10 Wednesday AM Reads

Greetings this morning from Bainbridge Island! No worries, we have your locally grown morning ferry reads:

• S&P Ratings Nears $1.4 Billion in Settlements (WSJ) and also Behind S&P’s Looming Suspension, an Inside Battle Over Tighter Standards (Bloomberg)
• Gold, Silver, Platinum Should Keep on Shining (Barron’s)
• These unloved stocks may beat the S&P 500 again in 2015 (MarketWatch)
• What Lost Decade? (Irrelevant Investor)
• The Real Reason Oil Prices Plunged (Fox Business)
• Specter of negative rates is haunting global bond math (Alex Gurevich) see also QE and central bank solvency: what would happen to the Eurosystem’s capital resources if a country defaults? Would this generate a fiscal transfer between members? (Bruegel)
• Mindfulness, meditation and investing (Abnormal Returns)
• Writing Your Way to Happiness (Well)
• Smartphones Don’t Make Us Dumb (NY Times)
• Bettye LaVette ‘Can’t Stop Listening’ to New Album ‘Worthy’ (Speak Easy)

What are you reading?



Dollar Index Still Flying

Source: Bespoke Investment Group



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What's been said:

Discussions found on the web:
  1. Concerned Neighbour commented on Jan 21

    So apparently EU QE was just announced… 50B euros per month through 2016. So 1.2 trillion euros. I guess this means we can ignore valuation measures for another two years! I think another metric tonne of dirt was just shovelled on every value investors coffin.

    This should prove interesting. EU and American stocks are already trading at 20 P/Es, which historically is already extremely expensive. As negative rates get pushed even more negative, I expect we’ll trade somewhere in the 25-30 range in the next two years. Unbelievable. If you have any left, get your barf bags ready as this announcement gets priced in a few hundred times over the next couple years.

    • VennData commented on Jan 21

      What’s your S&P500 target for 12/31/2105?

    • rd commented on Jan 22

      My S&P target for 12/31/2105 is 900,000 assuming 7% price returns for the next 90 years. You can call me out on 1/1/2106 if I am wrong.

    • intlacct commented on Jan 21

      Hmmm, weighing ascendant right wing lunatic parties arising from imploding employment prospects versus E50bb a month of QE… Conclusion: cheap insurance.

      Take a look at a population distribution in Germany circa 1945. You’ll note the mountain shape has a huge discontinuity from age 15 thru 45 for males. Something to avoid.

    • Concerned Neighbour commented on Jan 22

      That’s assuming it works. European assets are already through the roof. Interest rates are already very low, negative in some cases. By committing to a large QE now, the ECB would be declaring that valuations no longer matter. That means they’ll have to prop asset markets indefinitely; if left on their own, even today’s crop of buy the dip speculators won’t support 25-30 P/Es on their own, and the markets will return to their historical norms (i.e., crash).

      Those cheering such a move are cheering continued and indefinite market manipulation. Granted, we arguably already have that, but this makes it all the more blatant.

      And VennData, only idiots give concrete targets for an index. I have consistently said the “markets” will not be allowed to fall since the crisis began, and I’ve been right. My forecast remains the same: higher. I also forecast that valuation multiples will expand, as the underlying earnings and revenues don’t even justify today’s prices, let alone tomorrow’s (higher) prices. Profit growth has been abysmal this far, and 2014 GAAP earnings were essentially flat (something no one seems to be talking about).

  2. rd commented on Jan 21

    This article fails to mention that stock dividend yields were almost always higher than bond yields until the 1950s and so this relationship has never been predictive of bull and bear markets. Since the interest rates and inflation measures we have today are more reminiscent of pre-1950s than post, I think this bull case is made by cherry-picking the time period to make it work.

    I am agnostic as to whether or not the dividend yield and bond yield say anything at all about bull, bear, or neutral. But I am quite certain that you can’t simply ignore over half of the US stock market history.


  3. VennData commented on Jan 21

    The Fox article on oil prices is incredibly stupid. Now wonder the Right wingers are so angry with America’s financial situation (Grats to President Obama on his victory lap last night) they pay any attention to Fox.

    Oil prices were LOWER a few years ago. Shoots the stiff-looking Elizabeth MacDonald’s theory to heck.

    Data has a tendency to do that to ideologues.

  4. RW commented on Jan 21

    Wages Did Not Rise in November and Fall in December: #23,754

    I thought that reporters had finally learned that monthly wage data are erratic and best ignored, but noooooooo, they apparently still believe that they give us real information about the rate of growth of wages. The immediate cause for complaint is a Morning Edition State of the Union fact check segment in which Scott Horsley told listeners that wages rose in November, but then fell in December.

    As I tried to explain after the big wage jump in November was reported, the monthly changes are dominated by noise in the data. The 0.4 percent nominal wage rise reported in the month followed a month where the wage reportedly rose by just 0.1 percent and a prior month where it did not rise at all. Employer pay patterns in the economy as a whole do not change that much from month to month, it should have been obvious this was just noise in the data. ….

  5. Jojo commented on Jan 21

    Also beware how Amazon often combines review comments for different products in the same model group, especially in tech products. If you see a product with many hundreds of reviews and a high rating, look carefully at each review to make sure it is for the actual product you are interested in.
    How Amazon Tricks You Into Thinking It Always Has the Lowest Prices
    January 13, 2015
    Jason Del Rey

    Amazon is known for having low prices. But a study conducted by a startup called Boomerang Commerce reveals that Amazon’s pricing strategy is much more nuanced than simply undercutting the competition.

    Boomerang, founded by Amazon veteran Guru Hariharan, makes software that tracks prices on shopping sites that compete with its clients, then recommends price changes dynamically. Those changes are based on rules its clients set about which products to match prices on and which to boost higher or drop lower than a competitor’s to boost profits or sales, respectively.

    The study of Amazon’s pricing uncovered some interesting tactics. First, Amazon doesn’t have the lowest prices across the board, which may not surprise industry insiders but might surprise Amazon shoppers.

    Instead, according to Boomerang’s analysis, Amazon identifies the most popular products on its site and consistently prices them under the competition. In one example, Boomerang observed Amazon testing price reductions on a $350 Samsung TV — one of the most popular TVs on Amazon — over the six months leading up to Black Friday. Then, on Black Friday, it dropped the price to $250, coming in well below competitors’ prices.



  6. winstongator commented on Jan 21

    Value of dollar vs. price of oil -> playing with axes. Sure if the dollar strengthens, the price of oil in dollars will go down, but that shift, from that reason, is 1-1. You get a doubling of the value of the dollar, oil price drops by 50%. So we did see oil prices fall by 50%, but the dollar only strengthened 15%. Something else is going on, besides manipulating the scaling of a graph to try to make it show something it doesn’t.

  7. romerjt commented on Jan 21

    I would like to believe that oil prices have succumbed to real supply and demand forces, I really, really would but there is so much at stake here and those the players are so powerful.

    Raise your hands if you think Republican interests will try to wreck Obama’s recovery by making raising oil prices go up.

    • rd commented on Jan 22

      They are going to push Obama to loosen environmental restrictions on oil drilling to encourage more oil production. That will keep the US competing for market share with the Saudis to increase profits for the oil companies.

  8. ilsm commented on Jan 21

    Fox News: so, oil prices are down because the producers don’t want their customers to send too many over valued US dollars (over valued to euro) to the producers? JM Keynes said there are reasons to hold cash……..

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