Tag: finance

As readers will recall from our recent preview of what equity performance this month was supposed to look like, at least based on historical data, April was supposed to be the best month of the year.

Sadly for the bulls, it has been anything but. That’s the good news. The bad news is that as most know the old saying “sell in May and go away”, there is nothing but pain for the next six months.

As FBN’s JC O’Hara explains, the “Sell in May” slogan heard around Wall Street has some truth behind it. The gist of the saying suggests it’s better to be out of the market come May and re-enter during the fall months.

We ran the numbers over the last 20 years and found validity to the statement. We created a model that went long the market Jan, Feb, March, April, Oct, Nov & Dec. as well as a second model that went long the market May through Sept 30. We concluded that the May – Sept time period model, on average over the past 20 years, would have lost you money. The majority of the time the market was unimpressive over those summer months. The majority of the markets returns were housed in the first model that was long the months into May and the months after Sept. While there were instances where May – Sept was negative, the risk adjusted returns suggests investors do not necessarily need to exit the market but should expect flat markets with little if any of the yearly gains coming during this time period. The real money was made during other 7 months of the year. As we approach May we are not in the SELL camp yet, but rather acknowledge the fact that a volatile, stagnant, sideways moving market is what history implies. Over the next few pages of this report we examine the past 20 years and highlight where the majority of returns are found.

Naturally, all of the above implies that rigged, centrally-planned markets are even remotely comparable to normal historical markets, and trade paterns. They aren’t. Still, for those who are curious what the infamous Sell in May phenomenon looks like, here it is:

 

And the full breakdown of the past 16 years:

via Zero Hedge http://ift.tt/1ldYQvz Tyler Durden

The Fed has launched everyday Americans and investors into uncharted economic territory… The Fed’s money-printing policies have driven the markets straight upward, lighting up a new post-crash asset bubble. Their constant price fixing creates, prolongs, and inflates the cycle of booms and busts… and since gold is the ultimate insurance policy against that type of uncertainty, it is very likely to benefit from the Fed’s policies. What’s more, consuming ever more than it produces, the US has slipped into record debt levels. The national debt has hit the astounding sum of $17.5 trillion, surpassing America’s total GDP for the first time in 2012. As Grant Williams asks (rhetorically in this brief interview): does the Fed have all of this under control? Probably not… and that is why you need an “unsure-ance” policy.

 

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This week saw yet another nail in the coffin of the ‘hope-strewn housing-recovery escape-velocity growth engine of America’ meme when new home sales collapsed. Homebuilder stocks, while volatile, have been trending lower recently (notably underperforming the S&P) as macro disappointments continue but, as Stone-McCarthy notes, it is the moves in lumber prices (the prime material used in home construction) that is of particular concern.

 

Top-down, housing macro data has been anything but reassuring…

h/t @Not_Jim_Cramer

 

But as Stone-McCarthy notes, it is the trend in Lumber that is most concerning…

Since lumber is the prime material used in home construction, not only is its direction a barometer of demand for new homes, but lumber prices also act as a leading indicator for homebuilder stocks. This tendency to lead can be seen on the chart directly below. Note: While some of the price spikes on the lumber chart below may be due to fact that the capacity of the homebuilding industry and many supporting industries was vastly diminished after the housing bust, the focus of today’s Chart of the Day has more to do with the trend changes that have been highlighted.

From this next chart, we learn that both lumber and homebuilder stock prices are now approaching critical junctures in their respective post-crisis bull markets. Specifically, the top chart directly below shows that, since the crisis lows, lumber prices have tended to bottom between 1 and 2 standard deviations beneath the all-important 200-day smoothing line. With lumber prices now entering this support zone, and the S&P Homebuilder Index now reverting down to a critical area of linear support, market participants should be keeping a close eye on how these markets respond over the weeks ahead.

This is especially true since any breach of trend by lumber prices, after the massive divergence that has been building against homebuilder stocks for the past several months (see dashed red line) could translate into a bearish signal for homebuilders and new home sales in the months that follow any sustained trend violation.

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Submitted by Michael Snyder of The Economic Collapse blog,

The American people are increasingly waking up to the fact that nothing ever seems to change in Washington D.C. no matter which political party is in power.  In fact, as you will see later on in this article, an all-time high 53 percent of all Americans believe that neither party "represents the American people".  Over the past several decades, we have sent a Bush, a Clinton, another Bush and an Obama to the White House, but the policies coming out of Washington have remained pretty much the same the entire time.  The mainstream media would have us believe that the Republicans and the Democrats are constantly fighting like cats and dogs, but the truth is that the Republicans want to take us to the same place that the Democrats want to take us – just a little more slowly perhaps.  And behind the scenes, Republicans and Democrats have a good time with one another and they are ultimately controlled by the same set of oligarchs.  The Americans people are really starting to recognize what a sham our system has become, and the numbers show that they are quite fed up with it.

I truly wish that things were different.  When I was much younger, I was actively involved in politics and I enthusiastically campaigned for certain candidates.  But then when they got to Washington D.C., they never did most of the things that they promised to do during their campaigns.

I was quite bewildered by this.  At the time, I concluded that we just needed to send even more "good politicians" to D.C. and then things would finally turn around.

But things never did turn around.  No matter which party had the upper hand, the same garbage continued to spew forth from Washington.

Ultimately, like millions of other Americans, I have come to see that there is not really much of a difference between Barack Obama, Hillary Clinton, Harry Reid and Nancy Pelosi on one side, and John Boehner, John McCain, Mitch McConnell and Jeb Bush on the other side.

Sure, if you listen to their campaign speeches you might be tempted to think that they were polar opposites, but when you watch what they actually do there is not that much that really separates them.

Fortunately, large numbers of Americans are starting to see through this disgusting charade.  Most of our politicians are con men that tell us what we want to hear during their campaigns, and then after they are elected they forget all about us.  Dissatisfaction with these politicians has risen to unprecedented levels in recent years, and that could be a good thing.  The following are 12 numbers which prove that Americans are sick and tired of politics as usual…

#1 A national Rasmussen Reports survey has found that an all-time high 53 percent of all Americans believe that neither major political party "represents the American people".

#2 According to a Real Clear Politics average of national polls, only 29 percent of Americans believe that the country is heading in the right direction.

#3 According to a Real Clear Politics average of national polls, Americans disapprove of the job that Barack Obama is doing by a 52.2 to 43.7 percent margin.

#4 According to a Real Clear Politics average of national polls, Americans disapprove of the job that Congress is doing by a 77.6 percent to 14.2 percent margin.

#5 52 percent of Americans "do not think the economy is fair to those willing to work hard".

#6 65 percent of Americans are dissatisfied "with the U.S. system of government and its effectiveness".  That is the highest level of dissatisfaction that Gallup has ever recorded.

#7 Only 4 percent of Americans believe that it would "change Congress for the worse" if every member was voted out during the next election.

#8 An all-time low 31 percent of Americans identify themselves as Democrats.

#9 An all-time low 25 percent of Americans identify themselves as Republicans.

#10 An all-time high 42 percent of Americans identify themselves as Independents.

#11 60 percent of Americans report feeling "angry or irritable".  Two years ago that number was at 50 percent.

#12 70 percent of Americans do not have confidence that the federal government will "make progress on the important problems and issues facing the country in 2014".

Of course at the heart of much of this dissatisfaction is the continuing problems in our economy.  For example, check out the Gallup daily employment tracking survey that you can find right here.  As you can see, the payroll to population number (those Americans working 30 hours a week or more) has been flatlining in the low forties for more than four years now.  The truth is that there never has been an employment recovery in this nation since the last recession. For much more on all this, please see my previous article entitled "This Is What Employment In America Really Looks Like…"

The last wave of the economic crisis really devastated the middle class, and as a result record numbers of Americans have become dependent on the government.  As I mentioned in one recent article, ten years ago the number of women working outnumbered the number of women on food stamps by more than a 2 to 1 margin. But now the number of women on food stamps actually exceeds the number of women that have jobs.

No wonder so many Americans are so angry.  Things are not nearly as good as they used to be.

Unfortunately, even though so many people are angry and frustrated, there is very little consensus on the solutions to our problems.

Many Americans even want to throw out the principles that this country was founded upon entirely.  For example, one recent survey discovered that 59 percent of all Americans believe that the U.S. Constitution is "outdated".

That is a very chilling number.  We live at a time when Americans are becoming increasingly ignorant about who we are, where we came from and how we get here.

And a lot of our fellow citizens do not even know how our system of government works.  One survey actually found that only 25 percent of all Americans knew how long U.S. Senators are elected for (6 years), and only 20 percent of all Americans knew how many U.S. senators there are (100).

In the final analysis, it is hard to be optimistic about a political solution to any of our major problems in the near future.  Most of our politicians are deeply corrupt, the American people are incredibly angry and are deeply divided, and the vast majority of campaigns for federal office are won by the candidate that raises the most money.

via Zero Hedge http://ift.tt/1im5Dhi Tyler Durden

Sentiment among CEOs, based on Bloomberg’s excellent Orange Book index of their executive comments, had reached 14 month high levels in mid-April as everyone was optimistic about a post-weather pent-up-demand bounce in everything from car-buying to burger-flipping. As Bloomberg’s Rich Yamarone notes, optimism was the most widespread in the housing, automotive and transportation industries.

 

 

The last week has seen the ugly reality hit home as Sentiment collapsed at its fastest pace since the government shutdown and dropped to 5-month lows. Common pessimistic issues include: unfavorable currency exchange rates, higher-priced food and uncertainties in Russia and Ukraine.

 

Charts: Bloomberg

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Submitted by Omid Malekan via Visual Stories blog,

Ralph Waldo Emerson once said “Doing well is the result of doing good. That’s what Capitalism is all about,” and nowhere is this description more embraced than on Wall Street. There, the idea of the meritocracy, where those that produce the most financial value get to take home the biggest rewards is almost a cliche  All of which begs the question, why do most hedge funds exist?  If Capitalism existed on Wall Street, and compensation was tied to the creation of economic value, most of the “absolute return industry” would go out of business. To understand why, we need to go back a decade.

Back in the Spring of 2005, I and my boss at the small fund where I worked had a meeting with the manager of a large fund of hedge funds, an entity whose function is to farm out investor capital to different hedge funds. The manager had brought a printout of the prior months returns of every fund they invested in, looking to answer a pressing question. In the prior month the stock market had had a small selloff, and for whatever reason, the majority of hedge funds they invested in had lost money.

The manager was confused, and so were we. Hedge funds were invented to make money regardless of what the markets were doing, and up until then, they mostly did. The industry came to fame amid the ashes of the 2000 to 2003 equity bear market, where hedge funds demonstrated they could make money in a falling stock and interest rate environment. That’s why towards the front of almost every fund’s private placement memorandum there is some language on not being too correlated to the movements in any market, and how the goal is to make a steady stream of income in any financial environment. In other words, the ability to generate an “absolute return.” For this service hedge funds have always charged out-sized fees, averaging a fixed 2% managed fee topped with 20% of the profits each year. This fee structure along with the flow of investment money into the industry has made the Absolute Return industry the past decade’s best billionaire maker this side of co-founding Facebook.

Fast forward to today and the idea of the average hedge fund losing money when the market sells off is widely accepted. In the spring of 2014, a down month in the markets that doesn’t lead to most funds losing money would be the big surprise.  To make matters worse, the average fund no longer keeps up with the market on the up swings. A simple Bloomberg analysis last year comparing the HFRX Global Hedge Fund Index to the S&P 500 found that in 8 of the past 10 years, owning the S&P beat the average hedge fund. The under-performance and absolute lack of absolute returns is corroborated by this Morgan Stanley chart of the simple correlation between hedge funds that trade stocks and the overall stock market:

An industry invented to have little correlation with the overall stock market now mirrors it almost 90% of the time. Google “hedge fund correlation” and you will find many other sources that verify this problem, and not just for funds that deal in stocks, but for the industry as a whole. To make matters worse, there is the issue of their complicated, costly and often times downright dangerous structure.

The first lesson taught in any basic investment course is the relationship between risk and return. Not only do hedge funds presently offer poor returns, but they continue to (as they always have) come with very high costs, Most analysis focuses on the hefty management and performance fees the funds charge, but as bad as they are, its the hidden costs that really cripple investors and add to the riskiness of their investment.

The average hedge fund is among the most illiquid and non-transparent investments you can find. Since the funds do not disclose their holdings (except to the SEC on certain positions and with a significant lag) you have no idea how your money is deployed. This creates a serious diversification problem, compounded by the fact that many funds tend to over-own the same names. So if its 2013 and a wealthy investor happens to invest in 5 hedge funds while owning some Apple stock in a personal account, its possible his exposure to that one name was far higher than he would want. What’s worse, he is paying 5 other people a fee to increase his risk. Compare that to the average mutual fund that gives you a daily snapshot of what it owns or the average index fund that gives you almost real-time information.

As for liquidity, when it comes to hedge funds, there is really no such thing. The industry standard is that your money is first locked up for an entire year, and then only redeemable on a quarterly or monthly basis, but only in pieces, and only after you submit a redemption request far in advance. Buried within their subscription agreement most funds have some sort of language that grants them the right to suspend redemptions in a liquidity crunch, often indefinitely. In other words, not only is your money locked up during the good times, but its theoretically completely inaccessible during the bad. The average mutual fund gives you daily liquidity, while the average index fund can be liquidated almost instantly.

In any other investment field, lack of transparency and liquidity are viewed as added costs that result in a “haircut” – or reduction of value.  When you add the poor transparency and even worse liquidity of hedge funds to the hefty dollar fees their managers charge, they are among the most expensive investments ever devised, many times pricier than their index or mutual fund cousins. All of that expense for the indignity of making less money in 8 out of the 10 prior years.

If Capitalism existed on Wall Street, and profits and compensation were tied to real performance, most hedge funds would not only not be able to charge their hefty fees, but they simply wouldn’t exist. After all, why would anyone in their right mind pay a larger expense to capture a lower return? And yet assets under management in the hedge fund industry just hit anther all time high.

All of which begs the question: when will Capitalism come to Wall Street?

via Zero Hedge http://ift.tt/1nOnYc9 Tyler Durden

The topic of the false recovery in the US housing market has seldom been far from these pages but it seems both the mainstream media and the actual businesses on the ground are seeing that extrapolating dead-cat-bounces and easy-money bubbles (once again) ends in tears. As WSJ reports, mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery. The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course… and the marginal potential refinancer has hit their limit.

 

As The Wall Street Journal reports, lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.

The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.

The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing.

 

 

The hope is fading fast…

The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.

 

…

 

Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery. Applications for purchase mortgages last week ran nearly 18% below the level of a year ago, even as the average loan amount on new applications hit a record of $280,500, according to the Mortgage Bankers Association.

 

The numbers raise questions over whether wage and job growth is strong enough for American consumers to shift the housing rebound that began two years ago into second gear.

 

"Housing has become less of a drag, but I don't think it's going to be that engine," said Stan Humphries, chief economist at real-estate data company Zillow Inc.

No engine indeed…

While mortgage rates are still low by historical standards, they're less useful to traditional buyers because home prices have risen swiftly, offsetting any benefit that low rates provide to reduce housing costs. As a result, "housing is becoming a less effective transmission belt for the Fed" to boost the economy, Mr. Humphries said.

 

…

 

"The real question for 2014 and later is how low the refinance share is going to go," said Guy Cecala, publisher of Inside Mortgage Finance. When mortgage rates jumped nearly two percentage points in 1994, refinancing fell to 11% that June, from 63% the prior October.

 

…

 

"Margins and profitability will be tremendously difficult this year for mortgage companies," said Anthony Hsieh, chief executive of loanDepot.com, a closely-held mortgage bank based in Foothill Ranch, Calif.

Now, the industry is poised for a shakeout that could flush out lenders that can't survive on smaller margins. "This change is much more structural and will be longer lasting," said David Stevens, chief executive of the Mortgage Bankers Association. "It's a classic supply-and-demand scenario. We have an excess supply of lenders and a lack of demand."

via Zero Hedge http://ift.tt/1jNA1Cw Tyler Durden

Submitted by Lance Roberts of STA Wealth Management,

I have been extremely busy this past week which has put me behind on my usual reading regime. However, with Easter now past, this weekend will allow me the chance to catch up. Therefore, this week's compilation of things to ponder is a veritable smorgasbord of topics that caught my attention this past week.

1) Have We Reached The Limits Of Growth? By Desmond Lachman via The American

I wrote an article recently discussing that since the turn of the century the U.S. has averaged the lowest rate of economic growth in history. The question remains as to whether this stagnation is a short term structural issue or a long term secular stagnation.

"The new high priest of long-term economic pessimism seems to be Robert Gordon, a renowned U.S. economics professor at Northwestern University. In a recent influential paper, he has forcefully argued that the rapid economic progress made over the past 250 years could very well be a unique episode in human history rather than a guarantee of endless future advance at the same rate. This thought, together with his assessment of the major structural headwinds presently confronting the U.S. economy in the form of bad demographics, declining education standards, and high debt levels, leads him to the most dismal of conclusions. He gloomily predicts that for the bottom 99 percent of the U.S. population, living standards will barely increase over the next 100 years."

Desmond Lachman argues against Dr. Robert Gordon's thesis of secular stagnation stating:

"Fortunately there are good grounds to question Gordon’s grim view. Over the past few years, there appear to have been a number of major technological breakthroughs that could be of a transformative nature. Indeed, we would only seem to be at the very start of the development of robotics and artificial intelligence, three-dimensional imaging, the fuller exploitation of the human genome, and much more. It would seem to be presumptuous to dismiss such breakthroughs as holding little prospect for drastically improving our living standards and for fundamentally changing the way that the workplace will operate."

The question is this: While advances in technology can be accretive to human kind, it can also be a destructive force to economic growth. Is there an equilibrium?

2) Don't Get Dazzled By Glittering Growth by Jason Zweig via WSJ

David Einhorn recently made a very controversial statement in a client letter espousing that"

"There is a clear consensus that we are witnessing our second tech bubble in 15 years.”

Of course, while the media went to extraordinary lengths to dispel that notion. While trotting out numerous fund managers to explain why the current technology market was anything like in 2000, they failed to recognize the most important point which I addressed recently in "Historical Market Comparisons Are Meaningless:"

"However, the one simple truth is'this time is indeed different.' When the crash ultimately comes the reasons will be different than they were in the past – only the outcome will remain same."

It is in this regard that Jason Zweig discusses with great simplicity that "when you pay too much for a dream stock, you might end up with a nightmare."

"Over the past year, investors became increasingly excited over the hot performance—and even hotter future—of industries like biotechnology, Internet retailing and social media. But the ferocious selloff in these stocks over the past few weeks should remind every investor of a basic rule: You can be absolutely right about the future and still get wiped out.

Correctly forecasting a company or industry's potential for growth is important—but not overpaying matters even more.

 

As the economist Max Winkler quipped in the late 1920s, investors often discount "not only the future but the hereafter"—meaning that the price they pay for their hopes is so high that they won't make any money even if their hopes are realized."

 3) Have Profits Finally Peaked? by Buttonwood via The Economist

"Instead, chief executives are turning to that old device for boosting sluggish profits: takeovers. According to Thomson Reuters, the global value of mergers and acquisitions in the first quarter was 36% higher than in the same period of 2013. The right takeover can result in cost cuts through economies of scale—although in the long run, the academic evidence in favour of takeovers is mixed.

 

A takeover boom is a classic signal of the final stages of a bull market, a sign that financial engineering has taken over from genuine business expansion. And that is hardly a surprise: the current rally is already the fourth-largest and the fifth-longest-running since 1928."

4)  Student Loans – Forgiveness & The Next Bailout via ZeroHedge

"Student debt has nearly doubled since 2007 to $1.1 trillion, disproportionately driven by the growth in graduate-school debt.

The plans' long-term costs have greatly outpaced the government's predictions. In the last fiscal year, debt absorbed by the repayment plans from the most widely used student-loan program—Stafford loans—exceeded government expectations from a year earlier by 90%.

 

A report Monday last week from the Brookings Institution, a centrist think tank, offered one of the few preliminary examinations of the programs' impact. The most popular plan could cost taxpayers $14 billion a year if it becomes available to all borrowers as Mr. Obama has proposed, while fueling tuition inflation, it said.

 

Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone," the study said. The authors recommend scrapping the forgiveness provisions."

Also Read:  The Next Massive Bailout by Dan Kadlec via Time

5) Hoisington Quarterly Review & Outlook Q1-2014by Dr. Lacy Hunt

I never miss reading Dr. Lacy Hunt and Van Hoisington's quarterly reviews of the economy and the markets.  This is a particularly interesting issue as they take on the effectiveness the of the Federal Reserve's ongoing monetary programs and their continually overly optimistic assumptions about future economic growth.

 

 

Hoisington Q1-2014 Newsletter

 

 

Bonus: Who Does The Government Owe Money To?by Craig Eyermann via Advisor Perspectives

"The biggest surprise in this edition of our chart (compared to the previous edition) is the appearance of Belgium on the list, which jumped ahead of several other nations by more than doubling the amount that is being lent to the U.S. government from the small European nation over the last six months. Since Belgium is a major international banking center, what this really represents is the accumulation of U.S. debt by other foreign entities through Belgium's banks in much the same way as London's banks have historically served this role for countries such as China"

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Does anyone miss Maria?

 

 

h/t @Stalingrad_Poor

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