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Barry Ritholtz – The 10 Most Significant Trends For 2013 (The Washington Post)
“The revenge of John Bogle continues apace. As investors figure out that they are not good at stock-picking or managing trades, they have also learned that most professionals are not much better. Paying high mutual fund expenses to a manager who underperforms a benchmark makes little sense. This realisation has led to the rise of inexpensive exchange-traded funds and indices.”
That sums up the first of Ritholtz’s 10 trends to watch for 2013.
“The VIX is Wall Street’s version of the Seinfeld TV show: much ado about nothing. Anytime anyone wants to say something seemingly insightful about stock trading, the CBOE Volatility Index (ticker: VIX) is trotted out. The options market is filled with the smartest stock investors, and this index supposedly reflects what they are doing.
…If the options market has any message for investors, it is that stocks—and thus the CBOE Volatility Index—are stuck in purgatory.
…The real meaning to extrapolate from the VIX’s decline is that bearish puts and bullish calls aren’t trading with fear-and-greed premiums. With many stocks near 52-week highs, puts and calls now offer cost-effective ways to wager on earnings. Many investors are doing just that ahead of this week’s stream of earnings reports from major banks, including JPMorgan Chase (JPM) and Bank of America (BAC).”
FINRA’s List Of Investments That It Is Watching In 2013 (The Wall Street Journal)
The Financial Industry Regulatory Authority (FINRA) has announced the investments that it cites as its most unsuitable products for 2013. This includes business development companies, nontraded real estate investment trusts and leveraged loan products.
“Finra is particularly concerned about sales practice abuses, yield-chasing behaviours and the potential impact of any market correction, external stress event or market dislocation on market prices.
…The commercial mortgage-backed securities space, in particular, has seen a significant compression in risk premium in 2012 as investors have bid up prices and driven down yields while default rates remain high as compared to historical norms.”
Stocks Will Go Sideways For A Decade (Vitaliy Katsenelson)
Vitaliy Katsenelson, Chief Investment Officer at Investment Management Associates, writes that stocks are headed sideways for a decade.
“12 years into this sideways market, valuations are still 30% above the historical average, while in 1982 they were about 30% per cent below average!” he writes. “Also, historically, stocks spent a good amount of time at below-average valuations before sideways market turned into a secular bull market.”
JP Morgan’s Adam Crisafulli says 2013’s tail risk is one that no one expects. “The “macro” is fading – the last several years have seen markets swing violently in reaction to a succession of tail-events and while future problems are a certainty there seems to be too much of an eagerness to search out the next big “macro” event. At this point the next big “tail event” could be an extended period of no tail events.”
3 Ways Bad Guys Use Data For Evil (Aswath Damodaran)
NYU finance professor Aswath Damodaran writes that data is often intentionally misinterpreted and misrepresented to back up “specious arguments in multiple settings”.
He says data is used to 1) Intimidate – People are swayed by mathematical arguments even if they make no sense. “I have seen corporate financial analyses and valuations where analysts use table after table of numbers, to bludgeon others into submission, using acronyms, jargon and Greek alphabets to further the rout.” 2) Mislead – “If you have access to a great deal of data, you can parse the data and choose pieces to back up a preconception or argument that you want to advance.” 3) Deflect and evade responsibility – “Many analysts use data to avoid making tough judgments about businesses or dealing with uncertainty.”