FOMC Announcement: No changes, with $85B/month in asset purchases and ZIRP remaining the monetary law of the land. New FOMC voter, Kansas City Fed chief Esther George, replaces the Richmond Fed's Jeff Lacker as a dissenting vote. The Fed blames a pause in the recovery on weather and other transitory factors. [View news story]
I have a problem with this part of the statement: "growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors." Extreme weather is here to stay and "weather-related factors" are not "transitory" anymore. Extreme weather should be part of any business and economic analysis. If the Fed has not gotten this, I am afraid they will get surprised a lot in the years to come.
More on Q4 GDP: Defense spending falls 22% - the biggest drop in 40 years - leading real federal spending -15%. State/local spending -0.7%. Personal consumption expenditures +2.2% vs. 1.6% in Q3. Nonresidential fixed investment +8.4% vs. +1.8%. Stock futures dipped and then bounced on the soft print. as traders look at calendars and realize we're halfway to 2013 Q2. (full report) [View news story]
It was very amusing to watch economists and pundits trying to downplay the negative GDP this morning. None of them got it right, so all they could say is that it is a fluke and something nobody should pay attention to. Buy, buy, buy. For me, this is a warning sign. You have to take these things seriously. Data is data. If your beliefs go against the data, change your beliefs, don't try to spin the data. I have been long this market for a while now but recently started hedging and will continue doing so.
Tack, you are right that the equity allocation were higher in 2000 and 2005 but this period was above the historic average. We hit an all time high in 1999 of 67% of all financial assets allocated to equity and then a recession low of 44% in 2008. In 2010 we were back to 50%.
Tack, I am not sure I understand your argument that equities are underbought. I looked at the Statistical Abstract for 2012, table 1201: Equities, Corporate Bonds, and Treasury Securities--Holdings and Net Purchases by Type of Investor. Historically equities have been about 50% of all financial assets: average from 1952 to 2010. The last year with available data is 2010 and the share of equities is exactly at the historic average: 50%. My guess is that in 2011 and 2012 this went up and now equities are owned more than their average. Now, if you look at who holds equities, households' share of equity is below the historic average but institutional buyers are above so overall it's a wash. Individuals now may increase the share of equities in their portfolios which means that institutions will decrease it. What really works for equities now is that the net new issuance of equities has been very negative for the last several years: the total stock of equity has decreased in 2012, for example, by about half a trillion dollars. The laws of supply and demand dictate that if supply goes down and demand remains at least stable, prices will go up, and they do, don't they. There is something that worries me though about the negative net issuance of equity. In a world where demand for goods and services is expanding, corporations should be looking for more funds to expand their business, not less.
Weighing The Week Ahead: Time To Take The Plunge? [View article]
Jeff, you ask this question at the beginning of the article: "Is it time for the individual investor to return to stocks, reversing the flow from equities to bond funds?" My question is how anyone can return to equity if the net issuance of equity continues to be negative quarter after quarter. In Q2 and Q3 of 2012 it was close to minus half a trillion annualized. The total stock of equities available for purchase is decreasing.
I stopped reading after "But nothing has really been fixed on this endless high". Seriously? If you want to see what has been avoided, look at UK. They did not have stimulative monetary policy with Adam Posen being the lonely voice of reason arguing that the bank needs to do what the Fed did for years. They did not have stimulative fiscal policy with their government applying harsh austerity. And the results speak for themselves: in 5 years they are heading into a third recession while US is recovering steadily by doing the exact opposite: stimulative fiscal and monetary policy. This is what ultimately led to corporate profits hitting all time highs and the stock market closing in to its all time high. The US fundamentals are better than any other developed nation. And you call that "nothing"?
Italy: Rotting While Waiting For The Election [View article]
I wonder if there is really a disconnect between the asset markets and the real Italian economy. The Italian stock market is still 60% lower than its high in 2007, while the Italian economy has contracted 7%.
I think that Prof. Pettis believes that the laws of economics apply everywhere and China won't escape them. There is nothing new or different about China we have not seen before in Japan (70s and 80s), Latin America, even the lessons from the industrial revolution in Europe and US. Fast growth always moderates. Too much debt is always dangerous. Too much misplaced, unproductive investments made with too much debt always come back to haunt you. This kind of stuff is pretty universal.
More on Intel: Expects Q1 revenue of $12.2B-$13.2B vs. $12.9B consensus. Expects 2013 revenue to show a "low single-digit percentage increase," consensus is for 1.7% growth. Q4 gross margin (non-GAAP) was 59%, above guidance of 58% but -530 bps Q/Q thanks to inventory-cutting moves. PC division sales -6% Y/Y server division +4%, other -14%. PC CPU ASPs +2% Q/Q, server CPU ASPs +8%. INTC -2.3% AH. CC at 5PM ET (webcast). (CFO comments - PDF) (PR) [View news story]
Macro, at this point the market as a whole is fairly valued as Morningstar points out. There is limited upside potential from buying indices. It is a stock picking environment again.
China can accelerate growth in the short term but the long-term Chinese prospects are for growth to gradually slow down towards 4-5% annual growth rates. Michael Pettis has the best explanation I have read of the Chinese structural problems and the long and very tough road ahead of them to make the necessary adjustments. Pettis actually predicts that in the next 2 years we may see a big decline in commodity prices as a consequence of China slowing down and restructuring its economy from investment-driven to consumption-driven.
Tom, I understand that from a purely technical perspective it may be worth building a hedge at this point: 5-year high, the market is likely to retreat somewhat, stocks are fairly valued, etc. But when you look at the economy, it is hard to come up with a bearish case. Consumer is recovering, gross private domestic investment is growing healthily, the corporate profits may stagnate at this very high level but nobody is predicting that they'll drop like a stone. From a long-term perspective, this still looks like good time to buy stocks selectively, especially in still undervalued sectors like energy or telecommunications.
Interesting action in the precious metals had them continuing overnight a sharp fall begun after FOMC minutes suggested an earlier-than-expected end to Fed candy. This reversed with the 8:30 jobs report which showed still-sluggish employment growth. Gold has since bounced $21 to $1,651, though still off 1.4% on the session. Silver jumps $0.70, but remains -2.6%. [View news story]
IT, this is exactly my logic. As interest rates go up, prices of bonds will go down. This will improve the return on bonds if you buy them at lower prices. This improvement in the returns on treasuries and other investments is what will potentially drive the price of gold down if Krugman is right. I expect the price of gold to go down at approximately the same rate as the returns on bonds improve. Therefore, TBT which is an ultrashort treasuries, should go up. TBT is one way of playing the outflows from bonds and from gold. The problem is the timing. I am not sure that the increase in treasury rates is sustainable. As Washington creates another debacle, investors can flock again to the safety of US treasuries. Any other global event may have the same effect: Iran, another round of Euro crisis, etc. Shorting treasury bonds has been a losing trade for 4 years now. Eventually it will turn profitable ( and highly profitable) but timing is unpredictable.
Interesting action in the precious metals had them continuing overnight a sharp fall begun after FOMC minutes suggested an earlier-than-expected end to Fed candy. This reversed with the 8:30 jobs report which showed still-sluggish employment growth. Gold has since bounced $21 to $1,651, though still off 1.4% on the session. Silver jumps $0.70, but remains -2.6%. [View news story]
I was looking for a safe way to short gold long term. I rejected the ETFs that are inverse to gold because they don't track the price of gold well. In my research I found that the asset class that is very well correlated with gold is the treasury bonds. The inverse correlation between GLD and TBT has been almost perfect: since Jan 2008 GLD has gone up 81% while TBT has fallen 77%. If the relationship holds, when the interest rates will start going up, gold prices will fall, and TBT would go up. There was a post several years ago by Krugman that built upon a paper from Salant and Henderson ("Market Anticipations of Government Policies and the Price of Gold"), Krugman believes that the gold story is basically about the real interest rates and concludes that "the price (of gold) has risen because the expected returns on other investments have fallen". Building on this logic, I think that when the interest rates start going up, the money going into the alternative investment (gold) will start flowing out of gold.
FOMC Announcement: No changes, with $85B/month in asset purchases and ZIRP remaining the monetary law of the land. New FOMC voter, Kansas City Fed chief Esther George, replaces the Richmond Fed's Jeff Lacker as a dissenting vote. The Fed blames a pause in the recovery on weather and other transitory factors. [View news story]
Extreme weather is here to stay and "weather-related factors" are not "transitory" anymore. Extreme weather should be part of any business and economic analysis. If the Fed has not gotten this, I am afraid they will get surprised a lot in the years to come.
More on Q4 GDP: Defense spending falls 22% - the biggest drop in 40 years - leading real federal spending -15%. State/local spending -0.7%. Personal consumption expenditures +2.2% vs. 1.6% in Q3. Nonresidential fixed investment +8.4% vs. +1.8%. Stock futures dipped and then bounced on the soft print. as traders look at calendars and realize we're halfway to 2013 Q2. (full report) [View news story]
Time To Bet On Housing: Toll Brothers Is A Great Option [View article]
A Dip Is Fast Approaching [View article]
A Dip Is Fast Approaching [View article]
Weighing The Week Ahead: Time To Take The Plunge? [View article]
you ask this question at the beginning of the article: "Is it time for the individual investor to return to stocks, reversing the flow from equities to bond funds?"
My question is how anyone can return to equity if the net issuance of equity continues to be negative quarter after quarter. In Q2 and Q3 of 2012 it was close to minus half a trillion annualized. The total stock of equities available for purchase is decreasing.
Fear And Loathing On Wall Street [View article]
Italy: Rotting While Waiting For The Election [View article]
Will China Save Us - Again? [View article]
More on Intel: Expects Q1 revenue of $12.2B-$13.2B vs. $12.9B consensus. Expects 2013 revenue to show a "low single-digit percentage increase," consensus is for 1.7% growth. Q4 gross margin (non-GAAP) was 59%, above guidance of 58% but -530 bps Q/Q thanks to inventory-cutting moves. PC division sales -6% Y/Y server division +4%, other -14%. PC CPU ASPs +2% Q/Q, server CPU ASPs +8%. INTC -2.3% AH. CC at 5PM ET (webcast). (CFO comments - PDF) (PR) [View news story]
Will China Save Us - Again? [View article]
Gold And Interest Rates [View instapost]
Starting To Build A Hedge [View instapost]
Interesting action in the precious metals had them continuing overnight a sharp fall begun after FOMC minutes suggested an earlier-than-expected end to Fed candy. This reversed with the 8:30 jobs report which showed still-sluggish employment growth. Gold has since bounced $21 to $1,651, though still off 1.4% on the session. Silver jumps $0.70, but remains -2.6%. [View news story]
Interesting action in the precious metals had them continuing overnight a sharp fall begun after FOMC minutes suggested an earlier-than-expected end to Fed candy. This reversed with the 8:30 jobs report which showed still-sluggish employment growth. Gold has since bounced $21 to $1,651, though still off 1.4% on the session. Silver jumps $0.70, but remains -2.6%. [View news story]