‘Mother of all bubbles’ will Pop China Stocks: GMO

By Jason Kephart

Peter Chiappinelli, portfolio strategist at institutional money manager Grantham Mayo Van Otterloo & Co. is preparing for the worst from the Chinese stock market.

The firm is currently hedging its China exposure to near zero in the emerging-markets sleeves of its mutual funds, he said. The company has also taken a net short position on China in the hedge fund it operates.

The problem Mr. Chiappinelli sees is that there’s going to be no easy way out of the bubble that exists in China’s infrastructure and real estate.

“China is experiencing the mother of all bubbles,” he said today at the Bloomberg Portfolio Manager Mash-up in New York. “We don’t know when it’s going to pop or what’s going to cause it to pop, but there’s very little track record of countries successfully navigating a soft landing out of a bubble,” he said.

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Posted by Brad Plumer

Americans have cut way back on driving in recent years. Total vehicle-miles traveled has stagnated since 2007. One big question is whether this is a temporary blip due to the downturn — unemployed people, after all, don’t commute — or evidence of a long-term structural shift.

Theories for a structural shift generally involve demographics: America’s swelling ranks of retirees don’t drive as much, while kids these days prefer Facebook to motoring around with friends. But there’s another possible factor: the torrid growth of online shopping. Phil Izzo has the numbers, which are striking. In the fourth quarter of 2011, e-commerce surged to 5.5 percent of all retail sales — and, if anything, that understates the trend, since brick-and-mortar stores include online sales in their own figures. When people order from their computers, of course, they save themselves a trip to the store.

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By Andrew Nyquist
On February 3rd,  the VIX (Volatility Index) swooned to 16.10 while the S&P 500 hit new near term highs around 1345. Things began to “feel” easy, and maybe a little too easy. Volatility expanded and the market traded up and down in a relatively tight range (1335-1355) over the next 8 trading days. Despite the back and forth, this was ultimately seen as bullish by many investors and analysts, as the S&P 500 was able to hold its uptrend line before pushing to new near term highs on Thursday and Friday. Definitely hard to argue with the bulls logic here. But, is it really just that easy… simply up, up and away from here?

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The hydraulic fracturing of shale formations to develop natural gas has no direct connection to groundwater contamination, according to a study released Feb. 16 by the Energy Institute at the University of Texas at Austin    .

The study reported that many problems blamed on hydraulic fracturing are related to processes common to all oil and gas drilling operations, such as casing failures or poor cement jobs.

University researchers also concluded that many reports of contamination can be traced to above-ground spills or other mishandling of wastewater produced from shale gas drilling, rather than from hydraulic fracturing, Charles “Chip” Groat, an Energy Institute associate director, said in a statement.

“These problems are not unique to hydraulic fracturing,” he said.

The research team examined evidence contained in reports of groundwater contamination attributed to hydraulic fracturing in three prominent shale plays — the Barnett Shale in North Texas; the Marcellus Shale in Pennsylvania, New York and portions of Appalachia; and the Haynesville Shale in western Louisiana and northeast Texas.

“Our goal was to provide policymakers a foundation for developing sensible regulations that ensure responsible shale gas development,” Groat said. “What we’ve tried to do is separate fact from fiction.”

Source

Snowfall in the Sierra Nevada has remained consistent for 130 years, with no evidence that anything has changed as a result of climate change, according to a study released Tuesday.

The analysis of snowfall data in the Sierra going back to 1878 found no more or less snow overall – a result that, on the surface, appears to contradict aspects of recent climate change models.

John Christy, the Alabama state climatologist who authored the study, said the amount of snow in the mountains has not decreased in the past 50 years, a period when greenhouse gases were supposed to have increased the effects of global warming.

The heaping piles of snow that fell in the Sierra last winter and the paltry amounts this year fall within the realm of normal weather variability, he concluded.

“The dramatic claims about snow disappearing in the Sierra just are not verified,” said Christy, a climate change skeptic and director of the Earth System Science Center at the University of Alabama in Huntsville. “It looks like you’re going to have snow for the foreseeable future.”

Climate experts and water resources officials were immediately skeptical of the report, pointing out that it doesn’t come to a meaningful conclusion and uses data from a ragtag collection of people, many of them amateurs.

Christy’s study used snow measurements from railroad officials, loggers, mining companies, hydroelectric utilities, water districts and government organizations going back to 1878. That’s when railroad workers began measuring the snowpack’s depth near the tracks at Echo Summit using a device similar to a yardstick.

“No one else had looked at this data in detail,” said Christy, a Fresno native who said some of the information will be published in the American Meteorological Society’s online Journal of Hydrometeorology.

Christy divided California into 18 regions based on the amount of snow that falls and on the quality of the records for that region, and crunched the numbers. They show no changes in average snowfall over the 130 years and no changes from 1975 to 2000, a period when studies have shown that global temperatures rose. The snow level was consistent even in the Sierra’s western slope, where much of California’s water supply comes from.

“California has huge year-to-year variations and that’s expected to continue,” Christy said. “California is having a snow drought so far this winter, while last year the state had much heavier than normal snowfall. But over the long term, there just isn’t a trend up or down.”

Note: Cardiff Garcia at FT Alphaville has some comments on inventory from several analysts: The decline of US housing inventory

Here is another report on inventory … from Realtor.com: Real Estate Trends for January 2012

Read the rest here.

By Jessica Toonkel, Carrick Mollenkamp and Cezary Podkul

(Reuters) – U.S. securities regulators have widened their inquiry into the trillion-dollar market for exchange-traded funds, according to a person familiar with the matter.

Prompted by a delay in a big trade at a popular ETF, the U.S. Securities and Exchange Commission is taking a closer look at a possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and instances where ETF trades fail to settle on time, this person said.

The SEC’s inquiry is part of a wider probe that began last year and focused on complex ETFs that allow investors to magnify returns or bet against stock indexes.

U.S. and UK regulators are concerned that so-called settlement fails – when trades are not completed on time – could contribute to volatility and systemic risk in financial markets.

The probe’s main focus is on illiquid ETFs, but regulators are now also examining popular ETFs and failed trades, according to the person.

An SEC spokesman confirmed that the agency is looking into failed trades and ETFs, but declined to elaborate.

The SEC’s inquiry comes amid greater scrutiny of the ETF industry, which has surged in popularity since the early 1990s. It is still unclear how settlement delays might affect retail investors in ETFs.

ETFs are baskets of securities that, like mutual funds, give investors exposure to a pool of assets. But unlike mutual funds, they trade throughout the day. Early ETFs were created to mirror benchmarks such as the Standard & Poor’s 500 index. ETF assets have doubled since 2007 to about $1.3 trillion, according to Deutsche Bank AG. Some of the most popular ETFs are those that use derivatives to give investors exposure to commodities, high-yield bonds or ETFs that own other ETFs.

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A close look at a solar tornado on the sun

It’s that time of year again!  On last night’s Late Show with David Letterman, the cover model of this year’s Sports Illustrated Swimsuit Issue was revealed to be America’s own Kate Upton.  While we’re all familiar with the Super Bowl Indicator, have you ever heard of the  Sports Illustrated Swimsuit Issue Indicator?  The Swimsuit Issue Indicator says that the US equity markets perform better in years where an American appears on the cover of Sports Illustrated’s annual issue as opposed to years when a non-American appears on the cover. The table below highlights the annual performance of the S&P 500 since 1978.

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NBA teams overlooked Jeremy Lin for the same reason so-called experts first ignore stocks, business pioneers and anything else that defies expectations.

“We are just not as smart as we think we are,” said Bill James, the statistician and author who inspired Billy Beane of “Moneyball” fame to choose baseball players by new standards.

Lin’s rise from scrub to a Knicks savior has provided a lesson in valuation far beyond sports. He went undrafted after college and was cut twice before the season. Yet he scored more points in his first five starts than any player in NBA history while leading the Knicks to seven straight victories.

How could this have happened?

Those paid to secure the top talent missed the signs of Lin’s worth for years. But if Apple could fire Steve Jobs, then it makes sense that the metrics by which we measure a basketball player could fail as well, experts told The Huffington Post.

“The human tendency is to think in terms of a model,” said Andrew Lo, a professor of finance at the MIT Sloan School of Management. “We have a model for what a basketball player should look like, be like and act like. It’s the same for what a good firm model or stock might look like. Occasionally, our preconceived notions are shattered.”

Read the rest here.

The detail in the decal was so small that the Vermont state trooper cleaning his patrol car had to get face to face with it to confirm that what he saw was really what he thought he saw.

The trooper, not identified by police, noticed that the one of the spots on the cow depicted on the state seal was oddly shaped.

Then it hit him: He was looking at a pig.

So he immediately reported it.

As police began looking into the matter, they learned that about 30 other police cruisers had the porcine-shaped spot on their decals too.

So how did the pig — often used as a derogatory term for police —  get there in the first place?

As it turns out, the emblems are printed by prison inmates with the corrections department’s print shop, which also makes the state’s stationary and license plates.

Inmates working there seem to have pulled a prank that Vermont police are not finding very funny.

Read the rest here.

Pot predicament: Can marijuana use actually save lives on the road?

Kathryn Hawkins

Proponents of legalizing marijuana have long argued that criminalization of the drug causes more problems than it solves. For instance, taxpayers spend between $7.5 billion and $10 billion a year on arresting and prosecuting Americans for marijuana-related crimes. Supporters of legalized marijuana maintain that this money would be better spent cracking down on violent criminals.

Now, pro-legalization backers have yet another point in their favor: According to a new study from the University of Colorado-Denver, the 16 states that have legalized medical marijuana have seen an average 9 percent drop in traffic deaths since their medical marijuana laws took effect. The study analyzed data from 1990 through 2009.

“We went into our research expecting the opposite effect,” says study co-author Daniel Rees, a professor of economics at the University of Colorado-Denver. “We thought medical marijuana legalization would increase traffic fatalities. We were stunned by the results.”

When it comes to traffic safety, can marijuana really save lives?

Read the rest here.

By Mark Hulbert

CHAPEL HILL, N.C. (MarketWatch) — Worried about the future of the NBA market — otherwise known as the “nothing but Apple” market?

You’re not alone. Many worry about the overall market’s health when more and more of the heavy lifting is being done by just a relatively few stocks like Apple AAPL +0.36%  .

And I fully expected to become worried too as I set out to investigate that concern for this column. But that is not what I found.

Consider first the data. During the week ending Feb. 3, two weeks ago, 16.4% of the issues on the NYSE hit a new 52-week high — which represents the highest level this percentage has reached over the last six months. Last week, this percentage contracted to 11.7%, even as the Dow Jones Industrial Average DJIA +0.96%   was itself hitting a new 52-week high.

That is the contraction that has some commentators worried.

But now consider what Ned Davis Research found upon trying to correlate the weekly new-high data with bull market peaks. They found that there typically is a long lag time between when the percentage of stocks hitting new weekly highs reaches its peak and when the bull market finally tops out.

In fact, the firm found that in no case over the last five decades did a bull market top out before a peak was reached in the percentage of weekly new highs. And, furthermore, the average lag time between a peak in that percentage and the bull market’s top was more than 33 weeks — nearly eight months.

So even if the percentage of NYSE stocks hitting weekly new highs peaked out at 16.4% earlier this month, the historical data would not warrant an immediate concern that the market was about to keel over dead.

Read the rest here.

Why?

It is a fascinating glimpse into the Human (or is it American?) Psyche — and I am very curious about it:

By: Gene Sperling

2/16/2012

​ Today, we learned that each of the Big Three automakers posted a yearly profit for 2011. For the first time since 2004, all of those companies are operating in the black.

But those aren’t the only milestones we’ve seen recently in the resurgence of the American auto industry. Or in the comeback of the American manufacturing sector.

The January 2012 jobs report released earlier this month included another little-noticed milestone. The number of auto industry jobs added since GM and Chrysler emerged from bankruptcy after June 2009 now exceeds 200,000 — marking the strongest period of auto jobs growth since the late 1990s. That positive trend is particularly strong in the motor vehicle and parts manufacturing sector, which has added 121,900 jobs – a nearly 20 percent increase – since June 2009. And that growth is particularly notable given that some experts estimated that at least 1 million jobs could have been lost if GM and Chrysler had been liquidated.

This trend isn’t unique to the auto sector – we have also gained over 400,000 manufacturing jobs in the past two years. Of course, there’s still more work to be done. While both the auto industry and the broader manufacturing sector have shown job growth, we still need to go much further to fully recover from the aftermath of the financial crisis. But these new milestones are certainly welcome news and represent a testament to the success of the tough but necessary choices made to retool and revitalize the American auto industry.

Gene Sperling is the Director of the National Economic Council

Source

by Peter Burrows

There are 57 Wall Street analysts in Bloomberg’s database who follow Apple Inc., and only one of them has a “sell” rating: Edward Zabitsky.

His reasoning? Zabitsky, an analyst at Toronto-based ACI Research, doubts Apple will be able to maintain the margins of its top product, the iPhone. He’s betting that a new web standard called HTML5 will overcome some of the deficiencies of web apps that led to the rise of so-called native apps, the type sold in Apple’s App Store.

Web apps — applications that are accessed through a mobile Web browser — are useless if the phone isn’t connected to the Internet. HTML5 apps will allow users to do some off-line activities, such as working on documents that can later be synched over the web. If that standard takes off, customers will be able to get to most of their favorite services without the need of Apple’s app ecosystem, he says. The move to speedier 4G cellular networks and the increased availability of Wi-Fi hotspots will also make the web apps more useful.

As a result, he expects iPhone prices to tumble to better compete with Android and Windows phones. Over time, he predicts the gross margin on the iPhone will fall from more than 50 percent to about 25 percent — roughly the same as the iPad and Mac. Or maybe worse. Since Samsung Electronics makes many of the parts used in its own phones — displays, chips, modems — it will be able to undercut everyone, including Apple.

“If a price war breaks out in Android phones, Samsung wins hands down,” he says.

Zabitsky also says cell carriers are getting tired of watching profits from iPhone sales accrue to Apple.

“I think carriers’ attitudes are already changing,” he says, citing a recent promotion in which Verizon offered more data per month to owners of Android phones.

Read the rest here.

By JONATHAN CHENG

The Dow Jones Industrial Average hit a nearly four-year high, boosted by signs of an accelerating U.S. economic recovery and glimmers of hope on the Greek debt crisis.

The Dow surged 123.13 points, or 1%, to 12904.08. Thursday’s rise was the biggest one-day point and percentage gain in two weeks and left the blue-chip index less than 100 points from the 13000 level it last hit in May 2008. The Dow has now run higher for 34 days without a single triple-digit decline, the longest run in more than a year. All 10 sectors of the Standard & Poor’s 500-stock index finished with gains.

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How a college dropout at a tiny Utah fund beat Wall Street, and why most managers are scared to copy him.

By BRETT ARENDS

On a fall day in 2010, half a dozen wealthy investors and portfolio managers converged on an office in midtown Manhattan. These were serious Wall Street moneymen; in aggregate, they handled more than a billion dollars. They had access to the most exclusive hedge funds and investment partnerships and often rubbed shoulders with the elite of New York, Greenwich and Palm Beach.

But on this day, they had turned out to meet an unknown college dropout from Utah — and to find out how he was knocking them all into a cocked hat.

The unknown, Allan Mecham, had been posting mind-bogglingly high returns for a decade at a tiny private-investment fund called Arlington Value Management, and the Wall Streeters were considering jumping on board. For nearly two hours, they peppered him with questions. Where did he get his business background? I read a lot, he replied. Did he have an MBA? No. I dropped out of college. Did he have a clever computer model or algorithm? No, he replied. I don’t use spreadsheets much. Could the group look at some of his investment analyses? I don’t have any of those either, he said. It’s all in my head. The investors were baffled. Well, could he at least tell them where he thought the stock market was headed? “I don’t know,” Mecham replied.

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Clare O’Connor

In one corner of Manoj Bhargava’s office is a cemetery of sorts. It’s a Formica bookcase, its shelves lined with hundreds of garishly colored screw-top plastic bottles not much taller than shot glasses. Front and center is a Cadillac-red bottle of 5-Hour Energy, the two-ounce caffeine and vitamin elixir that purports to keep you alert without crashing. In eight years 5-Hour has gone from nowhere to $1 billion in retail sales. Truckers swear by it. So do the traders in Oliver Stone’s 2010 sequel to Wall Street. So do hungover ­students. It’s $3 a bottle, and it has made Bhargava a fortune.

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