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Are we at a market peak?
Capital Markets
<p>The question that seems to be occurring to more and more people is, “Are we at a market peak?” It has been a multiyear bull market, stock prices have tripled from the base, profit margins have been at record highs for years, and now interest rates are going up. It’s not a crazy thought.<br /> Signs of a peak<br /> Mega-mergers have taken off, the most recent being the SABMiller merger with Anheuser-Busch Inbev. Technology companies are rocking, with multibillion-dollar valuations for Airbnb, Uber, and many others. It sounds like we’ve seen this movie before.<br /> We may indeed be at a short-term top, as valuations are stretched, and it may take some time for earnings to catch up. The question behind the question is, “Are we at a roller-coaster top, one that will be followed by a precipitous decline?” Again, this is not a crazy thought, as the last two tops—in 2000 and 2007—have been exactly that. The last thing anyone needs right now is another 50-percent decline in the market.<br /> Look at the past<br /> The thing to remember is that big drops, like the past two, are not the result of just the markets but of a combination of the markets and the larger economy.</p> <p> In 2000, the economy was running very hot, with unemployment at all-time lows and wages growing quickly, powered by stock market valuations over twice as high as what we see right now.<br /> In 2007, we had a multiyear real estate boom, loading bad debt in the financial system.</p> <p>In both cases, we had a massively overvalued market combined with a drastically slowing economy—resulting in massive market declines.<br /> Things are not nearly so out of balance now. Although the market is expensive, it’s not nearly as expensive as during the previous two booms. The economy is starting to grow more quickly but is hardly in boom times. The systematic imbalances that drove the last two crashes don’t exist yet, meaning we don’t have either of the two preconditions for a serious decline.<br /> View from the second story<br /> This doesn’t rule out a lesser pullback. As we recently saw, you simply can’t crash as hard jumping out of a second-story window as you do from a tenth-story window. Right now, at the second story, we may see some damage eventually, but nothing like the last two downturns.<br /> This analysis is comforting for right now, but it also points to a future we should be worried about, as another major decline would be all too possible. Right now, the economy is still growing, and the Fed is still stimulative. But at some point in the next couple of years, growth will start to overheat, and a recession will inevitably come. At that point, if the market were to follow past practice and continue to appreciate, valuations could be even higher than they are right now—and that would fit thepreconditions for a major market decline.<br /> Is a major decline coming?<br /> If we agree that two things are necessary for a major decline—a recession in conjunction with significant market overvaluations—we arrive at the conclusion that we have, at most, only one of those right now. In fact, I would argue that market valuations are not high enough to warrant the “significant” title, so perhaps only one-half of one of the conditions. Good news for the present. We can, however, see a not-too-distant future where we will have both. This is what I will be watching.<br /> Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan.<br /> This story first appeared in Advisor Perspectives</p> <p>Photo: Patrick McGarvey</p>
Is value set for a comeback?
Asset Management
<p>&nbsp;</p> <p>Since 2008, value investing has underperformed growth investing for the longest period on record. As a result, at the end of August, value was trading at its widest valuation discount to growth since the Dotcom Bubble of the late 1990s.</p> <p>And value’s performance since the financial crisis has been unexpected. Value investing as a style has historically outperformed growth more. Still; past results are no guarantee of future performance, and there’s no guarantee that value will recover.</p> <p>However, as Franklin Templeton points out when major global central banks begin policy normalization, the idea of mean reversion, or normalization, offers an intuitive argument for an eventual recovery in value. Securities trading at a discount to the fundamental value of their underlying businesses are not likely to maintain that discount indefinitely.</p> <p>Value returns<br /> Rare opportunity<br /> For value investors looking to snap up bargains, there hasn’t been an opportunity like this since 2000. The price-to-tangible book value of the MSCI World Value Index vs. the MSCI World Growth Index is now at its lowest level since late 2000/ early 2001. Value-oriented stocks trade at a 75% discount to growth in terms of price-to-tangible book value — two standard deviations below the long-term average level based on figures to the end of August.</p> <p>According to Franklin Templeton, it’s unlikely that value will continue to trade at a discount to growth indefinitely. The concept of mean revision offers an intuitive argument for an eventual recovery in value.</p> <p>The post-global financial crisis era brought a new wrinkle to the idea of normalization: ZIRP—the zero-interest-rate policies pursued by the world’s most powerful central banks. Indeed, the rising tide of cheap, readily available credit has seemingly lifted all boats, delaying bankruptcies and restructurings and creating a broadly indiscriminate trading environment. Sustained high equity correlations still stand as a testament to the market’s indifference to bottom-up fundamentals.</p> <p>Meanwhile, the almost non-existent yields offered by bonds perceived as “risk-free” has forced investors up the risk curve into higher yielding debt. Bond investors have also been forced into equities in their search for yield and equity investors chasing growth in a yield-starved environment have incurred a tremendous amount of volatility just to keep up.<br /> “This is not how the market’s risk–reward proposition is typically framed over time. Dislocations have become extreme, and once conditions potentially normalize, the market’s eventual snap-back to its typical function as cash-flow discounter and value arbiter could be profound, much to the potential benefit of patient, value-oriented equity investors.” — Source<br /> Tracking interest rates<br /> Historically, the performance of value as a style has been closely correlated with the interest rate cycle. If you believe that interest rates will never head higher again, then value isn’t the strategy for you. But if we take the view that over the long-term, interest rates will head higher, value as a strategy is appealing for the long-term investor. The Fed’s long-term directional preference is clear when it comes to interest rates.</p> <p>The entire discipline of value investing revolves around buying stocks when they are out of favor. Global stocks recently have been correcting, value has underperformed for the longest stretch on record, and we may be approaching the trough of a long-term interest rate cycle; what better time for contrarian investors to re-commit to value?</p> <p>&nbsp;</p> <p>This story first appeared in ValueWalk.<br /> Photo: Allan Ajifo</p>
Daily Scan: Fed commentary shocks markets, stocks fall
Capital Markets
<p>Updated throughout the day</p> <p>November 12</p> <p>Stocks had a terrible, horrible, no good, very bad day after all the Fed comments sent mixed messages. The Dow lost 1.4%, the Nasdaq fell 1.2%, and the S&amp;P 500 dropped 1.4%. The Stoxx Europe 600 lost 1.6% as well. Federal Reserve Chair Janet Yellen spoke Thursday morning about monetary policy in general, but didn't comment on the outlook for the U.S. economy. New York Fed President William Dudley and St. Louis Fed President James Bullard both seem to be leaning toward a rate hike. Bullard called the near-zero interest rate policy a "considerable risk of future inflation" for the U.S. economy. Chicago Fed President Charles Evans was a bit more hesitant, saying it could be "well into" next year before the inflation goal is reached. The Wall Street Journal found that 92% of economists think the Fed will vote to raise rates in December.</p> <p>Here’s what else you need to know:</p> <p>Goldman Sachs promotes 425 people to managing director. Almost 30% of the new managing directors are millennials. About 40% of those were hired at Goldman as entry level analysts, and 20% began as summer interns. Loyalty counts somewhere! Business Insider</p> <p>Amundi shares rise after debut. The massive French asset manager's stocks were up about 4% on the Euronext stock exchange in Paris. Societe Generale, one of the banks behind the manager, sold a 20% stake and raised about $1.6 billion. The offering was priced at 45 euros a share Wednesday. New York Times</p> <p>Robots could steal 80 million U.S. jobs. Andy Haldane, Bank of England chief economist, says that 15 million U.K. jobs and 80 million U.S. jobs are at risk from automation. “The smarter machines become, the greater the likelihood that the space remaining for uniquely-human skills could shrink further,” says Haldane. MarketWatch</p> <p>Deutsche Bank keeps moving executives. The top officials of the investment bank are shifting, with Goldman Sach's Alasdair Warren appointed as head of corporate and investment banking for EMEA. John Eydenberg will be vice chairman of CIB for the Americas, and Marc Pandraud will be vice chairman of CIB for EMEA, new roles for the firm. Wall Street Journal (paywall)</p> <p>IMF tells U.S. Fed to wait for inflation numbers. The IMF paper released Thursday says that the Fed should look for firm signs of rising inflation, as well as a stronger labor market before raising interest rates. The report came out in anticipation of of the G20 meeting in Turkey. Reuters</p> <p>Apple in talks with banks to develop P2P mobile system. Move over Venmo and Square. Apple is in talks with major banks including JPMorgan and Wells Fargo to enable iPhone users to pay their buddies through Apple Pay. Wall Street Journal (paywall)</p> <p>Morgan Stanley to offer savings accounts, certificates of deposits. It's not as exciting as deal-making, but the investment bank hopes the broader suite of consumer offerings will lure customers to its wealth management division. Competition is intense in the sector. Reuters</p> <p>Angie's List in unwanted bid. IAC/InterActive has offered $512 million for the Internet site, which provides online reviews of home-related services. It hasn't turned a profit since going public four years ago. IAC owns About.com and Vimeo. New York times (paywall)</p> <p>The feds move to ban smoking in public housing. An announcement should come Thursday from the Department of Housing and Urban Development. The move would affect more than one million people -- who are likely to wonder whether the government can really tell them what to do in their homes. New York Times (paywall)</p> <p>Draghi offers more bouquets. The ECB president said in speech: “If we were to conclude that our medium-term price stability objective is at risk, we would act.” Mario Draghi took to the in Brussels to reiterate his “anything it takes” approach. European Central Bank</p> <p>U.S. arrests cousins of Venezuela president in drug bust. The pair were charged with trying to transport 800 kilograms of cocaine into the country. The
Runaway stories and fairy tale endings: the cautionary tale of Theranos
Capital Markets
I saw the new Steve Jobs movie, with the screenplay by Aaron Sorkin, over the weekend. As a long-time Apple user and investor, I must confess that I was bothered by the way in which the film played fast and loose with the facts, but I also understand that this is a movie. Sorkin clearly saw the benefit of using
Daily Scan: Stocks drop; Fed presidents send mixed signals on interest rates
Capital Markets
<p>Updated throughout the day</p> <p>November 12</p> <p>It's Fed comments day: Federal Reserve Chair Janet Yellen spoke Thursday morning about monetary policy in general, but didn't comment on the outlook for the U.S. economy. New York Fed President William Dudley and St. Louis Fed President James Bullard both seem to be leaning toward a rate hike. Bullard called the near-zero interest rate policy a "considerable risk of future inflation" for the U.S. economy. Chicago Fed President Charles Evans was a bit more hesitant, saying it could be "well into" next year before the inflation goal is reached.</p> <p>Here’s what else you need to know:</p> <p>Markets sink. The bloom is off the October rally, and November is looking a little droopy for equities as investors contemplate a likely interest rate hike in December. The Dow fell more than 1% by midday Thursday. The Nasdaq was down 0.5%, and the S&amp;P 500 dropped 0.87%.</p> <p>Deutsche Bank keeps moving executives. The top officials of the investment bank are shifting, with Goldman Sach's Alasdair Warren appointed as head of corporate and investment banking for EMEA. John Eydenberg will be vice chairman of CIB for the Americas, and Marc Pandraud will be vice chairman of CIB for EMEA, new roles for the firm. Wall Street Journal (paywall)</p> <p>IMF tells U.S. Fed to wait for inflation numbers. The IMF paper released Thursday says that the Fed should look for firm signs of rising inflation, as well as a stronger labor market before raising interest rates. The report came out in anticipation of of the G20 meeting in Turkey. Reuters</p> <p>Apple in talks with banks to develop P2P mobile system. Move over Venmo and Square. Apple is in talks with major banks including JPMorgan and Wells Fargo to enable iPhone users to pay their buddies through Apple Pay. Wall Street Journal (paywall)</p> <p>Morgan Stanley to offer savings accounts, certificates of deposits. It's not as exciting as deal-making, but the investment bank hopes the broader suite of consumer offerings will lure customers to its wealth management division. Competition is intense in the sector. Reuters</p> <p>Angie's List in unwanted bid. IAC/InterActive has offered $512 million for the Internet site, which provides online reviews of home-related services. It hasn't turned a profit since going public four years ago. IAC owns About.com and Vimeo. New York times (paywall)</p> <p>The feds move to ban smoking in public housing. An announcement should come Thursday from the Department of Housing and Urban Development. The move would affect more than one million people -- who are likely to wonder whether the government can really tell them what to do in their homes. New York Times (paywall)</p> <p>The Hang Seng Index soared 2.40% on Morgan Stanley move, its best day since October 7. The investment bank upgraded the MSCI Hong Kong index, saying its heavy weighting in insurance companies means it will do well as the U.S. raises interest rates. The Hang Seng Index is down 9% since August when mainland China devalued the yuan. In a note, Morgan Stanley said its index has a greater exposure to Hong Kong's economy than China's. However, Morgan Stanley did not upgrade its views on its other Asian indices. Barron's Asia</p> <p>Draghi offers more bouquets. The ECB president said in speech: “If we were to conclude that our medium-term price stability objective is at risk, we would act.” Mario Draghi took to the in Brussels to reiterate his “anything it takes” approach. European Central Bank</p> <p>U.K. home prices may climb 22.5% over the next five years. Here’s a bit of news for prospective home buyers. The Royal Institute of Chartered Surveyors forecast British home prices to climb 4.5% per annum over the next five years, largely due to a consistent decrease in supply and a continuous uptick in demand. RICS</p> <p>Japanese machinery orders trump forecasts. In another round of good news for the land of the rising sun, machinery orders in the struggling nation climbed 7.5% in September – its first rise in four months – and handily beat
Diamond's are a 7-year-old girl's best friend
Lifestyle
<p>Hong Kong billionaire Joseph Lau is showering his daughters in diamonds.</p> <p>Lau is the latest owner of a 12.03 carat Blue Moon diamond, which he has renamed "Blue Moon of Josephine" for his 7-year-old daughter, reports Newsweek. The gem cost the billionaire nearly $48.5 million at a Sotheby's auction, a new record price for a blue diamond. Just the night before, Lau also bought a 16.08 carat pink diamond for $28.5 million at Christie's, renamed "Sweet Josephine," reports U.S. News.</p> <p>These are just the latest for the Lau daughter's collection. Josephine already has another blue diamond, a 7.03 carat "Star of Josephine."</p> <p>Lau's 13-year-old daughter Zoe wasn't left out. She already has a 9.75 carat blue diamond worth $33 million and a 10.1 carat ruby-and-diamond brooch worth more than $8 million.</p> <p>Lau is worth about $10 billion, and in 2014 was convicted of bribery and money laundering in Macau. The former CEO of real estate development company Chinese Estates Holding of Hong Kong stepped away from his company, and avoided his more than five year prison sentence by staying out of Macau. Hong Kong doesn't have an extradition treaty with Macau.<br /> Photo: Fancy Diamonds</p>
Getting contrarian with emerging market ETFs
Asset Management
<p>Amid tumbling commodities prices and sliding currencies, emerging markets stocks have lagged developed markets peers in a big way this year. Investors have responded by sparking some of the largest outflows from emerging markets exchange traded funds trading in the US since the global financial crisis.</p> <p>For example, the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets ETF (NYSE: EEM), the two largest emerging markets by assets, lost over $6.5 billion combined during the third quarter.</p> <p>With outflows such as those from VWO and EEM, it is not a stretch to call emerging markets ETFs contrarian investments. Investors willing to buck the broader trend and embrace emerging markets funds need to be selective, but there are some ETFs that fit the bill as credible contrarian ideas at a time of noticeable weakness throughout developing world economies.<br /> Russia<br /> The Market Vectors Russia ETF (NYSE: RSX) is arguably the epitome of a contrarian emerging markets bet. Last year, the largest Russia ETF trading in the US tumbled 47.2 percent, but the fund has rebounded to post a 12.3 percent year-to-date gain.</p> <p>Related Link: Gen X Loves ETFs, Too</p> <p>With RSX up this year, the fund may not appear to ...</p> <p>Full story available on Benzinga.com<br /> Photo: b k</p>
Cyberport and MaRs join forces
FinTech
<p>More than 200 delegates from the Hong Kong and Toronto fintech communities gathered at a MaRs and Cyberport event in Hong Kong on Wednesday afternoon. They were immediately treated to an uplifting announcement.</p> <p>Earlier in the day, MaRs and Cyberport had signed a memorandum of understanding (MoU) that should strengthen the bonds of collaboration between the two energetic fintech hubs.</p> <p>The panel discussion that followed at Cyberport reinforced a sense of shared purpose. Specialists from across the sector gave their geographical perspectives as they emphasized how startups can revolutionize the global financial industry through the application of disruptive technologies.</p> <p>“Hong Kong and Toronto are gateways; the former to the vast Chinese potential and the latter to New York and Silicon Valley. But both have their particular advantages and challenges too,” said Adam Najee, head of financial technology at MaRS.</p> <p>For instance, Hong Kong has a large, skilled financial services workforce, but the high cost of living means it’s a risk for them to venture into startups where salaries are initially low. Toronto has some of the best, highly trained tech minds in the world, but they often lack access to capital to convert their ideas into practice.</p> <p>“There is a constant need for talent among startups in Hong Kong and there is the further issue of a tight regulatory environment to navigate,” agreed David Ng, business development specialist, The Payment Cards Group.</p> <p>Cedric Jeannot, founder and CEO, APrivacy knows the ecosystems of Hong Kong and Toronto intimately, with operations in both centers. He recognizes the similarities and the differences.</p> <p>“But, if everyone can contribute a brick then eventually we will build a wall,” he said</p> <p>And although, there is a widespread recognition that Hong Kong’s fintech sector is making strong progress, there is no room for complacency.</p> <p>“Hong Kong needs to find a niche in order to catch up with London and New York,” said Jacob Wai, a committee member in the Hong Kong Computer Society Fintech SIG and Business Intelligence SIG  and research director at the Asia Financial Risk Think Tank.</p> <p>Nevertheless, clearly Toronto and Hong Kong share similar attributes and challenges as fintech hubs.</p> <p>“They have vibrant ecosystems, are gateways to other major centers and they are in a continuous search for funding,” concluded the panel moderator Juwan Lee, lead founder and CEO, Nexchange.</p> <p>“Today’s MoU should ensure Cyberport and MaRs can work even more closely together and help fulfil the enormous potential of fintech entrepreneurs in both cities,” he added.<br /> Photo: Carolyn Hall Young</p>
Daily Scan: Hang Seng soars 2.4%; Draghi hints at more easing
Capital Markets
<p>Updated throughout the day</p> <p>November 12</p> <p>The Shanghai Composite gave back some of its hard-earned gains Thursday, falling 0.48% as traders re-examine valuations and check their outlook on the nation’s economy. Shares in Hong Kong however were a different story. Led by Singles’ Day stalwart Tencent and buoyed by encouraging news from Morgan Stanley, the Hang Seng Index soared 2.40% to 22,888.92, its best day since October 7, while the Hang Seng China Enterprises Index added 1.59%. Here’s how the rest fared:</p> <p> Nikkei 225: +0.03%<br /> Shenzhen Composite: +0.28%<br /> Straits Times Index: -0.72%</p> <p>European shares meanwhile look pretty encouraging. After falling dramatically right out of the gate, the FTSE 100 is currently up 0.04%, while the DAX 30 and CAC 40 are up 0.42% and 0.19% respectively.</p> <p>Here’s what else you need to know:</p> <p>Draghi: “If we were to conclude that our medium-term price stability objective is at risk, we would act.” In case he wasn’t dovish enough during his last speech, ECB President Mario Draghi took to the in Brussels to reiterate his “anything it takes” approach. European Central Bank</p> <p>U.K. home prices may climb 22.5% over the next five years. Here’s a bit of news for prospective home buyers. The Royal Institute of Chartered Surveyors forecast British home prices to climb 4.5% per annum over the next five years, largely due to a consistent decrease in supply and a continuous uptick in demand. RICS</p> <p>Australian jobs report decimates estimates. Economists – who were expecting a 15,000 climb – were left dumbfounded after the Australian Bureau of Statistics reported an astounding 58,600 jobs increase in October. The FT does note that this may have been massaged a bit, but the underlying trend seems to be pretty solid. Australian Bureau of Statistics / Financial Times (paywall)</p> <p>Bank of Korea leaves rates unchanged. As expected, the Bank of Korea’s monetary policy committee kept its base rate unchanged at 1.50%. This is the fifth-straight month the bank stood pat on policy after slashing rates to a record low following the MERS outbreak. Reuters</p> <p>Japanese machinery orders trump forecasts. In another round of good news for the land of the rising sun, machinery orders in the struggling nation climbed 7.5% in September – its first rise in four months – and handily beat forecasts for a 3.3% jump. CNBC</p> <p>Catalonia vows to go independent within 18 months. Despite seeing Spain’s Constitutional Court block her region’s attempted secession process Wednesday, Catalan Vice-President Neus Munte said it was the political will of the regional government to carry on with its plans for independence within 18 months. BBC</p> <p>Alibaba sets a Singles’ Day record. The Chinese internet giant saw its largest online shopping day on Tuesday as its marketplaces hosted $14.3 billion in sales, even though the rate of growth was slower than last year. The Wall Street Journal</p> <p>Myanmar leader congratulates Suu Kyi. The country’s military-backed President Thein Sein congratulated Aung San Suu Kyi’s opposition party on its success in polls so far, with 47% of seat declared. BBC</p> <p>Beijing has a plan to rev up consumption. In a battery of moves meant to accelerate domestic demand, the Chinese government will “encourage businesses to adopt new technology and materials,” rev up its household registration reforms “to drive home sales and boost consumption of home appliances,” and encourage the importation of consumer goods. Xinhua</p> <p>China, Taiwan love is short-lived. Days after the two country’s leaders were seen to shake hands in a historic meeting, top Taiwan officials in have now hit out at “unfair” Chinese competition and Beijing’s moves to isolate the island. Financial Times (paywall)</p> <p>Too big to fail rules may cramp Chinese banks’ style. Under the latest proposal by the Financial Stability Board, three of China’s biggest banks may have to cough up as much as €355 billion altogether just to comply with the new “too big to fail” requirements. Tha
Steve Cohen sells ‘Mao’ for $47.5 million
Lifestyle
<p>Cy Twombly’s “Untitled (New York City)” may have shattered records at Sotheby’s contemporary art auction, but Steve Cohen – noted patron of the arts and owner of New York’s most unwanted penthouse – didn’t do too shabby himself, as the Financial Times reports:<br /> “A 1972 Andy Warhol portrait of Chinese leader Mao Zedong sold for a hammer price of $42.2m, beating its estimate of $40m. Including fees, the telephone buyer will pay $47.5m, the top price for a Warhol this season. The work came from the collection of hedge fund manager Steve Cohen, according to people present at the auction. Four of the seven Warhols on offer went unsold.”<br /> According to the New York Times, Cohen bought the painting for just $17 million back in 2007 from Kering boss François Pinault. Not bad Stevie, not bad.<br /> Photo: jaime.silva</p>