investors Finally Get What They Wished For Are Rubbing Their Lamps Again

Government bonds are continuing to sell off today: “the US 10-year Treasury yield rose to 2.36 per cent in early New York trading, its highest level since November…Euphoria over the [ECB’s] €60bn-a-month monetary stimulus that pulled the German 10-year bond yield down towards zero per cent last month has faded on improving growth prospects and climbing inflation expectations…’[the sell-off] is starting to stretch the boundaries of what you could call a technical correction.  A lot of strategists are getting nervous,’” says a strategist.   John Williams, however, thinks nervous is healthy: “my personal preference is that we don’t have the most telegraphed policy decisions in history, as we did in 2004…In a normal economy there is some volatility in markets, that is just a healthy functioning of markets trying to understand and filter what the data means for policy.”  Meanwhile, German Bund investors may need to up their intake of aspirin: “It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.  It took just 15 days after that to jump back to 68bp again.”  Furthermore, “in the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly.  Higher yields means fewer negative yields…But even €1 trillion down..negative yielding Eurozone government debt remains greater than the size of positive yielding Euro credit.”  Reuters thinks this could be “a shot in the arm” for the ECB:  “this has broadened the pool of bonds the ECB can buy under its quantitative easing (QE) purchase programme, which excludes all paper yielding below the minus 20 basis points that corresponds to the bank’s deposit rate.”  Meanwhile, “if bond yields are going up because investors demand a higher premium for holding risk, then the losses on riskier assets like equities ought to be bigger still.  But that doesn’t appear to be the case.  Government bond yields seem to have ticked higher because inflation expectations have been rising…If bond yields are going up because growth expectations are picking up, this should ultimately be favorable for equity markets, albeit after a round of near-term volatility.”  Also, the main argument for why this is a “technical” correction has been the surprise announcement by Treasury to issue $64 billion in treasuries this week.  However, “demand for the U.S. government securities sold at auction has declined in each of the past three months, after also slumping in the August-through-October 2014 period…the Treasury is also competing with more than $20 billion of debt slated to be sold by companies.”  We should get a preview of the “technical” correction thesis today as $24 billion three-year notes go up for auction.  Stay tuned.


Mo’ Money, Mo’ Problems

“While [Apple] may well become the first $1 trillion market cap company (Carl Icahn’s recently top-ticking tweets notwithstanding), did you know that AAPL is now bigger than the entire market cap of all Spanish stocks combined?  Or that Austria’s $99 billion gross market cap is the size of Mastercard.  Or that Finland’s entire stock market is about the size of Verizon?”  Speaking of which, Finland Verizon has no idea what to do with all their money is buying AOL.  Also, mutual funds have no idea what to do with all their money are hunting unicorns.  Also, sovereign wealth funds have no idea what to do with all their money are “[harnessing] the premium associated with more illiquid assets.


USA: Retail Sales Indicate Divergence Between East And West Coasts


Tech: Google Is Currently Putting 10,000 Miles A Week On Their Self-Driving Cars


USA: Why Do You Think Disney’s Rags-To-Riches Love Stories Are So Popular?


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?

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”

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

Michelangelo garden of eden

The Fruits Of Production

Izzy Kaminska has an interesting article on Michael Masters, who argued to the Senate back in 2008 as oil prices were spiking above $100 per barrel that “a new class of investor — one he dubbed the passive ‘index speculator’ — had bulldozed his way into the market and distorted the usual price discovery process.”  Furthermore, “fiduciary agents never really understood what they were buying — from the cost of contango rolls and futures management fees to the feedback loops associated with buying fruits of production rather than means…’Historically, capital markets have been about the means of production not the fruits.  But they look at [commodities] as a pseudo currency.’”  Meanwhile, Ed Yardeni says he expects the dollar to stop soaring once oil bottoms out.  But remember, we’re talking about correlation.  “In the past, there was a close correlation between the price of oil and the Emerging Markets MSCI stock price index in local currencies.  That hasn’t been the case over the past year.  The relative strength of the EM MSCI suggests that the drop in oil prices reflects excess supply rather than significant weakness in demand attributable to slowing global economic growth.”  Meanwhile, Brent oil has shot up 14% to $56 over the last couple of days


Energy On One Side, Apple On The Other

Goldman Sachs is expecting “the first overall drop in capex spending for S&P 500 companies since 2009…’Energy accounts for 33% of S&P 500 capex and should fall by 25% in 2015’…It still expects dividend growth of 7%, and says sectors outside of energy are still increasing capex, which should help support the economy.”  Meanwhile, all hail the United States of Apple: “Apple is now the biggest contributor to earnings growth for the S&P 500 at the company level for the fourth quarter.  Ex-Apple, the blended earnings growth rate for the S&P 500 for fourth quarter 2014 would slump from 2.1% all the way to 0.3%.”


The Current Risk-Free Rate In Europe Is “Give Me Your Money”

German 10 year debt is now trading at a lower yield than Japanese 10 year debt.  Also, “Draghi’s negative yield vortex” is setting its sights on corporate bonds (Nestle and Roche may go first).  “If investors want to park some cash, the problem with putting it in a bank or money market fund is potential negative returns, because of the negative deposit rate policy of the ECB.”  Meanwhile, European investors in the S&P 500 earned 7% more than US investors in the S&P 500 last month: “If the Euro continues to weaken relative to the dollar, European investors will be more attracted to U.S. investments than they would be otherwise, and similarly U.S. investors will have an incentive not to direct funds to Europe.”


EU: Greece Proposes Debt Swap Involving New “Growth-Linked” Securities (Alt)

“Greece’s radical new government revealed proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders.”  Meanwhile, it looks like “Troika” won’t be a word we get to use for much longer.


EM: Expect More Monetary Easing From South Pacific Central Banks


Surprise: Uber Has Never Really Been A Fan Of “Employees”

Also, Google has never really been a fan of “Uber”

Also, Amazon has always been a fan of Turks?


Another Day, Another Slowdown Call For QE Divergence

China’s economy grew at its slowest pace  (alt) (7.4%) in almost a quarter of a century last year even as it overtook the US to become the world’s largest in purchasing power terms….as the world’s most populous nation approaches middle-income levels, its credit-fueled, investment-led growth model, with its reliance on low wages, polluting industries and real estate construction, is also running out of steam.”  Meanwhile, the Economist says “the focus on the slowdown seems almost myopic.”  They cite two reasons why “China’s growth also appears to be slowly becoming better balanced.”  (1) Consumption and services have grown their share of GDP since 2013 (up 3% and 1.2% respectively), and (2) wages grew 8% last year, and rural incomes outpaced urban incomes (9.2% vs 6.8%).  Meanwhile, in Europe: “Insiders expect a programme of sovereign-bond purchases of around €500 billion to be announced on Thursday.  Anything less would be likely to disappoint markets that have already been anticipating a move by the ECB to adopt QE, causing, for example, the euro to weaken.”  Also, Mario Draghi has said he is targeting a €3 trillion balance sheet with covered bonds and ABS purchases.  The only problem with that is um…the market doesn’t exist?  The market for sovereign bonds, however, is estimated at over €6 trillion.  Meanwhile, “the International Monetary Fund lowered its forecast for global economic growth in 2015…projected at 3.5 percent for 2015 and 3.7 percent for 2016…The United States was the lone bright spot in an otherwise gloomy report for major economies, with its projected growth raised to 3.6 percent from 3.1 percent for 2015.”  Jon Hilsenrath says “the world hasn’t seen an economic divergence like this since the mid-1990s, when growth in the U.S., Japan and Europe went in different directions.”  Furthermore, “though recent developments in the economy and markets have caused some trepidation among Fed officials and, if sustained, could cause them to delay acting, several have indicated recently they still expect to move this year and are withholding judgment on delay.”


Vultures Feed Off Dodd-Frank’s Kill

“Wall Street banks struggling with recently defanged currency-trading desks have found a surprising ally: high-frequency traders…Regulations imposed in the aftermath of the financial crisis restricted banks’ ability to deal currencies on their own account, a practice known as proprietary — or prop — trading.  That opened the door to co-operation with the HFT firms they once avoided…By working with the HFT firms, banks benefit from narrower gaps between buying and selling prices without having to reveal their trades in the wider market.”  Meanwhile, do NOT take the other side of that trade.


USA: State Of The Union Is Tonight


China: Shanghai Volatile As Regulators Announce Margin Trading Crackdown (Alt)


Oil: Go Ahead, Call The Bottom…Make My Day


USA: Rumors That Google Will Invest $1bn In SpaceX For Global Satellite Internet


What: Apparently Incentives Motivate Forecasters To Be Optimistic



Low Tide In Europe

Fallout from Switzerland’s wildly swinging currency (alt) ricocheted around the world, hitting global banks with tens of millions of dollars in losses and triggering the collapse of some brokerage firms.  Deutsche Bank AG suffered about $150 million in losses on Thursday…Barclays PLC also racked up tens of millions of dollars in losses…a major U.S. currency broker warned its equity was wiped out, a U.K. retail broker entered insolvency and a” — you get the point.  FX brokerages are going under because their clients are going under thanks to leveraged one way trades on the Swissie.  As you might imagine, there is a lot of frustration out there.  Tom Buerkle offers four takeaways: (1) “Draghi’s ECB will not disappoint next Thursday when the governing council meets to decide whether to embark on quantitative easing…the Swiss are expecting a big move and don’t have the stomach for the massive intervention it would take to defend the exchange rate,” (2) currency wars are here to stay, (3) negative deposit rates and an expensive Swiss franc = even more demand for bonds = rates lower for longer, (4) nothing in monetary policy is sacred.  Meanwhile, Izzy Kaminska argues that (4) is precisely the point of all this: “Not only do regulators want to bring caveat emptor back into the markets — especially around the shadow banking periphery — they also want to expose liquidity air pockets that have taken root in the market but which so far have been stubbornly ignored by participants.”  Furthermore, “if you’re strategy is focused on beating your own clients, you should take more care to make sure your clients actually have the capital to pay you.”  Meanwhile, cue the queues!


Global: Central Banks/Economies Are Not Isolated Anymore


USA: New Cuba Rules Could Flood Island With Teens From The Jersey Shore U.S.-Made Goods


Fed: New “Community Advisory Council” Is Looking For Nominations


Oil: Schlumberger Cuts 9,000 Jobs As Oil Slump Brings Uncertainty


Oil: Bloomberg Is Bad At Explaining Futures Curves, Good At Using The Word “Contango” 13 Times

ps. do yourself a favor and watch this video if contango is something you’re into.  Contango is bearish for futures contracts, and bullish for the current spot price.


USA: How The Camera Doomed Google Glass


money exits floating rate funds 05282014It’s Quiet…Just Quiet.

There’s a lot of “complacency in the market” (alt) talk going on these days, which might just be a reflection of journalists’ boredom.  That being said, apparently trading at big banks is pretty boring too: “large investors are retreating from the market, big trades are rare and price swings are shrinking…those factors have combined to reduce trading revenue, particularly in fixed-income, currencies and commodities trading, traditionally a profit engine for large banks…’People lack direction…there just isn’t a lot of movement.’”  Meanwhile, junk bond junkies are riding the risk gravy train to the top (alt): “among the 10 largest U.S. bond funds at the end of 2013, the four with the fastest growth in assets since 2008 held an average of 20% of their investments in bonds rated below investment grade…the chase for yield has pumped junk-bond prices up to near-record highs, leaving them susceptible to selloffs…One concern for regulators is that if hit with a wave of redemptions from investors. the funds could have trouble unwinding their bets in the smaller high-yield markets, where trading can dry up quickly when prices start to fall.”  Speaking of fixed-income, Wells Fargo would like bond investors to know that they’re screwed, no matter what: “if yields rise towards our 3.25 percent target, then Treasury bond returns will be low, if not negative.  But even if this target is not attained, yields are already too low for returns to be attractive, whether the market stays range bound or if the rally can be extended a little further.”  Also, floating-rate debt funds “saw their first outflow in 95 weeks in mid-April, after surging over the past several years as investors have anticipated rising interest rates.”  Meanwhile, Dennis Gartman, “publisher of an eponymous daily investment newsletter,” and “one of those folks calling for [a stock market] pullback,” is throwing in the towel: “It’s so silly for me to think I can call a correction…The market will correct when it corrects.  That’s what I’ve learned in my 40 years in the business.”  Maybe we should just let bulls be bulls?

Onshoring Is Really Real You Guys

“‘The U.S. is now Latin America’s natural supplier of LPG (liquefied petroleum gas).  Venezuela used to supply several Central American and Caribbean countries, but that’s not happening anymore.’…Total U.S. LPG exports rose 482 percent since 2007 to 332,000 bpd last year.  Analysts forecast some 450,000 bpd in exports this year and 800,000 bpd by 2018.”  Meanwhile, fracking in America has lowered the price of natural gas, but “what we haven’t seen yet is the industrialization that has come as a result of these low prices.”  The Wall Street Journal has offered to be your lookout and, hey!  Look at all the industrialization happening in Louisiana (alt): “it’s the tale of a company called Sasol, the former South African state oil company, which is embarking on what could be the single-largest foreign investment project in U.S. history.”  And boy has this remarkable tale got it all!  Exotic Nazi technology, South African apartheidists, Iraniam imams, man camps, bug-eyed economists…”We are building a Qatar on the Bayou.”  Bam.  Onshoring.  Meanwhile, “unfazed by a sharp decline in the yen’s value that makes foreign ventures more expensive, Japanese companies sharply expanded their investments in the world’s major markets, including Southeast Asia, the U.S. and the European Union.  One notable exception was China, where the amount of Japanese FDI shrank by 18%…US-bound FDI jumped 68%…the amount spent in the E.U. rose 32%.”

Drought, Disease And Food Prices

California is responsible for about half of the fruits and vegetables grown in the United States.  That includes 99 percent of all the nation’s almonds, 95 percent of its broccoli, 90 percent of its tomatoes, and 74 percent of its lettuce.”  “With every part of the state facing ‘severe,’ ‘extreme,’ or ‘exceptional’ drought,” many people are wondering when we will see massive food price spikes, especially in fruits and vegetables.  Meanwhile, meat prices continue to climb (alt): “pork prices have surged as a pig virus, which has decimated piglets in North America, has spread to Latin America and Asia.  Beef prices have also jumped as drought in key cattle rearing regions in the US, Australia and New Zealand has cut cattle herds in the face of growing demand.”

Millennials Are Annoyingly Liberal

A new survey suggests that “Millennials have such liberal and contrary views about social responsibility, personal wealth and financial institutions that they stand to reorder the priorities of corporate America and Wall Street…the great recession is likely to remain a formative event in the shaping of views toward Wall Street that will impact their approach as both workers and consumers.”  Meanwhile, you know how Millennials hate investing in stocks but they love being socially responsible?  Millennial bond investors can now sleep at night thanks to green bonds (alt): “fixed-income instruments to fund environmental projects…not only renewable energy projects such as wind farms and hydroelectric plants, but also in energy efficiency projects such as remote (smart) metering and the construction of integrated district heating networks powered by low-emission biomass plants.”  

GOOG: GoogleCar Has No Steering Wheel, No Brakes

BrandZ top brands 2014The Digital Finance Revolution And The Future Of Wealth Management

Michael Casey says that China is the fragile epicenter of a digital finance revolution.  First thing to consider is that China is really two economies: there’s the state-owned and controlled economy, which is “kept afloat by cheap loans from state-run banks subsidized by repressed Chinese savers,” and there’s the online, e-commerce economy, represented mostly by Alibaba and Tencent.  “The problem is that regulators can’t control the vibrant new economy and its 500 million independent actors with anywhere near the same hands-on control they apply to the state-run economy.”  Meanwhile, the United States has no idea how big the peer-to-peer economy is: “we are, in sum, looking for answers to several questions: How many people are layering this type of Internet-enabled more nebulous work (e.g. giving a ride on UberX, selling crafts on Etsy or hosting someone on Airbnb) on top of more traditional labor?”  Speaking of Airbnb, the “cyber-cowboy” peer-to-peer pioneer has agreed to share information about its hosts with the NY attorney general (alt), who wants “to pursue anyone who’s running illegal hotels.”  Furthermore, “the marketplace of the Internet — and the lowered barriers of related services like PayPal and Square — has turned these activities into something larger, something potentially more viable for many people.”  Meanwhile, “legions of advisers have broken away from the big Wall Street brokerages (alt) to join an independent firm or create their own…The ranks of independent investment advisers have swelled to 47,000 from 36,000 in 2007…the number of wirehouse advisers (Merrill Lynch, Morgan Stanley, Wells etc.), now at about 48,000, is projected to shrink to 41,000 by 2017.”  Also, the traditional brokerages “have all expanded their Bay Area operations as firms like Facebook have gone public.”  They are chasing the newly minted millionaires in Silicon Valley “who are skeptical that the wealth management industry offers much value.”  Furthermore, young tech entrepreneurs “don’t really believe that a person is going to be watching their money 24/7, but they believe that a computer is.”  Also, articles like this don’t really help.  Meanwhile, Rebecca Lynn said some things about the future of wealth management: “U.S. investors have $13 trillion in mutual funds that are unadvised..if you have a ton of money there is no way after the Madoff scandal you are going to put all that money in one person…FutureAdvisor is disrupting, but at the same time, they will find ways to work with the financial services companies.”  Then she went all Sarah Palin on Tesla: “people ‘Geek Out’ on these really cool technology things, like Tesla.  And I look at that and I think, ‘That’s just not America.’  But I do think being a mom and being a woman helps and forms some of my decisions in terms of products and what’s really going to resonate.”

Brand Value

Boeing really wants to be more like Apple, but maybe they should want to be more like Google?  “Innovation, artificial intelligence and a whole bunch of valuable partnerships helped push Google to the top of the BrandZ Top 100 Most Valuable Global Brand rankings for 2014.  In the process, the backer of the Android mobile OS knocked Apple off the lead spot for the first time in three years…In third, fourth and fifth place respectively were [IBM, Microsoft and McDonald’s].”  Also, the guy who commissioned the survey said “this year’s index marks ‘the end of the recession,’ with brand value recovering across the board and real growth across every category.”  Meanwhile, GM has already recalled more cars this year than it sold all last year.

More On Housing

“The National Association of Realtors said on Thursday existing home sales increased 1.3 percent to an annual rate of 4.65 million units, marking the second increase in sales in nine months.  While that was a bit less than the 4.68-million unit pace that economists had expected, it was a hopeful sign for a sector that stumbled in the second half of 2013…the months’ supply increased to 5.9 months, the highest since August 2012, from 5.1 months in March.  Six months’ supply is normally considered as a healthy balance between supply and demand.”  Meanwhile, Goldman Sachs would like to clear up the debate on the affordability of purchasing a home.  On the one hand, mortgage rates are at record lows, and home values are still below their bubble-era peak.  In fact, “the National Association of Realtors’ housing affordability index shows that housing is still more affordable than anytime between the early 1990s and 2008.”  While this may be true for the median homebuyer, Goldman says the reality is much different, however, for first-time and marginal homebuyers, thanks to two things: their incomes aren’t as strong, and their credit isn’t as good.  Also, don’t even think about mentioning He-who-shall-not-be-named around this guy: “I’m quite confident that a significant, sustained economic recovery will go a long way to ease credit conditions and eventually revert homeownership to the mean and we can stop with the ‘cart before the horse’ orientation.  While homeownership has never been right for everyone, recent calls that it’s not right for anybody is just as flawed.”  Meanwhile, VoxEU thinks it has an explanation for the high-youth savings rate phenomenon in China: “sharing the parental home is a potential mechanism for lowering consumption by the young, thus permitting higher savings rates.  If a young adult desires to save, subsidisation of consumption via shared housing can facilitate savings.  Of course, this begs the question of why the young would want to save.  One reason is the high costs of housing, which would also make shared residence more desirable.”

Global: China And Russia Sign $400bn Gas Deal (Alt)

But did Putin win?

A tale of two recoveries UK vs USA wagesChina: Slowdown Stimulus Expected

“China’s factories continued their dramatic slowdown in March, with manufacturing activity falling to an eight-month low amid a slump in the world’s second largest economy.”  Many seem to be expecting at least some stimulus from the Chinese government, for example: “some analysts expect the People’s Bank of China to cut banks’ reserve requirements, freeing up funds that can be used for lending.”  Or, perhaps “the government is considering a repeat of last summer, when it used a combination of faster infrastructure investment and a gentle loosening of monetary policy to reverse slowing growth.”  Furthermore, “a cheaper currency — or at least slower appreciation — could offer some relief for low-end Chinese exporters who have been struggling with cheaper competition from Vietnam and Indonesia.”  Meanwhile, you may want to consider this next time you read an article on China’s slowdown from Bloomberg News: “[Bloomberg’s] business model is different from that of other media companies.  The content of its news is not its main selling point.  Its financial data and analytics are…And China as a market is different from Wall Street because essentially one customer, the government, controls access…Bloomberg’s model creates powerful incentives to sacrifice the news to business interests.”

Eurozone: Detaching From Emerging Markets, Creating Their Own Emerging Markets

“Yield-hungry investors are flocking back to Greece and Portuguese markets, shunned by international buyers for four years, as the outlook for the bailed-out countries improves and alternatives look more expensive or increasingly risky…While the small size of the Greek and Portuguese markets discourage some investors, it also means that a relatively modest inflow of money into those countries has a large price impact…’It’s not so much an interest-rate driven rally but much more a structural shift and a perception that the euro crisis is behind us.’”  Maybe it’s both?  “Eurozone governments are taking advantage of unexpectedly low borrowing costs to push ahead with debt issuance…debt agencies have raised 29 percent of their estimated 2014 funding goals…more than in any year since 2010…Governments are also issuing more longer term debt…’Europe has become completely detached from emerging markets — they are almost havens.’”  Speaking of which, “Emerging Europe” is becoming the new hunting ground for bad loan investors as Central and Eastern European banks clean up their balance sheets, “creating new opportunities for bad loan investors that are seeing returns dwindle in recovering Eurozone economies.”  “Non-performing loans (NPL) in Romania officially make up about 22 percent of total loans…In Hungary, bad loans are running at 18 percent of all household debt, while in Latvia they are at almost 10 percent…buyers [are] typically hedge funds or private equity firms seeking an annual rate of return of 15 to 25 percent.  That implies getting the loans at a substantial discount, since loans normally return less than 10 percent.”  Quote of the year: “The perennial problem is that views of the buyer and the seller about the price are always very different.”  Meanwhile, the ECB will be just fine without your forward guidance, thank you very much.  Also, the Financial Times has been hating on the imperfect banking union recently; here’s why: the process for bailing out a troubled bank involves “multiple panels and more than 100 decision makers,” the €55bn resolution fund is way too small and will take 8 years to build, and the use of “bail-in” (creditors are first to bear the cost of a bailout).

USA: Workaholic Ex-Bankers Impose Long-Hours Culture On New Colleagues

Says one banker “who moved with his wife and children to Arizona for a better work-life balance: ‘I have made a comfortable life for myself here…There is hardly a day when I have to be in the office later than 11pm.’”

Global: Too Cheap To Replace

Here’s an interesting take on the divergence between UK and US “Wages as a Share of National Income” since the recession began.  “Because low real wages mean that British workers are cheap, firms feel less pressure to economise on them.  They do more hiring (or less sacking) and less automation…because low real wages encourage less substitution of capital for labour, a higher share of income flows to labour, to workers with a high propensity to spend.”

USA: Apple And Google’s Wage-Fixing Cartel

USA: The Internet Is Turning 25

USA: How Much Stimulus Spending Did Your District Receive?