How Memphis Firm Decoded Bond Secrets Mystifying Wall Street – Bloomberg 06-30-14

Salient to Investors:

Jim Vogel and Chris Low at  FTN Financial said:

  • Treasuries are years away from reverting to pre-financial crisis levels as growth remains weak and several hundred thousand people fall out of the labor force.
  • Yields will end 2014 at 2.55 percent versus the median estimate of 3.07 percent. Bloomberg show the consensus quarterly forecasts for 10-year yields made 12 months forward have overestimated yields by an average of 0.68 percent since January 2009.
  • Some of the growth we wish we could go back to was far more frail than most people realize.

Priscilla Hancock at JP Morgan Asset Mgmt expects the 10-year yield to end 2014 at 3 percent.

Jeffrey Gundlach at Doubleline Capital said the aging population, less spending, slower inflation and greater demand for low-risk, income-producing investments will keep yields low for years.

Jim Bianco at Bianco Research said traders are finding it too expensive to keep shorting bonds so are being forced to cover: he said growth is absent, and expects 10-year yields will fall to 2.25 percent in 2014. Bianco said the relationship between nominal growth and interest rates is not as strong as traders think it is.

Read the full article at http://www.bloomberg.com/news/2014-06-29/how-a-memphis-firm-decoded-bond-secrets-mystifying-wall-street.html

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Fear Thaws Out for Investors as Online Brokers Defy Funk – Bloomberg 06-30-14

Salient to Investors:

Analysts expect earnings to fall this year at Goldman Sachs, JPMorgan Chase et al, but rise  20 percent or more at discount brokers.

Chad Morganlander at Stifel, Nicolaus said household investors are getting more confident as their fear thaws out – volatility terrifies retail investors.

James Gaul at Boston Advisors said retail confidence tends to come later in an economic cycle than institutional confidence – optimism is very high now.

Client trades at E*Trade, Schwab and Ameritrade have averaged 390,838 a day in 2014 versus 108,835 at the peak of the dot-com bubble in 1999.

When the VIX hovered above 13 from 2004 to 2006, Schwab’s earnings increased at an annual average of 31 percent and E*Trade’s at 41 percent. The measure, known as the VIX, is below 12, compared with its two-decade average of about 20.

Charles Peabody at Portales Partners said smaller firms are not as driven by turnover as they are by asset level values, whereas the big firms need turnover of volume.

This rally is over 5 years old versus the average 4.1 years for bull markets since WWII.

The S&P 500 is at 17.9 times earnings.

Matt McCormick at Bahl & Gaynor said the firm has no plans to own any large money-center banks.

Dan Veru at Palisade Capital Mgmt said despite the risk of a correction and expected decline in profits at bigger financial firms, bank stocks will be a go-to group for investment once the Fed raises interest rates.

James Bullard at FRB St Louis said the Fed will raise interest rates in Q1 2015.

John Carey at Pioneer Investment Mgmt said the benefit to big banks from higher rates will be more muted than for the brokers, where there is a clear relationship between higher rates and better earnings.

Read the full article at http://www.bloomberg.com/news/2014-06-29/fear-thaws-out-for-investors-as-online-brokers-defy-funk.html

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Dark Pools Here to Stay, Says Broker Conflict Researcher – Bloomberg 06-29-14

Salient to Investors:

Robert Battalio at Notre Dame said:

  • Dark pools have existed forever: shut them down and new forms will arise elsewhere because money managers are too fond of them.
  • Order flow will always have multiple venues to execute on because one size does not fit all.
  • Brokers favor their own needs over customers’, often sending stock orders to exchanges that pay the most.

Dark pools et al account for almost 40 percent of US equity volume.

BlackRock said dark pools are an invaluable execution tool for large orders and stocks that may be more difficult to trade because of wide spreads or low liquidity.

Niamh Alexander at Keefe, Bruyette & Woods said clients have become much more cautious and careful about where their order flow is going.

Read the full article at http://www.bloomberg.com/news/2014-06-30/dark-pools-here-to-stay-says-broker-conflict-researcher.html

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By the Time You Know Stocks Are in Correction It’ll Almost Be Over – Bloomberg 06-27-14

Salient to Investors:

Laszlo Birinyi at Birinyi Associates said:

  • Investors and analysts are obsessed with the idea of a correction despite their vain efforts to foretell one.
  • Corrections are event-driven and not organic.
  • Of the 6 bull markets since 1982 – with 14 bull-market corrections – this one has had the most at 4.
  • One exceptionally bad day usually accounts for about 25% of the entire correction, and is more likely to occur toward the end of the correction – in the final month in 7 correction.
  • Only 6 catalysts triggered corrections, but none from traditional technical analysis. The US economy was at least partially blamed for 8 of the 14 corrections, followed by foreign economies for  7, the Fed and interest rates for 5, US politics for 4, fundamentals for 3, and geopolitics for 2.

The US market has risen for more than two years without a 10 percent correction.

Read the full article at http://www.bloomberg.com/news/2014-06-27/by-time-stocks-are-in-correction-it-ll-almost-be-over.html

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Gold’s Flow East Seen for 20 Years as Incomes Increase Demand – Bloomberg 06-26-14

Salient to Investors:

The China Gold Association said the global flow of gold from west to east that helped to make China the world’s largest user at 28 percent of global usage in 2013 will last for up to two decades as rising incomes spur demand. Asia accounted for 63 percent of total consumption of gold jewelry, bars and coins in 2013 versus 57 percent in 2010. Zhang Bingnan at CGA said there are less investment options in the east compared with the west, and the notion of gold as an insurance is inherent in eastern society.

Gold is up 8.9 percent in 2014 and headed for the first back-to-back quarterly increase since 2011.

Credit Suisse and Goldman Sachs expect prices to fall for a second year as holdings in gold ETFs drop to the least since 2009 and the Fed cuts stimulus.

Tom Kendall at Credit Suisse said physical demand from China or India won’t be sufficient to offset further sales by bullion investors once the Fed’s path from tapering to tightening becomes clearer – the direction of US monetary policy and real interest rates remains paramount in setting the gold price for the time being.

Goldman Sachs said gold faces significant downside on the back of higher real interest rates and forecast a drop to $1,050 in 12 months.

Victor Thianpiriya at Australia & NZ Banking said physical gold demand remains unsupportive as Chinese buyers remain on the sidelines and expects gold to decline to $1,180 an ounce at the end of 2014.

Read the full article at http://www.bloomberg.com/news/2014-06-26/gold-s-flow-east-seen-for-20-years-as-asian-wealth-spurs-demand.html

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The Riskiest Housing Markets in the U.S. – Bloomberg 06-25-14

Salient to Investors:

A Zillow.com study of average home prices in the 50 largest housing markets over 117 rolling 5-yr periods since 1979 found:

  • Real estate prices regularly rollercoast.
  • The biggest risk of loss, 36.8% of the period, occurred in Hartford, Connecticut
  • The least risk of loss – the most stable real estate market – 0% of the period, occurred in Pittsburgh, PA and Buffalo, New York.
  • Las Vegas had the worst annual loss, -30.1% from October 2008 to September 2009, and the biggest annual gain, +51% from October 2003 to September 2004.
  • The best average annual gain of 6.6% over the past 25 years occurred in San Jose, California.
  • The rust-belt’s Detroit average annual gain of 2.3% beat the sun-belt’s Dallas-Fort Worth average annual gain of 2.1%.
  • Of the 20 riskiest markets, San Francisco is predicted to gain the most over the next 12 months, +12.6%, and 

Minneapolis-St. Paul the least, -1.5%.

For the full results, read the article at http://www.bloomberg.com/news/2014-06-25/the-riskiest-housing-markets-in-the-u-s-.html

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Crude Oil and Natural Gas: Not Selling – Jim Rogers On The Markets 06-23-14

Salient to Investors:

Jim Rogers writes:

Do not sell any kind of energy, especially oil and gas, because of the many geopolitical risks ahead, and because the supply/demand situation means we will need more energy over the next decade or two.

Read the full article at http://jimrogersonthemarkets.blogspot.com/

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Energy Outlook: Crude Oil and Natural Gas – Jim Rogers On The Markets 06-22-14

Salient to Investors:

Jim Rogers writes:

The price of oil and natural gas and energy will surprise on the upside and for longer than expected because known reserves of oil are declining worldwide and no new elephant oil fields have been discovered in decades.

Read the full article at http://jimrogersonthemarkets.blogspot.com/

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3 reasons the Dow doesn’t deserve to be at 17,000 Opinion: The bull market in stocks is running for all the wrong reasons – MarketWatch 06-10-14

Salient to Investors:

David Weidner writes:

Five years into a slow paced economic recovery is good reason to be buying stocks, because rapidly growing economies usually goes belly up as quickly as they rise.

The stock market always leads the economy but a 155% rise in the Dow since 2009 and 31% rise in the past 18 months is worrying because markets cannot sustain such overvaluation without a significant change in the economy, which doesn’t support the buying.

No one is really buying – retail investors withdrew $921 million from US stock mutual funds last week and $451 million the week before. Gallup said overall stock holdings by households peaked at 67% in 2002, but fell to 54% by 2011. Pew Research Center says stock ownership is just 45%.

There are not enough ETFs to really move the needle – it is the wealthiest Americans –  5% of Americans own 82% of directly owned, publicly traded stocks – and the pro traders.

BEA report that corporate profits declined 9.8% in Q1, the largest drop since Q4 2008, and 3% during the past four quarters.

Doug Short says the market is overvalued by 51% to 85% on PE ratios and the Q ratio.  Goldman Sachs said that profit margins dropped from 10% to 8.7% of GNP in just one quarter.

There are no alternative to stocks as the the real consequence of QE seems to be inflation in the stock market. Dealogic said junk bond issuance last year hit a record $366 billion, more than twice the level reached in the years before the 2008 financial crisis. Housing continues to be a game open to cash-rich buyers (31% of sales were all-cash in Q1; gold is off 30% from its 3-year high; and oil has added 20% in the past year.

Read the full article at http://www.marketwatch.com/story/3-reasons-why-the-dow-doesnt-deserve-to-be-at-17000-2014-06-10?link=MW_story_popular

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