If there is an investment theme shaping up for Q3 2013, it would appear to be "Go big or go home." As ConvergEx's Nick Colas notes, that means being maxed out long U.S. stocks, but how broad a net do you cast? If you only go with the S&P 500, then your July 2013 return was 5.0%. Not bad, Colas scoffs, until you consider that the small cap universe of U.S. stocks, as measured by the Russell 2000, was up 6.9% this month. Before you load up on four letter symbols and/or small cap ETFs though, Nick warns that investors should consider that there are several important differences between these alternative universes. Among the most important (discussed below) are sector weights are very different, with Russell short Energy and Consumer Non-Cyclicals versus S&P; and, the S&P 500 is heavily overweight its top five names (APPL, XOM, JNJ, GE and CVX), which represent 10.7% of the index. The corresponding weight of the top 5 names in the Russell 2000 (CGSP, ATHN, CVLT, FMER and AYI) is 1.3%. Be sure you know what all-time high you are buying...
The bottom line is that Americans are losing more and more of their medical freedom. By 2015, so many workers will be trapped in the government-run health insurance exchanges that there will be no going back to the private plans we have today. At this rate, single-payer proponents will drive private insurance companies out of business, which has been their intention all along. Obamacare is a hodgepodge of new regulations, requirements, and penalties. Here are the ten most important points that doctors should tell their patients.
With rates rising amid the glorious faith that recovery is upon us, tapering is a storm in a teacup, and nothing can stop us now, we present the dreadful symmetry of the US leverage situation (Federal Debt-to-GDP) relative to rates. We suggest investors be careful what they wish for on 'rotational' fantasies as GDP growth won't save us this time and the deleveraging effect of any serious retrenchment in debt will feedback into the 'credit-is-growth' drain-circling that has been evident for the last 30 years... So, if we do indeed have perfect historic symmetry, what will be the 'event' that takes total US debt from well over 100% of GDP to less than half of that?
Intra-stock correlation of the top 50 market cap names has plunged in the past month. As Citi's Tobias Levkocich warns that suggests that investors might be overly focused on stock picking and have begun to ignore broader influences such as Fed policy, market valuation, European growth trends, economic surprise indices and the like. As performance issues have forced some investors into higher beta areas in order to boost outcomes, one would think that a more precarious correlative environment such as this would imply taking down more aggressive portfolio risk. Given today's ramp in builders and transports, that appears a far flung idea for now...
It was a confluence of magnificent proportions that led six agents from the joint terrorism task force to knock on my door Wednesday morning. Little did we know our seemingly innocent, if curious to a fault, Googling of certain things was creating a perfect storm of terrorism profiling. Because somewhere out there, someone was watching. Someone whose job it is to piece together the things people do on the internet raised the red flag when they saw our search history. All I know is if I’m going to buy a pressure cooker in the near future, I’m not doing it online. I’m scared. And not of the right things.
Just four months ago, the CEO of Titan International laid down some ugly truthiness on the dismal realities in the united socialist states of France. It was not well-received by the French. But it seems we have been too hasty with our prognostications on the hard-working (or hardly working) French. As Reuters reports, despite France's move to a 35-hour week (a flagship of the socialist government) a decade ago, French workers put in an 'astounding' 39.5 hours a week in 2011. While management complain that these policies have bloated labor costs and hurt their ability to compete globally (as Taylor argued), "this is the problem of France. It's cut in half. Half the French are working like madmen to make up for the other half who stick to their hours." But just for some context, this rise in French (average) working hours, leaves them ranked 21st in terms of hours worked per week out of the 27 states that comprised European Union in 2011.
Trannies 3.3% gain today is the best in 20 months - which makes perfect sense given that WTI crude prices are also spiking 2.7% breaking back above $108 (and XOM biggest miss on earnings in forever). Treasuries continue to suffer with 7Y worst - up an stunning 14bps on the day (its biggest jump in a month) as 30Y breaks above 2013 high yields. Credit markets disconnected from equity markets new reality and ended the day wider (as once again credit tracked rates - which does not bode well for stock valuations since it is clearly not a move based on growth). Considerable USD strength across all the majors, gold/silver modestly lower, Oil and copper surging. All-time record highs for the S&P and Dow. BTFATH
Lurking deep in the just filed Bank of America 10-Q (alongside data on its quarterly trading acumen which as usual made a mockery of random statistical probability distribution with just 7 days of losses and profits on 57) is this nugget which shows BAC's litigation expenses may be set to surge once more.
The U.S. is "extremely disappointed" in the move by Russia to grant 'temporary asylum' to Edward Snowden, White House spokesman Jay Carney told reporters this morning. Carney appeared to add a threat, as the WSJ reports, he added that the Russian decision undermines law-enforcement cooperation between Moscow and Washington. Russia's decision also threatens to derail a planned September summit in Moscow between Obama and Putin (oh to be a fly on that wall), as Carney advised "we are evaluating the utility of a summit in light of this." Snowden's earlier comments that "over the past eight weeks we have seen the Obama administration show no respect for international or domestic law, but in the end the law is winning," did not help, adding that he thanks "the Russian Federation for granting asylum in accordance with its laws and international obligations." US politicians see it a little differently, U.S. Sen. John McCain (R-A.Z.) called the move "a disgrace and a deliberate effort to embarrass the United States." Seems they are managing that all on their own.
Today's quote of the day from Goldman Sachs spokesman Michael DuVally, who in the aftermath of the Fab Tourre verdict, had this to say.
"As a firm, we remain focused on being more transparent, more accountable, and more responsive to the needs of our clients."
That pretty much sums up everything one needs to know about the new normal.
Another example of the unintended consequence of a taper-growth-rotation rise in interest rates? Who knows, but yet another pillar of the 'recovery' just started to crack... Where's Phil LeBeau, when we need him the most, to tell us how great this?
Someone is going to face the music after all. It seems the SEC has its mid-level (non-executive) crisis scapegoat:
*TOURRE LOSES SEC CASE CLAIMING FRAUD IN $1 BILLION CDO
Tourre has been found guilty on 6 of the 7 cases - we await news on the financial penalties. Perhaps more critically, this finding (in favor of the SEC) may open the door for more lawsuits against Goldman with regard similar transactions.
Equities appear to be celebrating the bond market's rapid collapse today but there are already unintended consequences. With the entire complex seeing yields spike the most in a month (cracking back above yesterday's post-FOMC spike highs), 30Y yields have broken to new two-year high levels at 3.77%. As rates rise, issuers are struggling. Whether it is because of Detroit concerns or the sell-off in bonds, Michigan's Genesee County just pulled its $53mm muni offering as "investors wanted a much higher interest rate than the county wanted to pay." The offering didn't attract buyers for a 29-year bond, the longest maturity in the deal, at an interest rate or 5.34%. Perhaps they should have issued stock?
The conventional wisdom of the moment is that a weakening global economy will push the cost of commodities such as oil down as demand stagnates. This makes perfect sense in terms of physical supply and demand, but this ignores the consequences of financial demand and capital flows. The total financial wealth sloshing around the world is approximately $160 trillion. If some relatively modest percentage of this money enters the commodity sector (and more specifically, oil) as a low-risk opportunity, this flow would drive the price of oil higher on its own, regardless of end-user demand and deflationary forces. If we grasp that financial demand is equivalent to end-user demand, we understand why oil could climb to $125/barrel or even higher despite a physical surplus.