Thursday, October 24, 2013

Some morning news

Market summary:

Yesterday people decided to sell everything because China banks wharrgarbl Mario Draghi wharrgarbl, and now they're buying back because poor initial claims means no taper wharrgarbl.

Now, the news:

Ritholtz - now things are up again, who knows why. I guess when you play with the market's emotions, you get hyperactivity. Go figger? His comment:
One headline notes that “U.S. Stock Futures Rise Amid Earnings, China Factory Data” — but we had mixed earnings yesterday, and so far, earnings are mixed today. And Chinese economic data was good yesterday. This leads to my regularly offering up my insight with a big fat I don’t know.

All too often, investors try to construct a plausible explanation, typically in narrative form, as to what is going on. The danger is not so much that they fail — that to be expected — but rather that they confuse their confabulated narrative for truth, and mistakenly believe their own bullshit for reality.
I try to ensure that I ask myself "did this data change any fundamentals? Is it backward-looking? What does this mean for the forward indicators I've been following at Calculated Risk?" But often I don't cos I have emotions like the next guy.

The easiest thing to do, however, is avoid any article that is made up of people's stupid opinions. If some "strategist" or "hedge fund manager" really had a knack of reading the market, he wouldn't be sharing his alpha with some $20K/yr clown from Business Insider or Reuters.

WaPo Wonkblog - another billionaire is predicting doom; ignore him. Basically, another guy suckered by the "fiat money central banks money printing" bull of the paleoconservative hard money crowd. In response Neil Irwin says:
For example, in the second quarter of 1999, if you invested $1,000 in the Standard & Poor’s 500 stock index, you were buying shares that would generate only $33 in earnings, at a time you could have instead put the same $1,000 in a Treasury bond paying more like $58. The only way that investment would have made sense would be if U.S. economic growth would continue its torrid late 1990s pace indefinitely; more commonly, investors weren’t thinking very hard about investing in stock at all, but just saw the market rising at a rapid pace and assumed that would continue. That, of course, did not happen, and the S&P has only in the last few months surpassed its March 2000 high.

By contrast, right now, $1,000 invested in the S&P pays out about $60 in earnings, compared to $25 for 10-year Treasury bonds. There are no guarantees that stocks will keep going up. For all we know, corporate profit margins will fall from recent historic highs, or economic growth will disappoint. But there’s no immediately obvious evidence that the market is wildly overvalued.

Similarly, housing prices really were out of whack in 2006, detached from any historical relationship to what it costs to rent a similar house. It was quite clearly driven by homebuyers motivated not by level-headed analysis of the relative benefits of buying vs. renting, but by a self-fulfilling assumption that home prices must always rise.

But a lot has changed since then. Home prices are 30 percent lower than they were in the spring of 2006, as measured by the S&P Case-Shiller 20-city home price index, even after rising a bit over the past year. And rents for similar homes are up 15 percent in that span. Add it all up, and home prices make way, way more sense now than they did then; by Bill McBride’s calculations at Calculated Risk, the ratio of home prices to rents is back at 2000 levels.
Please forward this to all your hard-money bubble-fixated loon friends.

Reformed Borker (Bork Bork Bork!) - silly little bitches. Oh my, Josh woke up on the wrong side of the bed today! Now he's lecturing people about getting all frothy about the market. He says we're now in "phase 3 of the bull market".

FT Alphaville - warehouse queue conflicts. I can't believe I'm quoting Izabella Kaminska:
The biggest risk of the proposed LME rules, which plan to force warehouses which have queues of more than 100 calendar days to load-out at least 1,500 tonnes per day more than they load-in, is that they will divert that supply elsewhere, outside the LME system completely, obscuring the picture of real supply and demand even further.

That is to say, that supply won’t just hit the physical market as most people expect it will, it will get parked in private warehouses god knows where.

Without the market being aware of how much inventory there really is out there, demand from passive speculators could end up having a disproportionally strong effect on futures curves, sending incorrect signals to producers and users.

The thing to remember is that speculators aren’t motivated so much by demand and supply fundamentals as they are by a lack of real-returns elsewhere. Consequently, they aren’t going to stop overpaying for commodity exposure — in a way that create an incentive to hoard commodities — just because the LME has changed some rules.

Chances are, if and when US and western central banks raise interest rates, those queues will alleviate themselves of their own accord.

Mineweb - India hikes import duty on Thai jewelry. Again, they could fix their CAD by exporting things and learning how to not drive away foreign capital.

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