Friday, April 28, 2017

This Week's Message: To be successful at investing, imitate The Great One. And I don't mean Warren Buffett

Yesterday evening I found myself in deep discussion with a gentlemen who, among other things, builds basketball courts. Other than his stated belief that his company is "the Rolls Royce" -- as opposed to "the Volkswagen" -- of court construction, I found him to be generally humble. He told me about a man he once worked for, when he was learning the demolition business (he later founded his own such business), who acted as if he was the inventor of everything having to do with structure destruction. While sharing his story, he chuckled, and said "I wonder how people knocked stuff down a hundred years ago without this genius telling them how to do it". His boss's bravado aside, he admitted that he indeed learned a great deal by watching the man work.

Thursday, April 27, 2017

Bonus Quote of the Day: Yes -- for now -- The Euro Zone is Looking Up!

Despite the Euro Zone's usual geopolitical risk (I say "usual" because the place has been a hotbed of political risk for the past several years), I've been talking up its prospects -- both in terms of its economy and its equity markets -- to clients for months.

Here's Bespoke Investment Group on the EZ's most recent economic data:
Economic data today in Europe has been broadly good as prelim April Spanish CPI beat estimates, Germany consumer confidence beat, CBI reported retail volumes surged (though the more predictive 3m average remains subdued, chart), and Eurozone survey data surged. Consumer confidence matched the cycle high of -3.6, industrial confidence made a new local high and signals industrial production growth of over 6% YoY, and economic confidence suggests GDP growth of 2.5% YoY which would be near 2011 highs. The big disappointment was Spanish unemployment, where the rate missed estimates.
And here's a look at how well Euro Zone equities (using our preferred Euro Zone ETF) have performed relative to the U.S. so far this year:     click to enlarge...

Wednesday, April 26, 2017

This Week's Video: The Not-So-Great Bond/Stock Debate

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Tuesday, April 25, 2017

Quote of the Day: Worthless White Noise

I swear, not a day goes by where I don't catch a headline, or a passing comment from someone who truly ought to know better, that has me thinking precisely what Michael Covel points out in today's quote.

Yesterday, for example, I walked into my office to find my television on. I was surprised, for two reasons: 1. I didn't know it still works (that's how long it's been since I've had it on). And 2. It was turned on.

At the time, Nick was setting up my computer (we're remodeling and last weekend the new carpet happened), he swore it wasn't him. My best guess is that the folks who reassembled the hutch upon which the TV sits tested to make sure they plugged it back in properly and forgot to turn it off. What made it particularly annoying was the sight and sound of CNBC's Rick Santelli (I recall him from years past while I was learning that there was absolutely nothing to learn by watching financial television) working a dry erase board and describing some dynamic about the dollar that deserved hollering at the camera in the most condescending fashion. The problem I have (my palpable annoyance, that is) is my recollection of past rant-filled predictions -- the majority of which of course turned out to be utter intellectualized rubbish.

Not to single out Mr. Santelli (he just happened to be the one on the tube when I walked in), for he's just one of the many whom the media trots out who apparently can't (we know this, trust me, otherwise they'd be trading, never talking at cameras, during the trading session), therefore they teach, or, as the case may be, they preach.

From Covel's The Little Book of Trading (an insightful read, by the way):
White Noise
Watching the news, reading the financial news and listening to the President is not how you make money in the markets. You don't make money by explaining what just happened or by guessing what's going to happen in the future. You don't know what's going to happen in the future, the things that occur in the future that make you money are all things you couldn't figure out were going to happen.
It always makes for an interesting story to say "well this is going to happen because this or that'; that is information everybody already knows, it's already baked into the market price. 

Sunday, April 23, 2017

Quotes of the Day: The predicament of investing...

Early in my career I was fed large helpings of "Modern Portfolio Theory (MPT)". We had this wonderful optimizing software that would place a portfolio on the "Efficient Frontier" and score it based on a variety of risk and return measures. The "Efficient Market Hypothesis (EPH)" is the cornerstone of MPT. It goes like this:
The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Friday, April 21, 2017

Don't (at this point) Fear Frexit...

I want to get out in front of the French election for you, just in case. Why? Because probabilities suggest that should Marine Le Pen and Jean-Luc Melenchon (the nutcase I referred to in this week's message) emerge the victors in Sunday's first-round voting, global markets will take notice -- in un-pretty fashion.

This Week's Message: All You Need To (or Can) Know...

France's first round of voting -- Sunday -- appears to loom over the market this morning. In a nutshell, the legit contenders consist of one candidate who is, frankly, nuts, another who appears to be a Kremlin crony (leave the Euro, anti-NATO, pro-Moscow, campaign funded by loan from Russian bank, and -- unlike her competition -- has been left alone by alleged Russian hacking attempts and "fake news" stories galore) and two relative mainstreamers. Either of the former two taking the first round would likely have European and U.S. markets flashing red at the open come Monday morning. Either of the latter two could have markets in rally mode. Odds makers see Macron (a mainstreamer) the ultimate (involves two rounds) winner, but recent history, to put it mildly, has not been kind to the odds makers.

That's all I have to offer on France for now. Possibly more next week depending on Sunday's outcome.

A personal story:

Growing up, duck hunting and trout fishing were my things -- the latter still is. As it happens, football season and duck season coincide each year. So, back in the mid-70s, every Friday night after playing for the legendary Kerman High Lions -- rather than doing whatever high school football players did on Friday nights -- I'd hop into my oldest brother's heavily-speakered VW Beatle (Dad called it a stereo on wheels) and we'd head out to the Mendota Wildlife Preserve (rockin the whole way to Aerosmith, Neil Young and Ronny Montrose on the 8-track) to get in line with all the other crazies. We'd sleep in the car till 4 a.m. then, after flashing our hunting licenses and paying our ten bucks each at the booth, we'd race to whatever flooded field had been working for us the prior weeks, or to one we had noticed the week before was attracting more birds.