10 Monday AM Reads

Welcome back to work after the long holiday break. The first morning train reads of 2016 is dealing with an overseas crash originated in Asia:

• Maybe stocks are priced right and your valuation measure is wrong (Marketwatch)
• How DOL Fiduciary Rule Will Change the Industry, and Careers (Think Advisor)
• Fear Not the Bubble, Academic Says: Market values crashed only one out of ten times following a major boom over the last 115 years, research has found. (Chief Investment Officersee also Bubble Investing: Learning from History (SSRN)
• What Do You Consider the Most Interesting Recent [Scientific] News? What Makes It Important? (Edge)
• U.S. Bread Basket Shifts Thanks to Climate Change (Scientific American)

Be sure to check out our Masters in Business interview this weekend with Venture Capitalist Bill Janeway of Warburg Pincus.

Continues here

 

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  1. ilsm commented on Jan 4

    Markets’ concerns: ” geopolitical instability in the Middle East” a house built by Reagan when he had 6 Iranian small boats sunk siding with the Sunni terror cabal over the Ayatollah.

    • RW commented on Jan 4

      I respect PragCap but his own political bias is showing when he tries to dilute the central role of the financial sector by adding a big dollop of homebuyer fraud stirred with his own misleading metaphor; e.g., “…by being unable to pay their mortgages it was actually the homeowners who lit the match that created the crisis.” Homebuyers couldn’t affect squat unless the financial sector promoted flammable products and provided the match via NINJA, Alt-A, etc while pouring gas on anything and everything combustible via mal-rated derivatives and derivatives-on-derivatives.

      The banks and warehouse lenders were the ones with the power to affect regulation and law — homebuyers could only take advantage of what was available (and in this case actively promoted) — and it is upon power that primary blame must fall, always. Whenever I hear anyone try to reduce the crimes of the powerful by arguing “there’s plenty of blame to go around,” I think of Hannah Arendt’s apt observation,

      Where all are guilty, no one is; confessions of collective guilt are the best possible safeguard against the discovery of culprits, and the very magnitude of the crime the best excuse for doing nothing.

      IMHO a more cogent analysis of the flaw(s) in the thoroughly enjoyable Big Short is here at http://econospeak.blogspot.com/2015/12/short-stuff.html

    • Liquidity Trader commented on Jan 4

      I tried to read him over the years, but it became clear he was just another tool

      No thanks

    • Whammer commented on Jan 4

      Any argument blaming the borrowers is just cementing the proponent as a hack. What is so complicated about “if you are lending money to people who you know can’t pay it back, it’s your fault when they can’t pay it back?”

      They loaned money to people knowing they would default, but that was a feature not a bug, because house prices go up forever! Foreclose, loan again, it was like a perpetual motion machine! Until it wasn’t……..

  2. rd commented on Jan 4

    Pretty much every defense of current US market valuations I have seen has been focused on varying interpretations of earnings. However, my big concern has been that several other valuation metrics that don’t focus on earnings at all show similar high peaks over the past year or so that are generally only second to the 2000 over the past 60-100 years.

    When you have completely different metrics such as market value compared to GDP, enterprise replacement value, and NYSE margin debt showing the same high values as various P/E measures, especially CAPE, then I become suspicious of the “This Time Is Different” and “Its Only Because of Accounting Rule Changes” arguments. We heard much the same in 1999-2000 about how “The New Economy” would follow the old rules and that didn’t work out well. I know that I wasn’t paying much attention to market valuation measures in 2007 because it didn’t cross my mind that the finance industry would have that short a memory.to create another massive valuation peak.

    Since we have had low interest rates in the past with much lower stock market valuation metrics, I don’t buy the argument that the current low interest rates justify sky high valuations, particularly since the main reason they are kept low is because the economy is not showing much growth. However, the primary thing that keeps me anguine is that many of the stock markets outside of the US do not have sky high valuations, so a diversified portfolio has a chance of navigating the rough seas that I think are coming in the US markets.

    http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php

    http://www.advisorperspectives.com/dshort/updates/Q-Ratio-and-Market-Valuation.php

    http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php

    • Concerned Neighbour commented on Jan 4

      Agreed. I’ve been pointing to these valuation metrics for years. No one wants to hear it; they’re too busy front-running this or that central bank. The reality is that executives, in their infinite wisdom, have been buying back their stock – often with borrrowed money – at valuations rarely seen in stock market history.

  3. Jojo commented on Jan 4

    Re: the ReCode article: Yet another dumb “don’t fear the automation/robot juggernaut” article because “In fact, this picture is missing a crucial component: The age of automation will bring plenty of new jobs and maximize efficiency for humans in existing roles”.

    There will be SOME new jobs created but the number of new jobs will be FAR LESS than the number of jobs destroyed by automation/robots. The labor participation rate is going to continue to decline and the decline will be faster and steeper than most predict.

    It seems that too many self-appointed “pundits” make the same mistake of trying to equate what happened at the beginnings of industrialization to what might happen in our POST-industrial world. These are two vastly different times and worlds. What happened 100-150 years ago is highly unlikely to reoccur in our post-industrial world.

    • willid3 commented on Jan 4

      well there are some similarities /.

      they both happened to workers.

      problem is that while there maybe some new jobs created they will not replace those that are destroyed. otherwise why would business have invested in the automation to begin with

      and we can see a much more recent example

      back in the 1960s GM had about 3 million workers to produce less than 7 million total vehicles.

      today they have less than 100,000 and produce more than 7 million cars.
      mostly by automation.

      and some robitzation .

      and that will only get much worse. course the jobs that were destroyed werent really replaced. and incomes were a lot lower than before

    • willid3 commented on Jan 4

      course i really wonder who will buy products going forward, cause automation and robots dont

  4. Jojo commented on Jan 4

    Media coverage of protests sure looks different when demonstrators are white
    Updated by German Lopez on January 3, 2016

    Over the holiday weekend, a group of predominantly white militiamen took up guns and began occupying the government’s Malheur National Wildlife Refuge headquarters in Oregon, culminating in a tense standoff with law enforcement in the area.

    It’s a big story. This is an armed militia using the threat of violence to get the federal government to change the law — specifically, the gunmen want the feds to give up publicly managed land to local ranchers, loggers, and miners. And, yes, they are using the threat of violence: As Les Zaitz explained for the Oregonian, “In phone interviews from inside the occupied building Saturday night, Ammon Bundy and his brother, Ryan Bundy, said they are not looking to hurt anyone. But they would not rule out violence if police tried to remove them, they said.”

    Yet media outlets don’t seem to consider this an alarming story, instead treating it by and large as a peaceful protest. Here, for instance, is an Associated Press tweet about the events:

    Peaceful protest in Oregon rancher arson case followed by building takeover at national wildlife refuge: https://t.co/nsIKxQlyIu
    — The Associated Press (@AP) January 3, 2016

    For many on social media, the reaction seems very different from how the media would react if, say, black or Muslim protesters with guns took over a government building instead of a predominantly white group.

    http://www.vox.com/2016/1/3/10705610/oregon-terrorists-racism-race

  5. Jojo commented on Jan 4

    Given that most weather “reports” seem to mainly consist of the “reading of the temperatures”, it would seem that a robot could easily do the same job.
    ==============
    Chinese TV employs robot as weather reporter; anchors worried
    By PTI | 24 Dec, 2015

    BEIJING: For the first time, a Chinese news channel has employed an artificial intelligence robot as a weather reporter on its live breakfast show, raising concerns among the country’s journalists as it could threaten their jobs.

    “I’m happy to start my new work on the winter solstice,” robot XiaoIce said during her debut on Tuesday morning.

    XiaoIce is actually a piece of software developed by Microsoft using smart cloud and big data.

    In the first two days of her work, XiaoIce impressed many with her cute voice. She also comments on big news events on Shanghai Dragon TV.

    http://economictimes.indiatimes.com/news/international/world-news/chinese-tv-employs-robot-as-weather-reporter-anchors-worried/articleshow/50308175.cms

  6. RW commented on Jan 4

    For the “It’s about farking time” file:

    Change in formula for calculation of index for prescription drugs
    Effective with release of data for January 2016, an arithmetic mean (Laspeyres) formula will replace the geometric mean formula in the calculation of the elementary indexes in the CPI-U, CPI-W, and C-CPI-U for prescription drugs. The Laspeyres formula at the elementary index level is more appropriate for use in categories in which substitution by the consumer in response to price change is difficult or unrealistic. …

  7. kaleberg commented on Jan 4

    What we consider a good return on investment is always evaluated against what our money could earn elsewhere. When the economy is booming and incomes are rising, it makes sense to invest in productive assets to extract some of that new disposable income. When the economy is anemic and incomes are flat, it makes sense to inflate the prices of existing assets. As long as the economy is weak, high P/E market evaluations are perfectly reasonable. There is no point in buying productive assets when there isn’t enough money floating around for people to buy them. If there was such money around, we’d see rising prices as it pursued more and more goods and services. Instead there is plenty of money floating around owned by people looking for return on investment. So, we see rising asset prices as market valuations are inflated instead.

    If we had seriously rising incomes, particularly among the less well off who spend every penny they can get, then there would be a shift towards productive assets and many market assets would suddenly be overvalued.

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