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Slowing Job Growth, Low Inflation Make Likelihood for Rate Hike Doubtful


Fed Chair Janet Yellen may not think the time is right to raise interest rates, but many retirees and other savers, would beg to differ. They say the time is right, and that it has been right for years.

The low interest rate environment has impacted these groups perhaps more than any other. Those who’ve saved using traditional types of vehicles, such as a CDs or savings accounts, can be the equivalent of putting their money under the mattress because the amount of return on saving through such vehicles is so low.

While Yellen frets over the overall health of the economy in determining when it will be healthy enough to sustain a rate hike, savers have some savings instruments they can use to increase their returns.

Before we get into those vehicles, let’s review some of the factors that have led to this low interest rate environment.
 

 · Semi-annual testimonial

 
This week, Yellen was on Capitol Hill to update lawmakers on a wide array of financial issues. She explained that while the economy showed signs of improvement, such as an improved unemployment rate. Still she remained cautious because hiring was slowing.

She told members of the Senate Banking Committee that there were a number of different metrics over the last several months that suggest a loss of momentum in terms of the pace of improvement.

“We believe that will turn around, we expect it to turn around, but we are taking a cautious approach and watching very carefully to make sure that that expectation is borne out before we proceed to raise interest rates further,” Yellen said.

One good thing for savers that came from Yellen’s talk was that the Fed would not implement a negative interest rate policy. However, she acknowledged that the Fed does have the authority to do so.
 

 · Chance of hike this year

 
There could be two hikes this year, according to Yellen. However, it looks like one would be most likely and would likely not occur until after the November elections.

An immediate headwind is Brexit, which is the possibility of Britain leaving the European Union. The vote is set for Thursday. If voters decide to leave the EU, it could cause turmoil in the markets. This is the last thing the economy needs, and it could lessen the chance of a rate increase.

Some speculate that the Fed could announce a rate hike in July when it meets. However, the market, and investors, has learned to not put much stake into the rumor mill when it comes to the Fed and interest rates. It was thought that the monetary policy was set to raise rates this month. All eyes were on the May jobs report as being the nudge the Fed needed to raise rates. However, it sorely disappointed. Only 33,000 jobs were created; at least 240,000 had been expected
 

 · So what a saver to do?

 
Instead of watching all of these metrics to determine when, and if, the dovish Fed will raise interest, savers should consider some of the following as ways to maximize their returns during this low interest rate environment.
– Dump the Government Bonds
Although government bonds have traditionally been great investments, that’s not the case in low interest rate environments. Instead, consider something like bond ladders. We told you most recently about this method in April. Bond ladder portfolios contain bonds with different maturities bonds and coupon payments. They can be reinvested according to the “rungs” that make up the ladder. For example, bonds that are reinvested in the longest rung of the ladder offer higher yields than those bonds that are reinvested in the shorter rungs.
– Stocks
Reallocate a portion of your income-oriented portfolio away from bonds and into stocks, according to Barrons. It states that a comparison of earnings and bond yields suggests that, at least on a relative basis, equities are still the better bargain. Seek out stocks from companies that offer dividends.
– Leveraged funds
Consider real estate investment trusts, or REITS, that invest in mortgage-backed securities. These REITs are popular because they are known for their high dividend yields.

Also consider leveraged closed-end funds. They can thrive in low interest rate environments. However, investors must be aware of the risks, so it is best to discuss this option with your financial advisor.






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Posted by TwillyD June 21, 2016
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Like It or Not; Brexit Referendum is Coming

Like It or Not; Brexit Referendum is Coming

You’ve likely heard about Brexit by now, and the rhetoric over it is ramping up considerably. In this piece, I’ll give you some tips about how you can play the market in the wake of the historic vote.

 

 · First, let’s go over what exactly is Brexit

 
Brexit is an abbreviation of British exit. To decide whether Britain should leave or remain in the European Union, a referendum is being held on Thursday, June 23.
Observers seem equally divided about whether voters will approve the exit, but they are fairly equal over who will be hurt by it.
 

 · Sectors that could be affected

 
Jamie Dimon, the CEO and Chairman JPMorgan (NYSE: JPM), said his bank has more than 16,000 employees in Britain. That means that 4,000 workers may have to move from the U.K. That could hurt the British economy, and be a headache for the bank. Other U.S. banks may have to deal with this, and they include Citigroup (NYSE: C) and Morgan Stanley (NYSE: MS)

Banks have already faced global uncertainty, and there are concerns that will increase this week and lead to volatility. Then there is the release of the results of annual stress tests by the Federal Reserves, also on June 23.

Retailers, insurers, other financial sectors and property-related stocks may not be affected as much.

A vote to leave the EU could cost banks billions of dollars, if they lose a key right known as “pass porting,” according to Market Watch.
 

 · Risk companies

 
Traders note that companies with high sales exposure to the U.K, like eBay (NYSE: EBAY), Xerox (NYSE:XRX) and Ford (NYSE: F), which gets 18% of its revenues from the U.K.

Bloomberg and J.P. Morgan found that Penske Automotive Group (NYSE: PAG) gets the largest chunk of its revenue from Britain — 33.4%.

Coca-Cola Bottling, which manufactures in the U.K., Abercrombie & Fitch, Gap, Delfy, Invesco, and Walmart are also heavily exposed to Britain and likely to suffer in the event of a Brexit.
 

 · What if they remain

 

If Brits vote to leave the EU, government officials will have two years to change their minds. Leaving the EU would shift the U.K.’s trading position to other foreign governments.

This time of uncertainty over whether the Brits will decide to go back (if they exit) is the issue. One of the worst things for the markets is uncertainty. So during this two years in which market players won’t know what Britain will do could be a period of marked volatility.

If the people of Britain vote to remain in the EU, investors should make sure their portfolios are balanced by reestablishing their assets so they are back up to normal levels.

Also, avoid making short-term investing decisions if Brexit becomes reality, and Britain exits the EU. Hold your positions, if you can, for the long-term.

Morgan Stanley pointed out some good issues that investors need to watch out for:

• The bank calculates a 30% probability that Britain will leave the EU. Based on these numbers, the bank sees that numerous assets, seen in the table above, "reflect less risk premium than we think is warranted." In other words, many places are not calculating enough risk into these assets.
• The pound and the euro will be hit on a Leave vote, but even if Britain decides to stay in the EU, there will be only "modest gains." Morgan Stanley expects the pound "to weaken immediately on a vote to Leave, but by year-end we think Euro could weaken even more."
• US equities are a better buy for investors right now.
• The European Central Bank's corporate bond purchase programme has "reduced sensitivity" to a Brexit, and therefore European corporate credit "has the most balanced risk/reward." But the programme hasn't mitigated Brexit risks completely.
• A Leave vote won't make it easy for the Bank of England's Monetary Policy Committee to ease credit conditions for the market.






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Posted by TwillyD June 20, 2016
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Redstone Keeps His Word To Replace Viacom Board


UPDATE: On Thursday, June 23, the judge overseeing the case about the Viacom directors being replaced by Sumner Redstone has ruled they can remain for now, according to CNBC.

It seems that Sumner Redstone is making good on his threat to rid the current members of Viacom’s (NYSE: VIAB) board of directors.

Now let’s see who he will choose to be on the board. I think that he will do well to get rid of the failing Paramount Pictures. And going further to recombine with CBS (NYSE: CBS) would be the icing on the cake.

Earlier this month, we wrote about the turmoil going on between Redstone, who is the controlling shareholder, and members of the board. Specifically, Redstone, and his daughter Shari, took issue with Viacom Chief Executive Philippe Dauman and board member George Abrams.

Shari. She’s thought to be pulling the strings, as opponents of the changes charge that the 93-year-old Sumner Redstone may be making such dramatic decisions because of a diminished mental capacity.
The lawsuit
Dauman and Abrams had vowed to sue Redstone if they were removed. Redstone owns roughly 80% of the company National Amazements, which gives him controlling voting stake in Viacom and CBS.

In addition to Paramount, Viacom operates BET, MTV, Comedy Central, Nickelodeon and VH1.
 

 · Change needed

 
Look no further than the company’s latest earnings report, which was released on Friday. They were for the second quarter of 2016. Quarterly revenues declined 3% to $3 billion. Media Networks revenues were $2.38 billion, a decline of 3%.

Domestic advertising revenues decreased 5%, as pricing increases were more than offset by softer ratings at some of its networks. International advertising revenues declined 1%.

Viacom’s stock traded on news that the board replacements. Also, RBC upgraded Viacom to sector perform from underperform. It also raised the price target on the share price to $45 from $34.

Guidance issued by the company for the third quarter indicates it will decline.
According to CNBC, Viacom’s Class B shares have performed well this year, trading nearly 8% higher. Still they are more than 33% lower over the past 12 months.
The future

Viacom is looking to Paramount’s release of Teenage Mutant Turtles: Out of the shadows and Star Trek to help it line its coffers. However, Teenage Mutant Turtles is having a tough time of it. The release of the Star Trek Beyond movie because of its strong following of “Trekkies.” It’s difficult to count on that to help Paramount financially.

Crying foul over their removal, and the negative consequences they perceive the changes will have on the company, Dauman and Abrams are vowing to fight to get their positions back. A hearing over the matter has been set for June 7 over the matter.

As I said in May, given that so much is up in the air for Viacom, I would not invest it in in the short-term. While I said a long-term play would be more appropriate to allow time, I don’t think so now. The stock is cheap, but it could be a value trap. Also, it could be a takeover target, but who would touch it now.






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Twilio, Several Other IPOs on Tap This Week


Twilio opened Thursday, June 23, at $15 a share. During intraday trading it surged 92% above that price and closed at $28.79. It’s market cap is valued at $2 billion.

As you know, there have been few opportunities for investors to get in on initial public offerings this year. However, that will change next week as four companies, with various sized offerings will be in the market.

The market has been especially dry for Silicon Valley tech companies going public, but Twilio will change that. The cloud communications company is expected to well, which could spur other tech companies to go public.

Twilio is looking to raise up to $130 million, with 10 million shares priced between $12 and $14. Twilio is one of the bright stars, startup companies in the tech sector right now. It’s been reported that Twilio’s offering will be the first initial public offering from the tech sector in six months. The last IPO from Silicon Valley was Square, the payment systems company.

One of the reasons tech companies have been slow to go public has to do with so-called unicorn valuations, which refer to startup corporations with valuations of at least $1 billion. Twilio’s valuation is $1 billion.

Twilio is fast-growing due to the type technology it offers. It is aimed at software developers and some of the companies that use it are Facebook and Uber. They use Twilio’s technology to add voice or text communications features to their apps.

While Twilio’s market cap is estimated to be $1 billion, its profits are virtually non-existent. Its annual revenues rose to $167 in last year. That’s impressive considering it was just $50 million in 2013.

Through six rounds of funding, from 23 investors, it achieved $233 million of funding. Twilio will trade on the NASDAQ under the ticker TWLO.

Angel investors have gone to town with tech companies, which has caused their valuations to reach these billion-dollar levels. This has made them unattractive to investors who trade stocks in the public market.

Many startups have many reluctant to go public because they may have to discount their valuations, which many are unwilling to do.

Roger Lee, a general partner with Battery Ventures, said he doesn’t expect a surge of tech IPOs to immediately follow Twilio. But to break an IPO market out of a slump, one or two brave companies must go first and test the waters, he said.

“There are at least 20 or more really good companies that could go public in the coming few quarters here, and if there is a successful IPO from Twilio, I wouldn’t be surprised to see them push forward with their own IPOs,” Lee said. “That’s why everyone’s watching.”

Selecta Biosciences plans to raise up to $75 million in its IPO. The biotech company uses synthetic vaccine nanoparticles to develop treatments for rare and serious diseases. Selecta reported $6 million in revenue for a loss of $3.88 a share for 2015. It plans to trade on the NASDAQ under the ticker SELB.

Gemphire Therapeutics will seek to raise $45 million through the offering of 3.8 million shares. It plans to raise $45 million at a price between $11 and $13 a share. About 22% of the shares, or $10 million worth, will be purchased by insiders. The company develops therapies for the cardiovascular disease dyslipidemia.

Tactile Systems Technology, which sells at-home compression therapy devices for vascular swelling, plans to raise $60 million by offering four million shares. The price range will be between $14 and $16.

The Minneapolis-based company plans to raise $60 million by offering 4.0 million shares at a price range of $14 to $16. At the midpoint of the proposed range, Tactile Systems Technology would command a fully diluted market value of $262 million.






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Smith & Wesson Among Gun Makers Whose Sales Soared Last Week

Smith & Wesson Among Gun Makers Whose Sales Soared Last Week

As the nation mourns the Orlando terrorist attack by a man who was radicalized and pledged his allegiance to ISIS, Smith & Wesson is enjoying a spike in sales. In fact, the gun-maker’s surged to just a few dollars; of its new 52-week high of $30.44.

Gun-maker Smith & Wesson (NASDAQ: SWHC) rose more than 7% during intraday trading on Friday. Two factors contributed to the stock’s soar.

One is the gun-maker beat analysts’ estimates for its fourth quarter. Revenue in the fourth quarter reached $211 million, representing 22% growth. Earnings per share can in at $.66. Analysts were expecting just $.54. Gross margin for the quarter was 41.6% compared with 37.1% for the comparable quarter last year.

However, guidance was $.51 to $.53. On the news, Smith & Wesson stock soared.
The second reason the stock is up is due to it being upgrade to buy from hold. Craig Hallum has a price target of between $26 and $28. Wedbush reiterated its neutral rating on the stock earlier this month. Its price target is between $26 and $23.

James Debney, Smith & Wesson President and Chief Executive Officer, commented, “Our solid fourth quarter and full year performance further validates our vision, which is to become the leading provider of quality products for the shooting, hunting and rugged outdoor enthusiast.”

Debney boasted that the company continued to execute on its long-term strategy, while delivering financial and operational results that set a number of new company records. Its firearms division, enjoyed several important new product introductions and continued to leverage its flexible manufacturing model, allowing the company to benefit from strong consumer demand.

The company expects fiscal 2017 to have a strong balance sheet, combined with its track record of successful acquisitions. That positions the company well for an expanding role in the market for products for shooting, hunting, and rugged outdoor enthusiasts, according to Debney.

Debney’s positivity about fiscal 2017 reflects increased sales due to the renewed calls for gun control. Sales have spiked following previous massacres. The shooting in Orlando claimed 49 lives.

One reason the stock may be surging is because analysts believe the outlook provided by management is conservative, given it hasn’t accounted for a potential spike in demand that would come after the Orlando shooting.

However,Yahoo Finance quoted the company’s CFO Jeff Buchanan as saying, “basically, this guidance does not take into account any surge, any potential spike in consumer demand as a result of any

Gross margin performance remained strong throughout fiscal 2016, driven by robust volumes in our firearms division and favorably impacted by the strong gross margins in our accessories division.

In fiscal 2016, Buchanan said the company we generated $168.6 million in operating cash flow, establishing a new company record. We ended the year with cash and cash equivalents totaling $191.3 million and total bank debt and Senior Notes of $175.3 million, leaving us with zero net debt. In fiscal 2017, we expect to use the strength of our balance sheet, including our unused $175 million revolving line of credit, to fuel growth opportunities, both organic and inorganic.”of that. He added that with regard to what happened in Orlando, any impact on demand is unknown and therefore not included in its guidance.

Shares of sellers were up many of the companies last week. Zacks reported that Sturm Ruger & Co. (NYSE: RGR) climbed to 8.5% after Orlando shooting. Vista Outdoor Inc. (NYSE: VSTO), which makes ammunition was up roughly .19%. rose about 0.19%.

Sporting goods retailer Sportsman’s Warehouse Holdings, Inc. (NASDAQ: SPWH) saw its shares fall 2.55%. Cabela’s Inc. (NYSE: CAB)l shares fell 1.59%.






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IEX: The new stock exchange aimed to slow down high frequency trading


This post was originally published at New York Times.
 

IEX stock exchange floor
The IEX office/trading floor, located in downtown Manhattan. Credit Cole Wilson for The New York Times

America is getting a new stock exchange from the most prominent critics of high-frequency trading.

After months of delays and a brutal lobbying battle that divided Wall Street, the IEX Group won approval on Friday from the Securities and Exchange Commission to become the nation’s 13th official stock exchange.

IEX is run by the people at the center of the Michael Lewis book, “Flash Boys: A Wall Street Revolt,” which profiles the early efforts of the IEX team to create a trading exchange that would be somewhat shielded from high-frequency traders.

Other exchanges and trading firms had urged the S.E.C. to reject the IEX application to become an exchange.

Opponents of IEX, including the other stock exchanges, have argued that the structure of the new exchange will add unnecessary new complexities into an already complex stock market, and potentially end up hurting small investors.

But the three S.E.C. commissioners all voted on Friday to approve the IEX exchange, with one commissioner, Michael S. Piwowar, a Republican, dissenting on a few points.

“Today’s actions promote competition and innovation, which our equity markets depend on to continue to deliver robust, efficient service to both retail and institutional investors,” Mary Jo White, the S.E.C. chairwoman, said in a statement.

The most novel and controversial feature of the IEX exchange is a so-called speed bump that would slow down trading slightly to throw off traders that rely only on speed.

The speed bump slows trades down by only 350 microseconds — or millionths of a second — but that is an eternity in a stock exchange universe in which computers can buy and sell stocks in nanoseconds — or billionths of a second.

The Nasdaq, and other existing exchanges, have said that the IEX’s speed bump will violate rules mandating that exchanges make their prices available to all parties at the same time.

IEX’s critics have also said that the speed bump could add new complications into a stock market infrastructure that is already criticized for its complexity.

In a statement, the S.E.C. said that the commissioners “determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner.”

The S.E.C. did say, though, that within two years it will do a study to examine whether the delays lead to problems in the markets.

If nothing else, the approval of the exchange will provide an opportunity to test the many competing theories about what impact the IEX’s speed bump will have on the pattern of trading.

The IEX has been a flash point in the broader debate over technological changes that have altered the basic functioning of the American stock markets over the last two decades.

IEX won support — and financial backing — from several large mutual fund companies, which said that the exchange would help them trade more cheaply and efficiently, as well as from hundreds of small investors, many of whom read “Flash Boys” and wrote in to the S.E.C.

Brad Katsuyama, the chief executive of IEX, said on Friday night that the company was “grateful and humbled by the support we’ve received from the investor community, without it, we may have faced a different result.”

In addition to the speed bump, the IEX has said it will not offer the same fees or rebates that other exchanges do to attract traders, a common practice at other exchanges that has been criticized for distorting trading incentives. The IEX also offers fewer complicated ways to enter trades than other exchanges, in an effort to simplify trading.

Mr. Katsuyama has argued throughout the application process that IEX would provide a market-based solution to the problems created by high-frequency trading rather than requiring the S.E.C. to change the rules governing the markets.

The other exchanges have complained that the IEX was essentially asking to be exempt from rules that governed them.

In a letter written in May, Nasdaq’s lawyers suggested that the S.E.C. could face a lawsuit if it approved the IEX application. A spokesman for Nasdaq said on Friday that the exchange company had no comment on the S.E.C.’s decision.

Larry Tabb, a market analyst with the Tabb Group, said the IEX speed bump could end up benefiting more sophisticated traders, like high-frequency traders, who can find ways to take advantage of the small delays.

“It hurts the broad middle who may not have access to the best tools,” Mr. Tabb said.

The hedge fund and trading firm Citadel has been one of the most outspoken critics of the IEX application. On Friday, a spokeswoman for Citadel said that the S.E.C.’s decision “will test and potentially reverse the gains in fairness, efficiency and transparency that have been made to our markets over the last decade. We must be vigilant to identify unintended consequences.”

Another relatively new American stock exchange company, BATS Global Markets, initially supported the IEX application, but earlier this year withdrew its support, pointing to “gross omissions of fact” by IEX. BATS wrote that the problems “call into question the applicant’s professional judgment.”

On Friday, a BATS spokesman, Randy Williams, said that the company “congratulates IEX and appreciates the significant changes they made to their application to address industry concerns.”

IEX has already been operating as a private trading pool and has recently been attracting about 1.6 percent of all daily trading volume.






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Posted by Guest June 17, 2016
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How To Start An Online Trading Business?


It is an appealing idea for many people to start with online trading. You are your own boss, set your own schedule and work from the convenience of home with unlimited income potential. Adding to the advantages anyone with a laptop and working internet connection can give it a try by just opening an easy trading account with the broker of your choice. There are no degrees, special training or experience needed in this profession unlike many others.

 

 · Online trading is not as easy as it seems

 

But many people often fail to acknowledge the financial, emotional and timely commitments which are required to create a successful online trading business with XTrade or any other broker. Here are some of the quickest facts about trading-

 

  • There is no way to eliminate the risk in trading completely
  • There is no trading system which provides you win 100 percent of the time
  • Even you are a rock star trader, you have to face some losing trades at times
  • With a small trading account it takes time to get rich
  • It is not a way to become rich overnight and it takes time to gain substantial income

 

The ease with which you are able to start trading does not imply that it is easy to become a profitable and successful trader. Many of the online traders who fail within the first year do so because they have not developed any type of logical plan and strategies in place. Any business with a lack of planning is likely to fail.

 

 · It needs planning, research and discipline

 

As a business, it requires constant research, discipline and evaluation. There is no guarantee in this and you might work a number of hours and might lose money in the end. Anyone who joins this business must be ready to accept these challenges and plan every move in advance to get the best results.

Ask yourself this before you start with your adventure:

  • Am I motivated and driven for success?
  • How to handle the losses?
  • Do I have time for learning the trading business?
  • Do I have a support?
  • Do I have realistic expectations?
  • How to deal with stress?

 
So, you need to ask yourself the questions mentioned above and then decide what would be the best course of action. Whether you become a part time or full time trader, you should give some time to research and plan the trading business you have. This profession is not the profession where you achieve all the skills overnight. It takes some time in learning the skills of trading, which pays off in the long run. Traders who have realistic expectations and who treat online trading as a business are more likely to succeed and beat the odds.
 
 






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Posted by Martin June 17, 2016
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The Math of S&P 2200


This post was originally published on Yahoo Finance.

 

 

I want to discuss a meta-theory about how and why the stock market can go higher this year, despite valuations and sluggish growth in the economy and earnings.

 
This theory involves 5 elements:

  1. The investment machinery of Wall Street where trillions of dollars are ear-marked solely for stocks and managers “have to buy”
  2. Extraordinarily low interest rates and a central bank committed to avoiding any action that could lead to recession

  3. Weak global economy and foreign central bank commitments (BOJ and ECB) making US equities the TINA (There Is No Alternative) stars of investing

  4. Quantitative factor investing whose current “Buy, Buy, Buy” input is the premium between the earnings yield on stocks and that of the 10-year Treasury

  5. The dividend yield on the S&P 500 is 2.1%, 50 basis points higher than the yield on the 10-year

 

We define “earnings yield” as the inverse of the P/E, and thus another way of looking at valuations.

So if I say that the current forward P/E of the S&P 500 is 18 because 2075 / $115 EPS, then the inverse is $115 / 2075 or 5.5%.

Thus, 5.5% is the earnings yield of the index. Just like we want “low” P/E ratios, we want “high” earnings yields. They are opposite sides of the same coin and move inversely.

You may be familiar with my #4 element as the “equity risk premium” concept, which is the amount of the excess return that investing in the stock market provides over a risk-free rate, such as the return from government Treasury securities.

This excess return compensates investors for taking on the relatively higher risk of equity investing. The size of the premium will vary depending on the level of risk in a particular portfolio and will also change over time as market risk fluctuates. As a rule, high-risk investments are compensated with a higher premium.

 

 · Great Theory, But What About the Real World of Investing Risk?

 

Lest you think this is some merely theoretical, text-book finance discussion, let me make sure you understand that I also used to think so.

But to Steve Reitmeister goes much credit for being relentlessly focused for many years on the excess premium, or “spread,” between the earnings yield and Treasuries.

Why is this so important?

Let’s look at the attractiveness of this earnings yield compared to alternatives.

Versus a 1.6% yield on the 10-year Treasury, that’s a juicy 3.9% premium.

Is that enough compensation? How much excess premium do institutional equity investors who use quant models really want?

According to Investopedia, survey of academic economists gives an average range of 3-3.5% for a 1-year horizon, and 5-5.5% for a 30-year horizon. Meanwhile, much more conservative CFOs estimate the premium to be 5.6% over T-bills and 3.8% over T-bonds (maturities of greater than ten years).

So it looks like the premium isn’t that juicy after all compared to what professional investors and their advisors say they want.

In the video that accompanies this article, I show a graph of the equity risk premium going back to the early 1960s. The historical average looks like it is actually closer to ZERO! And this is because it often went negative.

In other words, investors have been very accustomed to accepting far more risk for owning equities, and demanding far less premium vs other alternative asset classes like risk-free government bonds.

Remember my #1 real-world “secret” of Wall Street: “they have to buy.” Equity long-only fund managers are in a desperate competition against the benchmark and each other for survival. They can’t sit in cash, so they keep pushing out investments along the risk curve of alternatives.

And since this has worked out quite well for the survivors over many ten-year periods, it’s no wonder they keep doing it.

 

 · The Quant Models Are Pushing Cash — And Everybody Else — Into Stocks

 

You understand the first 3 elements of my meta-theory because I talk about them all the time.

The fourth and fifth additions seal the deal for new highs this year because many investment managers don’t want to think.

They want to use a quantitative model that tells them what to do.

If these large, quantitative, and “competitive” (risk-taking vs. risk-averse) investors keep pushing cash into stocks with relentless flow, they force everybody else in too.

Every short. Every fund manager competing for his breakfast. Every technical break-out trader and momentum hedge fund.

And that is the math of new highs this year, especially after St. Louis Fed President James Bullard suggested on Friday morning that the FOMC may only hike rates once more until the end of 2018.

The Fed has no problem feeding and fueling the stock market wealth effect. They know it’s better than the alternative where a weak market could tip us into recession.

Long live buyers of the equity risk premium!

And be sure to watch the video that goes with this article for all the math and mechanics explained in more detail.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the FTM Institutional portfolio.






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Posted by Martin June 15, 2016
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Fed keeps rates unchanged. Of course!


 

 

The Federal Reserve has wrapped up its latest two-day meeting and Janet Yellen is set to address the media in Washington, DC. Yahoo Finance has all the latest on the statement and Chair Yellen’s press conference.






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Posted by Martin June 14, 2016
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Just for the record: Will the market (S&P 500) reach 2,400 this year?


Today, we saw the market in its third day of selling, falling hard off of the highs and increasing fear among investors and speculators.

Yet I could find one who was optimistic enough to claim that the selling is far over and that the market will actually go a lot higher in a matter of a few months.

 

 · Why I decided to write about it?

 

There is tons of people, investors, traders, and speculators out there competing in predicting the next move of the market.

This guy, however, sparked my attention because he said something I could see myself and strongly agree with. So I wanted to record his prediction to see if he was right or not. This post will stay here for some time and in a few months I will be able to go back and see if his assessment was right.

Why bother doing it? Well, the trader, I am talking about, has a 6 year record of consecutive beating of the market by a quite large margin (really impressive in my opinion).

In 2010 he started trading in his own mutual fund (he traded and invested in the market longer than that, but started his own fund 6 years ago) and since then he beat the market every year. His average annual return is 18.34% while S&P average return is only 10.47% for the same period.

His name is Ivan Kollar and he is a manager of Marketocracy fund. You can check his performance on his track record page.

 

 · What is it that sparked my attention about this prediction?

 

Ivan says that many investors are wrong in counting the cycles of the market. They misinterpret cycle count counting the current rally as another corrective cycle. Investors and traders simply expect another selloff. Ivan says that it is wrong and that we corrected from $2134 down to $1810 in February and that was a bottom.

This claim wouldn’t be significant alone to me. I would normally consider it as yet another prediction from another crazy guy out there.

But I noticed one thing in the current market sentiment which supports his claim that investors are wrong about their assessment.

As a member of StockTwits I follow S&P on that website and it also shows the market sentiment.

And the current market sentiment can be summarized as the most sold rally ever. Why? What happened?

Since February 2016 the traders’ sentiment was 70% – 80% bearish. All the time! They simply refused to believe in this rally and they were bearish all the time.

Here, see an example:
Market Sentiment
 

The sentiment above shows “elevated data” as for the long time there were only 20% bulls!

However, I do not give too much credit to all claims of people on StockTwits. Their claims and trades are not verifiable. Many members claim driving Lamborghini and in reality they might not even have a drivers license yet. So, I am taking their claims and sentiments with a grain of salt.

But this sentiment could be seen at American Association of Individual Investors (AAII) where only 27% of members are bullish. The rest is neutral or bearish.

And I have noticed myself that investors have not believed the rally. Articles and posts on financial blogs were mostly gloomy and with every little price drop posts about perma-bears such as George Soros emerged describing why this market was going to crash.

This is why Ivan’s interview caught my attention and I am actually willing to give him a credit and accept that there is something to his claim.

 

 · Let’s put a time stamp on this prediction

 

Ivan says that “we are about to embark on the next upswing, (we might have already started) which will bring the market to 2400 and beyond before we take another break and move downward”.

He adds: “The market will be decidedly higher within the next few months and the seesaw action that has occurred since the beginning of the year will vanish.
With the market nearly flat for the entire year, we are about to embark on a protracted rally that should last about 3 months. The market move from February until April is part of a larger move which will continue upward again in either late May or early June”
. (source: Forbes)

I must admit I am bullish on the market and have a bias upward so I welcome this prediction and hope it will materialize. But I am not going to trade that. I would stick with a conservative put selling strategy against dividend stocks and see how this prediction plays.

I am recording this prediction on my SPX chart and will watch it over the next few months. Let’s see if this trader is good at counting market cycles:

SPX prediction

I will come back and review this prediction three months later.

 

 · What about you? Do you think we will reach $2400?

 

What do you think about this prediction? Will we reach this level or the guy is just one of many who are typically wrong? Let us know what you think and vote:

Will the S&P 500 reach $2,400 in the next 3 or 4 months?


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