(MENAFN- ProactiveInvestors) Buying on Dips Prevails in 2014 as S&P 500 Keeps Bouncing
Here is the opening for this informative article from Bloomberg on US corporate buybacks: Don’t like the market Wait a day and it’ll get better.
That’s a stock strategy that worked in 2014 like no time in six years with declines in the Standard & Poor’s 500 Index (SPX) averaging 1.5 days data compiled by Bloomberg show. It succeeded as companies spent about $2.7 billion a day on buybacks through the third quarter on pace for the second most on record according to data from Birinyi Associates Inc.
The biggest bull market since the 1990s powered higher again as $1.1 trillion was added to American share values and the S&P 500 overcame five separate declines of 4 percent or more to rally 13 percent. Stocks climbed for a third year as economic growth accelerated and corporate profits increased almost 9 percent for the sixth straight annual gain according to data compiled by Bloomberg and S&P Dow Jones Indices.
“Investors and traders over the last number of years have been conditioned to buy on the dip” said Quincy Krosby a market strategist based in Newark New Jersey at Financial Inc. which oversees $1 trillion in assets. “This year was no exception.”
Stocks have dropped on 107 days in 2014 two more than in 2013 and never once declined more than three straight times a first in data compiled by Bloomberg going back to 2000. Stocks jumped an average of 0.1 percent on days after they fell helping underpin a 235-point advance in the S&P 500 that pushed its 10-year annualized return to 7.8 percent. It was minus 4.5 percent as recently as March 2009.
Companies are doing what they can to keep shares aloft. Through the first three quarters of the year they spent $515 billion on repurchases a rate that were it maintained would trail only 2007 for the highest level ever Birinyi data show.
“It helps to backstop the market when you know companies are out there executing on their buyback plans” David Lafferty who helps oversee $894 billion as the chief market strategist for Natixis Global Asset Management in Boston said in a phone interview. “It’s a pretty positive signaling mechanism to management that they still have faith in their own shares.”
David Fuller's view
The last sentence above is telling. Yes management presumably still has faith in its own shares. More importantly they know that buybacks remain the best way to reward themselves even though some companies have borrowed to raise buyback funds.
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U.S. Easing of Oil Exports May Foil OPEC Strategy
Here is the opening of this fascinating and topical article from Bloomberg: The Obama administration’s move to allow exports of ultralight crude without government approval may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. output further weakening oil markets according to Inc.
A type of crude known as condensate can be exported if it is run through a distillation tower which separates the hydrocarbons that make up the oil according to U.S. government guidelines published yesterday. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015 analysts led by Ed in New York said in an e-mailed report.
Saudi Arabia led the Organization of Petroleum Exporting Countries to maintain its production quota at a meeting last month even as a shale boom boosted U.S. output to the highest in more than three decades. That prompted speculation OPEC was willing to let prices fall to force some companies with higher drilling costs to stop pumping.
“U.S. producers are under the gun to reduce capital expenditures given lower prices” said in the report. “Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple U.S. production.”
Current U.S. export capacity is at about 200000 barrels a day which could be expanded to 500000 a day by the middle of 2015 according to the bank.
David Fuller's view
Commodity wars in the to date mostly involve knocking out export competition. That is good for the global economy corporations and consumers provided countries are not overly dependent on exporting the commodities in question.
President Obama has mostly opposed the US oil industry despite benefitting from it. However led by the US energy sector’s technological advances he is now going for OPEC’s jugular. That means weakening the Saudis who have been leading the cartel forcing oil prices higher since the 1970s. Obama’s second target is the ruthless and irresponsible dictator Putin who is still a major threat to Europe and possibly beyond.
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Russians Are Organizing Against Putin Using FireChat Messaging App
Here is the opening of this interesting article from Bloomberg: Anti-government protesters in Russia followed along on as opposition leader Alexey Navalny live-tweeted hishouse-arrest violation today. But the real action was on FireChat where Navalny and his supporters organized protests and exchanged unfiltered communication.
Open Garden the San Francisco startup that makes FireChat says activity from Russia has been spiking since yesterday when Navalny urged his followers to download the free app. FireChat was the top-trending search on ’s App Store in Russia today. Downloads in the country began to increase on Dec. 20 after blocked a page promoting an opposition rally under pressure from the government’s communications regulator according to Open Garden.
FireChat which lets users create chat rooms and communicate anonymously has become popular among protesters around the world. Aside from anonymity the app offers an advantage to those in politically unstable regions because it works even when Internet service is down. FireChat uses a technology available on newer smartphones called mesh networking that facilitates wireless communication directly between devices. It uses a combination of Bluetooth and Wi-Fi signals to connect with phones running the app. Iraqis flocked to FireChat in June after unrest prompted an Internet shutdown and protesters in Taiwan and Hong Kong used the app when wireless networks failed.
As President Vladimir Putin faces increasing dissent during Russia's worst economic crisis since 2009 he’s tightened his grip on the flow of information online. Navalny an adept social networker condemned his accelerated trial as a government attempt to silence him. He announced his arrest today to his 16000 followers on FireChat where his account has been verified by Open Garden. (Navalny has 868000 followers on where is profile is also verified.)
David Fuller's view
If he survives Putin and his apparatchiks Alexey Navalny would make a worthy successor.
Email of the day
On global warming
Problem is there has been no global warming since 1998 even though high Tropospheric CO2 has been increasing. The density of air is 1.27 G/Litre of water vapour is 0.804 G/L and of CO2 is 1.964 G/L. Consequently water vapour floats like a cloud. CO2 sinks as everyone who has worked in a fermentation vat and dons an oxygen mask to avoid asphyxia knows. How has it reversed its physical state and now floats upwards I can only think of two ways CO2 can increase in the upper atmosphere. One is volcanoes - significant but not overwhelming. The other is burning av-gas. World wide there are 24000 flights a day burning high octane gas approximately 1000 planes in the troposphere at any one time all breaking gasoline down to water vapour and CO2 - apparently the two most effective greenhouse gases. 150 million flights since the temperature stopped increasing but CO2 levels have been going up. But we don't want to trash the aviation industry do we. Seems to me like policy based evidence making.
I am an organic gardener (biodynamic) and am strongly opposed to pollution in any form.
David Fuller's view
Thank you for your interesting and informative email particularly regarding CO2.
On global warming Evelyn Browning Garriss of the Browning Newsletter on climate which I last posted on 23rd December would most likely agree with you. I would like to agree with you but I am not convinced that your opening sentence stands up to scrutiny let alone from residents of the Pacific Ocean’s disappearing islands. My own impression on what I prefer to call climate change is somewhat different although the evidence is widely variable and inconclusive as I mentioned on Tuesday when I posted Bloomberg’s report: Global View: Climate Change in Perspective. I think we learn more when looking at data over the last century as some of the better reports including Bloomberg’s reveal. We have all seen and generally deplored “policy based evidence making” but I did not see that in Bloomberg’s report. I stand by what I said yesterday and also earlier comments on this subject.
The Markets Now
Monday January 12th 5:30pm to 8:30pm at East India Club 16 St. James SquareLondon SW1Y 4LH
David Fuller's view
We live in fascinating times which I look forward to discussing with you. Here is the brochure for this opening session of 2015. There are certainly plenty of opportunities in the markets in addition to some inevitable risks which we all hope to avoid. We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of technology in which we all have an interest. Our November session at the East India Club was a sell-out attracting plenty of knowledgeable delegates who contributed to a lively session. I expect the same in January and hope you will come along with any guests who would benefit and do not hesitate to participate in the discussion of prospects and risks for 2015. If you have the time please also join us for a drink and further chats at the Club’s cash bar after 8:30pm.
Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.
Please note – The Early Registration rate of £50 expires after 31st December.
Happy New Year!
Email of the day on a comment posted to my drug resistance piece on the 29th
Solving the antibiotic resistance problem is now the focus of my life. I have just completed a review of possible solutions based on using some current non-antibiotic drugs to break resistance of our last-line-of-defence antibiotics. There are some real opportunities so all may not be lost but we need to progress these ideas rapidly to head off the scenario Jim O'Neill outlines. I will be meeting with him in January.
I travel in India each year and the last two years have scared me. New Delhi ground water contains bacteria with what's called 'NDM carbapenemase' meaning it breaks open and destroys our most powerful antibiotics. Yes it's literally in the streets. Up in the Himalayas in South Tibet my traveling companion get a nasty chest infection. There's a lot of TB and pneumonia in the area. I walked into a pharmacy and bought without prescription the antibiotics I wanted for her.
And it's not just South Asia. Resistant bacteria are now becoming a problem in Greece and Italy. I think we have less than a decade to get on top of this problem.
Eoin Treacy's view
Thank you for this detailed email. In the context of human survival this is a much more pressing issue than climate change and yet doesn’t get nearly the same media attention. Humans are the thinking ape and we really do need to get busy with a solution to the fact that some bacteria have evolved to combat our best defences. There is every chance a solution can be reached but it will take time coordination ingenuity and capital to achieve it. The economic impact of failure is truly mind blowing.
This report from the US National Library of Medicines carries some additional information on the NDM-1 gene.
Like other metallo-ß-lactamases NDM-1 inactivates all ß-lactams (including carbapenems) except monobactams. It is the most recently discovered carbapenemase that is spreading rapidly worldwide (13 15 17 31). NDM-1 producers have been identified mainly in the United Kingdom India and Pakistan (9) but numerous studies within the last year reported NDM-1 producers from many countries in Europe (18 22 25) Asia Africa Australia and North America (4 6 16 23). Most of the patients infected by NDM-1 producers are from India Pakistan or Bangladesh or have traveled in the Indian subcontinent. This indicates that the Indian subcontinent is a reservoir for the gene encoding NDM-1 (32). In addition several isolates of NDM-1-producing Enterobacteriaceae have been reported from the Balkan states (10) and the Middle East (Oman and Iraq) (19 21) suggesting that those areas are other reservoirs of NDM-1 producers (10). The blaNDM-1 gene is associated with neither a single strain nor a single plasmid backbone since it has been identified in unrelated Gram-negative bacterial isolates and species either on the chromosome (Acinetobacter baumannii) or on different plasmid types (6 7 20). NDM-1 has been identified in Escherichia coli an agent of community-acquired infections that is widely disseminated in the environment and water (32). In addition it has been identified recently in other environmental bacterial species such as Vibrio cholerae (32). The NDM resistance trait is usually associated with multiresistance and pandrug resistance.
Opportunity in an overly defensive market
Thanks to a subscriber for this report from Deutsche Bank focusing on European equities. Here is a section:
Based on this top-down view we see strong reason to maintain an o/wcyclical and u/w-defensive sector stance. The rotation into defensives seen this year has moved to extreme levels relative to the softening in Euro area PMIs suggesting a pricing of much deeper concerns around growth. We think this is unwarranted (middle right chart).
In light of public QE which our economists expect at the end of 1Q15 we expect investors to rotate away from over-valued defensives towards a more cyclical credit-linked oriented sector stance. Sectors that we overweight into 2015 that should benefit from this include Autos & Parts Banks and Insurance.
Post a potential announcement of public QE by the ECB we think keeping track of domestic cyclicals (in particular Construction Consumer and selected Industrial sub-sectors with a high revenue exposure to Europe) should be preferred in light of strengthening domestic demand in the Euro area. We also remain pro-‘value’. Market expectations seem to have decoupled from underlying fundamentals for many ‘growth’ stocks and they look unattractive from a risk-reward perspective we think. Against the backdrop of a European (domestic) recovery gaining pace ‘value’ should outperform ‘growth’ again.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The result of the upcoming Greek election has the potential to create an issue for the Eurozone if the incoming party of power decides an exit from the currency union is in its best interests. However this represents a worst case scenario in what remains a high stakes game of brinksmanship. The ECB’s decision on whether to implement a large quantitative easing program is more important and is likely to strongly influence the performance of regional equity markets next year.
Email of the day on the one day 8% decline in DXJ
Your comment regarding the reasoning behind DXJ's fall by 8% the day the NIKKEI was up 389 points is technically and politically "correct".
Nevertheless it is a rip off for the average investor. Even knowing in advance that the fund was about to pay distributions one would expect a drawdown of about 1-2 % max. A figure of 8 % (on a rising market!) is an insult to investors.
I would really like to know whether legal grounds for prosecution of the issuer (WisdomTree) exist. In any case this is not a product to be recommended as an investor should be more concerned in getting the market direction right than checking whether he or she are going to be ripped off by the issuer ! The SEC will be contacted anyway.
Eoin Treacy's view
Thank you for this email but the 8% decline was in response to an 8% dividend resulting from short-term and long-term cap gain payments of more than $4 between the 11th and 18th. DXJ’s reference instrument is a dividend weighted total return index and it has spent time over the last year trading at a discount. If a fund trades at a discount and orients towards high dividend payers the potential for it to return capital in somewhat larger payments increases.
The fund had omitted a payment in March and September so cash had obviously built up which was returned to holders on the 18th. This is not a bad deal for investors. However traders particularly those participating on a leveraged basis may have been pressured by the short-term gyrations.