Tranquility that has enveloped global markets for more than two months was upended as central banks start to question the benefits of further monetary easing, sending government debt, stocks and emerging-market assets to the biggest declines since June. The dollar jumped.

The S&P 500 Index, global equities and emerging-market assets tumbled at least 2 percent in the biggest rout since Britain voted to secede from the European Union. The yield on the 10-year Treasury note jumped to the highest since June and the greenback almost erased a weekly slide as a Federal Reserve official warned waiting too long to raise rates threatened to overheat the economy. German 10-year yields rose above zero for the first time since July after the European Central Bank downplayed the need for more stimulus.

Fed Bank of Boston President Eric Rosengren’s comments moved him firmly into the hawkish camp, sending the odds for a rate hike this year above 60 percent. He spoke a day after ECB President Mario Draghi played down the prospect of an increase in asset purchases, while DoubleLine Capital Chief Investment Officer Jeffrey Gundlach said it’s time to prepare for higher rates.

“Dovish Fed members getting called up to bat for a hike is putting people on edge,” Yousef Abbasi, a global market strategist at JonesTrading Institutional Services LLC, said by phone. “The more hawkish-leaning investors are grabbing onto that and it’s certainly one of those days where people are positioning for that September hike being back on the table.”

Calm had dominated financial markets in late summer with equity volatility and bond yields near historic lows and measures of cross-asset correlation at the highest levels since at least the financial crisis. The rise in the influence of different markets on each other has been attributed to the growing impact of central bank policy on prices, and rising concern that the era of easing may be nearing an end roiled assets from bonds to currencies and stocks on Friday.

Concerted declines of this size in stocks and bonds are rare though not unheard of, and are usually associated with central bank hawkishness. Adding up the percentage losses in the SPDR S&P 500 ETF and the iShares 20+ Year Treasury Bond ETF, the last time the moved in a similar manner was Dec. 3, 2015, when Fed Chair Janet Yellen indicated the conditions for higher rates in the U.S. had been met.

The last time the two ETFs each posted declines comparable in size to today’s was June 20, 2013, the start of the so-called taper tantrum, when then-Chair Ben S. Bernanke said the Fed may start reducing bond purchases that had fueled gains in markets globally.

Stocks

The S&P 500 dropped 2.5 percent to 2,127.91 at 4 p.m. in New York, the lowest level in two months. The rout halted a period of calm that saw the index no more than 1 percent in either direction for 43 days. It also sent the gauge below its average price during the past 50 days for the first time since July 6. The Dow Jones Industrial Average lost 394.40 points, or 2.1 percent, to 18,085.51.

Shares of defensive stocks led declines on U.S. exchanges as trades that investors piled into in search of dividend yields reversed amid the spike in Treasury rates. Utilities and phone stocks plunged more than 3.4 percent, while real-estate investment trusts tumbled 3.9 percent. Financials, which benefit from rising interest rates, were the best performers in the S&P 500 with a drop of 1.9 percent.

The MSCI AC World Index fell 2.1 percent, the most since June 27. The Stoxx Europe 600 Index slid 1.1 percent, taking its weekly drop to 1.4 percent. A Bank of America Corp. report showed fund managers withdrew money from Europe’s equity funds for a 31st straight week.

The MSCI Emerging Markets Index fell for the first time in six days, losing 2.2 percent, as stock indexes from Brazil to Poland tumbled at least 2.2 percent and benchmark gauges in Taiwan, Indonesia, the Philippines and Poland lost more than 1 percent. The Kospi index slid 1.3 percent in Seoul after North Korea conducted its fifth nuclear arms test.

Bonds

The yield on German 30-year bonds climbed 10 basis points to 0.60 percent, adding to a nine-basis-point jump the previous day. The rate on similar-maturity U.S. securities rose seven basis points to 2.38 percent.

Chances of the Fed raising rates at the September meeting climbed to 38 percent, up 16 percentage points from Wednesday, according to fed funds futures.

The U.K. and Japan, two markets which have help drive the global bond rally this year, also saw losses. The yield on 10-year gilts rose to a one-month high of 0.84 percent and the Japanese 10-year yield, which has been below zero since March, climbed to minus 0.02 percent.

Currencies

The dollar climbed for a third day while emerging market currencies from South Africa to Brazil to Mexico plunged as traders boosted bets on an interest-rate increase. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.5 percent. The U.S. currency gained 0.3 percent to $1.1229 per euro and was up 0.2 percent to 102.68 yen.

The Canadian dollar fell as an above-forecast gain in August jobs wasn’t seen as strong enough to reverse Bank of Canada policy makers’ concern that risks to economic growth have increased.

Commodities

Oil fell the most in five weeks after the biggest U.S. stockpile slump in 17 years was seen as a one-off caused by a tropical storm that disrupted imports and offshore production. West Texas Intermediate dropped $1.74 to settle at $45.88 a barrel, paring the weekly increase to 3.2 percent.

Gold futures fell for a third day, dropping 0.5 percent to settle at $1,334.50 an ounce in New York. It was the longest slide since July 12. Higher rates make bullion less competitive against interest-bearing assets.

See video at Bloomberg

I don't actually embrace this headline.  In my experience, yes, emotions exist while paper trading.  It's merely that you can sleep at night knowing your bank account didn't go up in flames but that's just me.  It's also essential in my book that you determine what "type" of trader you want to be.  It's one thing to say you want to invest like Warren Buffett but just what does that entail?  Do you rally know?  It's also super easy to be sucked in by get-rich-quick ads and bloggers who entice you to sign up for their premium edition (none of which I recommend).  Don't underestimate the market.  It's NOT easy, even if you believe you've got a plan and everyone loses.  Everyone.  The trick is not to be fooled.  Ignore the headline newsfeed hype and learn to invest without emotion.  You'll be going up against high-frequency programs and number crunchers with degrees.  Are you truly ready to put up your hard earned cash against them?   Remember, if it were simple, everyone would be doing it.   From AbnormalReturns::

We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation

We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy.  That happens during wars, and so inflation and wars always go together, going back to the French and Indian War, the Revolutionary War, the War of 1812, the Mexican War of 1846, the Civil War, the Spanish American War of 1898, World Wars I and II and the Korean War.  In the late 1960s and 1970s, huge government spending, and the associated double-digit inflation (Chart 1), resulted from the Vietnam War on top's LBJ’s War on Poverty.

By the late 1970s, however, the frustrations over military stalemate and loss of American lives in Vietnam as well as the failures of the War on Poverty and Great Society programs to propel lower-income folks led to a rejection of voters’ belief that government could aid Americans and solve major problems.  The first clear manifestation of this switch in conviction was Proposition 13 in California, which limited residential real estate taxes.  That was followed by the 1980 election of Ronald Reagan, who declared that government was the basic problem, not the solution to the nation’s woes.

This belief convinced us that Washington’s involvement in the economy would atrophy and so would inflation.  Given the close correlation between inflation and Treasury bond yields (Chart 1), we then forecast the unwinding of inflation—disinflation—and a related breathtaking decline in Treasury bond yields to 3%, as noted earlier.  At that time, virtually no one believed our forecast since most thought that double-digit inflation would last indefinitely. 

Lock Up For Infinity?

Despite the high initial yields on “the long bond,” as the most-recently issued 30-year Treasury is called, our focus has always been on price appreciation as yields drop, not on yields, per se.  A vivid example of this strategy occurred in March 2006—before the 2007–2009 Great Recession promoted the nosedive in stocks and leap in Treasury bond prices. I was invited by Professor Jeremy Siegel of Wharton for a public debate on stocks versus bonds. He, of course, favored stocks and I advocated Treasury bonds.

At one point, he addressed the audience of about 500 and said, “I don’t know why anyone in their right mind would tie up their money for 30 years for a 4.75% yield [the then-yield on the 30-year Treasury].” When it came my turn to reply, I asked the audience, “What’s the maturity on stocks?” I got no answer, but pointed out that unless a company merges or goes bankrupt, the maturity on its stock is infinity—it has no maturity. My follow-up question was, “What is the yield on stocks?” to which someone correctly replied, “It’s 2% on the S&P 500 Index.” 

So I continued, “I don’t know why anyone would tie up money for infinity for a 2% yield.” I was putting the query, apples to apples, in the same framework as Professor Siegel’s rhetorical question. “I've never, never, never bought Treasury bonds for yield, but for appreciation, the same reason that most people buy stocks.  I couldn't care less what the yield is, as long as it's going down since, then, Treasury prices are rising.”

Of course, Siegel isn’t the only one who hates bonds in general and Treasuries in particular. And because of that, Treasurys, unlike stocks, are seldom the subject of irrational exuberance. Their leap in price in the dark days in late 2008 (Chart 2) is a rare exception to a market that seldom gets giddy, despite the declining trend in yields and related decline in prices for almost three decades.

Treasury Haters

Stockholders inherently hate Treasurys. They say they don’t understand them. But their quality is unquestioned, and Treasurys and the forces that move yields are well-defined—Fed policy and inflation or deflation (Chart 1) are among the few important factors. Stock prices, by contrast, depend on the business cycle, conditions in that particular industry, Congressional legislation, the quality of company management, merger and acquisition possibilities, corporate accounting, company pricing power, new and old product potentials, and myriad other variables.

Also, many others may see bonds—except for junk, which really are equities in disguise—as uniform and gray.  It's a lot more interesting at a cocktail party to talk about the unlimited potential of a new online retailer that sells dog food to Alaskan dogsledders than to discuss the different trading characteristics of a Treasury of 20- compared to 30-year maturity.  In addition, many brokers have traditionally refrained from recommending or even discussing bonds with clients.  Commissions are much lower and turnover tends to be much slower than with stocks. 

Stockholders also understand that Treasurys normally rally in weak economic conditions, which are negative for stock prices, so declining Treasury yields are a bad omen. It was only individual investors’ extreme distaste for stocks in 2009 after their bloodbath collapse that precipitated the rush into bond mutual funds that year. They plowed $69 billion into long-term municipal bond funds alone in 2009, up from only $8 billion in 2008 and $11 billion in 2007.

Another reason is that most of those promoting stocks prefer them to bonds is because they compare equities with short duration fixed-income securities that did not have long enough maturities to appreciate much as interest rates declined since the early 1980s.

Investment strategists cite numbers like a 6.7% annual return for Treasury bond mutual funds for the decade of the 1990s while the S&P 500 total annual return, including dividends, was 18.1%. But those government bond funds have average maturities and durations far shorter than on 30-year coupon and zero-coupon Treasurys that we favor and which have way, way outperformed equities since the early 1980s.

Media Bias

The media also hates Treasury bonds, as their extremely biased statements reveal.  The June 10 edition of The Wall Street Journal stated: “The frenzy of buying has sparked warnings about the potential of large losses if interest rates rise. The longer the maturity, the more sharply a bond’s price falls in response to a rise in rates. And with yields so low, buyers aren’t getting much income to compensate for that risk.”  Since then, the 30-year Treasury yield has dropped from 2.48% to 2.21% as the price has risen by 8.3%.

Then, the July 1 Journal wrote: “Analysts have warned that piling into government debt, especially long-term securities at these slim yields, leaves bondholders vulnerable to the potential of large capital losses if yields march higher.”  Since then, the price of the 30-year Treasury has climbed 1.7%. 

While soft-pedaling the tremendous appreciation in long-term sovereigns this year, Wall Street Journal columnist James MacKintosh worries about the reverse.  On July 28, he wrote, “Investors are taking a very big risk with these long-dated assets....Japan's 40-year bond would fall 15% in price if the yield rose by just half a percentage point, taking it back to where it stood in March.  If yields merely rise back to where they started the year, it would be catastrophic for those who have chased longer duration.  The 30-year Treasury would lose 14% of its value, while Japan's 40-year would lose a quarter of its value.” 

The July 11 edition of the Journal said, “Changes in monetary policy could also trigger potential losses across the sovereign bond world.  Even a small increase in interest rates could inflict hefty losses on investors.” 

But in response to Brexit, the Bank of England has already eased, not tightened, credit, with more likely to follow.  The European Central Bank is also likely to pump out more money as is the Bank of Japan as part of a new $268 billion stimulus package.  Meanwhile, even though Fed Chairwoman Yellen has talked about raising interest rates later this year, we continue to believe that the next Fed move will be to reduce them.

Major central banks have already driven their reference rates to essentially zero and now negative in Japan and Europe (Chart 3) while quantitative easing exploded their assets (Chart 4).  The Bank of England immediately after Brexit moved to increase the funds available for lending by U.K. banks by $200 billion.  Earlier, on June 30, BOE chief Mark Carney said that the central bank would need to cut rates “over the summer” and hinted at a revival of QE that the BOE ended in July 2012.

Lonely Bulls

We’ve been pretty lonely as Treasury bond bulls for 35 years, but we’re comfortable being in the minority and tend to make more money in that position than by running with the herd. Incidentally, we continue to favor the 30-year bond over the 10-year note, which became the benchmark after the Treasury in 2001 stopped issuing the “long bond.”  At that time, the Treasury was retiring debt because of the short-lived federal government surpluses caused by the post–Cold War decline in defense spending and big capital gains and other tax collections associated with the Internet stock bubble.

But after the federal budget returned to deficits as usual, the Treasury resumed long bond issues in 2006. In addition, after stock losses in the 2000–2002 bear market, many pension funds wanted longer-maturity Treasurys to match against the pension benefit liability that stretched further into the future as people live longer, and they still do.

Maturity Matters

We also prefer the long bond because maturity matters to appreciation when rates decline. Because of compound interest, a 30-year bond increases in value much more for each percentage point decline in interest rates than does a shorter maturity bond (Chart 5).

Note (Chart 6) that at recent interest rates, a one percentage point fall in rates increases the price of a 5-year Treasury note by about 4.8%, a 10-year note by around 9.5%, but a 30-year bond by around 24.2%. Unfortunately, this works both ways, so if interest rates go up, you’ll lose much more on the bond than the notes if rates rise the same for both.

If you really believe, as we have for 35 years, that interest rates are going down, you want to own the longest-maturity bond possible. This is true even if short-term rates were to fall twice as much as 30-year bond yields. Many investors don’t understand this and want only to buy a longer-maturity bond if its yield is higher.

Others only buy fixed-income securities that mature when they need the money back. Or they'll buy a ladder of bonds that mature in a series of future dates. This strikes us as odd, especially for Treasurys that trade hundreds of billions of dollars’ worth each day and can be easily bought and sold without disturbing the market price. Of course, when you need the cash, interest rates may have risen and you’ll sell at a loss, whereas if you hold a bond until it matures, you’ll get the full par value unless it defaults in the meanwhile. But what about stocks? They have no maturity so you’re never sure you’ll get back what you pay for them.

Three Sterling Qualities

We’ve also always liked Treasury coupon and zero-coupon bonds because of their three sterling qualities. First, they have gigantic liquidity with hundreds of billions of dollars’ worth trading each day, as noted earlier. So all but the few largest investors can buy or sell without disturbing the market.

Second, in most cases, they can’t be called before maturity.  This is an annoying feature of corporate and municipal bonds. When interest rates are declining and you’d like longer maturities to get more appreciation per given fall in yields, issuers can call the bonds at fixed prices, limiting your appreciation. Even if they aren’t called, callable bonds don’t often rise over the call price because of that threat. But when rates rise and you prefer shorter maturities, you’re stuck with the bonds until maturity because issuers have no interest in calling them. It’s a game of heads the issuer wins, tails the investor loses.

Third, Treasurys are generally considered the best-quality issues in the world. This was clear in 2008 when 30-year Treasurys returned 42%, but global corporate bonds fell 8%, emerging market bonds lost 10%, junk bonds dropped 27%, and even investment-grade municipal bonds fell 4% in price.

Slowing global economic growth and the growing prospects of deflation are favorable for lower Treasury yields.  So is the likelihood of further ease by central banks, including even a rate cut by the Fed, as noted earlier. 

Along with the dollar (Chart 7), Treasurys are at the top of the list of investment safe havens as domestic and foreign investors, who own about half of outstanding Treasurys, clamor for them.

Sovereign Shortages

Furthermore, the recent drop in the federal deficit has reduced government funding needs so the Treasury has reduced the issuance of bonds in recent years.  In addition, tighter regulators force U.S. financial institutions to hold more Treasurys. 

Also, central bank QE has vacuumed up highly-rated sovereigns, creating shortages among private institutional and individual buyers.  The Fed stopped buying securities in late 2014, but the European Central Bank and the Bank of Japan, which already owns 34% of outstanding Japanese government securities, are plunging ahead.  The resulting shortages of sovereigns abroad and the declining interest rates drive foreign investors to U.S. Treasurys.

Also, as we’ve pointed out repeatedly over the past two years, low as Treasury yields are, they’re higher than almost all other developed country sovereigns, some of which are negative (Chart 8).  So an overseas investor can get a better return in Treasurys than his own sovereigns.  And if the dollar continues to rise against his home country currency, he gets a currency translation gain to boot.

"The Bond Rally of a Lifetime"

We believe, then, that what we dubbed “the bond rally of a lifetime” 35 years ago in 1981 when 30-year Treasurys yielded 15.2% is still intact.  This rally has been tremendous, as shown in Chart 9, and we happily participated in it as forecasters, money managers and personal investors.

Chart 9 uses 25-year zero-coupon bonds because of data availability but the returns on 30-year zeros were even greater.  Even still, $100 invested in that 25-year zero-coupon Treasury in October 1981 at the height in yield and low in price and rolled over each year maintains its maturity or duration to avoid the declining interest rate sensitivity of a bond as its maturity shortens with the passing years.  It was worth $31,688 in June of this year, for an 18.1% annual gain.  In contrast, $100 invested in the S&P 500 index at its low in July 1982 is now worth $4,620 with reinvested dividends.  So the Treasurys have outperformed stocks by 7.0 times since the early 1980s.

So far this year, 30-year zero-coupon Treasurys have returned 26% compared to 3.8% for the S&P 500.  And we believe there’s more to go.  Over a year ago, we forecast a 2.0% yield for the 30-year bond and 1.0% for the 10-year note.  If yields fall to those levels by the end of the year from the current 2.21% and 1.5%, respectively, the total return on the 30-year coupon bond will be 5.7% and 5.6% on the 10-year note.  The returns on zero-coupon Treasurys with the same rate declines will be 6.4% and 5.1% (Chart 10).

Besides Treasurys, sovereign bonds of other major countries have been rallying this year as yields fell (Chart 11) and investors have stampeded into safe corrals after Brexit.

Finally Facing Reality

Interestingly, some in the media are finally facing the reality of this superior performance of Treasury bonds and backpedaling on their 35-year assertions that it can’t last.  The July 12 Wall Street Journal stated: “Bonds are churning out returns many equity investors would envy. Remarkably, more than 80% of returns on U.S., German, Japanese and U.K. bonds are attributable to gains in price, Barclays index data show. Bondholders are no longer patient coupon-clippers accruing steady income.”

The July 14 Journal said, “Ultra low interest rates are here to stay,” and credited not only central bank buying of sovereigns but also slow global growth.  Another Journal article from that same day noted that central banks can make interest rates even more negative and, if so, “even bonds bought at today’s low rates could go up in price.”  And in the July 16 Journal, columnist Jason Zweig wrote, “The generation-long bull market in bonds is probably drawing to a close.  But high quality bonds are still the safest way to counteract the risk of holding stocks, as this year’s returns for both assets has shown.  Even at today’s emaciated yields, bonds still are worth owning.”  What a diametric change from earlier pessimism on bonds!

The July 11 Journal said, “Recently, the extra yield investors demand to hold the 10-year relative to the two-year Treasury note hit its lowest level since November 2007 (Chart 12). In the past, investors have taken this narrowing spread as a warning sign that growth momentum may soon slow because the Fed is about to raise interest rates—a move that would cause shorter-dated bond yields to rise faster than longer-dated ones.  Now, like much else, it is largely being blamed on investors’ quest for yield.”  Note (Chart 12) that when the spread went negative, with 2-year yields exceeding those on 10-year Treasury notes, a recession always followed.  But that was because the Fed's attempts to cool off what it saw as an overheating economy with higher rates was overdone, precipitating a business downturn.  That's not li kely in today's continuing weak global economy.

Persistent Stock Bulls

Nevertheless, many stock bulls haven’t given up their persistent love of equities compared to Treasurys.  Their new argument is that Treasury bonds may be providing superior appreciation, but stocks should be owned for dividend yield. 

That, of course, is the exact opposite of the historical view, but in line with recent results.  The 2.1% dividend yield on the S&P 500 exceeds the 1.50% yield on the 10-year Treasury note and is close to the 2.21% yield on the 30-year bond.  Recently, the stocks that have performed the best have included those with above average dividend yields such as telecom, utilities and consumer staples (Chart 13).

Then there is the contention by stock bulls that low interest rates make stocks cheap even through the S&P 500 price-to-earnings ratio, averaged over the last 10 years to iron out cyclical fluctuations, now is 26 compared to the long-term average of 16.7(Chart 14).  This makes stocks 36% overvalued, assuming that the long run P/E average is still valid.  And note that since the P/E has run above the long-term average for over a decade, it will fall below it for a number of future years—if the statistical mean is still relevant.

Instead, stock bulls points to the high earnings yield, the inverse of the P/E, in relation to the 10-year Treasury note yield.  They believe that low interest rates make stocks cheap.  Maybe so, and we’re not at all sure what low and negative nominal interest rates are telling us.

We’ll know for sure in a year or two.  It may turn out to be the result of aggressive central banks and investors hungry for yield with few alternatives.  Or low rates may foretell global economic weakness, chronic deflation and even more aggressive central bank largess in response.  We’re guessing the latter is the more likely explanation.

Courtesy of A.GaryShilllingsInsight

In a bid to improve its position in the ever-growing e-commerce market, Walmart announced today that it agreed to acquire Jet.com for approximately $3 billion in cash. Jet.com is a relatively young e-commerce startup that made a name for itself with an innovative pricing scheme that allows customers to reduce prices by, for example, ordering items from the same distribution center or by forgoing the ability to return items for free.

Walmart and other big-box retailers have struggled to break Amazon’s stranglehold on online retail in the United States, where the market leader’s internet sales exceeded the aggregate sales of its nine largest competitors in 2015. According to estimates by Internet Retailer, a leading provider of e-commerce market intelligence, Amazon’s U.S. e-commerce sales amounted to $92.4 billion in 2015. Walmart generated $13.7 billion in online revenue last year.

My question is who is ready expand their market share?

You will find more statistics at Statista

With disruptions fading and Libya now reaching a deal to end their brigade, oils top may be in for now.  This man, however, feels it's going to be a very long road ahead for crude oil bulls.

Sometimes the world is not yet ready for a new technology to enter the fray.

Virtual reality, for example, sat on the sidelines for many years. The industry went into hibernation around the time of the Dot Com Bust, and it has only recently re-emerged with promise.

It is only today that big companies like Microsoft, Google, Samsung, HTC, and Facebook have the infrastructure, peripheral technologies, and capital in place to properly commercialize the technology. Now, instead of using primitive 300 x 200 pixel LCD displays that were prohibitively expensive in the 90s, we are looking at a world where display will be in beautiful 4k quality. Meanwhile, accelerometers and gyroscopes can measure head movement, and modern computing power can reduce lag and latency. It took many years, but finally the true potential of VR is being realized.

Like virtual reality, there are 10 other emerging technologies that are finally ready for prime time. Some, like the recent advances in artificial intelligence, have been decades in the making. Other emerging technologies such as the blockchain are relatively new phenomenons that are also ready for their time in the spotlight.

Emerging Technologies of 2016

1. Nanosensors and the Internet of Nanothings is one of the most exciting areas of science today. Tiny sensors that are circulated in the human body or construction materials will be able to relay information and diagnostics to the outside world. This will have an impact on medicine, architecture, agriculture, and drug manufacturing.
2. Next Generation Batteries are helping to eliminate one of the biggest obstacles with renewable energy, which is energy storage. Though not commercially available yet, this area shows great promise – and it is something we are tracking in our five-part Battery Series.
3. The Blockchain had investment exceeding $1 billion in 2015. The blockchain ecosystem is evolving rapidly and will change the way banking, markets, contracts, and governments work.
4. 2d Materials such as graphene will have an impact in a variety of applications ranging from air and water filters to batteries and wearable technology.
5. Autonomous Vehicles are here, and the potential impact is huge. While there are still a few problems to overcome, driverless cars will save lives, cut pollution, boost economies, and improve the quality of life for people.
6. Organs-on-Chips, which are tiny models of human organs, are making it easier for scientists to test drugs and conduct medical research.
7. Petrovskite Solar Cells are making photovoltaic cells easier to make and more efficient. They also allow cells to be used virtually anywhere.
8. Open AI Ecosystem will allow for smart digital assistants in the cloud that will be able to advise us on finance, health, or even fashion.
9. Optogenetics, or the use of light and color to record activity in the brain, could help lead to better treatment of brain disorders.
10. Systems Metabolic Engineering will allow for building block chemicals to be built with plants more efficiently than can be done with fossil fuels.

Courtesy of Infographics

Have you ever believed a trend is about to change but your basic, every day indicators don't quite support your theory so you insert different studies, looking for one or two which could support your thesis? Yes, soldier and scout mindsets affect your decision making when investing but remember, that's your theory.  Does the rest of the crowd believe what you do?

The vote has come and gone. A major European nation has chosen to leave the EU. The markets have had their obligatory decline. A weekend has passed. It is time to think about what exactly has happened… and what it means, if anything.

The real drive to leave had little to do with economics. It had a great deal to do with immigration. The EU’s economy has been in wretched condition since 2008.

The EU has been unable to forge a plan that would fix dire unemployment in southern Europe and revive the stagnant economy. The EU’s founding treaty promised prosperity. It has failed. Germany has the healthiest economy in Europe, but even it struggles to grow.

The case for staying in the EU was that leaving would ruin the British economy. This assumed, of course, that staying in a broken union would help the economy. The logic of that escaped me. It is hard to see any economic benefits that would be lost. As I put it in my book Flashpoints, “Britain will avoid the destabilization in Europe by pulling away from the EU and closer to the United States.”

The EU, Not Britain, Is the Weaker Player

The UK is Germany’s third-largest export market. It is the fifth-largest for France and Italy. It is absurd to think these countries would stop selling to Britain or put tariffs on British exports. The British would respond in kind, and Europe cannot afford a trade war even if it feels insulted. The EU did not create the existing trade patterns. They were already in place. The EU’s members will not allow Brussels to disrupt them.

Nor did the EU create the patterns of investment. Britain’s banks channel global capital and are a huge source of investment for the Continent. The EU is hardly going to hamper that flow by blocking investments.

As for regulations that could force EU banks to relocate jobs and resources to Frankfurt, this misses a number of points. Given Europe’s weakness, the burden is on the EU to show continuity. It needs the flow of capital.

Further, it is the clients who will determine the world’s banking hubs. London has been a traditional banking center preferred by foreign clients. New York—not Frankfurt—is the alternative to London. If clients had wanted to bank in Frankfurt, they would have already done so.

Obviously, nothing will happen in the immediate future. But it is not clear to me that there will be any real economic blowback. The UK is not Greece. Attempting to shun the British carries heavy potential consequences. Anything imposed on the British will resonate on the Continent. And Germany—which gets almost 50% of its GDP from exports—is not likely to let anyone hinder that trade.

The economic impact of the UK leaving the EU is minimal because the EU—not Britain—is the weak player. The EU is fighting with Poland over political changes… has criticized Hungary on human rights… is still engaged in the Greece disaster… has an emerging Italian banking crisis. Additionally, Finland is in grave economic trouble, and anti-EU parties are gaining strength in several member states.

The EU has so many internal issues they are hard to count. Its retaliation is the last thing Britain should fear.

Immigration Seen as Loss of National Self-Determination

As troubling as Europe’s economy is, it was not the prime mover in the referendum. The contentious immigration debate holds that honor. And immigration itself was not really the issue. Britain was quite comfortable with immigrants until Brussels began making demands.

The EU dictating the rules was the problem. It was a question of sovereignty. That the EU could make decisions that would change the character of Britain was not okay.

Granted, there was a large vote for staying. The British media have been eager to point out that those who voted to leave were less educated, had lower incomes, and so on. They were also most likely to be affected by immigration.

Immigration is socially destabilizing. There is always friction between older residents and immigrants. I immigrated to the US as a small child. The buffeting of that experience on both sides is burned into my memory.

But, better educated and wealthier individuals normally don’t experience this element of immigration. The tension on the streets rarely enters the halls of academia, senior civil service, or banking.

Not surprisingly, the question of sovereignty wasn’t critical to this class. Just as large-scale immigration did not concern them. Immigrants like my family would not be moving into their neighborhoods.

We moved to the Bronx in New York because that was all we could afford. We lived next to other people who settled there because it was all they could afford. The older residents had a sense of ownership of the neighborhood. As my family and others moved in, that ownership was threatened. They had little else to claim as their own.

In Britain, the immigrant issue was critical and created a sense of powerlessness. First, Britain was not in control of its immigration policy. Second, the British who were for it, to a large extent, did not feel the profound social costs of immigration.

That fee was going to be paid by those who—again with many exceptions—voted for leaving. So it was a revolt against the British establishment and the EU. As with most things, it was much more complex than it seemed.

When All Else Fails, Acknowledge the Obvious

The EU has already responded. This statement from the foreign ministers of Belgium, France, Germany, Italy, Luxembourg, and the Netherlands, defines the future:

We will continue in our efforts to work for a stronger and more cohesive European Union of 27 based on common values and the rule of law. It is to that end that we shall also recognize different levels of ambition amongst Member States when it comes to the project of European integration. While not stepping back from what we have achieved, we have to find better ways of dealing with these different levels of ambition so as to ensure that Europe delivers better on the expectation of all European states…. However, we are aware that discontent with the functioning of the EU as it is today is manifest in parts of societies. We take this very seriously and are determined to make the EU work better for all our citizens.

This was the EU’s answer to Brexit. They recognized that not everyone wants the same level of integration and will respect that. They are aware that many are discontent with the EU.

In other words, after the British vote, they acknowledge the obvious. This is a unique evolution. It is not clear what they are going to do, but they are not going to punish Britain. They can’t afford to.

At the same time, there is a bit of humor in the statement. The EU has 27 member states and, apparently, only six foreign ministers met and drafted this response. Poland wasn’t there. Neither was Spain. Nor were the other 19 members. The new “inclusionary” EU has met and promised to do something. We’ll see if anything actually happens.

We will have much, much more to say on Wednesday when we release our Deep Dive into the future of Europe.

Courtesy of George Freidman

As German bond yields breach unthinkable levels, BK was struck by a chart from Deutsche Bank – it is a chart of German yields since 1807.

Take a moment to reflect on this chart – in over 200 years, German bond yields have never been lower. This period of time includes such notable and notorious events as:

• US Civil War
• The British Railway Mania Bubble
• The Panic of 1873 and The Long Global Depression
• Industrial Revolution
• Thomas Edison’s Invention of Electric Light
• Invention of the Automobile
• Stock Market Panic of 1907
• World War I
• 1929 Stock Market Crash
• The Depression of the 1930’s
• World War II
• Japan’s Real Estate Bubble and Crash
• The Dot-Com Bubble
• 1987 US Stock Market Crash
• 1997 Asian Currency Crisis
• 1998 Russian Default and Long Term Capital Management Bailout
• 9/11
• The US Housing Bubble and 2008 Great Financial Crisis

During each of these spectacular and horrific events, German bond yields managed to stay in a range of roughly 4-10% with the occasional spike up or down. However during this semi-peaceful economic recovery from the Great Recession, German bond yield have done something they have never done… they have gone negative.

It’s a paradox for sure. The global economy is most certainly stronger than during the 1873 Depression, or the 1930’s Depression, or after 9/11 or even following the 2008 crash… yet yields have never been lower. We are living through a period of economic history that will be the main subject of textbooks for decades to come.

This note is not supposed to be an economic history lesson, this post is meant to be cautionary. The last time we saw an asset class do something it hasn’t done in over 200 years was the US Housing bubble. The following chart was constructed using Robert Shiller’s US Home Price index.

Notice anything familiar? Just like German yields, US home prices remained relatively stable from 1880 to 2001. When interest rates were lowered after 9/11 the price of US Homes skyrocketed to record levels. During the housing bubble people were buying homes in hopes of flipping them to the next fool. Like a game of musical chairs, this fun for a lot of of people… until it wasn’t. When the music stopped, everyone was left without a chair – this included both individuals and institutions like Lehman Brothers. In the end, central bankers had to print money to stop the panic.

This time the the people playing musical chairs are the central banks themselves. So the question is, when the music stops, who bails them out?

BK needs to make one thing very clear – bubbles can continue for a lot longer than most people think. In fact, with US 10 year yields at 1.6% it seems that there is a lot of room for yields to fall. So a bond market bubble bust is unlikely to occur in 2016.

Nonetheless, those buying bonds in this environment (which includes BK) need to be aware that we are buying into one of the greatest financial bubbles of all time. There is money to be made, but one ear MUST be listening for signs that the song is about to end.

Courtesy of TickerDistrict

Next week will be a historical one for both the United Kingdom and the global economy. On June 23^rd the British people will decide whether to leave or stay in the European Union. Polls have been mixed over the last couple months, but the latest out show momentum for leaving, which is scaring the markets.

Loss of British sovereignty is the fundamental reason for leaving the EU, as many supporters want to take back control of U.K. borders in order to curb immigration. Those that wish to stay in the EU say there are severe short-term economic consequences that would make trade difficult and slow the economy. Even President Obama recently said that if there is a Brexit, the U.K. would go to the “back of the queue” in American trade deals.

While debate and speculation is running rampant, markets are watching the British Pound closely. Last week U.S. indices tracked and moved with the Pound tick for tick, showing that traders are very concerned about the upcoming vote.

So how can you profit off the news when it hits? Below I show seven different ETF/ETNs to buy in anticipation of either a “Yes or a “No” vote.  

Volatility

When markets are faced with uncertainty, volatility rises. The VIX is a fear gauge that measures how much fear there is in the markets at the current moment. Traders will buy VIX instruments to hedge against panic or bet on a move lower in the market. One of the most popular VIX instruments is the iPath SP 500 VIX Short-Term Futures ETN (VXX).  This ETN provides investors with exposure to short-term VIX futures. Essentially, when the market goes down and fear increases, it will go higher.

The chart below shows VXX over the last month versus the S&P 500. As Brexit fears have increase over the last week, we have seen the VIX shoot higher and the market soften. Investors can expect volatility to remain firm into the vote and surge higher if the vote is yes. However, if the vote is no, expect volatility to fall apart and VXX to go right back to the June lows.

The Trade: If you believe it’s a yes vote buy VXX or UVXY (2x long VIX). If you believe it’s a no vote buy SVXY (Short VIX).

Yes Vote

SPDR Gold Trust (GLD) seeks to reflect the performance of gold bullion. The Trust holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets.

In times of uncertainty gold thrives. A Brexit would create uncertainty about the euro zone economy, the stability of the EURO and would set a precedent for other countries to leave the EU.

Gold has already been very strong this year with the ECB and Bank of Japan experimenting with negative interest rates. A yes vote could push gold much higher as currency fears force traders to buy the yellow metal.

Guggenheim Currency Shares Japanese Yen ETF (FXY) is an investment that seeks to track the Japanese Yen. Traders will buy the Yen in expectation that it will rise against the Euro, the Pound and the Dollar. Yen momentum has been a concern and a risk-off type scenario could give the currency an extra push higher as global markets head lower.

Direxion Daily Financial Bear 3x (FAZ) is an investment that seeks daily investment results, before fees and expenses, of 300% of the inverse of the performance of the Russell 1000® Financial Services Index,

This is a good play, not only on a Brexit yes vote, but also the Feds reaction to the Brexit. Yellen has mentioned that the vote is a concern and a yes vote will most likely create turmoil that would prevent any fed rate hike until December. Low rates are killing banks, expect FAZ to head higher on the expectation on more delays on any rate hike, plus heightened fear of economic turmoil.

The Trade: Long GLD, FXY, and FAZ if trader believes “Yes” vote is coming.

No Vote

Guggenheim Currency Shares British Pound Sterling (FXB) is a currency ETF that reflects the British pound and its daily movements. The Pound has come under pressure this year in anticipation of this vote. While some of the move might be priced in, there could be a lot more room to go lower if there is a Yes vote. However, if they stay in the EU, there will be a massive rally in the pound and FXB will shoot higher.

iShares MSCI United Kingdom (EWU) is an investment that seeks to track the investment results of the MSCI United Kingdom Index. The fund will at all times invest at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index.

Expect U.K. stocks to rally if there is no Brexit. The risk has held the index down so far this year and if that risks goes away we could see money flow into U.K. stocks.

Direxion Daily Small Cap Bull 3x(TNA) is a way to play U.S. stocks through the Brexit vote. Expect a large rally if there is a no vote and the best performing stocks to be the riskier or small cap stocks. TNA gives an investor triple exposure to this idea so they can profit of a big move in the Russell 2000 index.

The Trade: Long FXB, EWU, and TNA if trader believes a “No” vote is coming.

In Summary

It’s hard to speculate which way the British people will go as the polls have been all over the place. Expect the market to remain volatile as new polls and headlines come out. When the final vote is known there will be a violent move in response to the vote, with a Yes being bearish and NO being bullish for stocks.  Use the above stocks to trade your opinion and even protect your portfolio for that June 23^rd vote.

Courtesy of MrTopStep

Call it sustainable development, Agenda 21 or just an inevitable path of technology but this makes me wonder; is he right?.

Energy defaults have been heavy on my mind as their Bankruptcies are expected to increase greatly in the second half of 2016.  I didn't even touch on farms and other exploding debt. Clearly I'm not alone in this concern.  It's not housing this time; it's much worse.  If rates rise, what will happen? Emphasis in bold mine.  Read on.

This could not have come at a more perfect time, with the Fed once again flip-flopping about raising rates. After appearing to wipe rate hikes off the table earlier this year, the Fed put them back on the table, perhaps as soon as June, according to the Fed minutes. A coterie of Fed heads was paraded in front of the media today and yesterday to make sure everyone got that point, pending further flip-flopping.

Drowned out by this hullabaloo, the Board of Governors of the Federal Reserve released its delinquency and charge-off data for all commercial banks in the first quarter – very sobering data.

So here a few nuggets.

Consumer loans and credit card loans have been hanging in there so far. Credit card delinquencies rose in the second half of 2015, but in Q1 2016, they ticked down a little. And mortgage delinquencies are low and falling. When home prices are soaring, no one defaults for long; you can sell the home and pay off your mortgage. Mortgage delinquencies rise after home prices have been falling for a while. They’re a lagging indicator.

But on the business side, delinquencies are spiking!

Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion. They’re halfway toward to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And they’re higher than they’d been in Q3 2008, just as Lehman Brothers had its moment.

Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Wolf Richter

Business loan delinquencies are a leading indicator of big economic trouble. They begin to rise at the end of the credit cycle, on loans that were made in good times by over-eager loan officers with the encouragement of the Fed. But suddenly, the weight of this debt poses a major problem for borrowers whose sales, instead of soaring as projected during good times, may be shrinking, and whose expenses may be rising, and there’s no money left to service the loan.

The loan officer, feeling the hot breath of regulators on his neck, and seeing the Fed fiddle with the rate button, refuses to “extend and pretend,” as the time-honored banking practice is called of kicking the can down the road in good times.

If delinquencies are not cured within a specified time, they’re removed from the delinquency basket and dropped into the default basket. When defaults are not cured within a specified time, the bank deems a portion or all of the loan balance uncollectible and writes it off, therefore moving it out of the default basket into the write-off basket. That’s why the delinquency basket doesn’t get very large – loans don’t stay in it very long.

And farmers are having trouble.

Slumping prices of agricultural commodities have done a job on farmers, many of whom are good-sized enterprises. Farmland is also owned by investors, including hedge funds, who’ve piled into it during the boom, powered by the meme that land prices would soar for all times because humans will always need food. Then they leased the land to growers.

Now there are reports that farmland, in Illinois for example, goes through auctions at prices that are 20% or even 30% below where they’d been a year ago. Land prices are adjusting to lower farm incomes, which are lower because commodity prices have plunged. (However, top farmland still fetches a good price.)

Now delinquencies of farmland loans and agricultural loans are sending serious warning signals. These delinquencies don’t hit the megabanks. They hit smaller specialized farm lenders.

Delinquencies of farmland loans jumped 37% from $1.19 billion in Q3 2015 to $1.64 billion in Q1 this year, the vast majority of it in the last quarter (chart by the Board of Governors of the Fed):

Wolf Richter

Delinquencies of agricultural loans spiked 108% in just two quarters to $1.05 billion in Q1. On the way up during the financial crisis, they’d shot past that level during Q1 2009:

Wolf Richter

Bad loans are made in good times — the oldest banking rule. “Good times” may not be a good economy, but one when rates are low and commercial loan officers are desperate to bring in some interest income. With a wink and a nod, they extend loans to businesses that look good for the moment. That has been the case ever since the Fed repressed interest rates during the Financial Crisis. A lot of bad loans were made during those “good times,” precisely as the Fed had encouraged them to do. And these loans are now coming home to roost.

One of the big indicators of the end of the “credit cycle” is the number of bankruptcies. During good times, so earlier in the credit cycle, companies borrow money. Lured by low interest rates and rosy-scenario rhetoric, they borrow even more. Then reality sets in.

Courtesy of B/I

Love it or hate it, cash is playing an increasingly less important role in society.

In some ways this is great news for consumers. The rise of mobile and electronic payments means faster, convenient, and more efficient purchases in most instances. New technologies are being built and improved to facilitate these transactions, and improving security is also a priority for many payment providers.

However, there is also a darker side in the shift to a cashless society. Governments and central banks have a different rationale behind the elimination of cash transactions, and as a result, the so-called “war on cash” is on.

On the Path to a Cashless Society

The Federal Reserve estimates that there will be $616.9 billion in cashless transactions in 2016. That’s up from around $60 billion in 2010.

Despite the magnitude of this overall shift, what is happening from country to country varies quite considerably. Consider the contradicting evidence between Sweden and Germany.

In Sweden, about 59% of all consumer transactions are cashless, and hard currency makes up just 2% of the economy. Yet, across the Baltic Sea, Germans are far bigger proponents of modern cash. This should not be too surprising, considering that the German words for “debt” and “guilt” are the exact same.

Within Germany, only 33% of consumer transactions are cashless, and there are only 0.06 credit cards in existence per person.

The Dark Side of Cashless

The shift to a cashless society is even gaining momentum in Germany, but it is not because of the willing adoption from the general public. According to Handelsblatt, a leading German business newspaper, a proposal to eliminate the €500 note while capping all cash transactions at €5,000 was made in February by the junior partner of the coalition government.

Governments have been increasingly pushing for a cashless society. Ostensibly, by having a paper trail for all transactions, such a move would decrease crime, money laundering, and tax evasion. France’s finance minister recently stated that he would “fight against the use of cash and anonymity in the French economy” in order to prevent terrorism and other threats. Meanwhile, former Secretary of the Treasury and economist Larry Summers has called for scrapping the U.S. $100 bill – the most widely used currency note in the world.

“Smoother” Aggregate Demand?

It’s not simply an argument of the above government rationale versus that of privacy and anonymity. Perhaps the least talked-about implication of a cashless society is the way that it could potentially empower central banking to have more ammunition in “smoothing” out the way people save and spend money.

By eliminating the prospect of cash savings, monetary policy options like negative interest rates would be much more effective if implemented. All money would presumably be stored under the same banking system umbrella, and even the most prudent savers could be taxed with negative rates to encourage consumer spending.

While there are certainly benefits to using digital payments, our view is that going digital should be an individual consumer choice that can be based on personal benefits and drawbacks. People should have the voluntary choice of going plastic or using apps for payment, but they shouldn’t be pushed into either option unwillingly.

Forced banishment of cash is a completely different thing, and we should be increasingly wary and suspicious of the real rationale behind such a scheme.

Courtesy of VisualCapitalist

(Click image to enlarge)

There's nothing here that even remotely makes me want to make a purchase. These are weekly shots of the main indexes so what do you see?

We rallied up over weeks like crazy madmen, squeezing out weak shorts and even had the heaviest shorted sectors help out with a short covering rally; getting the weekly into 'overbought' levels. We came up right against the long term column trend line resistance, hit overbought levels...........the weekly is rolling over. Another failure. Sorry boys. So much for that.

Certainly day traders and short-term swing traders will make their long plays but who has time for that............and why go against the trend of 'this' market......which is down. That's rhetorical.

• We know the market is stretched on a valuation basis.
• Don't even throw out the strange valuation approaches.
• We know there's no more QE coming out of Washington.
• We know earnings are a disappointment and guidance has for the most part been completely uninspiring.
• Things of concern lie ahead: China has data coming out (retail sales, producer price figures, and the consumer sentiment survey) over the weekend which could inspire or deflate the market. Where's the growth we need?
• Brexit and FOMC loom.
• Our own bad news has been wide spread: Retail has been completely disappointing with big losses, Shell spilled oil in the Gulf a la BP (here we go again). AAPL wants "into" the auto driving business (say what?), BIDU is under investigation, BABA has been suspended from an anti-counterfeiting group (I have to laugh at that one) and FB swears their unbiased, they think and of course there's politics weighing on biotech and healthcare. Did you see hospitals last week?  Ouch!  If there's good news out there, it doesn't last long.  See how that changed? 
• If it weren't for the tar sands oil fire in Canada, crude oil wouldn't be helping market hold what we have........and the winners are shrinking; make no doubt about it.

The daily charts show a small head-and-shoulders top formed and we're perched right at the neckline; probably waiting for Yellen's FOMC on Wednesday........but will it matter?

Me, I am short various names such as BIDU, NFLX, CAT, COH, TXT, just to name a few. 

Have any setups or plays to share? Bring 'em on!  I'll play the short side..........unless Janet changes the game.

We’ll start with the obvious: the number one export for many countries here is crude oil or related petroleum products. Middle Eastern countries made up a significant portion of global oil export revenues during 2015 with shipments valued at $325 billion or 41.3% of global crude oil exports.

Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Iran, and Oman were all among the top 15 exporters of crude oil in 2015. Russia and Kazakhstan, countries on the Central Asian part of the map, were also members of that same group.

Regimes in the region found that there were many other corollary benefits from this economic might. Unrest could be stifled by rising wealth, and these countries would also have more influence than they otherwise would in global affairs. Saudi Arabia is a good example in both cases, though a major driver of Saudi influence has been slipping in recent years.

Outside of Oil

Aside from exports of oil, there are some other interesting subtleties to this map. One of the most advanced economies in the region, Israel, is not dependent on oil exports at all. The country has had to find other ways to create value in the global market and its three major exports include electronics and software, cut diamonds, and pharmaceuticals.

War-torn Afghanistan, which is not a significant producer of petroleum on the world market, gets the majority of its export revenue from different natural resource. Opium is Afghanistan’s most valuable cash crop, and opiates such as opium, morphine, and heroin are its largest export. Fetching an estimated value of $3 billion at border prices, it was estimated to make up about 15% of the country’s GDP equivalent in 2013.

Lastly, countries on the map without oil wealth tend to be less influential on the world stage from a geopolitical perspective. Armenia, for example, mainly exports pig iron, unwrought copper, and nonferrous metals and is the world’s 138th largest exporter by dollar value, ranked in between Jamaica and Swaziland. Surrounded geographically by countries that Yerevan considers hostile, Armenia has increasingly turned to Russia for its support.

Courtesy of VisualCapitalist

The computers have won.

Institutional Investor just released its annual list of the top-earning hedge fund managers, and six of the top eight are quants, or managers who rely on computer programs to guide their investing.

The list includes Ken Griffin of Citadel, Jim Simons of Renaissance Technology, and John Overdeck and David Siegel of Two Sigma.

In 2002, by contrast, just two computer-driven investors were included in the ranking, according to Institutional Investor.

The list highlights just how hedge fund investing has changed over the past 15 years.

It is not that the brash, characterful traders of old are a dying breed. There are still plenty of alpha-male risk-takers in a company gilet wandering around New York and Greenwich, Connecticut.

It's just that they're losing ground to tech specialists who program robots to play air hockey in their spare time.

The rise of quant-driven hedge funds is really just a part of the evolutionary shift that is taking place on Wall Street that encompasses how investment decisions are made and how they are put into action.

Simply put, technology is now a much bigger part of the investment process for many funds. They're using computing power to sift through reams of existing data — and finding new sources of data made possible by the proliferation of consumer technology like the iPhone — and all to try and predict what the market might do, or the next set of data might reveal.

Their jobs pages are full of tech postings. Renaissance is looking for computer programmers with no finance experience required. Two Sigma has roles in data science, machine-learning, cloud computing, and software engineering.

And don't forget, Bridgewater Associates, the biggest hedge fund in the world, now has a former Steve Jobs lieutenant as co-CEO and wants to extend "the systematized decision-making" used in investing into management.

Renaissance TechnologiesA Renaissance Technologies job posting.

These funds also tend to execute their trades with a minimum of human involvement, a process that has become easier as many markets have moved to electronic platforms.

The vast majority of stock trading is now completed electronically. Tech-driven high-frequency trader firms now dominate the US Treasury market. Goldman Sachs and JPMorgan have described themselves as technology companies.

That obviously means there is less need for the traders of old. Unsurprisingly, that has a lot of people worried.

At this point, though, I'm reminded of a great anecdote from Nathaniel Popper's recent profile of Goldman Sachs' chief information officer, Marty Chavez. Chavez has pushed hard for a focus on technology, even though it may lead to job cuts for those replaced by it.

When faced with pushback from colleagues, Chavez was direct in his response, according to colleague Adam Korn:

He basically said something to the effect of: "If your job is a purely manual job and you are just clicking buttons, you should look to upgrade your skills set now."

Courtesy of BusinessInsider

You will find more statistics at Statista