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 went back and looked at the MSCI World Index bear markets going back to 1970. In more than 45 years there have been ten of them or one every 4.5 years or so. Here they are using monthly returns (so some of these drawdowns were actually larger than they appear because he tops and bottoms occurred intra-month, but this is close enough):

I looked at each of these bear markets to see what would happen if an investor bought stocks the month after they fell into a bear market (down 20%). This means that there were a number of cases in which stocks continued to fall in the short-to-intermediate term well past the 20% mark.

There were only two times out of the ten bear markets where stocks weren’t higher one year later. Only once were stocks down three years later. And there was never a period where stocks weren’t higher five years after initially falling 20%. The paradox of investing is that the best times to put your money to work are often when things seem like they’re never going to get better.

Of course, things could always get worse before they get better. Central banking policies could wreak havoc on people’s confidence in the system. We could see a global recession. The U.S. could join the party and continue to fall even further. But investors and savers alike have to remember that falling prices are a good thing for future returns. I looked at the dividend yields for each of the country ETFs listed above. The average yield is now around 3.3%. That’s more than one percent higher than the current yield on the S&P 500.

Using the past as our guide, it’s clear that bear markets tend to be a great time to put money to work for those who can look past short-term volatility. Long-term savers and investors should see this as an opportunity, not a crisis.

Global stocks are on sale.  Are you buying?

The way we pay for things has changed dramatically over the past few years. Uber calculates your fare in real-time and charges you as you exit the car. The newest phones have chips that let you pay with a tap.

But that’s only scratching the surface. Visa, for one, envisions a future where pretty much any device could handle a payment, and we won’t even need a phone or credit card to make it work.

To get there and beyond, the payment-processing company is looking for some outside help. On Thursday (Feb. 4) it announced that it’s opening up its VisaNet platform to developers. Considering Visa processes 100 billion transactions per year, it’s a potentially powerful tool for that community. By letting developers focus on the experience and Visa managing the payments—from processing to security and risk—change could happen quickly.

So how will we pay in the not-too-distant future? Visa CTO Rajat Tenaja, head of innovation Jim McCarthy, and head of product Jack Forestell gave Quartz a peek into where Visa thinks the payments industry is headed:

• Paying with your hand—Morpho and Visa partnered to develop a system that lets you pay by just waving your hand. Morpho’s technology scans your hands, ties that information to your Visa card, and then lets you pay at merchants by just swiping your hand over a device. Visa will show off the technology at the Visa Innovation Lab in San Francisco this weekend.
• Preorder cash—Visa’s technology lets you use a mobile app to enter how much money you want to take out from your account. When you arrive at an ATM, it scans your iris and disperses the money. This tech will also be on display in San Francisco this weekend.
• Cars—Visa’s quite bullish on the future of connected cars. This YouTube video from Mobile World Congress in March 2015 shows how we’ll pay for gas, parking, and lunch all from our cars. This was only a proof-of-concept.
• Fridges—The fridge of the future will monitor grocery purchases you make with your Visa card, and buy them for you automatically. They could even be delivered to your door by Uber.
• AI assistants and bots—Making payments through AI assistants like Amazon Echo, Siri, and Google Now might not be far off either. Saying “Siri, get me Shake Shack from DoorDash,” and having it delivered to you is very possible with Visa’s technology. With Facebook and Slack reportedly interested in AI-powered bots, too, the potential of being able to buy anything, anywhere, is clear.

Courtesy of QZ

Has anything changed fundamentally or is this just a bear market rally?  I haven't heard anything from the Fed but crude oil's short covering is definitely a driver.  Ditto for retail seeing short covering ahead of tomorrows retail sales numbers.  For 'how long' is open to speculation.  Let's see what DeMark has to say.

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 shaping your plans accordingly.

Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In this piece, as usual, I won’t spend much time on the most familiar things. Instead, I will highlight what I believe will become the more important and more visible trends in 2016, either because they are now accelerating to scale or a discontinuity may become a tipping point. (For a quick summary, see sidebar, “The China Orr-acle: Gordon’s predictions for 2016.”) I hope you find my ideas valuable.

The 13th five-year plan—few surprises

Much of China’s 13th five-year plan will seem pretty familiar, as it has been flagged in advance at the Fifth Plenum and elsewhere. Perhaps the only challenge will be to interpret the plan’s intent clearly through the new “party speak” now coming to dominate government pronouncements.

The GDP growth target will still be 6 percent–plus, which will be softened a bit but not eliminated by parallel quality-of-life goals: the environment, health, income, and the like. Achieving the growth target will remain the core objective of fiscal and monetary policies, so expect lower interest rates and pressure on the exchange rate versus the US dollar in 2016. Financial reforms aimed at moving more of the economy toward a market-based allocation of capital will continue.

Meanwhile, there will be more progress on interest-rate deregulation, on the IPO process (registration rather than approval), on permitting new entrants (especially from the tech sector and from abroad) into financial services, and on reimplementing laws suspended in the summer of 2015. The plan will promote decentralization, but the reality is likely to be greater centralization. More infrastructure will be built, mainly to enhance intraregional development—for example, around Greater Beijing.

Green initiatives, reinforced by December 2015 commitments made in Paris and the “red alert” in Beijing that same month, will take center stage. The central government will make such big and visible commitments to its citizens that local authorities will have to mount a serious effort to deliver. There will be tougher emissions standards and more spending to support the development of nonfossil fuels. Green finance will be available. Both private-sector and state-owned companies will rebrand their ongoing initiatives as green. China will explicitly build new export engines from its emerging global leadership in green products; for example, expect to see lots of Chinese-made air-filtration products in Delhi and the rest of India in 2016. Beyond green initiatives, going global will remain a key theme, as detailed in the One Belt, One Road program.¹

Finally, the plan will recognize China’s success in raising labor productivity over the past decade and prioritize the acceleration of productivity growth, for both capital and labor, from 2016 to 2020. The plan will raise the implications of higher productivity for workers: the disappearance of many traditional well-paying jobs and the need for increased labor mobility and for the lifetime renewal and development of skills. But I am concerned that implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce and the least impressive actual skills to deliver.

Fewer jobs, flatter incomes—and, potentially, less confidence

The workplace in China is already changing dramatically in ways that will create many individual losers—for example, workers in industry sectors in secular decline (such as steel or textiles) or in industries where technology is rapidly displacing people even as output grows (like financial services or retailing). The government must help these workers reskill themselves to deliver on its commitment that all parts of society will benefit from economic growth and to keep people actively engaged in the economy. It will not be enough for officials to visit major local employers, as they did during the global financial crisis, and press them to retain all their current workers.

Official government figures, which probably skew to the positive on jobs, show that construction lost 15 million positions over the past year. Mining, a much smaller employer, has lost millions more. Workers from these sectors have few skills relevant for the modern service economy, yet many are in their peak working years. Reskilling must happen at scale. Not everyone can deliver e-commerce packages and, besides, the wages from that kind of work aren’t likely to bring people into the urban middle class.

Government must persuade the people that it is committed to giving them the skills they need to be relevant in the workforce at all stages of their careers. But for everyone from migrant workers to university graduates, the state educational system isn’t delivering. China must roll out education, training, and apprenticeship solutions quickly and at scale to become the moderately well-off society its leaders aspire to achieve. This will be both complex and expensive.

Pressure for higher productivity and on jobs overall will lead to lower growth in household income and, potentially, an erosion of consumer confidence in 2016. Consumer spending has been responsible for well over 50 percent of GDP so far this year. If the government doesn’t handle less-confident consumers quite carefully, the kind of behavior the stock market experienced last summer will roil the broader economy.

The maturing of investing: More options for Chinese investors and foreign investment managers

Chinese investors today remain dependent on bank deposits and property. Yet after the volatility of the property and stock markets in 2015, investors want to diversify into more stable vehicles. The number of wealth managers seeking to address this need has increased massively. Often, their main challenge is not finding clients but rather credible products to sell. The main challenge for investors is to find advisers they can trust; most simply push the products that give them the largest commission.

Companies are responding to these developments. Larger wealth managers are moving online to deal directly with investors. Online lending sites are becoming broader wealth managers and acquiring mutual-fund distribution licenses. With interest-rate cuts likely in the year ahead, this may be a good time to invest in plain-vanilla bond funds, which are easily sold online. If retail investors conclude that the renminbi’s devaluation is a one-way bet, expect a sudden rush to invest in companies that manage nonrenminbi funds. Whatever happens, sinking money into a second, third, or even fourth property will no longer be a major way of investing in China.

Opportunities for foreign fund managers and brokers are growing as a result of regulatory changes, with international companies recently receiving approval to open 100 percent–owned investment-management operations and a foreign-controlled brokerage operation. The historic distribution problem that has held back many funds is being solved as a result of both the emergence of better wealth managers and the rapid acceptance of online distribution, initially thanks to Alibaba’s and Tencent’s push into money-market funds.

If your company does go after this opportunity, don’t forget the volatile mind-set of Chinese investors: if a product makes a loss, they still expect to be bailed out. Taking personal responsibility for investment decisions isn’t well accepted. Foreign fund managers must be prepared to deal with anger online and in person when a product they sell doesn’t live up to expectations. While I hope that in 2016 the government will allow more investments to fail and will stop organizing bailouts, progress will be incremental.

Manufacturing in China is changing, not disappearing

The closely watched manufacturing purchasing manager’s index (PMI) remains below 50, which indicates deterioration, leading to talk that the country may be nearing the end of its time as a manufacturer for the world. Let’s be clear: manufacturing is not about to become irrelevant in China. However, the country is evolving toward extremes of performance: the truly awful and the genuinely competitive.

Many companies—indeed entire sectors—may be nearing a PMI permanently below 50, but this doesn’t mean that the emergence of internationally capable Chinese manufacturers will do anything other than accelerate. I wrote two years ago about the lack of marketing skills in many Chinese companies and their reluctance to hire functional expertise outside their existing networks. That has changed incredibly quickly. Chinese CEOs incessantly ask me for names of functional experts, especially in data, marketing, and specific international markets. It’s great to see the follow-through and the hiring.

In 2016, we will realize that in many parts of the economy, a smaller Chinese manufacturing sector is actually a stronger global competitor than ever before. One indicator will be more international acquisitions by Chinese manufacturers. A second will be more multinationals blaming their lower growth not just on a slowing Chinese economy but also, specifically, on local competitors that are moving upmarket to gain share inside and outside China.

Some manufacturing sectors in China do have massive overcapacity and many mediocre producers. But the country also has successful innovators in many industries, some highlighted in the recent MGI report The China effect on global innovation. By aggressively adopting what we might consider Western concepts—lean and modular design, scaled learning, agile manufacturing, and intelligent automation—many companies are combining low costs with aggressive innovation. Their skills are spreading widely across China’s manufacturers.

Multinationals in China are facing up to this double challenge of lower growth and better local competition. A few are quietly exiting; I have met excited private-equity investors negotiating to buy their assets. More are adjusting their aspirations from “invest for the future” to “make money today” and lowering their cost structures to match. Some will move aggressively on the front foot. In 2016, more multinationals will attempt to purchase Chinese competitors—if you can’t beat them, buy them.

Agricultural imports are rising and rising

In 2016, China’s growing food needs will drive agricultural imports to record highs in both volume and value. A wider range of countries than ever before will find agricultural-export opportunities there.

Russia is one example. Its reorientation toward China, following the imposition of Western sanctions, has taken time to play out in agriculture—border inspection points and the like had to be scaled up. (This reorientation happened much more quickly with oil; China reduced its dependence on the Organization of Petroleum Exporting Countries to around 50 percent, from more than 65 percent, largely by increasing imports from Russia.) Nonetheless, Chinese imports of grain and oilseed from Russia reached 500,000 tons in the first nine months of 2015, compared with just 100,000 for all of 2014. Even significant volumes of corn from Ukraine are pragmatically finding their way across Russia and into China.

The full impact of the free-trade agreement with Australia won’t be seen until 2016. I expect rapid growth, particularly in meat. The Australian government’s recent decision to turn down an investment on national-security grounds will only temporarily deter Chinese investors from putting more money into Australian agriculture. Several had previously made approved investments, and others are sounding out international partners to invest jointly in new Australian projects. And a more economically stable Argentina will compete with Australia to provide beef to China and with Ethiopia to provide alfalfa at scale to feed China’s dairy herds.

After a pause in 2015, US farmers should increase their exports to China not just in soybeans (historically more than 40 percent of US agricultural exports to the country by value) but also in cereals, intermediate goods, and, especially, branded processed foods. These might be sold directly to middle-class consumers through the growing online market for groceries. Food safety will remain a theme that benefits US and other international producers of branded foods.

More centralization

The Chinese media, especially during President Xi’s increasingly frequent trips abroad, made it clear that economic decision making has been centralized over the past two years. China will become still more centralized in 2016, rolling back decentralization where it had unintended outcomes. For example, after local governments received authority to approve new power plants, more than 150 new coal-fired ones were green-lit in the first nine months of 2015—more than three times the number approved in 2013, under the old centralized decision-making process. Unsurprisingly, coal-producing areas granted the largest number of approvals for plants that weren’t required under any realistic demand projection, even setting aside the question of whether any new plants at all should be coal fired. State-owned enterprises are behind most of these projects and would expect to be bailed out if they fail. Thus, for multiple reasons, such decisions will be recentralized.

A second example is pensions. Mainland pension funds are still controlled largely at the provincial level, but shortfalls are covered by the center. That gives local governments little incentive to improve their investment performance—90 percent of the assets are held in bank deposits. The coming centralization will try to remove perverse incentives and to professionalize the overall approach to investments. Already, Guangdong and Shandong have entrusted part of their assets to the National Council for Social Security Fund. More regions will follow in 2016.

The consolidation of state-owned enterprises to create fewer but larger companies, each possibly dominating its industry, is a third example. And increased ideological conformity, as demanded by the Communist Party’s new rules, is almost by definition centralizing; people look to the top for approval of not just what they do but also of what they say and how they say it.

A major test of centralization’s effectiveness will come if consumer confidence starts to decline in 2016. Will the central government be able to pull the right levers quickly enough to create a good outcome nationwide? No one set of levers is likely to be fit for purpose across the entire economy. There will be no greater test of economic competence.

Moving people at scale—the middle class, not peasants

Despite prodigious investment, many Chinese cities cannot build enough quality infrastructure to avoid massive day-to-day congestion. Even though the new five-year plan will commit the country to build more of it, that will not solve these problems; growth has simply outstripped potential solutions. For example, Beijing’s population officially grew by 60 percent, to 21 million, in just the past 14 years—and unofficially by significantly more.

Wealthier cities will seek to follow Beijing’s lead in transferring large numbers of jobs and people out of city centers. In Beijing’s case, this policy has not involved moving migrant workers but rather 400,000 to 2 million middle-class residents—depending on which version of the plan you look at—by shifting many government offices out of the city center. Attempts to create satellite cities have generally failed to date; people have moved but jobs haven’t, so the satellites have become dormitory communities for commuters who add to the daily traffic congestion. Beijing is privileged in having money, land, and millions of government workers it can direct to move, but other cities will study what happens there and emulate it if they can find enough land.

Movies in China: $$$

A Chinese movie will gross $500 million domestically in 2016. As a benchmark, the highest-grossing movie of all time on US domestic screens is Avatar, at $760 million. This year’s leading domestic productions in China were Monster Hunt (which has grossed $380 million as of September) and Lost in Hong Kong (more than $200 million). The leading international movie, Furious 7, grossed almost $400 million in China. The country’s box office has been set to grow by almost 50 percent in 2015, and new screen additions alone should deliver 20 percent–plus growth in 2016. More than half of the top-ten movies for 2015 (as of late November) are domestic productions, and 60 percent of the box office comes from Chinese movies. The country’s producers and directors have clearly tapped into what excites local moviegoers (and what censors permit).

A risk to this rosy scenario comes from online movies, which are growing even more quickly. Legend of Miyue, an 81-episode historical drama, was recently launched, simultaneously, on broadcast and online channels through Tencent Video and LeTV. It attracted 700 million hits online in just 24 hours. No wonder Alibaba has invested more than $4.8 billion in a leading video platform. Consumers seem to want both the cinema and the mobile-device experience. I believe this trend will continue, and we will see new milestones for the big screen in 2016.

China continues to go global, with the United Kingdom as a new focal point

China’s outbound investment will accelerate in 2016, with One Belt, One Road–related initiatives driving much of it. A second driver will be distressed-asset acquisitions in basic materials and related sectors: Chinese acquirers may plan not to extract the assets in the near term but simply to stockpile them as long-term insurance. Finally, a growing share of the acquisitions will come from private-sector companies that aspire to global leadership. These companies are increasingly sophisticated buyers, conducting quality due diligence, working with traditional advisers, and focusing on countries where they think that warm political relations will make it easier to do deals.

In 2015, for example, the political relationship between China and the United Kingdom reached new highs, capped by President Xi’s extended visit to Britain in October. Chinese investment in that country is spreading well beyond flagship properties—to sectors ranging from automotive to luxury yachts to oil to pizza—with the goal of acquiring technology, brands, talent, and market access. These moves build off investments in all long-established UK industrial companies with bases far from London.

Following the confirmation of a nuclear-power deal, there’s also a perception in China that almost no acquisition in the United Kingdom will be blocked for political reasons. On almost every trip there, I can now be certain to meet multiple Chinese private entrepreneurs looking for investments and partnerships. In 2016, I anticipate large financial-sector investments as London moves to become a leading renminbi offshore market and possibly also Chinese acquisitions of UK asset managers. There is growing investment in UK research as well. Expect announcements of partnerships between Chinese private-sector companies and leading UK universities, especially in medical, biotech, and advanced materials.

Other countries will seek to emulate this path to attracting Chinese investment at scale.

I won’t predict when China will win the World Cup. Realistically, it will qualify for the next couple of tournaments only if FIFA goes ahead with its idea of increasing the number of participating teams to 40. But as the example of England proves, not winning international competitions is no barrier to having a highly successful, incredibly valuable domestic soccer league. In 2016, China can really start to move in that direction.

As always, don’t overfocus on short-term noise about Chinese GDP growth. Try to identify the medium-term direction of the parts of the economy relevant to your business. Enjoy China in 2016!

Courtesy of McKinsey

When first-generation ETFs launched in the 1990s—such as the SPDR S&P 500 Trust (SPY) and the PowerShares QQQ Trust Series 1 (QQQ)—lead this year's outflows, that is a sign that institutional investors are scared. These first-to-market ETFs have the ample liquidity that big institutions tend to love, with many trading more than $500 million in volume a day. While newer ETFs that may do the same thing or more for cheaper have been launched in the intervening years, early ETFs still tend to curry favor with large investors that value liquidity. These investors tend to be more tactical, and thus outflows from these ETF stalwarts are a bearish sign. 

U.S. Treasuries of all maturities are raking in cash

According to Bloomberg, when U.S. Treasury ETFs are the brightest bright spot, that's not good. They have taken in more than $3 billion in net new cash (while junk bond ETFs have seen $2 billion in outflows). What is especially bearish is that the inflows into Treasury ETFs are spread across all maturities. This signals a flight to quality as opposed to positioning around a Fed move. The table below shows the variety of Treasury ETFs taking in cash to start year.

The latest market selloff can be blamed on any number of things.  China slowdown or a possible hard landing in China, basic profit taking after a six-year run, declining earnings, no further QE in the US, a uptick in rates in the US, weak US economy, commodity (including crude oil) collapse, weakening of 'risk' currencies due to the commodity selloff, disappearance of buybacks, dividends being lowered, strong US dollar pressuring balance sheets, bear markets in pc sales, rail fees,.........the list goes on and on.  Bottom line: we need something solid to rally on and I fear any earnings pops will be given back.  Netflix will be a good example tomorrow after the close.  We simply cannot justify going higher without a catalyst.

The Wall Street Journal reminds us that this is not 2008 redux but just 'where' we bottom is open to speculation.  So I'll just sit back with my hedges and wait it out.  Here I'll note a few things I haven't seen plastered across the internet. 

Although the monthly isn't complete, we already have a bear cross in major moving averages.  .

The 20 month moving average now becomes my "prove me wrong" area of resistance unless I hear something bullish out of the Fed.

We decisively lost the 30month EMA (the 20month now becomes resistance).  By the way, did you notice the selling along the way up?  Rate of Change definitely showed it as the market crawled higher.  A divergence right there if you were watching.

So now we watch for possible supports.  Will we retrace off the 2011 low?

Or something much further off the 2009 low?

Of course, by the time the pundits on CNBC or elsewhere admit we're in a Bear market defined by a correction of at least 20%, then we'll be nearing the bottom but more and more seem to be accepting that it's here.   Small caps who tend to perform well this time of year, are already down 22%. 

Stay in cash or have a hedge.  "Buy time" will come.  You just need to sit on hands and be patient.  The market's not going to disappear. Trust me.

Having worked in the mortgage field for a few decades, the scoring of FICO (or disgust of it) definitely caught my attention.  Some of the credit-scoring travesties are given.  In my opinion, they can't make changes fast enough......or merely admit you're only going to lend to the rich.  That's what it's coming down to; slowly but surely.

Naturally, lenders of all stripes have been evaluating credit for far longer than FICO (originally founded in the ’50s as Fair Isaac Co.) has existed. In fact credit rating standardization wasn’t a priority until the 1970s with the passage of the Fair Credit Reporting Act — and FICO data has only been widely available to lenders since 1987. The FICO scoring system (the 300-800) as we sort of understand it today has only existed since 1989 and it  wasn’t until 2003 that consumers had legal access to it.   

The question now, it seems, is are the days of the FICO score as the be-all, end-all consumer credit scoring standard coming to an end? Driven by alternative lending players who’ve moved beyond FICO and developed their own lending criteria based on proprietary algorithms, a consensus is emerging that the backward-looking FICO measurement system could perhaps stand a digital age makeover with models that are based more closely on the real-time data consumers are producing, as opposed to historical data about their spending and debt management.

One reason, as many have pointed out, is that those backward-looking methods tend to rather heavily penalize consumers whose credit history is merely “thin” or short. Currently, there are a little under 30 million Americans who are “credit invisible” — meaning about 11 percent of the adult population lack a developed credit file. Another 8 percent have some credit history, but not enough of one to generate a score, according to the CFPB.

Moreover, consumers can easily fall into what is called the credit Catch-22, where the consumer can’t gain access to credit due to lack of history (or a somewhat spotty past) — and can’t build that track record of good credit management, because no one will offer them credit to manage.  

But the alternative systems are predicated on the idea that there is in fact a good deal more of information about a consumer’s likely repayment path than data reported by banks and credit card companies to the major credit bureaus. One lender PYMNTS interviewed last week noted that FICO is becoming a less and less useful tool for many lenders and consumers.

“FICO-based underwriting doesn’t do a very good job of answering two questions: ‘Can you pay us back, and if you can, will you pay us back?’ And that’s what we’re really good at seeing, because we look at thousands of small data clues that give us the answer,” Doug Merrill, CEO and Founder of ZestFinance (and former CIO of Google) told PYMNTS in a recent interview.  

For a quick example, Merrill noted that Zest looks at customers with prepaid phones and how often they change phone numbers. Since customers “lose” their number by not reloading the phone promptly, a customer who changes their number a lot represents a much greater credit risk than one who has had the same number for a while — even if they have the same FICO score. One, he noted is a major red flag. The other is a sign you are dealing with someone who is serious about keeping their bills paid.

And as alt players like Zest (and VantageScore, and Kredditech, just to name a few) are gaining more and more traction with their alternative rating platforms, it seems even the most mainstream players are starting to come around.

Take, for example, TransUnion — one of the big three credit rating agencies. The agency is in the process of rolling out its own credit ranking system to capture consumers whose files are either too thin to evaluate the old way — or who are perhaps underscored via the traditional method.  

The new system is called CreditVision Link, and last week TransUnion noted that it is designed to paint a more detailed and nuanced creditworthiness profile — and offer a creditworthiness snapshot for those who are normally overlooked by traditional rankings. According to Mike Mondelli, the SVP of TransUnion’s Alternative Data Services, CreditVision Link is designed to assign a meaningful score to 95 percent of American consumers.

The score is generated, according to TransUnion, to take a closer look at a consumer’s traditional history supplemented by data not accounted for before. For example, while regular scoring includes whether you make required minimum balance payments on time, CreditVision Link focuses on the actual size of the payment and whether it is going down.

CreditVision Link further scans data not currently counted into the system, like how often the customer’s address changes (as it could indicate they are a problem tenant with timely payment issues) data from payday loans (which are not currently reported to the credit rating agencies) and checking account history (specifically if one has a history of writing rubber checks and getting their accounts shut down over them).

It should be noted, TransUnion’s Mondelli said, that more data does not always mean a higher score for the consumer. In fact, it could mean just the opposite (as things that were hidden before are now laid bare).  

However, Mondelli noted, by and large it helps. A recent auto-lending pilot using the new metrics saw an uptick in underwriting of 24 percent.

And TransUnion is not the only traditional player jumping into the wild world of alternative ranking systems. Even the classicists over at FICO are getting in on the act, so to speak, as it has developed its own new score (in conjunction with Equifax) which provides data on cellphone and cable accounts and LexisNexis Risk Solutions, which provides property records and other public data.  

They are calling it FICO XD. So far in testing, it has allowed more than half of all applicants who had been previously unable to get a score actually have one to call their own.

“It’s definitely an on-ramp,” said Jim Wehmann, EVP For Scores at FICO.

Or at least it can be. Chi Chi Wu, a lawyer with the National Consumer Law Center, noted that there is a risk, because these systems are under development and some consumers could be hurt depending on how information is gathered and leveraged as part of the new processes.

“With alternative scoring, the devil is in the details,” she said. “It really depends on the type of alternative data and how it’s being used.”

Courtesy of Pymnts.com

I have a number of friends who collect antiques ranging from blue glass to old jewelry and oil paintings and road shows are always an attraction but never in my world have I encountered this.  Amazing!  Do you think he had any idea in the 1970s, just how much the attraction would become?  Maybe I should go through my collectibles again. 

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 key issues are cited as factors contributing to this outcome.  Turnout is below expectations for both political parties.

2. The United States equity market has a down year.  Stocks suffer from weak earnings, margin pressure (higher wages and no pricing power) and a price- earnings ratio contraction.  Investors keeping large cash balances because of global instability is another reason for the disappointing performance.

3. After the December rate increase, the Federal Reserve raises short-term interest rates by 25 basis points only once during 2016 in spite of having indicated on December 16 that they would do more.  A weak economy, poor corporate performance and struggling emerging markets are behind the cautious policy.  Reversing course and actually reducing rates is actively considered later in the year.  Real gross domestic product in the U.S. is below 2% for 2016.    

4. The weak American economy and the soft equity market cause overseas investors to reduce their holdings of American stocks.  An uncertain policy agenda as a result of a heated presidential campaign further confuses the outlook.  The dollar declines to 1.20 against the euro.

5. China barely avoids a hard landing and its soft economy fails to produce enough new jobs to satisfy its young people.  Chinese banks get in trouble because of non-performing loans.  Debt to GDP is now 250%.  Growth drops below 5% even though retail and auto sales are good and industrial production is up.  The yuan is adjusted to seven against the dollar to stimulate exports.

6. The refugee crisis proves divisive for the European Union and breaking it up is again on the table.  The political shift toward the nationalist policies of the extreme right is behind the change in mood.  No decision is made, but the long-term outlook for the euro and its supporters darkens.  

7. Oil languishes in the $30s.  Slow growth around the world is the major factor, but additional production from Iran and the unwillingness of Saudi Arabia to limit shipments also play a role.  Diminished exploration and development may result in higher prices at some point, but supply/demand strains do not appear in 2016.

8. High-end residential real estate in New York and London has a sharp downturn.  Russian and Chinese buyers disappear from the market in both places.  Low oil prices cause caution among Middle East buyers.  Many expensive condominiums remain unsold, putting developers under financial stress.

9. The soft U.S. economy and the weakness in the equity market keep the yield on the 10-year U.S. Treasury below 2.5%.  Investors continue to show a preference for bonds as a safe haven.

10. Burdened by heavy debt and weak demand, global growth falls to 2%.  Softer GNP in the United States as well as China and other emerging markets is behind the weaker than expected performance.   

Added Mr. Wien, “Every year there are always a few Surprises that do not make the Ten either because I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are ‘probable.’”

Also rans: 

11. As a result of enhanced security efforts, terrorist groups associated with ISIS and al Qaeda do NOT mount a major strike involving 100 or more casualties against targets in the U.S. or Europe in 2016.  Even so, the United States accepts only a very limited number of asylum seekers from the Middle East during the year.  

12. Japan pulls out of its 2015 second half recession as Abenomics starts working.  The economy grows 1%, but the yen weakens further to 130 to the dollar.  The Nikkei rallies to 22,000.

13. Investors get tough on financial engineering.  They realize that share buybacks, mergers and acquisitions, and inversions may give a boost to earnings per share in the short term, but they would rather see investment in capital equipment and research that would improve long-term growth.  Multiples suffer.

14. 2016 turns out to be the year of breakthroughs in pharmaceuticals.  Several new drugs are approved to treat cancer, heart disease, diabetes, Parkinson’s and memory loss.  The cost of developing the breakthrough drugs and their efficacy encourage the political candidates to soften their criticism of pill pricing.  Life expectancy will continue to increase, resulting in financial pressure on entitlement programs.

15. Commodity prices stabilize as agricultural and industrial material manufacturers cut production.  Emerging market economies come out of their recessions and their equity markets astonish everyone by becoming positive performers in 2016.

This week, the SEC gave us a belated Christmas present.  But what does it actually portend?

The present in question is an 88-page "Research Note" from the SEC's Division of Trading and Markets titled "Equity Market Volatility on August 24, 2015." It's an innocuous-enough title, but for us market-structure wonks, it's kind of a big deal.

The conclusions of the piece are purely factual, and include dozens of pages of juicy charts and tables (be still my nerdy heart!). There's little or no conjecture, and there's absolutely no policy recommendations.

It outlines the facts of that fateful trading day, discussing what went wrong, and which classes of securities were affected. It's a gold mine for folks who want to dig in and understand what happens when things break, and, for any investor, it's worth reading at least the first six pages.

Key Findings

Here are the most interesting findings—not just because they're objectively interesting—but because they give you some insight into where the SEC may direct future policy:

• The SEC goes out of its way to point out that large and small equities—and large and small exchange-traded products—were almost equally affected. It hammers this point home repeatedly. To me, this signals that it is countering an internal (or external) argument that there's a "small-cap problem" when it comes to market structure, or that the liquidity haves/have-nots divide is the fundamental problem.
• The SEC makes a clear point of highlighting that 60% of the limit-up-limit-down (LULD) halts came when securities were trading up from lows. The not-too-subtle implication is that they're going to revisit the symmetry of the system. This is a good thing. People really only care, in general, about downside volatility. Sure, people building models, shorting or managing risk in a sophisticated way care about overall volatility. Actual investors? Not so much.
• While it highlights the same issues with the NYSE open and reopen process that I did in a recent blog, it makes a case study of the PowerShares QQQs, which, in tracking the Nasdaq 100, by definition includes no NYSE-listed securities. It points out that the Q's had just as big a discount problem in the heat of the open as did the iShares S&P 500 ETF.

It concludes by saying the things it actually wants to keep researching, and show its hand pretty well here: It wants to focus on how the LULD process works (or doesn't), and it wants to readdress marketwide circuit breakers. It also says it's looking at Reg SHO and the short-sale restrictions, although from my analysis, I don't see this as a contributing factor (but hey, I've been wrong before).

So What Does This All Mean?

It's important to understand the SEC's actions in context, and in total. The SEC is not a singular entity that speaks as one voice with one set of tools. Each division has its own regulatory bailiwick, and its own penchant for action or inaction.

The Division of Trading and Markets is generally concerned with plumbing and exchange regulation, and what we see here is it coming into line with where the big action has been lately, the Division of Investment Management.

The Division of Investment Management oversees mutual funds and ETFs (among other things), and the agenda there going into 2016 is enormously clear. There are more than 600 pages of proposed rulemaking currently out for comment, all of it focused on one thing: risk.

One set of rules has been proposed for managing liquidity risk. Another set of rules has been proposed for managing derivatives (and thus leverage) risk. This all comes after a set of questions back in June where it started treading into Trading and Markets territory, asking about whether exchanges should have look-through responsibilities when it comes to exchange-traded products.

Jumping On Risk Bandwagon

This data dump from Trading and Markets reads to me like a "getting on the risk bandwagon" statement. In general, I'm all for this. The SEC's job is to keep the trains running on time, and days like August 24 and unintended exposures through poorly constructed products are absolutely the kinds of things it should be focused on.

My hope is that it takes its time and really listens, because there are dozens of unintended consequences already baked into its proposed rulemaking. That's bad enough when you're talking about the inner workings of mutual funds and ETFs; it's a bigger deal when we're talking about the inner workings of the markets themselves.

The moral of the story: 2016 is a year in which investors—and investment managers—will need to pay very close attention to what's happening in Washington.

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

Presented without commentary other than ask yourself, "how much longer?"

With crowd source funding, your arm may become the next place to locate directions via GPS with a pico projector or the way you stay in touch with social media........without ever touching your phone.  Up for a donation; get a discount.  Imagine the possibilities.

Courtesy of Cicret Project

A reader asked the other day, "How much time do you need before you can separate skill versus luck in investing?" 

My answer was "probably 20-30 years," which he found astounding. He thought I'd say five years. But here's my reasoning. 

If a doctor performed one successful surgery, you can be pretty sure he's an expert. If he does one successful surgery every day for a year, he clearly knows what he's doing.

Investing is different. There are thousands of stocks, and at any given time, a fair number of them will be exploding higher. With millions of investors, some will be holding disproportionate amounts of those winners at any given moment. It can take five or 10 years of successful returns for an investor to make a case that results aren't entirely due to chance.

But even then -- with, say a 10-year track record of success -- an investor can't claim expertise. Or at least reliable expertise you'd expect from a doctor or an engineer. That's because the world is always changing, and the true sign of a successful investor is whether you adapt and change along with it.

Bill Gross, lauded as the most successful bond investor of all time, wondered a few years ago whether his success was merely due to 30 years of falling interest rates. He wrote:

All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience. Since the early 1970s when the dollar was released from gold and credit began its incredible, liquefying, total return journey to the present day, an investor that took marginal risk, levered it wisely and was conveniently sheltered from periodic bouts of deleveraging or asset withdrawals could, and in some cases, was rewarded with the crown of "greatness." Perhaps, however, it was the epoch that made the man as opposed to the man that made the epoch.

The true test of whether someone like Gross is a bond genius is whether they can keep their skill and outperformance up when the world changes, like during a 10- or 20-year period of rising interest rates. Or persistently high inflation, a surge in taxes, a world war, new regulations, or a depression. But most current managers may be long gone by then, retired comfortably on the success of the world they serendipitously spent their careers in. "Showing up at a gold rush with a shovel and a pan doesn't make you a genius," as one blogger recently put it. 

Take what stocks did from age 35 to 55. That's the meat of a money manager's career, the time to prove whether you're a standout. Depending on what year you were born, stocks produced all kinds of different results:

If you were born in 1910, the market surged during the teeth-cutting part of your career, and proving yourself a star was a matter of showing up, using a little leverage, and holding on tight. If you were born in 1930, the market was a disaster during your career, and becoming a star required incredible skill and patience.

During the half-century from 1899 to 1949 – a period of two world wars -- global stocks gained an average annual real return of 2.81%. From 1950 to 1999 – a period of relative calm – global stocks returned 8.53% a year.

I wonder, then, how many of the great investors of the last half-century would have fared if they born a few decades earlier?

Many would have adapted and thrived in different market environments. But some were surely one-trick ponies born in the right stable, and would have struggled to make money in a different era.

In his great book Investing, Robert Hagstrom compares financial markets to biological evolution. There's a tendency to think of markets as something that are established and rigid -- a set of numbers that get jumbled around. But they're not. Markets evolve over time. Successful strategies are selected, while those that are no longer effective -- usually because investors gain access to better information than they had before -- get pushed out.

Hagstrom looked at the last 100 years, and found that four popular investing strategies have come and gone.

In the 1930s and 1940s, the discount-to-hard-book-value strategy ... was dominant. After World War II and into the 1950s, the second major strategy that dominated finance was the dividend model ... By the 1960s ... investors exchanged stocks paying high dividends for companies expected to grow earnings. By the 1980s a fourth strategy took over. Investors began to favor cash-flow models over earnings models. Today ... it appears that a fifth strategy is emerging: cash return on invested capital.

"If you are still picking stocks using a discount-to-hard-book-value model or relying on dividend models to tell you when the stock market is over or under-valued, it is unlikely you have enjoyed even average investment returns," Hagstrom writes. You had to adapt over the years, discarding what no longer worked and figuring out what would work next. 

The real mark of an expert investor is the ability to adapt to different environments. Until you see an investor adapt to something new, there's a good chance that his real skill is being in the right place at the right time. Everyone is a long-term investor during bull markets. Can you keep your head on straight during bear markets? Adapt to a new world of low returns? Or higher interest rates? Adjust your strategy when it no longer works because so many other investors follow it?

The hardest thing is that things like interest rates, inflation, wars, regulations, and demographics work in long, 20-, 30-, even 50-year cycles. Few investors have track records that long, so we're left with two inevitable truths: There are investors with great track records who probably just got lucky, and there are poor investors who probably would have looked like geniuses if they'd been born in a different era.

Courtesy of TheFool

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 earnings are down 0.9 percent in the third quarter. Absent surprisingly high numbers from the companies left to report, it will be the first negative growth quarter since the third quarter of 2009.

Fourth-quarter estimates are for a 2.4-percent earnings contraction, according to Thomson Reuters IBES data; that would set up the two quarters of declining earnings, required for a bona fide 'earnings recession.'

That already occurred in the second and third quarters, according to FactSet Research Systems, which calculates its quarterly results slightly differently than does Thomson Reuters.

Furthermore, the decline in revenue has been steeper than that in earnings, a bad sign for investors who like to put money into companies that are growing sales and not just cutting costs or buying back their own shares. Last quarter's sales are seen falling 4.3 percent and estimates for the current quarter are for a 2.7-percent decline.

It is hard to argue that those numbers correspond to an economy that is on the brink of becoming too hot and in need for monetary policy tightening.

The bulk of the S&P 500's earnings declines come from the energy and materials sectors as commodity prices have tumbled to multi-year lows.

The Fed, then, could be looking at the earnings decline as it does low inflation: a problem that will take care of itself once the declines fall out of the comparisons.

But if the Fed does decide to raise rates despite the gloomy earnings, that could hurt investors who may get whipsawed by the diverging cycles in the market and the economy.

Conventional wisdom calls for a defensive position - buying healthcare, staples and telecoms - when corporate profits are falling, and aggressively buying cyclicals like energy and materials at the start of a tightening cycle. Both are happening at the same time.

"Rising interest rates are always a negative for stocks, period," said RBA's Zidle. "In most (tightening) cycles, corporate profits are booming so much that the rise in profits is more than offsetting the drag of interest rates."

FED PREPPING MARKETS

The Fed maintains its mantra of being data dependent when it comes to tightening monetary policy, and though it has strongly hinted of a December move, it also has acknowledged that it watches stock prices.

Investors are reacting accordingly: Last week the S&P 500 came within 1 percent of its record high set in May, but Friday it was on track to close its worst week in two months.

"Since 2013 every time the Fed signals a rate hike (the stock market) throws a tantrum, and that’s a little bit of what we’re seeing now," said Michael Arone, chief investment strategist at State Street Global Advisors' U.S. Intermediary Business in Boston.

"Over the last couple years, every time this has happened the Fed has decided not to raise rates so we shall see if that cycle is broken in December."

Courtesy of Reuters

Hat tip to BornBroke

This U.S. earnings season is on track to be the worst since 2009 as profits from oil & gas and commodity-related companies plummet leaving many to wonder, is the worst behind us or is there more to come?  Is China's growth story over or taking a 'rest'?  We've lived on ghost cities creating demand for so many years; where is the next growth story?

So far, about three-quarters of the S&P 500 have reported results, with profits down 3.1 percent on a share-weighted basis, data compiled by Bloomberg shows. This would be the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year.

The damage is the biggest in commodity-related industries, with the energy sector showing a 54 percent drop in quarterly earnings per share so far in the quarter, with profits in the materials sector falling 15 percent.

The picture is brighter for the telecom services and consumer discretionary sectors, with EPS growth of 23 percent and 19 percent respectively so far this quarter.

When compared with analyst expectations, about 72 percent of companies have beaten profit forecasts. That's only because the consensus has been sharply cut in the past few months, Jeanne Asseraf-Bitton, head of global cross-asset research at Lyxor Asset Management says in a telephone interview.

For the year as a whole, S&P 500 earnings are expected to fall 0.5 percent, data compiled by Bloomberg shows. For 2016, earnings growth is now seen at 7.9 percent, down from 10.9 percent in late July.

Next year's consensus is “still very optimistic,” Asseraf-Bitton says, citing the lack of positive catalyst seen for U.S. stocks in 2016 as well as the negative impact from the sharp slowdown in the U.S. energy sector.

By contrast, the euro-zone is the only region worldwide where earnings are expected to “grow significantly” in 2015, according to a note from Societe Generale Head of European Equity Strategy Roland Kaloyan.

Euro Stoxx 50 earnings are expected to rise 10 percent in 2015 and 5.7 percent in 2016, data compiled by Bloomberg shows.

Courtesy of Bloomberg