What We're Reading

Investors, advertisers, and business leaders around the world are still trying to understand millennials, the generational group that will shape commerce for the foreseeable future. In the past, that’s why we’ve looked at millennial investing and banking preferences, their favorite brands, and even what real estate professionals need to understand about the generation.

Today’s infographic from Adweek is of particular interest, because it focuses on a very particular subset of millennials. The data in the graphic is from a survey of nearly 500 nominees for the Forbes 30 Under 30 list. While the subject range is broad, it’s a good snapshot of how some of the brightest millennials in business think.

The global economy has regained some composure, according to asset management firm Schroders. In their view, markets have regained a risk appetite following action by central banks, the normalization of commodity prices, and a lack of materialization for tail risks such as a U.S. recession or a Chinese hard-landing:

The Bloomberg US Financial Conditions Index and the S&P 500 tend to move in pretty close unison. In March, however, they started to move apart in a manner similar to late last year, before the market took a nosedive. Once again, either financial conditions improve or the stock market corrects.

Source: Bloomberg

Shown below we see a similar wide divergence when looking at credit spreads (inverted in red) compared to the S&P 500 (in black). When financial conditions are healthy, credit spreads narrow since investors require less compensation for the risk of holding non-government securities. As financial conditions deteriorate and default risks increase, credit spreads widen. The credit markets were confirming the message of the stock market up until mid-2014 and have continued to diverge ever since. Either credit spreads narrow or the stock market adjusts.

Source: FinancialSense

Another one that says what could cause a collapse; of course they never say "when" it will happen.  Another reason to remain cautious and take winners where you can.

According to CNBC, the S&P 500 is close to its record high as earnings season heats up, but one of the major drivers of the market's advance - stock buybacks - looks to be sagging.

U.S. companies announced about $182 billion in buybacks in the first quarter, according to Birinyi Associates research, putting buybacks on pace for their weakest year since 2012. Strategists link this, in part, to falling cash flow, a trend that is expected to worsen in coming quarters.

First-quarter earnings per share are expected to fall 7.8 percent, but more importantly for the outlook for buybacks, revenues are set for a fifth consecutive quarter of decline. Thomson Reuters data forecasts a 1.1 percent revenue drop.

Cash flow is a better indicator of buybacks prospects than earnings, as per-share earnings can be managed through cost-c

Of course, no where does it say how long this can continue but it's important to be aware. No, it can't go on forever.

We are now entering earnings season once again. Pre-announcements have been the second-worst seen over the past decade.

This has analysts lowering estimates. In fact, they’ve been lowered so far quarterly earnings now look to fall all the way back to 2009 levels.

For the trailing twelve months earnings are now back to 2011 levels…

…even while stocks remain 75% above their own levels from back then. Taken together you get a price-to-earnings ratio of 24, higher than any other time over the past several years.

It should go without saying that extreme valuations and falling earnings are not a bullish recipe for stocks.

So the fundamentals are not supportive of higher prices. What then has been driving them higher in recent weeks?

And the greater fools are none other than the companies themselves…

…for now. If earnings don’t turn around soon (and corp

A friend I haven’t heard from in many years since he left the USA wrote me. He closed the letter in an unusual way, saying:

PS — USA has gone completely bonkers these days? or what the heck is going on over there? would love to pick your mind over a glass of wine. someday!

I’m not intending on writing on politics as a regular habit at Aleph Blog, and most of what I am going to say is economics-related, so please bear with me.  Hopefully this will get it out of my system.

To my friend,

There are a lot of frustrated people in the US.  Though you’ve been gone a long time, you used to know me pretty well; after all, I trained you on economic matters.

Let me give a list of reasons why I think people are frustrated, then explain how that affects their political calculations, and finally explain why they have mostly misdiagnosed the issues, and won’t get what they want regardless of who is elected.

The electorate is frustrated because:

• Living standards have declined for the lower 80% of so

When updating your home, you should always start in the kitchen.  The kitchen is arguably where most of a homeowner’s time is spent, and therefore should be able to cater to all the needs of the homeowner, while keeping up with the latest décor styles.  Perhaps the most difficult part of updating a kitchen is the cost behind most necessary kitchen upgrades.  The expense is definitely enough to cause homeowners to give up on the project, but before throwing in the towel, there are several ways you can upgrade your kitchen without the hefty cost.  All it takes is a little time and effort.  Here are a few affordable kitchen upgrades that you should consider.  

Counters and appliances

Countertops and appliances are the most expensive upgrades to make in a kitchen, but they are a worthwhile investment.  If you can afford stainless steel appliances, or granite countertops, these upgrades with substantially increase the value of your home as well as keep your kitchen feeling upgraded over time.

NYSE margin debt fell again during the month of February. After the selloff in stocks that kicked off 2016, this should come as no surprise. Investors are usually forced to reduce leveraged bets during these sorts of episodes in the stock market. In fact, this forced selling can actually exacerbate the volatility. And because margin debt is only now beginning to come down from record highs, surpassing those seen at the 2000 and 2007 peak, this should be of concern to most equity investors.

To fully appreciate this risk, I prefer to look at margin debt relative to overall economic activity. When leveraged financial speculation becomes large relative to the economy, it’s usually a sign investors have become far too greedy. As Warren Buffett would say, this is usually a good time to become more fearful, or conservative towards the stock market.

Not only did margin debt recently hit nominal record-highs, it hit new record-highs in relation to GDP, as well. In other words, over the past s

The chart above tracks the broad stock market against the spread of lowest-rated investment-grade corporate bond yields. They normally track each other very closely as they both reflect broad investor risk appetites.

When investors are hungry for risk stock prices move higher and corporate spreads get narrower. When risk aversion takes over, however, stock prices fall and spreads widen.

Another reason they closely track each other is corporations’ ability to access credit is very closely tied to the overall demand for equities. When it’s very cheap for companies to borrow, it’s very easy for them to fund stock buybacks and acquisitions of other companies.

Certainly, these two factors have been very important to the bull market of the past six years or so. Ray Dalio recently said he estimates that buybacks and M&A have roughly amounted to 70% of the total demand for equities.

As spreads widen, it becomes more expensive for companies to borrow and thus more difficult to fund stock bu

In addition to charts I uploaded (which there are many more but I'm short on time, it being a holiday) here are a few of my weekend email reads I found interesting. Enjoy - and Happy Easter.

1. Variant sees commercial and industrial lending to continue to fall.  No, not a good thing.
2. The top 20 reasons start ups fail.  Visual Capitalist
3. Think renewables will gain usage over coal and crude oil?  You may be surprised.  McKinsey
4. Domo origato mr roboto Visual Capitalist
5. Here we go again as banks ramp up and push home equity loans (because we didn't learn the last time).  WSJ
6. Brookings says technology actually has not made up more productive (say what?)
7. The richest and poorest countries in the world. Visual Capitalist

Robert Epstein, a senior research psychologist at the American Institute for Behavioral Research and Technology in California and the former editor-in-chief of Psychology Today, warns us of a insidious and pervasive new form of mind control: search results.

That’s right, search results. And not just any search results: Google search results. Since 2013 Epstein and colleagues have conducted a number of experiments in the US and India to determine whether search results can impact people’s political opinions.

Epstein points out that about 50 percent of our clicks go to the top two items on the first page of results, and more than 90 percent of our clicks go to the 10 items listed. And of course Google, which dominates the search business, decides which of the billions of web pages to include in our search results, and it decides how to rank them.

But surely, Epstein thought, a top search result would have only a small impact on a person’s political choices. Not so! To Epstein’s surpri

One item I completely agree with is the pundits and "know it alls" on entertainment news television.  They're there to entertain you; not make you rich.  I get my economic releases on them and *off* they go the rest of the day.  I trust my charts; charts don't lie.  People do.

Courtesy of Martinkronicle

This caught my eye as I tend to look at stocks when they near a significant, long-term support such as a 100 month or 200 month EMA or SMA.  Of course I'm buying with a long term perspective in this approach but it got me wondering: Is is better to hold your breath and simply buy stocks when they've sold off 20%? The downside still terrifies me but looking at historical returns is intriguing.   From Awelathofcommonsense:

Large cap U.S. equities continue to hold up well with the S&P 500 down roughly 12% from its all-time highs reached last spring. To some degree, this performance has masked the global bear market going on in the rest of the world. Take a look at this list of country ETFs from Bespoke Investment Group:

The average drop from the 52-week high on this list is just shy of 30%. Not too pretty. But beauty is in the eye of the beholder in these situations. Historically, buying global stocks after they have fallen into bear market territory has been rewarding for investors.

I

In debates about whether growth is a percentage point up or down, we too often lose sight of the absolute scale of China’s economy. No matter what rate the country grows at in 2016, its share of the global economy, and of many specific sectors, will be larger than ever. My snapshot of China in 2016? An increasingly diverse, volatile, $11 trillion economy whose performance is becoming more and more difficult to describe as one dimensional.

The reality is that China’s economy is today made up of multiple subeconomies, each more than a trillion dollars in size. Some are booming, some declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete. In 2015, selling kit to movie theaters has been great business, selling kit to steel mills less so. In your China, are you dealing with a tiger or a tortoise? Your performance in 2016 will depend on knowing the answer to this question and shapi

Byron R. Wien, Vice Chairman of Multi-Asset Investing at Blackstone, today issued his list of Ten Surprises for 2016. This is the 31st year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.

Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined Blackstone in September 2009 as a senior advisor to both the firm and its clients in analyzing economic, political, market and social trends.

Byron’s Ten Surprises for 2016 are as follows:

1. Riding on the coattails of Hillary Clinton, the winner of the presidential race against Ted Cruz, the Democrats gain control of the Senate in November.  The extreme positions of the Republican presidential candidate on k

As Bloomberg warned in early December as BlueCrest Capital Management stated it would no longer oversee money for outsiders, one thing founder Michael Platt didn’t mention was that clients had already pulled billions of dollars this year............and now Jim Cramer has joined the club.  It's been a rough environment for hedge funds and end of year is do or die.  Winners few and far between it seems and they want their money now.

I'm not saying that we're there. I wouldn't be surprised to see a wage five higher into 2016 before a bear market steps in but "signs" such as shown here are good to learn (and prepare).

From an old 2014 newsletter from Variant Pereceptions

There once was a series of interviews with Jim Cramer, as you'll see here where he talks about his days as a Hedge Fund Manager, and they were a wonder to behold.  It seems many have been 'scrubbed' from the web (nice job Jim) but I came across this one and it'll give you a glimpse into the games that are played behind the scenes.  CNBC and its cohorts are entertainment and easily swayed.  Get your economic data and hit the 'mute' button.  Opinions are swayed by the opinions’ of others but it doesn't make them fact.  Learn this early.

Investors may wade into unknown territory next month as the Federal Reserve readies the first rate hike in nearly a decade amid a corporate earnings recession.

S&P 500 earnings are on track to close their first reporting season of negative growth since the Great Recession and estimates call for sub-zero growth in the current quarter as well.

Even if the trend reverses next year, as expected, a Fed rate hike in December could mark an unprecedented conflict between a tightening cycle starting at the same time as earnings fall into recession.

"We can't think of any instances when the Fed was hiking during an (earnings) recession," said Joseph Zidle, portfolio strategist at Richard Bernstein Advisors in New York.

"In the last six months one can point at a lot of different things. But if you think about fundamentals, falling corporate profits and the threat of rising rates" are behind the market stalling, Zidle said.

With more than 90 percent of S&P 500 components having reported, S&P 500 e

One Thursday morning in early June, the ballroom of the Rosewood Sand Hill hotel, in Menlo Park, was closed for a private presentation. The grand banquet hall appeared worthy of the sprawling resort’s five-star designation: ornate chandeliers hung from the ceiling; silk panels with a silver stenciled design covered the walls. Behind a stage in the 2,800-square-foot room, a large sign bore the name of Andreessen Horowitz, one of Silicon Valley’s most revered venture-capital firms.

As breakfast and coffee were offered, the company’s partners mingled with the men and women who endow their $1.5 billion fund. The investors were dressed invariably in business casual, with the top button of their dress shirts noticeably undone. (A mere handful of men stood out in a suit and tie.) Off in the distance, you could make out the faint purr of Bentleys and Teslas ferrying along Sand Hill Road, depositing the Valley’s other top V.C.’s at their respective offices—Greylock Partners, Draper Fisher Jurv