Friday, August 30, 2013

The Beauty of @Twitter

Everyone seems to have their favorite social media site.  Some people have been die hard Facebook fans since day one, others have moved to the more professional, if limited, conversations at Linkedin, while the younger set seems to favor the image heavy tools like Instagram/Snapchat, etc.

I've been a twitter guy since early on.  I still don't love their ad model and I'm occasionally shocked by the stupidity of the "trending topics" (currently trending in NYC "Finally Friday" and "Why I didn't text you back") but there is a subset of users that make twitter the best thing on the Internet.

News
The initial appeal to me was to help replace the bloomberg terminals that I no longer had and to gain access to news faster.  Twitter is really unlike anything else when it comes to real-time information dissemination.  If you are a true news junkie you can't beat twitter.  In 2012, an incident in NYC lead to the evacuation of a building where many friends work.  By searching twitter I had real-time photos and news from people in the building.  In fact, in that case, I knew what prompted the evacuation and that it was a false alarm before the traditional media had even reported that an evacuation was occurring.

So to get the most out of the news component you need to follow a bunch of the breaking news twitter streams and Reuters, etc.  However, often it's just as fast to just search for a topic.  If I hear something has happened in a particular stock or part of the world, I can search the topic and have 100 tweets on the issue in a second.

Deep Research
There are some brilliant people on twitter and they often link to the most obscure, yet interesting research.  In the past view days I've read about water on Mars, the surprising uptick in births in developed nations, and the "decline of serial killers in a sharing economy".  Perhaps more interesting all of those links came from one guy!

Finding the right people to "follow" is the key to your experience.  If you follow people tweeting pictures of their lunch, well, your experience is going to feel a lot like a boring version of facebook/instagram.  If you follow a bunch of celebrities you'll get a steady stream of comments like the ones that Nick Offerman from Parks & Recreation parodies on the Conan O'Brien show (Here's a sample).

However, over time you'll find industry thought leaders and you can start to follow them.

Expanded Networks
Lately twitter has taken an even more interesting turn.  As I've found smart and interesting people to follow in markets that I know little about (emerging healthcare in India, for example).  Those people have led me to discover other people often in unrelated fields.  Soon, you're reading up on Asian soil erosion and liking it. This has led to some great conversations with people in industries as diverse as education and defense technologies halfway around the world.

Sounds great you say - what's the downside?
Okay, yes Anthony Weiner gave it a bad name.  However, in fairness I think he's given everything he's touched a bad name.  There are people that are on twitter for all of the wrong reasons but it's easy enough to steer clear of most Congressmen.

The biggest negative of twitter is really one of its greatest assets.  Unfortunately, if given the choice of news sources most people will self-select news that already confirms what they believe.  Thus, Twitter becomes cable news on steroids.  One of the greatest problems in the US today is that we all get our news from organizations that spin it to our liking.  Liberals watch MSNBC and Conservatives watch Fox and no one watches CNN.  This leads to increased political polarization because no one ever hears the "other" viewpoint.  Twitter takes this to a whole new level.  You can find right and left-wing extremists EVERYWHERE on twitter and pretty soon you'll be convinced that whatever they are selling (I mean saying) is the truth. The fastest way for someone to get blocked from my twitter feed is to start talking politics.

Finally, don't follow EVERYONE.  This is an easy trap to fall into but if you get more than 100 active members you will soon be drowning in information and the ability to digest it all will not be able to keep up so you'll tune out.

I can't guarantee a good experience on twitter but you should try it out because it's become a vital part in my information tool set.

You can find me on twitter @brianlantier

Cheers!

Wednesday, August 28, 2013

Midweek checkpoint

The markets rebounded today in a very thinly traded session.  However, while the headlines will read "Dow jumps 48 points on (insert random cause here)", it's worth noting that 40 of those 48 points came from gains in Exxon and Chevron. Hmm, I wonder why Exxon and Chevron might be surging?  Could it be the forecast for $125-$150 oil if the conflict in Syria goes on for more than 1.45 seconds which is the average American attention span in the Idol Talent Dancing in America era?

It's unclear what that means for prices at the pump but $125 oil will be very, very good for the profit margins of Chevron and Exxon.

The unofficial word is that we are moving forward with an attack of some sort against Syria as early as Thursday.  We'll see if cooler heads prevail.

Stats of the Day:

* August trading volumes hit the lowest level in 16 yrs.

* In a possibly related story - CNBC viewership is at 20 year lows.

* Remember the Spanish recovery?  About that... Spanish mortgages plunge 42% y-o-y.

* Seaworld cut its midweek price by 46% in Orlando to help counter a decline in attendance.

Cheers!

Tuesday, August 27, 2013

Story of the day

Presented without comment:

Bank president pleads guilty to using TARP funds to buy a luxury condo in Florida.

Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Columbia, Mo., bank chairman pleaded guilty in federal court today to misleading federal investigators about his use of $381,000 in bank bailout funds to purchase a luxury condominium in Fort Myers, Fla.

“At a time when many other Americans were losing their homes, he was siphoning off public funds to buy a luxury vacation condo in Florida,” Dickinson said. “These federal funds were intended to help stablilize the economy during a fiscal crisis. Instead, this disgraced business leader took advantage of the situation to benefit himself and other bank executives, then lied to federal investigators in an attempt to hide his scheme.”

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Bonus story of the day:

We'll debate the WHY of this story on another day but look at the chart in this article.

College costs up 500% since 1985!

Cheers!

What is that odd reddish color on my screen?

It's been nearly 2 months since we've had a meaningful decline in the markets and today was unique in that there was never any attempt to buy the dip.

The general consensus seems to be uncertainty surrounding the path the US will take toward Syria shook the markets.  First, let's talk about Syria.

1) We have taken the line that there is "no doubt" that President Assad used these chemical weapons against his people as gospel.  Well, actually Sec Kerry and Spokesman Carney sort of dance around the issue of blaming Assad and say there was little doubt these weapons were used but we don't actually place the blame with Assad.  The major question I have is -- Why in the world would he have done this now?

Syria had fallen off the front page of the global news and been replaced by the complete disaster in Egypt. Was it a coup, wasn't it, etc, was all we could talk about.  Assad was quietly working to put down the rebels in his country without drawing any international headlines.  Then out of the blue he (a UK educated, doctor btw) decides he wants to be the new face of evil in the world by launching chemical weapons?  Odd to say the least.  For some reason the image appears at the bottom of the post, but look at this google trend chart for Syria and Egypt and tell me why Syria would have wanted to jump back in the global spotlight.

2) Russia, China and Iran are not on board with this effort.  The Saudis and Russians appear to have had a falling out over Syria and it feels like we're being drawn in to settle their squabble.

3) Global oil prices went up about 3% to $109/barrel for West Texas crude because Syria supplies 0.48% of the world's crude??  No oil prices went up because there is a fear that one of the "other players" Russia or Saudi Arabia (who account for 25% of the world's crude) may be drawn into any conflict.

So, do I think stocks reacted to the Syrian news?  Maybe a little but there are bigger stories going on globally.  Here are the primary drivers I see for today's decline:

1) Goldman was hinting that they believe the Fed taper (end of QE) will begin in September.  If you believe that most of the run-up in stocks over the past 3 years has been due to Fed easing, do you want to own stocks as the Fed starts to reduce their purchases?

2) India - The currency of the third largest economy in Asia and home to 1.2 billion people remains in free fall.  The currency is down 20% in 3 months and down close to 50% in the last 2 years.

3) Finally, good old fashioned technical indicators. I've been telling you for years that I don't buy the value proposition for chart reading, but the reality is that many use it to guide their trading.  We've broken a number of key support levels and many more are hanging by a thread.  If we continue to see declines we could retest the May/June lows.   If we somehow manage to get below those levels there is no technical support for another 200 points or so for the S&P 500.

On the plus side the weather is expected to be glorious in the northeast for the next few days.  Get out there and enjoy the weather!!

Cheers!

Monday, August 19, 2013

Where to begin tonight

There are so many interesting topics to discuss - the chaos in Egypt, a Western government (UK) smashed a the hard drives of a media outlet (seriously!), radiation levels in sea water near Fukushima are at the highest level since readings have been taken (again, seriously!), the Indian Rupee is complete free fall (down nearly 20% in the past 3 mths), stocks have fallen 9 of the past 11 days, there are technical indicators that haven't popped up since 2008 that are flashing warning signals everywhere and interest rates have perked up.

Let's just focus on interest rates tonight.  Today, the 10yr treasury note touched 2.89% and this important because this is the rate upon which all other rates (mortgage, car loans, etc) are based. This interest rate has jumped 75% since May and is sitting at 2yr highs.  If the move ends here, I think it will merely be a blip on the financial radar.  If, however, this is the end of the great 30 year bull market in treasuries, we are going to have some issues to discuss.

1) Housing - consider that last year a 30 yr mortgage could be had for 3.66% which is a ridiculously low rate.  A $300,000 mortgage would have had a payment of just $1,370 or so.  Now imagine the impossible -- if this interest rate move gathers steam and mortgage rates make it all of the way back to 2000 levels of 8%.  In order to maintain that same $1,370 mortgage payment the principal of your mortgage has to go all of the way down to $185,000.  In other words, your $300k house is now worth $185k (or less) on the open market.  The ramifications of this kind of move would be broad - falling home prices, increased defaults, banks going bust AGAIN, real estate tax revaluations, budget shortfalls for schools and local governments, etc, etc.  This currently is not a likely scenario, but neither was a 75% move in 3 months for the 10 yr note so we should be aware of the possibility.

2) Treasuries as investments - An entire generation and a half has grown up knowing that treasuries only go up in value.  They are considered "safe" and not subject to traditional market risk.  This is a fallacy.  Treasuries trade just like stocks and bonds and they are priced inversely to their interest rate.  As prices fall, rates rise, but the reality is we've rarely seen this in the past thirty years.

3) The Federal Budget - The CBO was projecting 2013 10 yr rates of about 2%.  Most of our debt is short-term now but if the 10 yr rate starts increasing, short-term rates may be close behind.  We were expecting to drop about $220 billion on interest costs this year with rates at 2%.  As I mentioned, 10yr rates are now about 2.85-2.9%.  That's almost 45% higher than projected.  Would that mean $100 billion in EXTRA interest costs this year??  It's hard to say (probably not b/c the bulk of our debt is very short-term), but the implications are clear.  Anything extra spent on interest is money that can not be spent on other programs of the Federal Government.  Again, right now this isn't a huge issue because higher tax revenues are helping to reduce the deficit although it remains elevated relative to historical levels.   However, if interest rates were to hit 4-5-6% we're going to have a problem because we are basically financing our debt with a variable rate mortgage.

Well, on those happy notes go grab some sushi while still can :)

Cheers!

Friday, August 16, 2013

Walmart, Cisco and Egypt oh my...

Yesterday marked the first meaningful move downward in the stock market in nearly 2 months.  Things have been looking very rosy on the surface as everyone seems to have convinced themselves that the Fed party can go on for ever.

The problem with this thesis is that companies in the real world are encountering some serious headwinds.  In just the past 2 days we've heard from CEOs of companies as diverse as Macy's, Walmart, Deere, and Cisco, all say they are operating in an increasingly difficult environment.  These comments coupled with with the increasingly difficult situation in Egypt to knock 200 points off the Dow.  However, I think there is more at play here.  Back in June, the stock market started to get wind of a possible wind down of the Fed open market purchases and the Dow dropped about 500 pts in a few days.  Chairman Bernanke quickly calmed everyone's fears by saying "Don't worry, be happy" and the market resumed it's upward march in the face of weakening fundamentals.  Well, the chatter in the street is that the Fed is debating dialing back their purchases as soon as September. If you remember from the chart earlier this week - weeks with small Fed purchases = basically flat market performance.

The problem that the Fed has created is that the market feels the need for the Fed's involvement to move forward however, there actually is a declining need for the Fed to be involved as the Federal deficits shrink (yeah, I know it's sacrilegious to speak the truth, but Federal deficits are shrinking at a staggering rate thanks to increased tax collections).  So what is the Bearded One going to do?  My suspicion right now is that the Fed will attempt to pull back their involvement quietly but if the market starts to overreact (as it is prone to doing) the Fed may have no choice but to return with QE4EVER (Hmm, that would make a great vanity license plate on a new Bugatti).

Historically, the last two weeks of August have been VACATION weeks on Wall Street so I don't expect any meaningful activity between now and Labor Day but that could change if something gets leaked from the Fed.

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Last night saw a wild move in the Shanghai stock market.  While we were all tucked away snug in our beds a single mistake drove their stock market wild.  The $2 trillion market jumped by 6% in a matter of SECONDS when a $1 billion order was placed (accidentally) at a local brokerage.  These sort of flash smashes and flash crashes happen on a smaller scale every day in the US now, but to see an entire market move like that is unique.  I've been in the midst of my summer Cormac McCarthy fix (author of The Road, All the Pretty Horses, No Country for Old Men among others) and days like this are when I realize that most global stock markets have become No Markets for Real Men :)

Cheers!

Tuesday, August 13, 2013

355% interest, HYPErloop and Fed Truth or Dare?

NYS filed suit today against a shady South Dakota lender for charging interest on their short-term loans that reached up to 355%.  Western Skye's TV commercials are all over late night television and if you don't have the ability to pause commercials you may have missed this key part of their disclaimer " "The APR for a typical loan of $10,000 is 89.68%, with 84 monthly payments of $743.99." 

Just think about that for a moment:  Borrow $10k today and you'll have to repay roughly $9k in year 1 and then $744/month, EVERY MONTH for the next 6 YEARS!!

"In a statement obtained by Bloomberg, the company insisted that as a Native American-owned company, it's subject only to the laws and jurisdiction of its tribe."
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Do you believe the hype?

Yesterday Elon Musk revealed his concept for the hyperloop transport system that would run from San Francisco to LA in 30 minutes.  Despite all of the publicity surrounding this story, I'll reiterate that this is a 40 year old idea - a magnetic levitation train in a vacuum tube was first proposed in 1970.  

For those that don't know Mr. Musk he was a founder at Paypal (a nice company), Tesla (probably the hottest stock around), SpaceX (commercial space exploration) and solarcity (solar projects) so he has a bit of a track record with new concepts.  His claim is that this project would take too much time and effort for him to bring it to fruition so he merely presented the concept in the hopes that someone else may develop it.

I am a big believer in discussing new technologies but this seems like a lot of effort to solve a problem that doesn't really exist.  Currently, flight times from SF to LA are 1 hr 20 minutes and costs about $130.  Yeah, you have to go to airport an hour early for security etc, but does Mr. Musk really think the US Dept of Homeland Security would let people board a mag lev train doing 700 mph in a vacuum without going through security?  If you really want to speed up the travel among cities, expand the TSA Pre program then you could arrive 15 minutes before your flight and still get on your plane.  Unfortunately, this plan doesn't have the sex appeal of mag lev trains and vacuum tubes, but it seems a bit more plausible and would result in travel times that are only slightly longer than Mr. Musk's HYPErloop.

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This is a little hard to believe but bear with me.  

 The US Treasury Department issued a quarterly update and it included a couple of slides I never thought I'd see.  It's almost as if the report was written to be an internal document and someone forgot to change the slide titles before releasing it to the public.

On one particular slide they note the impact of Fed purchases on the stock market ---
This chart might be a little hard to understand so let's walk through it.  It says there have been 159 weeks (roughly 3 yrs) where the Fed has purchased over $5 billion in debt.  During those weeks the S&P 500 is up 570 pts.  During weeks with smaller purchases (under $5 billion) the S&P still managed a 141 point gain.  However, the real key indicator are the 29 weeks when their were no purchases and the S&P 500 actually lost 51pts.  

Keep in mind that at this moment the only debate inside the Fed is when to begin scaling back purchases - September, October, or December.  If purchases end and the economy slows I wonder what that might mean for stocks? #sarcasmoff.

Cheers!

Monday, August 12, 2013

Well, we were only off by 90%

I have a friend that is fond of saying "It's safe to assume that everyone is lying, all of the time."  I tend to take a slightly less pessimistic view of the world, but after reading this article which conveniently hit the wires at 4:36 pm on a Friday in the middle of summer, I'm starting to come around to his way of thinking.

"The Federal Bureau of Investigation, in the document sent today, asked members of the administration’s Mortgage Fraud Working Group to correct and update any public materials related to the results released in October of a year-long law enforcement initiative targeting fraud schemes aimed at vulnerable homeowners.
The FBI restated the number of people criminally charged to 107 from 530. Agencies were asked to correct victims’ total losses to $95 million from an estimated $1 billion, and the number of victims found to 17,185 from more than 73,000.
The corrected statistics come in response to a Bloomberg News story reporting that some cases cited occurred before the initiative began in October 2011, including one filed by prosecutors more than two years before Obama took office."

This is the sort of story that really starts to make one question every data point we get.  Data that is compiled by people looking to please their superiors is always subject to fudging.

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Quote of the weekend: "Staples such as apparel, toys, shoes and basic electronics have been replaced by machinery and equipment, which now account for over 50 percent of China’s exports, compared to just over 25 percent in 1995. Whether it’s energy, banking or telecommunications, Chinese companies have a global presence and are now competing with American, European, South Korean and Japanese multinational corporations.

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Observations from PGA Championship at Oak Hill - 

1) The PGA slogan from a couple of years ago was "These guys are good". It's hard to dispute that fact.  These golfers are SOOO much better than the average hacker at your local muni course.  The consistency with which they can hit a ball exactly where they want is unbelievable to see in person.

2) The Public can occasionally behave themselves.  I'm constantly shocked by the lack of decorum and manners displayed by the general public day in and day out.  People text, call, snap photos 24/7 at seemingly every possible inappropriate moment - for example ---


However, this event was strictly policed by a team of "Mobile Device Policy Enforcement Officials" and after a couple of warnings to youngsters on their cell phones people suddenly started self-policing.  Also, people were remarkably quiet which was very refreshing.  On the final hole with 20-30,000 people watching 2 golfers, you could have heard a pin drop.  It was a surreal experience in a world where most people can't go 24 seconds without texting, tweeting or talking to their buddy.

Cheers!

Thursday, August 08, 2013

Overnight recovery

Things looked a bit sketchy overseas last night as the Japanese markets continued a pretty sharp sell-off but things reversed course on the back of stronger than expected Chinese trade data.  As you are aware, I'm suspect of many data sources and the information coming from China on trade is looking a little strange, but the market took it as gospel so we have to accept that.

Today's market looked to continue the overseas momentum but the combination of light volume, most traders kicking back in the Vineyard, Hampton's or Nantucket meant there has not been a real follow through and I expect the market to flat line for much of today.  I would caution that there are a number of signs that are flashing warning signals but that is a topic which I'll review in another post.

Here's an interesting chart -






















via Capital Spectator

One of the keys to long-term investing success is the understanding that over the long run most returns will revert to the mean. Right now US stocks are far outperforming the rest of the world and other asset classes, but keep an eye on those numbers because eventually they will even out :)