Archive for 'May 2014'

    U.S. Economy Will Weather a Weak First Quarter

    May 29, 2014 12:22 PM by Milton Ezrati

    Shocking as the first-quarter GDP release looks on the surface, it still is no big deal.

    The Commerce Department’s release of revised first quarter GDP figures on May 29 offered a negative surprise.  Though the pattern of monthly data since the preliminary GDP estimate of 0.1% annualized real growth have led many to suspect that the figure could be negative, the reported decline of 1.0% went further than most any forecaster expected.  Yet, the picture still is one of temporary weather-related problems that have little bearing on the future. 

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    Quantifying the United States' Energy Advantage

    May 27, 2014 11:12 AM by Harold E. Sharon

    The global repercussions of the shale boom are enormous. 

    One of the greatest technological achievements of our time is not a product of Silicon Valley, but the result of blood, sweat and tears on America’s oil fields. The engineering breakthrough in hydraulic fracturing and horizontal drilling is a "made-in-the-USA" phenomenon, and its impact on shale gas and oil production is adding economic value globally. (See "Breaking Bad Rocks: How the Shale Boom Has Fueled Growth.")

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    Making the Case for Floating-Rate Loans

    May 23, 2014 12:00 PM by Stephen Hillebrecht

    Recently, we’ve been reading about modest outflows from floating-rate loan funds, industry-wide – a trend abetted by press reports that are questioning the benefits of the asset class. Lord Abbett has been a long-time investor in floating-rate loans, and we believe strongly that the asset class merits an allocation in a diversified fixed-income portfolio. Here’s why.  

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    High-Frequency Trading: The Co-Location Advantage

    May 22, 2014 10:20 AM by Ted Oberhaus

    When you’re trading at the speed of light, close proximity to an exchange matters—a lot.   

    A Trader's Perspective

    Speed is important to high-frequency traders. It has been estimated that a one-millisecond advantage can be worth $100 million a year to such trading firms. In fact, the need for speed is so intense, that even the length of the cable between a trader’s desk and the exchange data center can be a matter of concern.

    It’s all about reducing latency.

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    Piketty: Misremembrance of Things Past

    May 21, 2014 2:04 PM by Milton Ezrati

    The French author cherry-picks certain periods of economic history to make his point—and totally ignores the prospective impact of current demographic trends.

    Professor Thomas Piketty’s new book, Capital in the Twenty-First Century, certainly has caused a stir—with a vivid description of income inequality over a long past and across several economies and with extreme recommendations on how to remedy the presumed injustice. There is, however, a serious problem with the picture he paints and, consequently, his policy prescriptions. Because his conclusions reflect only a particular historical period, they say nothing about the nature of capitalism, as he suggests they do, and little about a future in which aging demographics will create very different trends than he has found in the past.

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    High-Frequency Trading: Who Knows What, and When?

    May 15, 2014 11:27 AM by Ted Oberhaus

    No one’s asking for equal outcomes in the marketplace, just an equal footing at the starting gate.

    A Trader's Perspective

    If an exchange offers early access to market data to those willing and able to pay for it, is that a bad thing?

    Not necessarily, some would argue. After all, exchanges are profit centers. Selling data is part of their business description. And if some investors invest more to generate a competitive advantage, what’s wrong with that? Many investors have the resources to acquire one type of edge or another in the markets.

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    Research in Action: Politics and Snafus Aside, a Strong Prognosis for Health Care

    May 15, 2014 9:46 AM by Devesh Karandikar

    Analyzing companies that stand to benefit from greater utilization of products and services thanks to a much larger patient population


    Think the Affordable Care Act (ACA) has been bad for health care stocks? Actually, health care has been one of the best performing sectors in the S&P 500® Index in the past five years (see accompanying chart), and the fundamentals for industry leaders remain strong as the insured population and healthcare spending continue to grow. (See "Genes, Drugs, and Rock and Roll.")

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    Research in Action: Why Defense Stocks May Still Help Growth and Value Investors

    May 15, 2014 8:58 AM by Rama Bondada

    Do defense stocks still work when the world's biggest consumer of military products, services, and technology is cutting back? The answer may surprise you.


    Don't let declining defense spending fool you. Defense stocks still have the potential to advance.

    Among my top picks are a Fortune 100 company that is leading a $220 billion program with nine other countries to develop fighters that can perform ground attacks, reconnaissance, and air-defense missions with stealth capability; a diversified technology and innovation leader that is seeing increased demand for stronger missile-defense systems from U.S. allies; and a top Pentagon supplier that he likes more for its very popular and very profitable line of business jets. (See "Quality Stocks in Three Flavors.")

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    An "Emerging" Menace to the U.S. Economy? Hardly

    May 9, 2014 4:25 PM by Milton Ezrati

    A recent article emphasizing America’s vulnerability to setbacks in emerging markets is unnecessarily alarmist.

    A recent Barron’s article (May 3, 2014) may have stirred some concern in an already wary investment community. The piece, drawing on work form a noted New York think tank, saw an increased danger in the rise of emerging economies to some 40% of the world’s gross domestic product (GDP). It argued that this increased prominence made the U.S. economy, and financial markets, much more vulnerable than previously to foreign economic fluctuations. The author speculated that a setback in emerging economies would force the U.S. Federal Reserve to keep short-term interest rates lower for longer than many now expect.

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    Research in Action: Changing Flights on Aerospace Stocks

    May 9, 2014 12:32 PM by Rama Bondada

    Now that some of the world's leading aircraft manufacturers have had quite a run over the last two years, certain aftermarket companies appear more attractive.  

    For an aerospace and defense analyst, there's nothing like watching mega cap stocks jump 80%. That's what two leading aerospace companies did over the last two years, thanks to sharply higher demand from emerging markets; a healthier airline industry; and dramatic improvements in lightweight composite materials, fuel efficiency, and avionics.

    While the order backlog for major aerospace companies remains strong, the two biggest manufacturers have held the rate of production flat to give the rest of the supply chain a chance to catch up. As a result, I’ve shifted my focus to aftermarket companies that supply a wide variety of high-margin products that remain very much in demand. 

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    High-Frequency Trading: What Do Predatory Order Types Have To Do With Investing?

    May 8, 2014 4:47 PM by Ted Oberhaus

    Exchanges have created hundreds of order types that benefit the predatory practices of high-frequency traders

    A Trader's Perspective

    Most investors are familiar with the concept of an order type, which instructs a trader to enter or exit a position. Common order types include the stop-loss order, which attempts to limit trading losses by drawing a “line in the sand” past which traders will not risk any more money; the limit order, which is an order to buy (or sell) at a specified price or better; and the market order, which instructs the trader to buy (or sell) at the best price that is currently available. Many investors think of these three order types as their main options. But the exchanges have created many more order types—hundreds upon hundreds of them—and many of them are not fully understood.

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    April Jobs Report: The Fed Implications

    May 2, 2014 11:14 AM by Zane Brown

    Could stronger-than-expected growth in nonfarm payrolls prompt the Fed to hike interest rates ahead of schedule?

    The Federal Reserve may be gratified by the implicit economic strength of the April  employment report, but it will look beyond the headlines to shape future monetary policy. 

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    Two Cheers for the April Jobs Report

    May 2, 2014 10:40 AM by Milton Ezrati

    While job growth rebounded from weather-related weakness, labor market fundamentals remain soft.

    The April employment report released May 2 gave spirits a lift after the earlier, dreary GDP report on April 30. The government announced that the U.S. economy added 288,000 jobs on the month, with the unemployment rate dropping to 6.3%. But the April report requires two points of context. 

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    How Did We Get Where We Are Today? A Suspect Emerges.

    May 1, 2014 2:28 PM by Ted Oberhaus

    In this second of a series on high-frequency trading, Ted Oberhaus looks at Securities and Exchange Commission [SEC] Regulation National Market System (Reg. NMS), enacted in 2005 and fully implemented in 2007.

    A Trader's Perspective

    Remember the good old days when you could practically count the number of U.S. stock exchanges on one hand? There was the NASDAQ, the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Chicago Stock Exchange (CSE). Today, the AMEX has been merged out of existence; the wood paneling of the CSE’s trading floor has been curated to the Art Institute of Chicago; and the NASDAQ and the NYSE are filling only a fraction of the U.S. stock orders they used to.

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