The last correction low in the Dow Jones Industrial Average happened on 10/3/2011. Since then the famous index has gone 33 straight months without a 10% correction or pullback. The Dow is now up 59% since that last low occurred. Usually, in most bull markets, there is at least one 10% pullback in the Dow every 12 months.
Small cap stocks after an earlier run-up have faded of late, but by many metrics hardly appear cheap, trading at a forward p/e on the Russell 2000 index around where they started 2014 at 21. That compares with an average of slightly over 19 times earnings.
Another area worth watching is emerging and frontier debt markets where international sovereign bonds sales soared to record levels, hitting nearly $70 billion in the first half of 2014. Concerns about the quality of these bonds are beginning to surface some quarters.Ecuador, the tiny Latin American country that defaulted on its debt six years ago and has been locked out of the international financing market since, recently floated $2 billions in new debt.
Greece, Cyprus and Kenya are similar examples of recently holding bond offerings that most were over-subscribed to by yield-hungry investors. With the apparent end of Fed tapering on the horizon, some worry what will happen when it ends.
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Besides the bond market, the Fed recently expressed concerns about another sector, biotech, and investors have apparently been listening as the funds flowing this month into the sector receded, turning fund flows negative so far for 2014. That's a marked change from a sector that not too long ago captured Wall Street's love and admiration. Though investors were pulling funds before the Fed put small caps, bonds and biotech in their cross hairs, $440 billion left the sector since the beginning of this month, bringing the total for the year so far to a negative $77 billion.
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Macro is out and event-driven investing appears for the time to be in among successful hedge funds, according to recent blubs in Barron's and the Financial Times. At the center of this strategy is merger and and acquisition activity now at booming levels. One such aspect of these events is the so-called tax inversion deals going on that the failed Pfizer-Astra seemingly kicked off earlier. As the FT put it; "the economy may be miserable in the US, but takeovers are at boomtime levels."
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The European Banking Authority supposedly put a cap on bonuses for high bank earners.But as the saying goes, where there's a will there's apparently a way as, according to recent research, 55% of banks in Europe and 47% of non-Europe banks plan to use allowances to circumvent the caps for bank high earners.
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Busy earnings week ahead.
Monday, July 21
US Economics (Time Zone: EST)
08:30 Chicago Fed National Activity Index - expected 0.18, prior 0.21
11:00 Fed to purchase $1b-$1.25b bonds in 22-30 year range
11:30 Treasury to sell $26b 3-month bills and $24b 6-month bills
Global Economics (Time Zone: GMT)
04:30 JPY All Industry Activity Index
06:00 CHF Trade Balance
08:30 GBP Public Trade Balance
Earnings
Before:
Halliburton (HAL)
BB&T (BBT)
Suntrust Banks (STI)
Six Flags Entertainment (SIX)
After:
Chipotle Mexican Grill (CMG)
Netflix (NFLX)
Texas Instruments (TXN)
Rent-A-Center (RCII)
Tuesday, July 22
US Economics (Time Zone: EST)
08;30 Consumer Price Index YoY (June) - expected 2.1%, prior 2.1%
08:30 CPI Ex Food & Energy YoY - exp 2.0%, prior 2.0%
09:00 FHFA Home Price Index MoM (May) - exp 0.2%, prior 0.0%
10:00 Richmond Fed - exp 5, prior 3
10:00 Existing Home Sales (June) - exp 4.99M, prior 4.98M
11:30 Treasury to sell $25b 52-week bills, 4-week bills
Global Economics (Time Zone: GMT)
01:30 AUD CPI
08:30 GBP Boe Minutes
12:30 CAD Retail Sales
Earnings
Before:
Coca-Cola (KO)
duPont (DD)
Harley-Davidson (HOG)
McDonald's (MCD)
Comcast (CMCSA)
State Street (STT)
Lockheed Martin (LMT)
Verizon (VZ)
After:
Apple (AAPL)
Microsoft (MSFT)
Electronic Arts (EA)
Broadcom (BRCM)
Juniper (JNPR)
VMWare (VMW)
Discover Financial Services (DFS)
Xilinx (XLNX)
TDAmeritrade (AMTD)
Regions Financial (RF)
Wednesday, July 23
US Economics (Time Zone: EST)
07:00 MBA Mortgage Apps
11:00 Fed purchasing $2.5b-$3.25b notes in 7 to 10-year range
Fedspeak:
10:00am Yellen (dove, chair) to give semi-annual testimony to House Committee
12:00pm Fisher (hawk, voter) speaks in Los Angeles
Global Economics (Time Zone: GMT)
NZD RBNZ Rate Decision
JPY Trade Balance
01:45 CNY HSBC Manufacturing PMI (July prelim)
08:00 EUR Eurozone Manufacturing & Services PMI
08:30 GBP Retail Sales
Earnings
Before:
Boeing (BA)
Dow Chemical (DOW)
Freeport-McMoran (FCX)
General Dynamics (GD)
Biogen (BIIB)
Delta Airlines (DAL)
Whirlpool (WHR)
Pepsi (PEP)
EMC Corp (EMC)
Norfolk Southern (NSC)
After:
Qualcomm (QCOM)
Citrix (CTXS)
Gilead Sciences (GILD)
F5 Networks (FFIV)
AT&T (T)
CA (CA)
Tractor Supply Co (TSCO)
Etrade Financial (ETFC)
Illumina (ILMN)
Sallie Mae (SLM)
Facebook (FB)
TripAdvisor (TRIP)
Thursday, July 24
US Economics (Time Zone: EST)
08:30 Initial Jobless Claims, June 28, exp. 309k, prior 302k
08:30 Continuing Claims - exp 2513K, prior 2507k
09:45 Markit US Manufacturing PMI (July prelim) - exp 57.5, prior 57.3
10;00 New Home Sales (June) - exp 480K, prior 504K
11:00 Kansas City Fed - exp 6, prior 6
11:00 Fed to purchase $2b-$2.5b notes in 5 to 6-year range
1:00 Treasury selling $15b 10-year TIPS
Fedspeak
1:35pm Bullard (hawk, nonvoter) speaks in Kentucky
Global Economics (Time Zone: GMT)
Japan Investors Purchases of Foreign Stocks/Bonds
JPY CPI
06:00 EUR German GfK Consumer Confidence
08:00 EUR German IFO Current Assessment, Expectations
08:30 GBP GDP (2Q advance)
14:15 BoJ's Kuroda to speak in Thailand
Earnings
Before:
Cabot Oil & Gas (COG)
Cliffs Natural Resources (CLF)
Starwood Hotels & Resorts (HOT)
Noble Energy (NBL)
Union Pacific (UNP)
DR Horton (DHI)
General Motors (GM)
Ford (F)
Southwest Airlines (LUV)
NASDAQ (NDAQ)
Raytheon (RTN)
UnderArmour (UA)
Caterpillar (CAT)
After:
Starbucks (SBUX)
Deckers (DECK)
Amazon.com (AMZN)
Riverbed (RVBD)
Netsuite (N)
Homeaway (AWAY)
Visa (V)
Pandora (P)
American Airlines (AAL)
Bristol-Myers (BMY)
3M (MMM)
Jetblue Airlines (JBLU)
Dunkin Brands (DNKN)
GrubHub (GRUB)
Celgene (CELG)
Friday, July 25
US Economics (Time Zone: EST)
08:30 Durable Goods Orders (June) - expected 0.5%, prior -1.0%
08:30 Durable Goods ex Transports - exp 0.5%, prior -0.1%
08:30 Cap Goods Shipments Nondef Ex Air - exp 1.5%, prior 0.4%
08:30 Cap Goods Orders Nondef Ex Air - exp 0.4%, prior 0.7%
Global Economics (Time Zone: GMT)
01:30 CNY June Property Prices
12:30 CAD CPI
Earnings
Moody's (MCO)
Xerox (XRX)
Twitter: @MichaelSedacca
Stanley Druckenmiller is a pretty good investor, a guy we never met and don't know but whose career we followed for a long, long time.
Earlier today he gave an interview to CNBC at a conference. The retired founder of Duquesne Capital Management, Druckenmiller apparently believes that the Fed is risking harming the economy with its continuing "aggressive market intervention."
"I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy, " he was quoted as saying.
According to the article, Druckenmiller cited "soaring production, accelerating household net worth and strong retail sales," adding it was time to jettison the Fed's "myopic goals" of ZIRP, now five years into the previous mess.
Here's a link for more.
http://www.cnbc.com/id/101838762
Non-voting current Fed member Esther George, president of the Kansas City Fed, at a dinner Tuesday night in Kansas City called for the Fed not to wait too long before hiking interest rates
A known hawk, George used the phrase "relatively soon" and urged the Fed to shrink its $4.3 trillion balance sheet of which $1.7 trillion is in mortgage-backed securities.
http://www.marketwatch.com/story/feds-george-says-economy-ready-for-higher-rates-2014-07-15
The chart of the day: A crude pop is in the offing,
says Market Anthropology’s Erik Swarts, who uses this chart to support
his case. “With light sweet crude falling another 2% on the day, the
commodity looks quite attractive for those looking to either diversify a
portfolio, or capture the next leg higher, which we believe has already
been foreshadowed by the recent moves in precious metals,” he wrote.
The above is from Market Watch and goes along with what we've been blogging about a pullback in energy and our recent post on another site, financialspuds.blogspot.com, called We Don't Need Your Well-Thought-Out Advice
re louis
At a recent cocktail party one evening an attractive,
young couple off in the corner were apparently debating the market and
interest rates
At one point in the discussion, now at a boisterous level that attracted others in the room, the lady yelled at her companion:
"Up your alpha!" To which her companion promptly replied: "Well, screw your beta!"
A few minutes later, hand in hand, the couple smilingly
announced they were off to another more hip gathering and ebulliently
sauntered out.
Lemmings don't wear stripes or signs. But they should.
In the market these days there's much ado about what many mom and poppers either don't care to or can't grasp--alpha and beta.
Simply stated, alpha is any added value or return active
management brings to one's investment table. Beta, on the other hand, is
a measure of the risk arising from exposure to general market movements
or asset classes, all things equal.
A few years back when hedge funds fell off their once
envied shelf, it was hard to avoid all the negative press there were
receiving. Recall hedge funds originally were the alternative kid in
town, taking advantage of things, to use the Street vernacular, not
correlated to what was available for many reasons to the mom and pop
crowd.
And forget not that once
upon a time the mom and pop crowd included, except for their economic
clout, pension funds, university endowments, insurance companies and the
like. The huge California pension fund, Calpers, should come to mind.
It was one of the first to open its deep wallet and invest in hedgers.
The search for return, safe or otherwise, as we're seeing
in this yield-starved, Fed-created scenario of low interest rates, has
its own energy. Some might refer to the run-up in bond prices and the
run-down in yields as a form of momentum investing. A kind of perverted
go with the flow mentality MSM and other various talking-heads love to
promote.
Hedge funds are noted for taking around 20% off the top
of performance and high fees. Their meme, big alpha, supposedly
justified the costs. It was a culture available to only a select fee.
That is to say they invested in things not correlated for the most part
to the general stock market and it's often prosaic movements.
The bad news these bad boys were experiencing
then--dwindling assets, closures, toothless returns, to name a
few--apparently now rest comfortably on the scrap heap of investor
memories. At least that's what the numbers show.
As the stock market get larger, so too have those hedge
funds as money once again is pouring in from investors of all stripes.
Only this time there's a difference.
It's
the absence of their once ballyhooed negative correlation. According to
what we read, not only are assets in these funds growing but the data
also shows that they're more correlated than ever with the stock
market.
In short, back to alpha
and beta, investors are paying up for the privilege of alpha but mostly
likely will only receive beta, which they already most likely are
getting other places. If as they say a rising tide raises all boats,
then positive correlation can do the reverse.
t. man hatter
Who caused much of the financial trouble of the last recession? Most agree it was the Fed's big buddies, big banks.
So what do the bureaucrats in Congress and at the Federal Reserve do, implement more regulations.
David Hunt is CEO of Prudential Investment Management, the $890 billion asset management subsidiary of the huge insurer, Prudential. Here's a quote from a recent interview in the Financial Times. Prudential has been designated, overlook if you can the stilted economic language used here, a systematically important financial institution. To use the acronym, it's a Sifis.
You should be familiar with them because Fed Chair Janet Yellen loves to bring them up in her little media chats.
Now we already have selfies, but this is Sifis. Imagine if you can two strangers at a cocktail party and one, after a few brief exchanges, innocently asks the other one what he does.
"I work for a Sifis."
"What'd you call me?" the first guy responds
A Sifis is bureaucratic babble for too big to fail, also know as TFTB.
Hunt: "... cautions that increasing difficulties of meeting regulatory requirements will reshape asset management as smaller players struggle to meet rising legal and compliance costs."
So what's the point, you ask? The point is simple. Perhaps too simple for most to get. Regulators do what they always do, the only thing they know: Punish the many to get the few.
So let's repeat our original question. Who caused the financial turmoil, the big guys or the little guys? One of the current on-going criticisms of the haves is they have ways or access to ways around things little guys don't Big corporations is synonymous for haves.
So read Mr. Hunt's statement carefully. If you drive the smaller players out you're only left with the the big players who committed the foul deeds in the first place. Whether it's accounting changes, pension funding, compliance with environmental regulations or health insurance, this principle is true across the entire economic landscape.
When the subject of shadow banking comes up and the increasing role asset managers play in it, Hunt is careful to differentiate his firm. "We don't believe in that model at all, " to which he adds that this firm lends "directly to companies with which it has long-term relationships, instead of via an agent."
A cynic might suggest that sounds like an accurate description of crony capitalism. Last time we checked Washington lobbyists have long term relationships with Congress members who keep getting re-elected. Ask any self-aggrandizing lobbyist his or her worst nightmare and you'll get a one-word answer--turnover.
Prudential is the 10th largest asset manager in the world. With few exceptions the government always lets the little guys go out of business. Keep the concept of level playing field in mind when you're ruminating about this, if you ever ruminate.
Too big to fail is a bureaucratic excuse for keeping dysfunctional, bloated behemoths on the taxpayer funded respirator when in even a semi-free market they'd be mercifully euthanized before you or I can spell Sifis backwards.
