another site
.
“That we have dreamed of this event, that everybody without exception has dreamt of it, because everybody must dream of the destruction of any power hegemonic to that degree, — this is unacceptable for Western moral conscience, but it is still a fact, and one which is justly measured by the pathetic violence of all those discourses which attempt to erase it.
In the end, they did it, but we wanted it.”
–Jean Baudrillard, The Spirit of Terror
via Zero Hedge http://ift.tt/1u5IrvV williambanzai7
Submitted by Lance Roberts of STA Wealth Management,
The Missing Ingredient
I have been in the “money game” for a long time starting with a bank just prior to the crash of 1987. I make this point only to say that I have seen several full market cycles in my life, and my perspectives are based on experience rather than theory.
In 1999, there was a media personality who berated investors for paying fees to investment advisors/stock brokers when it was clear that ETF’s were the only way to go. His mantra was “why pay someone to underperform the indexes?” After the subsequent crash, he was no longer on the air.
By the time the markets began to soar in 2007, there was a whole universe of ETF’s from which to choose. Once again, the mainstream media pounced on indexing and that “buy and hold” strategies were the only logical way for individuals to invest. Why pay someone to underperform the indexes when they are rising. Then came the crash in 2008.
Today, we are once again becoming inundated with articles bashing financial advisors, money managers, etc. for underperforming the major indexes during the Fed induced market surge. It is once again becoming “apparent” that individuals should only be using low-cost indexing strategies and holding for the “long term.” Of course, the next crash hasn’t happened yet.
My point here is this. There is a “cost” to chasing “low costs.” I do not disagree that costs are an important component of long-term returns; however there are two missing ingredients to all of these articles promoting “buy and hold” index investing: 1) time; and, 2) psychology.This w
As I have discussed previously, the most important commodity to all investors is “time.” It is the one thing we can not manufacture more of. Individuals that experienced either one, or both, of the last two bear markets now understand the importance of “time” relating to their investment goals. Individuals that were close to retirement in either 2000, or 2007, and failed to navigate the subsequent market drawdowns have had to post-pone their retirement plans, potentially indefinitely. While the media cheers the rise of the markets to new all-time highs, the reality is that most investors have still not financially recovered due to the second point of “psychology.”
Despite the logic of mainstream arguments that “buy and hold” investing will work, given a long enough time frame, the reality is that investors generally don’t invest “logically.” Almost all investors are driven by “psychology” in their decision-making which results in the age-old pattern of “buying high” and “selling low.” This is shown in the 2013 Dalbar Investor Study, which stated “psychological factors” accounted for between 45-55% of underperformance. From the study:
“Analysis of investor fund flows compared to market performance further supports the argument that investors are unsuccessful at timing the market. Market upswings rarely coincide with mutual fund inflows while market downturns do not coincide with mutual fund outflows.”
What the mainstream media misses, because the majority have never actually managed money, with respect to the “buy and hold, low-cost indexing” theory is that individuals can not, and do not, invest that way. If you are paying an investment advisor to index your portfolio with a “buy and hold” strategy, then “yes” you should absolutely opt for buying a portfolio of low-cost ETF’s and improve your performance by the delta of the fees.
However, the real goal of any investment advisor should not be to “beat the index” on the way up, but to protect capital on the “way down.” It is capital destruction that leads to poor investment decision making, emotionally based financial mistakes and destruction of financial goals. It is also what advisors should be hired for, evaluated on, and ultimately paid for as their real job should be to remove the emotional biases from your portfolio management.
Biggest Support Of Bull Run Is Fading
No, I am not talking about the inflow of liquidity from the Federal Reserve’s ongoing QE program, although it too has been a major source of support for asset prices, but rather the decline in corporate share buybacks.
According to a recent Financial Times article:
“The boom in buybacks also owes much to the Federal Reserve’s suppression of long-term interest rates via quantitative easing and stagnant growth in Europe, an important foreign market for many S&P 500 global companies.
Record low interest rates in the corporate bond market have helped fund large buybacks, but with the central bank on course to conclude buying bonds under QE in October, fuel for buybacks is ebbing and non-financial debt issuance has slowed.
Andrew Lapthorne at Société Générale says companies have exploited the generosity of financial markets to fund their share buybacks and as that fades, the equity bull market faces losing a key source of support.”
Share buybacks have grown by $1.56 Trillion since 2011, but those repurchases peaked during the first quarter of this year at 159.28 billion before sliding back to $120.21 billion in Q2. The risk for the markets here is that with the Federal Reserve reducing the flow of cheap liquidity, and potentially raising borrowing costs in 2015, two of the major supports of the markets will be removed.
This will leave the markets depending on the underlying fundamental drivers of the markets which are by no means cheap.
This Won’t Last
Both stocks and bonds can not be right. While stocks have risen to new all-time highs in recent days, bond yields have fallen toward the lows of the year. As shown in the chart below, there has historically been a correlation between interest rates and the financial market from a risk on/risk off indication.
It makes some sense given that when the markets have a preference for risk, asset allocations are shifted from bonds to equities and vice versa. As the demand for bonds falls, and the demand for stocks rise, yields rise. However, the current decline in yields, amidst a very low volume ramp-up in stock prices, suggests that the demand for safety is outweighing the demand for risk.
If historical correlations reassert themselves, the deviation between stock prices and bond yields will be corrected and likely not to the favor of the bulls.
Art Cashin summed this concern up well noting that this week is historically a very light trading week with a mild-upward bias. He also noted that the 1929 high was made the day after Labor Day.
“Thin markets can be tricky..stay wary, alert and very, very nimble.”
via Zero Hedge http://ift.tt/1n4ka5o Tyler Durden
Obamacare may be over as a
campaign issue—or
so declareth its hopeful supporters—but it’s still very much a
cold sweat-inducer among business owners who have to shoulder its
costs and abide by its requirements. As part of its latest monthly
survey of service sector businesses, the Federal Reserve Bank of
Dallas
included specific questions about the impact of the Affordable
Care Act. The responses from 191 executives were not so encouraging
for those hoping that the health care law won’t be a kick in the
groin to the economy.
Asked, “How would you say the Affordable Care Act (ACA) has
affected your firm’s health care costs…?” 82.1 percent of
respondents estimate increased costs for 2014; 90.9 percent
estimate increased costs for 2015. Only 0.6 percent estimated lower
costs for either year.
Of a subset of retail business executives, 86.7 percent
estimated increased costs for 2014; 92.3 percent said the same of
2015.
But those are just fat-cat executives. Who cares about them?
What does that mean for the working folks benefiting from the
law?
Well…20.8 percent of those fat cats say the number of people
they employ will be lower as a result of the Affordable Care Act
(2.7 percent say it will be higher). And 22.4 percent say
they’ll use a higher proportion of cost-reducing part-time,
contract, or temporary workers (7.1 percent will use fewer). Some
businesses are reducing wages and benefits, too—certainly more than
are increasing them.
Maybe Obamacare isn’t a campaign issue. But in the rest
of the world, it still plays a role.
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Just hours after hours after another video purporting to show the mass execution of up to 250 Syrian soldiers in the desert, The Independent reports ISIS has released a video apparently showing the beheading of a Kurdish man in Iraq as a warning to Kurds fighting the group in the country. The video, entitled “A Message in Blood” ends with the victim beheaded and the fighters warn others will face the same fate should Kurdish leaders choose to continue an alliance with the US.
Image from the latest beheading clip:
While the captives and executors are dressed in similar fashion to those seen in the James Foley execution 10 days ago, it is unclear if the two incidents were carried out by the same people.
The production of the propaganda video also differs – with the beheading shown alongside still images of American and Kurdish officials in an attempt to help convey the executioner’s message.
In the six minute video, which has not been independently verified, the prisoners, who are are seen wearing orange boiler suits similar to those worn by prisoners at Guantanamo Bay, confirm that they had been fighting for the Peshmerga, and had been captured by the jihadist group.
The video includes one earlier shot of the Kurdish soldiers, appearing to still be wearing their Peshmerga uniforms, shortly after they were captured. Speaking in Kurdish, one of the prisoners, Hassan Mohammed Hashin, reads out a carefully pre-prepared statement, lambasting the Kurdish leaders: ‘You have made a huge mistake by joining hands with America.’
* * *
The execution of 250 Syrian soldiers can be found here – very graphic.
via Zero Hedge http://ift.tt/1pqjDjG Tyler Durden
Remember all those allegations that Obamacare would be an unmitigated disaster for businesses, especially smaller companies? Well, now we have some facts. A week ago we noted that the Philly Fed found that Obamacare was a disaster for business, and now no lessor entity than the Congressional Budget Office (CBO) is out with its latest forecasts, concluding “certain aspects of the Affordable Care Act will tend to reduce labor force participation.”
Via Kevin Hall of TownHall.com,
…the CBO does write, though, is that one of the downward pressures on the labor force is Obamacare. As the report finds:
“Over the next few years, CBO expects that the rate of labor force participation will decline about 1/2 percentage point further… the most important of those factors is the ongoing movement of the baby-boom generation into retirement, but federal tax and spending policies will also tend to lower the participation rate. In particular, certain aspects of the Affordable Care Act will tend to reduce labor force participation, with the largest effect stemming from the subsidies that reduce the cost of purchasing health insurance through the exchanges. Because the subsidies decline with rising income (and increase with falling income) and make some people financially better off, they reduce the incentive for some people to work as much as they would without the subsidies.”
We won’t rehash the debate here over whether or not it’s a good thing for the welfare state to provide so much that people will choose not to work – but it’s pretty undeniable at this point that ACA is disincentivizing work for Americans in an era where we’re wondering if the decline in labor force participation is the new normal.
* * *
While we already noted that ‘work is punished’ in America, it appears now that with Obamacare, non-work is actually incentivized.
via Zero Hedge http://ift.tt/1vu7Pze Tyler Durden
Many commentators consider what the Fed has done to be akin to providing stimulus, morphine, juice to an ailing economy.
We believe Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.
Today we’re going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).
In the case of the Fed’s actions we will see a similar “death” of Democratic Capitalism and the subsequent death of the capital markets.
We are, of course, talking in metaphors here: the world will not end, and commerce and business will continue, but the form of capital markets and Capitalism we are experiencing today will cease to exist as the Fed’s policies result in the market and economy eventually collapsing in such a fashion that what follows will bear little resemblance to that which we are experiencing now.
The focus of this “death” will not be stocks, but bonds, particularly sovereign bonds: the asset class against which all monetary policy and investment theory has been based for the last 80+ years.
Indeed, basic financial theory has proposed that sovereign bonds are essentially the only true “risk-free” investment in the world. While history shows this theory to be false (sovereign defaults have occurred throughout the 20th century) this has been the basic tenant for all investment models and indeed the financial system at large going back for 80 some odd years.
The reason for this is that the Treasury (US sovereign bond) market is the basis of the entire monetary system in the US and the Global financial system in general. Indeed, US Treasuries are the senior most assets on the Primary Dealers’ (world’s largest banks) balance sheets. To understand why this is as well as why the Fed’s policies will ultimately destroy this system, you first need to understand the Primary Dealer system that is the basis for the US banking system at large.
If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.
The Primary Dealers are:
You’re bound to recognize these names by the mere fact that they are the exact banks that the Fed focused on “saving” thereby removing their “risk of failure” during the Financial Crisis.
These banks are also the largest beneficiaries of the Fed’s largest monetary policies: QE 1, QE lite, QE 2, etc. Indeed, we now know that QE 2 was in fact was meant to benefit those Primary Dealers in Europe, not the US housing market. The same goes for QE 3 and QE 4.
The Primary Dealers are the firms that buy US Treasuries during debt auctions. Once the Treasury debt is acquired by the Primary Dealer, it’s parked on their balance sheet as an asset. The Primary Dealer can then leverage up that asset and also fractionally lend on it, i.e. create more debt and issue more loans, mortgages, corporate bonds, or what have you.
Put another way, Treasuries are not only the primary asset on the large banks’ balance sheets, they are in fact the asset against which these banks lend/ extend additional debt into the monetary system, thereby controlling the amount of money in circulation in the economy.
When the Financial Crisis hit in 2007-2008, the Fed responded in several ways, but the most important for the point of today’s discussion is the Fed removing the “risk of failure” for the Primary Dealers by spreading these firms’ toxic debts onto the public’s balance sheet and funneling trillions of dollars into them via various lending windows.
In simple terms, the Fed took what was killing the Primary Dealers (toxic debts) and then spread it onto the US’s balance sheet (which was already sickly due to our excessive debt levels). This again ties in with my “cancer” metaphor, much as cancer spreads by infecting healthy cells.
When the Fed did this it did not save capitalism or the Capital Markets. What it did was allow the “cancer” of excessive leverage, toxic debts, and moral hazard to spread to the very basis of the US, indeed the entire world’s, financial system: the US balance sheet/ Sovereign Bond market.
These actions have already resulted in the US losing its AAA credit rating. But that is just the beginning. Indeed, few if any understand the real risk of what the Fed has done.
The reality is that the Fed has done the following:
1) Set itself up for a collapse: at $4.4 trillion, the Fed’s balance sheet is now larger that the economies of Brazil, the UK, or France. And with capital of only $63 billion, the Fed is leveraged at over 69 to 1 (Lehman was at 30 to 1 when it failed).
2) Called the risk profile of US sovereign debt into question: foreign investors, now fully aware that the US’s balance sheet is suspect (the US has lost its AAA credit rating), are dumping Treasuries (see China and Russia).
3) Put the entire Financial System (not just the private banks) at risk.
The Financial System requires trust to operate. Having changed the risk profile of US sovereign debt, the Fed has undermined the very basis of the US banking system (remember Treasuries are the senior most asset against which all banks lend).
Moreover, the Fed has undermined investor confidence in the capital markets as most now perceive the markets to be a “rigged game” in which certain participants, namely the large banks, are favored, while the rest of us (including even smaller banks) are still subject to the basic tenants of Democratic Capitalism: risk of failure.
This has resulted in retail investors fleeing the markets while institutional investors and those forced to participate in the markets for professional reasons now invest based on either the hope of more intervention from the Fed or simply front-running those Fed policies that have already been announced.
Put another way, the financial system and capital markets are no longer a healthy, thriving system of Democratic Capitalism in which a multitude of participants pursue different strategies. Instead they are an environment fraught with risk in which there is essentially “one trade,” and that trade is based on cancerous policies and beliefs that undermine the very basis of Democratic Capitalism, which in the end, is the foundation of the capital markets.
In simple terms, by damaging trust and permitting Wall Street to dump its toxic debts on the public’s balance sheet, the Fed has taken the Financial System from a status of extremely unhealthy to terminal.
The end result will be a Crisis that makes 2008 look like a joke. It will be a Crisis in which the US Treasury market and sovereign bonds in general implode, taking down much of the US banking system with it (remember, Treasuries are the senior most assets on US bank balance sheets).
We cannot say when this will happen. But it will happen. It might be next week, next month, or several years from now. But we’ve crossed the point of no return. The Treasury market is almost entirely dependent on the Fed to continue to function. That alone should make it clear that we are heading for a period of systemic risk that is far greater than anything we’ve seen in 80+ years (including 2008).
The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine.
That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.a
This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.
This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.
Best Regards
Phoenix Capital Research
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Carl DeMaio, a libertarian
Republican
running to represent San Diego in Congress, is offering up a
campaign proposal to use the strings the feds attach to funding to
protect ride-sharing services like Lyft and Uber from abusive
regulations on the state level. His latest move comes hot on the
heels of San Diego’s Democratic state Assembly Rep. Ben Hueso
getting snagged with a DUI just hours after voting for more
restrictions for ridesharing services in the state.
Without referencing Hueso—whose brothers own a taxi
company—directly, DeMaio still manages to stick a thumb in his eye
when he says, “My proposal would prevent unfair monopolies by big
cab companies with undue political influence and would ensure fair
and open competition while giving individual consumer’s freedom to
decide which transportation service is best for them.”
His proposed legislation would have three components:
Not sure how to feel about the anti-federalist angle. As awful
as California is, should we really be looking to the federal
government to save voters when they fail to hold state legislators
accountable for the terrible decisions they make?
He is also angling his campaign clearly with millennials in
mind, pointing out how popular the services are with the under-40
crowd. Read more
here.
(Full disclosure: DeMaio is an independent contractor for the
Reason Foundation research division’s pension reform project.)
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A
decision by the California Public Employees’ Retirement System to
engage this week in a pension-spiking
extravaganza is infuriatingly brazen writes Steven
Greenhut. It undermines the governor’s pension-reform law. This
situation — finding creative ways to increase pay as a means to gin
up the salary upon which one’s pension is calculated — is the
classic definition of “pension spiking.” Gov. Jerry Brown had
railed against the practice when he signed the Public Employees’
Pension Reform Act. We’ll soon get to see if he is serious about
defending his own pension law. Sadly, the odds that Brown will
quash the CalPERS pension-spiking bonanza probably are similar to
the odds that newspapers start giving out deadline pay.
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In August, parking won’t be getting any easier in Boston as the
city council pre-emptively bans
parking spot reservation apps like Haystack. And one New York
state senator makes it his mission to finally push through
a 14-year-old bill to “ensure families know the dangers
associated with old sunscreen.” But there can only be one Nanny of
the Month, and this August it goes to another nanny draining the
summer fun out of the beach: The New York City parks department,
which has banned
boogie boards.
Click the link below for downloadable versions and the full text
and associated links.
Approximately 2 minutes.
Nanny of the Month was created by Ted Balaker and is produced by
Balaker and Matt Edwards. Edited by Edwards. Written by Zach
Weissmueller. Opening graphics by Meredith Bragg.
To watch previous episodes, go here.
Subscribe to Reason TV’s
YouTube channel for daily content like this.
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It’s back to school season and with increasing
concern about sexual crimes on university campuses, there’s a
lot of buzz around a new smartphone application that’s being rolled
at
about 100 schools and allows police (and others) to monitor
students’ movement in real-time and access a lot of personal
information.
It’s called the Rave Guardian Campus Safety App, from Rave
Mobile Safety. Enrollment is voluntary. The company explains its
product:
Students can identify friends, roommates, and family as
‘Guardians’ along with Campus Safety. Students can set a Rave
Guardian Timer. During a Timer session Guardians and Campus Safety
can check status of student. If the Rave Guardian timer is not
deactivated before it expires, campus safety is automatically
provided with the user’s Rave Guardian profile to proactively
identify and check-in on the individual.Whenever students, faculty, or staff connect with campus safety
from their mobile phone, the Rave Guardian Campus Safety App
automatically delivers a complete caller profile – including
current location, medical conditions, course schedule, addresses,
campus ID photo and other critical data.
Put more
bluntly, “If you’re not where you want to be at the expected
time, campus police will show up,” says Col. Emil Fioravanti, the
campus director of public safety at University of Massachusetts
Dartmouth, which is one of the schools that is adopting the
technology.
Todd Piett, chief product officer of Rave,
tells The Boston Globe, “There’s a growing realization
that safety is a community effort. It’s no longer just about police
keeping people safe; it’s about having a network of people you can
trust helping to keep you safe.”
But, to be sure, cops do like it. Some testimonials
from Rave’s website:
“It’s like blanketing our entire campus and the whole DC area
with a virtual campus blue light phone. Brilliant!” – Michael
McNair, Chief of Police, American University“Rave Guardian was actively embraced, campus police are big fans
of it. What we really like about Rave Guardian is that it works on
any cell phone and is a really easy system to use.” – Brian Payst,
Director of Information Technology, University of North Carolina
Chapel Hill
Tools to help individuals nip
crime in the bud are exciting; there’s a lot of potential good
to come from this app. At the same time, we do not know what
potential negative, unintended consequences can emerge. There’s
good reason to be wary of surveillance tools that enable police, or
anyone, access to one’s movement and a slew of other sensitive
data.
Police are quick to embrace new methods of monitoring, from
surveillance drones to access to private security cameras to
license plate readers. These have
a lot of
potential for
abuse for crimes like stalking committed by officers,
though. And American Civil Liberties Union has warned about the
need for individual citizens to consider how much surveillance
power cops ought to have so that we may still “enjoy the benefits
of this new technology without bringing us closer to a
‘surveillance society’ in which our every move is monitored,
tracked, recorded, and scrutinized by the government.”
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