, we will have to wait to see if Deutsch...



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Zero Hedge

NYSE Announces Disaster-Recovery Test Due To Virus Fears

Courtesy of ZeroHedge View original post here.

In a somewhat shocking sounding move, given administration officials' ongoing effort to calm the public fears over the spread of Covid-19, The New York Stock Exchange has announced it will commence disaster-recovery testing in its Cermak Data Center on March 7 amid coronavirus concern, Fox Business reports in a tweet, citing the exchange.

During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Stree...



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Chart School

Dow, Three strikes and your out!

Courtesy of Read the Ticker

The Dow has topped out with major events, the current virus could be the third strike!

2001 - 9/11 Twin Towers
2007 - Bear Sterns
2020 (?) - C19 Virus


Chart explains all. Dow Jones Industrial's comparing market tops 2000, 2007 and 2020.


Click for popup. Clear your browser cache if image is not showing.












Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of ...

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ValueWalk

Cities With The Most 'New' And Tenured Homeowners

By Jacob Wolinsky. Originally published at ValueWalk.

Homeownership is a major investment. Not just financially, but when a person or family purchases a home, they’re investing years – if not decades – in that particular community. 55places wanted to find out which real estate markets are luring in new homebuyers, and which ones are dominated by owners that haven’t moved in decades. The study analyzed residency data in more than 300 US cities and revealed the top 10 cities with the most tenured homeowners – residents who’ve lived in and owned their home for more than 30 years – are sprinkled across ...



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Kimble Charting Solutions

Financial Crisis Deja Vu: Home Construction Index Double Top?

Courtesy of Chris Kimble

Most of us remember the 2007-2009 financial crisis because of the collapse in home prices and its effect on the economy.

One key sector that tipped off that crisis was the home builders.

The home builders are an integral piece to our economy and often signal “all clears” or “short-term warnings” to investors based on their economic health and how the index trades.

In today’s chart, we highlight the Dow Jones Home Construction Index. It has climbed all the way back to its pre-crisis highs… BUT it immediately reversed lower from there.

This raises concerns about a double top.

This pr...



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Insider Scoop

A Peek Into The Markets: US Stock Futures Plunge Amid Coronavirus Fears

Courtesy of Benzinga

Pre-open movers

U.S. stock futures traded lower in early pre-market trade. South Korea confirmed 256 new coronavirus cases on Thursday, while China reported an additional 327 new cases. Data on U.S. international trade in goods for January, wholesale inventories for January and consumer spending for January will be released at 8:30 a.m. ET. The Chicago PMI for February is scheduled for release at 9:45 a.m. ET, while the University of Michigan's consumer sentime...



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Biotech & Health

Could coronavirus really trigger a recession?

 

Could coronavirus really trigger a recession?

Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. AP Photo/Ng Han Guan

Courtesy of Michael Walden, North Carolina State University

Fears are growing that the new coronavirus will infect the U.S. economy.

A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; ...



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The Technical Traders

SPY Breaks Below Fibonacci Bearish Trigger Level

Courtesy of Technical Traders

Our research team wanted to share this chart with our friends and followers.  This dramatic breakdown in price over the past 4+ days has resulted in a very clear bearish trigger which was confirmed by our Adaptive Fibonacci Price Modeling system.  We believe this downside move will target the $251 level on the SPY over the next few weeks and months.

Some recent headline articles worth reading:

On January 23, 2020, we ...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship

 

Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...



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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

 

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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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