T. Rowe Price CEO William Stromberg says “Over a market cycle, we’ll put up our results against passive any day of the week.” But investors, focused as usual on the short-term, continue to pour more money into index funds, eschewing actively managed funds. T. Rowe Price is trying to reverse a trend that has seen money pour out of its actively managed funds. Charles Stein writes at Bloomberg: Challenging indexers will be a mighty effort. Investors have pulled $444 billion from funds run by stock pickers in the last 17 months while adding about $575 billion to mutual and exchange-traded funds … [Read more...]
This is why Calm Markets Should Worry You
Hyman Minsky was an economist whose theories were made famous during the 2008 sub-prime crisis. Minsky’s work focused on the fragility of financial markets. It was, and still is, mostly ignored by the mainstream economic establishment. The Cliff’s Notes version of Minsky’s work is that stability breeds instability. Calm markets encourage excessive risk taking which can lead to crisis. After decades of stability in the housing market resulted in one of the most devastating recessions on record, one might have hoped Yellen & Co., the folk with the most control over financial markets, … [Read more...]
Is the Boom in Global Auto Debt a Looming Crisis?
The boom in U.S. sub-prime auto debt is a looming concern for U.S. regulators, but the problem is apparently not contained to the U.S. The FT reports that borrowing for cars in the U.K. is also booming. The auto debt on bank balance sheets is still small relative to the size of bank assets in the U.S. and U.K., so a systemic crisis probably isn’t something to be overly concerned about today. If you start to see an explosion in CDOs and synthetic CDOs, then you can start to worry. But economists and some in the industry are worried about what is going on under the bonnet of the used car … [Read more...]
Is This What Investor Madness Looks Like?
Asset markets are frothy. That shouldn’t come as a surprise to investors who spend even a few minutes a day doing some remedial analysis. It may however come as a shock to the growing crowd of investors who continue to blindly throw money at index based ETFs using the same tired return assumptions they used when valuations were much lower. Stocks aren’t the only asset class where things look frothy though. Here the FT highlights investor exuberance in the bond market where investors recently placed almost $10 billion in orders for a $2.75 billion 100-year bond from Argentina—a serial … [Read more...]
Should You Buy Apple Stock?
The Wall Street Journal ran a feature on Apple yesterday which included the chart below. The article highlighted the transformation of Apple from a purveyor of personal computers to one of the largest mobile phone manufacturer in the world. The chart shows the percentage of revenue that comes from various apple products. As you can clearly see, in the span of ten years Apple has completely transformed itself into a company almost entirely reliant on mobile phones. Apple should be applauded for its success over the last decade, but if there is any industry where the past is rarely … [Read more...]
China Stocks Enter the MSCI Emerging Market Indices
For four years MSCI has talked with Chinese regulators about including Chinese "A-shares" in its Emerging Markets index. Until now the restrictions on access to Chinese markets have prevented MSCI from including the shares. But yesterday MSCI announced that it would include Chinese shares in the Emerging Markets index, with a selection of 222 large cap stocks making the cut. Reuters reports: The bulk of the shares will be financial and industrial companies, many state-owned. According to Credit Suisse, among the 222 stocks on the simulated list of constituents for the new proposal of China … [Read more...]
What is Driving the Stock Market Higher?
The proliferation of the no-thought required approach to investing (index investment) along with other quantitative and algorithmic based strategies has created some disturbing cross-currents for the dwindling group of fundamental investors. Here J.P. Morgan (via Zerohedge) estimates that only 10% of trading volume originates from fundamental discretionary investors. That is a truly stunning statistic If 90% of the volume in stocks is driven by value-agnostic investors, the obvious implication that we see is bigger booms and much bigger busts that are far removed from underlying … [Read more...]
Pouring Fuel on the Fire in Financial Markets
If you thought the last nine years of manipulation, misallocation, and mispricing that was aided and abetted by misguided monetary policy was a problem, you ain’t seen nothing yet. As the FT reports, the Fed and other global central banks are re-evaluating their 2% inflation targets with an eye toward raising them. Why are Yellen & Co., thinking about raising their inflation targets? The theory is that if central banks can lower inflation adjusted interest rates more than they have in the past, they will be able to provide stimulus to the economy during the next recession. Sounds … [Read more...]
Bezos Buys Whole Foods
It would seem Mr. Bezos is moving beyond the Internet and into the brick and mortar realm. Amazon is buying Whole Foods for $13.7 billion in an all cash deal. Based on both companies' 2016 results Whole Foods will account for over 70% of profits in Amazon’s retail business. Who knew the grocery business could trade at such lofty multiples? Amazon said in its press statement today: SEATTLE & AUSTIN, Texas--(BUSINESS WIRE)--Jun. 16, 2017-- Amazon (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM) today announced that they have entered into a definitive merger agreement under … [Read more...]
Slowing Auto Market Signals Late Cycle Dynamics
Although the current economic expansion has been underwhelming for many industries, the auto market was the exception. The auto market was hit hard in the last recession, but carved out a V-shaped recovery with steady growth for much of the expansion. But change is now afoot. The used car market is over supplied. Used car prices are contracting and growth in new car sales has stalled. General Motors has decided to extend its typical summer factory shutdown to clear bloated inventories. GM’s inventories are almost 44% higher than a year earlier. Slower production in the auto sector is … [Read more...]
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