Just Enjoy It…

“However, investors appear to be making a very simple conclusion when considering US equities: the present PE, while perhaps mildly stretched on an absolute basis (a bit north of 16x assuming the SPX can earn ~$130 in ’17), is increasingly “cheap” in light of the price action in bonds. This debate (whether to look at valuations absolutely or relative to bonds) isn’t new (it has been raging ever since central banks deployed unconventional strategies in the wake of the crisis) but appears to have been decided (for the time being) on Fri after the US jobs data. The inability of 10 year TSY borrowing costs to rise Friday despite a blow-out 287K figure sent a strong signal that yields prob. won’t be a headwind for some time to come. While Fed assumptions shifted mildly after the NFP figures (and the Fed-sensitive 2 year yields inched up as a result), the long-end of the TSY curve (10 and 30yr yields) is beholden to int’l bond trends and thus yields will have a very difficult time rising meaningfully given the price action in Europe and Japan (where yields are sinking across curves, regardless of the credit risk associated w/individual countries). This dynamic was the big conclusion from Friday – stocks weren’t responding to materially improved economic trends but instead the rally was a function of “good enough” growth coupled w/rates that don’t seem at risk of shooting higher (if two great ISMs and a blow-out jobs number couldn’t get 10yr yields higher, then nothing will and thus Bunds/JGBs will set the pace for US borrowing costs). With the risk of higher rates ostensibly off the table, investors were more comfortable considering equity valuations through the lens of Treasury yields.”

(JPMorgan)

You very rarely hear people discuss the role of publicly traded real estate in their portfolio mix. Usually, this piece gets lumped into the equity side or neglected outright. Standard & Poor’s has historically included REITs in the Financial sector, alongside banks, insurers and brokerages. Investors take their exposure to the group for granted.

This step-child status is about to change. In a long overdue move, MSCI and S&P will begin categorizing REITs as their own sector of the benchmark index on September 16th. REITs now make up 20% of the S&P Financials and are valued at a combined $609 billion as of the end of June.

In our core client portfolios, we allocate to real estate separately from our equity exposure. Many managers aren’t there yet, but I believe this September’s catalyst will change the way REITs are included and thought of.

(TheReformedBroker)

The analysis finds pension schemes’ total allocation to hedge funds has increased by 4 per cent year on year. This is despite the average hedge fund returning 3.3 per cent in 2014 compared with 5.5 per cent from the MSCI world.

When asked if the findings were a surprise, Damien Loveday, global head of hedge fund research at Towers Watson, the consultancy, says: “No, not really. While some investors, quite rightly for them and their particular circumstances, will decide that their current investments in hedge funds are not fit for purpose, there are many others that recognise the strong diversifying properties that can be found in liquid alternatives when done properly.”

(FinancialTimes)

A post-Brexit scramble for safer bonds pulled yields lower and upended global markets just as many public pension funds wrapped up their fiscal year on June 30, eating into any annual gains and widening already-large deficits. Many public pensions that were already having a bad year are expected this month to report their worst annual performances since the last financial crisis in 2008-09…

“Brexit should be a wake-up call for pension plans because it means interest rates are going to stay low or go lower and it makes it even less likely [the plans] are going to achieve the 7.5% rate of return that most of them are assuming,” said former San Jose, Calif., Mayor Chuck Reed.

New York City reduced its return target to 7% in 2013, but that assumption is likely still unrealistic, said Lawrence Golub, a financier and member of the New York State Financial Control Board, which monitors the city’s finances. The assets returned 3.5% in fiscal 2015.

“The 7% is too high for planning purposes,” he said. “It’s not conservative.”

(WSJ)

There are other reasons that the U.K. economy might not enjoy a sales spike to foreign buyers due to the fall in sterling. Modern supply chains are complex and international, meaning companies do not benefit as much from a depreciation. Even a firm that exports, for example, a manufactured final product, may import many of its components.

The final product is cheaper for international buyers at its current sterling price, but if the parts that make it were more expensive to the manufacturer, that competitive advantage is blunted.

(WSJ)

The City of London currently is the dominant financial center for euro-denominated markets. An open question that will hurt the U.K. banking sector for an extended period concerns the uncertain future of London’s “passport” for doing business with the 27 other EU member countries. There is a significant threat that business will move from the City to Frankfurt, Paris, or Dublin.

Particular attention is being given to whether euro clearing can remain centered in London. France’s president, François Hollande, is calling for euro clearing to be conducted outside of London. That would have a serious impact on the City as it could lose an estimated 69% of its interest rate derivatives market. Of course, London continues to have the important advantages of the English language and English law.

(Barron’s)

For those not yet in the know, Pokémon GO uses your phone’s GPS and camera to turn the real world into a massive hunting ground for the iconic creatures, but it also transforms local landmarks and businesses into Pokémon Gyms (where trainers go to train their Pokémon and battle other teams) and PokéStops, which players can physically visit to stock up on free accessories and items like PokéBalls.

If you’re a local business owner and haven’t yet checked out this game, I’d highly recommend downloading it for free from the Google Play Store (where it is at #1 ahead of Snapchat and Facebook Messenger) or the Apple App Store – there’s a good chance you could be one of these Gyms or PokéStops! If that’s the case, prepare for the influx of foot traffic and potential customers. Entice them, don’t turn them away!…

Fortunately, you can do more than just embrace the game and feature it in your marketing or signage. Pokémon GO has a purchasable in-game item called a “Lure Module” which attracts Pokémon to a particular PokeStop for 30 minutes. Those Pokémon it attracts? They’re visible to and attainable by everyone in the nearby vicinity. Use it during a typically slow period of your day to get more foot traffic, and then use your creativity to turn them into a paying customer.

(Forbes)

“We just did the hardest thing NASA has ever done,” said Scott Bolton, the lead investigator on the Juno mission. After a five-year journey, the spacecraft Juno managed to enter the perfect orbit around Jupiter. Soon, it will start revealing secrets of the solar system’s biggest and most unchanged planet…

The spacecraft would have reached a top speed of 165,000 mph before being slowed down. (For reference, a bullet on Earth can reach a speed of about 1,700 mph.) To achieve the right speed, Juno’s main engine fired for about 35 minutes and slowed it down by only about 1,200 mph. That was just enough to let Jupiter’s enormous gravity capture the probe in an orbit around it.

In effect, NASA achieved to throw a tiny object through 1.7 billion miles of space into an area that is only about tens of kilometers wide. It’s like throwing a basketball from London to New York and managing to hit the backboard perfectly to land the ball in the basket.

(Quartz)