Monday, December 23, 2013

What does the fox say? How about "Walmart do not kill me..."

Take this with a grain of salt because it comes to via a Chinese newspaper but remember the good old days when you could buy your donkey meat without fear of having it mixed with fox meat?

"Fox meat was found in a package that was supposed to contain donkey flesh at a Wal-Mart store in Jinan City, Shandong Province, Yangcheng Evening News Sunday reported.

A man surnamed Wang said he bought the so-called donkey meat, but thought it tasted strange.

He then asked an authorized institute that was not identified to test it. After testing, the institute concluded it was fox meat, the report said."


Friday, December 20, 2013

How the Weather Channel has ruined America

Okay, so maybe I'm engaging in a LITTLE hyperbole but bear with me because I'm about to turn into the old guy yelling at those darn kids to get off my lawn!!!

For the past week my kids have gone to bed every night with visions of school delays and cancellations dancing through their heads.  Why?  Well, because the national weather service provides the warnings and the 24hrs news cycle drills these dangers into our heads constantly.

This is the list of winter warnings/advisories that can be issued:



When discussing past holiday seasons with my kids last night, one of them asked what was the most snow I remembered in a December. I know there was a lot of snow in the blizzard of '77 but that occurred after the holidays.  I remembered it being the mid-80's because it was the last winter before our family purchased a snowblower and saved this teenager's aching back :)

This site has a wealth of historical data and it shows that in 1985 Watertown, NY received 108 inches of snow in December.

By comparison January 1977 "only" delivered 90" of snow.  One of the unique things about the 1985 snow was that it wasn't 5 feet on one day.  It snowed 6-8 inches almost every day for a period of 3 weeks leading up to Christmas.  Did we cancel school every day in December 1985?  Did businesses seize up because it was snowing?  Did the military base shutdown?  Were we hunkered down in a bunker to survive the SNOWPOCALYPSE?

I can't recall, but I believe we only had one or two days off during that period.

However, when you have 16 different advisories/warnings that you can stream across your screen 24/7 to keep eyeballs tuned in, so you can increase ad rates, you better believe that every snow storm from now on will be "marketed" heavily. 

Okay, enough of my rant.  The point is that it snows in the Northeast in the winter.  We need to accept that fact and move forward.  Alternatively, we're going be caught in a constant cycle of running from shelter to shelter hiding from Snowstorm Eileen to Thunderstorm Jackie (the running joke in our house is that now that the Weather Channel has decided to name snowstorms it won't be long before they start naming thunderstorms, tornado outbreaks and heat waves).

PS - Now that I've said all of this I'm sure we'll get 3" of ice tonight and lose power for 2 weeks just to prove me wrong :)


Hey buddy, need a job?

Okay, I know I tend to be a cynic but it's the holiday season so I'm more tolerant of the typical spin, misdirection or outright lies told by many.  A good friend always reminds me that everyone is always lying but I hold out hope that there are a few honest folks still among our midst.

Well, that hope is taking a serious body blow after reading this article in the Atlantic.  According to a craigslist ad (which thankfully has now be flagged for removal), a Pittsburgh area man is looking for bright young man to attend Harvard on his behalf in exchange for living expenses, fees and $40k/year.  At the end of the arrangement the buyer would have a Harvard degree to impress people with after spending 4 years partying in Ibiza and the seller would have the benefit of 4 yrs of college life while getting paid :( #SMH

So the question is: What does it say about the 0.1%ers that one of their own has access to perhaps the world's finest education but would rather pay someone to go in his place than be bothered to actually go to Harvard?  As the article points out, we hope this was some sort of documentary/reality TV plot line, but I worry that it really was some spoiled rich kid that didn't want to spend the next 4 years working hard.

In a related Harvard/trying to get out of hard work story see this story of a 20 yr old that emailed a bomb threat to Harvard in an effort to get out of finals.

"Kim said he sent his messages using a temporary, anonymous email account routed through the worldwide anonymizing network Tor, according to the affidavit.

So far, so good. But to get to Tor, he had to go through Harvard's wireless network — and university technicians were able to detect that it was Kim who was trying to get to Tor, according to the affidavit."


Wednesday, December 18, 2013

To the moon, Alice, to the moon!!!

Earlier in the week, I said that I was placing higher odds on a taper being announced than the rest of Wall Street. A recent run of decent data (we'll have to discuss the quality of that data at another point) seemed to indicate that the dreaded taper might come sooner than expected.  However, I also cautioned that everyone expected this to be the end for the stock market.  Pull away the Fed's juice and the stock market engine goes kaput, right?

Well, not so much.  Everyone had two assumptions - no taper and if a taper was announced it would be bad for stocks.  So what happens?  As usual, the exact opposite of the consensus opinion - a teeny, tiny taper is announced and stocks held their initial gains.  The computers took over late in the day and bought everything in sight so we could have the RECORD close that Ben Bernanke needed to have on his resume.

So, what is the bottom line?  Well, for all of the talk of the "Fed pulling back because of a robust economy" the taper means that instead of buying just over $1.0 trillion of debt next year, they'll buy $900 Billion.  When positioned like that you see that this is relatively insignificant.  Stocks are still poised to benefit from multiple expansion in a low interest rate environment and now that they've crossed into record territory you can expect all of the nonsense "Santa Rally", "January Effect" stories to get trotted out to carry it higher.

This fits with my original thesis that we are setting up for a very March 2000 like blow-off in stocks.  They could soar another 5-15% in the very near future without any fundamental shift (as they did in 2000) before a black swan changes things.  My concern in February/March is that we see unemployment reverse and start climbing again.  The initial reaction might be "Woohoo no more taper", but eventually people will realized that the Fed has no policy tools left to spur hiring.  If you've ever watched the Walking Dead it will feel an awful lot like a person standing outside of the prison when they've fired their last bullet.  You may be able to duck and weave for a few minutes but eventually something bad is going to happen.

Having said all of this I have to come back to the original point - Always take the opposite side of the crowd and right now EVERYONE expects the market to coast higher.   That's usually when something can go awry, but I don't see anything (short of some Chinese lending issues) that could derail that thesis tonight, but tomorrow is another day.


Monday, December 16, 2013

Good news was good today

Today the market took some good news on the German economy as good news and ramped higher without much let up all day.

Again, most market observers expect the Fed to stand pat at the December meeting on Wednesday.  I put the likelihood of news about the beginning of the end of stimulus at 35-40% which is higher than most.  The current assumption is when this word comes out the market is set to give up meaningful gains.  Remember in July, the rumor of a "taper" cut 10% off the market.  However, it's worth keeping in mind that the market might just decide that the taper is good news (they'll only taper when the economy is really taking off, right) and that might cause stocks to rise.  That would be a contrarian view, but it's not out of the realm of possibilities.

Reminder that it's a traders market that the buy and hold player just visits:  While the markets have had a great year up roughly 20%, if you had perfectly timed the S&P 500 this year (buying each bottom and selling each top) you could have turned $1,000 at the beginning of the year into a measly $264 billion.

While we're on the subject of extremely long odds and billions of dollars..... here come the SUPER, MEGA, GIANT, POWER, HAPPY, TERRIFIC BALL lottery stories because they are easy to run.  Find lines of hapless people that could have used my old venture - NNY Math - and ask them "WHAT WOULD YOU DO WITH $550 million???" 

Okay, so just to be clear no one ever takes the annuity (because tax rates are probably going up not down on the ultrawealthy), so the real lottery number is $290ish million.  Taxes will take another 40% of that number so the real number is probably closer to $175-$180 million.  "Hey, I'll take it you say" and sure that is a boatload of cash, but one news clip I saw today said "and you could even fly in your new $65 million jet."  Ummm, no.  $180 million is big money but it's not private jet money.  You need to have 50-100 times that number to feel comfortable spending on a large private jet.  Then we get to the odds.  It's not a coincidence that no one has won the lottery since the rules were changed.  By my calculation the odds are now 1:258.9 million.  Those are not good odds. 

On my first day of my first job post college, the CEO of our bank visited my office and told all of newbies that avoiding the lottery was the best advice he'd ever received.  I pass it along whenever I can.  Having said that, if I win my next post may originate in Kona, HI where it never gets to -10F :)

A noted fundamental analyst today published a paper that stocks are priced to return "basically 0% for the next 7-10 years".  While I find that to be an extreme view and as I mentioned above you can still be plenty profitable trading flat to down markets, this does fit with my view of the first quarter century for the US.  I believe that we are following a similar path to the Japanese economy and that we may find ourselves in 2020-2025 looking back at 2000 the way the Japanese look back at the good old days of 1989.

Random map of the day
via @amazing_maps


I'm not really sure how they calculated popularity (I know the Yankees and Red Sox are popular in the northeast but more popular than American Football?), but it should give you a little appreciation for the importance of the 2014 World Cup to the rest of the world.


Closing in on a milestone

I know the frequency of my posting has decreased significantly in the past couple of years, but I was surprised to see that at some point in the next couple of weeks I'll probably cross the quarter million pageview threshold. 

For some link bait sites or headline listings a quarter million views is a good morning, but for the random musings of this guy it is very humbling.  I understand that 88% of those pageviews are family and Russian spambots, but I am thankful for all of you that keep clicking through to check in on Grindstone Financial.


Sunday, December 08, 2013

Jobs, jobs everywhere,right?

Stocks jumped on Friday because of the good news on the jobs front right?  Well, that's what all of the fluff pieces seemed to say on Friday so why question it.  However, haven't we been conditioned to think - good news equals the end of the Fed actions in the market which would have to be bad for stocks?

Well, the lesser told story Friday was that of GDP (our economic output as a nation).  The third quarter growth in GDP came in above expectations again and that on the surface sounds good.  However, an unusually large portion of this growth was due to inventory build up.  The least reported story of the week was that many economists started cutting their forecasts for growth in the 4th quarter on Friday due to this inventory build up in the third quarter.  Some have cut their forecasts to as little as 1% growth.  This is the sort anemic growth that doesn't let the Fed end QE and thus, stocks were mostly up on Friday because of reductions in Q4 GDP estimates means the Fed will not taper in December.

Now, that's a more complicated story than "Yeah, 200,000 Walmart greeters were hired so stocks were up" but it's closer to the truth.

Overall, it was a decent jobs report though there are some inconsistencies that are hard to explain.  Retail hiring seems to be close to 2012 indicating that retailers have confidence that we are all going to go out and overspend again this year.  However, as a fun little real world experiment you should go to a Home Depot on a weekday and do a slow walk of the store.  I was asked by 7 different salesmen if I needed help.  Staff outnumbered customers about 4 to 1 when I was in the store.

I'm still putting a 20-25% chance of a reduction of the Fed's efforts coming out of the Dec 2013 meeting but the consensus is definitely shifting to the Jan or Mar 2014 meetings.


Weekend potpourri

Many of these items are completely random but I have a long list of bookmarked pages I've been meaning to post so here goes.

You really have to visit this site - which has a global map of all US military installations.  Hmm, should I read that as strategic, defensive, offensive or paranoid?

It's a nice interactive map that allows you to zoom in on various areas of the world.

This image doesn't do this story justice.  You'll have to click through to a radio station website (here) to get the full story of a guy from New Zealand who found a great way to spend some time in the -25 weather of Alberta last week.

The igloo lit up from the inside

From the files of "Seriously?" comes the Washington Post story on the FBI's latest techniques to track down bad guys.  Hidden in this story is the tidbit that the FBI apparently has a software tool that allows it to remotely turn on your webcam and record you without your knowledge.  So far, in the only case mentioned in the article a judge refused to grant permission for it's use.  Hopefully, it stays that way.

At least according to this study - spending a day outside in Shanghai is the equivalent of smoking 21 cigarettes in that same day.

Not that anyone seems to care, but Fukushima is still out of control.  This weekend they recorded the highest level of radiation yet outside of a vent pipe at 25 sieverts/hr.  One report I read said that this could be lethal in 20 minutes of exposure.  Remember, this disaster happened almost 3 years ago!  Yeah, but think of giant 50,000lb yellow fin tuna that will be swimming in the Pacific as a result of new mutations.

Global political update - Kiev protests intensify in the Ukraine, Thailand dissolves its parliament, and the China/Japan war of words continued to heat up over the weekend.


Saturday, December 07, 2013

Hey FedEx, You're doing it wrong...

Here is the current path a recent order from an online website has taken on its journey toward my home in NY. Three weeks later and it's only about 140 miles closer to delivery.  Thankfully Christmas is still 2+ weeks away.

View Larger Map

Wednesday, December 04, 2013

Map of the day

Presented without commentary this map compiled by Deadspin of the highest paid public employee in each state.  Keep writing those tuition checks boys and girls - championships don't come cheap!

Just a quick commentary on today's market action:  again down was up and up was down for most of the day.  However around 1:28pm a weird thing happened.  Someone hit the market with massive sell orders and it looked like someone had cut the power to the high frequency traders.

However, upon closer inspection it appears one market maker got stuck with too many futures and was forced to unload them all at once.  This lead to sharp sell-off and subsequent rebound when the market caught its breath.  This speaks to the nature of these markets that are not driven by future profit prospects, but rather the technical nature of the buys and sells order flow.

Selected quotes of the day:


* Jim Rogers, one of the most famous investors of the past 30 years, said "Eventually, the whole world is going to collapse, this is going to end badly".  It's worth noting though that he's been really wrong on a couple of calls in the past year.

Bizarro World

Today's headline of the day so far goes to this clever wire writer

"S&P 500 gains for 1st day in 4 as Nov. ISM non-manufacturing missed estimates"

The whiplash inducing reaction of the market to every piece of data is bound start causing problems at some point.

Consider the following just from this morning:

* The trade deficit came in better than expected and stocks dip.

* The ADP jobs data (which I admit is a horrible indicator on the BLS jobs data coming on Friday) came in much stronger than expected.  Obviously, this means stocks should ....... fall further???  Huh?

Why would that happen? Again, the computers that run the market read headlines like "better than expected" and instantly equate that to "the Fed may stop open market purchases" which means stocks are destined to fall.  This is OVERLY simplistic but it does represent much of the thinking on Wall St.

At 10am, the ISM services number came in weaker than expected and everyone (silicon and carbon-based) started buying everything that wasn't nailed down.  Stocks swung back to the upside.

I contend that the Fed is not watching every little data point.  They have (or should have) a 3-5-10-20 year vision and they do know that their involvement in markets has to end at some point. The question is really when do they signal their intentions to the market?  Everyone expects this will happen in June 2014 and that they will be able to jump ship before things turn.  If however, the Fed uses major data points like unemployment and jobs creation, they could shock everyone by moving sooner.

One final, caveat - the Fed is a non-political entity but the political implications of their decisions are very real.  2014 will be a very hotly contested mid-term election cycle and crashing this Fed fueled stock market in the middle of the run-up to the election would complicate matters for both parties.


Tuesday, December 03, 2013

Will the sun come out tomorrow?



So yesterday we talked about the things that seem to be looking up on the consumer front. Add to that today's robust vehicle sales numbers which were pretty strong across the board and hit their highest levels since Feb 2007.

Via Bloomberg this chart sums up the grand disconnect that we are seeing in the US. Stocks (the green line) have marched steadily higher for the past 2.5 years as if being levitated by some unnatural force while the estimate for US GDP in 2013 has slowly been cut in half over the same period.

Which brings us back to the original question are stocks spurring economic activity or does the weakness in the economy lead people to expect Fed support and thus, higher stock prices?  Yes, it is insane circular logic but bear with me.

I think we're approaching a point where two unique events could lead to a turn in sentiment.

1) The last bears have shut the door.  There is almost no one left on Wall Street with a negative view.  Some VERY high profile bears have thrown in the towel in the past month.  When everyone gets on one side of the ship, it usually is a set up for something to go terribly wrong.

2) The Fed seems to be realizing that all of their efforts are not impacting job creation.  Despite efforts to spur lending and create jobs, the Fed has merely bolstered bank balance sheets.  They might take a radical step soon to curtail their activities in the market and that would come as a huge shock (low probability but great risk if it happens).

Finally, we talked yesterday about the consumer strength that we've been seeing in recent reports.  However, I want to mention two stories that came out late yesterday and highlight how they could be canaries in the coal mine.

* Potash is the world's largest fertilizer company and they announced yesterday that they were cutting nearly 1,000 jobs because there has been no increase in demand for nearly 6 years while supply continues to grow.  The lack of demand for fertilizer is a troubling indicator.

* RioTinto is the world's second largest mining company and they announced yesterday they were cutting their capital expenditures in half over the next 2 years to just $8 billion.  Large miners like Rio are not known for being terribly nimble.  They have to have very long time horizons and the fact that they've looked at least two years out and decided they can't justify the investment in more capex is very telling.

Tomorrow we'll get a messy reading on the worst piece of data that everyone covers - the ADP report.  We'll see if it provides any unique insight this time.


Monday, December 02, 2013

Put on a happy face....

It's been some time since I've tried my hand at the old glass is half full trick so here goes....

If you work under the assumption that every number provided to us is valid then there are some reasons to be optimistic about 2014 and beyond.  However, I'm really talking solely about economic activity and not about the stock market which is completely removed from economic activity at this point.

1) Construction spending seems to be strengthening while the residential market takes a bit of a breather.  There is little doubt that construction has picked up meaningfully from the 2009 lows, but it is still well below its 2005 peak. The devil here lies in the details construction spending is really being driven by apartment construction (and some would argue we're in a bubble of apartments).  Apartment construction is fine, but it's not the economic driver that single family home construction is.  I'd also point out there will be a wave of substantial public (state and local) spending that will hit in 2014.  States tend to lag the economy and while they were hesitant to spend in 2011 and 2012, they've opened the checkbooks in 2013-14.  There will be projects large and small everywhere for the next couple of years.

I'd also note that school construction (at least in NY) is likely to step up meaningfully in 2014.

2) A number of consumer trends are pointing up - vehicle sales, restaurant trips, etc - all seem to indicate that the consumer is feeling better (but Black Friday brought some rain on that parade).

Again, this is conversation about the slow moving wheels of the world's largest economy.  The daily dose of confidence delivered by green on our stock screens is filtering it's way through to the system.  The validity of the increase in stock prices is a topic for another day.


Sunday, December 01, 2013

Don't bother getting back to work there is cheap junk to buy online!!!!- It's CyberMonday, Cyberweek, Cybermonth...

Now brought to you buy Boeing's new Amazon Prime Drones!!! More on this in a moment.

So, despite the stuffing our faces and shopping until we literally dropped for 4 days, there is MORE shopping to be done so get to clicking as Cybermonday stories will rule the air for the next 24 hours.

A few years ago, I predicted that the rush to expand Black Friday into Thanksgiving would cause a backlash.  You wouldn't know it by listening to stories from Thursday and Friday about shoppers with "dozens and dozens of bags" but it appears that this is finally coming to fruition.

Unfortunately, much of the data reported as fact for this weekend is based on consumer reported data and consumers always overestimate their spending.  However, while the number of shoppers was up 1% for the year, actually spending fell.  I would question whether the number of shoppers was actually up this year.

When you looked at anecdotal data like footage from malls on Thursday and Friday or the interview from one shopper at Mall of America who said "we arrived at 7am and were stunned that the parking lot was empty" it appears as though foot traffic was down substantially.

The contention will be "yeah, but everyone is just moving to online shopping."  Yes, online shopping is still growing, but it remains just a fraction of overall sales.

As with every year before - Black Friday will make for an interesting story full of throngs charging their way to $98 TVs but the reality will fall short of expectations --- again.  Never mind, you can make up for it during the remainder of the Shopping Sea...... oops, I mean Holiday Season.

With great fanfare Amazon revealed their plan to officially be the final nail in the US Postal Service's coffin by unveiling their PrimeAir Drones.

The coolness factor of a helicopter dropping off my over-packaged $2.99 pack of coconut water is undeniable.  However, the hurdles for such a concept are enormous.

* It only makes sense in dense suburbs.

* In our panic first, use common sense later society a bunch of black drones carrying brown boxes flying around the suburbs won't cause any concern.  Consider for a moment that LAX was shutdown for 5 hours two weeks ago because a truck backfired.  Yale was shutdown for almost an entire day because of a hoax phone call.  One moron with bad intentions and $69 to spend on a drone will do something and pretty soon we'll all need our own Homeland Security/TSA agent assigned to our home to scan all Amazon purchases before delivery.

* It will take kids about 15 minutes to figure out a way to hack delivery so that your shiny new ithingy gets delivered to them so they can sell it on Craigslist to fund their Addy purchases.

Hey, I use Amazon Prime and I buy a fair amount from Amazon (when they offer the best price), but I think Wall Street's love affair with this retailer is insane.  This drone idea gives them 5 years of coverage because no one will care about profits if you're building a drone network.

Or maybe I'm just in a bad mood because Eric Decker ruined my fantasy football season.