Tag: news

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via http://ift.tt/2jlGKyV williambanzai7

One week ago we were surprised to read that, in Tom Lee’s 2017 market outlook, Wall Street’s formerly most vocal cheerleader and its most prominent permabull had unexpectedly turned into one of the most skeptical bears. As a reminder, at a time when virtually every other Wall Street strategist, even the quasi skeptics, are convinced the market is going nowhere but higher, Lee now expects that the S&P 500 will finish the year virtually unchanged at 2,275, and roughly 3% lower than the median sellside forecast. His caution is the result of concerns about policy risk and a yield curve adjustment, which he sees translating into an S&P 500 decline to 2,150 by mid-year before a modest second half rebound.

“The bond market is signaling inflation confusion and a flattening long-term yield curve” Lee said, adding that this generally leads to a 5 to 7% selloff. He warned, however, that while “the bond market is less enthusiastic about the reflation trade than equities – since 1977, a flattening of the long-term yield curve sees equities weak over next 6 months— given the potential for a large rotation into stocks, equities could rally throughout 1H.”

However, the main reason for Lee’s skepticism is not so much fundamental as technical.

In a slide in his latest market report, Lee notes that traders and market participants have been “lulled” into complacency by the near collapse in drawdowns, as 2016 was the year with the fewest number of days that saw the S&P drift more than 3% away from 52-week highs. From Lee’s observations:

• 2016 (we do 2016 after 2/11/2016, since early part was a continuation of 2015 selling) saw only 7 days – that is the lowest ever.
• And as noted below, the 4 years (2013, 2014, 2015, 2016) saw the S&P 500 trading so consistently close to 52-week highs – in fact, this is even more calm than the 1994-1999 period and at the time, the S&P was enjoying one of its best return periods ever.

To be sure, with VIX nearing a 10 handle again, and on the verge of record low single-digits, one wonders how much more complacency can this market take, especially if, as we showed on Friday, Dow 20,000 has become a virtually impenetrable resistance level, and it has now been one month since Bob Pisani said Dow 20K is “inevitable.”

via http://ift.tt/2iWQk7T Tyler Durden

While the track record of the Sunday Times over the past 24 hours is somewhat spotty, following a report that as his foreign trip abroad once officially president, Trump is planning a summit with Putin in Reykjavik, which in turn was promptly denied by Trump staffers who called the story “fantasy”, overnight the paper also reported that UK Prime Minister Theresa May will announce that Britain is “seeking a clean and hard Brexit” in a speech this week that will promise to create a “strong new partnership” with the European Union.

The paper further notes that in the speech, scheduled for Tuesday, the PM will “finally lay her cards on the table”, making clear that the UK is set to pull out of the single market and the European customs union in return for the ability to curb immigration, strike commercial deals with other countries, and escape the jurisdiction of the European Court of Justice, the Sunday Times said without saying how it obtained the information. 

In a separate interview with German newspaper Welt am Sonntag, May’s finance chief, Philip Hammond, said Britain would be willing to abandon “mainstream economic and social thinking” if it is unable to craft a favorable post-Brexit EU deal. Hammond said he hoped the U.K. could remain in the mainstream, but was prepared for the consequences for a hard Brexit.

“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term. In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.”

To avoid fallout from the breakup and grant businesses some certainty over the outlook, May will seek a transitional phase between splitting from the EU and the beginning of a new trading relationship, the Sunday Times said, citing Brexit Secretary David Davis. “We don’t want the EU to fail, we want it to prosper politically and economically, and we need to persuade our allies that a strong new partnership with the U.K. will help the EU to do that,’’ Davis wrote in the newspaper. “If it proves necessary, we have said we will consider time for implementation of new arrangements.’’

The market is likely to have an adverse reaction to the leaked (if unconfirmed speech): as Bloomberg points out, “May’s blueprint for Brexit risks alarming investors, bankers and company executives who will fret that May is prioritizing social issues over economic growth.” A Downing Street source said that May had “gone for the full works”, although the prime minister’s staff admitted her words were likely to cause a “market correction” that could lead to a fresh fall in the pound.

Of course, that may be inaccurate, because as the recent record streak of 14-winning days in the British FTSE100 index to daily record highs has shown, the one thing that UK stocks like more than anything, is a crashing currency and the uncertainty that comes from a “hard Brexit.”

Perhaps this time will be different.

The PM’s office refused to comment on the report when contacted by Bloomberg, while in separate statement it said that May will declare in her speech that having divided over Brexit, voters are now uniting behind making it a success. “The overwhelming majority of people – however they voted – say we need to get on and make Brexit happen,” May will say. “So the country is coming together.”

Separately, Bank of England Governor Mark Carney, who has come under fire in
recent months for being too involved in the Brexit debate, is also due
to deliver a speech on Monday evening in London although the has declined to
comment on what he will discuss. More from Bloomberg:

Speaking on the BBC’s “Andrew Marr Show” on Sunday, U.K. opposition Labour Party leader Jeremy Corbyn said May “appears to be heading us in the direction of a sort of bargain-basement economy on the shores of Europe.” “We will lose access to half of our export markets — it seems to me an extremely risk strategy,” he said.

 

The Sunday Telegraph reported that the opposition Labour Party will introduce an amendment in the House of Commons demanding that members get to vote on a final Brexit deal, and if defeated they will speak out in the House of Lords to urge the government to make the guarantee of a vote.

In many ways May is motivated to finally engage the Article 50 process, as staying in the customs union would prevent the U.K. from lining up free-trade pacts with non-EU countries such as the U.S. and China. Foreign Secretary Boris Johnson returned from a trip to the U.S. last week saying he’d been told President-elect Donald Trump’s administration will want a fast trade pact with Britain.

Meanwhile, European leaders including Angela Merkel have held steadfast to the line that they won’t allow May to “cherry pick’’ the best parts of membership without accepting the responsibilities, including allowing free movement of labor. That requirement has become a pressure point in the U.K. with net migration to the U.K. from the EU reaching 189,000 in the year ended June. May has repeatedly indicated she views June’s referendum as a call from voters to slash that number.

As Bloomberg concludes, “Tuesday’s speech is likely to be closely watched by the financial markets, with currency traders increasingly seeing May’s pronouncements on Brexit as a trigger to sell the pound. Sterling fell following her speech at the Conservative Party conference in October, which fanned speculation she was eyeing a clean break with the EU, and dropped again following her first television interview of 2017.”

It remains to be seen if May’s hard line speech will lead to a spike in sterling volatility, which coming in an illiquid session due to the US MLK holiday on Monday, may result in yet another flash crash in the British currency, and if it will also lead to another all time high in the FTSE100 index.

via http://ift.tt/2iuA4d8 Tyler Durden

President-elect Donald Trump greeted Sunday with a pair of early morning tweets, when shortly after 9am he said that Democrats are “most angry that so many Obama Democrats voted for me.” He followed up by saying that “with all of the jobs I am bringing back to our Nation, that number will only get higher.”

Meanwhile, in response to the latest Trump confrontation with Democratic lawmaker John Lewis, a growing number of Democrats will boycott Trump’s inauguration. So far, at least 19 Democrats have announced they won’t attend the Jan. 20 ceremony.

On Sunday, John Lewis said in an interview with NBC’s Chuck Todd that it would be “almost impossible” for him to work with the President-elect Donald Trump after he takes office. “It’s going to be very hard and very difficult. Almost impossible for me to work with him,” Lewis, a prominent civil rights leader in the 1960s, said.

Todd questioned Lewis about a scenario where Trump called him up and asked to consider working with him. “I would say, ‘Mr. President, Mr. Trump, it’s going to be hard. It’s going to be tough,'” Lewis responded. The remarks in the pre-taped interview came before Trump tweeted Saturday evening and suggested the pair work together in focusing on the nation’s inner cities.

Congressman John Lewis should finally focus on the burning and crime infested inner-cities of the U.S. I can use all the help I can get!

— Donald J. Trump (@realDonaldTrump) January 15, 2017

And while the market was closed, and algos were unable to respond to Trump’s latest ad hoc statement, he also added that “car companies and others, if they want to do business in our country, have to start making things here again. WIN!” he added.

The Democrats are most angry that so many Obama Democrats voted for me. With all of the jobs I am bringing back to our Nation, that number..

— Donald J. Trump (@realDonaldTrump) January 15, 2017

will only get higher. Car companies and others, if they want to do business in our country, have to start making things here again. WIN!

— Donald J. Trump (@realDonaldTrump) January 15, 2017

via http://ift.tt/2iWKBPq Tyler Durden

We start our Sunday with some gloomy predictions from Morgan Stanley’s appreciately named “Sunday Start” periodical, in which the bank’s Chief Global cross-asset strategist, Andrew Sheets, explains why the market return under the Obama administration will be a tough act to follow. His argument in a nutshell: “good market environments often involve a shift from economic despair to optimism, and a shift in psychology from ‘fear’ to ‘greed’. Both occurred over the last eight years, producing returns well above the long-run average. Whichever party was next to take the White House, it was going to be a tough act to follow.”

Which is not to say that MS is damning the “Trump market” before he has even stepped into office:

Things, of course, could get better, and we certainly hope that strong returns continue. But investors looking to keep the good times rolling should remember a key thing from the above: Starting points matter, making it logical to start with things that haven’t had a particularly good time over the last eight years.

The bank’s advice: invest elsewhere, especially in places – like Europe and Japan – which have failed to enjoy the US asset bump, because as Morgan Stanley calculates, “non-US equities have underperformed the S&P 500 by 90% over the last eight years. In US dollars, they underperformed by 108%. Again, a better starting point, and a preference for Japan and European equities in 2017 remains a core view.”

* * *

From Morgan Stanley’s Andrew Sheets

A Tough Act to Follow

Next week’s inauguration of Donald Trump as US president will mean wall-to-wall discussion of what his policies mean for markets and the legacy of his predecessor. My colleagues will discuss the former in next week’s Start, and I am in no way qualified to comment on the latter. I’d like, instead, to discuss what unites both themes – that returns will likely do worse under the new administration than under the departing one, and where exceptions to this may be.

That statement may seem deeply unfair to an administration that hasn’t even had a chance to pass policy, and incongruous with the sharp rise in investor and business confidence in recent surveys. But it’s linked to a simple idea. Good market environments often involve a shift from economic despair to optimism, and a shift in psychology from ‘fear’ to ‘greed’. Both occurred over the last eight years, producing returns well above the long-run average. Whichever party was next to take the White House, it was going to be a tough act to follow.

And what an act it was. Eight years ago, stocks were in freefall, credit markets were frozen and a highly leveraged US banking system was struggling to avoid collapse. Car sales had fallen 50%, consumer confidence was at all-time lows and the housing market, the single biggest store of wealth in the United States, was witnessing foreclosure rates not seen since the Great Depression. Two foreign wars and falling tax revenues were pushing the budget deficit towards historical highs.

It was a troubling time. Market pricing, unsurprisingly, reflected that despair. The last time the market cared this much about what a new US president would do, the S&P 500 was at 805, high yield bonds yielded 18.1% and the VIX stood at 56%. Those same numbers today? 2257, 5.8% and 12%.

Those changed levels reflect a remarkably changed backdrop. Today, US car sales and consumer confidence are historically high, residential and commercial real estate prices are above prior cycle peaks and US banks are now trying to return capital, not raise it. US credit markets saw their highest-ever level of bond issuance (US$1.3 trillion) in 2016, jobless claims have hit a 40-year low and the budget deficit is back to the average seen since 1980. The S&P 500 equity risk premium was 5.8% in 2009, and now it stands at 1.4%. Returns under the outgoing administration, in short, enjoyed both cheap starting levels and a large rate of change. The incoming one may not have either.

Things, of course, could get better, and we certainly hope that strong returns continue. But investors looking to keep the good times rolling should remember a key thing from the above: Starting points matter, making it logical to start with things that haven’t had a particularly good time over the last eight years.

One is European Value. The sector has underperformed for 10 years, and has only just started to bounce. Our European equity strategists think it will be in the unusual position of combining low valuations with strong earnings growth in 2017, while remaining under-owned. More broadly, non-US equities have underperformed the S&P 500 by 90% over the last eight years. In US dollars, they underperformed by 108%. Again, a better starting point, and a preference for Japan and European equities in 2017 remains a core view.

via http://ift.tt/2jMvQ1s Tyler Durden

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW we’re covering an update to indexing lunacy

In a previous edition of the WOW I wrote about a bubble in dumb money, and in it we looked at the massive drawdowns in capital from hedge funds in favour of “passive investing” via ETFs. Investors have a point. Why pay 2/20 when you can pay as little as 0.09% for an ETF which appears to do pretty much the same thing as a hedgie?

Two reasons that a 10-year old should be able to provide:

1. If you don’t know what you’re buying, then how the heck are you going to know when to sell?
2. Buying an ETF that is “low vol” creates a self fulfilling cycle. You’re buying it because of its volatility relative to other ETFs and asset classes. The more you buy it the lower the volatility measure – ergo the more you have to buy it. Genius, until the inevitable happens.

I summed my thoughts up with the following:

I fear we’re about to find out how smart “smart beta” really is. When the inevitable happens and Bob and Mabel, together with their millennial grandkids, Peach and Cloud, lose their shirts there’ll be no-one there to explain to them, “sorry, snowflake but did you realise that over half of the index you bought was sporting P/E and P/B ratios that have only existed a couple of times before?”

To help us along today in providing a granular view of how truly silly indexing really is I’m leaning on my buddy Harris Kupperman (Kuppy) who, after our discussions on the topic and some sifting through the entrails of ETFs, offered up the following:

So, this should be pretty easy to sort out.

Crawford & Co has two classes of stock, A and B. The A shares pay a dividend that is 2 cents a quarter higher than the B shares. There are differences in voting rights, but as there’s a control shareholder, those are irrelevant.

Therefore, a simple analysis says that the A shares ought to trade at a moderate premium to the B shares to account for the nearly 1% higher annual dividend yield. NOPE!! The B shares are in the Russell 2000 index and the B shares now trade at roughly a 35% premium to the A shares.

Now, I’m not here to pass judgement on the investment merits of Crawford and the A or B shares. I have done no analysis on the company and have no opinion on if it is a good investment or not. However, I know that the A shares are better than the B shares as you get a higher dividend and there is no logical reason for the B shares to trade at a huge premium except that the Russell 2000 index has to keep buying them as more money is allocated to the index.

Two years ago, I noted how index funds and ETFs were warping asset valuations and creating opportunities for those who were willing to seek them out.

This trend has only accelerated since then and has grown from something of a curiosity in certain asset classes into a true bubble that is doomed to eventually pop. There are now hordes of overvalued assets that have no justification for their overvaluation, except that index funds have to own them. Like all bubbles, this one too will burst.

In the interim, there will be huge opportunities created by how index funds misallocate capital. As I said earlier, I know nothing about Crawford, but if I wanted to own it, I sure as hell wouldn’t be buying the B shares when compared to the A shares. Additionally, I feel pretty confident in saying that at some point in my career, the A shares will trade at a premium to the B shares—as they deserve to.

At the same time, I wouldn’t be betting that this spread collapses any time soon either. Shorting indexing has been a widow-maker for many in the hedge fund industr y— it’s hard to fight against fund flows.

In finance, when a trend gets in motion and the marketers start pushing it (indexing and ETFs today) you can expect it to go further than is logically possible, but the hangover will be pretty epic. Along the way, there will be a lot of money made by better understanding the flaws in these indexes and front running them — much as I front-ran the marketing department back in March.

As a final note, I’d like to share a chart with you from Passport Capital showing the median total returns of markets graduating to the MSCI EM since 1994. If you can’t beat the indexers, you might as well make money off of them by getting there first.

I think it’s probably worth going back to that article from 2 years ago because it shows exactly how we made money on similar anomalies.

Think of it this way, as the indexing movement has grown, so have the assets under management — leading index funds to become key factors in access to capital. You now have really bad companies that have overstated market valuations, simply because the index has to buy it — yet you have high quality companies that should get access to capital, but are starved because they are not in the index, or not in the index at an adequate weighting.

In the real world, we call this socialism—basically starving the strong in order to prop up the stragglers. In the investment world, this is called indexing.

Rather than continue to bemoan modern portfolio theory, I’d rather focus on how this shift in asset allocation will create opportunities. No chart better illustrates this than the performance of Banco Espirito Santo 2023 subordinated debt:

Does anyone not know that European banks have issues (remember this was 2 years ago)? Does anyone actually believe that the European financial crisis is “solved?”

Any proper perusal of the financial statements would tell you that many European banks have “issues.”

Banco Espirito Santo didn’t suddenly have a problem — it has been troubled for a very long time. The difference is that about four weeks ago, a payment at the parent company was missed and someone suddenly noticed that the problems mattered.

Look at the chart above—the sub debt traded over par, just 5 weeks ago!! That is what happens when the financial system is managed by indexers. They simply buy what they’re told to buy—they do no research. If it is in the index, they need to own it, and we all know that bonds have been a very hot product with lots of inflows over the past few years.

How do you make money off of this? The key is research and knowledge. The good news is that all sorts of assets are mispriced. In the past, these would be mispriced because humans made mistakes in valuing them. Now they’re mispriced because they are part of a big index and some computer keeps buying them—creating a situation of overvaluation. Or they aren’t yet part of the index and no one knows they exist.

An 80% gain in a month from having realized that a debt payment at a parent company would be missed, is a huge gain. There are more gains like this out there.

Chris again…

My question for today:

Cast your vote here and also see what others think

– Chris

“I own last year’s top performing funds. Unfortunately, I bought them this year.” — Anonymous

Liked this article? Don’t miss our future missives and podcasts, and

get access to free subscriber-only content here.

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The simmering cold, if heating up with every passing day, war between Trump and the press may be about to turn conventional, with the occasional chance of an ICBM.

Just days after calling out CNN fake news during his first press conference of 2017, Esquire reports that according to three senior officials on the transition team, the incoming Trump administration is “seriously considering” a plan to evict the press corps from the White House.

If the plan goes through, one of the officials said, the media will be removed from the cozy confines of the White House press room, where it has worked for several decades. Members of the press will be relocated to the White House Conference Center—near Lafayette Square—or to a space in the Old Executive Office Building, next door to the White House.

Trump’s press secretary tried to cast the possible relocation of the press corps as a matter, in part, of logistics. “There’s been so much interest in covering a President Donald Trump,” he said. “A question is: Is a room that has forty-nine seats adequate? When we had that press conference the other day, we had thousands of requests, and we capped it at four hundred. Is there an opportunity to potentially allow more members of the media to be part of this? That’s something we’re discussing.”

He added that “There has been no decision,” yet but acknowledged that “there has been some discussion about how to do it.”

Other Trump staffers, however, explain that it’s not business, it’s personal. “They are the opposition party,” a senior official was quoted by Esquire. “I want ’em out of the building. We are taking back the press room.”

A brief history of the White House press room:

Reporters have had some sort of workspace at the White House since Teddy Roosevelt’s time, but the current press room is an artifact of the Richard Nixon era, the dawn of the symbiosis of the press and the modern presidency. The “room” is actually a space containing work stations and broadcast booths, as well as the briefing area that is so familiar to viewers of presidential news conferences.

 

For the media, the White House press room—situated on the first floor, in the space between the presidential residence and the West Wing—is not only a convenience, with prime sources just steps away. It is also a symbol of the press’ cherished role as representatives of the American people. In the midst of the George W. Bush presidency, when relations between reporters and the Administration were growing testy, the White House press corps was removed from the press room for nearly a year, while the facility was remodeled. The move prompted such concern that the president himself had to offer his assurance that it was only temporary. (As it happened, press conferences were held at the White House Conference Center during the renovation).

Ultimately, it boils down to what Esquire calls “the media’s presumption of entitlement” which Trump officials “requires a change.”

If there is a credo that reflects the culture inside the James Brady Briefing Room (named after President Ronald Reagan’s first press secretary, who was wounded by a bullet meant for Reagan), it is that presidents come, and presidents go, but the White House press corps is forever. In that sentiment, some in the transition team discern precisely the attitude that led to the revolt that elected Trump president.

Whatever the philosophical consequences, a move of this magnitude by Trump would lead to even greater antagonism between the president and the press, which would likely lead to an even greater focus not so much on Trump’s policies and proposals, as on Trump himself as the conflict between the president-elect and the press hurtles along toward some yet undetermined climax.

via http://ift.tt/2iukQVD Tyler Durden

The media was rife with ‘I told you so’ headlines yesterday, after reports from more unnamed sources said the first order of business for the Trump administration was to hold a summit with Vladimir Putin, in Iceland, just like Reagan did with Gorbachev, circa 1986.
 
The headlines were smug and the Twitterati of newly born left wing militarist war mongers were resplendent with calls for martial law or protests or anything that could stop Donald Trump, an obvious traitor against America — a revolting person of low qualities who enjoys to be urinated upon by Russian hookers.
 
The only problem with that narrative, as touching as it may seem, is that it’s completely false. According to Trump’s press secretary, it’s all fake news.
 

Here is what Bloomberg peddled for news yesterday.
 

Donald Trump’s advisers have told U.K. officials that the incoming president’s first foreign trip will be a meeting with Russian President Vladimir Putin, potentially in Reykjavik within weeks of taking office, the Sunday Times reported.
 
Trump plans to begin working on a deal to limit nuclear weapons, the newspaper said, without providing details. It cited an unidentified source for the summit plans, and added that Moscow is ready to agree to the meeting, based on comments from officials at the Russian embassy in London.
 
The paper, citing an unidentified adviser to Trump, told the Times that the president-elect, who will be sworn in on Jan. 20, will meet with Putin at a neutral venue “very soon.”
 
In eyeing Iceland’s capital, Trump’s team may be hoping to recreate the optics of a Reagan-era nuclear agreement. Former President Ronald Reagan and Mikhail Gorbachev, then general secretary of the Soviet Union’s Communist Party, held a two-day summit in Reykjavik in October 1986 to work on what eventually became a major nuclear disarmament treaty between the two superpowers in 1987.
 
Trump’s transition team didn’t immediately respond to a request for comment.

 
Did the media just make up this story out of thin air in an attempt to further deride Trump? I must admit, only in a bizarre world, such as the left find themselves creating for themselves, is holding meetings with a military super power in the attempts to normalize relations and preserve peace a bad thing. Alas, we are living in an era of war, where the military industrial complex works overtime to control useful idiots to foment anger and sway public opinion toward (you guessed it) MOAR WAR.
 
This story was likely leaked by team Trump on purpose, in order to make the media look like jackass fools. By leaking falsehoods to an ornery and invective media, Trump keeps them on their toes and makes them second guess anything they hear coming out of his quarters, an effective disinformation strategy used to fool an enemy during a time of war.

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