bad apple

Some Banking News

Bank stocks are making a comeback you guys: “with yields expected to keep climbing as the economy improves and as the Fed begins to embark on a multi-year process of policy normalization, the environment for bank stocks is brightening.”  You’re probably sitting there thinking “sure, fine — But what inning?!”  “We’re only in the fourth inning of credit demand,” says banker.  Nice.  Meanwhile, foreign exchange rigging is $5.6 billion under the bridge (alt): “the DoJ said that between December 2007 and January 2013, euro-dollar traders at Citi, JPMorgan, Barclays and RBS — who described themselves as members of ‘The Cartel’ — ‘used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates’…the total penalty being paid over forex now exceeds the approximately $9bn paid to settle the Libor rigging claims.  The banks settling the forex allegations…are hoping that Wednesday’s deal will enable them to finally draw a line under both affairs.”  Meanwhile, “nearly one in five [financial service professionals] feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.”  Also, “the number of people working in the securities business nationally has returned to 2007 levels, as has the gap between the compensation of Wall Street workers and that of everyone else…Average pay per full-time worker in the securities industry averaged 2.2 times that of the average American worker for the 70 years that ended in 1999 and peaked at 4.2 in 2007.  It has rebounded to 3.6 times as high in 2013, and looks likely to have risen further since then.”  But you guys, “it is unfair to suggest the entire industry is a den of thieves…Structurally, Wall Street firms carry much less risk than they did years ago.  Capital requirements are significantly higher.”  Indeed.  “It might be thought that [diminished liquidity in markets] is an unintended consequence of regulation…But comments from Bank of England Governor Mark Carney last week suggest investors should think again: this may be a feature of the new world, not a glitch…A vital part of this argument is that due to the regulatory overhaul of the financial system, markets have to bear liquidity risk — and should charge to do so…This is difficult for markets to reflect, however…as the assumption of abundant central-bank supplied liquidity has driven down the premium charged for investing in illiquid assets.”  


Dear China: We’ll Be The Judge

Here’s something people are really focused on: “The decline of Hanergy Thin Film Solar Group Ltd. was as spectacular and inexplicable as its ascent.  Just 24 minutes of Hong Kong trading erased $18.6 billion of market value and wiped out almost four months of gains that made it more valuable than Sony Corp. of Japan.”  Apparently the chairman missed the shareholder’s meeting and everything exploded.  Bubbles, amIright?!


EU: What Bound Rout?


JPN: GDP And Stock Market Have Been Beating Expectations Recently



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

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”


Global Prices And Political Boundaries

The “dollar-related drop in import prices is one of the things weighing on U.S. consumer prices, and one of the reasons inflation is running well below the Fed’s 2% target.”  This has led some to believe that the Fed will wait to see a turnaround in the dollar or, perhaps, stable import prices before raising rates.  “That won’t happen right away.  This is because purchases overseas are often contracted in dollars months ahead of time, so much of the dollar’s rally this year has yet to register in import prices.  The dollar’s effect on the prices consumers pay takes longer to show up, as much as a year….So even if recent signs that the dollar is leveling off hold, the pressure that its recent strength is exerting on prices will still very much be in evidence at the start of the summer.”  Meanwhile, “U.S. import prices fell in March as rising petroleum costs were offset by declining prices for other goods…Import prices dropped 0.3 percent last month after a downwardly revised 0.2 percent gain in February.”  Also, “China’s consumer price index maintained a sluggish year-on-year pace of 1.4 per cent in March, the same rate as in February, according to the government’s official figures…The producer price index, often regarded as a leading indicator for consumer prices, has been mired in deflation thanks to sliding domestic demand and chronic overcapacity…Producer prices deflated for a 37th consecutive month in March, falling 4.6 per cent, versus a 4.8 per cent fall in February…’The current bout of goods deflation in China and South Korea is the longest in postwar East Asia outside of Japan in the 1990s.”  Meanwhile, the Treasury Department says “South Korean authorities appear to have intervened in December and January to keep their currency from appreciating…South Korea’s trade surplus with the U.S. totaled $14 billion in the second half of 2014, larger than the $9.6 billion surplus from the same period a year ago.”


Great Hope News For All Economies

“When it comes to stocks, America is the big loser this year.  The S&P 500 is up just 1.6 percent through Thursday’s close, making it the worst among major market indexes for 2015…In Europe, the U.K.’s FTSE 100 is up 6 percent, France’s CAC 40 has climbed 22 percent, Germany’s DAX is up 24 percent and Russia’s RTS is up 27 percent.”  James Mackintosh says “these are weird indices which mix companies from across borders traded in different currencies…four of the five biggest contributors to the Stoxx 600’s rise this year have been from outside the eurozone, in Switzerland or Denmark.  Another two of the top 10 contributors are British, Glaxo and BP.  All have been helped by the plunging euro, as they are not traded in euros.”  Meanwhile, “Hong Kong is set to overtake Japan as the world’s third-largest stock market…Japan is poised to drop to No. 4 even as the nation’s shares almost double under Prime Minister Shinzo Abe…’the Japanese market is actually rising on hopes that monetary easing will help us escape deflation.  And if Chinese stocks are rallying on expectations the government will prop up the economy, that’s great news for all economies.’”


Hot Potatoes

Goldman Sachs says “passive ETFs aren’t being used passively by buy-and-hold investors.”  “One lingering knock against ETFs is that — in spite of their potential benefits of low cost, tax efficiency and diversification — their widespread use is turning ordinary long-term investors [into] fast-trading, global-macro focused buy-and-sell junkies.”  Furthermore, “the prevalence of ETFs seems to be influencing price moves…Correlations between stocks and sectors [have] been increasing since the 2008 financial crisis.”  Meanwhile, annualized turnover on the New York Stock Exchange “is down to 63% from a high of 110% in 2010;” however, “including trades on all marketplaces, the annual turnover rate in U.S. stocks is running at 307%…And that figure doesn’t include [ETFs], which get flung around like hot potatoes.  According to John Bogle, founder of the Vanguard Group, the 20 largest ETFs were traded last year at an average turnover rate of 1,244%.”


WM: 8-10% Average Return Is A Decent Goal That You Won’t Ever Actually See


What: Scott Stringer Thinks Scott Stringer May Have Misled Some Folks

Nothing Changes Until Everything Changes

The percentage of U.S. women in their 30s and 40s who are childless is rising, new data from the U.S. Census Bureau show…47.6% of U.S. women aged 15 to 44 were without children last year, up from 46.5% in 2012…The number of women aged 40 to 44 who had only one child roughly doubled between 1976 and 2014…These trends have helped push America’s fertility rate to record lows, though it should be noted that U.S. fertility still ranks relatively high compared with Europe and Japan.”  Meanwhile, the IMF says the financial crisis has done lasting, significant damage to global growth: “lower potential growth in advanced economies has been driven in roughly equal measure by slower capital accumulation and labor growth — due primarily to adverse demographics…demographic factors are likely to act as a brake on growth in many advanced and emerging market economies, as populations age and workers retire.”  However, “there is still room for optimism — the future trajectory of potential output is not set in stone.”  Meanwhile, global investment in renewable energy “rebounded in 2014 to a near all-time high of $270 billion.”  And thanks to the rapidly decreasing costs of solar and battery technology, “renewable energy capacity added in 2014 was easily an all-time high…Renewables went from 8.5 percent to 9.1 percent of global electricity generation just in 2014…The takeoff of solar-plus-batteries has only begun to ramp up the exponential curve, and market shares are still small.  But it has begun, and it doesn’t look like we’re going back.”  Meanwhile, a team of engineers at Caltech have “developed a very tiny, very powerful 3D imager that can easily fit in a mobile device…the imager may soon allow consumers to snap a photo of just about anything, and then, with a good enough 3D printer, use it to create a real-life replica ‘accurate to within microns of the original object.’”


100 Year 4.5% Euro-Denominated Mexican Sovereign Debt

Europe’s plunging borrowing costs marked two new milestones on Wednesday, with Switzerland becoming the first country ever to issue 10-year debt that gives investors a yield under 0%, and Mexico lining up a rare deal to borrow euros that it will repay a century from now…Mexico’s deal, which is set to wrap up later Wednesday, is expected to give investors a yield of about 4.5%.”  Meanwhile, “about 65 percent of the record 60 billion euros of investment-grade bonds sold in March came from overseas companies…and a lot of those sellers are based in the U.S….Debt is so cheap in Europe that U.S. companies are saving money even if they buy currency hedges that have gotten expensive as the dollar’s soared versus the euro…even if the Fed does hike interest rates this year, it may not matter too much to U.S. corporate borrowers.  They’ve found, courtesy of Draghi, a new source of financing that is plenty cheap.”


Snapping Up Bargains

A huge jump in equities purchases by Chinese investors (alt) has produced record trading volumes in Hong Kong, a signal that the prolonged stock rally on the mainland is finally spilling into global markets…On Wednesday, southbound turnover — purchases and sales — through the Stock Connect leapt to HK$21bn ($2.7bn), more than three times the previous daily record set on April 2…Wednesday’s moves took the average premium of domestic listing, known as A shares, over Hong Kong-listed H shares down from 35 per cent to 28 per cent…’We think retail investors from across the border will soon be snapping up bargains on the Hong Kong stock market.  With the A share market still rising in spite of weak economic data and poor corporate earnings in China, we believe Hong Kong H shares are becoming an increasingly attractive alternative.’”  Meanwhile, Chinese tech stocks are now trading at “an average 220 times reported profits…higher than those in the U.S. at the height of the dot-com bubble.”


Oil: Shell To Buy BG Group For About $70 Billion (Alt)

“The deal, if approved by shareholders and regulators, would make Shell the world’s largest producer of liquefied natural gas…would enable the two European energy giants to eliminate overlapping costs to help offset the impact of weaker prices.”  Meanwhile, here’s the U.S. oil story in seven charts.


EU: Should You Invest In A Currency-Hedged International-Equity ETF?


Fed: Bernanke Says Central Banks Shouldn’t Set Policy To Mitigate Financial Stability Risk


EU: Greek Banks Are Linking Arms


What: JPMorgan Is Blowing The Whistle On Its Future Criminals Employees

Rouhani tweet Iran nuclear deal

Negative Yields And The Current Strength In The U.S. Labor Market

“If financial theory is grounded in one principal, it’s the ‘time value of money,’ or the idea that individuals prefer consumption today over consumption in the more uncertain future…Currently 25% of the European sovereign bond market is trading with a negative nominal yield…Why would anyone pay to lend money?  There are several reasons.”  1) “you expect a significant decline in prices,” and 2) buy low, sell to the ECB.  “What does a persistent regime of negative yield mean for investors?”  1) “income-producing stocks in Europe have a natural edge,” 2) strong dollar, and 3) “they are suppressing U.S. rates.  It’s hard to reconcile a sub-2% U.S. 10-year yield with the current strength in the U.S. labor market.”  …


Black Swans Shocking Headlines And The Current Weakness In The U.S. Labor Market

“US companies scaled back hiring sharply last month, adding to evidence that the economy has lost momentum since the start of the year….Payrolls increased by 126,000 in March (alt), well below Wall Street expectations (244,000) and snapping a 12-month spell of gains above 200,000…The previous two months’ readings were also revised down by a net 69,000, while the unemployment rate was unchanged at 5.5 per cent…The data pushed the dollar down to the $1.10 mark against the euro, while the yield on the 10-year note fell 8 basis points to 1.84 per cent…None of the 98 economists polled by Bloomberg had forecast such a low figure.”  “Now you’ll see economists ratcheting down their job creation expectations for next month, next quarter, the full year etc.  They’ll also be pushing back their expectations for when the Fed will first raise interest rates from June to September or even sometime in 2016.  The one thing they won’t be doing is ending the forecasting nonsense.”  Meanwhile: Are The Best Days Of The Recovery Behind Us?  Why Are Wages Growing Slowly Despite McDonald’s, Wal-Mart Raises?  Bottom Line: Ouch.


Teraflops Of Tweets And Jay-Z

“Scientists at the firm, Two Sigma Investments LLC, program itcs machines to cull torrents of information from sources like newswires, earnings reports, weather bulletins and Twitter…the firm has more than 100 teraflops of power — more than 100 trillion calculations a second — and more than 11 petabytes of storage, the equivalent of five times the data stored in all U.S. academic libraries.” Meanwhile, “people lost maybe as much as a few hundred thousand dollars because, for a brief stupid minute, they thought Tesla was introducing…a watch?  No, of course they didn’t.  They thought Tesla was introducing a thing called the Model W, and they didn’t read any further than the headline, and they bought Tesla stock hoping the Model W, whatever it was, would be a huge success…And when I say ‘people’ I mean mostly ‘algorithms,’ which are faster and more literal than humans.”  Meanwhile, “shares in music streamer Aspiro, a majority of which was bought earlier this month by hip-hop star Jay-Z, soared on Tuesday to as much as 11 times the price at which remaining shares will be acquired in a compulsory squeeze-out only days away…buyers [look] set to face losses of some 90 percent…’There are reasons to suppose that some have not noticed the communication around the bid.’


Global: Krugman On Summers And Bernanke


Oil: Iran Nuclear Talks End With “Framework” (Alt)

Oil dipped 5% on the news.

Also, here’s a neat gif of Warren Buffett making a lot of money.


WM: Bond Traders Switching To Currencies?

“While the amount of marketable Treasuries outstanding has almost tripled since 2007 to $12.5 trillion at the end of last year, trading has fallen 11 percent.”


WM: ETFs Are All About Active Sector Selection

Airbnb Bets On Boom In Cuba Tourism

US vs Europe allocations Mar 2015

Chasing European Equities Foreign Currency Returns

“The EMU MSCI (in euros) is up 19.0% ytd, well ahead of the 1.5% gain in the US MSCI.  Of course, this divergence has been fueled by the 12.6% ytd plunge in the euro.  The currency is down 24% from last year’s high of $1.39 to $1.06.  In US dollars, the EMU MSCI is up only 4.1% ytd, and is actually down 6.8% y/y.  As a result, there has been a rush to Eurozone ETFs that are hedged to the euro.”  “Bullishness towards European stocks has reached uncharted territory,” says a quant at Merrill Lynch.  “19% of global asset allocators are now underweight U.S. equities — the largest share since January 2008.  Allocations to equities in Japan and particularly the eurozone, by contrast, have risen sharply and many respondents say that this might just be the start of an enduring trend as major central banks around the world continue along sharply different paths.”  Meanwhile, economists at Goldman and Wells are expecting “a cut to the Fed’s growth and inflation forecasts, which could result in the first rate increase coming after the June meeting…[they] still believe a September liftoff in rates is more likely that one in June.”  Meanwhile, Rick Rieder thinks “the application of technology as a deflationary force is nowhere more apparent than in the energy industry…production has continued to grow despite the rig count having peaked more than two years ago…limited incremental investment or working capital is required, but the yield continues to drive forward.  That’s called productive disinflation, and it’s happening in many different sectors of the economy.”


WM: Market Efficiency And The Infinite Regress Of “Dumb”

Meanwhile, S&P 500 funds will be forced to buy American Airlines and sell Allergan on Monday.


WM: Relax, DIY Robo-Tax Preparation Didn’t Kill The Tax Advice Industry Either


Global: “There Are No Shadow Banks, Just A Shadow Banking System”


WM: “Bond-Market Crashes Have Actually Been Relatively Rare And Mild” Says Shiller


What: 27% Of Respondents Think You Can Get Paid To Receive Insurance From Default

renminbi new choice

Currency Envy

According to Duke University, two thirds of U.S. exporters say “the appreciation of the dollar has had a negative impact on their businesses.  And nearly one-fourth of big exporters said they have reduced their capital spending plans as a result…’We are in a midst of an ugly contest to see whether the eurozone, Japan or Canada can depreciate the most against the U.S. dollar, and China is probably next.”  There is a growing debate over this last point.  On the one hand, Chinese exporters would benefit from a depreciated currency much in the same way people are expecting German exporters to benefit from a depreciated euro.  On the other hand, China is in the middle of attempting a massive rebalance away from export and investment driven growth, and the $US denominated debt on Chinese corporate balance sheets doesn’t help either.  Which brings us to this: “Britain’s announcement Thursday that it intends to join the Asian Infrastructure Investment Bank, which China is largely funding in hopes of becoming the dominant influence in Asian affairs, has bolstered the fledgling bank’s reputation even before it begins operations…Washington views the Chinese venture as a deliberate challenge to [the World Bank and other global financial institutions], which are led by the United States and, to a lesser extent, Japan.”  Some are expecting this decision to influence authorities in South Korea and Australia who “have seriously considered membership but have held back.”  “Having South Korea as a founding member would be a considerable coup for Beijing.”  Someone in the Obama administration even went so far as telling the Financial Times that they are worried about Britain’s “constant accommodation” of China (alt).  Draaamaaa.  Meanwhile, “in the past year, the dollar’s share of total global financial transactions grew to more than 43 percent from a bit less than 39 percent…At the same time, China’s currency became the world’s fifth favorite medium of exchange, up from seventh at the start of 2014.”  And here’s something fun: Bank of China has a billboard up outside of Bangkok International Airport advertising the renminbi as the “new choice” for “the world currency”.  “China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it…They know that the future belongs to them and they’re flaunting it.”


WM: Basically Everyone Failed To Beat The Market Last Year


Global: A Half Century Of Debt Buildups (Check Out Japan On This Chart)


Oil: Have Oil Prices Hit Their Floor?

Meanwhile, is the February bounce done?


USA: Household Net Worth Numbers

It’s The Guvment, Stupid

running of the bulls

The Trick Is To Stay Ahead Of The Bulls

“Entering its seventh year, the ageing US equity bull market looks vulnerable (alt)…Uncertainty over how asset prices will react once borrowing costs rise for the first time since 2006, looms large over Wall Street.”  People are pretty worried about the rising dollar, buybacks fueling the bull, lower energy earnings, etc.  All that being said, a “modest tightening from the Fed [may] sustain the appeal of owning equities even with the S&P trading at 17 times future earnings.”  Meanwhile, it’s been four days since the ECB began purchasing bonds and guess what?  The ECB’s QE Is Working Well!  “The ECB has finally broken the QE taboo and has become a normal central bank…The lack of contagion from the recent Greek turmoil is a good example of this confidence effect.  Euro area bonds have again become risk-free assets, hopefully putting to rest the mistaken view that euro area countries ‘don’t have a central bank’…Quantitative easing has erased most of the near term deflationary risks and has restored the ECB’s long-term price stability credibility…and markets are now moving in the right direction.”  Meanwhile, the grass is greener in currency hedged European equity ETF funds: “These funds have become multibillion-dollar blockbusters because of alpha seekers.  But they could be in for a surprise once the trend ends or even if the movement goes into hibernation for a while as the foreign exchange market consolidates.  The takeaway is this: It’s probably fair to expect parity between the euro and the dollar.  But once parity is reached, it might make sense to think through this currency-hedging decision again and carefully.”  Meanwhile, Ray Dalio explains the power of not knowing: “You can’t make money agreeing with the consensus view, which is already embedded in the price.  Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble…We all make better decisions by maintaining an independent view and the conflicting possibilities in our minds simultaneously, and then trying to resolve the differences.  We’re always in the place of holding an opinion and simultaneously stress-testing the hell out of it.”


Homeownership By Age

Michelle Meyer, an economist at Merrill Lynch, has some numbers on homeownership rates by age: “The biggest decline in the past ten years has been among the 30-34 year olds, followed closely by the 35-44 year old cohort….There was a similar story for the 25-29 year olds, but not quite as extreme.  In contrast, the homeownership rate for 65+ has been little changed.”  Meanwhile, “the National Association of Realtors said millennials, or those between 18 and 34 years old, accounted for the largest share of home buyers last year at 32%…The median age of millennial homebuyers was 29, their median income was $76,900 and they typically bought a 1,720-square foot home costing $189,900.”


What’s Oil Doing?

UBS economists say that “if oil prices were to remain close to current levels over the remainder of 2015, it would be unusual.  There have only been 8 occasions in the last 150 years, for example, when the cumulative 2-year change in oil prices has been more than 50%, which is what it would be if oil prices remained close to $60/bbl from here.  Putting that another way, there is at present a 25% chance that oil prices climb to $80 or higher by the end of 2015 based on the pure statistical properties of oil price swings in the past as well as relative to what is discounted in the forward curve.”  Meanwhile, some large oil companies may enjoy trading the fruits of production more than others: “In the first quarter of 2009 (the last bear market for oil), BP said it made $500 million above its normal level of profits from trading.  That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income of $2.38 billion that quarter…oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits…Although extra profits from trading won’t offset the much larger loss of revenue from lower oil prices, it could help the three companies to weather the crisis and, perhaps more importantly, beat analysts’ estimates.”


AAPL: Apple’s Moat: Mall Rats Edition


What: Mountain View Resident Suspects He May Live To See 500

Sand Hill Exchange

Power To The Venture Capitalist People

The Financial Times says there “is a sense among many in the industry that private equity is no longer at the leading edge of investment, with that mantle having moved on to the venture capital world (alt)…Quietly, firms including Blackstone, Carlyle and KKR have looked at acquiring venture capital firms…several of the private equity firms are shifting their pitch to investors.  Rather than emphasising the big (and often disastrous) buyouts of the last cycle, they refer to their interest in providing growth equity to much younger companies.  Being masters of smaller alternative universes has suddenly become the new, new thing.”  Meanwhile, Sand Hill exchange “is offering anyone who wants to deposit money with the firm the chance to buy and sell synthetic derivatives linked to unlisted tech companies…The ‘contracts’ that make this possible are British-style contracts for difference — Cfds.  Rather than owning the asset outright, you enter into a contract with a counterparty to cash settle any subsequent moves in the price of that asset… But Cfds specifically are illegal in the US…What Sand Hill appears to have done is to simply sidestep the entire 40-year old edifice of the CFTC by using the blockchain, that bit of the Bitcoin infrastructure that acts as a distributed public ledger, for transactions.”  Meanwhile, according to the city of Orlando, “nerds love Orlando.


Investable Asset Classes

“If U.S. investors have learned one thing since the bull market started six years ago, it is don’t bet against central banks’ easy-money policies…According to Lipper, U.S. stock funds have seen $5 billion in outflows so far this year, while European equity funds have collected $4 billion in assets and those in Japan have gathered a little over $1 billion in 2015.  Returns in 2015 have already paid off for those invested in foreign markets.  Across the pond, Europe is higher by 15%, while Japan has risen 8%.  At home though, the S&P 500 is up only 1% this year even as the U.S. economy improves and jobs growth is the strongest it’s been in over a decade.”  Meanwhile, “euro-denominated corporate bonds have gained 1.4 percent this year,” unless your passport has an eagle on it, in which case euro-denominated corporate bonds have lost 9 percent this year.  “With yields at record lows, that means this trade is as much a bet on the euro as anything else.  And that’s a huge problem given the euro’s 10 percent drop against the greenback this year.  The average yield of less than 1 percent on European investment-grade corporate bonds isn’t enough to offset that currency move.”  “Although ECB QE is expected to boost demand for euro-area assets, that may not buoy the currency…Many of the bonds the ECB buys are likely to come from foreign investors, according to David Woo, a strategist at [Merrill Lynch].  That could lead to as much as €10 billion worth of euro selling against other currencies every month, he said.  QE has already drawn overseas investors to eurozone equity markets.  But most foreign buyers are hedging their currency exposure, negating any upward pressure on the euro.”  Meanwhile, here’s what “don’t bet against central banks’ easy-money policies” looks like.  Also, Europe’s central banks are still playing hot potato with the expected losses from negative yields.


USA: CBO Projects Even Lower Deficit


Global: Female Managers Are Negatively Correlated With Fraud, Scandal (Alt)


What: Apple Watch Won’t Rescue Gold Bugs


WaitWhat: Is Cash An Investable Asset Class Or Not?

Also, is art an asset class?