08/21/2015 archive

Would the fall ever come to an end?

This Week’s Market Sell-Off May Not Be Such a Bad Thing

by Neil Irwin, The New York Yimes

AUG. 21, 2015

The United States stock market was on track for its worst week since 2011 by Friday afternoon, and the Hong Kong market had already reached that milestone. The British stock market has fallen for eight straight days, the third-longest run on record. The price of oil and emerging market currencies around the world continued a swoon that dates to last year.

And it’s about time.

That’s not to minimize the losses investors have incurred, or to say that each of these moves can be completely justified by data, and certainly not to predict what will happen next week or next month. But if you step back just a bit, what has happened in financial markets this week looks less like a catastrophe in the making and more like a much-needed breather when various markets had been starting to look a little bubbly.

Yah think?

(F)lat stock prices in 2015 mask what came before: a remarkable run-up in stock prices in the preceding half-decade. From mid-2009 to mid-2014, stock prices rose much faster than corporate earnings, or gross domestic product, or pretty much anything else you might think of as fundamentals.

In effect, investors became more and more willing to take the risk inherent in owning stocks, so much so that they were willing to pay very high prices for shares relative to the profits of the companies they were buying a piece of. Thus, by definition, they were accepting low returns (low both by absolute standards and even relative to the very low interest rates offered on safer investments like government bonds).

Just over three years ago, in July 2012, investing $100 in the S.&P. 500 captured more than $7 in annual earnings; putting the same money in a 10 year U.S. Treasury bond paid out only $1.55.

In other words, stocks might have been risky, but investors were being compensated nicely for that risk.

…

Even after the sell-off in stocks this week, the same $100 invested in stocks buys only $5.59 in earnings, compared with $2.08 for Treasury bonds. The fact that investors aren’t being compensated very much for taking on risk is, quite logically, making them more skittish when those risks materialize.

A mix of interventionist policies from the Federal Reserve and other central banks, and a global glut of investment capital have created a mismatch between the global economy, which has grown glacially, and markets, which have been on fire.

As Josh Brown of Ritholtz Capital Management tweeted on Friday, “2015 is the first year since the recovery began where the real economy is outperforming the financial economy.”

Greek PM Tsipras Resigns, Calls for New Election as Left Wing of Syriza Splits to Form New Party

Greek Prime Minister Alexis Tsipras Tenders His Resignation

Greek crisis: Syriza rebels break away to form Popular Unity party

by Jon Henley, Shane Hickey, and Alexandra Topping, The Guardian

Friday 21 August 2015 06.00 EDT

Rebels within Greece’s ruling party, the leftwing Syriza movement led by the prime minister, Alexis Tsipras, have announced they are breaking away to form a separate entity called Popular Unity.

Angry at what they see as a betrayal of Syriza’s anti-austerity principles, the 25 MPs announced their intention to form a new party in a letter to parliament the day after Tsipras resigned to pave the way for snap elections next month.

Led by the former energy minister, Panagiotis Lafazanis, the new movement will be the third-largest group in the Greek parliament and could conceivably receive a mandate to try to form a new government.

Tsipras announced his resignation in a televised address on Thursday night. He said he felt a moral obligation to put Greece’s third international bailout deal, and the further swingeing austerity measures it requires, to the people.

Last week he piloted the punishing deal through the Greek parliament, but suffered a major rebellion when nearly one-third of Syriza MPs either voted against the package or abstained. Tsipras is gambling that he will be able to silence the rebels and shore up public support for the three-year bailout programme.

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover  we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

This Day in History

Soviet coup against Mikhail Gorbachev fails; Exiled revolutionary Leon Trotsky murdered in Mexico; Nat Turner leads a slave rebellion; U.S. flag gets 50th star; Count Basie and singer Kenny Rogers born

Breakfast Tunes

Something to Think about over Coffee Prozac

Courage is knowing what not to fear.

Plato

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

August 21 is the 233rd day of the year (234th in leap years) in the Gregorian calendar. There are 132 days remaining until the end of the year.

On this day in 1959, Hawaii became our 50th state. Hawaii is the only U.S. state made up entirely of islands. It occupies most of an archipelago in the central Pacific Ocean, southwest of the continental United States, southeast of Japan, and northeast of Australia. Hawaii’s natural beauty, warm tropical climate, inviting waters and waves, and active volcanoes  make it a popular destination for tourists, surfers, biologists, and volcanologists alike. Due to its mid-Pacific location, Hawaii has many North American and Asian influences along with its own vibrant native culture. Hawaii has over a million permanent residents along with many visitors and U.S. military personnel. Its capital is Honolulu on the island of Oahu.

The state encompasses nearly the entire volcanic Hawaiian Island chain, which comprises hundreds of islands spread over 1,500 miles (2,400 km). At the southeastern end of the archipelago, the eight “main islands” are (from the northwest to southeast) Niihau, Kauai, Oahu, Molokai, Lanai, Kahoolawe, Maui, and Hawaii. The last is by far the largest and is often called “The Big Island” to avoid confusion with the state as a whole. The archipelago is physiographically and ethnologically part of the Polynesian subregion of Oceania.

The first known settlers of the Hawaiian Islands were Polynesian voyagers who arrived sometime in the eighth century. In the early 18th century, American traders came to Hawaii to exploit the islands’ sandalwood, which was much valued in China at the time. In the 1830s, the sugar industry was introduced to Hawaii and by the mid 19th century had become well established. American missionaries and planters brought about great changes in Hawaiian political, cultural, economic, and religious life. In 1840, a constitutional monarchy was established, stripping the Hawaiian monarch of much of his authority.

In 1893, a group of American expatriates and sugar planters supported by a division of U.S. Marines deposed Queen Liliuokalani, the last reigning monarch of Hawaii. One year later, the Republic of Hawaii was established as a U.S. protectorate with Hawaiian-born Sanford B. Dole as president. Many in Congress opposed the formal annexation of Hawaii, and it was not until 1898, following the use of the naval base at Pearl Harbor during the Spanish-American War, that Hawaii’s strategic importance became evident and formal annexation was approved. Two years later, Hawaii was organized into a formal U.S. territory. During World War II, Hawaii became firmly ensconced in the American national identity following the surprise Japanese attack on Pearl Harbor in December 1941.

Admission, or Statehood, Day is an official state holiday. It is the home state of President Barack Obama, the only President from that state and one of the most beautiful places I have ever visited. The pictures were the very hard to select. The second picture (above) is an aerial view of Diamond Head.

Diamond Head is a dormant volcanic cone on the island of Oahu. It is called Le’ahi by Hawaiians, most likely from lae ‘browridge, promontory’ plus ‘ahi ‘tuna’ because the shape of the ridgeline resembles the shape of a tuna’s dorsal fin. Its English name was given by British sailors in the 19th century, who mistook calcite crystals embedded in the rock for diamonds.

Then of course there are volcanoes at Hawaii Volcanoes National Park. The first picture on the left is the more famous of the volcanoes, Mauna Loa which is the largest volcano on Earth by volume and area and one of the five volcanoes in that form the islands.

Tonightly the topic is Deez Nutz, polling at 9% in North Carolina. The panel is Hadiyah Robinson, Mike Yard, and Rory Albanese.

Knowledge College