Aloe

Data Dependency Feels Bad, And Then It Feels Good, And Then It Feels Bad, And…

“This week’s sell off might have been because too many investors believed bond yields would only go down; crowded positioning left the market vulnerable to small shifts in sentiment.”  Interesting to consider that “when fears about a eurozone break-up rise, German yields generally fall;” therefore, higher yields = less worry about Greece?  Maybe not: “right now (read: Thursday) the market is in a state of shock…A lot of people are staying clear, and that makes the market less liquid, which is helping to exaggerate market moves…the moves have reversed so sharply that [European yields] are back where they were before the stimulus was announced…’In one week we had a total unwinding of all QE-related trades.’”  Speaking of liquidity, Mohamed El-Erian says “tighter regulations and less patient shareholders have restricted the ability of broker-dealers to deploy their balance sheets counter-cyclically.  As such, they have limited appetite when it comes to accumulating inventory in the event that a large chunk of the investor base decides to go the other way.  The result has been a series of sudden out-sized price moves in quite a range of markets, from sovereign bonds to foreign exchange, emerging markets, and high-yield corporates.”  So as you can probably tell, things got a bit panicky this week; we even had a moment with Janet Yellen calling stocks overvalued and prices stretched and all that (very déjà vu).  To be fair, the panic was coming from bond markets, which have this strange ability to convince people of more things than the stock market.  But all of that is going away fast: the April jobs report came out this morning and investors are all like, “oohh…reassuring.”  🙂  “Payrolls rose 223,000 in April, following a 85,000 gain in March…The unemployment rate slid further to 5.4 per cent…more Americans entered the labour force, pushing up the participation rate to 62.8 per cent from 62.7 per cent the previous month.”  “The standard story that economists have been telling is that this is just another messy winter with worse-than-usual weather…But there’s a ‘show me’ dimension to that conclusion…So what the new jobs numbers offer is relief that the crummy first-quarter data was indeed an aberration, not a new trend.  At the same time, they are soft enough that they include no real evidence of an acceleration into a new, stepped-up rate of growth” (read: acceleration into Fed tightening).  Here are the charts.  Also, German bund yields have dropped back down to 0.53bps, and you shouldn’t feel bad if you missed out on the Gross Short of a Lifetime because apparently Bill Gross missed it as well.

 

China: Pinky Swears No QE

 

WM: Risk ≠ Volatility, Maybe

 

WM: Case For Indexing In Bonds Is Far Less Clear Than It Is For Stocks

 

What: The “Cylon Detection” System Finds 10 To 20 Spoofers A Day, On Average

 

WaitWhat: You Know That All Startup Founders Dropped Out Of College And Hate English, Right?

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pigs diving

Just Some Pre-Slaughter Fun

“In the land of negative yields, even the most conservative firms…are planning to invest in sub-investment grade debt for the first time.  One of the bond market’s brightest luminaries, Jeffrey Gundlach, says you’re better off in front of one steamroller than another in junk because the only money to be made on German bunds is from betting against them.”  Speaking of which, the Gross short appears to be working: “European government bond yields, which have been on a steady downward trend for years, are suddenly trading at their highest levels in more than two months…The yield on Germany’s 10-year Bund, the benchmark in Europe, was trading at 0.43 percent on Monday (currently 0.53%).  It has soared from a record low of 0.05 percent just last month, as investors reassess bullish bets on government bonds in Europe and the U.S., where debt yields have also risen sharply.”  Indeed, “one key reason for the recent increase in US long term interest rates has been surging German rates — basically unwinding a big source of downward pressure on US yields…Unfortunately, a lot of people may soon find out the harsh truth about overpaying for the perceived safety of US Treasurys and German Bunds.”  Meanwhile, something I’ve been curious about recently has been the bond market’s idiosyncratic pricing of Greek debt vs the rest of the piggies.  Greek 10 year debt is currently yielding roughly 900bps more than Italian 10 year debt, and over 800bps above Portuguese debt.  Here’s why that may be the case: “First of all, it’s a lot smaller.  Around €34 billion of Greek government bonds trade on the open market…the Italian government bond market is around 54 times bigger, clocking in at over €1.8 trillion..Traders reckon Greek bonds change hands 20 to 30 times a day across the whole market versus thousands of trades per day in Italian debt.”  Fair enough; but if Greek yields are higher because the market believes the risk of default is higher, than what is the probability of a nice, neat implosion along the Mediterranean with little impact rippling through the debt markets of other highly indebted suinae?  Meanwhile, “a proliferation of images on the Internet and reports in newspapers suggests that creating a leaping, amphibious pig is another realm where China can claim global preeminence.”  

 

USA: The Curious Incident Of Current Account Deficits And Weaker Net Investment Position

“The U.S. net international investment position — the difference between US assets abroad and foreign claims on the US — has moved substantially deeper into the red in recent years.  But why?  You might be tempted to say that it’s obvious: we’ve been running big budget deficits, borrowing the money from foreigners…But that story implicitly requires a surge in the trade deficit (or more precisely the current account deficit, which includes investment income), which hasn’t happened…The answer, I believe, is that we’re looking at the differential performance of stock markets…The value of foreign holdings of US equities…has surged along with the Obama stock market, while US holdings abroad have seen no comparable boost.”  Meanwhile, here’s the investment thesis behind European equities that no one really wants to admit (it isn’t, y’know, fundamental).

 

Oil: The Cap Is Now $70, And That Is FINAL

 

ICYMI: Rapid Communication Is Changing The World: Short Tweets Edition

 

What: Cryptocurrency Backed By Gold

Interstellar BuzzFeed

Those Aren’t Mountains…

The “esoteric concern on almost everybody’s lips” these days is bond market liquidity: “while banks have cut their inventories of bonds, asset managers have recently been gobbling them up…But the catch is that many asset managers rely on potentially flighty forms of funding (ETFs anyone?)…If US rates suddenly rise, retail investors might flood out of bond funds…If that happens, those funds might discover the bonds are completely illiquid, or untradeable except at rock bottom prices…Thankfully, nobody expects the test to come quite yet.”  Whew!  Nice.  So, what might be driving that expectation?  “The sole bright spot is the eurozone”–this is where your lower jaw falls slightly and you start questioning the decision to keep reading this “connect the dots” nonsense — “The gap between US and eurozone growth has, for now, disappeared completely.  Overall, the growth rate of the global economy has therefore slowed further…Activity growth needs to recover markedly in the next few weeks if a generalised downgrade to global growth forecasts for the 2015 calendar year is to be avoided.”  “Like a pilot spotting a smoking engine at take-off, the US Federal Reserve is having second thoughts about when to raise interest rates…[A delay] may change the shape of the global recovery, crushing hopes for a sharp rebound in the eurozone (On the back of Wednesday’s Fed statement, the euro soared to $1.125), while removing some of the gloom from the outlook for emerging markets…The longer [the Fed] waits before cutting interest rates, the further they can go with loosening monetary policy.”  Furthermore, “emerging markets may find a surprise ally in Europe.  A stronger euro would make it harder for the ECB to meet its inflation target, [leaving them with] little option but to continue with their QE programme…But they should not take too much comfort.  Fed increases are powerful tsunamis — within hours, their effects are felt even on the furthest shores.”  Meanwhile, Vanguard says that “while you might expect the prospect of the Federal Reserve raising interest rates to put the brakes on capital inflows into emerging markets, thereby worsening their financing problems, our research suggests that doesn’t have to be the case…While financial crises have coincided with a drying up of capital inflows to emerging markets, that’s been less true of monetary tightening by the Fed.”  Getting back to the US for a minute, Gavyn Davies says the “persistent tendency for US growth to disappoint” is due to one or both of the following: “weak aggregate demand, owing to a demand-side form of ‘secular stagnation’; or a permanent slowdown in productivity growth…Ultimately, the behaviour of US inflation will distinguish between the two competing hypotheses, and the Federal Reserve will have to set policy accordingly.”  Meanwhile, “if these interest rates were to continue for 10 years, stocks would be extremely cheap now,” says Warren Buffett.  Meanwhile, John Hussman understands that using the Greek alphabet is a quick way to a financier’s heart.

 

The Latest Buzz

“The word ‘wrong’ is really good,” says a senior BuzzFeed video producer.  “Started in 2006 as a lab for experimental web content, BuzzFeed has attracted an audience of 200 million monthly unique visitors, making it the sixth-largest site in the U.S. — bigger than eBay, Yahoo, and Wikipedia…It’s known for its viral hits — jokey lists about cute animals — and increasingly, its investments into journalism.  But now, like its digital pers, BuzzFeed has aggressively expanded into video…Ideas for new ‘wrong’ videos get thrown around: Snacks you’re eating wrong.  Maybe you’re running wrong, or putting your pants on wrong…When Frank asks his team what they’re working on, they rarely tell him the individual piece they’re shooting, but rather the problem they’re trying to solve.”  Meanwhile, Twitter’s live-streaming app Periscope has taken pay-per-view piracy to a whole nother level: “Soon, viewers started to notice a trend.  If a Periscope session [got] too many ‘hearts (Periscope lingo for favorites), a stream would get shut down…This wasn’t really a problem, however, because like a hydra, we could just go to another Periscope stream somewhere else in the world to watch the fight on someone else’s TV.”

 

Global: Moody’s Has Become So Senile

 

USA: “No One Is Spared Their Side-Eyed Looks”

 

USA: The Bernanke Cat Fights Of 2015: John Taylor’s Contribution

 

What: Turns Out Goldman’s Coal Mines Weren’t A Passion Project

zeppelin logo

Confusion Trending

The Wall Street Journal proclaims that “the trades that had proven winners in recent months backfired [in April] (alt)…The euro strengthened 4.5% against the dollar in April after tumbling 11% in the first quarter.  The U.S. benchmark crude-oil price soared 25% after declining 11% in the first three months of the year.  The Nasdaq Biotechnology Index fell 2.8% in April after jumping 13% in the first quarter.  Yields on German government bonds bounced higher after nearing zero last week.”  Furthermore, “the turnaround month ended with an exclamation point,” read: selloff in “suddenly vulnerable technology stocks.”  Twitter, Yelp and LinkedIn are the culprits.  “It is spring cleaning,” says one.  “It’s a short-term unwind,” says another.  “I’m convinced medium-term trends will re-establish themselves.”  Nice.  As you can probably tell, everyone is a bit “um, what?” about recent economic data.  ICYMI, 1Q GDP came in at 0.2%, and people were all like “probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.”  Then, the impossible happened:  “private sector pay rose 2.8 per cent in the first quarter (alt)…the quickest upward pace since 2008;” “personal spending rose 0.4% in March from February (alt)…the biggest gain since August;” “new claims for jobless benefits tumbled to a 15-year low” etc.  “This is precisely why we told you to ignore the weak first-quarter GDP data produced yesterday.  It’s old news.  And the economy is showing”–cue Institute for Supply Management: “the pace of U.S. manufacturing growth held at its slowest in almost two years in April, as a rebound in new orders was offset by employment shrinking to its lowest level in more than five years.”  Also, “U.S. construction spending fell in March to a six-month low…Economists polled by Reuters had expected construction spending to rise 0.5 percent.”  Of course, the best head-scratcher of all is still with us: “consumer confidence increased in April to the second-highest level in more than eight years as Americans grew more upbeat about their financial prospects.”  Meanwhile, 10 year Treasury prices have fallen nearly 8% since Wednesday.

 

China: Chinese Equities Are A Stairway To Heaven (Alt)

Orientalism aside, this is pretty suspect: “After jumping by the maximum-allowed 44 per cent from the offer price when it floated in Shenzhen just a month ago, the stock has risen by the daily maximum of 10 per cent every day since…Every one of the 29 IPOs in Shanghai and Shenzhen this month have risen by the daily limit each day since.  The worst performing IPO from earlier in the year has doubled in price.”

 

USA: P2P Derivatives

“LendingClub chief executive officer Renaud Laplanche said he’s aware of the interest to bet against the market.  Derivatives that give investors the ability to protect against losses on the loans the company arranges is just smart risk-management, he said.”

 

Musk: “The Goal Is Complete Transformation Of The Entire Energy Infrastructure Of The World”

 

What: Eyeglass Retailer Gets $1.2 Billion Valuation With No Profits

 

WaitWhat: Guy Thinks VCs Are Gonna Need A Dark Pool

uber driverÜber Wages Lag The Über Economy

“Today’s great paradox is that we feel the impact of technology everywhere — in our cars, our phones, the supermarket, the doctor’s office — but not in our paychecks…since the beginning of the personal computer revolution three decades ago, the median wage has remained stagnant…Too often, when people think about technology, they only think about the initial invention…Yet most major technologies develop over decades, as large numbers of people learn how to apply, adapt, and improve the initial invention…The problem isn’t that technology has eliminated the need for mid-skill workers overall.  New opportunities are there, but grasping them is difficult…If we meet that challenge, then large numbers of ordinary people will benefit substantially from new technology, just as they have for the past two hundred years.”  Meanwhile, “working for Uber might come with its perks, but it also comes without the benefits and protections many businesses provide for their employees.  That’s unfair and illegal, a Boston labor lawyer is now arguing in court, potentially threatening the business models of the dozens and dozens of popular apps that make up the so-called ‘on-demand economy’…her suit, and others like it, might fundamentally change the calculus used by the venture-capital firms pumping money into these businesses.”  Then again, “states could create new worker designations to fit this burgeoning industry,” both ensuring that “businesses would benefit from an easily scaled labor force,” and workers would benefit from “protections against earning less than the minimum wage.”  Meanwhile, “the U.S. stock market has been a compounding machine since the early-1900s.  As long as people continue to innovate and set out to improve their lives I see no reason why stocks can’t give investors a decent return above the rate of inflation in the future.”

 

Speaking Of Inflation

Eurostat is reporting “no inflation in the 19-member region (alt) in the year from April 2014, up from minus 0.1 per cent in March…The price of Brent Crude has risen over 20 per cent from April 1 to today…helping to lift consumer prices.  Core consumer inflation, which strips out more volatile prices such as those for food and energy goods, remained at a record low of 0.6 per cent.”  Furthermore, the ECB thinks that “longer-term inflation expectations had started to recover after hitting low levels in January.  ‘The decline observed over the previous two years has come to a halt.  These movements — with some differences — were also observed in the United States and the United Kingdom.’”  Meanwhile, Goldman connects the dots between inflation expectations and the equity risk premium: “we find it more challenging to rationalize high PE multiples.  A fundamentally-based argument would need to argue that relative to past rate-hike cycles, some combination of the following three factors would presumably need to hold true: that expected growth is higher, equity risk premia are lower, and/or risk-free discount rates are lower…the latter is the easiest [argument] to make…That said, if term premia are low due to low and falling inflation risk, and if equities hedge inflation risk better than fixed-coupon bonds, then the drop in term premia doesn’t necessarily imply higher equity PE multiples.  The links between bond premia and equity premia are subtle; one needn’t imply the other.”  Meanwhile, “given the amazing strength in the US dollar over the last six months, the lack of momentum in US (or Chinese) economic data and the effects of the oil crash still lingering, one thing virtually no one is predicting is any kind of comeback for the commodities market.”

 

USA: The Country’s Economic Gravity Is Moving West

 

USA: Of Bubbles, Synapses & Slime Molds


Global:
The Belief That We Are Going To Make Fewer Babies Indefinitely Is Behind Secular Stagnation

oliver twistEat Up

“The performance of the US stock market is quite impressive considering that there isn’t much of a spring in the latest batch of economic indicators.  The winter’s ice patch is looking more and more like the spring’s soft patch.”  “It is one of the market’s paradoxes that soft economic growth can be a fine climate for stocks.  As long as the economy is advancing, corporations can increase sales and profits.  But in a soft advance, interest rates stay low, keeping costs down.  The uncertain economy keeps Federal Reserve monetary policy easy, one of the main bulwarks of a bull market…Severe bear markets usually occur when the Fed is raising interest rates sharply to cool off inflation…low inflation and low rates increase the present value of future corporate earnings.”  Meanwhile, the Wall Street Journal says “core inflation readings would be even weaker but for the pace of gains in the BEA’s measure of housing costs, which counts toward about one-fifth of its core price index.  This was up 2.9% from a year earlier in February.  Absent that, core inflation would have been running at just 1%.  Housing counts for an even bigger chunk of the Labor Department’s consumer-price index, which is a big reason why its core measure has been running ahead of the BEA’s…The rental vacancy rate fell to 7% in the fourth quarter from 8.2% a year earlier…the lowest level since 1993.”  Meanwhile, “Japanese life insurers — some of the world’s largest institutional investors — plan to keep pouring money into U.S. debt this year as the list of countries able to meet their thirst for yield shrinks…Even though the roughly 2% current yield on 10-year U.S. Treasurys is a far cry from yields of 5% or better before the global financial crisis, it is still light-years better than the current 0.16% yield for German bunds with the same maturity or the 0.29% yield for 10-year Japanese government bonds…’Considering current yield levels, liquidity, hedging of currency exposure, the U.S. is likely the primary destination.’”  So inflation and rates are low, which means there’s a lot of “stocks are expensive, BUT” going on at the moment: “stocks are expensive but while rates stay low, and earnings avoid a serious collapse, money flows into them.  A strong catalyst — really bad earnings, a bad geopolitical event, or a surprise from the Fed — is needed before the market can jolt out of its steady ascent.”  Speaking of surprises, the “Make my day, Janet Yellen” crowd is eating their last free lunch: “what the market never worried about was whether the statement would include the most dreaded news: a rate hike, and because of that, every meeting was something of a free lunch for the market.  That is the case this week, too.  The Fed’s signals have been very clear: there won’t be a rate hike at the April meeting.  However, this is the last meeting at which that certainly presides.  After this, higher rates are firmly on the table.”

 

China

“There are two main routes through which the slowdown could develop into something much worse…investment could slow sharply…[and] there could be a rise in household savings in response to concerns about falling household wealth, which is what happened during the US housing crash.  Given the bubble-like surge in equity prices, this may seem improbable, but it would become more likely if the equity surge ends in a crash.  The second route, also reminiscent of events in the US in the last decade, would be a financial crash led by stressed loans to the real estate or manufacturing sectors.”  Meanwhile, “Chinese companies are increasingly tapping the equity market for funds to pay down liabilities and invest in growth.  They’ve announced $82 billion of secondary stock offerings in 2015, a figure UBS Group AG predicts will increase to a record $161 billion by December.”  Also, “authorities have pledged to move toward a so-called ‘registration system’ where markets, rather than regulators, determine most aspects of an offering, including pricing and timing.”

 

WM: Consensus Expectations

Also, Why International Diversification Matters.

 

Greece: He Who Shall Not Be Named Shall Not Be In Negotiations

 

What: Socialist Muslim Slash Deflationary Force

facebook-likeClick Farms And Facebook’s TV-Like Audience

Facebook announced earnings yesterday and they were kinda meh; revenues fell a little short of estimates, Zuck blamed it on the euro etc.  Mark was cheerful about one thing though: “the social media giant announced strong user growth that showed its monthly user base was now larger than the population of China.”  Not only that, but mobile advertising revenue is taking over (“this thing is a rocket ship, it’s almost at 70 percent mobile!” said Shark Tank shark Kevin O’Leary).  And even though “the mobile monthly growth rate slipped a bit from 6.1% last quarter, the more important daily mobile user growth rate grew from 5.97% last quarter.  That means Facebook might not be signing up casual users quite as quickly, but its turning more people into non-stop social networkers.”  Non-stop social networkers means non-stop advertising revenues: “more than $16 billion was spent worldwide on social media advertising in 2014.”  Furthermore, “in 2014, more than 90 percent of Facebook’s $12.5 billion in revenue and about 90 percent of Twitter’s $1.4 billion in revenue came from advertising.”  Which makes this kind of a problem: “Google ‘buy Facebook likes’ and you’ll see how easy it is to purchase black-market influence on the Internet…click farms employ manual labor, a dozen or so people who manipulate Facebook accounts individually to create the likes that they sell…researchers ran ten Facebook advertising campaigns, and when they analyzed the likes resulting from those campaigns, they found that 1,867 of the 2,767 likes — or about 67 percent — appeared to be illegitimate…If researchers are correct that advertising on social media leads to a high percentage of fake likes and fans and followers, the entire business model could be called into question by advertisers.  What incentive do companies have to buy ads that target digital ghosts?”  Meanwhile, “video views on Facebook are growing exponentially.  Some 4 billion videos are watched on the platform every day, up from 3 billion in January.”  Which is more great news for Facebook, considering the fact that more than half of Americans prefer digital streaming over their television set.  “Moreover, younger viewers now more commonly watch TV shows on mobile devices or PCs — rather than on a TV set.”  So Facebook is all like ”pretty cool, huh?  Advertisers that can’t afford TV can create TV-like ads, for a fraction of the price, and still reach a huge TV-like audience…Facebook has made it clear that it is building out the tools for businesses not only to buy more advertising on its platform versus TV, but also to measure Facebook ads’ effectiveness versus TV.”  

 

Antitrust Shmantitrust

“Google is already an Internet Service Provider and a pay-TV operator.  Now it’s expanding to become a wireless carrier as well…Google’s service will switch between different highspeed wireless networks operated by Sprint and T-Mobile…phones on Project Fi will switch to Wi-Fi networks when available to place calls and access the Internet.”

 

EU: The Bond Market Isn’t Pricing A Fallout From Grexit

 

USA: Kinda Feels Like We’ve Been Here For Awhile, Doesn’t It?

Chin-Kee and black swans world viewTail Risks, Equity Premiums And Orientalism

“Has the world sunk into ‘secular stagnation’, with a long future of much lower per capita income growth driven significantly by a chronic deficiency in global demand?  Or does weak post-Crisis growth reflect the post-financial crisis phase of a debt supercycle where, after deleveraging and borrowing headwinds subside, expected growth trends might prove higher than simple extrapolations of recent performance might suggest?”  Ken Rogoff is going with number 2.  “Unlike secular stagnation, the debt supercycle is not forever,” which is basically Ken’s favorite rule of thumb.  The whole article is worth a read, but I’d like to highlight an interesting section on tail risk: “small changes in the market perception of tail risks can lead both to significantly lower real risk-free interest rates and a higher equity premium…Indeed, it is not hard to believe that the average global investor changed their general assessment of all types of tail risks after the global financial crisis.  The fact that emerging market investors are playing a steadily increasing role in global portfolios also plausibly raises generalised risk perceptions, since of course many of these investors inhabit regions that are still inherently riskier than advanced countries.”  Speaking of inherently risky investors: Crazy Facts About China’s Stock Market That Will Make You Think Twice Before Investing.  “About two-thirds of new [Chinese] equity investors left school before the age of 15…six percent of new equity investors are illiterate…The Chinese are the world’s most optimistic investors…However, it’s a matter of debate whether the roaring bull is a sign of fundamental strength, or speculation frenzy fueled by enthusiastic mom-and-pop savers and high-school dropouts.”  Sure it is.  Meanwhile, Hank Paulson debunks 5 myths about China: “I often get asked if China is going to eat our lunch or surpass us…I always say that you can exaggerate China’s strength just as much as you can underestimate its potential…It will get more complicated because China is a formidable competitor in addition to being a partner, but it’s in our interest to work with them.”  “The Orient [has] a kind of extrareal, phenomenologically reduced status that puts them out of reach of everyone except the Western expert.  From the beginning of Western speculation about the Orient, the one thing the Orient could not do was to represent itself.  Evidence of the Orient was credible only after it had passed through and been made firm by the refining fire of the Orientalist’s work.”  Back to Ken: “Of course, a rise in tail risks will also initially cause asset prices to drop (as they did in the financial crisis), but then subsequently they will offer a higher rate of return to compensate for risk.  All in all, a rise in tail risks seems quite plausible, even if massive central bank intervention sometimes masks the effect in market volatility measures.”  Meanwhile, We Traveled Across China And Returned Terrified For The Economy.   SOE You’ve Actually Defaulted?   And, China Goes Gaga Over Pole Dancing.

 

Energy: China Is Crushing The Renewable Energy Race

 

USA: S&P 500 Has Been “Home On The Rangebound” Recently

 

USA: Re: Earthquakes And Fracking, “Abundance Of Smoking Guns In This Case”

 

Gross: Trying To Pull A Soros On German Bunds

 

What: Guy Trading At Home Caused The Flash Crash

Nemo angler lightOut In The Open

“Some people are calling it Mobilegeddon…today, Google is updating its algorithms so that they consider a site’s ‘mobile-friendliness’ in determining whether it should prominently appear in your search results…According to Google’s own numbers, about fifty percent of searches now happen on mobile devices…’The update is really about Google’s vision of what the web should be — using its search results as a lever to move everyone in the direction it wants them to go.’”  “Portent, a market research company, tested 25,000 sites and found that 40 percent miss the mark.  Thousands of small businesses (and even large ones) fall short as well.”  Meanwhile, the European Union’s accomplished knitter commissioner for competition has “filed formal antitrust charges against [Google], saying that the search engine giant had abused its market dominance by systematically favoring its own comparison shopping service over those of its rivals…when a consumer [uses] Google to search for shopping-related information, the site systematically [displays] the company’s own comparison product at the top of the search results.”  Meanwhile, “according to the ‘light switch’ hypothesis…it was an increase in the clarity of seawater that led to the evolution of eyes and thus to the advent of…evolutionary adaptation toward hunting skills, armor, pursuit, evasive techniques and the like, all driven by vision.”  Fast forward to now: “digital communication and information access is (quite suddenly) lifting the veil around many institutions and sources of information that were once shrouded in mystery…’We can now see further, faster and more cheaply and easily than ever before — and we can be seen.  And you and I can see that everyone can see what we see, in a recursive hall of mirrors of mutual knowledge that both enables and hobbles.  The age-old game of hide-and-seek that has shaped all life on the planet has suddenly shifted its playing field, its equipment and its rules.  The players who cannot adjust will not last long.”  Meanwhile, “in the case of the Altera incidenta bot appeared to read a Twitter rumor, understand it, and instantly execute an options strategy based on it…’This is by far the most advanced version of this we’ve ever seen.  It’s at a totally different level.’”

 

Emerging Markets

“Despite the availability of well-regarded and highly profitable corporations located throughout the world, investors tend to limit their investments to those companies domiciled in their country…British investors prefer British companies, Japanese investors prefer Japanese companies” and so on.  “Despite the substantial risk-reducing benefits of international diversification, investors all over the world exhibit a home country bias.”  Adjusting for state-owned enterprises, emerging markets “represent over 17% of [the world’s equity market capitalization].”  Meanwhile, GMO says that “while currency hedging may reduce volatility over short investment horizons for USD investors, it does not reduce volatility over long horizons.”  Furthermore, “even if currency hedging reduces the short-term volatility of the international equity holdings, it does not reduce the volatility of the global equity portfolio because hedged equities are more correlated with U.S. equities than unhedged equities.”  Meanwhile, a blog post trying to explain Brazil has a really interesting piece on commodity prices: “Commodities are not currently depressed in a historical perspective.  When commodity prices are analyzed since 1913 in real terms…we find a slow and sustained downward trend…The recent fall between 2011 and 2014 only brought prices back to their long-term trend…Thus, the outlook points to lower growth in Latin America.”

 

USA: Savita Subramanian Doesn’t See The Peak

 

WM: Wall Street Is Crazy Resentful Towards Ma And Pa Non-Taxable Right Now

 

USA: Over 25% Of Households Are A Single Person Living Alone

 

Tech: The End Of Moore’s Law

 

ICYMI: “Gold Is Certainly Viewed As A Viable Store Of Value For An Up-And-Coming Global Power”

The-death-of-equitiies-Business-Week-cover-1979

Stories, Markets, Luck And You

“China’s central bank reduced the amount of reserves commercial banks are required to hold, freeing up about $200 billion for lending in the latest easing measure.”  The “larger-than usual reduction…is the second cut in banks’ reserve requirement in less than three months and comes after the economy decelerated to 7%…’The question is whether the PBOC is a little slow on easing.  They’re fighting the last battle, like generals do.’”  Speaking of generals, “perhaps Mr. Tsipris will step back from the brink, ditch his party’s hard-line left-wing and recast his coalition with moderate pro-Europeans willing to back reforms, thereby securing a last-gasp deal to avert disaster…The more likely scenario is that Greece defaults.”  “News from Greece and China disrupted U.S. markets on Friday, but the deeper problem was closer to home.  First-quarter U.S. corporate revenue, now beginning to be reported, is coming in even lower than analysts’ sharply reduced forecasts had indicated…’It is making investors cautious, maybe a little bit confused.’”  Meanwhile, “we like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters…the [narrative fallacy] is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths.”  Also, “the biggest threat to your portfolio is you.  China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate.  What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple…No one will see the thing coming that derails the economy or the market next time around.  It certainly won’t be something that’s on the front page of the newspaper like Greece or interest rates…If we cannot even identify the reason for why a market tops or crashes on a given day with the benefit of looking back, what makes any of us think we can do so in real-time or in advance?  More importantly, doesn’t it make more sense to recognize the durability of the capital markets in the face of all these threats rather than try to play hopscotch with our retirement assets each time a new one arises?”  “In the financial markets, where so many investors are highly skilled (…), their actions cancel each other out as they quickly bid up the prices of any bargains — paradoxically making luck the main factor that distinguishes one investor from another.  And a streak of being right can make anyone forget how important luck is in determining the outcome…Guarding against the illusion of control takes constant vigilance.  The longer you’ve been right, the harder it gets.”

 

USA: Dr. Ed Lays Out The Evidence For Wage Pressure

 

USA: Deutsche Bank Says Defaults Are Very Low Compared To Historical Standards

 

China: $46 Billion Rail/Road To Wealthy Consumers In Europe

 

USA: Financial Situation “Getting Better” For Over Half Of Americans Surveyed By Gallup

Meanwhile, half are in, half are out, and half of those “because they simply don’t have the money.”

 

What: Jon Corzine Is “Gratified That Others Might Want To Invest With Him”