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Obama tries to shift blame for failed Syrian rebel policy

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Ever since, as the BBC reported, the Pentagon admitted that only “four or five” Syrian rebels trained by the United States military are still fighting in the field, fingers are being pointed at the Obama administration for what is one of the biggest government-caused blunders in modern times. The military spent $500 million training the first batch of what was supposed to be a pro-western Syrian rebel army of 54 fighters. All but the four or five were reported to have either been killed or have deserted. The figure was later revised upward to nine.

Even if the four or five or nine Syrian fighters were genetically enhanced cyborg super-soldiers, a half a billion dollars would seem to be a steep price to train and deploy that number of fighters in the field. Similar amounts were spent in the 1980s to support and equip thousands of Afghan mujahedin who then proceeded to bleed the Soviet Army white. The Reagan-era program helped to bring about the fall of the Soviet Union.

The Obama administration has an answer for the debacle. The answer, oddly enough, does not consist of finding out what went wrong, fixing the problem, and then moving on to create a pro-western rebel army capable of overthrowing the Assad regime and of combatting ISIS. As Hot Air noted, the White House has decided to shift blame to the people who urged President Obama to pursue the strategy in the first place. That groups includes not only Republican hawks such as Sen. John McCain and Sen Lindsey Graham, but former Secretary of State Hillary Clinton.

Hot Air’s analysis is, as usual, spot on.

“What’s irritating Obama here is that he was destined for criticism, no matter what he did. If he had listened to the Rubios and McCains and started building a U.S. proxy force of rebels early, circa 2011, some of those trainees would inevitably have switched sides. Some would have murdered civilians. Some, simply by fighting effectively, would have been accused of doves here in the U.S. of keeping the war going when all Syrian civilians wanted was peace. Or would have been called a warmonger, repeating the alleged mistake the U.S. made in Afghanistan in the 1980s by arming the mujahedin against the Soviets. (sic)

“Meanwhile, if he’d done nothing at all — as opposed to next to nothing, which is what this modest, belated rebel training program amounts to — he’d be accused of not caring about Syria, of not lifting a finger of America’s massive military might apart from some ineffective bombing runs at ISIS to end the civil war there. All of the criticism he would have taken from doves if he’d intervened early would be reversed by hawks for refusing to intervene — an effective rebel force could have stopped ISIS before it gained momentum, it could have pressured Assad into accepting a peace deal and sectarian partition, and it could, in theory, have formed the germ of a new ruling regime that would have averted the Syrian refugee crisis.”

The middle-ground approach, which involved training a handful of fighters that were not intended to do anything, was meant as a gesture. Obama could point out that he was doing something, even though that something would not have any effect whatsoever on events on the ground. The president did not anticipate that the token effort would go so badly sideways, opening him to criticism anyway. Obama has proven incompetent even while conducting pretend efforts.

It would have been better for him had he decided to go one way or the other. Better still, he could have followed the advice of the hawks and intervened massively when there was still a large recruiting pool of pro-western Syrians and ISIS was still a “JV team” to quote the immortal words of the president. Now Obama has bought the worse of both worlds. He has done nothing to calm the chaos in Syria and stem the growth of ISIS. But what he has done has blown up in his face and made him look foolish and weak. In the meantime, Russia’s Vladimir Putin has filled the power vacuum left by the president in Syria with troops, arms shipments, and fighter jets.

Study: Technical Analysis beats Fundamental stock pickers

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According to a recent academic study, market technicians may have an edge in the financial markets, whereas fundamental analysts could not beat the market. In addition, technicians were able to predict more often the direction of share prices than fundamental analysts. And it’s not just a tiny difference: technical analysis caused an outperformance of 8% compared to the broader market during a nine months’ time-span, during which the fundamental stock picks underperformed.

Opposite worlds

Market technicians, which apply technical analysis, focus on price action, chart patterns and indicators. Often they look at the occurrence of a trend in the price development of shares. What the company does to earn its money and how its positioned compared to competitors, are not subjects in which technicians are interested. Fundamental analysts however dig deep into the underlying financials and products of companies. Cash flow, net income, revenues, competitive advantages etc. are very important to this group of analysts. Stunningly, the latter doesn’t offer any real benefits in the investment process according to the study. The study, performed by Avramov and Levy of Hebrew University of Jerusalem and Kaplanksi from the Bar-Ilan University, compared recommendations of both methods on the same assets.

Selective viewing

The researchers looked at recommendations on a TV-show, ‘Talking numbers’ by CNBC and Yahoo. Remarkably, the outperformance of technicians was only visible in individual shares. When considering indices, such as S&P 500, sectors or commodities, both groups of analysts were not able to beat the market. The researchers concluded that apart from individual shares, returns on broader assets are unpredictable. This places the so called ‘expert views’ in a somewhat difficult position. We could conclude that it’s a complete waste of time to listen to a large number of features during this show. Maybe CNBC&Yahoo should only invite technicians for individual shares, and remove all other items…

Trading and analysis

The study of Avramov et al. was conducted for a view on investing. A large part of market players are however trading and look for short term opportunities and do not hold for a nine months period. Some traders rely on technical analysis, stating that indicators and Fibonacci-levels give a good indication of market structure and thus see an edge in this method. Others view news as short term market drivers and rely heavily on fundamental figures. But as some say, the method is less important, prudent money management and psychological factors may be the key for success. Nevertheless, a comparative study on the trading methods would be very interesting.

Added value of both disciplines

It may be too harsh to decide that both methods of analysis are a waste of time for a large portion of assets. Since we live in a complex world and many players are trying to grab a piece of the pie in the search of returns, achieving outperformance is a difficult job. Fundamental analysis for private investors could add value to understand the business of the companies in portfolio. Technical analysis may show roughly if the current market is trending upwards or that we’re in a bear market. But one should keep in mind that the market is driven by supply & demand which are driven by expectations of market players. The price is the result of this process. As a result, ‘outsmart’ the market is difficult. There is a lot of money at stake and there are a lot of players! Sometimes it may be wiser to just follow the market and for instance invest in an ETF. Although the game of guessing the market direction may be sheer fun!

Fed Decides: But Not Much Clarity For The Market’s Outlook

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Well that answered everything and nothing. The Fed wisely (in our view) held off on hiking interest rates in Thursday’s long-awaited decision. Now we hopefully have a few more weeks of relative peace before the drumbeat gets going for if they’ll hike or not at the next meeting.
Markets initially took happily to the news, with S&P 500 futures shooting back over 2000 for the first time in awhile. At one point, the Ultra VIX Short-Term Futures ETF (UVXY) was down 15% on the day, and this author was prepared to highlight how unusual it is that this ETF closes down 15% or more three days in a row.
Well, it stayed somewhat rarer, as the market folded like a cheap suit, giving back all the Fed-induced gains, and volatility roared back, closing nearly flat on the day.
Where To Now?
There’s at least two ways to view the Fed’s decision not to hike, one of which is bullish for the market, and the other being bearish. The market expressed both these takes, initially rallying and then dropping hard.
The positive take is that the Fed is aware of the global risks the worldwide economy is currently facing, and is prepared to stand aside until these threats diminish. In doing so, the Fed will not cause the dollar to rise further in the short run. The rise of the dollar has been behind much of the collapse in commodities and emerging markets that sent the global economy into a tailspin in the first place.
So, as a take one for the team sort of move, the Fed’s action was positive. Instead of arguably selfishly putting the US’ narrow interests ahead of the world, it instead recognized its duty as the provider of the world’s reserve currency and held back on a hike that most the world was begging it not to engage in.
Now, the bulls will argue, there should be a rally in coming weeks as battered emerging markets start to regain their footing. With stronger commodity prices, local currencies, and demand forecasts going forward, emerging market demand which is the net marginal buyer for all sorts of goods nowadays surges anew. And on the domestic front, large multinationals that have long been suffered with an overvalued dollar get respite on that front, boosting revenues and EPS in coming quarters.
The bears say the above explanation is hogwash. They’ll take the Fed’s no-hike decision as a clear sign of something that many folks haven’t wanted to admit. The US economy just isn’t that strong.
Sure, there are bright spots, particularly in housing and auto sales, but on the whole, things aren’t so hot. Unemployment, they’ll say, is a mirage since much of the population has given up looking for work. Reset the labor force participation rate to 2010 levels and unemployment still looks scary high.
Health care expenses are absolutely exploding following the implementation of Obama’s changes to the health care system, putting a heavy blow to middle class consumers. Particularly for younger Americans, this is the economic expansion that has totally passed them by.
And on a stock market basis, revenue and EPS growth for the big-caps have slown to a grind. Without large share buybacks driven largely by ZIRP-money, the stock market wouldn’t be going any higher either.
The Fed’s decision not to hike can be taken as a large vote of no confidence for the economy. If that’s how the decision ends up being interpreted, it could easily cascade into another round of selling.
Particularly if emerging markets look at the Fed’s move and say, man, even the US is struggling. It seems like a bout of global deflation is on the way.
In coming days, it will be key to watch how commodities and emerging markets react. If they hold up, it is a sign that the bullish argument has taken root. But if oil and exposed stock markets such as China and Brazil start dropping heavily again, look out.
The Fed made what seems like the right call on Thursday, but the market can still react to it in a variety of ways. We’re better off for them having not hiked, but that doesn’t mean it’s all clear skies ahead.

Goldman Sachs joins the ETF-party (too?) late

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One of the most significant developments in investing and asset management during the recent years was the rise of the Exchange Traded Funds (ETFs). Whereas traditional mutual funds are actively managed, ETFs are passive funds tracking an underlying asset or, as in most cases, an index such as S&P 500 or MSCI Emerging Markets. During the stellar growth, a large number of ETF-issuers has developed, but iShares (Blackrock), Vanguard and State Street Global advisors are obviously the leaders. Now, Goldman Sachs (GS) wants to join the party. The question is, will there still be a piece of the pie available?

Historical growth

Since the first ETF was launched by State Street Global Advisors in 1993, total assets under management (AUM) rose to USD 2.7 trillion worldwide as at year end 2014. The US ETF market is the largest with AUM of USD 2.1 trillion per May 2015. During the last 10 years, AUM rose sixfold (see image below, source: Investment Company Institute).

Currently largest ETF is SPDR’s S&P 500 ETF (SPY) with USD 172.5bn AUM. iShares equivalent (IVV) holds USD 66bn and Vanguard’s S&P500 (VOO) USD 35bn, so over USD 275bn is tracking the S&P500. All three charge less than 0.1% fee. Bloomberg reported that GS is looking for even somewhat lower fees, according to a regulatory filing early September. This means that GS is also looking for significant sizing. ETF is a volume-driven business where only niches are able to charge higher fees, but mostly still far below 0.5% to have a competitive advantage over actively managed mutual funds.

Seeking outperformance

The ETFs Goldman Sachs will offer are not fully passive, but will be based on ‘active beta’-strategies. This means that the composition of the ETFs is based on valuation or growth instead the basic market capitalization or share price of underlying assets. GS will start with a US large cap and a small-cap ETF, as well as ETFs with exposure to Europe, emerging markets, Japan and one global oriented TF. The active beta strategy should give an advantage over other passive ETFs. An increased exposure to beta means that underlying shares will move stronger than the index in which the shares are included.

Finding a spot

Goldman Sachs is already active in the mutual fund industry, with USD 239bn in AUM. It is likely that part of these assets will flow to the ETFs, so plenty of scale is likely. Furthermore, newcomers proved that there’s still room for inventive ETFs. For instance, PureFunds ISE Cyber Security ETF (HACK) which saw its AUM growing to over USD 1bn within a year. Also Canadian asset manager BMO was able to attract multiple hundred millions for its 5 new ETFs earlier this month. Although the ETFs will bring in lower fees per dollar under management, we can be sure that Goldman’s new products will be a success. The pie is still growing.

Bill Clinton’s attempted speaking engagement with Iranian group raises questions

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The skill with which the Clintons went from “dead broke” when Bill Clinton left the Oval Office to being wealthy enough to be part of the one percent has become the stuff of legend. Their main source of income has been paid speaking gigs, especially by the former president, and contributions to the charitable foundation that the Clintons run.

As the Washington Examiner reportedBill Clinton’s attempted speaking engagement with Iranian group raises questions, the Clintons entrepreneurial activities have given rise to the suspicion of a conflict of interest, especially after Hillary Clinton became secretary of state. A pattern exists of foreign governments and corporations giving money to the foundation or giving Bill Clinton a lucrative speaking engagement and then getting favorable treatment at the State Department for one matter or another. It does not help that some of these generous contributors are some of the worst actors on the world stage.

Now, the Washington Free Beacon reported that in June 2012 Bill Clinton sought permission from his wife’s State Department to give a speech to a group called the National Iranian-American Council, a group widely considered to be an unofficial lobbying arm of the Iranian government. Top of the agenda of NIAC is the ending of all economic sanctions against Iran. Even though Clinton never gave the speech, the revelations raise some uncomfortable questions for Hillary Clinton’s campaign for the presidency.

Hillary Clinton has warmly supported the Iran nuclear weapons deal that President Obama has recently concluded with Tehran. Part of the agreement includes the lifting of all economic sanctions, which will give the Iranians an immediate $150 billion windfall and access to make more money exporting oil and making other deals with western business interests.

Within weeks of Bill Clinton’s request, in July 2012, one of then-Secretary of State Hillary Clinton’s top aides, Andrew Sullivan, began meeting in secret with Iranian diplomats. The talks eventually led to the controversial Iran nuclear weapons deal. Incidentally, Sullivan was one of the State Department officials Bill Clinton sent the email to, asking permission to speak before the NIAC.

On the one hand, the Clintons have plausible deniability. The speech was, after all, vetoed. On the other hand, the sudden flurry of diplomatic activity coming so soon after the request to speak before an Iranian-connected group is a cause of concern.

The Iran nuclear deal is considered the foreign policy equivalent of Obamacare, insofar as President Obama’s legacy is concerned. The deal shares one aspect with the health care reform law that will prove disquieting to its supporters. It is wildly unpopular with the American people, with just 22 percent supporting it. The idea that a little corruption may have contributed to the deal does not help. If the deal goes sideways, in the form of an unexpected mushroom cloud, the results will be worse than horrible to all associated with it.