Shale Oil: Another Layer of US Power
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Shale Oil: Another Layer of US Power
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Fed sides with reflationists as bond battle resumes
US central bank sticks to view that inflation will quicken as bond market scepticism intensifies
by: John Authers
Brexit Is Dead
A Wave of Anger Crashes over Britain
An Editorial by Thomas Hüetlin
British Prime Minister Theresa May
Europe used to have a fearful respect of the Tories. But those days have long since passed. Now, the weakened party may have accidentally killed off Brexit -- a pet project that most party leaders didn't want in the first place.
Once upon a time, under the leadership of Margaret Thatcher, the Tories filled all of Europe with trepidation. French President François Mitterrand complained to his psychologist that he was plagued by nightmares caused by the British leader and German Chancellor Helmut Kohl, as unclassified British documents revealed in late 2016, once preferred to chow down on a cream pie in Salzburg than meet with the British prime minister.
Many in the UK thought a bit of fear was a good thing. Fear sounded like respect and influence -- and, more than anything, like good deals. But now, after two catastrophic elections in less than a year, that is over. Completely.
"The country looks ridiculous," the Financial Times -- not exactly a leftist mouthpiece -- wrote recently. Indeed, the party of Winston Churchill and Margaret Thatcher has turned into a gaggle of high rollers and unwitting clowns.
First came Boris Johnson, who vociferously supported Brexit last year to show his boss, Prime Minister David Cameron, what an outstanding orator he was even though he, Johnson, didn't really want Brexit. They both went all in, and the country lost.
And now we have Theresa May, who didn't really want Brexit either, but decided after last summer's referendum to throw her support behind leaving the European Union if it meant that she could become prime minister.
"The lady's not for turning," is one of the more famous quotes uttered by Margaret Thatcher.
But her heirs currently leading the Tories are now turning so quickly that many observers aren't just getting dizzy. They are becoming nauseous.
Incompetently Cool and Calculating
Great Britain may be an island, but economically it is the most interconnected country in Europe: The financial center in London, the country's carmakers, what's left of British industry and even the country's infrastructure. France delivers electricity, water sanitation facilities in southern England belong to Germans and large airports such as Heathrow are owned by Spaniards. One quarter of the doctors who keep afloat the NHS -- Britain's comparatively deficient health care system -- come from the Continent.
The promise of Brexit was steeped in ideology from the very beginning, a fairy tale based on dark chauvinism. The Spanish Armada, Napoleon, Hitler and now the Polish plumbers who allegedly push down wages -- when in reality they ensured that, after decades of lukewarmly dripping showers, the country's bathrooms gradually returned to functionality. Brexit was never a particularly good idea.
Now, following the most recent election, Brexit is defunct. That, at least, is what a member of Theresa May's cabinet intimated last weekend. "In practical terms, Brexit is dead," an unnamed minister told the Financial Times.
If she weren't so incompetently cool and calculating, one could almost pity Theresa May. Even as her supposed allies begin sharpening their knives at home, Brexit negotiations are set to begin in Brussels next week. And she also has to find time for a bit of begging at the door of a former party to the civil conflict in Northern Ireland known as the Troubles, the Ulster Unionist Party, so that she can have them sign a coalition agreement. Anything at all would be fine, as long as she can continue to govern.
It won't be a hard Brexit. The best case is a soft Brexit, which would mean that the UK could remain a part of the common market, but that the government would have to accept immigration from Europe and regulations from Brussels -- without having a vote in the EU. To paraphrase May, this would indeed be a bad deal, but still better than no deal at all -- the scenario she threatened when she still had a comfortable majority in the House of Commons.
Investors hate nothing more than uncertainty, but that is exactly what experts are predicting for Britain in the coming years. Uncertainty combined with stunted growth, less trade, higher taxes and worse national health care.
As things look now, last week's election was only the first wave of anger that is currently breaking over the country. The worse the times get, the more powerful it will become. And in a few years, it is almost certain that there will be a government interested in rejoining the EU.
Which is possible, but the conditions offered are almost sure to be worse.
Read This, Spike That
How Tech Dependent Is This Stock Market?
While several well-known tech names have led the market lately, their dominance is overstated.
By John Kimelman
As a recent report by Goldman Sachs pointed out, just five tech stocks – Facebook (ticker: FB), AppleAAPL in Your Value Your Change Short position (AAPL), Amazon.comAMZN in
Your Value Your Change Short position (AMZN), Microsoft (MSFT) and Google parent Alphabet GOOGL (GOOGL), otherwise known collectively as FAAMG -- have accounted for roughly 40% of the Standard & Poor’s 500’s gains this year.
(The Goldman SachsGS in Your Value Your Change Short position report has been cited as a catalyst for a selloff among the big tech names last Friday.)
At times it seems that the number of articles in recent months devoted to FAAMG and FANG (the latter collection of stocks includes Netflix outnumber articles about the stock market itself.
But a few pieces of market research published in recent days suggest that too much is being made of the role that these sainted stocks have contributed to the bull market.
Cliff Asness, an influential quant hedge-fund manager, is trying to debunk the notion that the stock market is all that dependent on the performance of a handful of big-tech names.
Writing on the website of his firm, AQR Capital Management, Asness argues that “Any way you slice the data, there isn’t anything truly exceptional about the last two calendar years even if you extend the period to include the strong 2017 FAANG performance through May.”
Asness continues: “In this case the “why” is pretty simple — calendar year 2016 was not a particularly great year for the FAANGs (and you may notice the news stories indeed died down for a while).‘’
He points out that Old Economy stocks like JPMorgan ChaseJPM in Your Value Your Change Short position (JPM), Bank of America BAC in
Your Value Your Change Short position (BAC) and ChevronCVX in
Your Value Your Change Short position (CVX) were among the top contributors to S&P 500 returns last year, while the FAANGs performed more in line with the rest of the market.
The pieces goes on to say that even looking at the last two years ending May 31, which includes the last five months of strong performance by the FAANGS – the contribution of returns of the five best-performing stocks in the S&P 500 is only at the historical average.
“So even including the recent resurgence, gains have not been particularly “narrow” at least as proxied by the impact of the top five contributors to S&P 500 performance,” he concludes.
Lawrence Hamtil, a principal with Fortune Financial, a wealth-management firm based in Overland Park, Kan., makes a related point.
Writing on his firm’s website, Hamtil argues that “even though the feeling is that the U.S. market (as gauged by the S&P 500 index) is currently dominated by several megacaps such as Apple, Alphabet, and others, the reality is that the current market weightings are fairly average, and perhaps even less top-heavy than it has been in the recent past.”
For example, he writes, the current market weighting of the top 10 S&P 500 components is a little more than 20%, with Apple holding the top spot at 3.73%.
“This seems fairly concentrated at the top until it is revealed that from 1980 through 2014 (the latest for which I have data), the average weighting of the top ten S&P 500 components was about 20.5%.”
Thus, he writes, “the current structure is nothing remarkable.”
Regarding the S&P 500’s heavy concentration in Apple, “this, too, is nothing remarkable,” Hamtil adds.
“From 1980 through 2014, the average weighting of the S&P 500’s top position was about 3.8%”
This certainly takes some of the bite out of FANG.