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How To Find Value In An Upside Down World

How To Find Value In An Upside Down World

Tyler Durden

Wed, 09/09/2020 – 11:40

Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,

“When the world turns upside down, the best thing to do is turn right along with it.”   – Mary Poppins

Is Mary’s advice proper when it is your hard-earned wealth at stake?

There is no doubt that investors are living in an upside down world. A speculative frenzy fueled by extreme monetary policy is sending stock markets to all-time highs and bond yields and spreads to record lows. At the same time, a global recession is raging, and social unrest is worsening by the day. We shouldn’t forget a pandemic is still having a significant effect on our lives.

Maybe investors are just an optimistic bunch and able to look beyond the current problems. However, it could be that investors are again falling victim to greed and cannot see the forest for the trees. More bluntly, maybe they cannot see the risks for the hope.

Another consideration is that desperate times call for desperate measures. Despite no visibility into the future, investors are frantic to own anything offering a positive return with little regard for the embedded risk.

In this piece, we quantify the upside down world in which stock investors find themselves in. Does it make sense? Absolutely not, but as we will show, a strong understanding of market dynamics exposes some valuable gems. When the time comes, these stocks will make playing defense productive.

Market Cap Is All That Matters

The major stock indexes sit at record highs despite a large swath of underlying stocks plodding along. The gains are superficial, a mask of sorts, resulting from the outperformance of the largest companies.

The S&P 500 and NASDAQ are market-cap-weighted indexes, meaning the largest companies contribute more to the index than the smallest. To be specific, and as shown below, within the S&P 500, the largest 100 companies account for 72.77% of the index. The smallest 200 only accounts for 6.67%. If those smallest 200 stocks all went to zero tomorrow, the S&P 500 would only decline by 6.67%. 

A closer look reveals that the problem is even more acute. Within the S&P 500 top 100 largest companies, the five biggest by market cap account for 33%. That is a stunning and unhealthy concentration.

Perspective Matters

If we change perspective from index performance to a comprehensive accounting of the index constituents, we get a much different picture. One look at the chart below shows the gains are poorly distributed. The largest 30% of companies are where the gains are found.

If we strip out the five largest companies (AAPL, AMZN, MSFT, GOOG, and GOOGL) from the “highest 30%” grouping, the market-weighted gain falls from 25.56% to 10.23%.

*The S&P 500 return differs from the average, as shown below. This analysis uses current weightings and year to date returns, whereas the index uses daily weightings and returns.

Are the Largest and Best Performing Companies the Cheapest?

An initial glance at the data above may lead one to assume that the biggest companies are the most fundamentally sound. That would certainly explain why they are outperforming. If that is the case, price and financial fundamentals should rightfully be traveling in lockstep.

The graphs below highlight four widely followed measures of equity valuation. Each again contrasts the market cap-weighted and equal-weighted perspectives and the three market cap groupings (bottom 30%, mid 40%, and top 30%). We also separate the five most expensive companies for each valuation metric and the average valuation for each metric.

Contrary to what most would expect in a normal world of markets and valuation, the charts show YTD performance quite the opposite. The more expensive the stock groupings are, on average, the better their performance. Even more insane, the five companies with the most egregious valuations in each metric excelled.

Value is Dead, Long Live Value

Anyone can discuss the latest trend, but the best investors always look for the next trend.  It is easy to restate the obvious and point out what happened; it is much harder to forecast what will happen.

This analysis shows the market is running on the strength of a few stocks while many stocks struggle. As this continues, opportunities emerge – opportunity in the form of companies whose stocks are going nowhere despite having cheap valuations.

CVS, for example, is one such company. The table below shows how CVS’s valuation stacks up against the S&P 500 and the top 30% by market cap.

Over the last five years, CVS has grown earnings and revenue at an annualized rate of approximately 12%. That is three times the rate at which the S&P 500 has increased for each.

Despite the strong fundamentals, CVS is badly underperforming the S&P 500. The graph below shows CVS lags by over 25% this year.

The passive investing phenomenon of indiscriminately chasing the popular stocks and the largest companies is leaving behind some gems. CVS is just one of many companies worth exploring.

Summary  

The market valuations of the companies in which the media and investors focus the most attention are confounding. At the same time, there is little discussion about stocks like CVS, which offer significant relative value. Stocks where you can get a whole lot more for your money.

When the euphoria of the current environment ends, cheap companies have the potential not only to limit downside risk but also to provide healthy returns when the market comes to its senses.

via ZeroHedge News https://ift.tt/33g8A4r Tyler Durden

“I’ll Take Hacking Tesla for One Million Dollars, Alex”

327: “I’ll Take Hacking Tesla for One Million Dollars, Alex”

In the 327th episode of the Cyberlaw Podcast, Stewart is joined by Nick Weaver (@ncweaver), David Kris (@DavidKris), and Dave Aitel (@daveaitel). We are back from hiatus, with a one-hour news roundup to cover the big stories of the last month. 

Pride of place goes to the WeChat/Tiktok mess, which just gets messier as the deadline fdraws near. TikTok is getting all the attention but WeChat is by far the thornier policy and technical problem. I predict delays as Commerce wrestles with them. Nick Weaver predicts that TikTok’s lawsuit will push resolution of its situation into January.  I’ve got fifty bucks that says it won’t. Lawfare wins either way.

Dave Aitel digs into the attempted Tesla hack. Second best question in the segment: Who’s the insider that enabled an attack on his employer and is still working there three years later?  Best question: How many CSO’s can say with confidence that none of their employees would take $1 million to plug a USB stick into the company network? 

This Month in Overhyped Judicial Decisions about FISA: David Kris lays out the seven-years-late Ninth Circuit decision that has been billed as striking at the FISA warrantless surveillance law. Talk about overtaken by events. The opinion grumbles about the fourth amendment but doesn’t actually rule on that ground (and its analysis is so partial that it isn’t even persuasive dicta). It boldly finds that the collection violated a statute that has been repealed anyway. And then it says that doesn’t matter because suppression of the evidence isn’t a remedy and the violation didn’t taint the trial.  The only really good news for the libertarian left is that Justice can’t appeal to the Supreme Court because, well, it won.

David also takes on the other overhyped FISA decision, a lengthy FISA court review of agencies’ minimization practices with respect to Americans’ data collected under section 702. The court approved practically everything but was predictably and not improperly upset at the FBI’s inability to design social and IT systems that prevent dumb violations of the rules. 

Speaking of FISA, important national security provisions remain unsettled, in large part because of Trump’s misguided opposition. Who, David asks, could possibly persuade GOP members that there’s a FISA reform that responds to their sense of grievance over the Russian collusion investigation?  I volunteer, with lengthy testimony to the PCLOB and a shorter piece in Lawfare.

Dave Aitel asks why we’re surprised that Iranian hackers are monetizing access to networks that don’t offer national security value to their government. Or that hackers are following their targets into specialized software markets. If you know your target is a law firm, he suggests, you’d be better off looking for flaws in Relativity than in Windows…. Uh, excuse me, but I just felt someone walk over my grave.

Nick and Dave are both critical of the Justice Department’s indictment of Joe Sullivan for obstruction of justice and misprision of felony. That is beginning to look like a case Sullivan can win, and one he just might take it to trial. 

Nick thinks the Justice Department is playing a long game in pretending it can seize 280 cryptocurrency accounts used by hackers. It can’t get the funds, but it sure can make it hard for the hackers to get them. 

U.S. Agencies Must Adopt Vulnerability-Disclosure Policies by March 2021. 

And more!

Download the 327th Episode (mp3)

You can subscribe to The Cyberlaw Podcast using iTunes, Google Play, Spotify, Pocket Casts, or our RSS feed. As always, The Cyberlaw Podcast is open to feedback. Be sure to engage with @stewartbaker on Twitter. Send your questions, comments, and suggestions for topics or interviewees to CyberlawPodcast@steptoe.com. Remember: If your suggested guest appears on the show, we will send you a highly coveted Cyberlaw Podcast mug!

The views expressed in this podcast are those of the speakers and do not reflect the opinions of their institutions, clients, friends, families, or pets.

 

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Innovators Are Crafting Decentralized Social Media Alternatives. Will App Stores Pull Them Down?

mastodon_1161x653

Innovation is the best critique. Anyone can sit around and complain about something they don’t like. If you have power and influence, you might even be able to get the government to do what you want—for better or worse. But building something that makes the existing reality obsolete is a surefire way to affect the change you want to see. Well, that’s the theory at least.

In practice, much possible innovation is preemptively forestalled. This is obvious in the case of government regulation. When you ban or control something, you will probably get less of it. But the government is not the only entity that gets in the way of innovation. Our norms and cultural attitudes have a lot to do with it, too.

No one knows this better than dissident developers in tech. While commentators like yours truly snipe about policy and politics, these peer-to-peer pioneers set out to build the tools that route around frictions in connectivity. They know the innovation-killing pain points firsthand. Many times, these frictions are so far upstream of popular consumer-facing technologies that they attract little mainstream notice.

Actually, there are already many good alternatives to the centralized services that draw so much ire in media and government circles. They’re not very popular right now, but they work. If they gather enough steam and support, they could one day become a new standard.

For example, many people worry that Google could opportunistically manipulate search results (and therefore society) since it routes so much of the web’s traffic. These critics could use and promote an alternative like searx, which is a free software metasearch engine with multiple instances that allows users to select their own search sources and preferences. Even better, these search alternatives are privacy-protecting, and do not collect and store user data like today’s leading services.

Then there is the question of speech on social media. Many people don’t like the content moderation policies of third-party platforms. Depending on your persuasion, moderators either censor important political speech or allow hate speech to run amok online. The problem is that a one-size-fits-all moderation approach will never make everyone happy.

Enter the Fediverse: an assortment of federated (get it?) software and servers that provide a more customizable web experience. Fediverse apps assemble the protocols to support standard web activities—things like social networking (Mastodon), vlogging (PeerTube), and file hosting (NextCloud). But rather than being hosted and run by one central party like Facebook or Twitter, Fediverse apps and servers can be launched and maintained by anyone. Each of these “instances” can choose their own content policies and decide which other instances they want to engage with. If one instance disagrees with another’s moderation policies, they can opt to not connect with them. And of course, users can choose whatever instance they please. It’s a cool working experiment in voluntary association online.

The Fediverse is very innovative, and it’s exactly the kind of peaceful non-government challenge to market incumbents that libertarians champion as an alternative to clumsy regulation. It’s true that decentralized alternatives have a long way to go before they will have the numbers and user-friendliness of the big guys. But recent setbacks for user accessibility could make this all the more difficult.

Last week, Mastodon developers reported that they received warnings from the Google Play Store that they must change their apps or risk being delisted within seven days. Specifically, the Husky, Fedilab, and Subway Tooter apps received notices, but as of this writing they have yet to be taken down. It appears Google has been unresponsive to media and developer questions.

Google’s notice states that the apps violated the Play Store’s User Generated Content (UCG) policy that prohibits “apps that promote violence or incite hatred against individuals or groups” based on characteristics that are “associated with systemic discrimination or marginalization.” Huh? Those Mastodon apps don’t host any content at all—they just allow users to connect with instances of their choosing. How could they be in violation of the UCG policy?

To put it in context, it would be like if major app stores decided to cut off an alternative browser like Brave on the pretext that it allows users to route to websites that the app stores don’t like. But it would not be like Brave itself was creating that content or even allowing users to create that content. A browser is a passive conduit, just like Husky and Fedilab. (Actually, it’s worse than that, since centralized hosting platforms like Twitter and Facebook have their fair share of UCG policy-violating content, too.)

Imagine if your choice of browser was constrained by whether or not it blocks the right websites! It sounds like something from beyond the Great Firewall, but this appears to be the dilemma facing Mastodon developers.

It’s true that some Fediverse instances are less censored than others. The most infamous is Gab, which has made a reputation as an alt-right hangout. But Gab is kind of the exception that proves the rule, since most Fediverse actors have cut off all contact with Gab (and vice versa). Some app developers go one step further and prevent access to Gab at all on their platform. But either way, should neutral conduits be proactively punished for the content that a user may (or may not!) decide to seek on their own?

The social effects of app store policies have been in the news lately. Apple’s colorful skirmish with Fortnite creator Epic Games has prompted conversations about platform market power and even geopolitics. But at the end of the day, both Apple and Epic have a lot of money, lawyers, and users behind them. They will both get their days in the courts of law and public opinion.

The Fediverse, on the other hand, is something of a mute David facing a busy Goliath. Few people know what Mastodon even is, let alone the fact that Mastodon apps could be preemptively snuffed out with inappropriate UCG reprisals.

I hope that Google will have rescinded its nonsensical policy strikes against Mastodon apps by the time this article is published. These apps host no user content and therefore cannot be in violation of policies regulating user submissions.

Still, this incident illustrates just how vulnerable innovation can be. Our laws and norms have created a culture that tends to “take down” first and maybe ask questions later. If trends continue, and Fediverse apps face resistance on mainstream app stores, they may be pushed to alternatives like F-Droid, which are non-standard and attract far fewer users. But even this is not a great long-term solution, as it could one day be harder to install things like F-Droid on proprietary hardware, which is a whole other story.

Innovating around a problem is not as simple as just creating a new technology. As the troubles facing the Fediverse demonstrates, the social context in which alternatives are produced can matter just as much, if not more, for an innovation’s odds to take root. Those who champion innovation as a solution to social problems should not only use and promote the kinds of alternative technologies that can decentralize computing, we should speak up for them when they run into these kinds of cultural pitfalls, too.

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“I’ll Take Hacking Tesla for One Million Dollars, Alex”

327: “I’ll Take Hacking Tesla for One Million Dollars, Alex”

In the 327th episode of the Cyberlaw Podcast, Stewart is joined by Nick Weaver (@ncweaver), David Kris (@DavidKris), and Dave Aitel (@daveaitel). We are back from hiatus, with a one-hour news roundup to cover the big stories of the last month. 

Pride of place goes to the WeChat/Tiktok mess, which just gets messier as the deadline fdraws near. TikTok is getting all the attention but WeChat is by far the thornier policy and technical problem. I predict delays as Commerce wrestles with them. Nick Weaver predicts that TikTok’s lawsuit will push resolution of its situation into January.  I’ve got fifty bucks that says it won’t. Lawfare wins either way.

Dave Aitel digs into the attempted Tesla hack. Second best question in the segment: Who’s the insider that enabled an attack on his employer and is still working there three years later?  Best question: How many CSO’s can say with confidence that none of their employees would take $1 million to plug a USB stick into the company network? 

This Month in Overhyped Judicial Decisions about FISA: David Kris lays out the seven-years-late Ninth Circuit decision that has been billed as striking at the FISA warrantless surveillance law. Talk about overtaken by events. The opinion grumbles about the fourth amendment but doesn’t actually rule on that ground (and its analysis is so partial that it isn’t even persuasive dicta). It boldly finds that the collection violated a statute that has been repealed anyway. And then it says that doesn’t matter because suppression of the evidence isn’t a remedy and the violation didn’t taint the trial.  The only really good news for the libertarian left is that Justice can’t appeal to the Supreme Court because, well, it won.

David also takes on the other overhyped FISA decision, a lengthy FISA court review of agencies’ minimization practices with respect to Americans’ data collected under section 702. The court approved practically everything but was predictably and not improperly upset at the FBI’s inability to design social and IT systems that prevent dumb violations of the rules. 

Speaking of FISA, important national security provisions remain unsettled, in large part because of Trump’s misguided opposition. Who, David asks, could possibly persuade GOP members that there’s a FISA reform that responds to their sense of grievance over the Russian collusion investigation?  I volunteer, with lengthy testimony to the PCLOB and a shorter piece in Lawfare.

Dave Aitel asks why we’re surprised that Iranian hackers are monetizing access to networks that don’t offer national security value to their government. Or that hackers are following their targets into specialized software markets. If you know your target is a law firm, he suggests, you’d be better off looking for flaws in Relativity than in Windows…. Uh, excuse me, but I just felt someone walk over my grave.

Nick and Dave are both critical of the Justice Department’s indictment of Joe Sullivan for obstruction of justice and misprision of felony. That is beginning to look like a case Sullivan can win, and one he just might take it to trial. 

Nick thinks the Justice Department is playing a long game in pretending it can seize 280 cryptocurrency accounts used by hackers. It can’t get the funds, but it sure can make it hard for the hackers to get them. 

U.S. Agencies Must Adopt Vulnerability-Disclosure Policies by March 2021. 

And more!

Download the 327th Episode (mp3)

You can subscribe to The Cyberlaw Podcast using iTunes, Google Play, Spotify, Pocket Casts, or our RSS feed. As always, The Cyberlaw Podcast is open to feedback. Be sure to engage with @stewartbaker on Twitter. Send your questions, comments, and suggestions for topics or interviewees to CyberlawPodcast@steptoe.com. Remember: If your suggested guest appears on the show, we will send you a highly coveted Cyberlaw Podcast mug!

The views expressed in this podcast are those of the speakers and do not reflect the opinions of their institutions, clients, friends, families, or pets.

 

from Latest – Reason.com https://ift.tt/3m8Hwwm
via IFTTT

Innovators Are Crafting Decentralized Social Media Alternatives. Will App Stores Pull Them Down?

mastodon_1161x653

Innovation is the best critique. Anyone can sit around and complain about something they don’t like. If you have power and influence, you might even be able to get the government to do what you want—for better or worse. But building something that makes the existing reality obsolete is a surefire way to affect the change you want to see. Well, that’s the theory at least.

In practice, much possible innovation is preemptively forestalled. This is obvious in the case of government regulation. When you ban or control something, you will probably get less of it. But the government is not the only entity that gets in the way of innovation. Our norms and cultural attitudes have a lot to do with it, too.

No one knows this better than dissident developers in tech. While commentators like yours truly snipe about policy and politics, these peer-to-peer pioneers set out to build the tools that route around frictions in connectivity. They know the innovation-killing pain points firsthand. Many times, these frictions are so far upstream of popular consumer-facing technologies that they attract little mainstream notice.

Actually, there are already many good alternatives to the centralized services that draw so much ire in media and government circles. They’re not very popular right now, but they work. If they gather enough steam and support, they could one day become a new standard.

For example, many people worry that Google could opportunistically manipulate search results (and therefore society) since it routes so much of the web’s traffic. These critics could use and promote an alternative like searx, which is a free software metasearch engine with multiple instances that allows users to select their own search sources and preferences. Even better, these search alternatives are privacy-protecting, and do not collect and store user data like today’s leading services.

Then there is the question of speech on social media. Many people don’t like the content moderation policies of third-party platforms. Depending on your persuasion, moderators either censor important political speech or allow hate speech to run amok online. The problem is that a one-size-fits-all moderation approach will never make everyone happy.

Enter the Fediverse: an assortment of federated (get it?) software and servers that provide a more customizable web experience. Fediverse apps assemble the protocols to support standard web activities—things like social networking (Mastodon), vlogging (PeerTube), and file hosting (NextCloud). But rather than being hosted and run by one central party like Facebook or Twitter, Fediverse apps and servers can be launched and maintained by anyone. Each of these “instances” can choose their own content policies and decide which other instances they want to engage with. If one instance disagrees with another’s moderation policies, they can opt to not connect with them. And of course, users can choose whatever instance they please. It’s a cool working experiment in voluntary association online.

The Fediverse is very innovative, and it’s exactly the kind of peaceful non-government challenge to market incumbents that libertarians champion as an alternative to clumsy regulation. It’s true that decentralized alternatives have a long way to go before they will have the numbers and user-friendliness of the big guys. But recent setbacks for user accessibility could make this all the more difficult.

Last week, Mastodon developers reported that they received warnings from the Google Play Store that they must change their apps or risk being delisted within seven days. Specifically, the Husky, Fedilab, and Subway Tooter apps received notices, but as of this writing they have yet to be taken down. It appears Google has been unresponsive to media and developer questions.

Google’s notice states that the apps violated the Play Store’s User Generated Content (UCG) policy that prohibits “apps that promote violence or incite hatred against individuals or groups” based on characteristics that are “associated with systemic discrimination or marginalization.” Huh? Those Mastodon apps don’t host any content at all—they just allow users to connect with instances of their choosing. How could they be in violation of the UCG policy?

To put it in context, it would be like if major app stores decided to cut off an alternative browser like Brave on the pretext that it allows users to route to websites that the app stores don’t like. But it would not be like Brave itself was creating that content or even allowing users to create that content. A browser is a passive conduit, just like Husky and Fedilab. (Actually, it’s worse than that, since centralized hosting platforms like Twitter and Facebook have their fair share of UCG policy-violating content, too.)

Imagine if your choice of browser was constrained by whether or not it blocks the right websites! It sounds like something from beyond the Great Firewall, but this appears to be the dilemma facing Mastodon developers.

It’s true that some Fediverse instances are less censored than others. The most infamous is Gab, which has made a reputation as an alt-right hangout. But Gab is kind of the exception that proves the rule, since most Fediverse actors have cut off all contact with Gab (and vice versa). Some app developers go one step further and prevent access to Gab at all on their platform. But either way, should neutral conduits be proactively punished for the content that a user may (or may not!) decide to seek on their own?

The social effects of app store policies have been in the news lately. Apple’s colorful skirmish with Fortnite creator Epic Games has prompted conversations about platform market power and even geopolitics. But at the end of the day, both Apple and Epic have a lot of money, lawyers, and users behind them. They will both get their days in the courts of law and public opinion.

The Fediverse, on the other hand, is something of a mute David facing a busy Goliath. Few people know what Mastodon even is, let alone the fact that Mastodon apps could be preemptively snuffed out with inappropriate UCG reprisals.

I hope that Google will have rescinded its nonsensical policy strikes against Mastodon apps by the time this article is published. These apps host no user content and therefore cannot be in violation of policies regulating user submissions.

Still, this incident illustrates just how vulnerable innovation can be. Our laws and norms have created a culture that tends to “take down” first and maybe ask questions later. If trends continue, and Fediverse apps face resistance on mainstream app stores, they may be pushed to alternatives like F-Droid, which are non-standard and attract far fewer users. But even this is not a great long-term solution, as it could one day be harder to install things like F-Droid on proprietary hardware, which is a whole other story.

Innovating around a problem is not as simple as just creating a new technology. As the troubles facing the Fediverse demonstrates, the social context in which alternatives are produced can matter just as much, if not more, for an innovation’s odds to take root. Those who champion innovation as a solution to social problems should not only use and promote the kinds of alternative technologies that can decentralize computing, we should speak up for them when they run into these kinds of cultural pitfalls, too.

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NFL Video Game Madden 21 Includes Colin Kaepernick As Quarterback

NFL Video Game Madden 21 Includes Colin Kaepernick As Quarterback

Tyler Durden

Wed, 09/09/2020 – 11:20

In what is likely going to be viewed as peak virtue signaling, EA Sports has announced that in their latest edition of their hugely popular Madden 21 video game, users will be able to play as Colin Kaepernick.

This is, of course, despite Kaepernick not having played in the NFL in four years.

EA announced on Twitter on Tuesday: “The team at EA Sports, along with millions of Madden NFL fans, want to see him back in our game.”

They continued: “Knowing that our EA Sports experiences are platforms for players to create, we want to make Madden NFL a place that reflects Colin’s position and talent, rates him as a starting QB, and empowers our fans to express their hopes for the future of football. We’ve worked with Colin to make this possible, and we’re excited to bring it to all of you today.”

Their statement referred to Kaepernick as “one of the top free agents in football and a starting caliber quarterback.”

His player rating is said to have gone from a 74 overall in Madden 17, the last year he was legitimately in the video game, to an 81 in Madden 21, after not being in the league for 4 years. 

Kaepernick also has his own personalized introduction in the game and – when he scores a touchdown – he holds up a “black power” fist. 

Earlier this year, the NFL issued a mea culpa on Kaepernick, saying it should have supported his protests in 2016 when he kneeled during the national anthem to protest systemic racism and inequality. 

NFL commissioner Roger Goodell said: “We, the National Football League, condemn racism and the systematic oppression of black people. We, the National Football League, admit we were wrong for not listening to NFL players earlier and encourage all to speak out and peacefully protest.”

Of course, if he’s so oppressed, Goodell could just make him the league commissioner and step down. And we’re not football analysts, but we have a strange feeling this is the closest Kaepernick is ever going to get to being back on a football field. 

via ZeroHedge News https://ift.tt/3m39qKl Tyler Durden

A Bear With A Cardboard Box On Its Head

A Bear With A Cardboard Box On Its Head

Tyler Durden

Wed, 09/09/2020 – 11:00

By Michael Every of Rabobank

I have the perfect visual metaphor for a day on which the headlines show:

  • The UK government openly admitting it is going to break international law –but just a little bit– prompting resignations among senior legal staff and pointed questions from a former prime ministers asking how the country can ever be trusted again. Not to worry, Theresa: poisonings, assassinations, dismembering, and kidnappings all seem to have a short political half-life; then it’s back to business as normal – “because markets”. Not so sure it applies to GBP itself though.

  • The Hong Kong justice minister wades into a debate prompted by comments from CEO Carrie Lam over the ‘separation of powers’ to argue it “has no place” there. (The Hong Kong Bar Association rejects this as “unfounded and inconsistent” with the Basic Law.)

  • The US imposes more sanctions on China, again focused on Xinjiang and allegations of forced labor, and this time potentially impacting the entire textile complex, given it covers cotton, and staple foods, given it also covers tomatoes grown there. From the perspective of the market press, spilling a cheap frozen pizza on a cheap cotton T-shirt while day-trading at home may just have become far more expensive.

On which note, stocks were allowed to fall once again yesterday (Dow -2.3%, S&P -2.8%) as tech stocks in particular crumbled and the most favorite of recent favorites most so. Suddenly zillionaires are only jillionaires. Central banks will be watching carefully with fingers on their red buttons at all this dangerous instability!

Indeed, as yields tumble in general, New Zealand rates turned negative for the first time at 3-years: that as the RBNZ considers going the Swedish rates route. Question: when does Australia wake up and do the same? Another question: when do NZD and AUD bulls notice?

Not negative again (yet), oil prices have tumbled markedly too. Just market positioning, or something about underlying demand we don’t want to accept in this K-shaped recovery in which markets not only don’t care about those left behind, but don’t even bother writing about them?

  • Exhibit A for economic confidence: the UK is talking about cancelling Christmas if necessary, surely also breaking international law just a little bit(?), and is again limiting household gatherings to six people as the second virus wave being seen across much of Europe continues to surge. It was only August when folks were being told Mission Accomplished and to go and have fun, wasn’t it? And just consider we are now weeks away from the UK furlough scheme coming to an end and unemployment soaring, or the BOE bank-rolling millions to stay at home and do nothing for another X months while pretending we still live in a market-based system.

  • Exhibit B for economic confidence: Astra-Zeneca is halting trials of the ‘Oxford’ virus vaccine after a test subject suffered an unexplained serious illness. That is standard procedure, but is going to generate concern. Russia and China both seem very happy with their vaccines, however.

Bloomberg is reporting: ‘US-China Showdown Over Big Data to Leave Decades-Long Impact’. This correctly surmises the ‘Clean’ vs. ‘China’ Networks plans underway mean “walls around data [that] would eventually transform supply chains”. As it says, TikTok, WeChat, and Huawei are just the beginning of this process. Will that change breathless tech coverage elsewhere on Bloomberg and the like? Mmmm….

Bloomberg is also reporting: ‘Brave New Words Hint at a Less Democratic Future’, which (selectively) notes party political rhetoric around the West “points away from liberal democracy”. Indeed, in 2019 democratic states were not the global majority for the first time since 2001, it quotes a Swedish study as saying, and one third of mankind is living in a country becoming more autocratic.

Congratulations on seeing (some) of what is going on around you! This is of course something I flagged as a key risk back in early 2016’s ‘Thin Ice’, a time when Bloomberg was selling neoliberal rainbows and unicorns; and again in early 2019’s ‘The Age of Rage’, which warned of… rage!…and rising left and right illiberalism – and of politicized central banks; ‘The Next Normal’, out recently, also showed central banks are inadvertently helping us drift into just that illiberal political-economy with each step they take. Of course, none of that registers in the Bloomberg article (which sits alongside dozens of others urging central banks to do more, “because markets”). Instead, these kind of things ‘just happen’…and hence must presumably be resisted with equally vigorous selective blindness.

Indeed, there was a large leap in Aussie consumer confidence today, up 18% m/m, and a surge in Aussie home loans (up 8.9% in the month vs 2% consensus), which will be welcomed by the RBA. However, it also speaks to a K-shaped recovery. Does anyone actually think the economy suddenly improved markedly? Far more likely than a sudden economic miracle is that this is an echo of what we see elsewhere: white-collar Covid winners on full salary and able to work from home using low rates to move out to the suburbs where they don’t need to meet the scrofulous poor and all their petty unemployment, food on table, and virus concerns. And one wonders why we are in an Age of Rage?

Elsewhere, China’s inflation data were mixed: PPI was again deflationary at -2.0% y/y, so bad for producers, and inflation was 2.4% y/y, down from 2.7%, so still not-so-good for consumers.

So, what’s the perfect visual metaphor I claimed to have for all of this? Something I saw on Twitter last night, which seems very 2020:

In Turkey, a large bear with a cardboard box stuck on its head managed to enter into a military base, and then to climb up to the top of a tall communications tower, from where it stood on high not looking down on anything round it. (The link is here.)

Personally, it works for me on many levels – but taste is of course subjective. (Or at least some people allow it to be.)

As the Tweet concludes: “The animal is reported to be safe and managed to descend on its own.” Somehow, I doubt we will be as lucky.

via ZeroHedge News https://ift.tt/2ZlZhic Tyler Durden

Druckenmiller Slams “Absolute Raging Mania” In Stocks, Sees Inflation Hitting 10%

Druckenmiller Slams “Absolute Raging Mania” In Stocks, Sees Inflation Hitting 10%

Tyler Durden

Wed, 09/09/2020 – 10:41

A few days ago, we shared an anecdote from hedge fund legend Stanley Druckenmiller – a former George Soros analyst and iconic macro investor – who recounted a painful, nearly career-destroying experience where he ignored the warnings of his gut and jumped on the tech bubble bandwagon far too late. The error cost the firm $3 billion when the crash arrived, prompting Druck to resign.  Here’s what Druckenmiller, who converted his hedge fund Duquesne Capital into a family office back in 2010, said at the time:

“So, I’ll never forget it. January of 2000 I go into Soros’s office and I say I’m selling all the tech stocks, selling everything. This is crazy at 104 times earnings. This is nuts. Just kind of as I explained earlier, we’re going to step aside, wait for the next fat pitch. I didn’t fire the two gun slingers. They didn’t have enough money to really hurt the fund, but they started making 3 percent a day and I’m out.

It is driving me nuts. I mean their little account is like up 50 percent on the year. I think Quantum was up seven. It’s just sitting there…”

“So like around March I could feel it coming. I just – I had to play. I couldn’t help myself. And three times during the same week I pick up a – don’t do it. Don’t do it. Anyway, I pick up the phone finally.

I think I missed the top by an hour. I bought $6 billion worth of tech stocks… and in six weeks I had left Soros and I had lost $3 billion in that one play.”

“You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again. but I already knew that.”

An apt lesson, and perhaps the reason why despite taking a lot of heat this year for sitting out most of the summer COVID-19-inspired rally in tech or other home-friendly shares, he has refused to succumb to the euphoria and Albert Edwards probably did a victory lap back in June when Druck announced that he was selling all his stocks and would instead pile into Treasuries.

In any case, fast forward to today when speaking on CNBC this morning, the billionaire investor warned that Wall Street’s “raging party” might soon give way to a brutal worldwide hangover.

“Everybody loves a party … but, inevitably, after a big party there’s a hangover,” Druckenmiller said adding that “Right now, we’re in an absolute raging mania. We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up.“

Druck also rejected the notion that stock splits are good for anyone other than management and insiders.

Tesla shares rallied 82.5% between Aug. 11 — when the company announced a 5-for-1 stock split — and Aug. 31, when the split took effect. Apple, meanwhile, jumped 34.2% between July 30 and Aug. 31 on news of a 4-for-1 stock split. The stock has fallen more than 12% since the split took effect.

The S&P 500 is up more than 51% after hitting an intraday low on March 23. Last week, the broader-market index hit an all-time high before a roll-over in tech shares knocked it back below that level.

“I have no clue where the market is gonna go in the near term. I don’t know whether it’s going to go up 10%; I don’t know whether it’s going to go down 10%,” Druckenmiller said. “But I would say the next three-to-five years are going to be very, very challenging.”

Back in March, the Fed’s unprecedented response to the crisis probably was the right thing to do to stop million of Americans from sliding into poverty, Druck said. But the Fed has now taken things to such an extreme, Druckenmiller is more worried about a painful period of untstoppable inflation over the next 3-5 years, contrary to that other investing icon, Jeff Gundlach who sees pandemic-driven deflation as far as the eye can see.

Saying that the Fed did a “great job” in March by cutting rates and launching unprecedented stimulus programs to sustain the economy, the value investor added that the follow-up market rally “has been excessive.” He also said that for the first time in a while, he is worried about inflation shooting higher. “The merging of the Fed and the Treasury, which is effectively what’s happening during Covid, sets a precedent that we’ve never seen since the Fed got its independence,” Druckenmiller said, echoing our own summary from April .

“It’s obviously creating a massive, massive mania in financial assets” and for evidence just look at the FAAMGs or Dave Portnoy’s twitter account.

Looking ahead, Druckenmiller warns that the next three to five years will get “very challenging” for investors, as runaway inflation – as high as 10% – is unleashed in the next 4 or 5 years. One wonder just how much gold Druckenmiller is long…

While more stimulus may not fix the problem, the Fed should still be “open-minded” since people are suffering. Alas, we are far too deep inside the rabbit hole to have a credible solution (as Rabobank’s Michael Every wrote last week), since staving off starvation tomorrow could means dealing with raging inflation for the next ten years.

After the interview, stock-pumper extraodinaire Jim Cramer Druckenmiller for having the temerity to warn American retirees to take their money and run just because he missed the most artificial rally in history.

Somebody should tell ‘Jimmy Chill’ that brokerages like Schwab will happily sell customers a $5 slug of Amazon stock, no splits necessary. They can do the same thing with Apple and they could have before the comeback.

Of course, Druck isn’t the only one who harbors these concerns. Another skeptic identified by the FT  as Andrew Parlin published a piece where he warned today’s “US stock bubble could be the biggest in history.” Yesterday Jeff Gundlach also chimed in, saying on the latest DoubleLine call that “One week ago today it seemed like stocks were going to infinity” and adding that the S&P 500 is in “nosebleed territory. This is not a cheap market.”

via ZeroHedge News https://ift.tt/3jXKmCL Tyler Durden