Stock Market: Tailwinds From Short Sellers?

(Drivebycuriosity) - U.S. stocks are rising - and so do the bets against them. The graph above (red line) shows that the "short interest" - a gauge for bets against stocks - has been climbing and jumped recently (marketwatch).

Short sellers borrow stocks from a broker and sell the shares immediately in the hope that stock prices will fall and then they could buy back these stocks much cheaper. The number of stocks sold by short sellers is called "short interest".

I suppose this is a tribute to the pessimistic "Zeitgeist". The bull market, which started in March 2009, is unloved and misunderstood. Therefore many are betting that stock prices will fall back. I believe that these short sellers will lose their bets.

1. They are betting against the odds. History shows that in the long run the stock market is gaining around 7% annually on average. On the average every day is in the green, though just marginally.

2. This bull market is fueled by continuously climbing company profits thanks to the rising productivity.  I believe that this process will continue driven by the technological progress (driveby). Consequently the rally will continue for years to come.

3. The stock market rally also is a reflection of the slowly healing global economy supported by low interest rates.  As soon as this winter is over the U.S. economy should gain her mojo again, supported by the gradual comeback of the European economy.

4. Short sellers have too buy back the sold stocks sometimes. Thus their purchases will generate an additional tailwind for the stock market.

Culture: The Commercialization Of Street Art

(Drivebycuriosity) - On the streets of New York City you can find a lot of street art. Especially in Southern Manhattan (East Village, Soho, Lower East Side) many walls are covered by murals, graffiti and other incarnations of this elusive art form.

Those images are controversial, of course. Some despise street art and call it vandalism and in some places those unauthorized displays are outlawed. But New York City seems to love it. And many shop owners - and other companies - use street art as part of their marketing.

They commission street artists to paint murals and other images on their walls or they mimic street art in their advertisements. Thus street artists have an additional way to finance their living which boost the whole scene and makes New York City more attractive.

Here a collection of pictures I took recently in Lower Manhattan. Enjoy.

Movies: In Secret

 

(Drivebycuriosity) - Émile Zola was one of the most important authors of the 19th century. The movie "In Secret" is based on his first novel "Thérèse Raquin" (imdb). The film, set in France around the year 1860, tells the story of woman who was coerced to marry her sickly cousin which led to sinister consequences. It is a bleak tale about exploitation, dysfunctional family relations, guilt, grieve and bad conscience. The plot is a bit too fatalistic for my taste but it was written for a 19th century audience.

The superb cinematography compensates for the - a bit outdated - story. Cinematographer Florian Hoffmeister illustrates the bleak tale in atmospheric pictures which transfer the audience mentally into a dark 19th century. The superb cast, especially Jessica Lange, is another asset of the movie. 

I liked watching "In Secret" and recommend it to friends of 19th century dramas, connoisseurs of cinematography and movie lovers in general.

Economy: Are We Close To Peak Car?

 

(Drivebycuriosity) - It seems the media is obsessed with peaks. There have been a lot headlines about "peak oil", claiming that the global oil production will soon reach its peak and will start shrinking. The media also wrote about  "peak consumption", "peak income", "peak life expectancy" and other alleged peaks (driveby). Recently Bloomberg announced the "dawn of the peak car era" (bloomberg).

According to Bloomberg, "the world will reach “peak car” -- a point at which annual global sales growth will top out -- in the next decade, several auto-industry analysts predict". They wrote further: "In the globe’s growing megacities, pollution and gridlock are putting a damper on driving." And: "more young Americans are forgoing the dream of auto ownership for public transport, bikes and vehicle-sharing" and "Cars on the road are lasting longer than ever".

It is strange that the article didn`t mention the high gas price. Today oil and gas cost around 3 times their average price in the 1990! It would be surprising if consumers would not respond to this triple and would not drive less. High gas prices work like a tax on commuting from rural areas to working places, shops and leisure spots. Today´s gas prices make living in cities more attractive because the commuting ways are much shorter - and cheaper, thanks to subway and buses. Some people, who migrate to the cities might even give up their cars.

However, I am skeptical with all peak theories and I am not convinced that we will see the dawn of "peak car" soon. The end of the car era had been often announced. But the car industry always found ways to beat the pessimistic expectations. Many people love cars, they have fun driving, they enjoy the mobility and the prestige which comes with some of the vehicles. And the car industry is adapting to the challenges, using more and more technology. Thanks to advances in engineering cars are getting more and more energy efficient and they offer more and more comfort. They even get a bit safer and less polluting.

New developments like Tesla´s electric car and Googles driverless car show some of the ways technology could go. Thanks to mass production and technological progress those and other innovations could become affordable for a huge part of the global population.

Economy: Federal Reserve - Learning From The Crisis

(Drivebycuriosity) - Last week the U.S. central bank published the transcripts of her meetings in the recession year 2008 (nytimes). The protocols reveal that in early 2008 the Federal Reserve  underestimated the severity of the recession. The Fed also admitted that it was wrong to let Lehman Brothers fail, because this caused panic on the markets and exacerbated the economic slump.

But the transcripts also show, "that Fed officials responded decisively in the final months of 2008, probably preventing an even deeper recession", writes MarketWatch (marketwatch). "By the end of 2008, the Fed had reduced short-term interest rates nearly to zero for the first time since the Great Depression, and it had become a primary source of funding", adds MarketWatch.

Everybody makes mistakes. Often we are learning from our failures, becoming better. Life is a continuing learning process. The Fed, led by humans, is no exception. As the transcripts reveal, the central bank learned during the last recession.

The Federal Reserve Bank was created in 1913 as a response to the frequent crises before. The 19th century and the begin of the 20th saw recurrent bank runs as people frequently lost trust in their banks and liquidated their accounts which started chain reactions of bankrupts and led to sharp recessions (described in this excellent book: An Empire of Wealth: Rise of American Economy 1607-2000, by John Steele Gordon  amazon). The Fed was implemented as a kind of monetary fire department to attenuate crises by pumping additional liquidity into the financial system.

In the 1930s the Fed made a huge mistake: They failed to counter the shrinking money supply of the U.S. economy   - a response to the unfolding recession -  which aggravated the contraction and caused the Great Depression. But it seems the central bank has learned something. After World War II recessions where much less frequent than before the implementation of the central bank. The Fed´s responses to the recession 2008/09 - zero interest rates and massive monetary stimulus programs (Q1, Q2, Q3)  - also show that she had learned much from the Great Depression. Thus the recession 2008/09 was much shorter and less harmful than the Great Depression from 1929/32.

I am not afraid of the next crisis whenever this will come. It will be less harmful than the last one because of the continuous learning process. I suppose that then the Fed - and her sisters in Europe & Asia - will respond better than in the past, using the knowledge accumulated in the recent years.

Culture: Smithsonian American Art Museum, Washington D.C.

 

(Drivebycuriosity) - Traveller is you come to Washington D.C you shouldn`t miss the gorgeous museums of America`s capital. The Smithsonian American Art Museum is one of the finest art collections you can see (americanart).

According to Wikipedia you can find there one of the world's largest and most inclusive collections of art, from the colonial period to the present, made in the United States (.wikipedia). Currently they also show the "Latino Presence in American Art" (through March 2, 2014)

I enjoyed especially the Hopper´s and Warhol`s Marilyn. I also was impressed by the collection of contemporary art, including a huge video wall by the Korean artist Nam June Paik called "Electronic Superhighway" (collections). And there is a lot more to discover.

Let the pictures speak for themselves.

Enjoy!

Movies: Academy Award-Nominated Live-Action Short Films 2014

(Drivebycuriosity) - Do you like movies but you often get bored before the film comes to an end. Then short films might suit you. The film makers can exploit an idea without over stretching it. This year`s Oscar candidates give an impression for that. The "Academy Award-Nominated Live-Action Short Films 2014" are now shown in New York`s IFC theater (ifccenter).

Like last year`s harvest the crop was  very mixed (driveby). I could have done without "That Wasn’t Me" (director: Esteban Crespo, Spain, 24 min.). The film deals with child soldiers in Africa and shows the brutality and inhumanity of their situation. I don´t need to see this brutality and a felt the 24 minutes a bit torturing.

The rest of the films are passable to good. "Do I Have to Take Care of Everything?" (Selma Vilhunen, Finland, 7 min.) shows a family who goes to an important event. The very short film is funny and hilarious. In"Just Before Losing Everything" (Xavier Legrand, France, 30 min.) we see a woman and her children who are in a hurry trying to escape something. The unsettling film deals with a too common issue and looks very realistic. "Helium" (Anders Walter, Denmark, 23 min.) is a heartwarming tale about a hospital worker who helps on a mental way a terminally ill boy.
In "The Vorrman Problem" (Mark Gill, UK, 13 min.) a psychiatrist visits a prison where he has to examine an inmate who claims to be God. This is in my eyes the perfect short film and my favorite for the  Oscars.

Books: Is Amazon Good For Readers?

(Drivebycuriosity) - "Is Amazon bad for books", asks the "New Yorker" (newyorker). This is a leading question. George Packer, the author, explicates in an elaborated and very long article that he believes, Amazon is bad for books.  I disagree. And I suppose he asked the wrong question. Books don´t have a life of their own. Thus what can be good or bad for them? Books have purposes for readers, publishers and authors which could be different. What interests me, is Amazon good for readers?

My answer is a clear yes. And I have 2 reasons for that:


1. Low Prices

Amazon - and their online competitors - make books much cheaper, especially in their incarnations as e-books. For instance "Our Mathematical Universe: My Quest for the Ultimate Nature of Reality", by MIT physics professor Max Tegmark, a book which had recently a review in the New York Times, has a print list price of $30, the current Kindle offer is $11,19 (amazon).

Who wants to spend $30 for a book? I am a book lover, but I don't have a fortune to burn for that. In the past I often skiped buying a book because it was way to expensive. Now many Kindle books are offered for $4 or less, which makes them much more attractive for me. Therefore I buy more books and I read more. Prices below $5 open a paradise for book lover.

Critics presume that the low prices on Amazon will drive competitors out of the market. They claim that Amazon would gain monopoly power which they then could use to hike prices again. This is nonsense. There are already some huge competitors like Google and Apple which are not vulnerable. Both are trying to get a piece from the book market. Amazon can not get rid of competitors. And if Amazon would lift prices new competitors would arrive. There will be never a monopoly.

And it is not really Amazon, which its squeezing prices, it is the technology. If Amazon wouldn´t offer cheap books online, Google and other companies would do that. Amazon is cheaper than traditional bookshops because their technology (software and large fulfillment centers) is very efficient and productive. The online book market, including e-books, is comparable with the invention of book printing in the 15th century and the introduction of paperbacks in the 20th century which both reduced book prices significantly. All these technological revolutions opened books for the masses.

2. Convenience and Selection

On Amazon - and some of its online competitors - I can buy almost any book on print with a mouse click. And e-books arrive within seconds on my Kindle reader. Therefore Amazon offers a much larger selection and is much more comfortable than bookshops who often focus on bestseller and don´t have the space for niche products.

I believe that Amazon even increases the selection because the online seller is good for authors too. Anyone can publish an e-book on the Amazon Kindle platform. Publisher aren`t interested in the mass of unknown writers. They focus on approved bestseller authors who can cash high advances. Even  J. K. Rowling`s first  Harry Potter manuscript got rejected by 8 publishers before the publishing house Bloomsbury accepted and printed the novel (wikipedia).

With the help of Amazon books get published - though often just as e-books - which would`t have a got refused by traditional publisher. Low prices and convenience also increase the number of book buyers which expands the chances for unknown authors and book specialities. In the end the buyer (reader) decides which book will be a success - not a big publishing house, a very democratic process. This is a win-win situation for readers and most of the authors.


Milk, Eggs and Butter

"The New Yorker"  bemoans that Amazon treats books the same way as other products. They sell books like shoes, appliances, cameras, pet supplies - or in the words of Packer "milk, eggs and butter". Maybe so. But that doesn´t hurt. The big traditional publisher do the same. Amazon is just more efficient. Business spirit and competitive approach coerce the company to be efficient and sell as cheap and customer friendly as possible - otherwise book buyers click on the offers by competitors. I am happy to have cheap & easy access to milk, eggs and butter - and to books too.

Conclusion: Amazon.com may be bad for huge publishing companies like the giant Penguin Random House, but it is good for authors and readers.

Disclosure: I am an investor in Amazon.com, user of a Kindle and subscriber of Amazon Prime.

Economy: How To Participate In The Rising Productivity

 

(Drivebycuriosity) - There are lot of complaints about rising inequality. Former Treasury Secretary Lawrence Summers joined the camp on President`s Day. He criticized the "sharp increases in the share of income going to the top 1% of earnings, a rising share of income going to profits, stagnant real wages and a rising gap between productivity growth and growth in median-family incomes." (marketwatch).

This is indeed deplorable. But it seems to me that this problem is partly caused by those who are allegedly deprived - people with median-family incomes. The rally on the stock market which started in spring 2009 is unloved. The majority of the Americans, including the middle class (median-family incomes), shuns the stock market. The average American prefers to hold her savings in banking accounts and bonds and avoids stocks. Hence many people with median-family incomes missed the rally so far.

Ignoring the stock market is a mistake and leads to developments described by Summers. Stocks are the perfect way to participate in the rising productivity of the economy. Since its start in the year 1896 the Dow Jones, the oldest gauge for the US stock market, climbed on average around 7% annually. Though investors have been participating in rising company profits caused by the growing productivity of the companies. The engine of this development is the technological progress that is boosting the efficiency.

Since spring 2009, the end of the recession, company profits climbed around 160%, around the same rate the stock market rose. The rise of company earnings and the accompanying rally on the stock market reflect a new industrial revolution. Since the early 18th century automatization has been enabling companies to produce more goods & services with the same amount of employees. More and better machines are doing the work of people which translates into lower costs and higher profit margins. Since the early 18th century the technological process has been rising our wealth significantly while simultaneously reducing our working hours.

It seems that this process is accelerating again. Car producers and many other manufacturers are increasingly using robots and similar machines to reduce their costs. Companies are beginning to use 3D-printers to become more cost efficient and flexible.

This developments are boosted by the rapid advance of information technology, meaning combinations of computers, smartphones, Internet and other digital systems. Software - which is increasingly Internet connected and uses more and more the cloud (access to huge external data centers) - organizes the whole business: Creating new products, inducing machines to run more efficient, finding cheap suppliers, manage customer relations and so on.

I believe that these developments will continue in the decades to came - fueling a long term uptrend on the stock market.

Investors who want to participate in the stock market can buy ETFs (Exchange Traded Funds) on the S&P 500, the current gauge for the US stock market. These funds invest only in stocks which are part of this index and they have the same structure. Investors can buy & sell these ETFS on the stock market like stocks with the same transaction costs. There are at least 2 ETFs which track the S&P 500:  The "iShares S&P 500 Index Fund" (IVV) (yahoo) and the "SPDR S&P 500" (SPY) (yahoo).

If people with median-family incomes invest a part of their incomes (savings) into these S&P ETFs they participate in the rise of company profits, the climbing productivity and the growth of the economy.

Economy: Deflation? What Deflation?

(Drivebycuriosity) - There is much talk about deflation these days. Many pundits lament that the inflation rate in the US and Europe  is too low and that the global economy could fall into a deflation spiral (sharp falling prices) which could cause a severe recession. But the commodity prices, an important component of the general inflation rate, are already jumping. Oil, natural gas, coffee, soy beans, sugar and other commodities are rallying, reports Bloomberg (bloomberg).

It looks like that hedge funds and other speculators are pumping a lot of money into the commodity sector, maybe as a response to the global economic upswing. What a luck that the US Federal Reserve started the tapering. The gradual downsizing of the massive monetary stimulus program QE3 didn´t start to early as the refreshed commodity speculation shows. The taper could counter an inflation spiral caused by massive speculative purchases of commodities. Fingers crossed.

Stock Market: Why Soros Will Lose His Bet Against the S&P 500

(Drivebycuriosity) - George Soros is betting big against the U.S. stock market. "Soros Fund Management has doubled up a bet that the S&P 500 is headed for a fall", reports MarketWatch (marketwatch). According to this service the famous hedge fund manager doubled "a bearish bet on the S&P 500, to the tune of $1.3 billion".

I reckon chances are high that Soros will lose his bet. He is betting against the odds. History shows that in the long run the stock market is gaining around 7% annually on average (ritholtz  ritholtz). On the average every day is in the green, though just marginally. Dips, corrections & crashes are anomalies and just aberrations from the long term upwardly trend. And they are unpredictable. You cannot predict when they will occur, nor how long they will last and how deep the stocks fall.

I reckon that the rally (bull market) that started in spring 2009 is still alive and will continue for a while. Since summer 2011 the rally has been very smooth, all dips have been short and moderate. I believe this will go on for the coming months.

In the long run the rising stock market reflects climbing company profits (driveby). This earnings season (company reports for Q4 2013) has been strong. About 74% of those companies that have posted results have beaten estimates for profit and 64% have exceeded sales projections, writes  Bloomberg (bloomberg). Companies in the S&P 500 are exceeding analyst revenue forecasts by the most since 2012, a sign rising consumer demand is fueling economic expansion (bloomberg).

The news from the macro front also are encouraging. Recently we learned that the U.S. service sector (ISM services), that covers around 2/3 of the economy, gained speed in January. We also heard that Europe´s manufacturing is getting better (ISM manufacturing).

I believe that rising company earnings & an advancing global economy will fuel further gains on the stock market and the S&P 500 could climb to 2,000 points and more through end of this year. Bad perspectives for gamblers like Soros.

Books: The Goldfinch - By Donna Tartt

 

(Drivebycuriosity) - I love books and I like to read. But I didn`t read many novels in the recent years. Too often I became disappointed. "The Goldfinch" by Donna Tartt rekindled my interest in novels (amazon).

The name refers to a famous painting by the Dutch artist Carel Fabritius which is the center of the plot (this is a spoiler free blog). The book, written in first person, is the diary of an American man and touches many issues: coming of age, love, friendship, art theft, drug abuse, more or less dysfunctional families, traveling and much more. It is interesting that the story is fictionally told by a male even though the author is a woman - which reminds me a bit of Patricia Highsmith.

The tale absorbed me, even though the plot has more philosophical parts than action. But the rare action scenes are spellbinding, another reminder of Patricia Highsmith. "The Goldfinch" rekindled my interest in paintings, especially by the old Dutch masters, it drew my attention to craftsmanship and made me curious for the places that where described there. The characters, especially of the narrator, are very convincingly fleshed out and kept my empathy over the full length of the book.

I took a lot pleasure from Tartt`s style, her precise descriptions, her word plays and connotations. The self-analytical insertions - by the fictional diary writer - and philosophical excursions comply with the richness of the book.

Well done Donna, soon I will read another book of yours.

Culture: The Phillips Collection, Washington D.C. - A Place To Fall In Love With Modern Art

 

(Drivebycuriosity) - Washington D.C. is a fun place to go. She is elegant and shows that she is the capital of the richest nation of the world. I am impressed by the sheer number and variety of her museums.

One of my favorites is the "The Phillips Collection" which owns a huge assemblage of modern art (phillipscollection). The place isn´t part of the popular museum row but you can easily reach the location in DC´s popular Dupont Circle neighborhood by subway (Red Line of the Washington Metro).

The museum was founded by the industrialists Duncan Phillips and Marjorie Acker Phillips in 1921 who - according to Wikipedia - believed strongly in the continuum of artists influencing their successors through the centuries (wikipedia). According to their website you can find there more than 3,000 works, ranging from masterpieces of French impressionism and American modernism to contemporary art. 

I fell in love with the painting "Luncheon of the Boating Party" by the French impressionist Pierre-Auguste Renoir (images below). According to Wikipedia the picture shows friends of Renoir who often were invited to his boat parties (wikipedia).

The image, which is full of light, catches the party atmosphere perfectly. The displayed persons seem to live and you almost can participate in their joys. And Renoir is telling stories. On the right side a young woman is flirting with 2 men who seem not to mind competing with each another. The corner above on the right side shows another supposed ménage à trois. Others are contemplating or just enjoying the drinks.

 
And there is much more to discover, including paintings by Vincent van Gogh, Henri Matisse, Amedeo Modigliani, Claude Monet, Pablo Picasso. The famous Degas`s "Dancers at the Barre" got my special attention and the Hoppers too.

Here are some tidbits. 

Enjoy!