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".


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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…
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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…
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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


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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


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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.


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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
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Zero Hedge

Moderna, Pfizer Hike Vaccine Prices By Up To 25%

Courtesy of ZeroHedge View original post here.

Pfizer and Moderna have both made clear that they see their COVID vaccination businesses as long-term profit drivers, not the public service that enabled them to receive billions of dollars in public money to effectively subsidize their development. And now that jabs from China and Russia are facing newfound skepticism across Europe and the emerging world, Big Pharma is showing its true colors, and demanding a massive premium from all buyers of its jabs as Pfizer rolls out its first 'booster jabs'.

It's interesting that they're raising prices, considering that ...



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Phil's Favorites

Policy Errors Have Consequences

 

Policy Errors Have Consequences

Courtesy of John Mauldin, Thoughts from the Frontline

“T.S. Eliot once wrote, ‘Only those who risk going too far can possibly find out how far one can go.’ It seems the US financial system is bound and determined to find out.”

—John Hussman, July 29, 2021

“If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy… What are you going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust.”

—Stanley Druckenmiller, July 23, 2021

“...



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Chart School

Bitcoin Gann review, what happened at $65000, what is next?

Courtesy of Read the Ticker

Bitcoin stopped at $65,000 and sunk 50%, that was not expected, confused.

It's funny how Gann Angles can be the rail road for price action. 





Chart in video.








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

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Biotech/COVID-19

Big tech has a vaccine misinformation problem - here's what a social media expert recommends

 

Big tech has a vaccine misinformation problem – here’s what a social media expert recommends

Misinformation on social media is hindering efforts to vaccinate people against the coronavirus. Sheldon Cooper/SOPA Images/LightRocket via Getty Images

Courtesy of Anjana Susarla, Michigan State University

With less than half the United States population fully vaccinated for COVID-19 and as the delta variant sweeps the nation, the U.S. surgeon general issued an advisory that called misinformation ...



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Digital Currencies

What are stablecoins? A blockchain expert explains

 

What are stablecoins? A blockchain expert explains

Stablecoins promise more stability than other cryptocurrencies. DenBoma/iStock via Getty Images

Courtesy of Stephen McKeon, University of Oregon

Stablecoins are a type of cryptocurrency linked to an asset like the U.S. dollar that doesn’t change much in value.

The majority of the dozens of stablecoins that currently exist use the dollar as their benchm...



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Politics

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

 

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

A lot of coastal infrastructure wasn’t designed for the frequent flooding and crashing waves brought by rising seas. Jeffrey Greenberg/Universal Images Group via Getty Images

Courtesy of Bryan Keogh, The Conversation and Stacy Morford, The Conversation

...



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Promotions

Free Webinar Wednesday: July 7, 1:00 pm EST

 

Don't miss Phil's Webinar on July 7 at 1:00 pm EST. It's FREE and open to all who wish to join.

Click here: 

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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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