Are high-dividend, low beta stocks, (the “refuge of risk-averse investors”) becoming riskier than they appear? As investors crowded into the safety of high-dividend yielding stocks after 2008, their “relative valuations have shot up from their typical market discount to sizable premiums.” Also, a low beta doesn’t always equate to bulletproof stability: a stock’s volatility relative to the index can change, and beta gives no indication about a company’s valuation. We should take notice of investor enthusiasm for different types of stocks in different parts of the business cycle. For example, “it took a period when investors were so enthused with momentum stocks [ie. just before the Tech bubble] that they came to regard Warren Buffett as an out-of-touch fuddy duddy.” Meanwhile, recent analysis of the “news tone” for millions of news stories on S&P 500 companies reveals that “when news tone was particularly disperse, with significantly positive and negative stories getting published, this was associated with greater disagreement among investors – and higher rates of stock market turnover.” Thankfully, there is a brand new way to hedge your investment against a market downturn: health care and hospital stocks. A new study shows that “a one-day drop in equities of around 1.5 percent is followed by about a 0.26 percent increase in hospital admissions on average over the next two days…The results were based on almost three decades of daily admission data for California hospitals. Hospitalizations rise on days when shares fall, and ‘people are hospitalized disproportionately for mental conditions.’” With Obamacare going into effect this month, it seems like the correlation between hospital visits and market returns could deteriorate since expanded medical coverage may increase ER visits by 40 percent. That is, of course, only if the bull market continues…
Fed Cautious, Reverse Repo is a Go; ECB Rides the
Deflationary Death Spiral Slide
The minutes from last month’s FOMC meeting were released yesterday and pretty much everyone at the Fed thinks we should be careful about tapering and make sure its data dependent and keep rates really low for awhile and so on. This is interesting though: the minutes also came with a survey of Fed officials, which found that “a majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue.” Also, the “reverse repo” facility was mentioned as a useful tool for extending the reach of the Fed across repo markets. As it stands, “participants can only invest up to $3 billion in securities from the Fed per day through the facility, up from $1 billion during earlier tests. If fully implemented, participants would be able to lend as much cash as they wanted each day to the Fed at the fixed rate the central bank sets.” Meanwhile, the ECB is leaving interest rates unchanged but would like to remind you they will “act boldly if needed to prevent any slide towards deflation.” Which makes you wonder how they define a “slide” towards deflation; apparently going from 0.9% to 0.8% in November to December doesn’t count.
Crude Oil Batteries: Just What Al Gore Envisioned
“Researchers at Harvard say they have developed a new battery technology that can store energy at lower cost, a development that Energy Department officials say could pave the way for a new generation of batteries.” But there’s a catch: “The Harvard researchers reported using a carbon-based molecule found in crude oil and other substances as the material to hold the electric charge.” So we will use crude oil to store electricity generated to cut carbon emissions from using crude oil. Got it. Meanwhile, there are rumblings in the Senate about lifting a decades-old ban on US crude oil exports. While some exceptions exist, the 1975 Energy Policy and Conservation Act has kept a pretty tight grip on exporting crude oil, but not on refined gasoline or diesel. As domestic production of crude oil continues to grow, producers are running into structural problems that end up depressing prices and, in turn, constraining production. Until we get a pipeline to ship the oil more effectively, producers will continue to ship their oil by train and call for opening the doors on the global market. If the exports ban were lifted, the pricing landscape on oil/refined oil/transportation of oil would certainly change and environmentalists would not be happy.
The New York Attorney General has found that BlackRock’s analyst survey program is basically a form of insider trading and they gotta stop. BlackRock has consented to paying the $400,000 investigation bill. It will not, however, “admit or deny the attorney general’s findings in the probe.” And that, friends, is what makes BlackRock, BlackRock.
“China’s annual consumer inflation slowed more sharply than expected to a seven-month low of 2.5 percent in December…The central bank has pledged to continue to maintain prudent monetary policy in 2014 and keep reasonable money and credit growth to support the real economy.” China is basically stuck between low-inflation and shadow banking when it comes to monetary policy. On the one hand, they’d like to keep rates low and support credit growth. On the other hand, Raymond Ting.
Labor Department: “Initial claims for state unemployment benefits declined 15,000 to a seasonally adjusted 330,000 [last week]. Economists polled by Reuters had expected first-time applications to fall to 335,000 for the week ended January 4. The four-week moving average for new claims fell 9,750 to 349,000.”
LAmerica: Mexican Auto Exports Are Surging
The Mexican Auto Industry Association is reporting Mexico’s auto exports showing “record-breaking figures for the fourth straight year, and domestic sales at their highest level since 2007.”