If the market were a game of dodgeball, then the starting whistle just blew…

April 18, 2016

If the market were a game of dodgeball, then the starting whistle just blew…

First quarter earnings, oil meetings in Qatar and impeachment voting in Brazil are the three largest balls speeding at your head while you run to the front line to grab some offense. From the looks of the Sunday night news, OPEC and Dilma will miss hitting your portfolio, while JPMorgan saved the early bank reporting season by not only beating on the top and bottom line, but the stock finished up 7%+ on the week to lead the Financial group to a sector win. The market has a much larger basket of earnings in store for this week, so expect the data points and reactions to be elevated. The markets’ strong moves last week seem to continue to reflect underweight portfolios looking to add risk in an environment where the Fed is frozen on rates and global economic data is in a good zone.

So, if Financial stocks reacted well to the JPMorgan earnings last week, will other sector leaders come to the rescue of their groups this week?

Again, it is important to note that earnings expectations are low which could help set up positive reactions…

@PlanMaestro: Earnings Forecast 2018 ~ getting easier to beat

Many eyes focused on Doha this weekend. But in the end, it only took one holdout to scuttle the collusion to raise prices…

Delegates said Saudi Arabia had in effect torn up an earlier draft of the deal as it decided it could not be party to an agreement that would give Iran any leeway. Tehran had refused to join the freeze as it rebuilds its oil exports after years of sanctions.

“We are very very disappointed,” said Falah Alamri, the Iraqi representative. “This will affect the [oil] price and our earnings. We wanted a deal.”

(Financial Times)

 

While OPEC failed to agree on production cutbacks to lift prices higher, don’t count out the free markets to help prices up as U.S. drill press continues to fall precipitously…


(WSJ)

With one eyeball on Qatar this weekend, the other was on Brazilian impeachment proceedings…

As the Congress voted to move ahead with Dilma’s removal, it is highly likely that the country will have a new President by year end. Will a new leader be able to add confidence to global investors to reverse six straight years of equity underperformance? It sure seems like a decent bet. Go look at Modi’s impact in India and Macri’s in Argentina. Investors like to bet on big political changes.

Also, Portfolio Managers remain VERY underweight Emerging Market equities…

Emerging markets equities: In January, allocations to emerging markets fell to the second lowest in the survey’s history (-33% underweight), an extreme comparable only to early-2014 from which the region began to strongly outperform for the next half a year. Allocations have since risen to -8% underweight, which is still 1.2 standard deviations below the long term mean. The region has outperformed the rest of the world so far 2016, and there remains further upside.

(The Fat Pitch)

Speaking of investing in Brazil versus the U.S…

“When peak-capital hits Miami, it’s time to buy LatAm,” said the CIO. “After 2008, Dade County had 6yrs of condo supply. It cleared in 18mths.” Miami condos traded at $300/sqft while Ipanema Beach were 4x more expensive. Brazil’s reais traded at 1.50 to the dollar. Now things have flipped. Miami condos trade at $800/sqft. Ipanema is for sale. And the reais is 3.53 to the dollar. The Venezuelan’s were big buyers too (22% of Dade County sales). “Miami condo sales have collapsed. That’s what happens when there’s no more money left to flee LatAm.”

(Eric Peters/WkndNotes)

 

For further comfort in investing in Emerging Markets, just look at the moves in EM Government Bonds…

(@beckyhiu)

Looks like it is that time of the year again when China puts the pedal down on lending which could spark some better-than-expected data points in a very large economy which is not expected to do much…


(Daily Shot)

One has to agree that with interest rates calm, growth surprises rising, and the U.S. Dollar being held in check, it is a tough time to bet against risk…

(@auaurelija)

Now back to the U.S., NYSE breadth is breaking out showing a broad advance in the number of issues rising in price…

Remember that this is helped by the large number of income related securities which trade on the NYSE but there is nothing wrong with a calm, healthy rate environment to also help equities.

(‏@JLyonsFundMgmt)

Adding further fuel to the buying is that individual investors remain on the sidelines…

Did individual investors not get the memo that the S&P 500 is up 2% in the last week? Normally, when stock prices rise, investor sentiment follows suit. However, in this week’s survey of investor sentiment from AAII, bullish sentiment actually declined from 32.19% down to 27.85%. That now makes it 24 straight weeks where bullish sentiment has been below 40%. Furthermore, in the last 59 weeks, there has only been one week where bullish sentiment went above 40%. At these levels, it’s quite the reach to call sentiment overly optimistic.

(BeSpoke)

Also helping risk sentiment is the significant reversal in Energy junk bond yields…

Yields on junk energy bonds have fallen to the lowest level of the year as investors scramble into the distressed oil and gas sector, despite the risk that a still volatile oil price could easily reverse a rally that has driven crude to its high for the year.

The fragility, underscored by 15 straight days in which the price of oil oscillated more than 2 per cent, has unnerved fund managers who have been forced to quickly cover or unwind short positions in energy junk bonds.

The $14bn of new capital that has flowed into US junk bond funds since yields touched highs in February has helped fan the current rally. Bank of America Merrill Lynch’s junk energy bond index returned more than 16 per cent in March, its best monthly performance since at least 1996.

Prices for bonds sold by Chesapeake Energy, Antero Resources, Williams Companies, Whiting Petroleum and Range Resources have all climbed to their highest levels of the year this week.

(Financial Times)

Barron’s sees 25% upside in Ford and GM this weekend…


(Barron’s)

But when I read the #2 executive at GM talking about the 100-year-old auto business becoming disrupted, I will think twice about betting on the incumbents. Especially when a new player just grabbed orders for 6.5% of their U.S. sales base.

“It’s not often that in a business as big as the business we’re in and a company as big as ours, that you stand at a point where the whole foundation of how your business has operated for the last 100 years is up for discussion,” he said.

Ammann, who has been the number two executive at GM for just over two years, said the rise of smartphones has changed the economics of driving in ways far beyond just enabling ride-hailing apps. Our phones have become so valuable to us that being forced to look away from them has created “a significant opportunity cost for the time you spend in the car,” he said. “The time you spend driving is the time you spend not doing something else.”

(Buzzfeed)

 

While seniors are making final decisions on where to head for colleges, if it comes down to a tie between two schools, I would encourage you to look to the West Coast…

Here is a list of the companies that your older peers want to work for. So why not go to university right in their backyard? If you surround yourself with their employees, guess who is getting the call for a job while these great companies ramp up their growth and hiring? And if you can’t make it to the West Coast, then look for a satellite of these companies in the campus town to which you might be headed and pick that school.


Finally, the most read piece of Geek Parents this weekend was the New York Times Magazine cover story on Minecraft. Hopefully all parents and teachers will take the time to read about the most important piece of software written in the last 10 years. Better yet, read it with your kids because they will love it too…

For one thing, it doesn’t really feel like a game. It’s more like a destination, a technical tool, a cultural scene, or all three put together: a place where kids engineer complex machines, shoot videos of their escapades that they post on YouTube, make art and set up servers, online versions of the game where they can hang out with friends. It’s a world of trial and error and constant discovery, stuffed with byzantine secrets, obscure text commands and hidden recipes. And it runs completely counter to most modern computing trends. Where companies like Apple and Microsoft and Google want our computers to be easy to manipulate — designing point-and-click interfaces under the assumption that it’s best to conceal from the average user how the computer works — Minecraft encourages kids to get under the hood, break things, fix them and turn mooshrooms into random-¬number generators. It invites them to tinker.

In this way, Minecraft culture is a throwback to the heady early days of the digital age. In the late ’70s and ’80s, the arrival of personal computers like the Commodore 64 gave rise to the first generation of kids fluent in computation. They learned to program in Basic, to write software that they swapped excitedly with their peers. It was a playful renaissance that eerily parallels the embrace of Minecraft by today’s youth. As Ian Bogost, a game designer and professor of media studies at Georgia Tech, puts it, Minecraft may well be this generation’s personal computer.

At a time when even the president is urging kids to learn to code, Minecraft has become a stealth gateway to the fundamentals, and the pleasures, of computer science. Those kids of the ’70s and ’80s grew up to become the architects of our modern digital world, with all its allures and perils. What will the Minecraft generation become?

“This is what we do with aircraft today,” Burns said.

(NY Times)


(Amazing Minecraft Creations)

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