another site
First VIX dumped-n-pumped this morning, then Russell 2000 (ETF and Futures) flash-crash at lunch time, and now, amid heavy volume, someone decided it was the perfect time to panic-buy S&P, Dow, and Nasdaq futures…
Some contest to Russell 2000’s earlier flash crash…
Th hunt for a narrative to explain this utter farce has started… Did Bitcoin algos just get switched on to trade S&P minis? Bitcoin just topped $2500!
via http://ift.tt/2rBhdpu Tyler Durden
The majority of Americans don’t think Trump should be impeached.
The Hill reports:
A majority of American voters say there is no evidence of collusion between members of President Trump’s campaign and Russia and most are doubtful that investigations into the matter will lead to impeachment.
Those are the results of the new Harvard-Harris survey, provided exclusively to The Hill, which found that 54 percent of voters said they have not seen evidence to suggest that Trump campaign officials conspired with Moscow to influence the 2016 election.
Respondents were largely split along partisan lines, with 80 percent of Republicans saying there is no evidence of collusion and 74 percent of Democrats saying there is. Only 38 percent of independents said there is evidence of collusion.
When voters were asked, irrespective of the evidence, whether they believe that Trump campaign officials had coordinated with Moscow, 52 percent said no and 48 percent said yes. A majority of independents, 54 percent, didn’t think there was any collusion.
***
Fifty-nine percent of those surveyed said they expect the [special prosecutor’s] investigation, now led by former FBI Director Robert Mueller, will lead to the end of the Russia inquiry, while 41 percent said it would lead to Trump’s impeachment.
But Americans don’t buy Trump’s claim that he’s “draining the swamp.”
Politico writes:
Less than a quarter of Americans surveyed in a new Monmouth University poll released Wednesday said President Donald Trump is making progress on his promise to “drain the swamp” of Washington corruption.
Thirty-two percent of those polled said Trump is actually making the “swamp” worse, while just 24 percent said he is draining it. Thirty-five percent of respondents said the president has done nothing to change Washington’s culture.
Indeed, the real problem with Trump isn’t that he’s a Ruskie-lover … it’s that he’s just as much of a sell out as our other recent presidents.
via http://ift.tt/2rjbLrB George Washington
Authored by Kevin Muir via The Macro Tourist blog,
A few readers have asked me to tell more stories about trading. They encouraged me to share more of my experiences throughout the years.
After giving it some thought, I decided that instead of taking the easy road and recounting a tale of when I was fortunate enough to nail some trade, I would approach from the opposite direction. In keeping with my theme that all I bring to the party is 25 years of mistakes, I have decided to recount a losing trade. And not only that, instead of just picking one losing episode, I will confess a weakness I still struggle with today.
But before I do that, I would like to talk about a book. I have always been a big Michael Lewis fan. Ever since reading Liar’s Poker as a young kid trying to make it onto a trading desk, it has held a special place in my development. Throughout the years, as Michael has published more books, I have devoured them with a ferocity reserved for just a handful of authors.
Yet when Lewis published his most recent book, The Undoing Project, I did not rush out to buy it. The story of two psychologists and their relationship throughout the years? It sounded hokey and not at all interesting. Deciding Michael had finally jumped the shark, I ignored the new release.
Lucky for me, my old man is retired and has more time on his hands. More importantly, he did not suffer the same prejudices. He bought it. After reading it, he plopped it in my hands and encouraged me to give it a whirl.
Was I ever wrong about my initial impressions. Michael Lewis’ The Undoing Project could be one of his finest books. As traders and investors, we should all be forced to read it.
The psychological concepts the two main characters discovered are essential to understanding the constant battle we are all fighting when we trade. The themes throughout the book are complex and become more nuanced, but at its heart, the book is about the understanding that human beings do not act rationally with anywhere near the frequency that most of us believe.
Specifically, humans have trouble with statistics. There are tendencies embedded within us that are difficult to overcome. In fact, the story’s two heroes developed experiments designed to exploit these biases. It was no surprise that the average person failed to overcome this human flaw. But more importantly, even professors who were trained in statistics were unable to correct for this bias.
In their breakthrough paper, the two psychologists concluded;
“People’s intuitive expectations are governed by a consistent misperception of the world.”
This observation has profound ramifications for almost all social sciences. Economists especially, base their entire framework on people behaving rationally. Yet these two psychologists had just proven that this was not always the case.
There was one part of the book that really hit home. It was when a statistics professor explained that he understood what was happening with the experiment, yet he felt the pull to go the other way. His logical brain was telling him one thing, but another part was telling him something different.
And for me, this is the perfect analogy to one of my biggest trading weaknesses.
Do you know those days when something dramatic happens in the market and stocks rocket up 1% or more at the open? Maybe it is a big employment report, or maybe some Central Bank eases.
Either way, the market opens at 9:30 and you are staring at a big gap open. Everyone is all bulled up, and excitement fills the air.
Let me assure you, I know the statistics. By far and away, on those days, the most likely outcome is for the market to chop around for the first half hour, fake a couple of sell offs, then start grinding higher. At lunch, the grind might slow down, but then at 1pm, the buying resumes. At 2:30pm there is often a decline, and it looks like it might roll over. Yet that dip is met with more buying, and the market proceeds to rip into the close, finishing at the highs of the days as the shorts cover. Although this doesn’t always happen, this is the correct bet. In fact, it’s better than the correct bet, it’s a great setup.
But I find it extremely difficult to trade this scenario. In my mind, I have glorified the handful of times (most likely one hand) that the gap open proved to be an “all baked in situation.” I distinctly remember a couple of days on the program trading desk where my floor partner and I stood in there, shorting futures to locals and ETFs to institutional clients, taking the other side of the buying panic. Before we could figure out how short we were, the buying dried up, and then next thing we knew, the market rolled over, and we were deep into sell programs, buying back our position while hammering stocks lower in the cash market with our sell baskets.
Even as I write this, there is a smile on my face. I loved being right while everyone else was wrong. It was almost romantic.
Yet I can’t tell you how much money I have wasted over the years trying to replicate these romantic dreams in my head. It is enormous, and it has cost me so much mental and actual physical capital. Springsteen wrote about the old deadbeat sitting at the bar thinking ‘bout it, and I now understand a little better what he meant.
When it comes to trading, romance is for losers.
I struggle with these different tugging forces. My logical brain knows I shouldn’t be shorting that open, but the other side desperately wants to relive those glory days.
And this is what trading is all about. We are constantly battling what we want to do, and what we should do. Even those who understand the game exceptionally well, are constantly battling their own inner demons.
Everyone’s demons take a different form, but make no mistake, we all have them.
Michael Lewis’ book told the story of the psychologists who proved they exist. We are not rational actors. Our brains are not wired to make consistent correct statistical calculations. The sooner we understand that reality, the better our trading will be.
I have by no means conquered my affliction. A little part of me worries that by writing this piece, I have almost assured the next big gap open will fail and roll over. Maybe I should just try shorting the gap higher one more time…
via http://ift.tt/2rSF810 Tyler Durden
Crazy John McAfee from the jungles of Belize is running a tiny company, specializing in cyber-security and mining bitcoins.
Revenues for the last quarter eclipsed $300m, from basically nothing when he took over, yet no one gives a shit.
The stock has been stuck in retard range, thanks to a pending SEC execution.
Nevetheless, McAfee says his little offal of a company will be profitable by year end — all thanks to bitcoins.
“We will definitely be profitable before the end of the year,” McAfee said in a phone interview Wednesday. “From bitcoin mining, we will get the experience and expertise to apply the blockchain to our security products.”
Their bitcoin mining operations are located deep in the mountains of Washington state, manned by two lads whose only task is to ensure the air conditioners are operating efficiently, in order to protect the mining machines from overheating.
There’s digital gold in them hills.
On Monday, the company said it got financing to acquire 1,000 mining computers from Bitmain Tech, a Chinese based firm. With these new computers, MGT will have a total of 1,300 mining for bitcoins. McAfee’s goal is to become the biggest bitcoin miner in the world.
With the new mining capacity, McAfee intends to generate 225 bitcoins per mo, up from the current 100.
The blockchain has taken on an absurd amount of ‘alternative currencies.’ One of the hot one’s now is based on RARE PEPE art, designated as PEPE CASH, backed by rare Pepe art. You can’t make this stuff up. McAfee insists we’re not in a crypto-bubble.
“No matter how much government and regulators may scream and complain, there will be a world standard alternative currency,” McAfee said. “Bitcoin appears to be the one… It cannot possibly be a bubble.”
Aside from suing Intel for the right’s to rename their company John McAfee Global Technologies, McAfee’s employees, 12 in total, are focused on cyber-security. They’ve developed a product dubbed ‘Sentinel’, which is an anti-hacking software, and they’re developing a ‘privacy phone’ that has a kill switch on it.
“I don’t know anyone more capable than me,” said McAfee. “I have never lost in terms of business and I certainly don’t intend to start now.”
Content originally published at iBankCoin.com
via http://ift.tt/2qYe9RA The_Real_Fly
Iron ore led a slump in industrial commodities after Moody’s Investor Service downgraded China’s credit rating and warned that the country’s debt position will worsen as its economic expansion slows. However, one glance at the divergence between industrial metals' collapse and the sudden buying panic in Chinese stocks confirms what Asher Edelman noted yesterday about the US markets, China's so-called "National Team" was clearly intervening…
As Bloomberg reports, Iron ore futures on the Dalian Commodity Exchange fell as much as 5.6 percent to 452 yuan a metric ton, almost by the daily limit, before closing at 455.50 yuan, extending Tuesday’s 3 percent loss. Nickel led a broad slump among base metals, dropping as much as 2.4 percent to $9,125 a ton on the London Metal Exchange. Nickel stockpiles rose the most in more than a year.
In context, the overnight reversal in Chinese stocks is even more obvious…
Moody’s move, downgrading China’s debt to A1 from Aa3, adds to concerns about the effects of a slowdown in the country’s economic growth, following on from downbeat manufacturing readings and weak commodity imports, Simona Gambarini, an analyst at Capital Economics Ltd., said by phone from London. “We’re not particularly concerned about credit growth getting out of hand, but in regards to industrial metals, we have been negative on the outlook for some time on the basis that Chinese growth will slow.”
Will The National Team be back tonight?
via http://ift.tt/2rWsSvA Tyler Durden
Montana Republican congressional candidate Greg Gianforte reportedly "body slammed" Guardian reporter Ben Jacobs during an interview after being pressed for his opinion on the CBO healthcare score. Gianforte is the Republican candidate in Thursday's special election for Montana's open U.S. House seat.
"I'm sick and tired of you guys! The last time you came in here you did the same thing. Get the hell out of here! Get the hell out of here!
Greg Gianforte just body slammed me and broke my glasses
— Ben Jacobs (@Bencjacobs) May 24, 2017
Jacobs told MSNBC's Chris Hayes that he was trying to ask Gianforte about the Congressional Budget Office's financial analysis of the Republican health care plan when "the next thing I know, I'm being body-slammed."
"He's on top of me. My glasses are broken," Jacobs said. "It's the strangest thing that's happened in my entire life reporting."
Jacobs said he fell on his elbow and was waiting to be X-rayed.
The Guardian has released the audio of the event…
NBC News reports that , in a statement, Shane Scanlon, a spokesman for Gianforte's campaign, alleged that Jacobs crashed an interview Gianforte was giving another reporter "and began asking badgering questions," adding that "Jacobs was asked to leave."
"Greg then attempted to grab the phone that was pushed in his face," Scanlon said.
"Jacobs grabbed Greg's wrist, and spun away from Greg, pushing them both to the ground.
"It's unfortunate that this aggressive behavior from a liberal journalist created this scene at our campaign volunteer BBQ," he said.
The Gallatin County Sheriff's Office and and representatives of the state Republican Party didn't immediately respond to NBC News' requests for comment.
The question is – was the video more like this…
@Bencjacobs This is a body slam. Did this happen? http://pic.twitter.com/5NHBSQlC6p
— Kristopher Tapley (@kristapley) May 24, 2017
Or this…
@kristapley @Bencjacobs Probably like this http://pic.twitter.com/aW9Xn3znh2
— Hman(Harold Romero) (@H_man78) May 24, 2017
But on a more serious note, it appears the constant tensions between a liberal media and not-liberal politicians is reaching a tipping point.
via http://ift.tt/2qXNMuJ Tyler Durden
Authored by Richard Rosso via RealInvestmentAdvice.com,
The financial services industry is headed for the greatest debate in recent history.
Regardless of what occurs from here –a continued stock market bullish trend or reversion to long-term averages which chronicles back to 2000 levels, the confines of discussion, the heated verbal and written volleys tossed deep from the roots of philosophical differences will forge a permanent rift between the steadfast buy-and-hold brethren and the stewards who manage risk by preserving capital (the dreaded group with a market escape plan), through the forthcoming bear cycle.
The stakes are higher than I can recall.
Future generations: Those we are depending on to lift the globe from the depths of a demographic malaise, groups nowhere near as ostentatious as Baby Boomers; generations that savor experience over product and have been wary of the risk in stocks, are beginning to relent and take notice of this bull market trajectory.
How they experience the ride in stocks and what occurs from here will shape their investment philosophy. I fear Millennials to Gen Y are going to get fooled, taken out. Smacked in the face.
Betrayed.
The buy-and-hold side, ‘the setters and forgetters,’ which I’ll explain, appear to be winning this battle so far and that’s part of the reason for my concern and ironically, a matter-of-fact bullishness.
For now and the near future it’ll be hunky dory. You see, I think we are in the midst of witnessing the greatest market bull stampede since 1995 through 1999. I believe it’ll eventually make the tech bubble explosion sound and feel like a 5-year old throwing down in joy, a bang pop noise maker on hot cement through a humid-heavy July 4th.
However, this is just my humble opinion.
I hold the utmost respect for the market as it’s designed to fool me as much as possible and at every gyration. I’m open-minded and with the assistance of our no-spin, in-house data crunching at Real Investment Advice, I remain more eagle, or eye witness, as opposed to a ‘bull’ or ‘bear.’ And I observe here, the beginning of the “bubble’s bubble.”
The break out of a long-term sideways market cycle which began in 2013, stalled in early January 2015 when the S&P 500 closed at 2058. On November 9, 2016, it stood at 2163. Watching paint dry through the summer of ’16 would have been more exciting than the market action. It was torturous. I described it to Lance Roberts at the time as suspended animation.
Then the presidential election happened and the rest is history…
I’m hesitant to refer to the current market as a bubble. I refer to it as the boom that leads to a bubble. See, my definition, perception, differs from market soothsayers. It isn’t in a textbook. It emerges from my boyhood summer activities on a New York street. The greatest bubbles I recall were the largest ones, most magnificent, right before they burst in a soapy, rainbow mess, stung my eyes like slimy razors, and forced me to lament through a wince:
“Wow – that was freakin’ incredible!”
The current Shiller Price-Earnings Ratio stands at 29X; the tech-wreck Shiller was a hair short of 45X in December 1999. My definition of bubble begins at the apex of the ‘pop’ of the previous high. From there, I believe only if or when we exceed that limit, that the market should be deemed the “bubble’s bubble.”
For now, I’m going to outline the factors or input that is breathing sustainability into this phenomenon.
Don’t misunderstand: My belief is when this market adjusts, there’s going to be stinging eyes from tears spilled over brokerage statements and the mutter of “I got suckered again,” over and over.
You see, every bubble differs in composition. The boom-bust cycle feedback loop we’re traveling now isn’t fueled by an industry or sector. It’s greater in scope. The wind in the proverbial sails is a confluence of factors fueled by post-election animal spirits and a lower-than-longer interest rate environment which is the prime food source or hive for the bull.
Poor demographics, below-average productivity which keeps the Federal Reserve and yield curve captive in a flat wasteland of inertia, a new generation of financial professionals who never experienced a bear market, an overwhelming number of passive preachers who believe indexing (without regard to risk management), is some form of financial nirvana, a brokerage industry under pressure to comply with a looming Department of Labor fiduciary standard slated implementation on June 9, stirred with the hope of corporate tax reform ‘sometime in the future, (it’ll be big)’, boils a seductive porridge the bubble’s bubble can’t get enough of.
Regardless of the possible repeal or modification of the DOL ruling under the current presidential administration, investors are demanding a greater standard of care from those who assist them.
Big box financial retailers are desperately scrambling to create procedures designed to reduce possible liabilities that come from taking on fiduciary responsibilities. The last thing on their minds is to “do what’s in the highest best care of the client.” The paramount concern is to work with their cadre of lawyers to minimize business risk for themselves. The investment risk you absorb will remain of little concern except for how thinly they determine your ‘risk profile.’ As long as your responses to risk queries are recorded, you’re screwed.
A method I know is growing popular with several financial behemoths is to take the portfolio decisions out of the hands of otherwise knowledgeable employees and place them with a group in a centralized location thus creating a homogenized, factory assembly-line process allegedly for closer monitoring.
Strangely, and perhaps insidiously, I wholeheartedly believe the intention is to build closer ties to the firm thus severing the relationship with the adviser, who is always deemed a flight risk. This method also frees up frontline professionals to sell more packaged asset-allocation product or you got it, feed the profit-margin beast.
The next bubble pop may be a game changer for the industry again and motivate financial professionals who do a magnificent job of selling products or outsourcing money management which ostensibly distances themselves from ground zero of an imminent explosion (hey, it’s the market, not me), to possibly re-think their careers. Take on a fiduciary calling.
Perhaps a bubble or at the least, a severe bear market is required to cleanse the system, drain the swamp, by migrating miscreants to more fitting livelihoods like pushing phone service deals at T-Mobile or taking roles as activities directors for Carnival Cruise Lines. We’re due.
The best activities director on a cruise ship: Julie from The Love Boat.
It’s a romantic notion. A nice thought. Meh, it keeps me motivated to consistently provide what I consider ‘full circle’ financial guidance, the complete story, pros & cons, and planning for risk markets that we strive for at Real Investment Advice.
While we await comeuppance, let’s review what stirs inside the bubble’s bubble.
The ‘passive’ revolution we’re witnessing is to provide a portfolio solution which is based on the demand for the products, regardless of how expensive the products may be.
To be clear, I’m an advocate for index investments and lower internal portfolio costs. I was one of the first financial professionals at my former employer to use market cap weighted exchange-traded funds in client portfolios to replace mutual funds.
My beef is how indexing is perceived by unsuspecting investors as safe and insidiously branded or allowed to be positioned by the buy-and-hold faction, as the ultimate never-sell strategy.
Not because it’s best for the investor; well, that’s a convenient half-truth. Mostly, it’s optimum for the adviser under pressure who can offer a pretty asset allocation solution in a package and move on to the next notch on the sales belt.
The front-line consultant of a publicly-traded big box financial retailer is under never-ending intense pressure to increase margins for shareholders. The performance of the stock price is the priority. I was provided this wisdom, which I have never forgotten, from a former regional manager at Charles Schwab – “It’s shareholders first; then follows the rest of us, including clients.”
If passive is what clients want, passive is what they shall receive, but in a manner that can be delivered and scalable by a financial retailer in a CYA/fiduciary manner. It’s time efficient to get cash fully invested in an asset allocation at once; buy full in to the story that it’s time in the market not timing the market, regardless of current valuations or expected returns, especially as corrections appear more as distant memory than reality. READ: The Deck is Stacked: Putting Risk and Reward into Perspective.
Here’s how I see it as the bull rages on:
The asset allocator factory box designers are diligent at work, creating neat, easy-breezy investment packages positioned as products or “solutions,” thus forging a path perhaps we haven’t walked so passionately before.
The demand for these attractive boxes filled with a colorful palate of panacea in the form of passive investments, may drive valuations higher than we’ve seen, even greater than the tech bubble, which will leave investment veterans perplexed.
Market this sausage to a new breed of adviser who perceives passive as safe, has rarely witnessed a correction or bear market working in the trenches with clients, and serve it up on the finest wrapper Wall Street marketing has to offer, and God help us.
Why?
The investment vs. valuation connection is aggressively being severed. Asset-allocation solutions are being positioned to ‘pros’ as simple, third-party adjuncts to an overall financial planning experience. The intoxicating promise of ease and low cost which places what you pay in the form of valuations in a clean-up spot, or makes it an afterthought (if that), is incredibly alluring. Buy it up now, let it grow, harvest later. Simple.
After all, stock valuations are as easy to comprehend as nebulae millions of light years away.
So why bother?
Just buy the box. Open in 20 years. Hopefully, just hopefully, there’s something in there to show for it.
The demand for the product of stocks to market and maintain aggregate static asset allocation programs overrides the price paid for that product.
One of the best blogs I’ve read about “earningless” bull markets and the overall demand for stocks comes from http://ift.tt/1C0pqR6 in a piece penned The Single Greatest Predictor of Future Stock Market Returns.
At this juncture, a lack of viable alternatives, the massive growth of robotic allocations of passive investments packaged and sold, and the aversion of the corporate sector to issue new equity has created a demand for stocks similar to the demand for a product, like an IPhone. Regardless of price, if the IPhone is in demand, you’ll stand on line for days to get it. It doesn’t need to make sense, don’t try to rationalize it.
From the blog post:
Ultimately, the price of equity is determined in the same way that the price of everything is determined–via the forces of supply and demand. For any given stock (or for the space of stocks in aggregate), price is always and everywhere produced by the coming together of those that don’t own the stock and want to allocate their wealth into it, and those that do own the stock and want to allocate their wealth out of it.
It’s all up to the allocators–they decide how much of their wealth they are going to allocate into stocks, how much exposure they are going to take on. Their preferences–or rather, their efforts to put those preferences in place, by buying and selling–set the price. Valuation is a byproduct of this process, not a rule that it has to follow.
Buy-and-hold is painted as the informed, responsible, pro-American thing to do with a portfolio. But, in terms of financial stability, it can actually be a very destructive behavior. Consider the classic buy-and-hold allocation recommendation: 60% to stocks, 40% to bonds (or cash). What rule says that there has to be a sufficient supply of equity, at a “fair” or “reasonable” valuation, for everyone to be able to allocate their portfolios in this ratio? There is no rule.
If everyone were to jump on the buy-and-hold bandwagon, and decide to allocate 60/40, but equities were not already 60% of total financial assets, then they would necessarily become 60% of total financial assets. The excess bidding would not stop until they reached that level. It doesn’t matter that the associated price increase would cause the P/E ratio to rise to an obscenely high value. The supply-demand dynamic would force it to go there.
If aggregate demand for stocks continues, then valuations will be an afterthought. However, there is a risk to this rosy scenario. Currently, household equity percentages among individual investors stand at their highest level in two years at 67.6% per the March AAII Asset Allocation Survey. Prior bull cycles have seen equity allocations exceed 70%. Granted. Yet, consumer sentiment or the ‘feel good factor’ is at thresholds we haven’t crossed since 2004. Confusing.
Keep in mind, stocks don’t need to correct exclusively in price, they can in time. In other words, the higher valuations our team calculates for stocks can even out over the next few years ostensibly pulling down the long-term averages of stocks to 2%, maybe less.
And the reward for stock risk flies in the face of Warren Buffett’s commentary that “bonds are lousy investments.” Let’s see – 2% with 100% probability of recovering my principal at the end of a period or 2% return with a tremendous chance of loss at the roulette wheel. Hmm…
The demand for risk assets is going to require several conditions to remain consistent. I’ll cover what I consider the most important.
Which gets me to:
Passive investing is exploding in popularity. I’m concerned about the true reasons why.
From a recent article in the L.A. Times:
When money flows into conventional index funds, they must buy the stocks in their index regardless of the underlying companies’ financial health or outlook.
“Of course it distorts things,” said Rob Arnott, who has pioneered a fundamentals-based form of indexing at Research Affiliates in Newport Beach. “Price discovery,” the term for research that gets to the heart of a stock’s relative value, “is diminished as fewer and fewer investors care about the fundamentals,” Arnott said.
The migration to passive investments is indeed exploding. Currently, 42% of all U.S. stock funds are in passive vehicles.
One reason is indeed lower costs. Indexing is definitely a bargain TYPE of investment (more on this coming), when compared to many actively-managed funds. Low internal fees is a positive for investors.
Unfortunately, I believe the overwhelming reason for the massive popularity of passive investments is performance or outperformance when compared to their actively-managed colleagues; the market momentum we’ve been experiencing since 2009 fueled by strong tailwinds of prolonged low rates, multiple quantitative easing programs, corporate share buybacks, and companies that operate lean and mean (it’s always a recession in corporate America when it comes to employee headcount), have forged accelerants to market increases.
However, cycles do change. Yet, nothing about that fact from passive preachers. Zero about bearing the full brunt of stock market risk. Nada about the math of loss.
Which gets me to:
Passive investing is not safe. Not by a long shot. To clarify: Passive is an investment type. It is NOT an investing process nor a manner to which RISK is managed.
The clearest thought I can conjure up about passive investments and bear markets is I have the finest potential to lose money at low internal costs. Never forget – Once wealth is allocated to stocks, it’s active. On occasion, radioactive. Plain and simple. Index positions must be risk managed. They bear the full risk of markets. The highs and the lows. There’s no escape-risk-free card for you.
The passive preachers make it sound like once you’re indexing there’s no need to manage risk. Diversification is supposedly the only means to do so, but beware. How you define diversification differs from how your broker does. READ: Never Look at Diversification the Same Way Again.
The granddaddy of indexing Jack Bogle of Vanguard readily tells the media that stocks are ‘overpriced.’ Future returns will be below average. In the next breath, he’ll suggest go all in because there’s nothing else you can do. If anything, that’s a pretty dangerous passive attitude to have considering the wealth carnage from math of loss, which again, is a topic that is never discussed.
Go for it. Select your own index or exchange-traded funds or work with a fiduciary to create an asset allocation plan. Regardless, a rules-based approach to rebalance overheated asset classes or exit stocks surgically through market derails as identified in Lance Roberts’ weekly newsletter, should be part of the process. That’s a full-circle approach to investing – The buy, the hold and the other four-letter word – Sell.
I’d keep the “sell” word on the “down low” with your passive friends. Go slow. Perhaps you can enlighten them. Help them redefine how passive should be perceived in the real world.
The current economic conditions handcuff the Fed and holds captive an upside move in rates which in turn, makes the bubble’s bubble a closer reality.
I’m no Lance Roberts however, I do believe stocks and bonds do vie for capital attention. Not based on an interest rate vs. equity earnings yield comparison, mind you. That’s just an ingenious Enron-like mathematical travail financial analysts devised to lead your portfolio into a high-risk, low-return trap and appear intelligent doing it. READ: Do Low Rates Justify Higher Valuations?
I am referring to the enduring nature of TINA, or “There Is No Alternative,” to stocks when the hefty lid on bond yields is considered. Warren Buffett on CNBC a few weeks ago called bonds “a lousy investment.” Why? Because who wants to extend their financial neck for a U.S. Treasury Note paying 2% plus for a decade?
No doubt interest rates can remain low for extremely long spans. Several prolonged periods are mind boggling to comprehend as outlined in this chart from Lance Roberts.
Some wines are shorter to age.
From the 1981 peak to 2003, yields of prime corporate and long duration government bonds declined by a thousand basis points.
Intermediate and long-term interest rates are a function of economic growth and inflation. As economic activity heats up, so does the demand for credit. As wages increase, so does the ability of a household to meet or take on additional monthly debt obligations. Unfortunately, wage growth has been stubbornly stagnant for 17 years.
Sentier Research, a powerhouse of information which reflects the financial state of the American household, offers a monthly data for household incomes.
Adjusted for inflation which is most important, median household real income peaked at the beginning of the Great Recession. Sadly, inflation-adjusted income is still .7% below the beginning of the year 2000.
Inflation has been trending at roughly 2%; GDP growth which was disappointing for Q1 2017 is due for a big pick up in Q2 per the Atlanta’s Fed GDP Now’s forecasting model which is estimating as of May 16, a 4.1% annual rate. We’ll be monitoring at Real Investment Advice as this model is updated six or seven times a month with at least one update following seven economic data revisions from the BEA.
The Real Investment Advice estimate for GDP growth isn’t as optimistic as the Atlanta Fed’s. In addition, we have witnessed how the GDPNow forecast gets revised lower repeatedly as economic data is released.
In the United States, we have experienced a prolonged period of below-average economic growth since 2000 that may endure through 2022, when a positive demographic cycle emerges. Read: The Long View – Rates, GDP & Challenges.
Structural headwinds will keep longer duration yields subdued and the Fed handcuffed to raise short-term rates as quickly as they prefer. I’ve been a broken record with this commentary since I began to study Japan’s economy in 2009.
The book “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession,” by economist Richard Koo, enlightened me to the similarities between the U.S. and Japan. The aftermath of deep recessions where household balance sheets are damaged combined with poor demographics, is a lethal structural blow to economic prosperity.
Overly accommodative central bank policies attempt to accelerate (they’re far from successful) or at the least, don’t stand in the way of recovery, which comes down to, for the U.S., a continued period of low interest rates.
The environment is perfect, as long as economic conditions just trudge along and the Fed is stuck, for the TINA monster to feed. Blame it on the demographics of an aging population, not enough young people forming households, excess debt, or poor savings rates. Pick your position. The backdrop is perfect for stocks to continue higher with sights near of the bubble’s bubble.
The continued positive momentum for stocks is a poor reason to let your guard down. On the contrary. More than ever as an investor, one must remain vigilant to take profits and rebalance. Stay humble. Understand the territory your wealth travels today can fall into a sink hole real fast.
Every long-term market cycle forges a unique path. Who knows how this one will crescendo. For now, I am sticking with the bubble’s bubble theory as I still observe too many Main Street investors who have some form of “spidey-sense” or talk doom when markets take in a short breath, which tells me after toiling in this industry since 1989, that the wall of worry that stocks climb, albeit aging like the nation’s infrastructure, is still intact.
However, when it crumbles, you can’t afford to get crushed.
I’m first and foremost a financial life planner, not a market analyst. However, when partnering with a client to create a retirement income distribution strategy, I fear now more than any other period since 2000, that sequence of return risk or a prolonged period of poor or zero portfolio returns, is a strong possibility in the future. After all, whether it’s through price or time, risk assets revert. It’s never different. As life goes, so do markets ebb and flow.
Oh, and the battle between the buy-and-holders and the risk managers?
It’ll be our financial civil war to fight; as an investor, whether choose to be or not, you will be pulled in unfortunately, by proxy. You see, your wealth will be on the line, the weapons chosen.
Yet again, we will fight.
You will bleed.
How much is up to you.
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At the end of April, we showed that the California housing market is getting just a “little frothy” again, when in the span of a few days a simple 2-bedroom house sold for 40% above asking. Now, according to a recent analysis by CoreLogic it appears that this was not a one-off event, because as many Californians struggled to gain a foothold in homeownership early this year, they were hindered as a surging stock market and other forces lifted sales of $1 million-plus homes to the highest level ever for a first quarter.
In a blog post by CoreLogic’s Andrew LePage, the real estate consultancy reports that the number of California homes that sold for $1 million or more totaled 10,562 during the January-through-March period, up 11.7% year over year and the highest on record for a first quarter. Luxury homebuyers purchased 2,523 homes priced at $2 million or more in the first quarter, up 11.8% year over year and also a record for a first quarter (Figure 1).
Maybe it’s just another opportunity to blame the Fed: historically there’s often been a correlation between a rising stock market and an increase in luxury home sales (Figure 2). Higher stock values can make potential homebuyers feel wealthier and in some cases stock proceeds are reinvested in real estate. Job growth and higher consumer confidence are among the other likely drivers of the record $1 million-plus sales last quarter.
Or maybe just simple math: as price appreciation continues, more homes reach or exceed the $1 million mark.
On average, $1 million-plus homes that sold last quarter were a bit smaller, and situated on smaller lots, compared with the average home and lot size for $1 million-plus sales over the past decade (more on this below). Last quarter’s share of $1 million-plus sales that were newly built homes – 11 percent – was lower than a year earlier, when it was 13.9 percent, but higher than the 10-year quarterly average of 8.4 percent. While the number of sales of existing (resale) $1 million-plus homes hit a first-quarter record high in this year’s first quarter, sales of $1 million-plus newly built homes were about 12 percent lower than a year earlier and about 30 percent below the first-quarter record set in 2006.
According to CoreLogic, California’s all-time high for the total number of $1 million-plus sales was 15,222 in second quarter 2016, which is also when the state experienced an all-time high of 3,508 sales of $2 million-plus homes.
Meanwhile, even as total California home sales – including all price levels – last quarter were the highest for a first quarter in five years, the number of sales of homes priced below $500,000 was the lowest for any quarter in nine years, since first quarter 2008. Home price appreciation and tight inventories in many markets have led to fewer sub-$500,000 sales. Last quarter 59.3% of all sold homes were priced below $500,000 – roughly the same level as during the previous three quarters and the lowest for any quarter in nearly a decade, since third quarter 2007 (Figure 3).
Last quarter the share of homes that sold for $1 million or more – 10.9 percent – was the second-highest on record for any quarter, behind 11.7 percent in second quarter 2016. The share of all homes that sold last quarter for $2 million or more – 2.6 percent – was also the second-highest on record, behind 2.7 percent in second quarter 2016.
Of the homes that sold for $1 million or more last quarter, nearly 77 percent sold for $1 million to $2 million, and the vast majority (91 percent) sold for no more than $3 million…. which probably means that when the Chinese finally leave Canada and hit California, watch out.
Other highlights from California’s $1 million-plus home sales in first quarter 2017, per CoreLogic:
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Authored by Paul Craig Roberts,
Those of us who have exited The Matrix are concerned that there are no checks on Washington’s use of nuclear weapons in the interest of US hegemony over the world.
Washington and Israel are the threats to peace. Washington demands world hegemony, and Israel demands hegemony in the Middle East.
There are two countries that stand in the way of Washington’s world hegemony—Russia and China. Consequently, Washington has plans for preemptive nuclear strikes against both countries. It is difficult to imagine a more serious threat to mankind, and there is no awareness or acknowledgment of this threat among the Congress, the presstitute media, and the general public in the United States and Washington’s European vassal populations.
Two countries and a part of a third stand in the way of Greater Israel. Israel wants the water resources of southern Lebanon, but cannot get them, despite twice sending in the Israeli Army, because of the Lebanese Hezbollah militia, which is supplied by Syria and Iran. This is why Syria and Iran are on Washington’s hit list. Washington serves the military/security complex, Wall Street and the over-sized US banks, and Israel.
It is unclear if the Russians and Chinese understand that Washington’s hostility toward them is not just some sort of misunderstanding that diplomacy can work out.
Clearly, Russia hasn’t interfered in the US presidential election or invaded Ukraine, and does not intend to invade Poland or the Baltics. Russia let go the Soviet empire and is glad to see it gone, as the empire was expensive and of little benefit. The Soviet Eastern European empire comprised Stalin’s buffer against another Western invasion. The Warsaw Pact had no offensive meaning. It was not the beginning, as misrepresented in Washington, of Soviet world domination.
I see a lack of clarity about the threat that Russia faces in Russian media reports and articles posted on Russian English language websites. I see a lack of clarity in Russian Foreign Minister Lavrov’s continued efforts to work out an accommodation with Washington. How can Lavrov work out an accommodation with Washington when Washington intends to dominate or isolate Russia?
Lavrov and Russian media organizations do not always show awareness that it is not Washington’s intention to accommodate other national interests.
It cannot be otherwise for these three reasons:
For the Russian Foreign Minister to believe that it is possible to reach an accommodation with Washington, other than a Russian surrender, is nonsense. Perhaps this is Lavrov’s use of diplomacy to delay the US attack while Russia prepares. Or perhaps Lavrov is just a diplomat who sticks to his last, despite the facts.
Much of the Russian media, both in Russian and foreign language broadcasts and websites, thinks that the Western misrepresentation of Russia is just a mistake and that that facts, once they are established, can rectify the mistake. These Russian journalists don’t understand that Washington could not care less about facts. Washington desperately needs an enemy, and Russia is the enemy of choice.
The Chinese government seems to think that Wall Street and US corporations are too dependent on the cheap Chinese manufacturing labor, which keeps the US system fueled with profits, to jeopardize these profits by going to war.
By underplaying the risk of war, Russia and China fail to mobilize world opposition to Washington’s recklessness and, thereby, enable Washington’s move toward war.
The presstitutes serving the National Security State continue to drive toward conflict. Consider Newsweek’s May 26, 2017, cover story with Putin on the cover and the caption: “The Plot Against America: Inside Putin’s Campaign to Destroy Democracy in the U.S.”
It is difficult to imagine such ignorant nonsense from a mainstream news magazine. Democracy in America has been destroyed by special interest groups, by a US Supreme Court decision that gave the reins of power to special interest groups, and by a hoax war on terror that has destroyed the US Constitution. And here we have the presstitutes saying that Putin is destroying American democracy. Clearly, there is no extant intelligence anywhere in the Western media. The Western presstitutes are either corrupt beyond belief or ignorant beyond belief. Nothing else can be said for them.
Consider Time magazine’s cover. It depicts Trump turning the White House into the foundation for the Kremlin and St. Basil’s Cathedral, which rise above the White House, symbolizing America’s subservience to Russia under President Trump. This extraordinary propaganda seems to be readily accepted by the bulk of the Western populations, peoples who will die as a result of their insouciance.
Even writers critical of Washington, such as Paul Street’s recent article on CounterPunch and the English language Russian website, Strategic Culture Foundation, cannot bring themselves to state the truth that the US military/security complex needs a major enemy, has elected Russia for that role, and intends to defend this orchestration to the end of humanity on earth.
Street writes about “How Russia Became ‘Our Adversary’ Again.” According to Street, Russia became the enemy of choice because Russia protected part of the world’s population and resources from being exploited by global capital. Russia became the number one enemy of the US also because Putin stopped the American exploitation of Russia economically. Putin is in the way of Washington’s exploitation of the world.
Much of what Street says is correct, but he is hesitant to state it in a straightforward manner. He has to dilute his message by repeating the obligatory propaganda. Street calls Trump, who originally wanted normal relations with Russia, an “orange-haired brute . . . [who admires] Putin’s authoritarian manliness.”
Trump’s problems originated in his goal of normalizing relations with Russia. Hillary is the brute who intended to worsen the relations.
Putin is a democrat, not an authoritarian. The authoritarians are in Washington. Surely Paul Street and CounterPunch know this. But Street has to protect himself from speaking some politically incorrect truths about the US and Russia by throwing in some anti-Putin propaganda and denigrating President Trump.
That peace with Russia and China would undermine the justification of the $1,000 billion military/security budget, and that the military/security complex is the American government, is too much truth for most writers to state.
Truth is the most rare element in the Western world, and we will not be permitted to have much of it much longer. Increasingly, truth is difficult to find. Soak it up while it is still available.
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According to a new survey from Manulife Bank, nearly 75% of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%. And, given that the average house in Canada costs roughly $200,000 and carries a monthly mortgage payment of $1,000, that means that most Canadians couldn’t incur and $100 hike in their monthly mortgage payments without possibly going under. Per CBC:
The bank polled 2,098 homeowners — between the ages of 20 to 69 with household incomes of $50,000 or higher — online in the first two weeks of February.
Fourteen per cent of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38 per cent of those polled said they could withstand a payment hike of between one and five per cent before having difficulty. An additional 20 per cent said they could stomach a hike of between six and 10 per cent before feeling the pinch.
Add it all up, and that means 72 per cent of homeowners polled couldn’t withstand a hike of just 10 per cent from their current record lows.
Of course, such a huge sensitivity to small budget fluctuations isn’t a great sign when we’re in the midst of record-low interest rates and about to enter a period of sustained hikes.
“What these people don’t realize is that we’re at record low interest rates today,” said Rick Lunny, president and CEO of Manulife Bank.
If mortgage rates increase by as little as one percentage point, some borrowers could be facing a hike of 10 per cent on their monthly bills. A bigger mortgage rate hike would bring more pain.
Meanwhile, 45% of millennials in the same survey said they had to borrow money from their parents to purchase their home and 25% admitted they have no savings.
Well, at least Americans aren’t the only ones that have no idea how to save.
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