ValueWalk http://www.valuewalk.com Breaking News, Business, Politics, Technology Sat, 24 Jun 2017 14:00:57 +0000 en-US hourly 1 https://wordpress.org/?v=4.8 http://www.valuewalk.com/wp-content/uploads/2016/06/cropped-cropped-ValueWalk-site-icon-32x32.jpg ValueWalk http://www.valuewalk.com 32 32 67718220 The Rubicon Project Inc (RUBI) Is A Screaming Bargain http://www.valuewalk.com/2017/06/rubicon-project-inc-rubi-screaming-bargain/ http://www.valuewalk.com/2017/06/rubicon-project-inc-rubi-screaming-bargain/#respond Sat, 24 Jun 2017 14:00:57 +0000 http://www.valuewalk.com/?p=1959217 If profit is the motive of investors, then why or who, sells a stock worth a dollar for 50 cents?“ Ignorant households” Who Have “Failed To Behave Rationally” Help Rally Continue This is an enormous and exciting topic. Let’s revisit […]

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If profit is the motive of investors, then why or who, sells a stock worth a dollar for 50 cents?

Ignorant households” Who Have “Failed To Behave Rationally” Help Rally Continue

This is an enormous and exciting topic.

Let’s revisit Charlie Munger’s sage advice:

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think forwards and backwards – invert, always invert

Focus your efforts capitalizing on overlooked yet simple investing techniques.

Why bargains exist is too vast and intricate a topic for complete coverage in a blog post.

Instead, the one significant driver of this price inefficiency is due to rule-based institutional transactions. It’s often the catalyst of inefficient prices.

The financial entity’s investment charter often drives irrational buying and selling.

Who (or Why) Sells a Dollar for 50 Cents?

The topic of who sells a dollar for 50 cent can include overreaction to changing fundamentals, drop in stock value (fear/greed), career risk, liquidity requirements or a financial institutions’ investment charter.

An investment charter includes style (growth, value, market size, specialty) that, if violated, the stock is sold regardless of positive exceptions. There are over 7,000 mutual funds, near 2,000 ETF’s and approximate 11,000 hedge funds.

The investment behavior of these institutions cover a large part of the buying and selling volume. This activity creates short and medium term buying or selling opportunities.

Investors can exploit these price inefficiencies.

There’s only one reason a share goes to a bargain price: Because other people are selling. There is no other reason. To get a bargain price, you’ve got to look for where the public is most frightened and pessimistic. – Sir John Templeton

 

Loose Financial Conditions Have Forced Fed To Shrink Its Balance Sheet

The Rubicon Project (RUBI)

That’s where The Rubicon Project (RUBI) comes in. They sell a technology solution to automate the buy and sale of a wide range of advertising units for buyers and sellers.

It fell victim to institutional selling based on growth attribute non-compliance. Rubicon’s sales growth missteps forced their original institutional base to sell.

Also, recent brokerage sentiment reinforced RUBI is no longer a growth story – at least in the short term.

At first, value institutions sat on the sidelines.

But, they are trickling back.

No credence is given to Rubicon’s beneficial exceptions. Or, the mean reverting -60% 52-week price change.

Rubicon’s favorable exceptions are ignored by the growth institutions that are selling.

Positive points like:

  • strong financial position with $3.88 per share in cash
  • no debt
  • positive cash flow
  • high gross margins versus the current $5.55 price or $1.77 enterprise value per share

Last week on June 7th, the stock closed at $4.69, 68% off its 52-week high of $14.79 and 75% from the all-time June 2016 high.

The stock has drifted 15% higher over this past week to at $5.55.

RUBI still warrants a closer look.

Valuation Summary

Here are the various numbers I look at with my short notes included.

Rubicon Project Inc (RUBI)

Relative Valuation

Rubicon Project Inc (RUBI)

Rubicon’s stock price crashed 60% over the past 52 weeks.

The price drop relates to the YOY 30% decline in revenue which is a direct result of Rubicon’s slow transition to change its advertising technology as customers shifted towards alternatives. But, the board quickly addressed revenue decline.

CEO and co-founder Frank Addante was replaced by an industry veteran Michael Barrett during March 2017. Addante will stay on the board as chairman and founder. Before Barrett’s arrival, Rubicon laid off around 19% of its workforce or 125 employees including senior management at the end of 2016.

Furthermore, R&D expenditure over the TTM is at a historical high since the 2014 IPO, showing their commitment to any industry’s technology shifts.

Barrett industry reputation is for cleaning and selling the business. Before Barrett’s arrival, Rubicon was for sale. January 2017, The Wall Street Journal reported that Rubicon Project “is exploring strategic options, including a potential sale, with the help of Morgan Stanley.

After Barrett’s recent arrival he stated: “the company is not for sale” but industry rumors continue around the possible Rubicon sale.

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********

Disclosure

Shadowstock is long RUBI.

This article was originally published on ShadowStock and is reprinted here with permission. 

Article by ShadowStock, Old School Value


About the Author

Shadowstock’s goal is simple. The persistent pursuit to uncover and share the best ignored investment ideas in the tradition of Graham and Dodd. My academic experience includes a degree in both Accounting and Investment Finance from Baruch College, New York City. Professional experience covers responsibility for financial systems development/management coupled with financial controllership and analysis at Fortune 500 companies. Health issue forced me to leave. My investment posts are nonprofit.

"There Are No Bad Assets Just Bad Prices"

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Alleged iPhone 8 vs. iPhone 7 Plus Size Comparison [PHOTOS] http://www.valuewalk.com/2017/06/phone-8-vs-iphone-7-plus-photos/ http://www.valuewalk.com/2017/06/phone-8-vs-iphone-7-plus-photos/#respond Sat, 24 Jun 2017 13:58:48 +0000 http://www.valuewalk.com/?p=1959180 If you have been wondering how Apple’s next flagship handset may compare to the iPhone 7 Plus, we’ve got some new details for you. Thanks to Israeli blogger Shai Mizrachi, who shared images with 9to5Mac in April and again more […]

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If you have been wondering how Apple’s next flagship handset may compare to the iPhone 7 Plus, we’ve got some new details for you. Thanks to Israeli blogger Shai Mizrachi, who shared images with 9to5Mac in April and again more recently, we can now do an early iPhone 8 vs. iPhone 7 Plus size comparison. Carry on reading for the details and take a look at the images.

iPhone 8 vs. iPhone 7 Plus Size comparison
Image Source: 9to5Mac

iPhone 8 vs. iPhone 7 Plus

The image above shows an alleged dummy version of the iPhone 8 next to an iPhone 7 Plus. It could be one of the first clear examples of size which includes length, width, and thickness.

As for the validity of these images, we can’t give you any promises that it’s the real iPhone 8. However, what we can tell you is that this dummy has appeared before. The last time was in April, and again, it was thanks to the Israeli blogger. However, at that time, the only image available was of a close-up, so no size comparison could be made.

Exclusive images

Earlier this week, 9to5Mac again received exclusive images; however, these images, like the one above, shows it much better. Features of the iPhone 8 can be seen, including a vertically-aligned camera, an edge-to-edge display, and an elongated Home button, but no rear Touch ID.

Additionally, there’s a black glass back with a silver trim around the edges, one other noticeable feature of the camera. It appears to be larger than that which is on the iPhone 7 Plus.

As for how this iPhone 8 vs. iPhone 7 Plus comparison pans out, if this is really the next and tenth anniversary device, it looks much smaller than its predecessor, even though it has been touted as having a 5.8-inch OLED display. Furthermore, the dummy unit has the same two-toned black and silver finish that Benjamin Geskin has predicted, which means that it may not be 100% accurate, but you can almost guarantee it’s close.

dummy iPhone 8 vs. iPhone 7 Plus size comparison
Image Source: 9to5Mac

Size compared

With the images secured by 9to5Mac came a video which shows footage of the iPhone 8 from every angle. In fact, this iPhone 8 vs. iPhone 7 Plus comparison video lets us see them side by side. As with the images, again, the next Apple handset looks much smaller. Size-wise, we think it looks much more comparable to the iPhone 7 rather than the larger of the two models. However, it’s obvious that if the bezel-free iPhone doesn’t have to make room for a Home button, its display can take up more room on the face of the handset, meaning it’s bigger than the 7 Plus screen.

When it comes to screen size and just how bezel-free this handset it, unfortunately, it couldn’t be switched on. As such, we couldn’t compare the overall screen size to that of the iPhone 7 Plus. However, what we can say is that there doesn’t appear to be a Home button anywhere on the iPhone 8 dummy, unlike the 7 Plus. If you’ve been following the anniversary handset rumors, this could mean Apple will embed Touch ID into the screen.

As far as an iPhone 8 vs. iPhone 7 Plus comparison is concerned, that’s all we can give you now. However, if you want to know how the iPhone 8 compares to the Galaxy S8 and S8 Plus, take a look here, as we have one of Benjamin Geskin’s designs in the comparison test, and the results and images are quite astounding.

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Google Pixel 2 References Spotted In HTC U11 System Files http://www.valuewalk.com/2017/06/google-pixel-2-references-htc-u11-files/ http://www.valuewalk.com/2017/06/google-pixel-2-references-htc-u11-files/#respond Sat, 24 Jun 2017 13:32:42 +0000 http://www.valuewalk.com/?p=1959148 There have been a plethora of rumors and leaks about the Google Pixel 2, which is set to launch later this year. It is said to be the first smartphone to run Google’s new Android O operating system. While the […]

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There have been a plethora of rumors and leaks about the Google Pixel 2, which is set to launch later this year. It is said to be the first smartphone to run Google’s new Android O operating system. While the phone is still a few months away, Japanese blog HTC Soku (via XDA Developers) has found Google Pixel 2 references hidden in the HTC U11 system files.

Google Pixel 2 References
Image Source: Google Store (screenshot)

Google Pixel 2 references create further confusion

HTC, which is responsible for manufacturing the original Google Pixel and Pixel XL handsets, had referred to those devices as S1 and M1 respectively. Since the Taiwanese company has a two-year deal with Google, it is expected to be responsible for the production of at least one model of Pixel 2 line. HTC Soku found references to S2 and M2 in the system files of the recently launched HTC U11.

The code names S2 and M2 are widely expected to refer to the Pixel 2 and Pixel XL 2. The sighting of Google Pixel 2 references indicates that HTC might have been handling the development of two models of the upcoming flagship. Recently, there have been reports suggesting that LG Electronics would be manufacturing one model of Pixel 2, which has created some confusion among Pixel fans.

Who is manufacturing Pixel 2 – HTC or LG?

Let’s try to clear the confusion first. Code names found in the Android Open Source Project (AOSP) suggest that the search engine giant is working on three versions of Pixel: Walleye, Muskie, and Taimen. Walleye is the smallest one while Taimen has the largest display among three phones. According to 9to5Google, LG Electronics is responsible only for Taimen.

It means HTC might have been working on Walleye (S2) and Muskie (M2). However, inside sources told Android Police that Google has killed the Muskie. The US company will reportedly launch Walleye (Pixel 2) and Taimen (Pixel XL 2). If the report turns out to be true, HTC will manufacture Google Pixel 2 while LG will be supplying the Google Pixel XL 2.

Another possibility is that the Google Pixel 2 references in HTC U11 were old and carried over. The reports about the cancellation of Muskie are rather recent. HTC is still expected to be handling Walleye. Considering the references were found in the system files of U11, XDA Developers speculates that the upcoming Pixel phones could be powered by Snapdragon 835.

LG manufacturing the Pixel XL 2 wouldn’t be a huge surprise. The Korean company has been working with Google for years. In fact, it was previously manufacturing the Nexus phones for Google. Earlier this year, Korean media claimed that Google was in advanced talks with LG to invest nearly $880 million in LG Display to secure the supply of OLED panels for Pixel 2.

Google Pixel 2 specs

Google reportedly ditched Muskie and decided to go with a bigger Taimen to compete with the Galaxy S8 Plus, which sports a 6.2-inch OLED display, and the upcoming Galaxy Note 8 with a 6.3-inch display. While the Muskie was said to have a 5.5-inch display, the Taimen is expected to feature a display that matches the Galaxy Note 8 in size to justify the “XL” tag.

Not much is known about the Google Pixel 2 camera. The upcoming iPhone 8 is rumored to have a dual camera, and the recently launched OnePlus 5 also sports a dual camera system. The Pixel 2 is also expected to have a dual camera on the back. Google has told media that the upcoming Pixel phones would continue to target the premium segment.

The Pixel 2 is rumored to have a curved OLED display similar to the Galaxy S8. The rumor mill expects the phone to feature 6GB RAM, a USB Type-C port, a 3800mAh battery, Fast Charging technology, and 128GB of internal storage. Last year’s Google Pixel lacked water-resistance, but the new Pixel 2 is expected to come with IP68 waterproofing capabilities.

The Pixel 2 is widely expected to be powered by Qualcomm’s Snapdragon 835 processor. However, Qualcomm has been working on an improved Snapdragon 836 chipset that would arrive later this year with the Galaxy Note 8 in August. The Pixel 2 would go on sale after the Note 8, which means it could also feature the latest Snapdragon 836 processor.

Pixel 2 release date

Last year’s Google Pixel and Pixel XL were launched in October. The Pixel 2 and Pixel XL 2 are expected to launch in the same month this year to benefit from the holiday shopping season. Since the phones will continue to serve the premium market, potential buyers can expect them to cost at least as much as the original Pixel or higher. The Pixel and Pixel XL have a price tag of $649 and $769, respectively.

The Google Pixel 2 will be competing against the Galaxy Note 8 and Apple’s 10th anniversary iPhone 8.

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What’s The Formula For Investment Longevity & Success? John Rogers Shares His Approach http://www.valuewalk.com/2017/06/whats-formula-investment-longevity-success-john-rogers-shares-approach/ http://www.valuewalk.com/2017/06/whats-formula-investment-longevity-success-john-rogers-shares-approach/#respond Sat, 24 Jun 2017 11:40:42 +0000 http://www.valuewalk.com/?p=1957847 Why a slow, steady and contrarian approach wins the investment race over the long haul with Ariel Fund’s Founder and Portfolio Manager John Rogers. WEALTHTRACK #1352 broadcast on June 16, What’s The Formula For Investment Longevity & Success? John Rogers […]

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Why a slow, steady and contrarian approach wins the investment race over the long haul with Ariel Fund’s Founder and Portfolio Manager John Rogers. WEALTHTRACK #1352 broadcast on June 16,

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What's The Formula For Investment Longevity & Success? John Rogers Shares His Approach

John Rogers
Image source: YouTube Video Screenshot

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Economy Gearing Up In Malaysia For 2017 http://www.valuewalk.com/2017/06/economy-gearing-malaysia-2017/ http://www.valuewalk.com/2017/06/economy-gearing-malaysia-2017/#respond Sat, 24 Jun 2017 04:47:02 +0000 http://www.valuewalk.com/?p=1959705 Four Pillars of GDP: Growth rising in 1Q17 Malaysia’s GDP made a run for it in the first quarter of 2017, clocking in at 5.6%—a rate not seen since the first quarter of 2015. This pushed up the annualized rate to […]

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Four Pillars of GDP: Growth rising in 1Q17

Malaysia’s GDP made a run for it in the first quarter of 2017, clocking in at 5.6%—a rate not seen since the first quarter of 2015. This pushed up the annualized rate to 4.6%, a move that has investors thinking the slowdown of 2016 is gone for good.

The economy was primarily driven by growth in private consumption, 52% of GDP, but was also aided by the resumption of a positive, albeit small, trade surplus, which had been negative in recent quarters.

Despite inexpensive book value, lower profits still dog Malaysia

Valuation on a price-to-book basis, which currently sits at an expected value of 1.6x for 2017, is not expensive relative to the rest of Asia.

But the relatively low PB comes with a lower profitability in terms of ROE. Analysts expect just 1.1% growth in earnings per share this year.

Economy Malaysia

A. Stotz Four Elements: Malaysia’s rank relative to Asia

Overall, Malaysia is relatively unattractive in Asia, considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.

Fundamentals: Expected return on equity remains below 10% in 2017.

Valuation: Price-to-book is relatively cheap and the dividend yield is in line with the Asian average.

Momentum: Earnings growth and price momentum are both poor.

Risk: The market has a low beta relative to Asia ex-Japan, as well as a generally low price volatility.

All sectors fell in the Q3

Top 3 largest sectors: Financials: 21% of the market; Industrials: 16%; Consumer Staples: 12%.

Best sector & stock: Technology: +31.6%; MY EG Services Bhd: +36.2%.

Worst sector & stock: Utilities: +0.1%; Petronas Gas Bhd: -6.7%.

Article by Dr. Andrew Stotz, Become A Better Investor

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The Asian Financial Crisis 20 Years Later http://www.valuewalk.com/2017/06/asian-financial-crisis-20-years-later/ http://www.valuewalk.com/2017/06/asian-financial-crisis-20-years-later/#respond Sat, 24 Jun 2017 02:30:25 +0000 http://www.valuewalk.com/?p=1959860 Next month marks the beginning of the 1997 Asian financial crisis, which saw the equity markets of several nations plunge more than eighty percent in less than two years, a drawdown the severity of which American investors have not experienced […]

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Next month marks the beginning of the 1997 Asian financial crisis, which saw the equity markets of several nations plunge more than eighty percent in less than two years, a drawdown the severity of which American investors have not experienced since the Great Depression.  The point of this post is not to articulate the history and causes of the Asian crisis, – there are many detailed resources available for that, – but rather to illustrate that even modern markets can be subject to near total wealth destruction in less time than many of us can even imagine.

The countries most affected by the 1997 crisis were Korea, Singapore, Malaysia, Indonesia, Thailand, and the Philippines.  In the roughly ten year period prior to the crisis, all of these markets had generated handsome returns for investors, with the Philippines and Indonesia doing particularly well, generating total returns (in dollar terms) of more than 500% and 700%, respectively.

However, the crisis hit very hard, and suddenly, and the panic routed the equity markets of all these nations, even the generally more stable markets of South Korea and Singapore:

Howard Marks – Anticipate – And Avoid – Pitfalls That Others Will Rue After The Fact

Asian Financial Crisis

Several nations like Indonesia and Singapore recouped and surpassed their pre-crisis highs within a decade, – just in time for the global financial crisis, – while the rest have only recently reached new heights:

Asian Financial Crisis

The lessons of the Asian financial crisis are, in my opinion, chiefly these.  First, there can be huge risks associated with investing in single markets, particularly those in the emerging world with less stable currencies, more concentrated markets, and more volatile political backdrops.  Secondly, even drawdowns of almost 100%, – such as that which Greece is currently experiencing, – do not have to be death sentences.  Assuming productive policy shifts and a resumption of normal economic activity, a recovery from the brink of total loss is possible, though it almost certainly will take patience to realize.

Asian Financial Crisis

This article first appeared on http://www.fortunefinancialadvisors.com/

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So Value Investing Is Not Dead According To Goldman http://www.valuewalk.com/2017/06/value-investing-is-not-dead/ http://www.valuewalk.com/2017/06/value-investing-is-not-dead/#respond Sat, 24 Jun 2017 02:15:38 +0000 http://www.valuewalk.com/?p=1958247 I had to smile when I read this article on Bloomberg titled, Goldman Sachs Mulls the Death of Value Investing. The article states: There isn’t much value in value investing these days. The value-factor strategy of buying stocks with the lowest […]

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I had to smile when I read this article on Bloomberg titled, Goldman Sachs Mulls the Death of Value Investing.

The article states:

There isn’t much value in value investing these days.

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hidden value equities Walter Schloss deep value investing value investors cigar butts cigar butt investing valuation Schloss Graham investing Graham & Dodd

The value-factor strategy of buying stocks with the lowest valuations and selling those with the highest, pioneered by Eugene Fama and Kenneth French and espoused by none other than Warren Buffett, isn’t working. Sticking to that approach has resulted in a cumulative loss of 15 percent over the past decade, according to a Goldman Sachs Group Inc. report.

But, if you read a little further down you’ll see:

“The fundamental backdrop for value returns has been especially unfriendly in recent years, but these conditions are unlikely to persist (and are already moderating),” a Goldman Sachs team led by equity strategist Ben Snider, wrote late yesterday in note to clients. “Nonetheless, the maturity of the current economic cycle suggests value returns will remain subdued in the near term.

And this:

Longer-term, the biggest factor working in value’s favor is the mirror image of mankind’s more enduring investing flaw: the tendency for biases and emotion to affect the asset allocation process.

“Among the possible explanations for the historical value effect, one major theme is the tendency of humans to overprice growth profiles and other stock attributes,” wrote Snider. “Even with the growth of assets devoted to quantitative and passive strategies, the presence of humans with different investment processes, risk tolerances, return targets, and psychological biases suggests that some degree of the value effect will persist.”

So, inspite of the headline it would appear that as long as humans are investing, value investing is not dead yet.

This article was originally published at The Acquirer's Multiple

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Warren Buffett on “Person who has done most for American Investor” John Bogle of Vanguard Index Fund http://www.valuewalk.com/2017/06/warren-buffett-person-done-american-investor-john-bogle-vanguard-index-fund/ http://www.valuewalk.com/2017/06/warren-buffett-person-done-american-investor-john-bogle-vanguard-index-fund/#respond Sat, 24 Jun 2017 01:54:30 +0000 http://www.valuewalk.com/?p=1957752 Published on Jun 17, 2017 Warren Buffett just published his annual letter to Berkshire Hathaway investors, and buried in the 29-pages is a shoutout to one Jack Bogle. “If a statue is ever erected to honor the person who has […]

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Published on Jun 17, 2017

Warren Buffett just published his annual letter to Berkshire Hathaway investors, and buried in the 29-pages is a shoutout to one Jack Bogle.

“If a statue is ever erected to honor the person who has done the most for American investors, the hands- down choice should be Jack Bogle,” Buffett writes, adding:

“For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.

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Warren Buffett

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Investors need risk management in bear markets, not in bull markets http://www.valuewalk.com/2017/06/investors-need-risk-management-bear-markets-not-bull-markets/ http://www.valuewalk.com/2017/06/investors-need-risk-management-bear-markets-not-bull-markets/#respond Fri, 23 Jun 2017 22:46:28 +0000 http://www.valuewalk.com/?p=1960037 “Investors need risk management in bear markets, not in bull markets.” “We are in the business of making mistakes.  The only difference between the winners and the losers is that the losers make big mistakes and the winners make small […]

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“Investors need risk management in bear markets, not in bull markets.”

“We are in the business of making mistakes.  The only difference between the winners and the losers
is that the losers make big mistakes and the winners make small mistakes.”

“There are a lot of good ideas about how to invest and how to make money.
The one key problem is that when anything gets too popular it is going to hurt its effectiveness.” 

— Ned Davis, Bloomberg Master in Business Interview (June 15, 2017)

The Internet Killed Inflation And There Is Little The Fed Can Do To Change That

This week, I’d like to draw to a conclusion my series of notes from Mauldin’s 2017 Strategic Investment Conference.  The topics ranged from geopolitical to global macro to specific investment ideas.  One of my all-time favorite economists is David Rosenberg.  Today I offer my high-level bullet point notes from his presentation.

Rosenberg reminded the audience that, “[We’re] nine years into a cycle where everything is looking late cycle.”  David Rosenberg is the Chief Economist and Strategist at Gluskin Sheff + Associates, where he provides a top-down perspective to the firm’s investment process and Asset Mix Committee.  He, too, spoke about the challenges aging demographics present, compared Reagan’s beginning to Trump’s start and said that “the big elephant in the room is the Fed.”  I found the following slide sobering (not your client, of course).

Paul Singer Sees European Union Disintegration, Brexit Just The Start

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Prior to joining Gluskin Sheff in 2009, Mr. Rosenberg was Chief North American Economist at Merrill Lynch in New York for seven years, during which he consistently placed in the Institutional Investor All-Star rankings.  I have great respect for David.  He is humble, insightful and smart.  You don’t become an All-Star by chance

I really could stretch my conference notes out over several more letters but let’s draw to a close today.  Before we jump in, I want to share a quick thought that I believe should be “on your radar.”  Speaking of “big elephant,” the Fed is shifting gears.  We should take note (as I’m sure you already have).

Credit And Volatility Signal That Financial Conditions Are Very Overheated

It’s all about the Fed!  QE to QT

Post last week’s meeting, the Fed announced its plan to reduce the size of its $4.5 trillion balance sheet.  This is a game-changer of sorts.  Last week I shared a chart with you that showed how markets perform when the Fed is raising interest rates vs. lowering interest rates.  But this time really is different.

When the Fed lowers interest rates, it is simulative for the economy and the markets.  For investors, a golden rule is “Don’t fight the Fed.”  Now, if the Fed is also in the mix printing and then buying investment securities (aka quantitative easing or “QE”), you really don’t want to fight the big guy.  And when she tells us she is going to reverse course and sell the securities she owns (aka quantitative tightening or “QT”) well, you get the point.  Stay mindful of risk.

Commenting on last week’s Fed meeting, Peter Schiff of Euro Pacific Capital wrote, “Here Comes Quantitative Tightening.”  As you read these next few words, keep front of mind the impact liquidity injection had on inflating the markets and what the reverse of that might mean.

VIXED

For the first time, the Fed set into motion firm plans to reduce the size of its $4.5 trillion dollar “balance sheet.” Such a process has been talked about for years, but many were convinced, myself included, that it would always just be talk. The balance sheet consists of Treasury and mortgage-backed bonds that the Fed amassed during the experiment with quantitative easing between 2009 and 2014. During that time, the Fed injected liquidity into the financial markets by creating money to purchase more than $80 billion per month (at times) of such securities. These efforts pushed down long term interest rates, drove up bond and real estate prices, and set the stage for a massive stock market rally that had little to do with underlying economic fundamentals. Despite several informal hints over the years that these stockpiles were being reduced through bond maturation, the war chest has not decreased in size by one iota. However, the Fed has admitted that these ponderous holdings will limit its ability to stimulate in the event of future recessions. As a result, it wants to shrink the balance sheet down to a more manageable size now, precisely so it can expand it again during the next recession.

To do this, the Fed must essentially perform quantitative easing in reverse. It must sell, or force the Treasury to sell, treasuries and mortgage-backed securities into the current market. This process will reduce the Fed’s balance sheet while drawing free cash out of the economy, thereby unwinding prior stimulus. The Fed even told us how large the reductions will be…and it’s a lot. Much in the way that the Fed “tapered” out of its QE program back in 2014, gradually reducing the $85 billion of monthly purchases by about $10 billion per month, the Fed anticipates a similar approach to what is, in effect, a “quantitative tightening” campaign, or QT for short. It will start by allowing its balance sheet to shrink by $10 billion per month (total) of mortgage and government bonds, and will gradually increase the reductions to $50 billion per month, or $600 billion per year. Those are very big numbers that will provide very real headwinds to the economy and the financial markets.

.Trust, But Verify: The Potential Problems Of Blind Investing

But it’s important to realize that the Fed envisions doing this at a time when Federal deficits are likely to be rising steeply. In the next few years, the Congressional Budget Office estimates that Federal budget gaps will be in at the $700 – $800 billion dollar range annually (hitting $1 trillion by 2021 or 2022). These assumptions of course do not factor in any potential any tax cuts, spending increases, or recessions (I think we are likely to get all three). So this means that in a few years, the Treasury will have to sell $600 billion of additional bonds into the market annually to repay the Fed while at the same time selling $800 billion or more to finance its current deficits.  [Emphasis mine.]  That may create some traffic problems.  Should we assume that there are enough buyers to step up to the plate, especially if yields stay as low as they are? It’s not likely.

Source: Advisor Perspectives

The Fed, as my dad would say, finds itself “stuck between a rock and a hard place.”  We know the impact QE had on asset prices.  We are entering a period of QT.  Let’s be mindful that this is a totally different environment.

With that said, the trends for both equities and bonds remains bullish (as you’ll see when you click on the “Trade Signals” link below or here).  Our models have and continue to signal

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China: New Ambitions, New Directions http://www.valuewalk.com/2017/06/china-new-ambitions-new-directions/ http://www.valuewalk.com/2017/06/china-new-ambitions-new-directions/#respond Fri, 23 Jun 2017 22:22:08 +0000 http://www.valuewalk.com/?p=1959516 China’s remarkable story of economic growth is well-documented. Some 800 million people have moved out of poverty over the last 40 years thanks to market-based economic reforms. The annual 10%-plus GDP growth that dominated for years may have moderated, but […]

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China’s remarkable story of economic growth is well-documented. Some 800 million people have moved out of poverty over the last 40 years thanks to market-based economic reforms. The annual 10%-plus GDP growth that dominated for years may have moderated, but the latest five-year plan calls for a still-robust 6.5% annual GDP growth rate.

Economic ambitions, however, have not become more moderate

.Moody’s Downgrades China And HK, As Debt Continues To Rise Across Asia

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China
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China’s “One Belt, One Road” initiative, for example, would stitch together roads, ports, railways and other links from East China through Southeast, and South and Central Asia over to Europe. It exceeds in scope the Marshall Plan that rebuilt post-war Europe. Beyond that, China is by far the biggest source of financing for many of its neighbors. The Export and Import Bank of China alone lent $80 billion in 2015, compared with $27 billion from the Asian Development Bank. All this expands China’s economic and geopolitical sway across Asia, the Middle East, Europe and Africa.

Paul Singer Warns Of A World At Risk

For now, however, the pace of reforms needed to push that process forward has been slowing and is unlikely to regain momentum until certain political cycles are completed in March 2018. What seems clear is that Beijing is committed to globalization, and to the integration of its markets and financial systems – but on its own terms, at its own pace. This includes transitioning from an export-based economy to a consumer-based one, and a deeper integration into global financial markets.

This report considers many of these issues and also offers a closer look at two sectors: retail, which is ground zero for any consumer-oriented transition; and high-tech, through the eyes of a company that wants to link-up Israeli tech innovation with Hong Kong investors and market it all into China.

This Week’s Best Investing Reads From Our Top 50 Investing Blogs 2017

As the experts interviewed in this report note, many Chinese have never owned a PC or had a fixed telephone line — mobile is their first internet connection. Leap-frogging old technologies has allowed many Chinese businesses to tear down entry barriers and grow rapidly. It has also helped China become an innovator in its own right. It is no accident that China has the world’s most advanced mobile payment systems.

Potential stumbling blocks remain, of course, and serious debt issues can be added to the list of needed economic and financial transitions already mentioned. But China continues to create big plans to deal with its massive challenges.

Contents:

Where Will China’s ‘One Belt, One Road’ Initiative Lead?

China’s plan for a new Silk Road trade route from China to Europe is bigger than the post-World War II Marshall Plan. But will it work?

China’s Global Financial Integration: How Far and How Fast

Financial reforms in China lag far behind the country’s outsized impact on the global economy. As the country moves towards financial market liberalization, can it avoid
instability?

What Can China and the U.S. Learn from Each Other about Retail?

China and the U.S. are learning from each other about the future direction of retail — a real exercise in globalization, says Hong Kong real estate executive George Hongchoy.

Is There a Match for Tech Between China and Israel?

Israel is famous for its tech prowess. China has deep pockets and is a tech innovator in areas like financial payments. Is there a match in the making?

Will China Become a Leader in Clean Energy?

China is the world’s biggest polluter, but it is investing aggressively in clean energy. What role will it play now that the U.S. has pulled out of the 2015 Paris climate agreement?

Article by Knowledge@Wharton

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We’re Going To See A Bloodbath In Retail http://www.valuewalk.com/2017/06/going-see-bloodbath-retail/ http://www.valuewalk.com/2017/06/going-see-bloodbath-retail/#respond Fri, 23 Jun 2017 21:47:54 +0000 http://www.valuewalk.com/?p=1959538 Whatever is true about the stock market and economy in 2017, there is a lot of explaining to do. So many broadly unexpected and surprising developments have happened in the past few months, and there has been so much “fake […]

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Whatever is true about the stock market and economy in 2017, there is a lot of explaining to do. So many broadly unexpected and surprising developments have happened in the past few months, and there has been so much “fake news” centered on the economy, it would hardly be surprising if you find yourself scratching your head.

Retail Apocalypse Snowballs As Liquidity Collapses

Retailers
Alexas_Fotos / Pixabay

President Donald Trump cannot “make America great again.” The problems are bigger than one man.

Who Will Survive the Retail Reckoning of 2017?

Here are three important takeaways to bear in mind as the analysis unfolds:

  1. Investors’ enthusiasm for the “Trump bump” shows a touching faith in the efficacy of a chronically inept and dysfunctional government. They will be disappointed.
  2. Investment arithmetic has been distorted to suggest that passive investment — buying and holding an index fund — will provide handsome returns for retirement. It won’t.
  3. In fact, if historical norms persist, it will take roughly 22 years for recent investors in the stock market to equal the total return they could have secured by stuffing money in their mattresses.

Namely, Trump cannot juice up the carcass of an old DeLorean and squeeze us all in with Marty McFly on a time-travel adventure back to the early ‘70s — the era before economic growth stalled and we contracted trillions upon trillions of unpayable debt.

Struggling Retail

In the slumping category, according to Bank of America’s credit and debit card sales report, department store sales in February fell by the greatest amount on record. This spells big trouble for mall REITs, or real estate investment trusts. Indeed, the news on the retail side of the economy fairly reeks with hints of the hyperdeflation to come.

Sears — once the world’s largest retailer (and a relic of middle-class shopping from my childhood) — published its own death notice. Sears’ nervous accountants inserted this language in its latest 10-K report: “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

It was an emphatic reminder of what is to come in the resolution of the many trillions in debt assumed by corporate borrowers at invisibly low interest rates in the wake of the last crisis.

In other words, watch out. Sears may be going out of business, and it may be just the start of a meltdown in the retail sector. Already, Reuters reports that suppliers are reducing shipments and demanding cash on delivery. This will certainly complicate the ability of Sears to stay afloat. If it survives, it will be in a much diminished form.

At the very least, Sears intends to close another 150 stores to reduce operating losses of more than $1 billion per year. Sears used to operate 3,000 stores. That number has been cut in half and may be headed much lower as losses mount.

In a similar vein, Bloomberg reported that Payless ShoeSource is preparing to file for bankruptcy. Reports indicate that Payless will close 400 to 500 stores.

Business Insider noted in 2015:

The list of failures is getting longer by the day. Macy’s? Cooked — down 42% over the past six months. Nordstrom? Down 20% over the same time frame. Dick’s Sporting Goods? Awful earnings sent this athletic retailer lower more than 10% yesterday alone. There’s absolutely no way to sugarcoat it — the retail sector is crashing.

The woes of Sears, Payless, J.C. Penney, Macy’s, Nordstrom and others soon to be revealed are antidotes to the market’s collective delusion — ratified by the electoral college — that we can return to the days of rapid economic growth — when America was great — without enduring a painful adjustment.

The Retail Shake-Up

We’re going to see a bloodbath in the retail sales sector.

I personally know that I visit a store about a third as often as I used to a decade ago. I pretty much only buy clothes, groceries and major electronics at a storefront.
Everything else gets done via Amazon.

When I talk to people in their 20s and 30s, I find the same pattern. People are giving up walking into stores and prefer to buy online.

And that pattern will continue to trend against storefront locations.

Another friend of mine just recently started buying groceries from Amazon online. They deliver it to his house in two hours. This is going to spread in popularity.

So with the dawn of online shopping, is it any wonder why retail storefronts are struggling? It’s anticipated that a third of shopping malls will close down in the next few years.

And with Macy’s, Sears, Chico’s, American Eagle and other mall retailers all shuttering locations, it seems big malls are going to be in trouble sooner rather than later.

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Q1 2017 – Huge Page Of Hedge Fund Letters, Conferences, Calls, And More http://www.valuewalk.com/2017/06/2017-hedge-fund-letters/ http://www.valuewalk.com/2017/06/2017-hedge-fund-letters/#respond Fri, 23 Jun 2017 21:21:50 +0000 http://www.valuewalk.com/?p=1929322 Q1 2017 Hedge Fund Letters is now up stay tuned for more as we sometimes update these pages even months after the quarter ends (3/31/2017 in this case). Also some hedge fund conferences in Q1 2017 will be profiled here […]

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Q1 2017 Hedge Fund Letters is now up stay tuned for more as we sometimes update these pages even months after the quarter ends (3/31/2017 in this case).

Also some hedge fund conferences in Q1 2017 will be profiled here

Last updated 6/24/2017

The links are not an endorsement whatsoever nor does any omission mean anything, besides for the fact that we do not find the letter interesting/newsworthy or we do not have access to it. More on that below.




If you are concerned about issues of confidentiality, privacy or other legal issues related to sending information, you can review the following ProPublica article on communicating confidentially.  ProPublica recommends that if you are sending information by mail, that you consider sending it without a return address, but we will accept any form of submission and protect your confidentiality to the full extent of the rights provided under the law.  Anonymous tips by email can be sent to tips(@)valuewalk.com.  Also for super secure-file sharing we like onionshare  and for messaging Signal App. I can be contracted on signal at 845-304-5782.

Pension funds in particular invest hundreds of billions of taxpayer (YOUR money) in hedge funds. According to a recent report by Willis Towers Watson  over $250 billion of pension money is invested in hedge funds and fund of funds. According to their own public records – New York City public pension funds alone have $4 billion in hedge funds and according to Barclays Prime Broker Research hedge funds have not generated positive alpha since 2011–  The future of journalism can either be watermelon squeezing or holding our Government officials accountable for how they allocate our retirement money.

But wait there is more! While in the past we focused just on letters this 2017 Hedge Fund Letters post and our posts going forward will also contain links to the best stories on the industry, profiles, important trends, investment conferences and more (they are listed separately at the bottom). However, the vast majority of our hundreds of links in this post deal with 2017 hedge fund letters.

NOTE: The list is in alphabetical order. To be completely accurate, while most funds listed below are hedge funds some are mutual funds or other (i.e. Berkshire Hathaway). The list is (mostly) in alphabetical order.

Also check out

2015  letters

2016 letters

Into great hedge funds focused on small caps? Check out our new site!

2017 Hedge Fund Letters –

2017 hedge fund letters Q1 letters Q1 2017 Hedge Fund Letters

2017 Hedge Fund Letters

Conferences Q1

LSE 2017 –Expect Hedge-Fund Returns to Be More Honda Than Rolls Royce: Point72

LSE – Man Group

PTJ

Official feed

SocGen Conference

WEF Davos 2017




2017 Hedge Fund Letters

    1. Absolute Return Feb
    2. An Open Letter To Howard Marks
    3. Apollo Asia
    4. ADW Capital, Q1
    5. Alluvial Feb
    6. Alluvial March
    7. Alluvial Q1
    8. AlphaClone
    9. Andurand
    10. Aquitania Capital
    11. Arquitos Capital killing it
    12. Ariel Focus
    13. Ariel Appreciation
    14. Askeladden Capital
    15. Baskin
    16. Balyasny – Bezos of HFs
    17. Baupost
    18. Berkshire
    19. Best bets
    20. Bezos
    21. Bill Nygren
    22. BlueTower
    23. Boyles
    24. Burr Capital
    25. Brevan Howard Jan
    26. BH Feb
    27. Brevan Mar
    28. Broad Run
    29. Bronte Jan
    30. Bronte Feb
    31. Bronte Q1 – VRX
    32. Cable Car
    33. Causeaway
    34. Centaur Value
    35. Charlotte  Lane
    36. Corsair
    37. ClearBridge
    38. Crescat Capital Q1
    39. More
    40. Curreen Capital
    41. Dodge & Cox
    42. Invst risk
    43. Euclidean Q1
    44. Elliott $5B in 24 hours, more, our coverage, and Paul Singer on FAANG stocks, and more
    45. Eton Park Capital shutting
    46. Stanphyl Capital January 2017
    47. Fasanara
    48. G&D – Kingstown Capital
    49. Greenlight January
    50. Greenlight on GM
    51. IP Partners
    52. Feb
    53. Greenlight q1 letter
    54. GMO Q1
    55. Farnam
    56. First Quadrant
    57. First Eagle
    58. FPA Capital
    59. FPA Crescent, call
    60. Gator
    61. Greenhaven
    62. Greenwood
    63. Global Allocation Jan
    64. March
    65. Hugh Hendry Q1
    66. Jan
    67. Feb
    68. Muhlenkamp Q1 2017
    69. Greenlight Mar
    70. Greenskeeper HCG
    71. HFT
    72. Horizon Kinetics
    73. Horizon Kinetics Q1
    74. Horseman Feb – throws in the towel






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Albert Edwards Sees Central Banks Losing Independence After Next Crash http://www.valuewalk.com/2017/06/central-banks-independence/ http://www.valuewalk.com/2017/06/central-banks-independence/#respond Fri, 23 Jun 2017 21:12:54 +0000 http://www.valuewalk.com/?p=1959991 Albert Edwards must not have taken a summer respite yet, as in a July 22 research note he is up to his crankiest and cantankerous self as he leads his audience of well-heeled institutional investors to grab their pitchforks and […]

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Albert Edwards must not have taken a summer respite yet, as in a July 22 research note he is up to his crankiest and cantankerous self as he leads his audience of well-heeled institutional investors to grab their pitchforks and protest society’s injustice administered by the world’s central banks.  Central Banks independence will be lost when “the people” turn against historic income inequality that has been masked by QE gymnastics,

central banks, QE, income inequality, independence
Developed world central banks, on a QE binge, have fostered income inequality, says a bank analysist, and it might lead to a loss of their independence

Central Banks independence, QE will be blamed for income inequality, Edwards says

Right now the global economy is the Titanic steaming along and partying like the concept of wretched excess and income inequality was about to be outlawed. But there is an unseen glacier with which the boat is about to collide with, one that will ruin a carefully pruned central bank QE market party.

“No one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead,” Societie Generale analyst Edwards wrote in a piece titled “Theft redux: the citizens will soon turn their rage towards Central Bankers.”

Edwards looks at a yield-starved world headlined by historic negative interest rates and QE madness as he shakes his head in disgust: 100-year bonds offered by Argentina, the most chronic defaulter in history, are 3.5 times oversubscribed;  A single parking space in Hong Kong selling for HK$5.18 million ($664,200).

These are just the latest proxies for crazy.

central banks independence

Central Bank message: Elections in France were radical, more so than US

Contrast this with a situation in which “there is a lot of anger out on the streets, as demonstrated most visibly in recent elections.”

It is this rage that can be seen in France electing a political newcomer “perhaps even more radical than Trump’s anti-establishment victory under the Republican umbrella,” he writes in a disbelieving state. “The global political situation is incredibly fluid and unpredictable.”

This is all going to boil over, but the target shouldn’t be the political leaders, Edwards argues, but a group less in the public eye.

When income inequality is recognized it won’t be a pretty sight

Throughout much of the booms of the 2000s, the middle and lower class in the US and UK have witnessed real wage declines, but an economy built on bubbles has made them feel rich. The Novocain for this madness has been central bank quantitative measures, Edwards declares, and eventually, an awakening will take place:

In an age of “uncertainty,” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central banks independence will be (and should be) the next casualty of the current political turmoil.

Edwards, modeling the approaching “inevitable economic and financial collapse,” says that when it is over, people won’t be looking to scapegoat “the bankers,” as was the case in 2008. The scapegoats will have names such as Yellen, Draghi and Carney, central bankers of the world’s leading developed economies.

In the end, central banks and their often cloistered club of PhD economists will have been unable to see the forest through the trees and their omnipresent market manipulation and financial repression will have a cost, Edwards says:

The problem though in creating asset bubbles to try and reflate the economy is that when the asset bubble bursts and blows up the economy, you are more likely to get the very deflation outturn that you were seeking to avoid in the first place. Even after the GFC these dudes simply have not learnt that loose money polices to blow asset price bubbles is a catastrophic policy destined to end in failure.

Edward’s models are dark. He sees not only individual central banks independence taken to task even though many inherited the quantitative excess, but the target will be more conceptual.

The mob will devour the very independence of those institutions with the connivance of a political class willing to do anything to save their own skins,” he wrote. “I am right and it is clear for all to see that the central banks have caused yet another Global Financial Crisis (GFC), of 2008 proportions, I personally believe central banks deserve to lose their independence, and indeed much more.”

The dark ages are coming, Edwards says. Prepare. But it is also worth nothing that in the report Edwards acknowledged “My dire prognostications back in January 2010 proved premature (as usual).”

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How The Populist Wave Could Reshape Policy http://www.valuewalk.com/2017/06/populist-wave-reshape-policy/ http://www.valuewalk.com/2017/06/populist-wave-reshape-policy/#respond Fri, 23 Jun 2017 20:51:26 +0000 http://www.valuewalk.com/?p=1958633 Populism is here—and it isn’t going away. The ideology can come from either side of the political spectrum, and it can have a big impact on policy, the macroeconomic landscape and—ultimately—how we invest today. The drivers of populism’s rise in […]

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Populism is here—and it isn’t going away. The ideology can come from either side of the political spectrum, and it can have a big impact on policy, the macroeconomic landscape and—ultimately—how we invest today.

The drivers of populism’s rise in the West today include economic insecurity, social insecurity and political ineffectiveness. Based on previous populist episodes (particularly in Latin America) and current populist agendas, we expect policy changes to focus on three broad categories (Display):

Populist

Raising the Drawbridge: These policies, which were prominent in US President Donald Trump’s campaign rhetoric, focus on several areas. They include more trade protection and restrictions on immigration and cross-border labor flows, together with withdrawal from supranational relationships. Immigration has been a key theme in recent European elections, and Brexit is perhaps the most dramatic example of a country choosing to withdraw from a supranational relationship.

Institutional Erosion: Attacks on the media, which have escalated in the US since Donald Trump entered office, are one example of the erosion of institutions globally. There have also been government attacks on the media, institutions of state, bureaucracy, the judiciary, parliamentary arrangements and other institutions. Turkey’s referendum in April, for example, gave President Recep Tayyip Erdogan powers widely regarded as autocratic. From a macroeconomic perspective, a key risk is the potential to undermine central bank independence through money-financed fiscal stimulus.

Redistribution Policies: These policies involve redirecting government largesse from the “rich” or “elites” toward the poor. The specific actions could include higher taxes on corporations and high-income earners and big wage increases. Redistribution is the least evident of the three policy areas in developed countries right now—in fact, the US under President Trump is actually moving to cut corporate taxes. But it did form a core part of the program that helped the opposition Labour Party come within a whisker of winning the recent parliamentary election in the UK.

Four Steps to Failure

The order and extent of the shift toward these types of policies is very important in determining the macroeconomic impact. In the typical Latin American experience—there are very many, including a large number of the biggest disasters in the history of populism—the playbook generally runs like this:

  • Redistribution first. This is initially successful—in effect, a big fiscal stimulus. But, eventually, resource constraints begin to bite.
  • As a result, the central bank is drawn into redistribution by, for example, printing money so fiscal largesse can continue. Eventually, inflation starts to rise and external accounts go into deficit.
  • To deal with inflation and external deficits, the government enacts price controls and raises the drawbridge by putting restrictions on imports, the flow of foreign currency and other economic mechanisms.
  • Ultimately, this populist playbook results in economic and political crisis and eventual regime change.

So far, what we’re seeing today is the raising of the drawbridge, but our research is focusing increasingly on the factors that would trigger the other two policy categories.

How Could Populism Impact Markets?

The key point about all these policies is that they tend to be inflationary. But they also suggest that domestic factors will become more important, that bond yields and risk premiums will rise, and that dispersion within and between markets will increase. Ultimately, populism is likely to push policy in a less business-friendly direction, reversing the trend of the past four decades.

But over what time frame, and how strongly, should we expect these forces to play out? Barring a global shock, we would expect them to play out gradually, perhaps over a three-to-five-year time frame. But if the global economy hits the rocks in the next year or so, these risks could crystallize much more quickly and probably much more forcefully.

Clearly, populism and the world economy—and the interplay between them—are factors that global investors need to monitor very closely.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

Article by Darren Williams, Fernando J. Losada, Guy Bruten – Alliance Bernstein

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What Caused The Decline Of Coal And What Is It’s Future? [CHARTS] http://www.valuewalk.com/2017/06/caused-decline-coal-future-charts/ http://www.valuewalk.com/2017/06/caused-decline-coal-future-charts/#respond Fri, 23 Jun 2017 20:40:31 +0000 http://www.valuewalk.com/?p=1960000 You might have heard the news that the first new coal mine in a decade opened this month in a small Pennsylvania town called Friedens. The Acosta Mine—the output from which will be used in the production of steel—is expected […]

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You might have heard the news that the first new coal mine in a decade opened this month in a small Pennsylvania town called Friedens. The Acosta Mine—the output from which will be used in the production of steel—is expected to employ between 70 and 100 people over 15 years, with salaries ranging between $50,000 and $100,000. President Donald Trump, a strong supporter of coal and fossil fuels in general, even appeared live on video during the grand opening, saying it “signals a new chapter in America’s long, proud coal mining tradition.”

Has The Climate Changed For Sustainable Investing?

Like the president, I applaud the mine’s opening. In a region that’s been hit particularly hard by the dramatic reduction in coal demand over the past five years alone, the local economy should benefit nicely from the fresh injection of high-paying jobs and tax revenue.

But does the Acosta Mine really “signal a new chapter”? Will it stanch the decades-long loss of coal mining jobs? Will it help make coal more competitive than natural gas or renewables such as wind and solar?

The simplest answer to the questions above is: Not likely. Energy markets are in full transition mode, both in the U.S. and abroad, and there really isn’t much that can be done to stop it, despite Trump’s best efforts.

An April study conducted by Columbia University’s Center on Global Energy Policy concluded that “President Trump’s efforts to roll back environmental regulations will not materially improve economic conditions in America’s coal communities.” According to the report, nearly half of coal consumption’s decline can be attributed to increased competition from natural gas. Solar and wind are responsible for about 20 percent of the decline. And as for izndustry regulations? They’re responsible for only 3.5 percent of coal’s decay, the study’s researchers say.

Absolute Return Partners – Oil Price Target: $0

top contributions to coal's decline
click to enlarge

In light of this, I think it would be prudent for investors in natural resources and energy to adjust their holdings to reflect this transition. In the past year, we’ve overweighed renewable energy stocks in our Global Resources Fund (PSPFX), and the allocation is now a core driver of the fund’s performance.

Coal at a Tipping Point

Let’s look at the facts. This month, just as Trump was celebrating the opening of a new coal mine, British oil and gas company BP reported in its annual review of global energy trends that coal production saw a record decline in 2016. Coal fell 6.2 percent, or 231 million tons of oil equivalent (mtoe), on a global scale. In China, the decline was even more severe.

Energy Checklist

world coal production fell by a record amount last year
click to enlarge

BP’s chief executive, Bob Dudley, showed little optimism that coal can be revived, even going so far as to say that 2016 marked the completion of “an entire cycle” for coal. Production and consumption were “falling back to levels last seen almost 200 years ago around the time of the Industrial Revolution,” he said, adding that the United Kingdom recorded its “first ever coal-free day in April of this year.”

The U.S. might not have had a coal-free day, but domestic consumption is definitely in freefall. Last year, for the first time ever, natural gas represented a larger share of U.S. electricity generation than coal. Gas provided 34 percent of the nation’s power, coal 30 percent. This gap will only widen as more coal-fired plants are converted to burn natural gas, which is cheaper and cleaner. Facilities that still burn coal are rapidly aging into obscurity, with a vast majority of them (88 percent) built between 1950 and 1990.

The Case Of Missing US Stocks; Loans To Small Businesses Dry Up

Coal is also facing steep competition from renewables. For the first time in March, wind and solar made up 10 percent of total U.S. electricity generation, according to the U.S. Energy Information Administration (EIA). Windfarms in Texas, Oklahoma, Iowa and other states provided 8 percent, while commercial and residential solar installations represented about 2 percent.

Wind and solar made up 10% of total US electricity for first time in March
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As I shared with you last month, 2016 saw record installation of new renewable capacity across the world, with investment in wind and solar double that found in coal, gas and other fossil fuels. In the U.S., solar ranked as the number one source of new electricity generating capacity.

Renewables Cheaper than Coal

Part of the reason we’re seeing such significant growth in renewable capacity is that solar and wind make good economic sense. Bloomberg New Energy Finance (BNEF) recently reported that solar costs already rival coal in Germany and the U.S. and very soon will do so in China, the world’s largest investor in renewable energy.

Not Just China, India’s Middle Class Is Expected To Explode In Size

Solar Will Soon Become Cheaper than Coal for China
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For years, solar has been regarded as an inefficient and costly source of energy. But its economics are now beginning to become cheap enough to potentially push coal and even some natural-gas plants out of business faster than what was once previously forecasted.

According to BNEF, costs of new energy technologies are falling so fast that it’s more a matter of when than if solar power and alternative energy sources gain a larger market share than fossil fuels.

China and India a $4 Trillion Opportunity

BNEF now estimates that China and India, the two most populous countries, represent a $4 trillion investment opportunity in new energy capacity by 2040, with most of the investment (nearly 75 percent) in wind and solar.

Although coal will likely be needed to meet the huge population explosions in the two economic powerhouses, its role will steadily diminish, falling to a 17 percent share in India by 2040, according to BNEF estimates. Renewables, meanwhile, will represent about half of all energy capacity.

Wind and Solar: Performance Drivers

This is why we’ve given renewables an overweight position in our Global Resources Fund (PSPFX). There’s still room in the fund for coal—Australia’s Whitehaven Coal has gained more than 190 percent for the 12-month period as of June 20—but we see attractive opportunities in wind and solar.

Among our favorite energy stocks right now are SolarEdge Technologies, up 50 percent year-to-date as of June 20; Vestas Wind Systems, the largest wind farm manufacturer in the world, up 33 percent; Siemens Gamesa, up 15 percent; and Sociedad Química y Minera de Chile (SQM), one of the world’s top three lithium producers, up 16 percent. (Lithium is used to manufacture lithium-ion batteries.)

Year-to-date, these companies are outperforming the broader S&P 500 Energy Index and are strong drivers of PSPFX’s performance.

Click here to learn more about the Global Resources Fund (PSPFX) and to see its performance and composition!

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC,

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The Fed Makes A Type 1 Error As Markets Move Toward Low Terminal Rate http://www.valuewalk.com/2017/06/low-terminal-rate/ http://www.valuewalk.com/2017/06/low-terminal-rate/#respond Fri, 23 Jun 2017 20:35:26 +0000 http://www.valuewalk.com/?p=1959923 The Federal Reserve raised rates again this month, this time on the same day the inflation reading came up as a disappointment. As a result, experts began talking about whether the U.S. central bank was making a policy error and […]

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The Federal Reserve raised rates again this month, this time on the same day the inflation reading came up as a disappointment. As a result, experts began talking about whether the U.S. central bank was making a policy error and also the irony of the rising funds rate and the market moving toward a low terminal rate. type 2 error Type 1 error low terminal rate Economic Sentiment Janet Yellen Fed Federal Reserve and if you can add also QE quantitative easing interest rates ZIRP rising rates treasuries Ben Bernanke macro Helicopter Money

Financial conditions ease up

Deutsche Bank analyst Dominic Konstam and team said in a recent report that financial conditions have eased up this month compared to where they stood in May. Interestingly, conditions eased even though the real Funds rate is now at the highest level it has been at since March 2008. They noted the irony in the situation, with “the rates market discounting not much more Fed and a low terminal rate.”

They added that there’s a fine line with risk now, as risk can do well if inflation remains low while growth is robust, which is known as a “falling price boom.” They explained that this setup allows for a low terminal rate that’s based more on low inflation. Additionally, they said that this presumes that the Fed can’t force the issue much further past making up for the negative term premium.

Markets worry about type 1 error or type 2 error on the way to a low terminal rate

The DB team examined the “flattening and compression of spreads to the Funds rate” against the backdrop of the market moving toward a low terminal rate. Because the Fed raised rates the same day inflation disappointed again, they said it’s natural for the markets to worry that the central bank made a policy error.

They feel that the Fed made a Type 1 error, a major shift from when Janet Yellen was Fed chair and favored optimal control, which was focused entirely on avoiding a Type 2 error. The DB team defined a Type 1 error as “acting for fear that there is rising inflation risk” and a Type 2 error as “not acting when there is rising deflation risk.” The analysts warned that the Fed now runs the risk of making a Type 2 error now that it has made a Type 1 error.

“It all depends on the behavior of risk assets and the robustness of real growth through what is at the very least a soft patch for inflation,” the DB team wrote.

Inflation is the top concern

They add that one way to appreciate the risk of the Fed making a Type 2 error is through the 5y5y-Funds spread, which stood around 150 basis points, the tightest level since January 2008 when the Fed was scrambling to reduce rates. They also note that the 2s funds also finally fell below 25 basis points.

The Deutsche Bank team feels that 5y5y is a good proxy for the terminal rate, adding that it has cut through the Funds rate’s past high levels. Looking at a three-year forward basis, 5y5y was at 2.75%, leaving plenty of room for the 5y5y rate to fall if the Fed is at risk of making a Type 2 error. They give the example of the terminal rate at 1.5% to 2%, which would mean that everything would be roughly flat at 2. So if the Fed commits an error, rates will go even lower.

 type 2 error Type 1 error low terminal rate

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Are Dividend Stocks Right For You? (Plus The Best Dividend Stocks To Buy Right Now) http://www.valuewalk.com/2017/06/dividend-stocks-right-plus-best-dividend-stocks-buy-right-now/ http://www.valuewalk.com/2017/06/dividend-stocks-right-plus-best-dividend-stocks-buy-right-now/#respond Fri, 23 Jun 2017 20:22:50 +0000 http://www.valuewalk.com/?p=1959977 Dividend Stocks  by John Szramiak was originally published on Vintage Value Investing Many investors think that dividend stocks are only for stodgy portfolios or retirees. Whether you are a newbie or are on the brink of retiring, you get quarterly […]

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Dividend Stocks  by John Szramiak was originally published on Vintage Value Investing

Many investors think that dividend stocks are only for stodgy portfolios or retirees. Whether you are a newbie or are on the brink of retiring, you get quarterly or annual income from stocks that pay dividends. You can also benefit from the potential for capital gains. In short, high-yielding dividend stocks can give your portfolio both income and growth. Cash is not a bad thing, especially when there are so many risks affecting the stock market. Let’s go over some advantages to purchasing dividend stocks, and at the end of the article we will highlight some of the best Canadian dividend stocks for 2017.

S&P 500 Companies Pile On Debt Amid Low Rates

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 Dividend Stocks
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Two different views on dividend paying stocks

Dividend junkies believe that high yielding stocks tend to outperform no yield or low yield stocks over time. Professor Jeremy Siegel of The Wharton School of Business is a staunch advocate of dividend investing. He argues that higher dividend yields allow shareholders to accumulate many more shares (by reinvesting dividends), causing returns to snowball. “Dividends matter a lot,” Siegel writes. “Reinvesting dividends is the critical factor giving the edge to most winning stocks in the long run”.

Focusing only on dividends may cause you to miss diamonds in the rough

On the other hand, dividend mythbusters believe that by focusing only on dividend yield, (the amount of money each share pays you expressed as a percentage per year), that you will overlook high-growth stocks that are in the early stages of expansion. Such companies try to use earnings to fuel fast growth and are not at a stage to return cash to their investors.

All of us as investors like to boast that we were smart enough to spot rising stars like yoga-inspired retailer Lululemon (LLL.TO) that managed to double in price in one year. Lululemon no longer trades on the TSX, but it had richly rewarded investors who got in early.

Yet how many of these trailblazers are we lucky enough to include in our portfolio? Further, in the rush to find high-growth stocks, be aware of the “Growth Trap”. This is the tendency for investors to pay too much for high-growth stocks because they expect too much growth. Be aware of their current price to earnings ratio. If it is too high, it’s probably too good to be true.

Dividend Investing Concepts to Mull Over

As you are figuring out what to do for your portfolio, here are a couple of concepts to think about.

  • The bird-in-hand theory advanced by Gordon and Lintner. It states that investors prefer the certainty of dividends to the potential of capital gains.
  • Dividend income from Canadian stocks is eligible for a nice tax credit for Canadian tax payers.
  • Reinvesting your dividends is akin to dollar cost averaging. You are buying more shares with your high yields and these act as a protection during bear markets. In turn, the extra shares accelerate in value when markets turn bullish again. Jeremy Siegel terms dividend reinvesting the “bear-market protector and return accelerator”.

Special Situation Dividend Stocks

Here are 2 special situations that catalyze stock prices:

  1. A company that is about to increase its dividend because that move signals management’s confidence about the future.
  2. A company that is about to initiate a payout. To some investors this suggests that future growth prospects are not going to be nearly as exciting, but bear in mind, that once a company initiates a dividend, there is a whole new investor base that will create pent-up demand for these shares. Income focused funds and indexes, for example, cannot invest in a stock until it has paid a dividend.

Building a Dividend Stock Portfolio

Diversification is key, and there are conflicting views on how many stocks make a solidly diversified portfolio. Numbers range from 15-60. It may be hard for the average investor to keep track of that many stocks, let alone conduct reasonable research. That’s the reason why dividend ETFs – those that target stocks that have a solid history of paying or increasing dividends – are appealing.

In Canada, high dividend stocks are focused in financials and energy, with a few consumer or industrial names. With a collection of reasonably diversified names, you can build a portfolio that yields in excess of 3%. Here are some of the best Canadian dividend stocks in 2017.

Name Stock Symbol Price as of June 23rd 2017 $ Dividend yield %
Bank Of Montreal BMO.TO 93.46 4
Sun Life Financial SLF.TO 45.64 3.9
Trans Canada Corp TRP.TO 63.20 4
Hydro One H.TO 23.45 3.7
BCE BCE.TO 61.03 4.7
H&R REIT HR.UN 22.39 6
Royal Bank Of Canada RY.TO 93.55 3.7
Enbridge Income Fund ENF.TO 32.71 6.3
CIBC CM.TO 107.70 4.8
TD Bank TD.TO 65.51 3.7

This is by no means a comprehensive list, nor should it be viewed as buy or sell recommendations. It is just a list to get you started on thinking about dividend investing. This list was taken from a  Stocktrades article on the best Canadian dividend stocks for 2017. Also keep in mind that this is a very basic introduction to dividend investing, if you have any questions, and before making any decisions you should talk to your financial advisor.

 

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Indian Citizens’ Bio-Metric Data May Be Transferred To The US Department Of Defense http://www.valuewalk.com/2017/06/aadhaar-project-part-fbis-secret-biometric-id-program-transferred-us-dod/ http://www.valuewalk.com/2017/06/aadhaar-project-part-fbis-secret-biometric-id-program-transferred-us-dod/#respond Fri, 23 Jun 2017 20:08:16 +0000 http://www.valuewalk.com/?p=1959969 There is a lawsuit filed against FBI for information about the agency’s plans to transfer bio-metric data to the Department of Defense. It is now commonly known that American firms with links to CIA were given contract for Aadhaar and […]

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There is a lawsuit filed against FBI for information about the agency’s plans to transfer bio-metric data to the Department of Defense. It is now commonly known that American firms with links to CIA were given contract for Aadhaar and acknowledged by the Ministry of External Affairs itself, will Aadhaar database than be transferred to the US Department of Defense?

bio-metric data
RichardBarboza / Pixabay

There is a growing movement brewing up in the country regarding the dangers of Aadhaar and how it is being pushed through the backdoor without adequate security on unsuspecting Indians. While the general public is still in the dark about the dangers of bio-metric identification that is taking place in nearly every walk of life, even privacy defenders who have been closely following these developments don’t have sufficient information.

Like the Indians even the Americans are fighting a similar battle on their homefront. But unlike Indians the American public are far more informed and organized in their approach. It would do well for the defenders of privacy and the advocates of Rethink Aadhaar to follow up on a lawsuit that is filed against the US Federal Bureau of Investigation for running a Bio-metric ID program for years in secret. The FBI case could provide the Indian activists with a better reorientation and understanding of the process.

A shocking report came to light early this year about a massive FBI database that has been collecting millions of faceprints of American citizens – for years. Known as the Next Generation Identification system, since 2014 the FBI has amassed more than 50 million images scoured from facial recognition alone; and, as reported by the Electronic Frontier Foundation, the images have merged into the FBI’s legacy database of fingerprints and other identifiers to create a centralized hub of surveillance:

As per a 2014 EFF report titled FBI Plans to Have 52 Million Photos in its NGI Face Recognition Database:

NGI builds on the FBI’s legacy fingerprint database—which already contains well over 100 million individual records—and has been designed to include multiple forms of bio-metric data, including palm prints and iris scans in addition to fingerprints and face recognition data. NGI combines all these forms of data in each individual’s file, linking them to personal and biographic data like name, home address, ID number, immigration status, age, race, etc. This immense database is shared with other federal agencies and with the approximately 18,000 tribal, state and local law enforcement agencies across the United States.

Worst of all, the FBI has admitted that the system contains non-criminal identification as well as criminal, including:

  • suspects and detainees,
  • fingerprints for job applicants
  • licenses
  • military or volunteer service
  • background checks
  • security clearances
  • naturalization

It’s been estimated that half of all adult Americans appear in a bio-metric database.

Despite what is clearly a sweeping program of surveillance and a violation of numerous Amendments to the US Constitution, the FBI has resisted all inquiries made by privacy organizations and even the House Committee on Oversight and Government Reform.

Now one of the most respected privacy defenders, Electronic Privacy Information Center (EPIC), is urging Congress to do its job and fully examine the secret FBI program. EPIC summarized the scope of the program, as well as measures taken by the FBI to exempt itself from privacy protections:

EPIC has sent a statement to the House Appropriations Committee in advance of a hearing on the FBI’s budget. EPIC urged the Committee to examine the FBI’s Next Generation Identification program. EPIC explained that the program “raises far-reaching privacy issues that implicate the rights of Americans all across the country.” The FBI bio-metric database is one of the largest in the world, but the Bureau proposed to exempt the database from Privacy Act protections. EPIC and others supported strong safeguards for the program. In an early FOIA case against the FBI, EPIC obtained documents which revealed high error levels in the bio-metric database. EPIC has recently filed a FOIA lawsuit against the FBI for information about the agency’s plans to transfer bio-metric data to the Department of Defense.

Has Unique Identification Authority of India (UIDAI) done the privacy assessment of the entire Aadhaar project before awarding contracts to American firms? Have the Aadhaar activists asked the UIDAI to furnish the Privacy Impact Assessment Document if at all there is one? There is a lawsuit filed against FBI for information about the agency’s plans to transfer bio-metric data to the Department of Defense. It is now commonly known that American firms with links to CIA were given contract for Aadhaar and acknowledged by the Ministry of External Affairs itself, will Aadhaar database than be transferred to the US Department of Defense?

Have Aadhaar related news you want to publish? Contact us.

Article By The New Delhi Times

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