Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every dayin the early am at GEI News (membership not required for access to "The Early Bird".).
The yield on the 30-year Treasury bond sank another 10 basis points to 2.68%. That’s the lowest since the August 2015 crash day. If this key yield drops just a few basis points more, it’ll be at the lowest level since last spring.
Or how about the iShares 7-10 Year Treasury Bond ETF (IEF), an ETF that tracks the price of mid-duration Treasuries? As you probably know, bond prices move in the opposite direction of interest rates. So I sat up and noticed when IEF rose to its highest level since last February today.
That’s not all. The BOJ’s latest step isn’t doing anything for the mega-banks based in Japan that trade here. Mitsubishi UFJ Financial Group (MTU) and Mizuho Financial Group (MFG) both just plunged to their lowest levels since December 2013 today.
That mirrors the dismal action in European banks, which aren’t getting a leg up at all from the European Central Bank’s endless promises of more purported “stimulus.”
Why Oil Inventories Continue Building (Wealth Management) Inventories continue to build because it is a way to make money. And not just for refiners. For arbitrageurs, too. A “cash-and-carry” trade in oil can, sometimes, provide a return better than high yield bonds and lottery tickets. The trade relies on the contango – the positive curve -- in oil futures pricing. When spot oil trades at $32 a barrel while oil for delivery in three months costs $36, there’s said to be a $4 contango. The spread accounts for storage and financing costs to “carry” the oil ‘til the delivery date. Mostly. Sometimes, there’s a little “extra” in the spread. That’s the “convenience yield” which is extracted in the arbitrage. The convenience yield, put simply, is the benefit of temporary ownership. Of course the timing of building inventory is critical - there are times when you lose money on the "carry", like June 2015.
Shkreli Says He Wishes He Could ‘Berate,’ ‘Insult’ Congress (Bloomberg) Former drug executive Martin Shkreli, who is under investigation for securities fraud and the subject of a congressional inquiry, has replaced his legal team with Benjamin Brafman, the same lawyer who helped get rapper Sean “Diddy” Combs acquitted of gun and bribery charges in 2001. Shkreli is set to appear in court Wednesday for a routine appearance as part of the securities fraud charges against him related to several of his past businesses, which include hedge funds and the drug company Retrophin Inc. On Thursday, he is scheduled to appear before Congress for a hearing by the House Committee on Oversight and Government Reform to discuss drug pricing. Shkreli said he plans to invoke his Fifth Amendment right not to testify.
Yahoo to explore alternatives, cut 15 percent of workforce (Reuters) Yahoo Inc said on Tuesday it was exploring strategic alternatives in addition to the continued pursuit of the reverse spin-off of its Internet business. The company also said it would cut about 15% of its workforce and close offices in five locations. Shares of Yahoo, which also reported fourth-quarter results, fell 1.4% in after-hours trading on Tuesday. The company said it would simplify its product portfolio and that it had begun to explore divesting non-strategic assets. Yahoo on Tuesday also reported a 15% fall in adjusted quarterly revenue as it struggles to keep its share of online search and display advertising in the face of tough competition from Facebook Inc and Alphabet Inc's Google.
US 'to quadruple defence budget for Europe' (BBC News) The Pentagon is to propose quadrupling its budget for European defence in 2017 in the light of "Russian aggression", US Defence Secretary Ash Carter says. He described Russia as a growing challenge for the US. Relations between Russia and the West have plummeted since Russia annexed the Ukrainian peninsula of Crimea in March 2014. The Pentagon will also propose a 50% increase in spending on the campaign against so-called Islamic State (IS).
Cameron to Campaign Against `Brexit' as Welfare Deal Offered (Bloomberg) British Prime Minister David Cameron said he’s ready to campaign to keep the U.K. in the European Union after its president, Donald Tusk, issued a draft proposal that includes a way to restrict the payment of benefits to foreign workers.
Syria allows aid into rebel-held area as peace talks stall (Associated Press) The Syrian government allowed aid into a rebel-held area near Damascus on Tuesday in what appeared to be a goodwill gesture after U.N.-mediated indirect peace talks got off to a rocky start in Geneva. The Syrian Arab Red Crescent delivered 14 trucks of aid provided by the International Committee of the Red Cross to the al-Tal suburb.
Russia urges for including Kurds in Syria talks (Associated Press) Russia on Tuesday argued strongly against Turkey's demand to keep a leading Kurdish group out of Syrian peace talks, and said it expects the U.N. envoy to resist "blackmail" by Turkey and others, reflecting sharp differences that remain ahead of the talks. Russian Foreign Minister Sergey Lavrov also denied allegations that Moscow had urged Syrian President Bashar Assad to step down and could offer him political asylum.
Kasyanov Kadyrov: Putin accused of encouraging intimidation (BBC News) Russian politician Mikhail Kasyanov has accused President Vladimir Putin of "silently encouraging" intimidation as a row over a menacing video continues. The video posted by Chechen President Ramzan Kadyrov, a strong Putin ally, portrayed Mr Kasyanov though a sniper's gun sights. See video with article.
Other Economics and Business Items of Note and Miscellanea
Vanguard Fund Expense Ratios Fall Again (Financial Planning) Toward the end of 2015, Vanguard's fund boards voted to lower expenses for over 100 funds. Then, in January, the biggest U.S. mutual fund provider picked up the trend again, announcing that expense ratios for 35 individual mutual fund shares, including 12 Vanguard target-date funds, had been cut. The historical record of Vanguard in leading fee compression is seen in this factoid: In 1975, Vanguard was managing $1.8 billion and the average expense ratio was 89 bps; today Vanguard manages $3.2 trillion and the average expense ratio is 18 bps.
3 Things to Know About International Investing and Currency (BlackRock Blog) As we enter another year of volatility and a strong dollar, Jane Leung explains a new way to hedge for currency risk in your international investments. Volatility for currencies is skyrocketing. Volatility for the U.S. dollar has double in the last 16 months.
Brokerages Consider Revamping Procedures To Prevent Bad Trades (Reuters) You may be aware that U.S. stock exchanges will no longer accept stop-loss orders as of 26 February. But until now brokerages have not said they would not accept them. The process would be that stop-loss orders on the firm's books could be submitted as market orders when price dropped sufficiently to trigger the stop-loss action. The problem with stop-loss orders in the current environment of massive HFT is that stop-loss order executions can result (and has resulted) in substantial losses with exevutions far below the stop-loss price. Some brokerages are discouraging broker use of stop-loss orders, but Bank of America Corp's Merrill Lynch unit is discussing whether to ban such orders altogether. The article says that the alternative is to use "limit orders". Econintersect: We assume this means stop-limit since a limit order at a price lower than currently asked results in an automatic sale, which is not what is intended. A limit order is an order to sell at a specified price or better. A stop-limit is a conditional order which is a limit order activated only after price has dropped to the specified value.
Where to Ride Out the Volatility (BlackRock Blog) Recent market volatility is leading many investors to exit stocks. For those that remain, the key question is: Where to hide? Russ Koesterich shares ideas, and opting for defensive sectors isn't one of them because the volatility is largely being driven from outside the United States, i.e. China. Further complicating matters, after years of investors favoring these sectors for their dividends, many of these sectors are expensive. Finally, should market volatility begin to stabilize and interest rates climb a bit, these defensive stocks would be particularly vulnerable, according to Russ. (RK has contributed to GEI.)
Low Volatility ETFs May Be 2016’s Best Bet (Wealth Management) Brad Zigler says that simple and straightforward is the way to go, particularly given the shaky start to the year. There are eight low-volatility ETFs benchmarked to the S&P 500, each trying to solve the drawdown problem in a distinct manner. If we compare these funds to an S&P 500 tracker such as the iShares Core S&P 500 (NYSE Arca: IVV), we can get a sense of their effectiveness along a number of risk parameters. First, there’s the maximum drawdown conceded in the past year. Seven of the low-vol funds countenanced smaller drawdowns than IVV’s 12% hit. The entire set of ETFs beat IVV on a Value-at-Risk (VaR) basis. VaR represents an ETF’s potential daily loss at a 99% confidence level. IVV can be expected to lose no more than 2.3% of its value on 99 days out of 100. On average, the low-vol portfolios show a 1.9% VaR.
Worried About a Recession? Consider These Stocks (HRL, KR, ATRI, MCD) (Investopedia) The author suggest five stocks he thinks have good prospects if the market goes up and limited downside in market decline. The fifth stock not in the headline is Stericycle (NASDAQ:SRCL)
Macroscopic quantum entanglement achieved at room temperature (Gizmag) This may be one of the monumental discoveries in terms of potential applications since the invention of the transistor. Albert Einstein called it "spooky action at a distance" and it has given rise to applications such as ultra-safe cryptography and a new realm of quantum computing. Long thought to be practically limited to particles no larger than photons unless temperatures close to absolute zero and the application of enormously powerful magnetic fields were employed, University of Chicago and Argonne National Lab scientists say they have created the effect (called quantum entanglement) with atoms at room temperature and with relatively small magnetic fields. Here is a brief description:
When two particles, such as photons, are entangled – that is, when they interact physically and are then forcibly separated – the spin direction imparted to each is directly opposite to the other. However, when one of the entangled particles has its spin direction measured, the other particle will immediately display the reverse spin direction, no matter how great a distance they are apart.
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