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


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”

help me obi wan kenobi leia

Help Me Emerging Markets; You’re My Only Hope

The weakness in retail sales from December through February didn’t jibe with the strength in employment and consumer confidence.  Another surprise was that the windfall from falling gasoline prices didn’t show up in better spending in other retail categories.  Then March employment data turned weak, and the month’s 1.0% gain in retail sales excluding gasoline (to a new record high) wasn’t much of a spring rebound following the 0.8% decline from December through February.  Even worse, on an inflation-adjusted basis, core retail sales (excluding autos, gasoline, and building materials) fell 1.3% saar during Q1.”  “Saving, not shopping, is the hallmark of this expansion…Recent consumer data suggest households remain very focused on building a financial cushion to guard against the next crisis.  To do that, they are being very cautious about their purchases…For global producers who have long depended on the American consumer…the frugality means a re-think about strategy.  Emerging middle classes in developing economies may be the best hope for consumer-related manufacturers.”  Meanwhile, a Bloomberg poll of money managers reveals some high optimism for Nigeria, Vietnam, Argentina and Saudi Arabia.  “According to the United Nations, Nigeria has the potential to become the third most populous country in the world by 2050 and also boasts the highest percentage of people under the age of 15 today…growth could eventually rival China’s.”  Meanwhile, the IMF would like you to know about the “super taper tantrum”: “higher US interest rates could expose particular vulnerabilities in emerging markets where companies have issued large amounts of debt in dollars, the IMF said, adding that between 2007 and 2014 debt had grown faster than GDP in all major emerging markets.”  Meanwhile, Research Affiliates concur with Janet Yellen’s “gradual and lower than you expect” forecast for interest rates: “Looking toward retirement and still needing to repair their balance sheets in the aftermath of the housing recession, Main Street Americans are reluctant to borrow at any price.  To reach significantly higher real interest rates, we need not only more optimistic GDP forecasts but rectified balance sheets and greater willingness to spend rather than save and invest…The demand just isn’t there.  After seven years of trying to bring the punchbowl back to the party, the Fed may be realizing that this time nobody seems interested in drinking off the hangover.  Don’t expect the party to ramp up anytime soon.”  Meanwhile, the party got turnt up in Europe this morning!


Fear Leads To Anger

“According to Bank of America Merrill Lynch’s monthly Fund Manager Survey, 13% of global investors believe equity bubbles are the biggest risks facing stocks.  That number is up from just 2% in February.  Among the panel surveyed, 25% believe global stocks are overvalued and 68% think the U.S. is the most expensive region.”  Meanwhile, “your appetite for risk will likely ebb and flow with the markets even if your ability to take risk based on your financial situation hasn’t changed much.”  Also, “the more confident investors are in a risk model’s saving power the more useless they become…The best a risk model can do for the investor is point out where potential areas of risk exist, not how that risk will manifest and play out.”


Global: The Question Is No Longer If, But When The World Will Transition To Cleaner Energy


Fed: The Mythic Quest For Early Warnings

We Made 8 Trillion Transistors Every Second Last Year

kermit rainbow connection

The Lovers, The Dreamers And Me

Analysts at Citibank and The Economist are coming to Chinese equities’ defense: “The Shanghai index, which includes China’s biggest companies from banks to oil majors, is trading at a forward PE of about 15, in line with its ten-year average.  From this perspective, the rally looks more like a ‘mean-reversion trade’ than something wildly unsustainable.”  “When investors tell us that China is a bubble and expensive all we need to do is highlight…a market which is very certainly an investor favourite, India.  This market is even more expensive relative to all the other markets, and it isn’t as if investor after investor we meet tells us, ‘oh boy that Indian market is hotter than your average Vindaloo.’”  (Side note: valuations suggest that investors are expecting the highest EPS growth rates in India (6.5%), Poland (6.4%), South Africa (6.3%), Indonesia (6.2%) and the Philippines (6%))  “The most striking feature of the Chinese rally in recent weeks has been its crossing of borders…A programme to connect the mainland and Hong Kong stock markets has provided a corridor for channeling excess liquidity out of China.  With A-shares still trading at a 20% premium to H-shares, Chen Li, a strategist at UBS bank, predicts the convergence will continue.”  Meanwhile, “there has been speculation in certain quarters of the markets that a ‘Singapore-China’ stock connect may be in the pipeline.


But Wasn’t Distortion Always The Point Of Extraordinary Monetary Policy?

“The European Central Bank has barely started its €1 trillion-plus asset purchase program and already there are mutterings about how it might need to be wound down early.  There are signs of a solid pick-up in the eurozone economy,” as well as “rising bank lending as firms turn more bullish on their growth prospects.”  Yet “on the other side of the equation there are clear market distortions.”  For example: “all over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates…some banks have faced the paradox of paying interest to those who have borrowed money from them…In Spain, Bakinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.”  Meanwhile, Eurostat says the savings rate is moving back up, which may “send minor alarm bells ringing for those who fear that households may respond to falling consumer prices by postponing discretionary prices.”  Then again, Ben Bernanke says higher wages in Germany are good news for everyone: “In a world that is short of aggregate demand, Germany’s trade surplus redirects spending away from other countries, reducing output and incomes abroad.  Higher wages in Germany should promote spending by German households on both domestic goods and imports, reducing the imbalance.”



“One of the most important questions for economists about the past year’s collapse in oil prices is whether it was driven by supply or demand.”  The IMF says “it started out as a bad-news demand story, but turned into the good-news supply story.”  Meanwhile, “China is on an oil-buying spree again.” (alt)


USA: Home Services Is One Of The “Few Pots Of Gold Left”


USA: Aswath Damodaran Ain’t Buyin The Small Cap Premium


Geography: Categorical Convenience And Tourist Capital

The geographical reach of listed companies is a more important driver of index returns than ever before, according to research by the EDHEC-Risk Institute…Between 2003 and 2013, the report found that the S&P 500’s exposure to regions outside the Americas grew from 19% to 27%.  For the STOXX Europe 600, exposure to non-European regions grew from 36% to 45%…The total market cap of companies exposed to foreign markets rose dramatically in the 10 years to the end of June 2013.  In the S&P 500, this figure grew from $2.9 trillion to $5.6 trillion…’It would be a shame if asset allocators compromised their asset allocation policy, which is often based on macro-economic scenarios that use regional dimensions, through poor evaluation of the geographic reality of their portfolio or benchmark.’”  Meanwhile, Mohamed El-Erian thinks “the concept of an ‘emerging markets asset class’ may no longer be a sufficiently useful and accurate catch-all classification for investors.”  Furthermore, “macro decisions to allocate or withdraw capital from EM — particularly through index and index-like vehicles — tend to be significant drivers of return, volatility and correlation behaviors, which too often leads to valuations that are decoupled from individual fundamentals…this phenomenon is amplified as the market influence of a relatively small base of dedicated investors is subject to the vagaries of less well-informed ‘crossover’ funds (that is ‘tourist’ capital)…Today, this means recognizing that EM is in a technical phase of unsettling volatility.”  Meanwhile, Ben Bernanke thinks EM vendors may want to stock up on pretzel and bratwurst: “An important source of the global saving glut I identified before the financial crisis was the excess savings of emerging market economies (especially Asia) and of oil producers.  The good news is that, for reasons ranging from China’s efforts to reduce its dependence on exports to the decline in global oil prices, the current account surpluses of this group of countries, though still large, look to be on a downward trend.  Offsetting this decline, however, has been a significant increase in the collective current account balance of the euro zone.  In particular, Germany, with population and GDP each less than a quarter that of the United States, has become the world’s largest net exporter of both goods and financial capital.”


What You Google Is All There Is

“As the Internet has become a nearly ubiquitous resource for acquiring knowledge about the world, questions have arisen about its potential effects on cognition.  Here we show that searching the Internet for explanatory knowledge creates an illusion whereby people mistake access to information for their own personal understanding of the information…Searching for information online leads to an increase in self-assessed knowledge as people mistakenly think they have more knowledge ‘in the head.’”  Meanwhile, “jumping to conclusions on the basis of limited evidence is so important to an understanding of intuitive thinking, and comes up so often in this book, that I will use a cumbersome abbreviation for it: WYSIATI, which stands for what you see is all there is…WYSIATI facilitates the achievement of coherence and of the cognitive ease that causes us to accept a statement as true.  It explains why we can think fast, and how we are able to make sense of partial information in a complex world.  Much of the time, the coherent story we put together is close enough to reality to support reasonable action.  However, [WYSIATI helps] explain a long and diverse list of biases of judgment and choice.”


USA: April Employment Report Will Be Key To Fed


EU: Spain Joins Negative Yield Club


WM: “Constraints Imposed By Tax-Efficient Asset Management Do Not Have Significant Performance Consequences”

banksy ones zeros

Oh The Humanity

The new cyborg participant in the marketplace is less human than the traditional investor, and capable of being faster, better informed, and more rational…complex algorithms are not subject to the cognitive flaws, emotional sways, and mental strains that plague the human participants of the marketplace.”  Meanwhile, Financial Advisers Seek To Inject A More Human Element: “Your ideal self and your financial self are often at war…Understanding priorities, setting up goals and then tracking both to make sure they’re in alignment…people are not better off if they do slightly better than the S&P 500 and make stupid life choices.”  Meanwhile, asking for financial advice help is the first step to recovery.



“From 2011 until 2013, dense counties at the center of large metropolitan areas in the U.S. saw faster population growth than the exurbs (“paved subdivisions on what was once rural land”), a fact cheered by city-lovers as a sign that urban living was on the rise again.  The updated Census county population estimates released Thursday, though, show that the exurbs are now again growing faster than urban places.”  That being said, “Americans are still moving at much lower rates than usual.”  Meanwhile, “the number of jobs within typical commuting distance to residents of major metro areas fell by 7 percent between 2002 and 2012…jobs both moved to the suburbs and spread out more.”  Furthermore, “between 2000 and 2010, the share of jobs located within three miles of downtown cities declined in 91 out of the 100 largest metro areas.  Meanwhile, the share of jobs located 10 or more miles away from those city centers grew in 85 out of 100 metro areas.”


Marks: Re: Liquidity


China: Lure Of Large Container Ships Fuels Canal Boom In Central America (Alt)


USA: The Economist Still Thinks The Manufacturing Renaissance Is A No Go

They are doubling down on this news: nondefense orders fell 1.4% in February.


Global: Morgan Housel’s 8 Stories Worth Paying Attention To


EM: How Might The Fragile Five Do In Another Tantrum?

EU: Greek Banks Have Lost Roughly 15% In Deposits Since November

europe is beating expectations feb 2015

What Are You Expecting?

10 year yields have risen sharply over the last three weeks (eg. US Treasuries “from this year’s low of 1.68% on February 2 to 2.13% on Friday”).  Ed Yardeni highlights three reasons for the rebound: (1) better than expected payroll employment data, (2) better than expected German factory orders data, and (3) better than expected Japanese GDP and exports data.  In fact, European economic data has been better than expected this year.  PMIs, consumer confidence, and even GDP, especially from eastern European countries, are all signaling a rebound in exports, spending and activity.  Let me guess…you don’t buy it.  But consider this: your disbelief that European economic data could actually be positive is precisely what this data is measuring.  Tomfoolery is seductively entertaining, and it can dominate the senses.  Don’t let it.  Meanwhile, “volatility and trading volumes have collapsed this month as U.S. stocks have marched to fresh records, a respite that few investors foresaw and few expect to continue.”  A lot of investors are going long America (observe: the $US, US equities), and the crowded dollar has some people worried about EM debt: “Portfolio managers in the global bond market may dump EM debt very quickly as interest rates begin to rise, forcing some EM corporates to buy dollars to redeem maturing debt.  This could push the dollar higher, tightening monetary conditions even more.  And this would reduce capital investment in the EMs, raising the risk of recession and inducing bond managers to dump more EM credit into the market.”  Speaking of emerging markets, some are expecting a “manufacturing exodus” out of China this year: “Notably, Japanese companies are moving back to Japan, in part due to the cheaper yen and perhaps expectations of further weakness in the yen.  China, on the other hand, is squeezing its low cost manufacturers with a stronger yuan.”


Fed: All Eyes On Yellen’s Testimony Before Congress This Week


ICYMI: Active Management Is Under Heavy Fire (Alt)

“Having watched smokers quit and drivers adopt seat belts and folks lose weight, I am unable to imagine large numbers of active investors quitting the Great Game.”


USA: We’re Not Just Building Supersized Homes For The Rich Anymore


C’mon: Climate Change Scientist Lobbyist Was Funded By Fossil Fuels Industry


What: “To Prove That Economics Is More Valuable Than Peace, The Prize Would Have To Sell For More Than $1.1 Million”


Dear EM: All Your Current Account Are Belong To Us

“Almost $260 billion worth of sovereign and corporate bonds — nearly a tenth of outstanding emerging market (EM) debt — is in danger of being relegated to junk, according to David Spiegel, head of emerging debt at BNP Paribas…Many mainstream investment and pension funds have rules preventing them from holding debt unless it is classified as investment grade by at least two of the big ratings agencies…Ratings models compiled by analysts at Bank of America/Merrill Lynch show downgrade risks in Brazil, Russia, Turkey, South Africa and Indonesia.”  Furthermore, “if we see countries downgraded into high-yield status, it may trigger automatic corporate downgrades which would dramatically restrict access to international capital.’”  Speaking of access to international capital, Turkey has lost control of its current account: “Unexplained flows of foreign funds into and out of the economy — marked as ‘net errors and omissions’ in Turkey’s Balance of Payments report — showed violent swings during the first 11 months of 2014.  Outflows in November were estimated to be $3.46 billion (roughly 65% of their current account deficit), the biggest monthly exodus in more than 16 years.”


Don’t Let It Get You Down

“Gross domestic product rose an annualised 2.6 per cent in the fourth quarter (alt) — sharply below consensus expectations for an increase of at least 3 per cent and a marked slowdown from the 5 per cent pace set in the third quarter…Household spending, which accounts for two-thirds of the economy, expanded by 4.3 per cent compared with 3.2 per cent in the prior quarter, confirming that consumers remain the engine of the recovery.  However export growth slowed from the third quarter, while imports rose sharply, and investment growth dropped sharply.  A separate index of [earnings] rose a quarterly 0.6 per cent in the three months to December, compared with the 0.7 per cent pace set in the previous period…For the whole of 2014, GDP rose 2.4 per cent, compared with an increase of 2.2 per cent in 2013.”  Meanwhile, “the theme of the week so far in U.S. corporate earnings announcements has been that the rest of the world is dragging us down.”  However, “by the most straightforward measure, exports and imports, the U.S. economy remains pretty self-contained.”  Furthermore, “the foreign profits boom of the 2000s didn’t exactly bring a rush of business investment or hiring in the U.S., so why would the current slowdown bring a bust?”


Oil Stuff Obviously

“The only thing people are noticing now is that gas prices are dropping…People haven’t noticed yet that it’s also hitting their portfolios’…Eight months ago, Houston-based oil producer Energy XXI Ltd. sold $650 million in bonds.  Demand was so high that the company more than doubled the size of the offering…The debt is now trading for less than 50 cents on the dollar, and the stock has declined 88 percent.”  Also, “‘this is a big deal for banks in states like Texas where oil is one of the most prominent businesses’…’Companies who are leveraged very highly and got into the business not long ago, those are the ones that are going to get hurt.’”  Meanwhile, the vice chairman of the FDIC doesn’t see low oil prices → defaults → bank failures.  However, “the situation could change if low oil prices persist…borrowers’ current condition ‘will erode over time if prices remain below break-even.”  Meanwhile, Chevron would like a lower break-even: “targeting $35 billion in capital projects this year, down 13 percent from $40.3 billion in 2014…the largest reduction in its annual spending plan since 2003, when expenditures plunged 26 percent and crude prices were half their current levels…’Chevron doesn’t quite have the flexibility of some other companies to cut spending in the near term because they are still finishing some mega-projects’…The vast majority of Chevron’s spending this year will be to support ongoing production (“$26 billion of the planned $35 billion budget, with $3 billion aimed at exploration”).”  Meanwhile, Susan Christopherson says fracking hasn’t created as many new jobs as you think it has: “Although it grew faster than other sectors of the economy, the core of oil and gas employment constitutes only one-half of 1 percent of total U.S. private sector employment.”  Furthermore, “Texas not only has much of the skilled drilling workforce, but the majority of the industry’s managers, scientists, and experts who staff the global firms headquartered in Houston.  Still, even in Texas, energy-related jobs constitute only 2.5 percent of the state’s now more diversified employment.”


China: Surprise!  It’s Gonna Get Slower

“Even Lou Jiwei, China’s finance minister (presumably former finance minister as of this article’s release), tells visiting dignitaries that Beijing will be happy with 6 per cent growth in coming years.  In private, he warns that just to maintain that growth will require very high levels of government-led infrastructure investment.”


FX: Even John Maynard Keynes Couldn’t Beat The Market In FX, Alright?  Just Don’t


USA: CLOs: Get ‘Em While They’re HOT!


What: AIG Is Offering Tiger Woods Celebrity Recall Insurance

hannibal lecter

Fly, Fly, Fly

The euro fell to its lowest level against the dollar in nine years Monday, driven by fears of political turmoil in Greece and hopes for more monetary stimulus from the European Central Bank.  By lunchtime in Europe, the single currency had fallen to $1.1914 and has now fallen over 2c against the dollar since the start of the year.”  Meanwhile, “oil slid further in Asian trade Monday on concerns that the glut in global oil supply will extend well into this year (alt), and after major brokerages including Citigroup slashed their oil price forecasts for 2015 and 2016…’Three massive factors have come to a head as 2015 opens: the U.S. shale revolution, the Saudi refusal to cede market share to other producers and a weak world economy.”  Speaking of which, the United States is seen as being fairly insulated from the weak world economy.  In the US, it is a happy new year already…Payroll employment rose 2.73 million over the 12 months through November, the best such gain since March 2006.  The average hourly wage rate rose 2.1% y/y that month, while PCED prices rose 1.2%.  The recent plunge in gasoline prices is providing consumers with an annualized windfall of about $200 billion.  This happy news is boosting various measures of consumer confidence (e.g. Consumer Comfort Index and Consumer Confidence Index)…Consumers are in the mood to spend some more.  Revised data showed that they did so during Q3, contributing 2.2 percentage points to the quarter’s 5.0% increase in real GDP.”  Meanwhile, US automakers are reporting their best year for sales since 2006 “thanks to cheap fuel and low interest rates.”  All of that, combined with a “THIS is the YEAR!” mentality about interest rates, basically sums up the reasons for why the United States is the herd’s favorite investment going into 2015.  It could also explain why the $US has been so strong lately.  Which is really great news, unless you have a lot of $US denominated debt and don’t make much income in $US.  For example: “Companies in China and Brazil account for a hefty portion of the $1.3 trillion in dollar-debt issuance since 2008, according to data-provider Dealogic.  Energy companies are some of the biggest borrowers (e.g. Petroleo Brasileiro, China National Offshore)…Although oil-firms’ income is largely denominated in dollars, plummeting crude prices are pushing up default risks.  Companies with local currency income where the exchange rate could continue to turn against them are particularly exposed to the dollar’s rise.”  Meanwhile, VoxEU researchers say that when the VIX is high, beware the capital flows out of emerging markets.  Also, the only thing emerging markets can do to prevent this outflow is to raise rates, which (obviously) raises borrowing costs for companies like Petroleo Brasileiro and the like.


EU: January 25th Is D-Day For The “Grexit”


USA: Goldman Says “The Migration Out Of The Basement Has Only Begun”


USA: Nasdaq Acquires Dorsey Wright; Index Provider Specializing In Smart-Beta ETF Strategies (Alt)


WM: Dodge & Cox International Stock Fund (DODFX) Is #Winning


USA: San Francisco Media Doesn’t See It That Way, Thank You Very Much


LOL: Goldman Sees Value In JPMorgan Breakup


david after the dentist is this going to be forever

Oil Prices

The drop in oil prices is claiming another victim: earnings estimates.  “Just two weeks ago, 2015 earnings growth was estimated at 8.8 percent.  As of Tuesday, it’s down to 7.6 percent.  Revenue is expected to grow an anemic 1.4 percent.  Most of this is due to an expected drop in oil company profits.  A couple weeks ago growth in the S&P Energy sector was expected to be down 13.6 percent next year.  Now it is expected to be down 21.3 percent…Energy is roughly 9 percent of the S&P 500.”  Meanwhile, Oppenheimer says “neither energy companies nor analysts are really confronting the possibility of a permanent drop in oil prices…Sudden drops in oil prices have rebounded pretty well in the past, but history can be misleading because OPEC price manipulation has been such a major factor.  Now that OPEC is more interested in fighting for market share than supporting prices, the market may not behave the same way.”  Meanwhile, “the Obama administration will approve more exports of ultralight oil from the US shale drilling boom (alt)…it will authorise more companies to sell oil condensate that has been processed through a basic distillation tower…also published a list of answers to common questions about petroleum exports, providing guidelines for the first time on a matter that has been shrouded in confusion.”


A Look At The Horses At The End Of The Year

“The exchange-traded fund winners this year were biotech and mainland China.  It was a home run for biotech across the three largest ETFs…ETFs that invest in mainland China had a big year, thanks to a surge in interest in trading mainland China shares after that country made it easier for foreigners to invest in November.”  Meanwhile, the “bubble” in REITs just got a lot bigger (alt): “for 2014, real-estate stocks have produced a total return of 32.3% including dividends…Analysts and investors attributed the sector’s beefy gains mainly to an unexpected fall in interest rates…’Exactly what everyone thought was going to happen this past year, the opposite happened.’”  Here’s another example of that: “smart-beta” ETFs.  “Over the last one- and three-year periods, they have on average lagged their plain-vanilla counterparts in almost every category.”  Also, here are the 5 worst stocks of the year (SPOILER ALERT: 4 of them are oil companies).


The United States Is The Herd’s Bet For 2015

The soaring U.S. dollar is squeezing companies in emerging markets (alt) from Brazil to Thailand that now face higher costs on roughly $1 trillion in bonds sold to investors…The dollar’s rise means it costs more to make regular bond payments and pay off outstanding bonds as they mature.  That is starting to hurt earnings at many companies, will likely force some to dip into emergency reserves and could trigger defaults on some corporate bonds, analysts warn.”  Meanwhile, have you heard that the United States is the only place worth putting your money to work?