All posts by Solomon Godwin

New Zealand Q3 GDP Climbs 0.6% On Quarter


New Zealand’s gross domestic product expanded 0.6 percent on quarter in the third quarter of 2017, Statistics New Zealand said on Thursday.

That was in line with expectations and up from the upwardly revised 1.0 percent increase in the three months prior.

“Construction activity recovered this quarter, unwinding the previous two quarterly falls,” national accounts senior manager Gary Dunnet said. “This reflected higher construction-related investment, with investment in infrastructure and residential buildings also reporting strong increases.”

Service industries, such as care and residential care, services, and arts and recreation also contributed to growth.

Household spending was up 0.9 percent, driven by spending on durable goods, and services. Spending on durable goods increased 2.3 percent, due to increased spending on audio-visual equipment (such as televisions and consumer electronics), clothing, furniture and furnishings, and used cars.

Household spending on services increased 0.8 percent this quarter, with households spending more on recreational and sports services.

GDP per capital increased 0.2 percent this quarter, following a 0.5 percent increase in the June quarter.

Annual GDP growth for the year ended September 2017 was 3.0 percent – beating forecasts for 2.4 percent and up from 2.8 percent in Q2.

The size of the in current prices was NZ$278 billion.



The dollar turning in a mixed performance against its major rivals Thursday afternoon, but remains little changed overall. Traders were confronted by a high volume of economic reports this morning and are preparing for another data deluge tomorrow. Durable goods orders, personal income, new home sales and consumer sentiment are all slated for Friday morning.

Economic activity in the US unexpectedly grew at a slightly slower than previously estimated rate in the third quarter, according to a report released by the Commerce Department on Thursday. The report said real gross domestic product surged up by 3.2% in the third quarter compared to the previously estimated 3.3% jump. Economists had expected the pace of growth to be unrevised.

A report released by the Labor Department on Thursday showed a bigger than expected increase in first-time claims for US unemployment benefits in the week ended December 16th. The report said initial jobless claims climbed to 245,000, an increase of 20,000 from the previous week’s unrevised level of 225,000. Economists had expected jobless claims to rise to 234,000.

After reporting a bigger than expected slowdown in the pace of growth in regional manufacturing activity in the previous month, the Federal Reserve Bank of Philadelphia released a report on Thursday showing the pace of growth unexpectedly rebounded in the month of December.

The Philly Fed said its diffusion index for current general activity climbed to 26.2 in December from 22.7 in November, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to drop to 21.5.

Suggesting solid economic growth will continue into the first half of 2018, the Conference Board released a report on Thursday showing a slightly bigger than increase by its index of leading US economic indicators in the month of November.

The Conference Board said its leading economic index climbed by 0.4% in November after jumping by 1.2% in October. Economists had expected the index to rise by 0.3%.

The dollar has climbed to around USD1.1870 against the Euro Thursday afternoon, from an early low of USD1.1889.

French manufacturing confidence declined unexpectedly in December, survey results from the statistical office Insee showed Thursday.

The business climate in manufacturing remained very favorable in December, although the composite index dropped to 112 from 113 in November.

Meanwhile, economists had expected the index to remain stable at 113.

The buck rose to an early high of USD1.3330 against the pound sterling Thursday, but has since retreated to around USD1.3380.

The UK budget balance showed its smallest November deficit in a decade, largely due to higher tax income.

Public sector net borrowing excluding public sector banks, decreased GBP 0.2 billion to GBP 8.7 billion in November, data from the Office for National Statistics showed Thursday.

This was the lowest November net borrowing since 2007. The expected level was GBP 9 billion.

UK consumer confidence fell to a four-year low in December as Brexit uncertainty, higher inflation and interest rate hike by the Bank of England weighed on the assessment of personal finance, survey data from GfK showed Thursday.

The survey suggested that the confidence level is set to drop further next year.

The consumer confidence index dropped one point to -13, the lowest since December 2013. The score was forecast to remain at -12.

The Bank of Japan maintained its aggressive monetary easing, as widely expected, as inflation remains well below the 2% target.

Governor Haruhiko Kuroda and his board members decided by an 8-1 majority vote to hold its target of raising the amount of outstanding JGB holdings at an annual pace of about JPY 80 trillion, the bank said in a statement on Thursday.

The bank will purchase government bonds so that the yield of 10-year JGBs will remain at around zero %.

The board also decided to maintain the -0.1% interest rate on current accounts that financial institutions maintain at the bank.

The greenback reached a high of Y113.637 against the Japanese Yen Thursday morning, but has since eased back to around Y113.365.

Copyright RTT News/dpa-AFX

Sexual Harassment Cases Show the Ineffectiveness of Going to H.R.

Emery Lindsley said was ignored when she went to the human resources department of her former employer with a complaint about an executive. “She didn’t even write it down,” Ms. Lindsley said. “She didn’t seem to take it serious at all.”

Emery Lindsley was addressing her food and beverage staff at the Omni Corpus Christi Hotel in Texas in 2012 when a corporate executive suddenly placed his hand over her mouth to keep her from speaking.

The executive then began commenting on the appearance of a woman on Ms. Lindsley’s staff, even asking if the staff member had a steady relationship with her boyfriend, Ms. Lindsley recalled.

As she had been taught at the company’s annual — and mandatory — harassment training, Ms. Lindsley reported the executive’s actions to her human resources department.

“I went to H.R. and said, you need to do something,’’ said Ms. Lindsley, who made these allegations in a lawsuit she filed against Omni Hotels & Resortsand its parent company in October. “I was embarrassed and humiliated about how he had treated me in front of my team.’’

“But she ignored me,’’ Ms. Lindsley said in an interview. “She didn’t even write it down. She didn’t seem to take it serious at all.”

Ms. Lindsley’s experience illustrates the complicated role that human resources departments play in harassment cases. The recent outpouring of complaints from women about mistreatment in the workplace has included numerous accounts of being ignored, stymied or retaliated against by human resources units — accounts that portray them as part of the problem, not the solution.

The lack of trust manifests itself as a self-perpetuating quandary: Women are hesitant to approach human resources departments and those departments cite the absence of complaints as proof of a respectful workplace.

A 2016 study by the Equal Employment Opportunity Commission reported that of all the options available to workers experiencing harassment — avoid the harasser, consult with family members — the least common response of either men or women was to take some formal action.

Experts point to a several contributing factors. Human resources departments, while officially responsible for fielding employee complaints, also work for a company that faces potential liability — an inherent conflict of interest. And for some human resource officers, conducting an investigation into harassment allegations against a top executive or star performer can be hazardous to their own careers. The result can often be that human resources personnel are more inclined to suppress allegations than get to the bottom of them.

“H.R.’s client is the company, which means that H.R. is supposed to protect the company’s interests,” Cynthia Calvert, discrimination lawyer and senior adviser to the Center for WorkLife Law in San Francisco, said in an email.

The Uber engineer Susan Fowler said she saw that calculus play out firsthand when she reported inappropriate messages from her manager to human resources. The individual was deemed a “high performer,” and received only a warning about his behavior, Ms. Fowler wrote in a blog post about her experience.

At best, human resources officials may be caught in a thankless bind.

“Most H.R. people I interact with — and I’ve probably interacted with thousands — are pretty empathetic people,” said Joseph Beachboard, a lawyer who advises companies on dealing with harassment and discrimination allegations.

“They want to resolve these disputes,” he continued. “But they’re stuck in this middle ground between are they kind of advocating for employees, or do they represent management.”

Calls for Help That End Only in Hurt

Often employees fear that human resources will help the company lash out at the accuser rather than punish the accused.

Kamee Verdrager, an employment lawyer in New Hampshire and Massachusetts, filed a legal complaint that said her supervisors at the law firm Mintz Levin, her former employer, gave her less meaningful work and unfairly harsh performance evaluations after she spoke up about experiencing harassment and after she went on maternity leave. The firm later demoted and fired her.

Ms. Verdrager’s complaint said that the firm’s human resources department enabled retaliation against her by refusing to seek evaluations from partners who praised her work but were outside her practice group — the same group where she said she had been harassed and discriminated against — despite customarily considering outside evaluations.

Mintz Levin said it couldn’t comment beyond a statement it made when it settled the case last year saying the firm and Ms. Verdrager were putting the dispute behind them. Ms. Verdrager wouldn’t comment on the case.

Bitcoin’s rise is no joke, it is a sign of the failure of financial services

Bitcoin’s rise is no joke, it is a sign of the failure of financial services

Bitcoin’s surge past $17,000 late last week reinforces an important economic theory: a rapidly-expanding asset bubble will always draw a crowd. But it should also reinforce fears about a situation that is not limited to a few foolish retail punters and a few swashbuckling hedge funds. This is a crisis for financial services.

The cryptocurrency’s rise is a source of much hilarity for most of finance, reminding us that you can always count on dumb money. But financial institutions — exchange operators, derivatives clearing houses and others —have now joined the party, taking a slice of business from bulls and bears alike. Today, Cboe Global Markets began allowing investors to trade bitcoin futures, and the CME Group will follow suit on the 18th.

As a result some are worried about whether bitcoin could present a systemic risk. The phrase ‘next Lehman Brothers’ has been tossed around with willful abandon, by observers including Interactive Brokers chairman Thomas Peterffy, whose company is one of the US’ largest derivatives traders. Peterffy took out a full page advert in the Wall Street Journal to demand that regulators force any organisation clearing bitcoin derivatives to be ring-fenced from other types of derivatives clearing.

“Cryptocurrencies do not have a mature, regulated and tested underlying market,” Peterffy wrote. “The products and their markets have existed for fewer than 10 years and bear little if any relationship to any economic circumstance or reality in the world.”

He is wrong, on two counts.

Firstly, the idea that bitcoin could present a risk to the financial system itself is laughable. The financial crisis was prompted by a huge repricing of risk; the near-religious belief that the US housing market was safe as, er, houses — held by almost all of the financial industry — was suddenly challenged. But those selling bitcoin options are under no illusions that it could implode in minutes. In that sense, it is more like an emerging market currency that is one half of a hedge fund’s carry trade, and the world doesn’t end every time a heavily leveraged shop blows itself up on a wrong-way bet.

There is a reason why exchanges are demanding investors hold 35% of the value of their futures contracts in cash with the exchanges — far higher than other assets. They have no illusions about the risks involved in handling an asset that is about as volatile as nitroglycerin.

Peterffy is also wrong about bitcoin’s relationship to the real world. In fact, its rise is finance’s existential problem in microcosm: when the financial crisis burned investors and required gigantic taxpayer bailouts, the effect was that retail money fled from traditional investments, and asset managers say it has been slow to come back. While the S&P 500 has returned 269% since 2009, a report in late 2016 by the CFA Institute found nearly a third of all investors were predicting a market crash within three years. BlackRock chief executive Larry Fink estimates there could be as much as $55tn uninvested.

But while institutions have now decreased their cash allocations to 4.4% – the lowest reported cash levels since 2013 – according to a fund manager survey by Bank of America Merrill Lynch in November, the climate of fear among retail investors remains very real.

Liz Ann Sonders, chief investment strategist for US wealth manager Charles Schwab, told the New York Times last month that retail investors have nowhere near the commitment to stocks that they did in past booms. One investment adviser quoted in the piece said that he had pleaded with clients to put money into the stock market, but that all they wanted to know was when the next crash would come. “No one ever asks me when the S&P is going to blow past 3,000,” he said.

A great many people simply do not trust the financial services industry to look out for their interests, and with so much money still “on the sidelines,” it is fair to assume many people believe bitcoin to be more trustworthy than the stock market.

When it blows up, they will despise bitcoin too. But that is not a problem. The fact that they apparently despise the finance industry, so much that many of them would shun a simple mutual fund in favour of bitcoin — whose annualised volatility against the US dollar is a whopping 97% — is a serious problem.

There is only reportedly around $200bn in digital assets, which is small compared with the wider markets. But the existence of that cash, and its stubbornness in staying out of equity markets despite a record-setting bull market, is proof that something is still terribly wrong in the world of finance. Many asset managers believe that retail investors will eventually overcome their post-crash fears and get back in the game. History suggests as much. But if this time really is different, the next challenger to traditional finance — one that could be less volatile and more of a sane investment — will be harder to ignore.

For now, the financial services industry can go on and laugh as the rubes eagerly line up to surrender their hard earned money to hackers and short-term traders who are likely making millions exploiting the arbitrage opportunities among the various quoted prices. But remember that their rising fortunes are just further proof of finance’s falling ones.

Vanguard successfully tests blockchain for market data

Index provider issued data to the funds using the distributed ledger technology to reduce human error

Vanguard, the $5tn asset manager, has completed a blockchain technology project to provide a range of its index funds with up-to-date market data.

As part of a pilot project lasting several months, the world’s second largest asset manager used the distributed ledger technology, which underpins cryptocurrency bitcoin, to feed funds with market information and eliminate the need for manual updates.

Currently, the transmission of index data, such as changes to important company information, relies on multiple parties and distribution channels. It can also often require manual updates, which increases the risk of human error occurring.

Vanguard partnered with the University of Chicago Business School’s Center for Research in Security Prices — the indices of which Vanguard uses for the funds trialling the new technology — and New York-based technology provider Symbiont for the project.

During the testing phase, CRSP distributed daily index data to 15 Vanguard funds through Symbiont’s blockchain platform.

Warren Pennington, a principal in Vanguard’s Investment Management Group, said: “Using this platform, investment managers will be able to instantly distribute, receive and process index data, resulting in better benchmark tracking and significant cost savings that potentially results in better returns for our clients.”

Vanguard’s blockchain pilot comes as other investment giants begin to explore the benefits of using the technology.

AQR, the $208bn quantitative hedge fund, recently told Financial News it is looking into the potential uses of blockchain for trading, while Dutch pension funds APG and PGGM are working on a project to use the technology to reduce the cost of back-office administration.

In February, Northern Trust and IBM built a blockchain to modernise the administration of a private equity fund managed by Unigestion.

Bank of America strategist warns of potential 2018 flash crash

 A man reads a copy of the Evening Standard on the day of the Black Monday stock market crash

A man reads a copy of the Evening Standard on the day of the Black Monday stock market crash.

The S&P 500 stock index is on track to celebrate the longest bull market in its history next summer, but Bank of America Merrill Lynch’s chief investment strategist believes the era of low volatility and sky-high returns could end with a flash crash to rival that of 1987.

In a research note giving his overview of global investment strategy for next year, Michael Hartnett wrote: “The air in risk assets is getting thinner and thinner. Asset returns will likely peak in early 2018, but optimism fueled by recent stunning returns and historic low volatility could be followed by a sobering flash crash a la 1987, 1994 and 1998 as central banks, the major sedative of volatility, start to withdraw liquidity.”

In October 1987, large Asian and European stock market declines were followed by a 22% one-day plunge in the Dow Jones Industrial Average index in what became known as Black Monday.

Nearly seven years later, it was the global bond markets that suffered a sharp sell-off, while in 1998 world markets were rocked by fears of economic meltdown in Asia and Russia, which was forced to devalue its currency that summer.

Central banks, via post-financial crisis quantitative easing programmes, have been key providers of liquidity and drivers of market performance, but as they remove their stimulus, growth could slow to a crawl.

In October, the European Central Bank said it would halve the monthly amounts of government bonds it would buy next year in a downsizing of its stimulus policy, while in the US the Federal Reserve has begun to pare back its balance sheet in a reversal of its crisis-era stimulus programme.

Hartnett wrote: “The end of the Icarus trade – a central bank-enabled high-flying bull market with investors chasing growth and high yielding assets – could give way to an aggressive downgrade in risk assets once peaks in profits, policy and positioning become excessive.”

He added that there are already abundant signs of “bubble-like behaviour”, citing record art prices, soaring cryptocurrency valuations, as well as “exponential Nasdaq growth and US Treasuries, the first robot-managed ETF, climbing global debt levels and Argentina issuing a 100-year bond (the country has had eight debt defaults in past 200 years)”.

The Wall Street Journal yesterday reported fresh highs for bitcoin mania as the price of the digital currency surged by around 40% in 40 hours to beyond the $16,000 mark — it has since passed $17,000.

Meanwhile, the art world last month saw a record $450.3m paid for a Leonardo da Vinci portrait of Jesus Christ at auction house Christie’s, with the bidder identified as Saudi Arabia’s Crown Prince Mohammed bin Salman.

Divorce after 50: What I wish I had known beforehand

Divorce is never easy, but couples over 50 who end their marriages face particular hurdles. Below, people who went through a late-in-life divorce share six things they would tell their younger selves, offering ways others can learn from their experiences:

“I wish I had known how the divorce would impact my oldest children even more than my youngest still at home.” Gail Konop, a 57-year-old yoga studio owner whose 2011 divorce ended a 25-year marriage, said her son who lived at home slowly got used to her new reality, which wasn’t as easy for her adult daughters. “He got to see us as individuals living in his life. He saw how there was less stress, and he got used to it. But my daughters are coming home periodically and they couldn’t keep up with the changes.” At one point, Konop says her daughter announced, “I don’t want to come home anymore — it’s so weird.” If you’re considering a divorce and kids are involved, don’t assume you are sparing your children by holding on, only to divorce once they’re out of the house.

“I wish I’d explored the job market before I separated; I think I would have worked harder to try to keep the marriage together if I’d realized just how bleak things are out here.” For older adults, especially women who have been out of the workforce, re-entering it can be more even more challenging than they expect. Look into getting advice from financial and career counselors to consider your options for long- and short-term planning post-divorce. Beth Hodges, a family law attorney at Horack Talley in Charlotte, N.C ., says the input of those experts can be helpful when negotiating the amount of alimony and property settlement.

“Sometimes when we’re negotiating, I have a client who wants to get her degree to increase her earning capacity. We’ll find out what the cost would be to go back to school and get statistics on what type of income my client can expect to receive once she finishes,” which then gets figured into the settlement package, so the main breadwinner will pay for her education instead of alimony.

“I wish I had known how painful it would be.” Kelly James, a ghostwriter who was 50 when she divorced after 19 years of marriage, was surprised by how long it took her to adjust to the loneliness of living alone.

“Even if you don’t have the happiest of marriages, there’s something comforting about having someone in your home, your bed. I’m lonely sometimes and miss being part of a twosome,” says James. “It’s also difficult to not have my kids with me all the time — their dad and I do a good job of co-parenting, but I miss them when they’re at his house.”

In addition to suggesting the pursuit of new hobbies and volunteer opportunities, Hodges recommends therapists to her clients as a way of helping them adjust to their new life. “[Divorce] is a very traumatic, life-rattling experience, especially if you’ve been married for 25 to 35 years,” says Hodges. She reassures her clients that in time, they’ll not only recover, but emerge stronger. “[Divorce] can be transformative,” says Hodges. She tells her clients, “‘You’re going to survive and feel better about yourself and about your future.’ Almost to a person they’ll come back to me and say, ‘You were absolutely right.’”

“I didn’t think my friends would actually bail on me, but I was wrong.” Lynn Cohen, a Chicago-area divorce attorney who serves on the board of the women’s divorce support nonprofit The Lilac Tree, sees it all the time with her older female clients: “A lot of their friends cut them off — even their best friends. You might keep one or two close friends, but that whole crowd is not going to be there. They’ll help you while you’re going through [the divorce] but not after it’s done.”

She advises her clients to get ahead of this social shift and be proactive about expanding their networks by joining groups that set up travel opportunities for single people, and by volunteering. “If you’re not active in your community and giving back, you’re kind of by yourself,” Cohen notes. She also cautions against relying too heavily on divorced friends. “Every divorce is a different set of facts and circumstances and must be viewed individually. They’ll say, ‘When I was divorced, I was able to get everything in the house.’ That’s unnerving and usually bad advice. I tell people that they’re going to have to make their own life,” says Cohen.

“I wish I had known how expensive it would be.” James was shocked that her uncontested, relatively conflict-free collaborative divorce still cost nearly $35,000.

“In retrospect, a ‘traditional’ would have probably been a lot less expensive,” she says. Collaborative divorce eschews adversarial strategies and litigation. Cohen advises consulting a divorce attorney as soon as a client suspects she or he may need one to get a jump on figuring out how to pay for the divorce and life after. Alimony may be sparse if a couple already living on retirement savings splits, so would-be divorcées may need time for their exit strategy.

Hodges has a simple tip when it comes to saving divorce attorney fees: stay off the phone. “Sometimes clients run up their bills because they’re constantly calling us and engaging us in half-hour consultations. We’re there to counsel and provide guidance to a client, but there is a cost,” says Hodges.

The first thing you should do when hiring an attorney, she says, is “Ask questions about the attorney’s billing practices, how the lawyer charges. If there are things you can do for the attorneys, like gathering financial information, you can save money by doing that yourself.”

“I wish I had known how liberating it would be — and how that can be a little scary.” Says Konop: “Being only responsible for myself (and my kids) has let me make decisions based on what I want. From little decisions like what to hang on the wall of my house to bigger ones like where to travel and what kinds of projects to do on the house, is all up to me. That feels good but can also be overwhelming. It was like I had a second adolescence. I had so much fun, I knew myself so much better. At first, it was really nerve-racking and the dating world had changed. It was energizing (until it got exhausting.)”

Americans say they are worse off today than 50 years ago

What a difference half a century makes. If, that is, you’re not living in the U.S.

Are you doing better than the previous generation? The Pew Research Center, a nonprofit think tank in Washington, D.C., asked nearly 43,000 people in 38 countriesaround the globe that question this past spring. Residents in 20 countries said people like them were better off than they were 50 years ago. In Vietnam, 88% felt better off, followed by India (69%), South Korea (68%), Japan (65%), Germany (65%), Turkey (65%), the Netherlands (64%), Sweden (64%), Poland (62%) and Spain (60%). Overall, 43% of people in those countries said they were better off.

All told, a majority of respondents in these 20 countries said they were better off.

However, the U.S. wasn’t one of them.

The U.S. was among the other 18 countries in which people said they were actually worse off than half a century ago. In Senegal, 45% felt this way, followed by Nigeria (54%), Kenya (53%), the U.S. (41%), Ghana (47%), Brazil (49%), France (46%), Hungary (39%), Lebanon (54%) and Peru (46%). Venezuela, which has suffered from political unrest and economic turbulence in recent years, was last on the list. Some 72% people there said they felt worse off than 50 years ago (only after Mexico, Jordan and Argentina).

Why the disparity between these countries? In Europe, populists tend to be more enamored of the past than people who disapprove of some of the continent’s right-wing parties. Germans who support the Alternative for Germany party are 28 percentage points more likely to say that life is worse for people like them than those who have an unfavorable view of the anti-immigrant party, researchers found. Another trend: More educated people are likelier to say life is better today, and in some countries young people are more positive on life in 2017 than their elders.

“Some of the most positive assessments of progress over the past 50 years are found in Vietnam, India and South Korea,” the report found. “All societies that have seen dramatic economic transformations since the late 1960s, not to mention the end of armed conflict in the case of Vietnam. A majority in Turkey also share a sense of progress over the past five decades.” That said, Pew’s analysis indicates that views of the current economy are also a strong indicator of whether people say life for people like them is better today than it was 50 years ago.

In the U.S., the rich appear to be leaving the middle class behind. The American middle class made up just 26% of incomes in 2014, down from 46% in 1979, adjusted for inflation, according to a separate report released last June by the Urban Institute, a nonprofit and nonpartisan policy group. The upper middle class controlled 63% of all income in 2014, up from just 30% in 1979. And it isn’t because more middle-class Americans are richer: Middle-income households make up 120.8 million of the population, almost as much as upper middle-class and lower-income Americans combined.

Opinion: Here’s why U.S. stocks will likely be higher in December 2018

Market history favors stock investors every year

There is precisely at 65.5% chance that U.S. stocks will be higher one year from today. Many investors will be happy with those odds, given that the stock market has been unexpectedly strong so far this year. But what they might not realize is that the odds of an “up” market in 2018 would be the same even if equities had been terrible performers this year.

In fact, the odds of a positive year are the same regardless of the conditions that prevailed in the previous calendar year.

That at least is what I found upon feeding into my PC’s statistical package the yearly returns for the Dow Jones Industrial Average DJIA, +0.29%  since it was created in 1896. Of the 119 calendar years since then, the stock market has risen 78 times — or 65.5% of the time, on average. Following calendar years in which the stock market rose, in the next calendar year it rose in a statistically equivalent 65.4% of the time.

And, as you can see from the chart below, these are exactly the same odds that apply following years in which the Dow fell.

Why are the stock market’s odds of rising so impervious to what happened in the previous year? Actually, it would be surprising if this weren’t the case, according to Lawrence Tint, a chairman of Quantal International, a firm that conducts risk modeling for institutional investors. In an interview, he argued that what emerges from the data is exactly what we should expect from an efficient market — a market whose level at any given time reflects what is already known and therefore has incorporated past history.

If, instead, the stock market’s future direction was a function of what had come before, Tint continued, it would suffer from “unnecessary and unhealthy turmoil. We can be comforted by the fact that reasonably efficient markets always base their level on anticipated future returns, and do not include history in the calculation.”

This is particularly illustrated by the right-most bar in the chart, which reflects the market’s historical odds following years in which stocks gained more than 20%. That’s relevant to today’s situation, since the Dow’s year-to-date gain is around 22%. As you can see, however, the odds of the market rising in the years subsequent to such gains are no higher or lower than in any other year.

A good way to understand these results is to think of coin flipping: What are your odds of flipping a heads after flipping, say, five heads in a row? Those odds are no different than if you had flipped five tails in a row, of course. To think otherwise is to be guilty of what is known as the “gamblers’ fallacy.”

This isn’t to say that the stock market and coin flipping are equivalent. But playing the stock market over the short term is essentially gambling. It’s only over many years that considerations like valuation start to play a statistically significant role.

The bottom line? Optimists will latch on to the two-out-of-three odds of the market rising next year, and pessimists will focus on the one-out-of-three odds of its falling. Regardless of what does happen, the outcome will have nothing to do with how well stocks have performed this year.

Jobs boom likely carried over into November

U.S. probably gained 200,000 new jobs; watch the hard-hats 

The labor market is sizzling. Job openings are near a record high, unemployment is at a 17-year low and companies are adopting inventive ways to lure new workers amid a growing labor shortage.

Here’s what to watch in the U.S. employment report for November due on Friday morning.

Good times go on

The U.S. likely added 200,000 new jobs in November, economists polled by MarketWatch forecast. Hiring fell sharply September after a pair of major hurricanes, but that led to a strong rebound in October when the economy added 260,000 jobs.

Some of the carryover probably spilled into November. One piece of evidence: Small-business hiring plans hit an all-time high last month, the National Federation of Small Business said.

Watch the hard hats

Construction companies and manufacturers created very few jobs in September and October. The storms sidelined builders in the South, where home sales are strongest, and disrupted supply chains for manufacturers across the country.

Look for a snap back in November. Builders have to repair or replace lots of destroyed or damaged homes in Texas and Florida.

And manufacturers could have a reboot in hiring with supply lines restored and demand growing overseas for U.S. exports. The global economy hasn’t been this healthy in perhaps a decade.

What about wages?

Pay checks for most employees still aren’t rising very rapidly. Hourly wages rose 2.4% in the 12 months ended in October, little changed from three years ago.

Although firms have boosted pay for some, most are getting just enough extra dough each year to stay ahead of inflation.

Other indicators of worker pay, however, suggest wages are creeping higher again and some economists expect to see evidence in the November employment report. They predict a 0.3% advance in hour wages that would push the 12-month rate up to 2.7%.

Breaking below the 4% barrier

The U.S. unemployment rate has plunged to a 17-year low of 4.1% and any month now it could dip below 4% for the first time since the end of 2000.

Economists don’t think it will happen this month, but don’t be surprised. Job openings are plentiful and with the holidays approaching many Americans could take-part time jobs to earn extra cash.

If the jobless rate falls below 4%, however, it increases the odds of the Federal Reserve raising interest rates more aggressively in 2018. That means a higher cost of borrowing.

Pound rallies to 6-month high against euro after Brexit breakthrough

British Prime Minister Theresa May and European Commission President Jean-Claude Juncker meeting in Brussels Friday.

The pound rallied against all other major currencies on Friday morning, scoring a six-month against the euro, after the U.K. and the European Union came to terms on issues that were holding up the next stage of Brexit talks.

Sterling GBPEUR, +0.2709% jumped to €1.1503, trading at the highest level since early June and up from €1.1445 late Thursday in New York. Against the dollar GBPUSD, -0.0445%  , the pound initially spiked to an intraday high of $1.3521, but has since slipped back to $1.3499. Sterling traded at $1.3475 on Thursday.

The gains for the U.K. currency come after days of tense negotiation between London and Brussels. Those ended early Friday, with Jean-Claude Juncker, president of the European Commission, saying there had been a breakthrough in Brexit talks.

In a press conference, he said that “sufficient progress” has now been made for the talks to move into the second phase, which will cover trade agreements and a potential transition period.

U.K. Prime Minister Theresa May needed to resolve one last issue — the Irish border — to satisfy the Brussels negotiators. The question of whether to have a “hard” or “soft” border between Northern Ireland and the Republic of Ireland had already scuttled a potential deal on Monday.

“The political significance of progress in Brexit talks is quite profound — not least as it reduces the tail risk of a ‘no deal’ scenario and a complete breakdown in negotiations,” said Viraj Patel, foreign exchange analyst at ING.

“While the hard part (trade talks) is still to come — and a realization of this may keep GBP/USD capped at 1.36 in the near-term (EUR/GBP around 0.87) — we do ultimately believe that there is more upside left in GBP over the next 3 months,” he said in a note.

The breakthrough reduces the risk that the U.K. will crash out of the EU in 2019 without an agreement on issues such as trade. EU leaders will consider whether to give a green light to advancing to the next stage when they meet Dec. 14-15 in Brussels.

Beyond the Brexit news, the main event on Friday is likely to be the release of the closely watched U.S. nonfarm payrolls for November, scheduled for 8:30 a.m. Eastern Time.

Economists polled by MarketWatch expect 200,000 jobs were added to the U.S. economy last month and that the unemployment rate stays at a 17-year low of 4.1%.

The ICE Dollar Index DXY, +0.29%  was up 0.2% at 93.973 ahead of the release. The euro bought $1.1744, down from $1.1774 on Thursday.

Here’s what’s driving bitcoin buyers’ rush to ‘millennial gold’

A client jokingly told me that his biggest gripe with me in 2016 and 2017 was that I didn’t buy him any bitcoin. I told him not so jokingly that if I bought him bitcoin, he’d be right to fire me.

Maybe I’m a dinosaur; but, like gold, bitcoin BTCUSD, +19.54% is impossible to value. What is it worth? It has no cash flows. Is bitcoin worth $2, $200, or $20,000?

But Wall Street strategists have already figured out how to model and value this creature. Their models sound like this: “If only X percent of the global population buys Y amount of bitcoin, then due to its scarcity it will be worth Z.” On the surface, these types of models bring apparent rationality and an almost businesslike valuation to an asset that has no inherent value. You can let your imagination run wild with X’s and Y’s, but the simple truth is this: bitcoin is un-valuable. Moreover, in my view, bitcoin is in a bubble.

In 1997, when Coca-Cola’s KO, +0.02%  stock valuation started to rival some dot-coms, bulls used this math: “The average consumer of Coke in developed markets drinks 296 ounces of Coke a year. These markets represent only 20% of the global population.” And then the punchline: “Can you imagine what Coke’s sales would be if only X% of the rest of the world consumed 296 ounces of Coke a year?” Somehow, the rest of the world still doesn’t consume 296 ounce of Coke. Twenty years later, Coke’s stock price is not far from where it was then — but on the way it declined 60% and stayed there for a decade. Coke, however, was a real company with a product, sales, a real brand, and tangible, dividend-producing cash flows.

If you cannot value an asset you cannot be rational. With bitcoin above $11,000, it is crystal clear to me, with the benefit of hindsight, that I should have bought bitcoin at 28 cents. But you only get hindsight in hindsight. Let’s mentally (only mentally) buy bitcoin today at $11,000. If it goes up 5% a day like a clock and gets to $110,000 — you don’t need rationality. Just buy and gloat.

But what do you do if bitcoin’s price falls to $8,000? You’ll probably say, “No big deal, I believe in cryptocurrencies.” What if it then goes to $5,000? More than half of your hard-earned money is gone. Do you buy more? Trust me, at that point in time the celebratory articles you are reading today will have vanished. The awesome stories of a plumber becoming an overnight millionaire with the help of bitcoin will not be gracing social media. The peer pressure to own bitcoin will be gone, too.

Then you’ll be reading stories about suckers who bought bitcoin at the all-time high. And then bitcoin will tumble to $2,000 and then to $100. Since you have no idea what this crypto-thing is worth, there is no center of gravity to guide you or anyone else to make rational decisions. With Coke or another real business that generates actual cash flows, we can at least have an intelligent conversation about what the company is worth. We can’t have that with bitcoin. The X times Y = Z math will be reapplied by Wall Street as it moves on to something else.

I can understand the original bitcoin aficionados. The global economy is living beyond its means and financing its lifestyle by issuing a lot of debt. Normally this behavior would cause higher interest rates and inflation. But not when you have central banks. Our local central bankers simply bought this newly issued debt and steered global interest rates down to near-zero levels (and in many cases to what would have been previously unthinkable negative levels).

The logical inconsistencies and internal sickness of the global economy have manifested themselves into a digital creature: bitcoin. The core argument for bitcoin is not much different from the argument for gold GCQ8, -1.03%  : central banks cannot print it. However, the shininess of gold has less appeal to millennials than bitcoin does. They are not into jewelry as much as previous generations; they don’t wear watches (unless they track your heartbeat and steps). Unlike with gold , where transporting a million dollars requires an armored track and a few body builders, a nearly weightless thumb drive will store a dollar or a billion dollars of bitcoin. Gold bugs would of course argue that gold has a tradition that goes back centuries. To which digital millennials would probably say, gold is analog and bitcoin is digital. And they’d add: in today’s world the past is not a predictor of the future.

Bitcoin started out as “millennial gold” — the young (digital) generation looked at it as their gold substitute.

In fact, bitcoin is really two things: a blockchain technology and a (perceived) currency. The blockchain element of bitcoin may have enormous future applications: electronic contracts, voting, money transfers — the list goes on. But there is an important misconception about bitcoin: ownership of bitcoin doesn’t give you ownership of the blockchain technology. Someone without a single bitcoin owns as much bitcoin technology as someone with a million bitcoins; that is, exactly none. It’s like when you have $1,000 on a Visa debit card: That $1,000 doesn’t give you part ownership of the Visa network unless you actually own Visa

 V, -0.01%   stock.

So owning bitcoin gives you a right to — what, actually? Digital bits?

People are buying bitcoin now for one simple reason: FOMO — fear of missing out. This behavior is so predominant in our society that we even have an acronym for it. Bitcoin is priced above $11,000 because the fool who bought it for $11,000 is hoping that there is another, greater fool who will pay $12,000 for it tomorrow. This game of greater fools is not new. The Dutch played it with tulips in the 1600s — that did not end well. Dot-coms took the game to a new level in the late 1990s — that also ended in tears. And now millennials and millennial-wannabes are playing it with bitcoin and other competing cryptocurrencies.

TimeBitcoin USDJan 17Mar 17May 17Jul 17Sep 17Nov 17


The counterargument to everything I have said so far: those dollar bills in your wallet or digitally residing in your bank account are as fictional as bitcoin. True. Currencies are stories that we all have (mostly) unconsciously bought into. (I highly encourage you to read my favorite book of 2015: “Sapiens,” by Yuval Harari.) Of course, society and, even more importantly, governments have agreed that these fiat currencies are the means of exchange. Also, taxation by the government turns the dollar bill “story” into a physical reality: Governments will not accept bitcoin to pay your taxes.

Governments also tend to look at bitcoin and other cryptocurrencies as a threat to their existence. First, governments are particular about their monopolistic right to control and print currencies — this is how they can overpromise and underdeliver. No less important, the anonymity of cryptocurrencies makes them a heaven for tax avoiders — governments don’t like that. The Chinese government, for example, outlawed cryptocurrencies in September 2017. Western governments most likely are not far behind. If you think outlawing a competitor can happen only in a dictatorial regime like China’s, think again. This can and did happen in the U.S. With an executive order in 1933, President Franklin D. Roosevelt made it illegal for the U.S. population to “hoard gold coin, gold bullion, or gold certificates.”

Of course, nothing about bitcoin’s bubble will matter until it does. Bitcoin may soar to $111,000 from $11,000 before it comes down to earth. That is how bubbles work.


Opinion: Gold bugs hope to tap bitcoin’s mother lode of profits

Gold investors are kidding themselves if they’re counting on a “bitcoin bump” for gold prices.

It is of course understandable why long-struggling gold GCQ8, -1.03%  investors are hoping for such a boost. Bitcoin BTCUSD, +21.70%   is up more than 11,000% year-to-date, while gold bullion has gained 11%. The yellow metal has even lagged the stock market: the S&P 500 SPX, +0.34%  has gained 20% since the beginning of the year, including dividends.

Hope is not a strategy, however. Even if bitcoin and bullion are correlated — a big “if” that I will discuss in a moment — gold investors are forgetting that both bitcoin and bullion could just as easily re-establish their correlation by bitcoin plunging as gold skyrocketing.

Furthermore, the gold market remains much larger than the combined market cap of bitcoin and other cryptocurrencies. Currently, for example, the market-cap of the biggest 100 cryptocurrencies is $338 billion, according to data from That’s just 4.4% of the current market value of all above-ground stocks of gold in the world ($7.7 trillion, according to data from the World Gold Council).

In other words, cryptocurrencies remain a very small tail to wag gold’s very large dog.

My skepticism about a “bitcoin bump” is bolstered by the absence of any significant correlation between bitcoin and gold bullion. I had my PC’s statistical package search for correlations between the two over the trailing week, month, two months and three months, and in no event were any of them significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

As long-term readers of this column know, I believe the more plausible explanation for gold’s shorter-term direction is the prevailing sentiment among gold market timers. Just as contrarian analysis teaches us, gold tends to struggle when there is excessive bullishness—and vice versa.

Take what I concluded six weeks ago, the last time I devoted a column to gold market sentiment. At a time when an ounce of gold was trading at around $1,275 an ounce, I wrote that “There is not enough skepticism among gold timers to support a big rally in gold and gold mining shares.” That’s because the average recommended gold market exposure level was well above the minus 30% level that in the past has often accompanied significant gold market lows.

Bullion today is no higher today than then, and yet the gold timers I monitor are more bullish. That means we are even further away from a contrarian buy signal. So contrarians continue to counsel patience.

The usual qualifications apply, of course. Contrarian analysis isn’t always right, and even when it is it provides insight only into the market’s near-term direction.

But insofar as past sentiment patterns persist, gold is unlikely to mount a significant rally in coming weeks — regardless of how bitcoin performs.

Treasury yields tick lower as investors shift focus to jobs report

Treasurys edged higher Thursday, pushing yields down marginally, a day ahead of a November employment report investors will be watching for clues to the pace of potential Federal Reserve interest-rate rises in 2018.

What are yields doing?

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.23%  ticked half a basis point lower to 2.325%, from 2.330% on late Wednesday, while the yield on the 2-year note TMUBMUSD02Y, +0.90%  declined 1.6 basis point to 1.790%, from 1.806%. The yield on the 30-year Treasury bond TMUBMUSD30Y, +0.32% also known as the long bond, fell 0.7 basis point to 2.712%, versus 2.719%.

Yields and debt prices move in opposite directions.

What are investors watching?

The Labor Department reported the number of Americans applying for first-time unemployment benefits, fell by 2,000 to 236,000 in the week ending Dec. 2. Analysts surveyed by MarketWatch had expected the number of claims to come in at 240,000, up slightly from 238,000 the previous week.

The main data event of the week comes Friday morning. Economists surveyed by MarketWatch expect data to show the U.S. economy added 200,000 jobs in November after a 261,000 rise in nonfarm payrolls in October. The unemployment rate is forecast to remain at 4.1%.

But investors expecting volatility in response to the data may be disappointed. Analysts at J.P. Morgan said bond traders have shifted their attention to inflation readings at the expense of labor market data. After the unemployment rate fell to unforeseen lows this year and inflation shrugged off the tightening labor market, the traditional relationship between low unemployment and rising inflation has come under scrutiny.

Investors also continue to keep tabs on the progress of tax legislation.

What are analysts saying?

Bond investors are trying to work out whether corporate tax cuts, if passed, will influence the pace of monetary tightening by the Federal Reserve, economic growth, the budget deficit, trade deficit and more, said Steven Barrow, currency and fixed-income strategist at Standard Bank, in a note.

Standard Bank’s bias is for longer-term yields to trend higher, but Barrow sees scope for an overdue return to volatility.

“For while the U.S. macroeconomic situation seems to be more conducive to higher long-term yields, as the economy improves, spare capacity is used, the Fed tightens and price pressure slowly builds, the argument that overvalued asset prices, like stocks, could slump and produce much lower Treasury yields also seems to be rising all the time,” Barrow said.

Dollar gives back gains as traders gear up for U.S. jobs data

The U.S. dollar gave up advances against major rivals Thursday, as investors looked ahead to the release of monthly U.S. labor-market data.

Elsewhere, the Brazilian real fell to a new multi-month low against the greenback.

What are currencies doing?

The ICE Dollar Index DXY, +0.11%  was little changed at 93.631, while the broader WSJ U.S. Dollar Index BUXX, +0.15%  was up 0.1% at 87.06.

The British pound GBPUSD, +0.2389% recovered to $1.3430 from $1.3394 late Thursday as U.K. markets were closing, while the euro EURUSD, +0.0509%  was little changed at $1.1795 from $1.1798 in the previous session.

Against the Japanese yen USDJPY, +0.42% the dollar rose to ¥112.65 from ¥112.29 late Wednesday in New York.

TimeBrazilian Real18 Sep2 Oct16 Oct30 Oct13 Nov27 Nov


The buck gained versus the Canadian dollar USDCAD, +0.3050% buying C$1.2836, rising from C$1.2788. The dollar started to rally Wednesday after the Bank of Canada sounded a cautious tone about interest rates.

In emerging markets, the Brazilian real USDBRL, +1.6442%  was slammed, falling 2.2% against the buck to its lowest level since June at 3.3185 real per dollar. Brazil’s central bank cut its benchmark interest rate by 50 basis points on Wednesday but signaled another 25 basis point cut could follow in February. At the same time, investors worry that a pension reform plan, which President Michel Temer wants to push through before the end of his term might fall apart. Brazilians go to the polls next year. One dollar last bought 3.2915 real.

What’s driving the markets?

The November snapshot on U.S. nonfarm payrolls and wages will arrive on Friday, with economists polled by MarketWatch looking for the addition of 200,000 jobs and growth of 0.3% in average hourly wages. Private labor market data from ADP on Wednesday showed employment growth was solid in November, with the addition of 190,000 jobs.

The Labor Department’s report will keep investors focused on Washington, where President Donald Trump is scheduled on Thursday to meet congressional leaders to discuss a bill to keep the government open. A bill to avoid a shutdown will be up for a vote in the House on Thursday, after the House Rules Committee on Wednesday put together a temporary funding package.

Lawmakers in the Senate and the House were still working out how to produce a single tax-cut bill that could be passed and sent to Trump to sign in to law.

Meanwhile across the Atlantic, the euro managed to claw back losses from earlier in the session despite worse-than-expected industrial production data from the eurozone’s biggest economy, Germany. This suggests that the euro is mostly trading on dollar sentiment at the moment.

Over in Britain, Brexit negotiations are in focus. Of particular interest is the chances for a deal on the Irish border issue, the last of three Brexit issues that have to be resolved before Friday, a deadline set by lead EU negotiator Michel Barnier.

U.K. Prime Minister Theresa May is working on a new proposal for the Irish border that she will present on Thursday, Ireland’s Prime Minister Leo Varadkar said, according to media reports. A dispute with May’s Northern Ireland political allies over the issue of whether to have a “hard” or “soft” border scuttled a potential deal on Monday.

What are strategists saying?

“The dollar is starting to regain some strength as traders begin to prepare for nonfarm payrolls data tomorrow. The dollar index has now broken a four week downtrend and is now starting to build a run of higher lows and higher highs, which is are early stages of a new uptrend,” said Richard Perry, market analyst at Hantec Markets, in a note.

A “decent read-through from the ADP employment change yesterday sets up for a nonfarm payrolls…where with a rate hike nailed on for December, a dollar positive/risk positive reaction would meet a positive surprise in the data,” he said.

“There is some push and pull in the dollar, with tax reform and positive U.S. economic growth on the one hand and the debt ceiling on the other, limiting upside” said Tim Alt, portfolio manager at Aviva Investors, adding that overall expectations of a government shutdown were low. “This is a low probability high impact event.”

What are the data?

First-time jobless claims for the week ended Dec. 2 came in at 236,000, slightly below MarketWatch consensus expectations 240,000.

In other data, the flow of funds report for the third quarter comes out at 12 p.m. Eastern, followed by consumer credit for October is on the docket at 3 p.m.