Tuesday, April 23, 2013

That's the news

Stocks briefly drop, recover, on fake bomb tweet

Nothing against Twitter, but this is exactly why I'm always asking people who say things I don't necessarily believe, "Where did you hear that?  Twitter?"  I think people put too much emphasis on sources like Twitter.  The volume of information available on Twitter is, well, it's a lot.  And having that much information right at your fingertips makes you feel well-informed.  And feeling well-informed makes you overconfident.  And overconfidence can lead to some really bad outcomes.  And yes, the market dropping like it did is a sign of overconfidence, even though it appears to be a sign of lack of confidence.  In this case, it is overconfidence in the information source.

What happened today, though, goes a little farther than regular overconfidence.  The drop and rebound happened so quickly that it is more likely that it was started by automated traders using news reading software to initiate trades.  This way, trades can happen far more quickly than with human readers because there is no judgment involved.  A headline is either good or bad, but there's apparently no test for whether the headline is true or false, or whether it's from a reliable source for that matter.  Here, we have overconfidence that our news sources are incapable of providing false information.

So, if an investor happened to be on top of the market when the drop occurred, they could, perhaps, have profited.  Then again, they could have lost.  But for those of us who were blissfully unaware until after the fact, we're no better and no worse than before.  Sometimes, especially in the case of information, less is more.

Monday, April 22, 2013

That's the news

I believe STLY...
You'll have to follow the link to see the rest.  You know it's brilliant, though, because I wrote it.

Data Shift to Lift US Economy by 3%
The U.S. economy will officially become 3 percent bigger in July as part of a shake-up that will for the first time see government statistics take into account 21st century components such as film royalties and spending on research and development.
Yay!  They figured out a new way to juggle numbers to make our economy look bigger.  Those accountants are brilliant!

Existing Home Sales Fall as Prices Rise Most Since 2005
Nationwide, the median price for a home resale rose to $184,300 in March, up 11.8 percent from a year earlier, the biggest increase since November 2005.
Actually, I find the decline in sales a bit of a relief in light of the rise in prices.  It might be showing that buyers aren't just being stupid, afraid they're going to miss out.  Then again, I don't really want to give the American public too much credit for intelligence.

Bracing for Disaster: How Bad Will Apple’s Earnings Be? 

In other words, Tuesday's earnings report is expected to be a disaster. That's one reason the stock has tanked over the last several weeks: No one wants to be the sucker left holding the bag.
I've never been a big fan of Apple, so this is kind of a "feel good" story for me.  Unfortunately, there is already a lot of negativity priced into the stock, so even if the earnings report is bad, it might be good for the stock.  Often, uncertainty about how bad something will be is worse than finding out how bad it really is.

Friday, April 19, 2013

That's the news

Advisers’ Senior Credentials Rules Urged by U.S. Consumer Bureau

State regulators may want to establish minimum standards for acquiring a senior designation and codes of conduct for those who hold them, the CFPB said in the report.
 Yeah, we need more of the nanny state.  Unfortunately, this kind of regulation ends up costing the people it is meant to protect, and likely will result in lower returns since advisers will only recommend safe investments for seniors to avoid litigation.  It's unfortunate that people who commit fraud end up controlling the whole regulatory environment.  The end result is that it will hurt the very same people that the fraudsters are trying to take advantage of.

The Sweetheart Deal Toyota Got To Build An American Lexus

All I have to say about this is that it's somewhat of an embarrassment that the big news is foreign companies are investing in American production, while companies like Apple won't even bring their cash back to the U.S. in order to avoid taxes.

Germany, IMF used atomic bomb to shoot pigeon, says Cyprus negotiator
Cyprus, which had modelled itself as an offshore financial services centre for lack of any other resources, now faces a grim future with its reputation in tatters and its economy deep in recession.
Not only that, Cyprus will likely find it difficult to offer financial services to seniors here in the U.S.

Antibiotic-Resistant 'Superbugs' Creep Into Food

Those who promote antibiotic use in food animals argue that keep consumers safe.
Here we go again with the "keeping consumers safe" angle.  Safe from what?  Safety depends on your perspective, I think.  Not just in this case of food safety, but also investing.  The first linked article above will result in seniors being invested in financial products that offer low returns.  Things like Treasuries, which are supposed to be relatively riskless, but in fact guarantee a return that is below the current rate of inflation.  This antibiotic story, points out another safety issue.  In an effort to "keep consumers safe," food producers use antibiotics, which are then consumed by humans, which then results in human immunity weaknesses, thus requiring more antibiotics in food animals, thus producing more antibiotic resistant strains... Well, you get the idea.  This sort of thing makes me wonder just how long our species will survive.  And I wonder just how long it will take humans to realize that we actually can't improve on nature; we can't win against nature; and we need to learn to live inside nature.

Thursday, April 18, 2013

Take a few days off and what happens?

I admit it.  I got bored.  The news was the same, day after day.  So, I took a break.  Suddenly, volatility is up, gold has its biggest drop ever, and the market shows that even QE won't guarantee that stocks won't fall.  So, what happened?

First, let me say this.  I've always been puzzled by the guys that say there are any sort of fundamentals in the price of gold.  There aren't, any more than there is in dollar bills.  I think those guys believe what they say, at least to a point, because it makes them feel better about earning a living trading worthless hunks of metal, hoping to find the next bigger fool.

This is the way I see what happened.  People have been piling into gold for years now, convinced that something REALLY bad is going to happen.  Only, nothing happens, so the rise in the price of gold gradually slows as people run out of cash and, worse, run out of borrowing capacity to buy gold.  The price begins to stagnate, and people begin losing interest.  They get bored, just like I did.

Then, something happens in a small country that the majority of people haven't ever heard of before, or at least have no idea where it is.  Cyprus says it's going to sell its gold reserves to pay its debts.  This shouldn't really be a shocker to anyone.  I mean, why do people suppose that governments own gold?  It's a store of value and how does one unlock that value?  SELL.

So, the government needs to raise some cash and decides to sell some gold, and it's as if the world hadn't thought that was possible.  Some people start selling, then the bears join in and start shorting.  Stop losses start kicking in along with margin calls, investors need to sell to cover those.  Eventually, the price of gold gets low enough, and there are enough margin calls that some gold investors start selling stocks, or other holdings.  While I can't say for sure, that's what I think happened earlier this week.

Today, now that the markets are closed, stocks are down again, and gold is up a few bucks, but still below $1,400.  10-year treasury yields are down again, showing there is some money moving back to safe haven investments.  Since gold is up a bit, it seems that there are some that still think gold is a safe haven.

The problem is, though, that gold isn't all that safe if the global economy sinks into deflation, and talk of deflation is becoming more common.  When the Fed and other central banks turned on the printing presses, I don't think anyone really thought that deflation was a legitimate concern.  All the talk was about inflation, and the price of gold skyrocketed over the years.

Of course, we may never see deflation.  If that becomes a real threat, the Fed may very well crank up the QE.  It's hard to say just how much good that would do, though.  The global economy needs to correct, and sooner or later I think it will regardless of what central banks do.  I do think that monetary policy might be able to soften the blow, but then again, it might not.  In fact, it might make things worse.

Times like this point out the importance of having a well-diversified portfolio.  Unfortunately, people don't like to diversify because, by definition, they have to invest in stuff they don't really think is going to do as well as what they really want to invest in.  So, during good bull markets, the diversified investor doesn't make quite the spectacular gains that others are.  But when the bull market ends, and it always does, they shouldn't suffer the losses either.

Wednesday, April 3, 2013

That's the news

Post-Recession Americans Saving More, Risking Less

If the retail investor is not stoking the Dow, where is the boom coming from? As CNBC's Jeff Cox has noted, the market's recent surge has come as cash-rich companies have plowed nearly $1.2 trillion into stock buybacks since mid-2009 as individual investors have largely stayed pat in the cash, bonds, and other instruments built to weather another storm.
So, retail investors are set to "weather another storm."  But how's that going to work out if things don't turn south any time soon?  Not so good.  All of those things will not perform well, or even badly, if the economy actually does pick up steam.  And then what?  Well, those people will suffer again.  This is why we diversify.

Home prices up in February by most in 7 years

Home prices rose 10.2% in February compared with a year earlier, CoreLogic, a real estate data provider, said Wednesday.
Nothing disturbing about a 10.2% year over year increase in home prices, is there?
Prices have now increased on an annual basis for 12 straight months, underscoring the recovery's steady momentum.
You know, up until a short time ago, a lot of people looked at the chart for home prices and asked, "Why didn't anyone see the real estate bubble?"  Now, we're calling the same kind of price appreciation a "recovery," and claiming that there is "steady momentum."  I think it won't be long until we're asking why nobody saw another crash coming.

Slowing Service Industries Point to Cooler U.S. Growth 

This article covers a lot of data, mostly saying it's good, but not great, but it's still okay, and might be right about where we want to be.  But, slowing growth is the theme these days.  Better than I had expected, but then, I don't think we're still seeing the effects of tax increases and spending cuts just yet.

Tuesday, April 2, 2013

That's the news

New orders for factory goods rose in February but a gauge of planned business spending slipped, suggesting factory activity continued to expand at a modest pace.
There's always a "but."  These days, though, the "but" seems to mostly be a confirmation of whatever came before the "but," just maybe not as good.

What Happened In Cyprus Will Happen Everywhere: Marc Faber
"The problem is that 92 percent of financial wealth is owned by 5 percent of the population. The majority of people don't own meaningful stock positions and they don't benefit from a rise in the stock market. They are being hurt by a rising cost of living and we all know that the real incomes of median households has been going down for the last few years," he said.
Yes, unless you include in those "real incomes of median households" the rising value of real estate.  Unfortunately, I don't know the specific data for home ownership off the top of my head.  But wages certainly have been going down for the last few years, and more than a few years for a lot of people.

"If you look at what happened in Cyprus, basically people with money will lose part of their wealth, either through expropriation or higher taxation," he added.
Certainly makes me feel good about not having any wealth.  Unfortunately, that wealth will not end up in my pocket either.

"You have more people that vote for a living than work for a living. I think you have to be prepared to lose 20 to 30 percent. I think you're lucky if you don't lose your life."
Well, I think a bloody revolution is a little further off than this year.  I do think the possibility of losing 20 to 30 percent this year is real, especially if what I've read about the high level of margin being used in the stock market turns out to be true.

Stockman: There are Bubbles All Over, Hide in Cash

Stockman goes on to lay out a case for his prediction: “This latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode” in the next few years.
 So, Mr. Stockman gives it "a few years."  I don't know, but if it's really going to take a few years, then why run to cash now?  All that cash the the Fed is printing has to end up somewhere... might as well be in your pocket as anyone else's.  I just don't think it will take a few years, but you never know.  Any sign of weakness could prompt even more QE...

Monday, April 1, 2013

That's the news

ISM survey shows manufacturing sector expansion slows
Factory activity slowed in March as new orders weakened, but a rebound in construction spending in February was another sign of faster economic growth in the first quarter.
Actually, factory activity didn't slow.  Manufacturing expansion slowed, but it still expanded.   As I'm writing this, stocks are down a bit, bond yields are down slightly, and gold is up.  All indicating a small move toward less risk, which doesn't appear to be accounted for in the economic data.  It really looks like stocks are just taking a bit of a breather after a pretty impressive first quarter.  Stocks are up roughly 10 percent in the first quarter, and at the beginning of the year, 10 percent was about the expected market gain for the entire year.

Will Q1′s Fast Start Lead to a Slow Finish? Nope, Says Stovall

In fact, when the first quarter delivers positive returns, the odds of the next three quarters also delivering gains not only goes up, but so does the average total return.
This statement seems to coincide with a lot of what I'm reading lately.  There are a lot of bulls out there, which makes me nervous.  Still, I think the potential for good gains through the end of this year is there, even though I don't think that corporate valuations, on the average, warrant those gains.  Risk recognition, on the other hand, doesn't seem to be there at all.  Well, except for those investors that are still waiting for whatever it is they're waiting for.  The longer this market continues, the more it seems that either: 1) we see a substantial run-up in stock prices because the investors on the sidelines give up waiting for whatever it is they're waiting for, or 2) investors already in the market suddenly realize the risk they've taken on (given the high margin levels in the market) and we see a substantial correction.