How Do You Know If You’re Ready To Invest?
Posted by Eddy Elfenbein on November 29th, 2016 at 1:31 pm

At MarketWatch, Shawn Langlois noticed a young investor with $10,000 asking for advice.

“I have $10k sitting in my TDAmeritrade taxable account, ready to trade with, but I’ve been learning about investing for the last 1-2 months. I bought ‘The Intelligent Investor,’ and ‘A Random Walk Down Wall Street.’ I’m not done reading the books, yet, but how will you know when you’re ready to start investing? I’m anxious to get started, but how do I know if I’ll be ready?”

Shawn then reached out to some stock bloggers to hear what they had to say. Here’s a sample:

Michael Batnick, director of research at Ritholtz Capital Management:

Start now! I would never recommend somebody do this with their retirement money, but taking risks for huge gains isn’t a terrible idea for a young person, especially given how favorable market conditions have been recently. But I will warn you of a few things: The likelihood of you doubling or tripling your money is slim at best. And if you do stumble upon beginner’s luck, the odds that you’re going to walk away with those gains is slim to none. Here’s why: There are a lot of really smart people who will be more than happy to take the other side of your trade. 90% of trading volume is done by institutions who spend millions of dollars a year on research. They have more information and resources than you can possibly imagine.

If you’re reading those two books, especially “A Random Walk,” you already know how difficult it is to beat the market. But this is one of those things that you have to find out for yourself. Nobody opens up a brokerage account, buys the total global stock market and forgets about it. So take risks. Double your money, lose it all. The only way to learn is by doing, so get going!

Eddy Elfenbein of the Crossing Wall Street blog:

When it comes to “how do I know if I’ll be ready,” I always tell investors to try paper investing first. It sounds corny, but it works. Draw up a fictional account, but one that you think you’d like. Compute the number of shares, expected dividends, etc. There are countless resources where you can follow this on the web. Then, sit back and follow it.

You’ll soon learn things about yourself. Do you constantly check it every five minutes. Are you freaking out if it drops a little bit? Trust me, you may realize you’re not the kind of investor you thought you were.

And if you want to really test yourself, see how your portfolio acted in 2007-08. Could you watch yourself take a 50% bath? It ain’t so easy. If you can do that, then you’re ready.

Q3 GDP Revised to 3.2%
Posted by Eddy Elfenbein on November 29th, 2016 at 10:29 am

This morning, the government revised the economic growth numbers for the third quarter. The U.S. economy grew by 3.2% during the third three months of the year. That’s an increase of 0.3% over the initial report from last month.

The latest data showed stronger consumer spending over the summer compared with the government’s initial estimate, but business investment was weaker than earlier thought.

Tuesday’s report also showed that a key measure of U.S. corporate profits increased for the third consecutive quarter. Profits after tax, without inventory valuation and capital consumption adjustments, rose 3.5% from the second quarter to a seasonally adjusted annual rate of $1.694 trillion in the third quarter.

While this is good news, it’s also a bit of old news. After all, the third quarter began five months ago and ended two months ago. Still, I’m willing to take all the good news we have. The third quarter was the best quarter for the economy in the last two years. Unfortunately, that really says more about how poor the other seven quarters were.

Morning News: November 29, 2016
Posted by Eddy Elfenbein on November 29th, 2016 at 7:06 am

Trump Bubble Burst Will Drive Yen to 98 per Dollar: UBS Wealth

What Does Italy’s Constitutional Referendum Mean for Its Banks?

Gloom and Graffiti Cast Shadow as Tunisia Courts Investors

OPEC Discord Sends Oil Prices Lower

Facebook Runs Up Against German Hate Speech Laws

Samsung Tries to Appease Investors But Delays Big Changes

Amazon Gets Real About Fakes

AT&T Appeals to Cord-Cutters With DirecTV Now, a New Streaming Service

Activist Elliott Management Calls for Change at Cognizant

Patagonia Donating $10 Million to Charity

HP Enterprise Unveils Prototype of Next-Generation Computer ‘The Machine’

Time Inc. Is Said to Turn Away From a Takeover by Edgar Bronfman

Supersonic Is Coming Back. Will the Airlines Buy It?

Josh Brown: I Dare You

Jeff Carter: Capital and Capitalism

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The Cuba Fund
Posted by Eddy Elfenbein on November 28th, 2016 at 1:12 pm

The market approves of the recent news.

Will Trump Impact Gold?
Posted by Eddy Elfenbein on November 28th, 2016 at 9:41 am

At Bloomberg, Luke Kawa looks at “Trumpflation.”

Eddy Elfenbein, portfolio manager at AdvisorShares Investments LLC and founder of Crossing Wall Street, has built a model predicting where gold prices will go based on the deviation of short-term real interest rates from their natural level. The Globe and Mail’s Scott Barlow has also explained the relationship between the two assets on a number of occasions.

The thinking here is that the value of a hard asset with a yield of zero (net of storage costs) will be affected by the relative real yield on assets that are considered risk free, an alternative holding. In other words, the so-called opportunity cost of buying gold rises as real Treasury yields increase.

So if you want to know how the president-elect is changing the outlook for gold, looking at inflation-protected Treasury yields instead might prove more useful than searching for nascent signs of Trumpflation.

Elliott Management Sends Letter to Cognizant Technology
Posted by Eddy Elfenbein on November 28th, 2016 at 9:10 am

I hope everyone had a great Thanksgiving. There’s an interesting news story this morning. Elliott Management has sent a letter to Cognizant Technology Solutions outlining how the company can get its stock to $80 to $90 per share by the end of next year. CTSH closed Friday at $53. Elliott owns more than 4% of the stock.

You can see the full letter here. Elliott believes that CTSH is far from its potential. Here’s a sample:

In addition, Cognizant’s relative valuation illustrates a profound loss of confidence amongst the shareholder base. Historically, Cognizant had been viewed as the premier franchise within the large-cap IT services space and had therefore traded at a meaningful premium to its peers and the broader market. However, Cognizant’s valuation premium has now entirely eroded. Despite maintaining an industry-leading growth outlook, Cognizant now trades at near parity to its Indian heritage peers and at a significant discount to both Accenture and the S&P500 for the first time.

For the most part, their complaint seems to be that Cognizant has been too conservative (too much cash, too little debt). Frankly, I’d take that as a compliment.

Morning News: November 28, 2016
Posted by Eddy Elfenbein on November 28th, 2016 at 6:45 am

Oil Slip Sends Dollar, Bond Yields Skidding

How Iran, Russia Could Derail Oil-Production Deal

Baker Hughes Shares Set To Rise On GE Deal

In India, Black Money Makes for Bad Policy

What Will Italy’s Referendum Mean for the Euro?

Portuguese Bank Bosses Quit Ahead of $5.4 Billion Rescue

Turkmenistan, Afghanistan Inaugurate New Rail Link

Lufthansa Headed for Worst Pilot Strike on Hard-Line Pay Stance

Samsung to Unveil Shareholder Return Plans Amid Calls To Split Company

Mobile Looms Larger With Holiday Shoppers

Actelion and J&J Are in Talks About Takeover of Swiss Drugmaker

In Europe, Is Uber a Transportation Service or a Digital Platform?

Nintendo’s New Console May Feed Your Nostalgia, If You Can Get One

Cullen Roche: Did the Failure of Orthodox Economics Contribute to Trump’s Win?

Jeff Miller: Are Stocks Ready for Stronger Economic News?

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Morning News: November 25, 2016
Posted by Eddy Elfenbein on November 25th, 2016 at 7:12 am

Asia Stocks Post Best Week in Two Months as Weak Yen Buoys Japan

Oil Tanker Analysts Waiting on OPEC Plot Cuts of Their Own

Japan’s MHI U.S. Army Vehicle Suspension May Mark Milestone For Defense Exports

Retailers Vie for Black Friday Dollars

How Britons Are Chasing Black Friday Bargains Online

No Credit History? No Problem. Lenders Are Looking at Your Phone Data

Overtime Rule Is But The Latest Obama Initiative to End in Texas Court

Lufthansa Grounds Long-Haul Flights as Strike Drags On

J&J Makes Takeover Approach for Swiss Drugmaker Actelion

Wells Fargo Asks Court to Force Customers to Arbitration in Fake Accounts Cases

Perils of Climate Change Could Swamp Coastal Real Estate

The Most Expensive Spice In The World

Fake News, Trump and the Pressure on Facebook

Roger Nusbaum: The Art of Doing Nothing

Howard Lindzon: Alt Common Sense…Financial Thinking That May Extend Beyond Markets

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Morning News: November 24, 2016
Posted by Eddy Elfenbein on November 24th, 2016 at 6:30 am

Austerity Rules Brexit Britain as Hammond Refuses to Splurge

German Business Confidence Holds at Highest Level Since 2014

Russia to OPEC: Oil Freeze Is All You Get

Rupee Sinks to Record as Foreign Funds Dump Indian Assets on Fed

Latest Fed Discussion Reflects More Confidence in Raising Rates

U.S. Jobless Claims Rose Last Week From Multidecade Low

Mortgage Rates’ Rise Catches Home Buyers – and Lenders – Off Guard

5 Things Retailers and Shoppers Should Expect from Black Friday Weekend

Chinese Travel Giant Snaps Up Skyscanner

Lufthansa Pilot Strike Grounds Hundreds of Flights for Second Day

Deere Shares Leap After Earnings Beat on Pricing, Costs

Eli Lilly’s Experimental Alzheimer’s Drug Fails in Large Trial

Jury Awards Wal-Mart Truck Drivers $55 Million in Backpay

Jeff Carter: The Upstarts Are Coming

Howard Lindzon: NIRP…I Was Promised Negative Interest Rates from Main Stream Media and All I Got was Trump

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The Latest Fed Minutes
Posted by Eddy Elfenbein on November 23rd, 2016 at 2:31 pm

The Federal Reserve just released the minutes from their November 1-2 meeting. Here’s the most important part.

In their discussion of monetary policy for the period ahead, members judged that the information received since the Committee met in September indicated that the labor market had continued to strengthen and that growth of economic activity had picked up from the modest pace seen in the first half of this year. Although the unemployment rate was little changed in recent months, job gains had been solid. Household spending had been rising moderately but business fixed investment had remained soft. Inflation had increased somewhat since earlier this year but was still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation had moved up but remained low; most survey-based measures of longer-term inflation expectations were little changed, on balance, in recent months.

With respect to the economic outlook and its implications for monetary policy, members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would strengthen somewhat further. Almost all of them continued to judge that near-term risks to the economic outlook were roughly balanced. Members generally observed that labor market conditions had improved appreciably over the past year, a development that was particularly evident in the solid pace of monthly payroll employment gains and the increase in the labor force participation rate. It was noted that allowing the unemployment rate to modestly undershoot its longer-run normal level could foster the return of inflation to the FOMC’s 2 percent objective over the medium term. A few members, however, were concerned that a sizable undershooting of the longer-run normal unemployment rate could necessitate a steep subsequent rise in policy rates, undermining the Committee’s prior communications about its expectations for a gradually rising policy rate or even posing risks to the economic expansion.

Members continued to expect inflation to remain low in the near term, but most anticipated that, with gradual adjustments in the stance of monetary policy, inflation would rise to the Committee’s 2 percent objective over the medium term. Some members observed that the increases in inflation and inflation compensation in recent months were welcome, although a couple of them noted that inflation was still running below the Committee’s objective. Against this backdrop and in light of the current shortfall of inflation from 2 percent, members agreed that they would continue to carefully monitor actual and expected progress toward the Committee’s inflation goal.

After assessing the outlook for economic activity, the labor market, and inflation, as well as the risks around that outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent at this meeting. Members generally agreed that the case for an increase in the policy rate had continued to strengthen. But a majority of members judged that the Committee should, for the time being, await some further evidence of progress toward its objectives of maximum employment and 2 percent inflation before increasing the target range for the federal funds rate. A few members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the Committee had more scope to increase policy rates, if necessary, than to reduce them. Two members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting. They saw inflation as close to the 2 percent objective and viewed an increase in the federal funds rate as appropriate at this meeting because they judged that the economy was essentially at maximum employment and that monetary policy was unable to contribute to a permanent further improvement in labor market conditions in these circumstances.

The Committee agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, it would assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee expected that economic conditions would evolve in a manner that would warrant only gradual increases in the federal funds rate and that the federal funds rate was likely to remain, for some time, below levels that are expected to prevail in the longer run. However, members emphasized that the actual path of the federal funds rate would depend on the economic outlook as informed by incoming data.