Pathlight Investors’ Top Recommended Reads - August 2013

Pathlight Investors’ Top Recommended Reads - August 2013

  • Posted on: 9 December 2015
  • By: admin

Ready for some more great articles?  Here's our pick for August 2013:  

Macro Themes & Political Issues
Big defense contractors are weathering the federal budget sequester far more easily than they projected, in part because they have gradually eliminated jobs over the past few years in anticipation of spending cuts.  Washington Post  http://goo.gl/SARjW8

Global Currencies, Sovereign Debt, Munis, and Interest Rates
Europe increasingly is an earnings tailwind - "As far as I can tell, the big story this earnings season is the turn in Europe, and it's simply not being reported," Cramer said. “It shocks me."  CNBC   http://goo.gl/HbZTe

China rail construction to pick up?  China Business News reported state-run China Railway Corp. may increase investment for railway construction this year – Bloomberg   http://goo.gl/hqw0s6

And On A Lighter Note…

 Nannies trained like 007 could be option for royal couple: http://goo.gl/FqrMnP

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Behavioral Investing - Revisiting Facebook (aka Facebook Psychology)

Behavioral Investing - Revisiting Facebook (aka Facebook Psychology)

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Behavioral Investing - Revisiting Facebook (aka Facebook Psychology)"  The full report can be found here:  http://www.pathlightinvestors.com/behavioral-investing-revisiting-facebook-aka-facebook-psychology

Every so often, we like to focus on investor psychology and how it impacts investor decisions and behavior—usually for the worse.  Individual investors, unfortunately, have to struggle with fear and anxiety when it comes to their money.  It typically doesn’t feel good to invest your money in a struggling enterprise whose stock price won’t stop sinking.  Conversely, it typically feels great to pile money into an investment that is trumpeted on CNBC or by your friends. Regrettably, these actions can negatively impact long-term investment performance.

In this piece, we want to focus on Facebook, ticker FB.  During the hype leading up to the Facebook IPO, we were so tired of hearing about Facebook that we’re shocked we had the stomach to bring it up again.  But Facebook is a classic example of some of the worst parts of investor psychology, and it pays to learn from mistakes.  A little over a year since the Facebook IPO, shares have been on a roller coaster but have nudged back up to the IPO price.  Unfortunately, many of the Facebook believers from the IPO likely sold their shares for a loss in the interim.

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Motown Blues: Detroit’s Demise into Bankruptcy

Motown Blues: Detroit’s Demise into Bankruptcy

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Motown Blues:  Detroit’s Demise into Bankruptcy"  The full report can be found here:  http://www.pathlightinvestors.com/motown-blues-detroit%E2%80%99s-demise-bankruptcy

Despite the reaffirmation of Detroit’s greatness by its luminaries Kid Rock and Ted Nuget, Detroit filed for bankruptcy on July 18th.  This action marked the largest American city to file for bankruptcy.  Detroit holds long-term debts (including pension obligations) estimated to be north of $18 billion.  Briefly, I will touch on how Detroit got to its precarious situation, but more importantly, we will look at the prospects of bankruptcies in other cities and municipalities.  Detroit’s problems are not isolated, and understanding the potential impact of this bankruptcy is important.

How D-town got here

The crisis has been brewing for decades. Fifty years ago the city was rich. GM, Ford, and Chrysler cranked out nearly all the cars sold in America. Detroit was home 1.8 million people. Today only 700,000 remain. Many are poor and poorly educated—82% have no more than a high school diploma. The city sprawls over an unmanageable 140 square miles (enough to swallow Boston, San Francisco, and Manhattan). Delivering services to barely-populated neighborhoods would be hard even if the city government were well-run, which it is not (The Economist, July 27, 2013).

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Are Markets Addicted to Easy Money?

Are Markets Addicted to Easy Money?

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Are Markets Addicted to Easy Money?"  The full report can be found here:  http://www.pathlightinvestors.com/are-markets-addicted-easy-money

Since the financial crisis-induced stock market lows of March 2009, the S&P 500 has gained 141% (as of June 30, 2013), all while U.S. gross domestic product (GDP) has shown mediocre growth at best.  Many investors simply cannot understand why stocks have risen so much.  Certainly, the low interest rate/easy money policies of the U.S. Federal Reserve (the Fed) and other global central banks have pushed would-be income seekers into stocks, but the questions remain: have equity markets become addicted to this drug, and what will happen when the Fed begins to truly tighten?

Let us start off by saying that we do not stand with the camp that believes equity markets have increased on nothing more than money printing.  This camp tends to completely ignore the real economic improvements and strengthening of corporate and individual consumer balance sheets that have occurred over the last four years.  This camp discounts any piece of positive economic news, brushing it aside with a reference to “Helicopter Ben” (comparing Fed Chairman Bernanke to a character dumping money out of a helicopter to the cheering crowd below).  This camp seems to be rooting for another economic calamity, desiring to finally be proven right many years and many missed large stock market gains later.

 

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Pathlight Investors’ Top Recommended Reads - July 2013

Pathlight Investors’ Top Recommended Reads - July 2013

  • Posted on: 9 December 2015
  • By: admin

Pathlight Investors’ Top Recommended Reads - July 2013.  Looking for something interesting and informative?  Here's some of the best we've found around the web during the last month.  Enjoy! 
 

Housing update from Fannie Mae – “housing was largely positive entering the spring/summer season, with various indicators such as home prices, home sales, and homebuilding activity showing signs of long-term improvement toward normal levels. Despite rising mortgage rates during the past month, which have affected refinance originations, affordability conditions remain high and should not present a significant obstacle to potential homebuyers” - http://goo.gl/4aPdt   

 

“The great shrinkage” has been a bigger theme than the “great rotation” – shares outstanding are shrinking as a result of aggressive stock buybacks and this has been a much bigger factor than a bond-into-equity rotation behind the market’s advance.  Business Insider   http://goo.gl/TOhIr       

 

Europe works on logistics of bank failures; officials are sorting out which creditors would see the biggest losses in the event of a failure.  http://goo.gl/KnKEm   

 

Greece – the current government is in “disarray” after the Democratic Left Party threatened to walk out of the current coalition.  The Democratic Left could make a formal decision later Friday.  PM Samaras’ New Democracy and its PASOK partner have 153 MPs (out of 300), so would maintain a slim majority even w/o the Democratic Left (and it sounds like a coupe independent MPs would back the Samaras regime, raising the 153 number to possibly around 160).  No one is calling for snap elections (an encouraging sign).  Reuters   http://goo.gl/q9eFF    

 

Immigration – the House passed comprehensive immigration reform Thurs by a 68-32 vote.  The strong support puts added pressure on the House to take up the measure (House GOP leaders have been resistant to the Senate legislation) – Politico   http://goo.gl/ssRrO    

 

Investors views finally aligned w/Fed thinking on QE according to Lacker – “Markets got a little bit ahead of us in terms of what they were expecting, by way of how long these purchases would continue, and I think they've gotten into better alignment now with the committee's expectation” – Reuters   http://goo.gl/Y6Do0  

 

Environment – Obama to outline ambitious plan to cut greenhouse gases.  None of what the president plans to propose will require action by Congress.  Some of what the president hopes to accomplish will likely face legal and political challenges.  Obama would propose the first limits on carbon pollution from existing power plants and would promise to complete pending rules for new plants.  NYT  http://goo.gl/MIdz6   

 

ECB/Draghi – Draghi delivered remarks Wed that echoed in large part the ones made Tues morning.  Draghi said it would be a while before accommodative policy was withdrawn and praised the OMT but urged politicians to take further measures to bolster financial stability.  Draghi said the ECB stood ready to act again when needed but also warned of the limits of monetary policy.  "The ECB has done as much as it can to stabilize markets and support the economy," he said. "Now governments and parliaments need to do all they can to raise growth potential….monetary policy cannot create real economic growth….if growth is stalling because the economy is not producing enough or because firms have lost competitiveness, this is beyond the power of the central bank to fix” – Reuters  http://goo.gl/4U7AL  

 

And On A Lighter Note…

 

Chinese farmer gets 5 days in jail for his story on alien invasion: http://goo.gl/RZwFt

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U.S. Energy Boom: What it Means for the World, the United States, & Investors

U.S. Energy Boom: What it Means for the World, the United States, & Investors

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "U.S. Energy Boom:  What it Means for the World, the United States & Investors."  The full report can be found here:  www.pathlightinvestors.com/us-energy-boom-what-it-means-world-united-states-investors

Most people I speak with are aware that the United States is undergoing some sort of energy boom.  They seem to have heard that previously inaccessible treasure troves of trapped natural gas can now be accessed through technological feats with few rivals.  Most people don’t seem to know however, that it’s not just about natural gas.  In fact, the U.S. is now drills more for oil than gas.

How this oil and gas is being extracted is lesser known and the economic opportunities it presents, not just for the energy sector, but for manufacturing, U.S. exports, and job creation are not well understood either.  Seemingly better known are the environmental risks which I will stay neutral on, rather only highlight a few issues presented by those on both sides of the argument.  Nonetheless, this global energy revolution has the potential to alter our way of life, which is why we at Pathlight wish to provide an elementary education on this exciting topic.

 

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Housing Boom 2.0 (aka Housing Headwinds)

Housing Boom 2.0 (aka Housing Headwinds)

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Housing Boom 2.0 (aka Housing Headwinds)" which can be found here: www.pathlightinvestors.com/housing-boom-20

In most cases, your home is your largest financial asset.  In the best of times, it represents shelter, security, equity, and flexibility.  In the worst of times, it can become the proverbial albatross and decidedly narrow one’s options.  Over the last roughly 15 years, we have experienced both of these feelings in the U.S.  We saw great wealth creation stemming from home prices rising fast from the late 1990s through 2005, and we have also lived through the bursting of that housing bubble and subsequent Great Recession.  

One of the main reasons why the Great Recession was so severe was that housing was at the epicenter.  Housing is directly linked to consumer confidence, and because we are a nation of consumers, housing is also tied to consumer spending and the health of the overall economy.  When home prices rise, one feels wealthier and, thus, feels more comfortable spending on other things.  Conversely, when home prices fall, consumers pull back and begin to delay purchases, even though the equity in their home is simply on paper and not “real” money.  In fact, according to Home Depot management, underwater homeowners spend an average of $1,000/year in their stores, while homeowners that have equity spend on average $3,000/year.  At 3-to-1, that’s a very powerful dynamic.

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