Asset Allocation: Bill Gross Might Be Buying Some Stocks

Bill Gross says he is ready “to push the firm toward new growth areas,” which means stocks.  Gross would probably like to take a look at this chart as he considers diversifying the asset class mix in his portfolio.  Also, does the growth of passive investing make opportunities for active investors?  (eg. index inclusion boosting stock PE ~150 bps) Morningstar says “no,” as long as active traders continue to chase market performance and the idea that valuations are objective or “true”.  Meanwhile, Goldman Sachs got a “barrage of questions” after one of their equity strategists said that US stocks were “lofty by almost any measure.”  He has so far “gotten enough questions to convince him further that ‘many on the buy side expect price gains of 10% to 20% this year,’” which seems a bit “frothy”, doesn’t it?

Housing Market Currents

Michael Stegman, a senior Treasury adviser, gave a speech at an industry conference in Las Vegas, yesterday, regarding some of the housing policy initiatives the Obama administration could undertake in 2014.  The Treasury Department 1) doesn’t think the cut-off date for HARP loans should change, 2) supports creating a HARP-like program for loans that aren’t backed by Fannie and Freddie, 3) would like to see the price gap between Fannie and Freddie securities shrink and 4) supports “broadening the availability of mortgage credit over the longer term.”  Meanwhile, buyers flocked to foreclosures in 2013 — and many of them paid all cash: “Sales of foreclosed and distressed homes made up 16.2% of all home sales last year, up from 14.5% in 2012…All-cash deals accounted for 29.2% of all home purchases last year, up significantly from 19.4% the year before…During the year, 7.3% of all home sales were to investors, up from 5.1% the year before.  Major markets where investors claimed the largest percentage of sales in December included Jacksonville, Fla., at 38.7%, Knoxville, Tenn., (31.9%), Atlanta (25.2%), Cape Coral, Fla. (24.9%), Cincinnati (19.3%), and Las Vegas (18.2%).”  Also, existing home sales “increased to an annual rate of 4.87 million units last month, up 1 percent from the November sales pace…For all of 2013, sales totaled 5.09 million, the best performance since 2006, when sales totaled 6.48 million…Analysts say a more normal sales pace currently would be around 5.5 million units.”

Oil-By-Rail: Regulation May Lead To “Aggressive Retrofitting”

The Department of Transportation may be considering stricter regulation of the booming oil-by-rail industry: “Tank cars known as DOT-111s are used to transport most of the 10 percent of U.S. oil production, or around 800,000 barrels per day, that is shipped by railroad…DOT-111 railcars built before 2011, which have been involved in several accidents, are under scrutiny for safety issues that make them more likely to puncture in a derailment.  Newer cars feature thicker steel and protective plates and fixtures, but the U.S. Department of Transportation (DOT) has so far allowed older cars to stay in circulation, even as the Association of American Railroads has called for their “aggressive” retrofitting.”  Meanwhile, a biotech startup in Silicon Valley may have just found a way to produce gasoline from natural gas, “something that has eluded the world’s top chemists and oil and gas companies for decades.”  Then again, “because of the nature of its throw-everything-at-the-wall approach, it doesn’t know precisely how its new catalyst works.”  But we’ll keep it on the radar, since a breakthrough in this field “would be seismic.”

Putting A Price On Fraud: Credit Unions v. Target, USA v. Security Background Checks

The Credit Union National Association says it has “spent as much as $30 million dealing with the impact of the recent card-security breach at Target Corp., not including fraud losses that are expected to trickle through the industry in coming weeks.”  Meanwhile, “The Justice Department on Wednesday accused the government’s largest private security background check contractor (USIS) of defrauding the country of millions of dollars by methodically filing more than 660,000 flawed background investigations — 40% of the cases it sent to the government over a four-year period…Over the past decade, USIS has been awarded more than $4 billion in federal contracts.”

EU: JPMorgan Backs UK’s EU Membership As Good For Trade

JPMorgan is warning the UK Treasury that if it leaves the European Union it could “lose its clout in trans-Atlantic trade and regulatory disputes.”  Several banks in London are arguing that the UK’s membership in the European Union is a vital part of the reason why London retains a global financial hub status.  “Prime Minister David Cameron promised voters he would renegotiate the terms of EU membership before holding a referendum by 2017 if his ruling Conservatives win elections next year.”

USA: Short The Denver Broncos

 Global: The Big Mac Index


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