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Bear Alert: NYSE data show stocks, margin debt rate of change turned negative in September
<p>Are we on the cusp of a major bear market? Here's one indicator that will feed hungry bears via Jesse Felder of bear-market clean-shaven fame:<br /> The NYSE margin debt numbers for the month of September were released today revealing a very significant milestone for the stock market. As of the end of September, both stocks and margin debt have seen their 12-month rate of change turn negative after margin debt-to-GDP had risen above 2.5%. The last time this happened was April of 2008, as the stock market crash during the financial crisis was just getting started. The time before that was December, 2000, the very beginning of the dotcom bust.</p> <p>The Felder Report<br /> Photo: Rob Hurson</p>
Should taxpayers be spending $200B annually to encourage stock investments?
<p>The U.S. tax code’s treatment of debt and equity is schizoid, to be polite. And it is costing taxpayers a lot of money -- $200 billion, by my estimates based on data from the Congressional Budget Office.</p> <p>At the center of the schizoid set of policies are the favored taxation of dividends and capital gains and the deductibility of interest on debt. In plain English, these rules encourage investors (mostly wealthy ones at that) to buy stocks.  Frankly, $200 billion a year could buy a lot of education and childcare, which in my view are the nation’s most pressing needs. (See my book, The Education Solution, for an explanation of why they are the most pressing needs.)</p> <p>The size of the expenditure naturally leads to the questions, “What do we get for it?” and “Is it worth that much?”</p> <p>I am, in fact, a fan of equity investment as opposed to debt finance. Equity is safer, it tends to provide incentives for longer-term management thinking, and it makes the overall economy more resilient in the face of economic uncertainty and the business cycle. Nevertheless, is such a large incentive necessary or useful?</p> <p>The answer clearly is “no.”  Americans invest their tax-deferred or tax-exempt retirement funds more in equities than in debt even though from a tax point of view that is not rational, since it converts dividends and capital gains into ordinary income (at least eventually). The top tax rate for ordinary income is 39.6% vs 20% for capital gains. So consider this: 39.2% of 401(k) assets are invested in equity funds as opposed to 11.8% in bond funds, according to the Investment Company Institute (ICI). And 49% of IRA assets are in equities and equity funds as opposed to 20% in bonds and bond funds.</p> <p>Asset allocation between stocks and bonds depends on age, not on taxation, according to the ICI. And advice from most sources, including Money.com, confirms that that should be the case.</p> <p>So if tax incentives to encourage equity investment are superfluous, why does the tax code treat capital gains and dividends more lightly than ordinary income (or income from bonds)? The answer is said to be “tax equity.” Corporations pay a corporate income tax BEFORE they distribute dividends. In addition, it is reasoned, capital gains on stock are gains after AFTER the corporation pays income tax. Interest payments on bonds, by contrast, are deductible to the corporation paying them.</p> <p>Regarding capital gains, this tax equity argument fairly clearly is bogus. (1) Over the years, returns on equity investments have significantly outperformed investments in corporate debt. Equity needs no tax advantage to make up for any deficiency. (2) Capital gain levels typically are more related to the stock market in general than to specific corporations and their earnings.</p> <p>Related to dividends, the tax equity argument has greater appeal. After all, corporations can deduct expenses for interest payments on debt but not dividend payments on equity. The playing field should be level, one logically can argue. However, that argument speaks for a corporate deduction for dividends (or repealing the corporate deduction for interest payments), not a tax preference for dividends received. That wouldn't give t</p>
Global growth forecast - Q4 (infographic)
<p>The global economy is in the midst of a major rebalancing, and many themes we have tracked since the start of the year intensified during the third quarter.</p> <p>Our primary theme -- that the current state of the global credit cycle favors developed market consumers -- remains intact. But markets have focused their attention on the counterpart of that theme: many emerging markets (EM), including China, are entering the downturn phase of the credit cycle, and the availability of foreign capital to emerging markets is becoming scarce. Investors have drawn little comfort from China’s fiscal and monetary stimulus efforts to date.</p> <p>Every quarter, we update our forecast map. Read on for our global highlights:</p> <p>MALR014087</p> <p>This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles &amp; Company, L.P. This information is subject to change at any time without notice.</p> <p>© Loomis Sayles</p> <p>This story originally appeared in Advisor Perspectives.<br /> Photo: Pascal</p>
The Week Ahead: UK GDP; Fed rates take center stage
<p>(Note: all times HKT)<br /> Good morning everyone. With the ECB’s interest rate decision and China’s GDP figure firmly in the rearview mirror, all eyes will shift to the U.K. and the U.S. this week as the former reports its third quarter GDP data while the latter sees the Fed unveil its interest rate decision. With Draghi clearly stating that more stimulus is in store however – not to mention the PBOC’s recent rate cut – an October liftoff care of Yellen et cie seems pretty dubious at this point.</p> <p>Also of note this week are the U.S.' preliminary GDP growth figures, Japan’s inflation rate data, and the Bank of Japan’s policy decision.</p> <p>Here’s what else you should look out for:</p> <p>Monday:</p> <p>1:00 pm – Singapore industrial production (Sept, MoM) – Forecast: -7.4% from -7%</p> <p>5:00 pm – Germany IFO Business Climate (Oct) – Forecast: 107.1 from 108.5</p> <p>10:00 pm – U.S. home sales (Sept, MoM) – Forecast: -1% from 5.7%</p> <p>Tuesday:</p> <p>4:30 pm – Hong Kong trade balance (Sept)</p> <p>4:30 pm – Hong Kong exports (Sept, YoY) – Forecast: -7.1% from -6.1%</p> <p>4:30 pm – Hong Kong imports (Sept, YoY) – Forecast: -8.7% from -7.4%</p> <p>5:30 pm – U.K. preliminary GDP growth rate (Q3, QoQ) – Forecast: 0.6% from 0.7%</p> <p>8:30 pm – U.S. durable goods orders (Sept, MoM) – Forecast: -1.59% from -2.3%</p> <p>9:00 pm – U.S. Case-Shiller Home Price Index (Aug,YoY)</p> <p>10:00 pm – U.S. CB Consumer Confidence (Oct)</p> <p>Wednesday:</p> <p>7:50 am – Japan retail sales (Sept, YoY) – Forecast: 0.52% from 0.8%</p> <p>8:30 am – Australia inflation rate (Q3, QoQ) – Forecast: 1.3% from 1.5%</p> <p>3:00 pm – Germany Gfk Consumer Confidence (Nov) – Forecast: 9.2 from 9.6</p> <p>10:00 pm – U.S. DOE crude oil inventories</p> <p>Thursday: </p> <p>2:00 am – Fed interest rate decision – Forecast: unchanged at 0.25%</p> <p>7:50 am – Japan industrial production (Sept, MoM) – Forecast: -1.3% from -1.2%</p> <p>10:30 am – Singapore preliminary unemployment rate – (Q3) – Forecast: unchanged at 2%</p> <p>4:55 pm – Germany unemployment rate (Oct) – Forecast: unchanged at 6.4%</p> <p>8:30 pm – U.S. preliminary GDP growth rate (Q3, QoQ) – Forecast: 2.5% from 3.9%</p> <p>9:00 pm – Germany preliminary inflation rate (Oct, YoY) – Forecast: 0.2% from 0%</p> <p>Friday:</p> <p>7:00 am – Korea retail sales (Sept, MoM) – Forecast: 0.07% from 1.9%</p> <p>7:30 am – Japan household spending (Sept, MoM)</p> <p>7:30 am – Japan inflation rate (Sept, YoY) – Forecast: 0.1% from 0.2%</p> <p>7:30 am – Japan unemployment rate (Sept) – Forecast: unchanged at 3.4%</p> <p>11:00 am – Bank of Japan interest rate decision – Forecast: unchanged at 0%</p> <p>9:45 pm – U.S. Chicago PMI (Oct) – Forecast: 49 from 48.7</p> <p>10:00 pm – U.S. final Michigan Consumer Sentiment (Oct) – Forecast: 92.1 from 87.2<br /> Photo: Hernan Pinera</p>
Barron's Roundup: Breaking down liquid alts; Sherwin-Williams offers buying potential
<p>Liquid alternatives are growing rapidly as a new round of products offer protection from market crashes. This week in Barron's cover story, the magazine examines whether liquid alts are the right choice for a portfolio. Investors have been desperately seeking downside protection since the financial crisis. But because the products are relatively new, they lack performance records.</p> <p>Paint your portfolio with Sherwin-Williams. The paint stock has been growing steadily over the last decade, even better than stocks like Starbucks, Home Depot, and Walt Disney. And, Barron's writes this week, the stock has room for continued growth. Now may be the time to buy. The stock fell 13% in the last six months, but could climb back up in the next year, giving investors a nice return.</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Poldy Bloom </p>
What we’re reading: Lunch with Bernanke and Bond villain profitability
<p>From a possible Chinese Ponzi scheme to SPECTRE’s annualized returns, here are some great reads for you this weekend.</p> <p>The Chinese exchange that lured 220,000 investors may have been a giant Ponzi scheme. A great look into the suspended trading platform-turned-asset manager, Fanya Metal Exchange. Was it really a failed money manager? Or was it – as one analyst put it – a massive Ponzi scheme? Quartz</p> <p>Lunch with the FT: Ben Bernanke. Call him what you want, but in my view the Ben Bernank was one of the most competent central bankers the U.S. ever had, and here he is talking to Martin Wolf about interest rates, the cathartic effects of a depression, and why you shouldn’t reduce risk too much. Financial Times</p> <p>Low-income Chinese men should share wives to deal with gender gap: Professor. Okay, this is a little off-beat, but the reasoning behind Professor Xie Zuoshi’s argument is – at the very least – interesting. The Nanfang</p> <p>Berkshire Hathaway's Charlie Munger on generalists vs. specialists.  Charlie Munger, much like Jim Rogers, is always a great read, and here’s a fun piece on his thoughts on the multidisciplinary approach. Climateer Investing</p> <p>On the profitability of SPECTRE Capital LLP. Crunching the numbers, an FT Alphaville reader argues that Ernst Stavro Blofeld’s organization – SPECTRE – despite its godawful risk management procedures against James Bond, may have actually produced annualized returns well north of 100% a year prior to Thunderball. Beat that, VCs. FT Alphaville<br /> Photo: Brookings Institution</p>
Weekend Scan: S&P 500 back in the black; PBOC slashes rates
<p>Good morning everyone. The bulls were all out this week after ECB President Mario Draghi signaled a Christmas treat from the ECB. Spoos wiped out all of its losses for the year, while the FTSE 100 surged to a two-month high. The Nikkei also posted its best session in a month, climbing over 2% just as the yen – always negatively correlated – chalked up its sixth-straight decline against the resurgent dollar.</p> <p>It wasn’t all Draghi’s doing though. Strong earnings in the U.S. also gave stocks a boost, while another round of cheap money from the PBOC added a bit of oomph to the party as well.</p> <p>Here’s what else you need to know:</p> <p>PBOC cuts rates. In a surprise move, China’s central bank slashed its benchmark one-year lending and deposit rates by 0.25 bps. This is the sixth rate cut from the bank since November. Interestingly, Capital Economics points out that this cut came 59 days after the previous one, which in turn came 59 days after the move before. Wall Street Journal (paywall)</p> <p>“Let Hong Kong elect its own leader.” British Prime Minister David Cameron, speaking to Chinese President Xi Jinping at Chequers, reportedly sought assurance that Hong Kong “would remain semi-autonomous and entitled to choose its own leadership without prior vetting by the Chinese government.” Hong Kong lawmakers however seem to be disappointed: “He should have raised it at a higher level occasion, such as a press conference or other public events...not raising the matter publicly has given people an impression the city a low priority for Britain” South China Morning Post (paywall)</p> <p>Deutsche Bank may slash bonuses by a third. Deutsche Bank, in what appears to be a trend in large investment banks, is expected to cut its bonus budget by $566 million – almost a third. Some MDs are reportedly getting stiffed altogether. Fortune</p> <p>Here comes Patricia. Mexico is battening down the hatches as the strongest hurricane ever recorded heads toward the country’s Pacific coast. Winds are reaching 200-mph, making this storm the most dangerous as well. CNN</p> <p>Nigeria bombing kills 37. At least 37 people were killed and more than 100 wounded Friday when bombs went off in mosques. Militant group Boko Haram is suspected to be behind the attack. Reuters</p> <p>Died: Pimco’s Walter Gerken. The 93-year-old Gerken served as chairman and CEO of Pacific Life Insurance from 1975 to 1986. In the 1960s, Gerken helped turn the firm’s investment unit into the separate subsidiary that became Pimco in 1971. New York Times</p> <p>Google, Amazon in the stratosphere on strong earnings. It wasn’t enough that Google, now a subsidiary of Alphabet, has joined Apple in the $500 billion+ club after blow out earnings.  Plus, the newly restructured company announced a $5.1 billion stock buyout. That is some debut. Meanwhile, Amazon shocked with two consecutive quarters of earnings, pushing its capitalization to more than $300 billion. </p>
People Moves: BNP appoints new APAC primary markets chief; Westpac names new Asia markets boss
<p>BNP appoints new head of primary markets for Asia-Pacific. Frank Kwong, BNP Paribas’ long-time syndicate man, has been appointed head of primary markets for Asia-Pacific by the French firm.</p> <p>He retains his role as head of Asia-Pacific bond syndicate, but will now have oversight over the fixed income group and securitization, among others. He will continue to be based in Hong Kong. Global Capital</p> <p>Westpac names new Asia head of financial markets. Sneha Sanghvi, a former fixed income sales, structuring, and trading heavy, was recently named head of financial markets for Asia by Westpac.</p> <p>Sanghvi joins the Australian bank after two years in Unilever, where she held the role of finance director, covering commodities and chemicals for the British-Dutch multinational. Prior to that, she was a managing director for Morgan Stanley, and had also worked at HSBC. She will be based in Singapore and will report to Balaji Swaminathan, Westpac’s Singapore-based general manager, as well as to Michael Correa, the firm’s Syndey-based head of corporate and international origination and distribution. Finance Asia<br /> Photo: Wendy</p>
Daily Scan: Stocks end week on a high note; Hurricane Patricia hurtles toward Mexico
<p>Updated throughout the day</p> <p>October 23</p> <p>Good evening. Stocks rallied again Friday after some strong earnings reports and possible ECB stimulus coming soon. The Dow gained 0.9% Friday, after steady growth all day. The S&amp;P 500 rose 1.1% and the Nasdaq added 2.3%. The Peoples Bank of  China announced it is lowering its benchmark rate 0.25% to 4.35% --  the sixth such move since November. Stocks took off on the news in Europe. This follows news on Thursday that the European Central Bank was likely to continue its easy money program in December.</p> <p>Here’s what else you need to know:</p> <p>Here comes Patricia. Mexico is battening down the hatches as the strongest hurricane ever recorded heads toward the country's Pacific coast. Winds are reaching 200-mph, making this storm the most dangerous as well. CNN</p> <p>Nigeria bombing kills 37. At least 37 people were killed and more than 100 wounded Friday when bombs went off in mosques. Militant group Boko Haram is suspected to be behind the attack. Reuters</p> <p>Jeb Bush slashes campaign staff pay. Bush's presidential campaign has been floundering, and the staff are feeling the pressure. Besides hefty pay cuts, job functions will change as the campaign shuffles to stay alive. Politico</p> <p>Died: Pimco's Walter Gerken. The 93-year-old Gerken served as chairman and CEO of Pacific Life Insurance from 1975 to 1986. In the 1960s, Gerken helped turn the firm's investment unit into the separate subsidiary that became Pimco in 1971. New York Times</p> <p>That other guy drops out of the Democratic presidential race. Lincoln Chafee, the former governor and senator of Rhode Island that no one really knows, has dropped out of the presidential race. The former Republican and former Independent was a long shot candidate, and never gained real traction with voters. And then there were three... Politico</p> <p>French bus crash leaves 42 dead. A tour bus collided with a truck in southern France Friday, killing at least 42 people. Only eight people "escaped the flames." Most of the bus passengers were elderly people on holiday. The crash was the worst road accident in France since 1982. CNN</p> <p>Google, Amazon in the stratosphere on strong earnings.  It wasn't enough that Google, now a subsidiary of Alphabet, has joined Apple in the $500 billion+ club after blow out earnings.  Plus, the newly restructured company announced a $5.1 billion stock buyout. That is some debut. Meanwhile, Amazon shocked with two consecutive quarters of earnings, pushing its capitalization to more than $300 billion. MarketWatch</p> <p>Google has six properties with more than 1 billion users. That's Facebook times six. Wowser. MarketWatch</p> <p>Microsoft joined the earnings surprise hit p</p>
Twitter reacts to surprise rate cut in China
<p>#China cuts rates again, but growth is on target… right? pic.twitter.com/Tmb2VX2lGE<br /> — Pedro da Costa (@pdacosta) October 23, 2015</p> <p>S&amp;P futures after China rate cut https://t.co/pcjP8e3PDb pic.twitter.com/nuXzjrh3Zf</p> <p>— zerohedge (@zerohedge) October 23, 2015</p> <p>To compensate for lost jobs, US cuts rates. To compensate for lost US exports to jobless Americans, China cuts rates. Russia buys Gold.<br /> — Max Keiser (@maxkeiser) October 23, 2015<br /> Photo: ©iStock.com/ kool99</p>