David Fuller and Eoin Treacy's Free (Abbreviated)
Comment of the Day

The more detailed Subscriber's Comment of the Day becomes available for public access after 4 months.

Click HERE to see the most recent free Subscriber's Comment from 13 June, 2014

September 15 2014

Commentary by David Fuller

Record S&P 500 Masks 47% of Nasdaq Mired in Bear Market

Here is the opining of this informative article from Bloomberg:

Beneath the U.S. stock market’s record-setting gains, trouble is stirring.

About 47 percent of stocks in the Nasdaq Composite (CCMP) Index are down at least 20 percent from their peak in the last 12 months while more than 40 percent have fallen that much in the Russell 2000 Index and the Bloomberg IPO Index. That contrasts with the Standard & Poor’s 500 Index (SPX), which has closed at new highs 33 times in 2014 and where less than 6 percent of companies are in bear markets, data compiled by Bloomberg show.

The divergence shows the appetite for risk is narrowing as the Federal Reserve reins in economic stimulus after a five-year rally that added almost $16 trillion to equity values. It’s been three years since investors saw a 10 percent decline in the S&P 500 and they’re starting to avoid companies that will suffer the most when the market stumbles, said Skip Aylesworth, a portfolio manager for Hennessy Funds in Boston.

“The small caps have had big runs and tend to get ahead of themselves,” Aylesworth said in a Sept. 10 phone interview. Hennessy Funds oversees about $5 billion. “It’s kind of like the tortoise and the hare, and they’re the hare. But then they get expensive, and when the market corrects, they get whacked.”

David Fuller's view

Market breadth is deteriorating on Wall Street, as I have mentioned before.  Is this just a temporary pause and normal reaction, or could it be the beginning of something worse?

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September 15 2014

Commentary by David Fuller

Scots Are Voting on the Wrong Question

Here is the opening of this topical article by Mark Gilbert for Bloomberg:

Psychologists call it the "framing effect": Presenting the same information in different ways can influence how people respond to identical scenarios. By allowing the Sept. 18 referendum question to be framed as "Should Scotland be an independent country?" the U.K. government may have unwittingly skewed the outcome -- in favor of a "yes" vote.

If I offer you a burger stuffed with 25 percent fat, there's a higher chance you'll opt for the chicken salad than if my menu promises a hamburger of 75 percent lean beef. Never mind that the burgers are indistinguishable; describing objects and situations in positive terms makes them more appealing than when negative words are used.

"There's lots of experimental research showing that a strong positivity bias exists," Andrew Colman, a psychology professor at the University of Leicester, said in response to e-mailed questions. "The `Better Together' campaign, or perhaps the U.K. government, made a mistake allowing the ballot question to be as it is. It is obviously easier to campaign for `Yes, we can' than `No, we can't.' If the U.K. government wanted to keep Scotland in the union, then the question should have been `Do you want Scotland to remain part of the United Kingdom?'"

David Fuller's view

I made the same point last Friday, in my lead item:

I am also concerned about the question that people in Scotland will be voting on: “Should Scotland be an independent country?” Being asked to provide a yes or no answer this question sounds like a challenge, at a time when Scotland already has a considerable amount of independence.  I think the question should have been: Should Scotland remain a member of the United Kingdom, yes or no?  This would have been less controversial.

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September 15 2014

Commentary by David Fuller

September 15 2014

Commentary by David Fuller

The Markets Now

Held at London’s enjoyable East India Club

David Fuller's view

I am pleased to announce that our next evening seminar, commencing at 6:30pm, will be held on Monday 6th October, appropriately in the Rugby Room.  Our next brochure for this event will be posted in a day or two.  I hope more subscribers and their friends / associates will come along to enjoy and participate in this informal and interactive discussion of global markets.  These are followed by further conversation in the East India Club’s American Bar.  

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September 15 2014

Commentary by Eoin Treacy

BlackRock Betting on Silva Win in Brazil Is Bullish on Petrobras

This article by Christiana Sciaudone for Bloomberg may be of interest to subscribers. Here is a section: 

Brazil votes next month on whether to reinstate incumbent President Dilma Rousseff or elect Marina Silva. The two are running in a statistical tie, with a Vox Populi poll published last week showing Silva would get 42 percent of votes in a runoff, compared with 41 percent for Rousseff.

“We’re overweight because we’re looking and we’re continuing to look for change,” Landers said in a Sept. 12 interview at BlackRock’s New York office. “We have good reasons to believe that the election will go towards Marina.”

Landers said Silva is signaling that she will allow the private sector to be “in charge of its own destiny,” instead of trying to control every aspect of the economy, and that she will bring inflation down. Rousseff has been using Petrobras and other state companies as fiscal and monetary policy tools, driving their value down, Landers said.

As part of Rousseff’s effort to contain inflation, she limited Petrobras’s ability to increase fuel prices.

If Rousseff wins in October, Petrobras will return to the nine-year low it hit in March, Landers said, and BlackRock would reduce its exposure to Brazil. “We would significantly have to rethink our portfolio,” Landers said. The Latin America fund shrank from $4.5 billion in December on flows.

Petrobras is the second-largest holding in Brazil after Itau Unibanco Holding SA in BlackRock’s Latin America fund. Earlier this year, various BlackRock funds bought 500,600 shares of Petrobras, as the Rio de Janeiro-based company is known, according to data compiled by Bloomberg.

Eoin Treacy's view

The Brazilian Bovespa Index pulled back sharply from early this month in the aftermath of polls that showed Rousseff with a wider lead than many had expected. This year has seen a number of heavily contested elections which have seen pro-reform candidates assume power. If Brazil votes for Silva it will probably be seen as another green light for foreign investors to return to Brazil after a particularly difficult period. 

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September 15 2014

Commentary by Eoin Treacy

Australians Face Repayment Shock on High-Risk Lending

This article by Narayanan Somasundaram and Nichola Saminather for Bloomberg may be of interest to subscribers. Here is a section:

Prices in our area have increased about a quarter of a million dollars just in the past couple of years,” said Dowd of broker Ray White Baulkham Hills, adding that the number of people choosing to sell their homes at auction is at a 15-year high. “We’ve seen a sharp increase in auctions in just the past three months because people are seeing the exceptional results others are getting and saying, ‘I want what he has.’”

Martin North, Sydney-based principal at researcher Digital Finance Analytics, said inexpensive mortgages have emboldened households to take bigger loans that they may have trouble repaying.

“There’s no doubt the low rates have got many borrowers out of jail,” he said.

A 2 percentage point rise in interest rates would put more than 25 percent of households in mortgage stress within 12 months, he said. They would need to cut other expenses and increase credit card debt to keep up with repayments.

“It’s parallel to what happened in the U.S. before the global crisis,” when easy credit to high-risk borrowers inflated a housing bubble that burst, creating a wave of defaults.

Genworth Mortgage Insurance Australia Ltd., the country’s largest mortgage insurance provider for lenders, is taking on more risky policies and while house prices have gone up, “froth is being mistaken for beer,” CLSA Ltd.’s Sydney-based analysts led by Jan van der Schalk said in an investor note Sept. 10.

Lenders mortgage insurance covers losses when homeowners default and helps lenders to recoup costs.

Prepayment Shock
Loans to investors accounted for 33.8 percent of all mortgages in the three months through June, the highest level since March 2009, APRA figures show. Outstanding interest-only loans -- where borrowers can postpone repayment of the principal for a set number of years -- increased to 35 percent, the highest since APRA began reporting the data.

“For those borrowers who’ve taken out interest-only loans, there’s always a prepayment shock when the interest-only period ends,” said Serov at Moody’s, which forecasts rates will rise over the next 18 months. “In a rising rate environment, that repayment shock is greater and delinquency rates for those loans would be greater.”

Eoin Treacy's view

Record low interest rates represent an ideal time to borrow on fixed rates since one can lock in the risk one is taking on future central bank decisions. However the temptation when credit is cheap is to borrow too much in order to purchase a home whose price has accelerated as everyone else chases the same market.

The saving grace of cities like Sydney and London has been the dearth of building which has contained supply and supported high prices. The attraction of both cities for foreign investors has also been a considerable source of additional demand which has forced locals to compete with wealthy foreigners. Record low interest rates mean that taking out an adjustable rate mortgage today is straight momentum speculation.   

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September 15 2014

Commentary by Eoin Treacy

Sugar Has Longest Slump This Year Amid Expanding Global Glut

This article by Luzi Ann Javier and Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section:

Anticipation of a large world crop and supplies are putting pressure on prices,” Boyd Cruel, a senior market analyst at Vision Financial Markets in Chicago, said in a telephone interview. “The market has also been weighed down by expectations for large deliveries” from Thailand, he said.

Raw sugar for March delivery fell 0.3 percent to settle at 16.27 cents a pound at 1:07 p.m. on ICE Futures U.S. in New York. The contract had a ninth straight loss, the longest streak since Dec. 9.

Traders in Thailand, the second-biggest exporter, plan to ship sugar for delivery against New York futures for the first time since 2012. About 625,000 tons probably will be supplied against the October contract, equal to 16 percent of this year’s surplus, according to a Bloomberg survey of analysts last month.

India, the second-largest producer, may export 3 million tons in the season starting next month, the National Federation of Cooperative Sugar Factories said today.

Money mangers more than doubled their bets on price declines last week, U.S. government data show. The net-short position reached 31,873 futures and options contracts as of Sept. 9, compared with 14,043 a week earlier.

 

Eoin Treacy's view

The inclement weather than prevailed between 2011 and 2013 sent soft commodity prices higher and acted as an incentive for farmers to plant more. With supply disruptions easing the outlook for yields has improved and prices have fallen. This has been particularly evident in New York sugar prices which hit a new four- year low last week. 

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September 15 2014

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view

I am delighted to announce that we now have our venues secured for the Chart Seminar in both Chicago and London later this year.

September 29th and 30th will find me presenting The Chart Seminar at The University Club of Chicago. Established in 1887 by university graduates who wanted a special place where they could enjoy intellectual pursuits, the University Club of Chicago will provide the perfect collegiate atmosphere for The Chart Seminar.

November 13th and 14th brings me to London and the rarefied East India Club. Founded in the middle of the 19th century, its original members were 'the servants of the East India Company and Commissioned Officers of Her Majesty's Army and Navy' returning from far flung lands.  As our London seminar always attracts delegates from around the world, it seems a fitting venue to conduct The Chart Seminar.

To book your place, please contact Sarah Barnes at sarah@fullertreacymoney.com

The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

Private Seminars and Partnering Opportunities
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies. 

2014 marks a number of changes in how we organise the Chart Seminar.  In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us.

 

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September 15 2014

Commentary by Eoin Treacy

September 15 2014

Commentary by Eoin Treacy

52nd Annual Contrary Opinion Forum

Eoin Treacy's view

It has been my pleasure to accept an invitation to return to the Basin Harbor Club in Vermont to speak at the 52nd Annual Contrary Opinion Forum hosted by Fraser Asset Management between October 1st and 3rd. The Forum’s convivial atmosphere is something Mrs.Treacy and I look forward to not least because it gives us an opportunity to meet so many subscribers.  

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