Thursday, January 30, 2014

Back to normal

So the Q4 GDP number came in pretty much as expected but the bigger news overnight was the concerted effort by a number of central banks - India, Russia, others - that seems to have stabilized the global currency markets.

In particular the $ is rallying against the yen again and that is the primary driver of the US stock market right now.  It also doesn't hurt that there was a collapse in pending home sales in December (blamed on weather, but recall it was 70 degrees on the East Coast the weekend before Christmas).  This collapse feeds the theory that the Fed might again save the day despite their reduction in bond purchases announced yesterday.

Finally, Facebook's share price exploded today on more mobile ad sales.  When people talk about Facebook it makes me feel like they are discussing American Idol in 2004.  I have no idea who was watching that show in 2004 and I have a limited understanding of who is using Facebook.  It's not kids, it's not young adults in middle income/upper income America and it's not my age group.  I contend that while their user base is large and because it is viewed a tech company advertisers assume that the demo is desirable.  However, but I suspect that the demo is much older and poorer than advertisers realize.  No matter --- stocks soaring today!

One more reason to dislike snakes - Flying UFO shaped snakes....

Actually we've known about these snakes for years, but giving it a clever name means that it will be great link bait (link bait are those mindless articles that cause you to click when your are on Drudge Report, Buzzfeed, Business Insider or a local website with a Z).



Wednesday, January 29, 2014

Get your popcorn!

Last night I wrote that the world markets seemed to be taking the Turkey panic move as a good thing which surprised me because it clearly indicated some stress in the markets.

Today Europe started off strong but has sharply reversed in the past 30 minutes and the moves have been swift.  Again, I hate to keep drawing parallels to 2007 but these sort of wild swings feel very familiar.


Remember to follow me on twitter - @brianlantier for current updates.

Tuesday, January 28, 2014

All is good - Bad news is back to driving stocks higher

First a little disclaimer:  I hope everyone knows that much of what I write is dripping with sarcasm.  For example when I said earlier - Stocks fall 3% and everybody panic!! - what I meant is that a 3% decline is normal and healthy for a traditional stock market.  However, in the current setting a 3% decline is suddenly causing emergency central bank meetings around the world and ultimately forced the hands of a few bankers this week.  This is not a natural reaction, but we are not dealing with natural markets.  I'm still in the camp that says 2014 could be a very volatile year. 

Okay, so overall today the news was mixed - a couple of companies did okay on the revenue side, but they cut costs sharply and a few others really disappointed.  My favorite was Apple which had 83% of investors bullish going into earnings last night only to drop $44 which cut $40 billion from its market cap today (so basically it's like they had a company the size of John Deere or Time Warner Cable just cut off from their valuation today).  Again, when everyone is on one side of the ship it usually means the ship is going to capsize :)

However, disastrous numbers on durable goods - really some of the worst numbers we've seen in 2 yrs - suddenly seemed to convince everyone that the Fed taper might be put in neutral.  This is not my opinion, but the threat of the Fed taking away the market's crac...... I mean stimulus, quickly hammered the stock market last week.  The concept that the Fed could keep the party going a little longer boosted stocks throughout the day.

In an effort to stem the tide of emerging market meltdowns Turkey jacked interest rates 4.25% tonight to 12% (good luck getting a mortgage in Turkey tomorrow) and the stock markets around the globe didn't take this as a sign of panic (which it was) but a sign that the Fed will keep supporting global markets. 

The volatility of the markets has been increasing and the lack of short players in this market will make things very interesting.


The math behind the minimum wage

Just a reminder, I'm not political on this blog.  This is not about the politics of the minimum wage, I'm talking about the math and economics behind the minimum wage.  If you feel your blood starting to boil when reading this, just click and type in "happy kittens".  :)

The President has made headlines today previewing a plan to increase the Federal Minimum wage for federal contractors from $7.25 to $10.10 with further increases tied the rate of inflation.

On the surface this seems logical if you are trying address the issue of poverty among the working poor.  Adding nearly $3 per hour to a the paycheck of someone working 40 hours per week puts an extra $120 in their pocket that they can spend and when 70% of the US economy is consumer driven, this should spur more job growth and help our working poor pull themselves up by their bootstraps.

Or does it?

There's a bit of a debate among economists right now on the issue of the minimum wage.  On one hand you have a number of economists that have run models predicting that hours cut and jobs lost will be minimal if the rate is raised and the increase will serve to help the poor.

On the other hand is a powerful bit of actual data collection which seems to fly in the face of conventional wisdom about the minimum wage.  This is a little hard to believe at first so I'll cut directly from the academic paper (when the paper was written in 2010 the proposal was to increase the Federal Minimum wage to $9.50).....

"Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households, an even smaller share than was the case with the last federal minimum wage increase (15.8%). Of those who will gain 63.2% are second or third earners living in households with incomes twice the poverty line, and 42.3% live in households with incomes three times the poverty line, well above $50,233, the income of the median household in 2007."

That last line is really important: nearly 2/3rds of the people who will benefit from the hike of the minimum wage already live in a household with an income twice the poverty line and over 40% live in households with income with incomes 3x the poverty line and even above the median US income.

What this suggests is that the bulk of the increase in minimum wage will go to people working a second or third job and who already (while clearly working their tail off) are not "poor" according to the government. 

This is really troubling because it doesn't fit the political narrative of "We must do more for our working poor".  Now the reality is that from an economic standpoint increasing the wages of these second and third earners probably does MORE to stimulate the economy than increasing the wages of the actual poor because more of this increase will be incremental income that is disposable. 

However, saying "We'd like to spur growth at Walmart and other retailers by increasing the incomes of households making $45,000/year" doesn't have the same populist ring to it.

I hope that someone gets a chance to ask the President about this data at some point because I would be interested to hear the White House position.  Do they not believe that the bulk of the increase will go to families above the poverty line or do they really just want to stimulate consumer purchasing and they don't care who does that spending?

If you're still mad at me you can always go back to the kitten pictures.

Sunday, January 26, 2014

Stocks slip 3% from All-Time Highs AND EVERYBODY PANIC!!!

Over the last two years stocks have basically marched in one direction (upward) while companies have slowly started hinting that all is not right on Wall Street or Main St.  Increasingly companies continue to pursue buybacks over investing for the future.  However, these warning signs have been flashing for at least 12 months so what really happened last week?

Well, it's all about the emerging markets and the Yen.  It's really painful to watch the national media grapple with topics like this so they usually boil it down to "hey, what's Apple's stock price?". 

I won't bore you with the details but suffice to say that a few things came out of the World Economic Forum in Davos last week that scared the markets.

1) There is grave concern around 5-9 emerging market nations.  These issues have been bubbling below the surface for 2 years, but seem to have caught everyone's attention last week.

2) The comments from China and Japan re: the possibility of tensions escalating to war came to light last week.  This has always been a <1 a="" an="" as="" big="" business="" card="" china="" class="goog-spellcheck-word" dismiss="" from="" he="" however="" if="" in="" insane.="" nbsp="" obviously="" of="" official="" sort="" span="" style="background: none repeat scroll 0% 0% yellow;" that="" unnamed="" was="" when="" wig="" wild="" you="">Davos
) told a crowd that he expected China to conduct a strike against Japan in 2014 the crowd was apparently stunned.  The Japanese responded with a few not so subtle comments about the last great war and a Chinese official said he'd be happy to review history with the Japanese Prime Minister.  I still think there is <5 anything="" but="" enough="" happening="" it="" of="" p="" people.="" risk="" scare="" to="" was="">
3) The value of the Yen relative to the USD - this is probably the biggest factor no one watches, however, this chart shows why you should pay attention.

(Google won't let me paste the image in here but if you click this link you should see a chart of the USD/JPY & The S&P 500. )

Note how much these two have synched up in recent months.  In fact, during a trading day you can watch the exchange rate of the Yen moving the stock market almost instantly.  When people say the markets are more at risk today than they were in 2008 it is because of correlations like this.

Last week the Yen broke down a bit and that really sent the market into a tailspin.

 *** Finally, a note on my title - yesterday the S. Korean finance ministry said that after stocks fell 3% from all-time highs they would be monitoring the markets and they would be prepared to react if the instability continued. 


Wednesday, January 22, 2014

One of these things is not like the others......

One of these things just doesn't belong......

Presented without comment:

State                  Proposed budget            Population              Budget/resident
CA                        $145.8 billion                         38 million                    $3,832/resident
TX                         $99.3 billion                          26 million                    $3,810/resident
NY                        $137 billion                            19.6 million                 $7,000/resident   
FL                         $74.2 billion                           19.3 million                 $3,841/resident


Thursday, January 16, 2014

That's not smog. THIS is smog!

I'm not sure how the traditional media outlets are covering the latest round of smog in Beijing but it is quite a story.  Yesterday, the pollution readings were "literally off the charts" - the readings were higher than any published guidelines.  The readings were 26 times what is considered acceptable.

Beijing also saw it's first dip in visitors since the financial crisis in 2013 due in part to tourists concerns over pollution.  I keep hearing from expats working in China that they are desperate to get out of China as a result of the pollution.  Some scientists estimate that the current pollution levels are cutting 10-15 yrs off life expectancy and no one with a family wants to hear those numbers.

It's hard to make light of this issue but China's "you will be happy and enjoy this smog" attitude is something to behold. 

In particular, I like this post from NY Times correspondent Edward Wong

Embedded image permalink
Apparently when the smog is too thick to see the sunrise you can just play a youtube clip of a sunrise on your Jerry Jones style jumbotron and everything will be okay.

One of my pet peeves is when politicians over-promise on economic development.  Last February, I wrote about the NJ governor announcing a plan to bring online gambling to the Garden State.  The loud, traffic loving governor said in 2013 that the venture would generate $1,000,000,000 in revenue in it's first year and produce lots of new revenue for the state.  However, the State budget officials had a less optimistic forecast of $300-$500 million.  Today, they reported that for the first 6 weeks of the program they've generated just over $8,300,000.  Thus, for the year the projections might reach $70-$100 million unless there is a huge increase in participation. 

Just keep this story in mind the next time you hear "This project will bring X new jobs and Y of new tax revenue....." from some politician.


Sunday, January 12, 2014

Overheard at the White House: "Someone send Chris Christie a fruit basket to thank him for distracting everyone"

Okay, so that's just my imagination running wild, but you have to admit there must have been some pretty happy people in DC this weekend when the news cycle dropped the discussion of the dismal jobs report in favor of Bridgegate.

However, I won't give them a pass.  This was a terrible jobs report but we have to keep in mind that it is just one month of data.  What is so confusing for those of us that follow various economic news sources is that this report conflicted with so many other reports.  Construction jobs reportedly fell while many others said construction activity improved, huge numbers of people leaving the workforce, while others suggested that people were re-entering the workforce, etc.

At the end of the day the hoopla over the shockingly strong Nov jobs number and the disappointment in the December numbers are probably both over done.  The reality probably lies somewhere in the middle of the increasingly volatiles data set.  What concerns me is the Federal Reserve has stated their goal is to return unemployment below 6.5%.  Well, at the current rate they could get there in a couple of months.  However, with 92 million Americans not working and no increase in workweek or average hourly wages, it is clear that while the calculated "unemployment rate" may be falling the reality on the ground suggests something far different.

Finally, a note on "oh, it was the weather" excuses that were everywhere on Friday.  Maybe this impacted the number of construction jobs (but remember it's still plenty warm in growing states like FL, TX, and CA) but how did the weather lead to a 6,000 cut in healthcare workers??  Also, since everyone has the memory of a flea with ADD these days click through here and look at the weather in December in New York City.  Note that the lowest high temperature for the month was a brutal 30 degrees ........... on Christmas. 

There is a worrisome chorus emerging from Wall Street's biggest banks and investors....

Goldman Sachs said "the S&P 500 is overvalued by almost any measure."

The largest fund manager in the world said "The age of getting rich quickly is over as is (most likely) the age of getting rich slowly." Note that this guys job is to help you get rich slowly and he's saying that's unlikely for the next 20 years or so.

A former Morgan Stanley strategist said stocks ignored reality in 2013 and that party will end in 2014.

There is a good collection of stories along these lines and perhaps I'll link to some later this week. 


Tuesday, January 07, 2014

Privacy: Such a quant 1990's idea

These two stories from the past couple of days really jumped off the screen at me.  I venture to guess that most people are blissfully unaware how much data is being gathered about their daily lives online. 

I believe that one of the big trends in the next 5 years will be attempts to claw back privacy and people will build private tunnels of communication that will be momentary (ie, not stored on google/facebook's servers FOREVER).  If I were investing big money today in the venture capital world that's where I'd be looking because the next Facebook or Twitter will be a temporary tool of communication that leaves no trace and can't be hacked or screensaved.

1) Facebook published a study this fall analyzing patterns of self-censorship.  This their cute name for collecting all of those posts and messages that you started to type but decided to delete instead.  Maybe you start to type a note to your mother that you can't make the family reunion in Arizona this summer because, well it's Arizona in the summer.  However you decide not to post it.  Facebook claims to not be saving this text, but just looking to see if you self-censored.  However, they end their research paper by indicating they'd like to know why people self-censor and that implies that they would like to start analyzing those posts.

2) This story came out yesterday and was sort of lost in the mix of CES2014 stories.  Innovid and Cisco announced a partnership to deliver ads to your smartphone, laptop or tablet based on what you are watching on TV.  So if you're watching "Chopped" and the contestant pours something into a Kitchenaid mixer, you can expect a Kitchenaid ad to pop up on your screen.  Companies and advertisers are really starting to overreach in my opinion and we're on the verge of people cutting all cords for these advertisers.


Karma is a .......

Okay, so I complained about all of the panic pre-Christmas when it looked like we might get an ice storm in Northern NY.  Turns out that was a legitimate storm, but adequate preparation by our utility company (does anyone else remember getting those "we're going to be trimming trees in your area" postcards over the past 2 summers?) and a nice shift in the air masses which turned much of the freezing rain to sleet, kept the damage to a minimum.

However, now it's time for a national freak out over the POLAR VORTEX SNOWPOCALYPSE!!!  You have to give credit to the Weather Channel for figuring out a way to make "cold weather in January" into a cool headline.  Yes, the polar vortex is real, but it's always there.  It's just shifted a bit, no big deal - in fact, if you watch the national news from our neighbors to the north (CTV, etc) you hear things like "Well, it's winter what do you expect?".

Some points on all of these warnings, etc.

1) The -63 wind chill that was reported in Minnesota. Okay, that's cold, but a) it's wind chill, not air temp and b) did you know in parts of Canada they don't even issue a windchill warning until -55?

If you want to be a superstar mom or dad today while the kids are home have them work out this formula for wind chill....

Wind Chill = 35.74 + 0.6215T – 35.75(V^0.16) + 0.4275T(V^0.16)

You could also just plug some numbers into a wind chill calculator here.

Again, it's important to note that this is only the risk to exposed skin.   When you are bundled up in Northface coats and Ice Armor gloves, you have nothing to fear.  When was the last time you heard of someone getting frostbite that wasn't climbing a mountain?  However, let's not let facts get in the way of a good scary story.

2) Today is full of headlines screaming LOWEST RECORDED TEMPERATURE for this date since 1890..... See how they slip that "for this date" in there?  That's an important feature and one of the quirks of weather data that always bothered me.  Why do we care what the lowest temperature on Jan 7th was in history?  Shouldn't we really care about how far the current temperature is from normal (about 25 degrees below normal today) or how it compares to the lowest temperature ever??

Take NYC for example - they set a RECORD low temperature for January 7th of 4 degrees today.  However, the true record low temperature for the month of January is -6 back in 1934 (if you're a weather history buff you should really check out the 1930's. The Weather Channel would have daily on air strokes with the weather from the early part of that decade).

So yes, NYC was within 10 degrees of a January record low - cold, but not earth shattering.  For comparison consider the all-time high of 106F in NYC, this would be like a 96 degree day in NYC in July.  Hot, but not the stuff of national headlines.

Finally, just in case you think that because the polar vortex shifted a bit it means the whole globe has cooled off, check out the current temps in Australia or South America where they've been topping 50C (that's 120-122F).

Okay, you might say, but why is a financial blogger writing about the weather?  Well, because we're about to enter earnings season and I've already heard a handful of analyst say "the winter weather impacted results".  Remember December wasn't that bad for most of the country, but that won't stop companies from using that excuse because this RECORD COLD will be fresh in your mind.


* A special note - if you are among the unfortunate few that live in the dreaded snowbelt south of Watertown or around Buffalo, I feel for you.  That a very unique situation that occurs every 4-5 yrs or so and you are going to be digging out for days.  However, if anyone is prepared for 4 feet of snow it's the people that live in these areas.

Sunday, January 05, 2014

Wonder if they are hiring?

Last week word got out that the Dubai Police force has added a $240,000 McLaren MP4-12C to their fleet of cars. 

Dubai police adds McLaren MP4-12C to fleet
Clearly, there is a need for speed in the congested city streets of Dubai.  According to MotorAuthority this car joins their fleet of " Chevrolet Camaro SS, Lamborghini Aventador, BMW M6 Gran Coupe, Ferrari FF, BRABUS Mercedes-Benz G63 AMG, Aston Martin One-77 and--wait for it--a Bugatti Veyron"

If you had a passion for driving maybe you should send in an application to the Dubai Police force :)

Well, it's not news when a new private equity fund is launched.  It's not even really news when it's $100 million fund.  However, if the fund is a run by High Times with the sole purpose of investing in Colorado's newest "growth" industry --- cannabis-related businesses --- well, that's news.

"Executives at High Times, a New York publication that has covered the marijuana scene for four decades, are launching a new private-equity fund expected to boost Colorado's newest industry.

The HT Growth Fund plans to raise $100 million over the next two years to invest in cannabis-related businesses.

With Colorado the first state to legalize the sale of recreational marijuana, firms based here are in line to snag a large share of that investment money."

The times they are a changin'.....


Thursday, January 02, 2014

Chart of the year?

I'd agree with Peter Thiel that this could be considered the chart of the year.  I'm hopeful that smart people will disrupt the traditional secondary education model but inertia is a powerful force and I worry that change will remain elusive.

Via Washington Post Blog -

Screen Shot 2013-12-30 at 9.31.48 PM

Wednesday, January 01, 2014

Where we've been and where we're going in 2014

Well, the end of the year proceeded pretty much according to plan.  Stocks never took there foot off the gas as it was "Record Close!!!" after "Record Close!!!".

However, as I told someone yesterday be careful what you wish for.  Consider this list of the 10 best performing stock markets in 2013 (via Daily Telegraph).

Venezuela – Caracas Stock Exchange
Japan – Jasdaq index
Iceland – OMXI All Share
Zambia – Lusaka Stock Exchange
Ireland – Irish Stock Exchange
Nigeria – Nigerian Stock Exchange
Greece – Athens Exchange
Argentina – Mercado de Valores
US – Nasdaq index
Pakistan – Karachi Stock Exchange
Source: Morningstar

Look at that list and tell me which one is not like the others....

1) Venezuela - their currency is falling apart, so your stocks might be up 450% but you can't buy a roll of toilet paper.  Disregard this result.

2) Japan, Iceland, Ireland, Zambia, Nigeria, Greece, Argentina, Pakistan - Seriously?  These were the best markets of 2013?  They all have one thing in common - terrible economies (for the most part) and excessive levels of government debt.

3) The US Nasdaq (and the Dow/S&P weren't far behind) - So, if the common thread among all of these outperforming markets is - excessive government debt and weak economies I guess this makes sense.  I'm not trying to be nervous Nellie but I think we should pump the brakes a bit on the whole "Hey, the stock market is fixed so obviously the economy is back!!" storyline that is getting pushed.

This should be the most worrisome chart you'll see this week -unless you've been charting your own weight during the holiday season :)

The red bar represents the number of negative preannouncements in a quarter and the green represents positive preannouncements.  Ideally this should be a 1:1 ratio as it was for the most part coming out of the financial crisis.  However, the spread has gone decidedly negative over the past 2 years and is currently the worst we've seen. 

There are two take aways:
1) Businesses are really struggling to keep up with expectations for growth.
2) You could argue that this table means the Fed can't back away because the economy may be getting worse and thus stocks could keep going higher while the economy weakens further (see Japan).

Next year we'll catch Greece!!

Next up: The recovery of the jobs market: Fact or fiction?