oliver twistEat Up

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



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


WM: Consensus Expectations

Also, Why International Diversification Matters.


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


What: Socialist Muslim Slash Deflationary Force


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”

retail sales vs consumer confidence China Mar2015Retail sales vs consumer confidence USA Mar2015

Reinvesting The Dividend

Franklin Templeton analysts say “consumers have spent only about 25% of the drop in energy prices and the rest has gone into savings and paying down debt.”  They offer two reasons for why cheaper fuel hasn’t spurred consumer spending: 1) “people think the cheap gas is temporary,” and 2) “an usually cold and snowy” blah blah blah.  Meanwhile, “US drivers consumed the most petrol for the month of January in seven years…totalled 8.7m barrels a day in January, up 6.2 per cent from the same month a year earlier…about 9.5 per cent of estimated world liquid fuels consumption for the month…US traffic volumes had grown 4.9 per cent on the year in January to 237.3bn vehicle miles.”  Meanwhile, Toyota’s North America CEO says “March auto sales are strong as buyers continue to favor light trucks over cars…sales volume is almost 55 percent truck and SUV…In February, industry car sales fell 1.4 percent as light truck sales were up 12 percent.  Larger SUVs had an especially strong month.”


“China’s Stock Market Sure Looks Like A Bubble”

People are pretty worried about Chinese equities: “Now they’re nowhere near their 2007 highs — in fact, they’re barely halfway there — but Chinese stocks are still looking plenty frothy right now…[They’ve] been the world’s best performing asset class the last nine months, up almost 80 percent.  And that’s despite the fact that China’s growth has slowed to a 20-year low and its industrial profits just fell 8 percent.  Why are stocks up so much if the economy isn’t?”  (Why why why)  Meanwhile, one analyst says that “consumer confidence has surged to its highest level in recent years, a highly unusual development considering the weak growth environment,” which is a pretty good point to be making about Developed Markets–oh, nevermind.  To be fair, this should raise a brow or two: “the securities companies that have facilitated the stock market boom are capitalizing on their own ballooning share prices by issuing huge amounts of new stock, raising billions in the process…Increasingly, [Chinese investors] are turning to margin financing, or borrowing funds from brokerage firms to buy stocks — raising the risk of even steeper losses for ordinary investors if the boom turns out to bust.”  Meanwhile, Reuters is picking up on rumors about Chinese deposit insurance to arrive in May.


IBM: Will Invest $3Bn Over 4 Years Towards “Internet Of Things” Division


USA: Housing Share Of GDP Holds Constant

A Stunning Number Of People Find Work Without Even Looking For It

shadow gymnastics

You Gotta Fight For Your Right To Parity

“Over the last eight months the USD has appreciated faster on a trade-weighted basis than at any time in the last 40 years and probably over a [longer] duration…We have now matched about 2/3rds of the 1995-2002 USD rally but it took three years to get to that point in the previous rally…and now it has taken eight months.”  That being said, there are some reasons to think that maybe EURUSD parity is still a ways off: 1) “We may have moved close to the levels that some ECB Governing Council members had in mind (but could not speak publicly about), in terms of implicit Euro targets, when QE was initiated,” 2) “Our narrative around the Euro (with a focus on fixed income outflows) is starting to become very consensus,” and 3) Fed = dove.  Speaking of euro targets, Nomura has hit theirs: “The bank, which was short the euro against the dollar, is closing the trade after making a profit of 5.9% as the euro kept falling.”  Also, here’s something to consider: “At first flush, this all seems odd in the context of climbing stocks.  So far this year, the Stoxx 600 European equity index is up by about 17%…Some analysts explain this away with hedging.  ‘When euro-denominated assets rise, more euro selling is required to compensate for the higher share of euro assets in the portfolio, which in turn will drive more euro weakness’…The obvious question is when that might snap.”  Meanwhile, “US yields are torn between the gravitational pull of near zero (plus or minus) European and Japanese yields and the prospect of Fed rate hikes.”  Mohamed El-Erian expects “another round of ‘linguistic gymnastics’” from the Fed this week (press conference on Wednesday y’all), although he’d be pretty satisfied with a tumble removing the word “patient” from the statement.  Meanwhile, Can Asia Survive (Insert Thing Here)? is being used for the dollar story.


EU: Gazprom

“In the past year, Gazprom has begun a more drastic reassessment of its relations with Europe: in May it signed a $400bn contract to deliver gas to China and turned its focus to building new Asian markets for its gas…Nonetheless, Gazprom remains highly dependent on Europe, which accounts for more than 60 per cent of its revenues from gas sales.”


China: Stiffer Bank-Technology Rules Loom In China

“As China seeks to wean itself off foreign technologies, global tech companies are weighing a number of limited options: hand over proprietary information in return for market access, form joint ventures with Chinese firms, create products or services only for the Chinese market that meet Beijing’s requirements, or leave.”


WM: The Essence Of Smart Beta ETFs: “Once A Quarter, We Press A Button”

I wonder if their investors would say the same thing…


EU: Apparently Tom Is Done With Jerry


USA: Micro Apartments And The “Growing Population Of Singles”


Global: VoxEU Researchers Say Consumer Spending/Psychology At The Core Of The Business Cycle


ICYMI: Putin Was Missing For About 10 Days, Now He’s Back, Zero Hedge Is Totally Fine With It

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

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”

prayer hands

Praying That The Oil Dividend Will Kickstart The Virtuous Cycle

As always, Dr. Ed Yardeni nails the current macro environment: “There has been quite a bit of skepticism about the likelihood that ultra-easy monetary policies in Japan and now the Eurozone will do much to lift their economies…The question is whether the devaluations of the yen and the euro will boost exports in Japan and the Eurozone.  Maybe so, but their gain could be some other economies’ loss.  In particular, US exporters could suffer if the greenback continues to strengthen.  However, that could be offset by stronger US consumer spending and home building.”  Observe: “The dollar’s surge is reducing earnings at American companies from Procter & Gamble Co. to Pfizer Inc. and DuPont Co. that make a large portion of their revenue abroad…While 76 percent of [the S&P 500] companies have beaten analysts’ estimates so far this earnings season…the dollar’s advance is making American goods and services more expensive overseas, eroding sales.”  Meanwhile, “consumer confidence jumped to 102.9 (alt) in January from a revised 93.1 in December, first reported as 92.6.  The index is at its highest since August 2007, the report said.  Economists surveyed by The Wall Street Journal had forecast the latest index to rise to a more modest reading of 95.1.”  Also, new home sales made big gains in December: “rose 11.6% to an annualized pace of 481,000…Expectations were for new home sales to rise 2.7% in December.”  But here’s what nobody was expecting this morning: durable goods “declined a seasonally adjusted 3.4% (alt) in December from a month earlier…That marked the second consecutive monthly drop.  Excluding the volatile transportation sector, orders dropped 0.8%.  Economists surveyed by The Wall Street Journal had expected overall orders to rise 0.3% last month.”  Keep in mind that “broader trends show a modest pickup in demand for durable goods.  Orders rose 6.2% in 2014 compared with 2013.”  Meanwhile, “BP will freeze salaries (alt) across the company this year in the latest move to cut costs by an oil major to address the impact of the plunge in oil prices in recent months.”  Which really highlights the other (unspoken) major question on everyone’s mind: Are lower oil prices really, truly better for the global economy?  Maybe that’s the reason why Yardeni says “On balance, the plunge in oil prices should be stimulative for the global economy.”  Here’s another way to look at it: “Main Street and Wall Street are looking at the world in much different ways…Consumers are likely feeling better about the future since gas prices have collapsed.  On the Street, the savings are called the ‘oil dividend’ and many investors are waiting to see how investors may spend the money.”  Meanwhile, the 10-year is at (drumroll please) 1.764%.


USA: Remember: Budget Surplus = Less Treasury Issuance

“It isn’t hard to imagine a scenario where the federal government ends up with a budget surplus thanks to a combination of a stronger economy, higher remittances from the Fed, and a shrinking primary deficit.  Amusingly enough for the politically-inclined among you, these cyclical forces will probably all culminate around the time of the 2016 elections.”  Meanwhile, the Koch brothers are preparing to spend nearly $1 billion to get a Republican in the White House.


USA: Technology And Finance: Drivers Of A Profit Margin Explosion

“It goes without saying that finance and technology, which together represent over 42% of current U.S. corporate earnings, are two sectors that we should keep a close eye on going forward.  Changes within them have driven the profit margin expansion of the last several years, which itself has driven the bull market, having made possible a ‘goldilocks’ scenario in which earnings have been able to grow robustly despite slow top-line growth and almost non-existent inflation.”


USA: The Shrinking American Middle Class


USA: The Rise Of Fast-Casual Restaurants

“As Starbucks did for coffee, Chipotle and Shake Shack have changed people’s expectations of what fast food can be.  The challenge for the old chains is that new expectations spread.”


What: “It’s Unclear How Much Impact Weather Has On IPOs”

People are REALLY trying to use the snowstorm icepocalypse in the East as a scapegoat for other things right now.  Go ahead and ignore it.

bond yields mystery 2014Draghi Basically Can’t Not Surprise Markets At This Point

“A slowdown in the recovery of eurozone manufacturers (alt) was confirmed on Monday, with a closely watched poll of purchasing managers falling to its lowest level in six months in May…’Taken together, the PMI surveys [for manufacturing and services activity] are pointing to a second-quarter GDP increase of about 0.5 per cent’…The reading for [Germany] fell to a seven-month low of 52.3.”  Meanwhile, German inflation data released this morning was disappointing: “data from six states showed annual inflation rates ranging from 0.6 percent to 1.1 percent…Euro zone inflation stood at 0.7 percent in April – well below the ECB target of close to but just below 2 percent.”  So yes, the market is going to be pretty fixated this week on the ECB announcement, “and expectations are high when it comes to action from President Mario Draghi…with the euro near a three-month low against the dollar – a much more comfortable level for the ECB after the single currency fell more than two percent over the last month – the risk is that Draghi falls short of expectations.”  Which seems really likely since expectations range from “bond-buying bazookas” to “no-drama anti-heroism.”  Meanwhile, as interest rates and inflation have stayed low over the past year, and the dollar has weakened against the euro, there seems to be a competition brewing between the European Central Bank and the Federal Reserve (alt) “to weaken currencies and stimulate economies.”  Furthermore, “the ECB would prefer to go no further.  In its best-case scenario, a pick-up in eurozone growth will eventually push inflation higher — helped by a strong dollar and a correspondingly weaker euro.  If that does not happen, the ECB may well find itself, reluctantly, in a currency war with the Fed.”  Also, currency wars appear to be a zero sum game, just look at the euro relative to the yen: “with domestic demand running at subdued levels in both Japan and the euro zone, both Japanese and European policymakers have attempted to grow their economies by…trying to sell more abroad than they import…Japan’s search for inflation probably helped to spread deflationary pressures elsewhere (Europe).”  Meanwhile, new research suggests the Eurozone is overbanked: “the European banking system has reached a size where its marginal contribution to real economic growth is likely to be nil or negative…the academics wrote that Europe’s banking sector was associated with imbalances such as over-investment in housing and diversion of talent from non-financial sectors.  An increasing bias in Europe’s financing structure over the last 15 years towards banking and away from securities markets had bucked the global trend.”

Tea Leaves: Consider Yourself Read

The Wall Street Journal has a pretty good “case-closed” feeling article explaining the drop in bond yields over the last two weeks (alt).  “This isn’t about the economy,” seems to be the consensus opinion; here’s what’s happening behind the scenes in bonds: 1) rising demand from pension funds and insurance companies, 2) weak supply of longer-term bonds, 3) low interest rates in Europe and Japan, 4) short-covering, and 5) rebalancing to bonds after a big year in stocks.  Meanwhile, “after unprecedented stimulus by the Fed and other central banks made many traditional models useless, investors and analysts alike are having to reshape their understanding of cheap and expensive as the global market for bonds balloons to $100 trillion…’As far as predicting direction up and down, I don’t think they have much value,’ [says one money manager] referring to bond-market models used by forecasters.”  Meanwhile, against all odds, “almost all [Goldman Sachs] clients have the same outlook: 3% economic growth, rising earnings, rising bond yields, and a rising equity market.”  Also, you shouldn’t worry (Level 8).

USA: A Guide To Obama’s New Rules To Cut Carbon Emissions From Power Plants

“On Monday, the Obama administration announced its biggest policy yet to address global warming — a proposed rule to cut carbon-dioxide emissions from the nation’s power plants as much as 30 percent below 2005 levels by 2030…Electric utilities in each state will be given a variety of options for cutting their emissions — using more efficient technology, boosting their use of solar or wind or nuclear power, or even joining regional cap-and-trade systems that require companies to pay to emit carbon-dioxide.  There’s a lot at stake here.  Coal and natural gas plants were responsible for about 38 percent of all US carbon-dioxide emissions in 2012.”

USA: Housing On The Mend, Ever So Gradually (Alt)

“Since the financial crisis intensified in 2008, banks have sold more single-family homes than builders have, as they sold homes taken from owners who could not meet their mortgage obligations.  The level of bank sales is declining as the economy recovers.  But in eight major metropolitan areas, they still sell more than 20 percent of homes that change hands.  In only four of the 20 [cities researched] did builders outsell banks.”

USA: Corporations Don’t Like Paying Taxes

USA: Hedge Fund Investors Aren’t As Dumb As They Look

asset allocation 1959-2012bonds vs equities flows since 2006Market Paradoxes, The Great Rotation And Asset Allocation

Fidelity says there are three market paradoxes to ponder: 1) The U.S. economy appears to be recovering and the Fed is tapering off QE, yet 10-year Treasury yields continue to fall, 2) major stock indexes have so far traded sideways, yet beneath the hum-drum headline index numbers there has been violent rotations between sectors and styles, and 3) perceived troubles in China have led investors to developed markets.  Meanwhile, “this year, there’s been a pause in the Great Rotation…bond inflows are ahead of equity inflows year-to-date once again.  As a result, the longer-term move into bonds and out of stocks is still enormous: $1.2 trillion into fixed income funds since 2006 versus a negative $800 billion pulled from stock funds.”  Which is all the more surprising given the “whole bunch of reasons to short bonds.”  Meanwhile, here’s a historical look back at typical asset allocation strategies.

People Move Around Less As Cost Of Housing Rises

Migration within the United States has been declining since the 1970s, and especially during the 2000s.  Picking up and moving to a different state is about half as common now as it was from 1948 to 1971…There is always a tendency with stories like this to assume it has something to do with the people themselves, a change in character: ‘People today are less willing to take risks,’ or something like that…My guess — but let me be clear that I don’t really know — is that it has something to do with employment practices.”  Meanwhile, the Labor Department’s consumer expenditure survey report reveals that for most Americans, housing costs are a major burden on their budgets: “The bottom 20% in terms of income directed 39.6% of their spending to housing…and 16% to food.  For the top 20%, 30.6% of their spending went to housing and 11.4% went to food.  On average, 33.1% of all consumers’ spending went to housing costs while 12.8% went to food.  (Americans paying more than 30% of their overall income on housing ‘are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care,’ according to the Department of Housing and Urban Development.)”


“China’s government plans to take 6 million older, polluting vehicles off the road this year in an effort to revive stalled progress toward cleaning up smog-choked cities.  The plan also calls for filling stations in Beijing, Shanghai and other major cities to switch to selling only the cleanest grades of gasoline and diesel, according to a Cabinet statement issued Monday.”  To help put 6 million vehicles in perspective: “China has about 240 million vehicles on the road, and half are passenger cars.”  Meanwhile, “China’s eastern city of Hangzhou is cracking down on graft in the healthcare sector.”  Supposedly, an internal memo “named Britain’s AstraZeneca Plc, U.S.-based Eli Lilly and Co and Denmark’s Novo Nordisk A/S as examples of drugmakers suspected of making kickbacks.”

USA: U.S. Broadens Hunt For Tax Evaders(Alt)

“The hunt for money hidden in Swiss bank accounts by U.S. citizens has become a global chase, with prosecutors tracing records to Singapore, the Cook Islands and elsewhere as U.S. authorities increase the pressure on Swiss lenders to turn over the evidence.”

EU: Krugman Attacks 2% Inflation Target At ECB Conference

Sounds like It was just absolute mayhem at the ECB conference.

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?