Saturday, August 20, 2016

markets reality vs quantitative analyis

Over the past 12 months the S&P 500 is up about 6%.  Not the greatest but still not too bad, against this background of "strong" market performance you have earnings that are off by 20%.  This is unprecedented.  Never in the past 100 years has market performance been so decoupled from market fundamentals.

The pros don't know what to do, all their models scream sell and go short, and anyone who has followed this strategy has lost his/her shirt.

BTW that's why I don't talk about market fundamentals anymore, because the fundamentals don't follow; a weak recovery (granted the US government -- Federal/local has been shrinking since Obama came to power).  The weak recovery, the poor earnings tell you that you should be out of the market at best and even a little short -- Caterpillar for the 7th consecutive quarter has posted terrible performance.

Yet the market goes up!

Trump anti american or new right wing network

The departure of Trump's chief of staff on Thursday is a lesson of what seems like a good idea turns out to be terrible.  The guy was an operator (granted no one knew he was an operator for Russia's interests in the Ukraine). It appears that Paul Montford had been phoning it in for a few days/weeks prior to his removal -- a series of reason; first the candidate completely ignores the words of paid professionals; and it shows in the past month Clinton has basically disappeared from the national seen -- leaving all the room to Trump that seems to do his darnedest to lose the elections in November.  Question:  Aside from what uneducated white men is there any group that Trump likes?

The second "conspiracy theory" is that the presidential elections are only an excuse for the creation of a new right wing network to rival FOX.  I suspect that this is the wet dream or the conclusion that the media has made of Trump's behavior over the past six week.  In fact, he seems to be almost everything to lose the elections; he antagonises every voter -- I mean who makes a speech to an all white crowd on why the "blacks should support him".  It seems that Roger Ailes in now an unofficial advisor after getting the boot from FOX news for numerous charges of sexual assault.  Steve Bannon his new chief of staff is a conspiracy theorist (about as good as National Enquire) of the first magnitude and hates the GOP is an avide supporter of Alt-right objectives including nativism, racism and everything in-between.

Trump has made promises to stop virtually all immigration, introduce McCarthy era truth and honesty tribunals and to clip the wings of the media (who says nasty things about him).  That there will be tons of high paying jobs for making things in America... considering that Trump stand little chance of winning in November his supporters will rage at congress and the senate, and will blame Clinton for all the problems -- a new clientele for Trump News Network?

Trump has energizes the "know nothing" the segment of the American population that believes both in UFO, 9/11 truthers, that Obama is a secret Muslim.  A group that is increasingly disenchanted with FOX news "move to the centre"  -- actually, FOX remains as rabid as ever, its just that Alt-right that has been moving towards a totalitarian version of America -- where real men are white, real women stay at home, children are always respectful and the non-white stay in their preordained place.  This group is looking for an outlet that will reflect their world view (Breitbart has been a real plus there). However, the destruction of the GOP is not something to be taken lightly, the shift that allows young men to scream at minorities with no ill effect.  These are things that will leave an imprint on America for a long long time, the view that Clinton is really just a criminal (possibly a war criminal) that should be tried for treason (not sure what she did to gain that positon) nevertheless the misogyne tendency of the Trump camp (Bitch, c&nt and other terms...).

The fall if civility with the rise if social media and the crushing impact of cable news has led to a sea change in the way people interact with each other.  The rise of reality TV where deranged people scream at each other of inconsequential matters, is also evident in the media, were last week Rudi Guliani said that there were no foreign terrorist acts against America until Obama came to power -- this from the guy who was the MAYOR of New York City on September 11, 2001.

Bottom line:  Trump's behavior makes no sense if the man wants to meet an election.  America's media wonders if there is not something else afoot here, because if he wants to win he's not doing the right things; the crazy statements the for ever defence while Clinton sails by with little impact...

Friday, August 19, 2016

Canada's housing market

finally, the authorities have taken step to slow the Vancouver housing market.  The tool used was rather blunt, and somewhat late to the game, still housing prices in Vancouver seem to finally be slowing down, some estimates show that housing prices in metro Vancouver are down 20%.  Now like everything this must be taken with a grain of salt, one month doesn't a year make, still the introduction of a 15% tax on real estate transactions is important.

It isn't very efficient insofar as it it a tax on transaction, but it can be reduced or removed quickly should the price action be sustained.  Now, economically, this type of tax makes sense, it was introduces successfully in the UK about 18 months ago, and did cool the market there to a degree.  Vancouver has different issues that make the tax more or less useful.  There is little speculation driver in Vancouver, the price action is based on real demand from foreign investors, but there too the real drivers are hard to understand.  For more than a year the Chinese government has been working to reduce capital flight -- this has been mostly apparent in Macao, a gambling den, just a short boat ride away from China, that has seen massive reduction in gambling revenues!

Still this is not to diminish the importance of the tax, by introducing inefficiencies the government insures a slow down in demand, and the implosion in prices is probably worse then expect,ed as sales in metro Vancouver two months ago went from 800 to less than 70... A sign that something has changed.

In a similar trend is the desire of the green movement to impede traffic in cities to encourage public transport, I never understood their reluctance to use market tools.  For me Singapore and London are beckons of sanity, by introducing road pricing they have allowed the market to clear based on need, granted poorer resident face an uphill struggle, but let's be honest, they would anyway.  The reality is that road pricing works and does in fact produce real revenue streams that allow the improvement of public transit, yet most "green" transport crusaders would rather have people stuck in traffic, creating portion and imposing a real economic burden, that benefits no one, and actually creates a real net loss to the economy (pollution & time wasted).

Friday, August 12, 2016

Trump another terrible statement

Its Friday, and really I cannot say that I am surprised.  A few days ago, the internet was agog at Trump's latest and greatest, which was to basically say that a 2004 dead American soldier was a traitor, that his father was a ISIS sympathiser and that his wife was afraid of her husband -- as all good muslims women should be; that was the end of Trump.

Guess what not even close:

In the last few days and in no particular order:

  1. ISIS was created by Obama and Clinton
  2. That if Clinton wins then those who support the second amendment (guns) should do something, maybe.
  3. The NYT should lose its accreditation ('cause they've been such strong supporters of Clinton...not)

That's in seven days; its not really important but the facts are that ISIS was created in the late 1990 and became what it is today in the early 2000 -- so maybe Bill Clinton -- but Hilary was only his wife then!  As for inciting violence against clinton -- second amendment remedies are usually meant as armed revolved -- the whole point of the second amendment (a well organized militia...).

The point is that nothing sticks to Trump because his supporters just don't care, they don't read the papers they are not interested in mainstream media -- they like Rush they like their crazies that it.  David Frum said it best, bottom line Trump is not speaking to us.  He is talking to they tired the (feeling) oppressed white blue collars who feel they got a raw deal (not entirely false).  Although they have no share in the greatest economy, if they had they would have made a fortune, they have little education and what they do have has not prepared them for the new world -- because in their mind the world has changed and has left them behind.  

Some compare Trump to Hitler, probably the right time frame but the wrong country my thinking is that Musolini is a much better "example" of Trump.  As a friend always says:  look it up on google!

Tuesday, August 2, 2016

Why Trump can win!

This is obviously not a good outcome (so that we are all clear about my political inclination).  But nevertheless it is very possible.  Over the past few months Trump has said some rather horrible things about many many individuals:
  1. McCain is not a real hero (McCain still supports Trump)
  2. Clinton should go to jail
  3. American judge cannot be impartial because he is of Mexican descent
  4. Clinton is responsible for Benghazi
  5. Every Muslim is a enemy combatant in waiting -- including the father of a slain American solider
  6. I had nothing to do with the organisation of the GOP convention...
  7. The primaries are rigged (yet he won...)
  8. The elections will be rigged (if he doesn't win)
  9. The debate schedules are rigged
This is just stuff over the past few days and stuff I remember.  What is important to understand is that Trump is only the natural extension of the GOP's policies over the past 40 years.  Until Trump the GOP has not been overtly racist -- it is today (which begs the question why any non-white could support the GOP -- I mean this is a party that hates you for your skin color).  Bottom line the GOP's 1965 - 2015 Southern strategy has been driven by racism and xenophobia.  Until now it has never been overt, until now it has never been explicit, but the massive polarisation of America over the past 20 years -- exacerbated by the election of Obama (a black man as president is inconceivable to many Americans).  The 2008 was the most "white" convention ever, that's until the 2012 convention and this has just been surpassed by the 2016 GOP convention that was 99.9% white (still it means there were a few dozen hispanic/indians/blacks in the crowd).

Why was Trump so successful in the primaries?  The first reason is that by being "politically incorrect" he said in plain langage what the GOP has been saying for 40 years in code.  Talk radio and FOX news carried this point across very clearly.  In fact, the problem the other 16 or so candidates had was that they fundamentally agreed with his point of view -- they just were unable to say it outright.  Hypocrites in religion have been the first to give up, the Christian right has allied itself early on to a two times divorces guy who's knowledge of the bible is...well is so shallow that he doesn't know what is Second Corinthian (or that its not Corinthian 2:  the sequel).

On the other side is the uneducated lower middle class -- the blue collar workers of America that were, until the election of Reagan, at the core of organized labor and who since then have had their asses kicked by the system.  In fact, this last group that used to vote Democrat is now best know as supporters of the GOP, go figure.

Finally, and more serious, both parties have sold out to the 1% -- to Wall Street at the detriment of main street.  The 2008 bailout is a case of Wall Street screwing up and main street paying the bill, since then Capital controls everything.  both parties have become the lapdog of big money, because running for election is expensive.  The success of the NRA is the most visible embodiment that the US electoral system is broken; something like nearly 70% of Americans want stricter gun control, and yet it is virtually impossible to do anything about guns in America. Other lobbies are less visible but no less successful -- hence the immense and improbable success of Bernie Sanders, a 70 year old jew from a tiny state -- but a real socialist who bucked the trend. He gave a voice to the disenfranchised mass that see nothing the the Dems or the GOP, they only see the same gang making off with all the loot.  Think about it, Sanders came somewhat close to being the first jew to be the nominee for the Dems... that too would have been a first!

On one side there is now Trump:

  1. A racist, 
  2. demagog 
  3. know nothing 
  4. thin skinned bully
  5. Questionable business practices; made money even when businesses failed (bad partner)
  6. Loves dictators -- especially Putin
  7. Subject of multiple lawsuits (unpaid bills, other practices)
  8. Questionable success -- made money even when businesses failed (bad partner)
On the other side there is Clinton
  1. A women  (for many this is a very very bad thing)
  2. At times questionable judgment 
  3. real track record of achievements
  4. Very close to Wall Street
  5. Clinton Foundation got a lot of foreign government cash (see 2 above)
  6. Poor speaker

There you have it.  In reality the situation is serious because the electorate now see's the other side not as a loyal opposition but as traitors!  The GOP has made of the minorities good for nothing thieving illegals that should go home as they take real American's jobs.  The GOP sells itself as the party of Law and Order -- based on false statistics and bluster. The GOP sells itself as the party of God and yet seems to be completely ignorant of christian tenets (although they do seem to love the old testament...).  the GOP conveyed a dark past and a darker future -- where only Trump can be the savior! The GOP has a real problem with its convention, this one was terrible, but we forget that the past two didn't go so well.  My favorite was the 2008 one when some aggressive preacher asked for the rathe of God against the Democratic convention -- what actually happened is that the GOP's convention was cut short because of a hurricane.

What was amazing, out of the Democrat convention, is that it was the patriotic party it was the party of possibility and it was the party of inclusion (at least on stage), and it was the party of hope.  On the fourth day of the Dem's convention there was a real effort to bring home the weak Republicans, those appalled by the latest comment by Trump.

Monday, August 1, 2016

European Bank's Stress test results

A short comment:

The Italian banks have just received their grade on the latest stress test.  Banco De Monte dei Paschi results were not exactly excellent.  In the worse case scenario the result was -2.4% capital (which means insolvent by the way).  BNDP is planning to raise Euro 5 billion and sell Euro 9 billion in NPL.

How such a bank will raise Euro 5 billion (its current market cap is Euro 5 billion) and sell Euro 9 billion in NPL is anyones guess, still they get a passing grade because they made these commitments.


Oil Price: $39.98 going down?

Well while no one was really paying attention to anything oil price have crashed by nearly 20% over the past few weeks.  No so long ago, oil prices were trading around US$50/bbl now they are below (okay a little above right his minute) US$ 40/bbl.  The first impact will be on inflation that was already low, is about to get lower.

The real issue is what does this mean for the world economy:

America is a now a net producer and as such lower oil prices are certain to hit, a huge chuck of the sub-prime credits are in the American oil and gas shale boom (past tense) and these loans that were slowly recovering are getting hit hard again.  

Canada is also a producer and as such lower oil prices will hit the Canadian dollar -- the economy too by the way.  Things are difficult, bit the Federal and Alberta count on oil royalties to meet certain of the costs -- these are now a lot lower.  Alberta is even flirting with income taxes.

Europe which is a net importer of all energy things is breathing in with a sigh of relief; the past 4 months have been difficult -- first Greece (the problem doesn't go away), Brexit, Italian banks and now Turkey's recent coup attempt.  Lower oil prices are the first good news in a long time -- especially after the last few weeks of Trump (Ukraine can go to Russia, Brexit is good and NATO is dead to him).  These have been trying times for Europe, lower energy prices are a nice break from the bad news of late.

China is the world's second largest energy consumer as such lower oil prices are good news.  The same holds for Japan, while Malaysia and Indonesia are suffering.  Australia is in the same position as is Canada -- the two economies are very similar.

So that's my view of the world -- simplified version.  Markets are slightly off today as is the US dollar which is fine, but we are still talking basis points -- these are minuscule movements, despite the market's desire for bold move there is simply no interest in doing anything.  

The shell shock of Trump's statements over the past few days reach a new level of stupid -- at one point you wonder if anything will ever stick -- "Russia has not invaded the Ukraine" is the most brazen comment that Trump made over the weekend -- he also decided that the family of a fallen soldier loss of a son to war was the same as his ability to create jobs... really the man is something else.  Unfortunately, America's far right has become cruel for the sake of kicking a fallen man for the pleasure of it all.  They don't care about any of this stuff, they are mad and they will get even -- whatever that means for them.  

Going forward what does this mean for the market?  If you are a chartist nothing good -- generally the correlation between the S&P500 and the WTI is around 75% -- oil prices took a massive hit this morning because Saudi Arabia announced price cuts earlier today -- about $1.10/bbl for their light sweet crude -- an answer to Iran's massive increase in production.  Looking at the trend line things are that 2016 could easily be a repeat of 2015 -- where oil prices fell all the way to $29/bbl.  

The market has been looking for reasons to sell off from its historical high of 10 days ago.  The collapse of oil prices could provide the "reason" for a sell off.