MBA FaceOff Blog riamzowbuoowqomcurrngrntarwqmmts
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Good morning! It is Tuesday pre-market and it looks like we are in for another wild ride in the aftermath yesterday’s Fed announcement that it plans on reviving “Operation Twist.” Due to the market volatility, this has definitely been a difficult week for succeed with a long only portfolio.
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Recently, our Cayuga Fund class had a discussion surrounding deep value investing. While this phrase is commonly used, it is rarely defined. Many stocks right now could be thought of as deep value but where is the line drawn?
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One of the fundamental measures of the strength of consumer demand is housing. Consumer decisions are necessarily dependent on what is happening with their largest expenditure/investment. Today, existing home sales in September were down 3% month over month. On Wednesday, housing starts for September were up an annualized 15%, driven by strength in multifamily homes (up 51.3%), but not single-family homes (up only 1.7%).
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Meet The MBA Face-off Michigan (Ross) Team
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Meet The Notre Dame MBA Face-off Team
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Last week, two of my finance colleagues and I took our team to lunch to celebrate the fun of the competition to date. We hope all your teams are enjoying the ride as much as ours. We find our students are using a lot of what we’ve taught them, although sometimes in unexpected and creative ways.
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Technical analysts refer to consolidation as a well defined pattern of trading within certain barriers. It is also considered a clear indicator of indecision. While some consider technical analysis to be a form of voodoo, it serves to be a very valuable tool when paired with understanding economic data.
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As our colleagues at Ohio State noted just this week, “with the constantly changing tone of the markets it appears as if anything is possible.” After the markets dipped on Wednesday, news came this morning that the American economy grew at a rate .3 percentage points higher than predicted and that jobless claims fell below 400,000 for the first time in almost two months to 391,000. Along with word that Germany, Europe’s largest economy, approved the expansion of the Euro bailout fund, stocks gained enough this morning to erase yesterday’s losses and to help out our portfolios a bit.
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Who or what can? To be fair, September estimates were clearly modest after the disappointing (although now revised) August number. So the 103,000 new jobs added last month shouldn’t impress anyone. Even if job creation continues at this rate, it won’t be enough to crack a dent in the 9.1% unemployment. This does not bode well for the US economy, nor asset prices that are correlated with it.
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“The stock market has predicted 7 of the last 5 recessions” is a common quip by economists who can’t seem to predict anything with reasonable accuracy (which is almost all of them). Those who do their research would see that those extra 2 occurrences were mainly driven by the expectation of a post-World War II recession and the fear of a 1962 downturn that never materialized. In both instances, the experts and the media were wrong. The truth is that the stock market predicts 100% of everything. Therefore, the job of the investor is to listen to the language of the stock market, which is different than that of “rational” human beings.
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Our economy continues to trudge along. In a time when rates are already at historic lows, it’s difficult to see outsized benefits from Operation Twist. Further fiscal stimulus is also unlikely with deficits at around 10% of GDP. During a time when the Fed is out of bullets and Congress unwilling to enact other economic boosting measures, it’s hard to see where the domestic economic recovery would come from. Unemployment has stayed at 9.1%, dampening chances of increases in housing prices. Corporations are holding off investments despite historically low borrowing costs because there are few worthwhile projects in the U.S. Some investors, including George Soros, are arguing that we’re already in a recession.
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Meet The Cornell MBA Face-off Team
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Here are some observations that the Ross team has made through MBA-Faceoff the first three weeks of trading: 1) For all of the strategizing/commentary so far in the MBA Face-off Blogs so far, it appears that the primary source of competition returns is Bonus Bucks 2) Three Georgetown team members have bolted for the Atlantic Coast Conference 3) Ohio State is just happy to be ranked
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One of the unique experiences we have as business school students is the opportunity to hear from interesting and engaging speakers. A number of us on McCombs’ MBA Faceoff team just heard from Richard Yamarone, Bloomberg’s chief economist. The presentation had a decidedly negative outlook and Yamarone is unequivocally calling for another recession in the United States based on weak consumer demand and residential housing, government inaction and a continued lack of hiring or investment by the business sector.
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On behalf of Chicago Booth, our team would like to thank CNBC for the opportunity to participate in this competition. The University of Chicago is recognized for its expertise in the fields of economics and finance. While one of the main schools of thought to come from Chicago Booth is the efficient market hypothesis, we realize that over the 9 weeks of this competition, efficient markets aren’t likely to yield outsized returns. Therefore we must act on a strategy to take advantage of market trends. Our team is utilizing both fundamental and technical analysis to find equities and ETFs that will outperform in different market environments, in addition to executing timely currency trades.
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With gold hitting a two-week low yesterday, reaching $1,607.06 in mid-day trading, maybe it's time to revisit a traditional argument on where it's headed.
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What a week! The markets continue to be choppy and volatility is the name of the game. With no resolution yet from Europe, poor earnings from banks and very little positive news, it’s been a wild ride in the equity markets so far. This market is certainly not for the faint of heart or for those who get spooked easily. However, for those of us in this challenge, it’s a “no risk, all reward” situation right? So hey Mr Market, bring it on! We are not spooked.
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One of the fundamental measures of the strength of consumer demand is housing. Consumer decisions are necessarily dependent on what is happening with their largest expenditure/investment. Today, existing home sales in September were down 3% month over month. On Wednesday, housing starts for September were up an annualized 15%, driven by strength in multifamily homes (up 51.3%), but not single-family homes (up only 1.7%).
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As a long-short fund manager, your objective is to put dollars to work in issues that offer the most opportunity for above average returns. If no such opportunity exists, the better play is to hold to a strong risk management policy and avoid the market altogether. Sitting in cash (i.e. having no investments in your portfolio) from time to time has a few key benefits that are often overlooked.
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An interesting backdrop to the recent rally in equity markets has been a somewhat persistent rise in some indicators of risk in the market that give us pause. Looking at the TED spread, or the spread between the 3 Month T-bill and 3 Month Libor we see that it currently stands at just under 40bps, this is its highest level since QE2 was announced last fall.