Archive for January, 2016

In China, People Are Disappearing, but Problems Aren’t

Monday, January 25th, 2016

President Obama has to be at least a little bit jealous of the power yielded by China’s leaders.  He may use executive orders to get his way, but he has yet to follow the lead of Chinese President Xi Jinping.

In the U.S., we control the stock market by allowing the Federal Reserve Board to buy trillions of dollars’ worth of bonds and lower interest rates to zero.

China goes a bit further.  It not only duplicates the U.S. approach of using quantitative easing to manipulate its stock market and currency; when the market fails to obey orders and go only in the upward direction, the government makes people disappear. China

“In all, executives from 34 companies have disappeared, with only some reappearing,” according to The Wall Street Journal’s L. Gordon Crovitz. “Among those was Guo Guangchang, chairman of the Fosun Group, who is known as China’s Warren Buffett. His interests include Cirque du Soleil, Club Med and the former Chase Manhattan Plaza in downtown Manhattan. Brokers and hedge-fund managers are also among the mysteriously missing.”

We suspect that the potential of disappearing creates an even more effective performance incentive than a Wall Street bonus, but China’s leaders don’t stop there. (more…)

The Stock Market Needs “Seasonal Adjustment”

Monday, January 18th, 2016

How many jobs did the U.S. economy generate in December?

The correct answer is:

  1. 292,000
  2. 281,000
  3. 11,000
  4. None of the above

David Stockman wrote on his “Contra Corner” blog: “According to the BLS (Bureau of Labor Statistics), the US economy generated a miniscule 11,000 jobs in the month of December. Yet notwithstanding the fact that almost nobody works outdoors any more, the BLS fiction writers added 281,000 to their headline number to cover the ‘seasonal adjustment.’”

Before "seasonal adjustment."

Before “seasonal adjustment.”

After "seasonal adjustment."

After “seasonal adjustment.”

When we checked the jobs report, the BLS claimed that the economy generated 292,000 jobs in December (after seasonal adjustment), not 281,000.  We couldn’t verify Stockman’s claim that the actual figure should be 11,000, but searching the term “seasonal” turned up a whopping 41 hits in a single news release.  So Stockman’s numbers may not be 100% accurate, but he’s clearly on to something.

The BLS press release noted, “The effect of such seasonal variation can be very large.” But large enough to use a multiplier of 25+?

Stockman wrote that an upward revision for December is typical as an adjustment to account for cold weather, but December 2015 was an exceptionally warm month.  Santa arrived in shorts and sunglasses.  (more…)

An IOU World

Monday, January 11th, 2016

Investment performance made most investors a bit grumpy by the end of 2015, given that virtually every asset closed the year down a bit.  During 2016, grumpiness is giving way to fear.

Here’s how the year began:

  • On the first trading day of the year, China’s Shanghai index fell 7% intraday. Traders fled, triggering circuit breakers after China reported a fifth consecutive month of weak manufacturing data.
  • Saudi Arabia severed diplomatic ties with Iran in response to the storming of its embassy in Tehran. Bahrain also cut ties with Iran. Oil prices rallied on the news, but stock prices fell.
  • Bad news in China plus bad news in the Middle East equals bad news everywhere and a sharp selloff in equity markets. European markets dropped more than 2% across the board, Dow futures were down nearly 300, and S&P futures were trading down more than 1.6%. Global Debt

Things have only gotten worse since then.  By the time the market closed on Thursday, the Dow Jones Industrial Average was down 911 points – a drop of more than 5% in just four days.  That’s the worst four-day percentage loss to start a year on record, according to FactSet stats that go back to 1897.  The Nasdaq index, meanwhile, was down more than 6%, its worst start since 2000.  (more…)

Happy New Year: Meh.

Monday, January 4th, 2016

Well, it’s a brave new world for us cynics. Somehow, we all survived another year, but it wasn’t easy.

It was a good year for terrorists (Paris, San Bernardino), despots (hello Cuba, Syria, Iran, et al.) and hackers (any repercussions from China’s hacking of government records, federal employees sharing classified documents on unsecure servers, etc.?).

It was a bad year for investors.  Or, if not bad, not so good.  Heck, even Warren Buffett lost money, although he can afford a nick more than the rest of us. 2015

It would be generous to say that stocks ended the year “sideways,” as the year was volatile and the beginning was much more forgiving than the end.  Overall, though, the year was as flat as Twiggy in Nebraska.  As The New York Times put it:

“Name a financial asset — any financial asset.  How did it do in 2015?

“The answer, in all likelihood: Meh.

(more…)