Baltic Dry Index. 870 unch. Brent Crude 48.28
Markets
can remain irrational longer than you can remain solvent.
J. M.
Keynes.
This morning we open
with yet more warnings on the dangers in US stocks. Are US stocks high, but
going higher, or Mount Everest high and ready to crash? No one knows of course,
since JP Morgan estimates that human traders now account for only 10 percent of
the volume. “Passive and quantitative investing accounts for
about 60 percent, more than double its share a decade ago.” In other words,
only the computer programmer knows, and since all the quants and passive ETFs
all trade as a herd, they all buy together, until they all sell together, completely
swamping the 10 percent of human investors.
To this old dinosaur market watcher, following the
markets since 1968, I’ve never seen a time of more political uncertainty, nor
more warnings from high profile money managers. A nod may be as good as a wink
to a blind man, but both are good to those with eyes to see. Remaining in over
priced stocks based on program traders needing greater fool buyers, is an
investors 21st century version of Russian roulette. The trend is
your friend, until one day it’s no longer the trend.
Below, when it all goes wrong this summer,
speculators can’t say they weren’t warned.
The stock market is never obvious. It
is designed to fool most of the people, most of the time.
Jesse Livermore.
Death of the human investor: Just 10% of trading is regular stock picking, JPMorgan estimates
Evelyn Cheng
CNBC
Quantitative investing based on computer formulas and trading by
machines directly are leaving the traditional stock picker in the dust and now
dominating the equity markets, according to a new report from JPMorgan.
"While fundamental narratives explaining the price action abound,
the majority of equity investors today don't buy or sell stocks based on stock
specific fundamentals," Marko Kolanovic, global head of quantitative and
derivatives research at JPMorgan said in a Tuesday note to clients.
Kolanovic estimates "fundamental discretionary traders"
account for only about 10 percent of trading volume in stocks. Passive and
quantitative investing accounts for about 60 percent, more than double its
share a decade ago, he said.
In fact, Kolanovic's analysis attributes the sudden drop in big
technology stocks between Friday and Monday to changing strategies by the
quants, or the traders using computer algorithms.
In the weeks heading into May 17, Kolanovic said funds bought bonds and
bond proxies, sending low volatility stocks and large growth stocks higher.
Value, high beta and smaller stocks began falling in a rotation labeled
"an unwind of the 'Trump reflation' trade," Kolanovic said.
"Upward pressure on Low Vol and Growth, and downward pressure on
Value and High Vol peaked in the first days of June (monthly rebalances), and
then quickly snapped back, pulling down FANG stocks" — Facebook,
Amazon.com, Netflix and Google parent Alphabet, the report said.
Along with Apple, the big tech-related names fell more than 3 percent
each last Friday and dropped again Monday, sending the Nasdaq composite lower
in its worst two-day decline since December.
However, "the contribution coming from quant rebalances to this
snapback is now likely over," Kolanovic said, noting that S&P
derivatives have supported market gains at the beginning of this week.
"$1.3T
of S&P 500 options expire on Friday, and this will change dealers'
positioning," he said. "This can result in a modest increase of
market volatility starting on Friday and into next week."
More
There are only two other times in history when stocks were more expensive than today
Published: June 13, 2017 11:21 a.m. ET
By VitaliyN. Katsenelson
We are having a hard time finding high-quality companies at attractive
valuations.
For us, this is not an academic frustration. We are constantly looking
for new stocks by running stock screens, endlessly reading (blogs, research,
magazines, newspapers), looking at holdings of investors we respect, talking to
our large network of professional investors, attending conferences, scouring
for ideas published on value-investor networks, and finally, looking with
frustration at our large (and growing) watch list of companies we’d like to buy
at a significant margin of safety. The median stock on our watch list has to
decline by about 35%-40% to be an attractive buy.
But maybe we’re too subjective. Instead of just asking you to take our
word for it, we’ll show you a few charts that not only demonstrate our point,
but also show the magnitude of the stock market’s overvaluation and, more
importantly, put it into historical context.
Each chart examines stock market valuation from a slightly differently perspective, but each arrives at the same conclusion: The average stock is overvalued somewhere between tremendously and enormously. If you don’t know whether “enormously” is greater than “tremendously” or vice versa, don’t worry, we don’t know either. But this is our point exactly: When an asset class is significantly overvalued and continues to get overvalued, quantifying its overvaluation brings little value.
Great Depression, dot-com bubble
Let’s demonstrate this point by looking at a few charts.
The first chart shows price-to-earnings of the S&P 500 SPX, +0.45% in relation to its historical average. The average stock today is trading at 73% above its historical average valuation. There are only two other times in history that stocks were more expensive than they are today: just before the Great Depression hit and in the 1999 run-up to the dot-com bubble’s bursting.
We know what happened in both cases: Stocks declined — a lot. Based on
over a century of history, we are fairly sure that, this time too, stock
valuations will at some point revert to their mean and stock markets will
decline. After all, price-to-earnings behaves like a pendulum that swings
around the mean, and today that pendulum has swung far above the mean.
What we don’t know is how this journey will look in the interim. Before
the inevitable decline, will price-to-earnings revisit the pre-Great Depression
level of 95% above average, or will it maybe say hello to the pre-dot-com crash
level of 164% above average? Or will another injection of QE steroids from
central banks send stocks valuations to new, never-before-seen highs? Nobody
knows.
One chart is not enough. Let’s take a look at another one, called the
Buffett Indicator. Apparently, Warren Buffett likes to use it to take the
temperature of market valuations. Think of this chart as a price-to-sales ratio
for the whole economy, that is, the market value of all equities divided by
gross domestic product (GDP). The higher the price-to-sales ratio, the more
expensive stocks are.
More
In other news, the
other shoe is about to visit Volkswagen. If it cost VW $25 billion to settle
with America over 500,000 dirty, cheating, killer diesels, how much more will
it cost VW to settle Europe wide claims, where the dirty, killer diesels, held
far greater market share?
Dutch, English drivers team up to sue VW over 'dieselgate'
Around 220,000 car drivers in the Netherlands, England and Wales joined forces on Tuesday in what could become a pan-European lawsuit against German carmaker Volkswagen (VOWG_p.DE) seeking compensation over its "dieselgate" emissions scandal.UK law firm Harcus Sinclair and Dutch Foundation "Stichting Volkswagen Car Claim", a U.S.-style class action on behalf of an estimated 180,000 Dutch VW car owners, have teamed up in a move that could spark a wave of coordinated litigation across Europe.
VW, Europe's biggest carmaker, has said about 11 million cars worldwide were fitted with software to cheat diesel emissions tests that are designed to limit car fumes blamed for respiratory diseases and global pollution.
The company has already agreed to spend up to $25 billion in the United States to address claims from owners, environmental regulators, states and dealers and has offered to buy back about 500,000 polluting U.S. vehicles.
But it has not reached a similar deal in Europe and faces billions of euros in claims from customers and investors.
The carmaker has offered European drivers a software update for all affected vehicles, but lawyers say this does not resolve the problem and they are demanding adequate compensation.
The Dutch Foundation, which says it has been trying to reach a "reasonable settlement" with VW since 2015, said it was also "cooperating" with partners representing drivers in Austria, Germany, Switzerland and was in talks with others in Spain, France, Italy, Poland, the Czech Republic and Scandinavia.
"We are delighted to be teaming up with Harcus Sinclair UK Limited, who have done an excellent job in paving the way for car owners to seek redress from VW through the courts," said Guido van Woerkom, director of the foundation.
The expanding lawsuit is seeking compensation for damage suffered by VW, Audi, SEAT, Skoda and/or Porsche car owners, alleging VW and supplier Bosch were responsible for the sale of cars that breached toxic nitrogen oxides emissions rules.
More
In oil market news, if
you can’t beat them join them, says Wood Mackenzie.
Oil majors embracing push to green energy: Wood Mackenzie
Geoffrey Morgan Monday, Jun. 12, 2017
CALGARY — Major oil and gas producers will put more of their capital
into wind and solar developments as returns from renewables are poised to
exceed some hydrocarbon projects, according to a report from Wood Mackenzie.
The report released Monday predicts multi-national energy companies
could spend billions on renewable projects between now and 2035, as “the all-in
returns for wind and solar stack up against” higher-cost oil and gas plays,
exploration projects and acquisitions.
Wood Mackenzie analysts note that some North American onshore oil projects can generate a 22 per cent rate of return at US$65 per barrel oil prices, they also show that full-cycle exploration and marginal plays earn an average 10 per cent rate of return.
As a result, the returns from onshore and offshore wind power projects
and solar projects compare favourably and could compete for US$90 billion in
capital, earmarked by the majors in those higher cost oil and gas plays.
“There has been a convergence of the returns because the cost of
renewables has been coming down, pushing their returns up,” said Wood Mackenzie
director, corporate research Valentina Kretzschmar.
She added that a decline in the price of oil has hurt the returns from
upstream projects. West Texas Intermediate oil prices were up slightly in
Monday trading to US$46.07 per barrel.
However, even if the price of oil rises, Kretzschmar said demand
forecasts for both oil and renewables illustrate the need for energy majors to
allocate their capital toward wind and solar.
“They can’t afford to ignore it, they can’t afford not to be there and
gain the experience,” she said, noting that renewables demand is growing.
While renewables will increasingly compete against oil and gas for
capital, the International Energy Agency’s most recent outlook predicts the
global demand for oil will continue to rise until 2040.
The Wood Mackenzie report indicated that while European oil majors would
be among the first to transition spending away from higher cost oil and gas
projects toward renewables, many Canadian companies have also allocated capital
for wind projects.
More
I
learned early that there is nothing new in Wall Street. There can’t be because
speculation is as old as the hills. Whatever happens in the stock market today
has happened before and will happen again. I’ve never forgotten that.
Jesse
Livermore.
But can computers learn? And even if they can, what if
they get hacked?
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Two great hacks today, presented without need for
comment. One day we all wake up dead.
'Crash Override': The Malware That Took Down a Power Grid
At midnight, a week before last Christmas, hackers struck an electric transmission station north of the city of Kiev, blacking out a portion of the Ukrainian capital equivalent to a fifth of its total power capacity. The outage lasted about an hour—hardly a catastrophe. But now cybersecurity researchers have found disturbing evidence that the blackout may have only been a dry run. The hackers appear to have been testing the most evolved specimen of grid-sabotaging malware ever observed in the wild.Cybersecurity firms ESET and Dragos Inc. plan today to release detailed analyses of a piece of malware used to attack the Ukrainian electric utility Ukrenergo seven months ago, what they say represents a dangerous advancement in critical infrastructure hacking. The researchers describe that malware, which they’ve alternately named “Industroyer” or “Crash Override,” as only the second-ever known case of malicious code purpose-built to disrupt physical systems. The first, Stuxnet, was used by the US and Israel to destroy centrifuges in an Iranian nuclear enrichment facility in 2009.
The researchers say this new malware can automate mass power outages, like the one in Ukraine’s capital, and includes swappable, plug-in components that could allow it to be adapted to different electric utilities, easily reused, or even launched simultaneously across multiple targets. They argue that those features suggest Crash Override could inflict outages far more widespread and longer lasting than the Kiev blackout.
“The potential impact here is huge,” says ESET security researcher Robert Lipovsky. “If this is not a wakeup call, I don’t know what could be.”
The adaptability of the malware means that the tool poses a threat not just to the critical infrastructure of Ukraine, researchers say, but to other power grids around the world, including America's. “This is extremely alarming for the fact that nothing about it is unique to Ukraine,” says Robert M. Lee, the founder of the security firm Dragos and a former intelligence analyst focused on critical infrastructure security for a three-letter agency he declines to name. “They’ve built a platform to be able to do future attacks.”
Blackout
Last December's outage was the second time in as many years that hackers who are widely believed—but not proven—to be Russian have taken down elements of Ukraine's power grid. Together, the two attacks comprise the only confirmed cases of hacker-caused blackouts in history. But while the first of those attacks has received more public attention than the one that followed, the new findings about the malware used in that latter attack show it was far more than a mere rerun.
Instead of gaining access to the Ukrainian utilities’ networks and
manually switching off power to electrical substations, as hackers did in 2015,
the 2016 attack was fully automated, the ESET and Dragos researchers say. It
was programmed to include the ability to “speak” directly to grid equipment,
sending commands in the obscure protocols those controls use to switch the flow
of power on and off. That means Crash Override could perform blackout attacks
more quickly, with far less preparation, and with far fewer humans managing it,
says Dragos’ Rob Lee.
“It’s far more scalable,” Lee says. He contrasts the Crash Override
operation to the 2015 Ukraine attack, which he estimates required more than 20
people to attack three regional energy companies. “Now those 20 people could
target ten or fifteen sites or even more, depending on time.”
More
The Ether Thief
June 13, 2017.
A great read.
“October: This is one of
the peculiarly dangerous months to speculate in stocks. The others are July,
January, September, April, November, May, March, June, December, August and
February.”
Mark Twain.
Technology Update.
With events happening
fast in the development of solar power and graphene, I’ve added this section.
Updates as they get reported. Is converting sunlight to usable cheap AC or DC
energy mankind’s future from the 21st century onwards? DC? A quantum
computer next?
New form of carbon that's hard as a rock, yet elastic, like rubber
Date:
June 9, 2017
Source:
Carnegie Institution for Science
Summary:
Carbon is an element of seemingly infinite possibilities. This is because the
configuration of its electrons allows for numerous self-bonding combinations
that give rise to a range of materials with varying properties. A team of
scientists has developed a form of ultra strong, lightweight carbon that is
also elastic and electrically conductive. A material with such a unique
combination of properties could serve a wide variety of applications from
aerospace engineering to military armor.
A team including several Carnegie scientists has developed a form of
ultrastrong, lightweight carbon that is also elastic and electrically
conductive. A material with such a unique combination of properties could serve
a wide variety of applications from aerospace engineering to military armor.
Carbon is an element of seemingly infinite possibilities. This is
because the configuration of its electrons allows for numerous self-bonding
combinations that give rise to a range of materials with varying properties.
For example, transparent, superhard diamonds, and opaque graphite, which is
used for both pencils and industrial lubricant, are comprised solely of carbon.
In this international collaboration between Yanshan University and
Carnegie -- which included Carnegie's Zhisheng Zhao, Timothy Strobel, Yoshio
Kono, Jinfu Shu, Ho-kwang "Dave" Mao, Yingwei Fei, and Guoyin Shen --
scientists pressurized and heated a structurally disordered form of carbon
called glassy carbon. The glassy carbon starting material was brought to about
250,000 times normal atmospheric pressure and heated to approximately 1,800
degrees Fahrenheit to create the new strong and elastic carbon. Their findings
are published by Science Advances.
Scientists had previously tried subjecting glassy carbon to high
pressures at both room temperature (referred to as cold compression) and
extremely high temperatures. But the so-called cold-synthesized material could
not maintain its structure when brought back to ambient pressure, and under the
extremely hot conditions, nanocrystalline diamonds were formed.
The newly created carbon is comprised of both graphite-like and
diamond-like bonding motifs, which gives rise to the unique combination of
properties. Under the high-pressure synthesis conditions, disordered layers
within the glassy carbon buckle, merge, and connect in various ways. This
process creates an overall structure that lacks a long-range spatial order, but
has a short-range spatial organization on the nanometer scale.
"Light materials with high strength and robust elasticity like this
are very desirable for applications where weight savings are of the utmost
importance, even more than material cost," explained Zhisheng Zhao a
former Carnegie fellow, who is now a Yanshan University professor. "What's
more, we believe that this synthesis method could be honed to create other
extraordinary forms of carbon and entirely different classes of
materials."
The monthly Coppock Indicators finished May
DJIA: 21,009 +157 Up. NASDAQ: 6,199 +219 Up. SP500: 2,412 +161 Up.
ReplyDeleteGlobal cues for D-Street on Wednesday;capitalstars