Federal Reserve Dots, Tantrums And Headfakes
“The Federal Reserve played down forecasts by some of its own policy makers that interest rates might rise faster than they previously predicted…Some [Fed officials] expressed concern the rate forecasts ‘could be misconstrued as indicating a move by the committee to a less accommodative reaction function.’” Meanwhile, after examining broad asset class ETFs and how they performed on the day(s) after a market surprising FOMC conference (i.e. 6/19/2013: “Taper Tantrum”, 9/18/2013: “Taper Headfake”, and 3/19/2014: “Yellen First Conference”), “there really seems to be a ‘Fed risk factor’ on which some investments load…what is particularly interesting, however, is that it is not the long-term bond funds that bear the most risk. It is the intermediate-term bonds…this might be because the Fed likes to buy in the intermediate part of the curve…what is remarkable is how strongly correlated the reactions are among the investments on the three dates. In other words, the same investments that react the strongest to one event also reach the strongest to the other two.” Jamie Dimon, for one, ain’t worried: “Dimon says the end of quantitative easing is a good thing and will most likely be uneventful…Dimon does think interest rates will rise, perhaps to 5% on the 10-year Treasury bond, which is double where it is today. But he says that it is unlikely to slow the economy. Companies already have a lot of cash. And a stronger economy means they only will be generating more of it. So he doesn’t think the higher borrowing costs will affect them much.”
Global Value And The Eurozone Recovery
It’s important to keep one thing in mind as you read this: the author is here to sell you on his Global Value ETF. That being said, he makes some really good points about global value and investing in general: “The challenge is that most investors want to think in binary terms: Either I’m bullish and I’m buying, or I’m bearish and I’m selling. But the reality is that there’s a full spectrum of probabilities…If you look at the rest of the world, the bad news is the U.S. is expensive. The good news is the rest of the world is really cheap…Anything under a year is not going to give the deep value stocks [enough time] to rebound…the best returns can come from when things are horrific, and go from ‘horrific’ to ‘not as bad,’ to merely just ‘bad.’…recognize you likely have a home-country bias. In the U.S., that means around 70 percent of your portfolio is likely in domestic equities. Then, realize that breaking that market-cap link is the best thing you can do. Investors should have a lot more money in foreign stocks, and we think it should be in value stocks.” Meanwhile, looks like European companies also have a “too much cash but not sure what to do with it” type of situation on their hands: “European companies have pushed cash balances to 2 trillion euros ($2.8 trillion), close to the most since at least 2003…’There is money, but companies don’t want to invest in big capex programs,’…an increase in mergers and acquisitions may signal that companies will move away from using cash to boost share buybacks and dividends to instead start growing their businesses…’We’re trying to shift focus from dividend-paying companies into M&A kind of companies.”
Silicon Valley: When Those Who Stood Up To “The Man” Turn Into “The Man”
Rob Cox is warning against “coattails equity”: “it offers little beyond a chance to tag along with entrepreneurs from Wall Street, Silicon Valley and China.” Thanks to recent changes in the class structure of shares (see Google, Facebook, and the upcoming Virtu Financial), investors are required to “give up rights that have traditionally accompanied the ownership of common shares, like a representative voice in corporate decisions…in many cases the businesses concerned are innovative and disruptive. But when it comes to shareholder democracy, they’re retrograde.” Meanwhile, Silicon Valley has a trust problem: “There is a level of suspicion and confusion that we haven’t had before…And it’s made worse by the increasing politicization of Silicon Valley, and the transformation of its leaders from rebels into what Joel Kotkin calls ‘the new oligarchs,’ people who once talked about technology as liberation, but who now seem more interested in using technology as an instrument of control.” Also, here’s why Heartbleed, the latest cybersecurity scare, matters. And here are 5 things to do about it.
Viva La Revolucion Shale
“The North American energy revolution and rapid industrialisation in Asia have effectively reversed the flow of energy round the globe. For most of the 20th century, the primary flow was from East to West. Now the main flow is from West to East. The shale revolution has also shifted the marginal source of supply from the Middle East, Africa and Latin America, where investment and production are tightly controlled by governments, to Texas, Oklahoma, North Dakota and other states, where production is driven by the private sector. Not since the mid-1980s, when new oil fields came onstream in the North Sea, Alaska and the Soviet Union, have world oil supplies been so diversified.” Not sure that OPEC would use “diversified” to describe the situation, but OK. “New shale developments seem likely to emerge in China, Ukraine, South Africa, the United Kingdom, Argentina and other countries by the end of the decade, provided oil prices remain above $100 per barrel.” Meanwhile, new research suggests that “China’s excessive growth adds a premium to the price of oil which increases over time,” which makes for just one more reason why we should be cheering for a slowdown in China’s economy.
USA: A Closer Look At Labor Force Participation Rate Since 2007