February 26, 2013 Update. The Final Docket

DJIA:13,784 NASDAQ:3,116 10-YR TRS: 21/32 yield 1.895% Oil:$93.11 EURO:$1.3062 YEN:91.82

On Cycles

Everything we know or consider to be true is only because someone has experienced it and confirmed it to be factual. Think about it. Market participants have observed the boom-bust cycle and, as a result, understand how it works and know when to invest. Science has proven that energy moves in patterns; constantly transforming into different mediums and never disappearing. Americans came to the harsh realization during the 2008 financial crisis that one person’s asset is another person’s liability when the country experienced the rippling effects of bad debt. However, I cannot help but wonder if anything truly has an end. For instance, how can one be certain that death exists if no one has ever lived to tell the tale? It appears to me that we exist in a world of recycled creation in which one “end” simply leads to another “beginning.” When it comes down to it, like the business cycle, the transformation of energy, and the credit market, life is all about timing. Man has yet to discover an end to any cycle, so what makes our lives any different? Recent studies have shown that brain cells stay active after a person has “deceasd.” Therefore, just because the deal has failed does not mean the market stops trading. 

Domestic News

• Market Update. Futures are trading up as the markets rebound from yesterday’s bloodbath sparked by the Italian elections. Investors will remain focused on Bernanke’s semi-annual conference with the senate banking committee today. 
• The S&P will release its S&P Case/Shiller Home Price index for December at  10:00am, and is expected to show a rise of 0.5% versus November’s 0.6% increase. 
• President Obama is meeting with Republican Senators John McCain and Lindsey Graham today to discuss immigration reform. No word of progress regarding the sequestor. 
• Ben Bernanke will be meeting with the senate banking committee today and tomorrow. It is likely Bernanke will be asked to clarify about the Fed $3.1T balance sheet and how it will effect inflation expectations and an exit from the stimulus program.

International Updates

Asia

• Market Update. Markets traded down as Italian political fears worry investors. 

Europe

• Market Update. European markets are trading lower as political chaos reigns in Italy. 
• Political paralysis in Italy resulted in a surge in Italian 10-year bonds. The escrows rose 48 basis points to 4.842%.
• The most recent results from the Italian election portray the Five Star “non-party” winning the most states with a 25.5% share in the lower house. A center-left Democratic Party will hold power in the chamber. 

Corporate

• A jury will determine if Johnson & Johnson (JNJ) should pat for the damages caused to a South Dakota patient that she incurred through the use of JNJ’s Gynecare Prolift vaginal mesh. Yesterday, JNJ was ordered to pay Linda Gross $3.5B. 
• Intel Corp.  (INTC.O) has agreed to manufacture chips on behalf of Altera (ALTR.O). Many believe this is the first step toward opening a massive manufacturing technology to customers on a larger scale, including Apple (AAPL).

February 22, 2013 Update

DJIA:13,880 NASDAQ:3,131 10-YR TRS: 12/32 yield 1.977% Oil:$92.84 EURO:$1.3190 YEN:93.11

On Risk & Responsibility. 

Lawyers are responsible for the clients they represent in a court of law and are subject to harsh judiciary consequences if they act in an unlawful manner. Doctor aim to improvement patients’ health, but failure results in malpractice charges. Many important roles within society, like a doctor or lawyer, have ethical responsibilities with government enforced consequences when such ethics and morals go astray. On the other hand, individuals who manage money rarely have to face repercussions when their risky behavior results in poor choices. Lets be honest with ourselves, being trusted with someone else’s money comes with very little fiduciary responsibilities. Jon Corzine ran a highly leveraged fund, and with one bad trade M.F. Global blew up. Yet, Mr. Corzine has yet to face any legal ramifications. There is no denying that managing money is an extremely important role within society, but when will we begin a precent for honesty and moral conduct within the financial industry? 

Domestic News

• Market Update. Futures are slightly higher as optimistic investors wait for the release of today’s round of earning, inviting participants to take advantage of the pullbacks. 

International Updates

Asia

• Market Update. Chinese and Hong Kong stock markets traded lower as a result of policy tightening. Australian and Japanese equites were in the green as market participants took advantage of yesterday’s sharp declines. 
• Last month, prices for new homes in China rose in 53 out of 70 cities, enforcing the belief that the Chinese government is going to continue tightening policy. 

Europe

• Market Update. Mostly traded up in reaction to the German business-climate data, which came in better than expected. 
• The German IFO business climate rose to 107.4, which is better than the expected consensus of 105 and higher than the pervious statistic of 104.3. 
• Germany received its first government surplus in five years with local governments and social securities funds heaping with cash! “Net lending” was 0.2% of GDP (€4.2B). The central and and state government were not in the green, but were still able to cut their deficits. 
• Italian markets are going steady before the storm - the Italian election that is! Silvio Berlusconi’s Freedom Party is second with 30% of the polls behind the unexpected leader, the center-left Democratic Party. Investors are worried for obvious reasons.
• The European Commission has lowered its 2013 outlook with a prediction that the economy will contract by 0.3% this year before returning to a steady growth of 1.4%. The EC is always expecting inflation to fall to 1.8%, which would pressure the European Central Bank into lowering interest rates.  

Corporate

• In an attempt to tighten rules regarding sales and the business structure, Herbalife (HLF) is rumored to be considering terminating a relationship with one of its 49 top salesman. 
• ING (ING) CEO Jan Hommen will step down in October. Ralph Hamers, the head of the Dutch bank’s Belgian operations, will take Hommen’s place as the new CEO.

February 19, 2013 Update

DJIA:13,981 NASDAQ:3,192 10-YR TRS: yield 2.009% Oil:$95.86 EURO:$1.3351 YEN:93.96

You Are Probably Not Special. 

Within the last decade, children have been raised to believe they are special. Everyone is a “winner.” Everyone “earns” a trophy. These “special” kids have grown up convinced they will be successful because society has told them they will be. I believe this theory is a taking a toll on the US economy. Student loans have now totaled to over $956B, trumping both car loans and credit card debts. Through the rise of student loans, students are leveraging themselves for success; even if they’re perusing careers in fields that traditionally do not pay well. I posit that because society has coddled the children of my generation, students are more confident than ever that they will have the ability to repay the money they borrowed to ascertain expensive educations. I can only speak on behalf of NYU, but I find it astounding that so many of my peers are choosing to graduate in over $200k of debt only to enter a terrible job market. Defaulting on a student loan is not an option. As a result, disposable income that could have been stimulating the economy is, instead, being used to pay back student loans. But think about it, who is to blame for this student loan epidemic- society who has encouraged the future generation, or the student with big dreams? In all honestly, if you had been told you were an indelible winner for the entirety of your life, would you be able to conceptualize failure?

Domestic News

• Market Update. Futures are moving higher as investors become confident that activity in mergers and acquisitions will increase.
• The National Association of Homebuilders will release its February index at 10am, which is forecast to rise to 49 compared to January’s 47 level. 

International Updates

Asia

• Market Update. Markets in Hong Kong and Shanghai are trading significantly lower as a result of the Chinese government imposing more strict restrictions on home purchases.
• The Japanese finance minister denies the rumor that Tokyo is considering purchasing foreign bonds. As a result, the yen rebounded against the USD and EUR. 

Europe

• Market Update. Trading in the green as investors build confidence about the health of the German economy as the German ZEW report came out better than expected. 
• The German February ZEW index of investor confidence rose to 48.1 from 31.5 in January, increasing for the third consecutive month in a row. 

Corporate

• Thieves have successfully stolen €350M worth of diamonds after raiding a Brink’s  (BCO) truck at Brussels's airport just as the precious rocks were being loaded onto a Swiss airplane. No one was injured.
• Macy’s (M) is scheduled to go to court today to ask a judge to stop J.C. Penny (JCP) from selling particular Martha Stewart Living Omnimedia (MSO) products. 
• OfficeMax (OMX) and Office Depot (ODP) are talking about merging. The deal would is expected to generate $18B in revenue for the conglomerate, compared to $25B for Staples (SPLS). 
• Members of the Boeing (BA) Speea engineer and technical workers union (about 23,000 employees) are expected to finish voting today on whether to authorize strike action and to accept BA’s newest contract offer.
• Nestle (NSRGY.PK) is the newest addition to the list of major food companies to be involved into the European horse-meat scandal. Traces of equine DNA tested positive in more than 1% of pasta meats, which have been removed from stores in Italy and Spain yesterday. The scandal is affecting demand for frozen meat in the U.K., burger sales have dropped 40% for the week of February 2nd.

February 14, 2013 Update

DJIA:13,982 NASDAQ:3,196 10-YR TRS: 10/32, yield 2.017% Oil:$97.01 EURO:$1.3453 YEN:93.42

The Ultimate Market Wizard: A Boltzmann Brain

According to the theory of the Boltzmann Brain, you are more likely to have imagined an entire life than to have actually had the chance to live one yourself. Unless you are the Boltzmann Brain, then you are the only thing that’s real. The world operates on predictable patterns of controlled chaos; a business cycle, if you will. Ludwig Boltzmann believes that most “brains” are just random fluctuations within the universe that form the Boltzmann Brain’s reality. If this is true, then most of us are not living at all but are merely existing in the imagination of the single self-aware person. In the equity market, the Boltzmann Brain would be the ultimate Market Wizard. This anonymous trader would be the only brain that understands market behavior and has the ability to predict its next turn. Leaving the rest of us remaining market participants, non-Boltzmann Brains, to be imaginary particles existing as drivers in the inevitable controlled chaos of market fluctuations. Assuming the scientist is correct, who is the ultimate Market Wizard and whose behavior are we really herding? 

Domestic News

• Market Update. Futures are treading in a downward pattern ahead of this week’s jobless claims, which are expected to result in a slight fall.
• This week’s jobless claims data will be released at 8:30am and is expected to have fallen to 360,000 from 366,000 two weeks ago. 
• U.S. properties in the foreclosure process fell 28% in January, which is a six year low! This is no doubt another positive sign in a strengthening housing market. 

International Updates

Asia

• Market Update. Over all, equity markets are advancing. A positive economic outlook in Japan is boosting share prices, while the Hong Kong market rallies on the first day in operation after being closed for the holiday. 
• The Bank of Japan is keeping the size of its asset purchase program at its target of ¥101T ($1T)  and its benchmark interest rate between 0.0% and 0.1%. Inflation is hovering about 2%. 

Europe

• Market Update. Trading down as investors’ remain uncertain regarding the health of the Eurozone after data portrayed Q4 economic activity shrinking 0.6% (which is much worse than expectations).
• Italian Q4 GDP is -0.9% Q/Q, which is 0.3 below the forecast of -0.6%. Annually, GDP is -2.7% vs. expectation of -2.3%. 
• The Eurozone’s Q4 GDP fell -0.6% Q/Q compared to -0.1% in Q3 and the forecast of -0.4%. Over the past year, GDP -0.9% vs. last year’s -0.6% and the forecast of 0.7%.
• Portuguese Q4 GDO -1.8% Q/Q compared to -0.9% in Q3, which is worse than the expectation of -1%. Annually, GDP fell 3.8% this year and 3.5% this time last year, which is also worse than the forecast of -2.9%. 

Corporate

• Nestle’s (NSRGY.PK) net income is up 12% to 10.61B francs ($12B), which is higher than the expectation of 10.38B francs. EPS if +12.2% to 3.33 francs. Revenue up 10.2% to 92.2B francs. The company was able to grow organically at a 5.9% pace and expects 2013 to come with the similar challenges 2012 brought. 
• Apple’s (AAPL) request to register the iPhone trademark was denied yesterday by the Brazilian National Institute of Industrial Property. Apparently, the electronic maker IGB Eletronica already owns the rights to the name. This is unlikely to effect iPhone sales, but this is no doubt the beginning of a pricey and long legal battle. 
• J.D. Power’s 2013 vehicle dependability study favored Toyota (TM). The Lexus won as the most dependable, but GM (GM), Honda (HMC), and Mazda (MZDAY.PK, MZDAF.PK) followed behind in that order. Ford (F) and Volkswagen (VLKKAY.PK, VLKAF.PK) were not favored. 

February 13, 2013

DJIA:14,018 NASDAQ:3,186 10-YR TRS: 10/32, yield 1.982% Oil:$97.51 EURO:$1.3454 YEN:93.48

How to be Innovative 

My father always told me that I would develop similar traits of the people I spend time with, and for that reason I should not only be picky when it comes to selecting friends but to never spend too much time with one person. As it turns out, my Dad may actually be right. Behaviors and opinions are more similar within social groups rather than between them. People who hold ties within multiple networks have a greater exposure to diverse influences. Behavior is contagious. Gregarious people are more familiar with alternative methods of behaving and thinking than those who are bashful. Individuals who can reach across social networks and identify a “good” idea, tend to be the most innovative. Because of this, I argue a firm comprised of sociable employees of average intelligence is actually more valuable than a firm made of smart, but anti-social, independent contractors. The structural holes within the anti-social firm’s network will result in greater inefficiencies. Today, I challenge you to make a new friend. Expand your social exposure; become more innovative.  

Domestic News

• Market Update. Futures trading slightly higher as many investors focused on the retail-sales data that will portray exactly how much a payroll tax-hike affected consumer spending. Many investors remain in shock after hearing Obama’s State of the Union address and the President’s desire to raise minimum wage during times of high unemployment.  
• Data on U.S. retail sales will be released at 8:30 am, and is expected to be flat compared to a 5% rise in December thanks to the pay roll tax.
• The Federal Reserve President from St. Louis, James Bullard, will speak at 11:10am. He is a voter this year on Fed policy.  
• The Federal Housing Administration should hopefully be able to avoid its first bailout by taking more precautions to avoid foreclosures and by increasing the amount it chargers borrowers to deter mindless borrowing. In November, an independent actuary estimated that the FHA would need about $16.3B worth of aid. 

International Updates

Asia

• Market Update. Trading up, for the most part, with the Australian market finishing at its highest level in almost four and a half years! The Japanese stock market was not a lucky as it was hit by a strong yen.

Europe

• Market Update. Trading in a tight range as investors await the euro zone’s industrial-production data and U.S. retail sales. 
• In December, the Eurozone industrial production rose for the first time since 2008 increasing +0.7% M/M vs. November’s 0.2%. Other sectors: output -2.4%, production of intermediate goods -4.6%, durable consumer goods -3.9%, non-durable goods -1.3%, capital goods -2.9%, and energy products +1.2%

Corporate

• Apple (AAPL) has a team of about 100 designers working on a wrist watch that will function similarly to the iPhone and the iPad.  

February 11, 2013 Update

DJIA:13,992 NASDAQ:3,193 10-YR TRS: 18/32, yield 1.953% Oil:$95.72 EURO:$1.3365 YEN:92.69

Time: The Most Natural Resource

Have you ever wondered why time feels as though it passes faster during the opening bell when compared to the rest of the trading day? Or why your fortieth birthday came so quickly but turning ten felt like it took a lifetime? Humans do not perceive the passing of time in a homogenous manner. For some, an hour spent with family is more valuable than an hour of paid labor; but for others, “quality time” is most valuable when yielding profit. Time is money, as the phrase goes... but what exactly is time if it’s not a social construct? Measuring time, like money, is a means in deducing value and has no scientific evidence of its existence. And because it is not scientifically proven, I argue an hour is an economic commodity; a humane raw material.  Most commodities can only be accumulated with time, but a person’s time can be bought or sold continuously. And, because of this, rather than measure how much time has passed, figure out what your time is worth - make it count. 

Domestic News

• Market Update. Trading slightly higher with little influence from international markets. 
• Life in the northeast is beginning to resume as usual. Only 66 flights were canceled so far today, roads are being cleared, and the power is starting to come on for many. However, watch out as another blizzard is expected to come our way! 

International Updates

Asia

• Market Update. Mainland China, Hong Kong, Taiwan, Singapore, South Korea, and Malaysia are closed for the Lunar New Year. Japanese markets are closed for the National Foundation Day.

Europe

• Market Update. Fighting for direction as markets suffer from low volume because of the Lunar New Year. 
• Global investment infrastructure declined 38% to $99B in 2012 as governments cut spending and banks reduced lending to meet the requirement of Basel III. 

Corporate

• US Airways (LCC) is closing on a deal with American Airlines in which the two companies would merge. US Airways is the fifth largest airline and American Airlines is the third largest by traffic. Together, they would form the world’s largest carrier. The deal is valued at $11B.
• Richard Roberts, the slowest judge in Washington, D.C., is handling AB InBev’s (BUD) acquisition of the 50% of Grupo Modelo it does not already own. Last year Richards had 73 motions pending for over half a year and over 50 cases pending for more than three years!
• Chrysler (FIATK.PK) has announced the auto-financing unit it has formed with Banco Santander (SAN) will reduce the average wait to receive financing approval. Santander is creating a separate unit to focus on financing dealership construction, real estate, working capital, and lines of credit. 
• Benchmark downgraded Fossil (FOSL) to “hold” from “buy” on a valuation call. 
• Starbucks (SBUX) has a new competitor in China! The British Coffee chain Costa has planned to open 250 in China by the end of 2013 and 500 stores internationally by 2016.

February 8, 2013 Update

DJIA:13,944 NASDAQ:3,165 10-YR TRS: 4/32, yield 1.951% Oil:$95.83 EURO:$1.3398 YEN:93.63

The Beauty in the Muni

Chief Justice John Marshall once said, “the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create...” While many believe the statement to be axiomatic, it is most relevant to the municipal bond market. Treasuries are taxed because the federal government can tax itself. However, the same cannot be said when it comes to municipal bonds because it is against constitutional rights for the federal government to tax the states. The policy has not only created an arbitrage market where investors use corporate bonds as a hedge, but it has also transformed the municipal bond into a safe haven for investors in high tax brackets reaching for yields. As the federal deficit continues to mount, there have been talks in the Obama administration to strip the bond of its tax-free title. But with the constitution backing its right of tax-exemption, it is unlikely the Obama administration will be successful in sucking the joy from trading municipal bonds. 

Domestic News

• Market Update. Futures are flat as investors remain weary about the release of today’s economic data and earnings and a fresh round of earnings. 
• The Commerce Department will report December trade figures at 8:30am. Economists expect the trade deficit to have eased more than 6% to $45.5B, on behalf of weaker imports.

International Updates

Asia

• Market Update. Majority of Asian stock markets advanced as upbeat economic indicators from China generated some optimism over the health of the Chinese economy. Japanese equities fell on behalf of poor earnings from Sony. 
• China’s exports and imports accelerated at a faster-than-expected rate in January. Shipment of goods and services grew 25% from December, Y/Y 14.1% increase. 

Europe

• Market Update. Trading in the green as optimism from China lures investors into taking more risk. Mining firms and banks are benefiting the most from the rally.  
• France’s central state budget deficit, which excludes local authority and healthcare spending, fell 3.9% to €87.2B in 2012, with tax revenues +3.9% to €286B and spending +2.4% to €374.2B. The deficit is €1B higher than predicted in the last budget law in November.\
• German manufacturing turnover Y/Y is -3.1%. December is -0.9% compared to November’s -1%. Domestic turnover is -3.1%, business with foreign customers is +1.6%. Sales to eurozone is -1.1%.  

Corporate

• A federal appears court is expected to hear an argument today over when software is patentable. Google (GOOG) and Facebook (FB) believe the patent office has been overly generous with the distribution of patents. On the other side, IBM (IBM) argues that stricter patent laws will curb innovation. The case itself is between CLS Bank and Australian firm Alice Corp. 
• Airlines have canceled at least 2,000 flights for today and another 500 for tomorrow ahead of this over broad casted snow storm (which is forecast to leave 2.5ft of snow). United Continental (UAL), JetBlue Airways (JBLU), Delta Air Lines (DAL), and AMR (AAMRG.PK).