Posts by Aaron Task

  • Remember 'Goldilocks'? Schwab's Sonders sees parallels to 1998, but for the good

    Aaron Task at Yahoo Finance 5 days ago

    The overnight drama in Russia, against the backdrop of a steep drop in oil prices and unrest in emerging economies, has many traders concerned that history may be repeating itself: Back in 1997-98, what started as the "Asian Flu" morphed into a global credit crises in 1998 after Russia's debt default triggered the unraveling of Long Term Capital Management and a Fed-induced bailout of its Wall Street creditors. Arguably, the 1998 drama and the Fed's response created a "moral hazard" and set the stage for the credit bubble of the early 2000s. Undoubtedly, the 1998 turmoil rattled investor confidence as the Dow fell 20% from its peak in early May to its nadir in early September that year. (For a full account of the 1998 saga, read Roger Lowenstein's seminal account: When Genius Failed).

    Related: Oil & The Black Swan

  • China's "difficult, wrenching change" and Japan's post-election letdown

    Aaron Task at Yahoo Finance 6 days ago

    Japan's stock market slumped 1.6% overnight Monday despite a rousing victory by Japanese Prime Minister Shinzo Abe's party in parliamentary elections. A reaction to Friday's rout in U.S. market was cited as the catalyst for the decline but the question begs: What would have happened if Abe's party had lost? Japan's Nikkei 225 has risen nearly 75%since Abe gained power in December 2012 (vs. a roughly 40% gain for the S&P 500) as he successfully pressured Japan's central bank to launch a series of aggressive policy actions, which have boosted asset prices and weakened the yen. Monday's election was widely viewed a referendum on Abe's economic policies and his party's victory means Abe doesn't have to stand for election again until 2018, which presumably means a continuation of so-called Abenomics. "For those who want the Japanese economy to reflate I think this is fundamentally good news," Cardiff Garcia of FT's Alphaville says of the election results. "There was really lower voter turnout...[but] at least it reinforces expectations of what [Abe's] going to do next year: Skip the next tax hike and really continue to put pressure on the central bank not to ease up" on its quantitative easing program. As to the market's reaction, "I stopped trying to make sense of the Japanese stock market a long time ago," Garcia quips, before considering the serious challenge Abe continues to face in reforming Japan's economy. "The 'third arrow' of Abenomics, structural reform, hasn't proceeded as quickly as the other two," he notes. "The Japanese can keep pushing on fiscal and monetary policy to generate demand and that's a good idea... but in the absence of structural reforms you're not going to get the long-term breakout growth that is Abe hoping for." In other news from major Asian economies, China's central bank is now forecasting the economy will grow 7.1% in 2015 vs. an expected 7.4% in 2014 and the official target of 7.5%. An economic slowdown is the "new normal" for China, according to Communist Party officials and judging by the market's fairly muted reaction to the news. The Shanghai Composite rose 0.5% Monday after dropping as much as 1.6% intraday. "The Chinese government has been telegraphing for a while this is going to be a difficult, wrenching change as they move away from an investment-led, export-driven model to one based more on consumption," Garcia notes. "They're trying to communicate that the average Chinese citizen is going to benefit from this." Chinese policymakers are trying to manage the socioeconomic fallout from this shift as much as the financial market reaction, Cardiff explains, pointing to the following commentary from GlobalSource Partnerson this "rebalancing" theme:

  • Energy prices collapse: The good, the bad and the ugly

    Aaron Task at Yahoo Finance 13 days ago

    Oil prices tumbled again Monday, hitting their lowest levels since 2009, while average U.S. gasoline prices are now at the lowest levels in four years, according to the Lundberg survey. The steep fall in energy prices is either great or terrible news, depending on your perspective, i.e. whether you're a bull or a bear. If you're a bull, the positive implications of falling oil prices are obvious: More money in consumers' pockets and relief for troubled global economies, most notably in Europe and Japan. The effect of falling oil prices is "unambiguously positive,” European Central Bank president Mario Draghi declared last week. Similarly, officials at the IMF and Federal Reserve are also "betting plummeting oil prices will lead to an overall boost in the global economy by delivering a windfall to consumers and manufacturers," The WSJ reports. Along with overall economic improvements -- Friday's jobs report was the best since January 2012 -- the steep decline in gasoline prices is a big reason why retail stocks such as Target, Costco and Starbucks have risen so sharply in recent months. On the flip side, energy shares have taken a shellacking and companies like Continental Resources and ConocoPhillips have already announced plans to cut back on capital expenditures in 2015. On Monday, BP announced it will accelerate previously planned job cuts citing the decline in crude prices; the company employs about 20,000 people in America, mostly in Texas. As much as $100 billion in related capital spending is at risk due to falling oil prices, according to The FT. If drilling activity stops (or even just slows) that will come at a cost to the thousands of Americans working in the energy sector, where average pay is 23% higher than the average private sector job, according to BTIG. In addition, less drilling will hurt all the non-energy businesses that have benefited from the fracking revolution. Overall, fracking adds $300 billion to $400 billion annually to U.S. economic activity, according to the Manhattan Institute. The decline in economic activity from less domestic drilling will almost certainly be offset by the boost U.S. consumers will get as a result of falling energy prices. Assuming Brent crude averages $80 per barrel (it's currently at $67.30) the average American household would save $600 annually, according to estimates from Citibank. However, the downside of geopolitical risk could very easily and quickly offset the benefits the global economy will enjoy from lower oil prices, as I wrote last week. In addition, the speed and depths of oil's decline could be harbinger of an "accident" in the financial markets, even a so-called Black Swan event. "While I’m certain over the long run the lower price is a net benefit to the world, the staggering speed with which it has fallen is destroying debt and equity values throughout the energy sector," writes Belpointe chief strategist David Nelson. "My crystal ball isn’t any clearer than yours but if there’s a Black Swan lurking you’ll probably spot it floating near some oil rig." While oil prices and related stocks get most of the attention, Nelson notes energy accounts for about 16% of the high yield bond market and that banks have lent $465 billion to oil and gas companies in 2014, according to Thomson Reuters LPC; that's up 29% from the previous record set in 2007.   2007 was, of course, followed by the financial crisis of 2008. I'm always wary of allusions to 2008 because it hopefully was a "once-in-a-lifetime"-type event that nobody sane wants to revisit. But "historically, sharp drops in oil prices tend to be associated with recessions as energy demand collapses," The WSJ notes in the story cited above. And somewhat alarmingly, the same WSJ story quotes Guy Caruso, a former head of the U.S. Energy Information Administration, who declares "this time is different,"  which are, of course, the four most dangerous words on Wall Street.

  • Jobs report was strong but "we've got to do better": Brusuelas

    Aaron Task at Yahoo Finance 15 days ago

    There was a lot to cheer about in Friday's jobs report:

    Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

  • Jim Grant is (still) bullish on Russia, gold and private equity

    Aaron Task at Yahoo Finance 16 days ago

    Jim Grant is best know for his view on interest rates and monetary policy but in recent years he's made some public calls on stocks as well, including a bullish bet on Russian energy giant Gazprom last May at the Ira Sohn conference in NYC.

    Gazprom shares have tumbled since then and Grant concedes the steep fall in energy prices, Russia's currency crises and geopolitics "have all conspired to make this the single worst call in spring 2014."

    Still, the newsletter writer and author is still bullish on Gazprom and other Russian stocks like Lukoil and Sberbank.

    "My point of view on all these Russian stocks is the world hates them, they're the cheapest things in the world and everyone expects them to get worse," he says. "If something goes right these are explosive stocks to the upside it seems to me. It's the intersection of value and contrary opinion [and] to me it's irresistible."

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  • Oil prices are plummeting: Who wins and who loses?

    Aaron Task at Yahoo Finance 18 days ago

    At the risk of stating the obvious, the big drop in oil and gas prices is good for U.S. consumers and "good news for the global economy,” as IMF Chief Christine Lagarde said Monday at The Wall Street Journal's annual CEO Council meeting. But, as with most things, "it's nowhere near that simple," as Marketplace radio host Lizzie O'Leary tells me in the accompanying video. "It really depends on whether you're a consumer or producer [of energy] and so much of that equation has changed in the past not just 10 years but 5 and 2 years for this country." Among the downsides of falling energy prices: Frack Attack: America's fracking revolution adds $300 billion to $400 billion annually to U.S. economic activity, according to the Manhattan Institute. As much as $100 billion in related capital spending is at risk due to falling oil prices, according to The FT. If drilling activity stops (or even just slows) that will come at a cost to the thousands of Americans working in the energy sector, where average pay is 23% higher than the average private sector job, according to BTIG. In addition, less drilling will hurt all the non-energy businesses that have benefited from the fracking revolution. As Yahoo Finance recently reported, the Walmart in Williston, ND is offering $17 per hour as a starting salary due to a labor shortage; you think those folks are cheering as oil prices fall? Energy investors have taken a shellacking amid oil's steep decline in recent months. For example, Halliburton is down 44% since July 23; Continental Resources has lost half its value since August 29; BP is down 25% since mid-summer, The Washington Post reports.  The pain is not limited to U.S. equities: Brevan Howard Asset Management pulled the plug on its $630 million commodity fund last week, Bloomberg reports, and other funds are almost certain to follow given the declines in oil, gold, copper and other commodities. More than $69 billion flowed into commodity related mutual funds and ETFs between 2009-2011, according to The WSJ; those investments, and what's followed since are now at risk as investors face the potential end of the commodity 'supercycle'. Global Unrest: The dust appears to have settled from OPEC's decision to keep production unchanged but "the drama is far from over," as IHS vice chairman Daniel Yergin wrote in a WSJ oped on Monday. The 40% drop in Brent crude since July will reduce annual revenue to global oil producers by $1.5 trillion, WaPo reports; that's a tremendous amount of pain for countries dependent on oil exports such as Russia, Venezuela, Iran, Nigeria and Brazil -- just to name a few. In sum, the downside of geopolitical risk could very easily and quickly offset the benefits the global economy gets from lower oil prices. Greens Feel Blue: Assuming tax credits stay in place, solar is on track to be as cheap or cheaper than average electricity-bill prices in 47 U.S. states by 2016, Deutsche Bank reported last month. But if oil and gas prices stay low (or fall further) that will make it harder for alternative energy to reach parity with carbon-based fuels. Furthermore, today's auto sales reports show U.S. consumers are buying bigger and less fuel-efficient vehicles, which is good for automakers' profits but horrible news if you're concerned about global warming, which the World Bank recently said is rising at "alarming levels."

  • 'A national embarrassment': U.S. infrastructure suffers from bipartisan failure

    Aaron Task at Yahoo Finance 27 days ago

    It's an old story that doesn't seem to ever have a different ending: America's infrastructure is crumbling and nobody in Washington seems to care or have the political will to do something about it. The U.S. received a cumulative grade of 'D+' in the American Society of Civil Engineers' 2013 Report Card on America's Infrastructure, which estimates $3.6 trillion of investment is needed by 2020. "We know that investing in infrastructure is essential to support healthy, vibrant communities," the ASCE wrote in its executive summary. "Infrastructure is also critical for long-term economic growth, increasing GDP, employment, household income, and exports. The reverse is also true – without prioritizing our nation’s infrastructure needs, deteriorating conditions can become a drag on the economy." Kudos to 60 Minutes for bringing renewed attention to the issue with its report on Sunday night. But 60 Minutes glossed over a few key issues on the topic of infrastructure, which Henry Blodget calls "a national embarassment" in the accompanying video.

  • Bill Ackman broke some cardinal rules of short-selling with Herbalife: Kass

    Aaron Task at Yahoo Finance 1 mth ago

    It's not easy being green, as a famous frog once sang. It's also not easy being a short seller, especially in market that keeps hitting new records. But someone's got to do it and few have done it as well or formas long as Doug Kass of Seabreeze Partners.

    Kass is rare among short-sellers in that he's a public persona and discusses active short positions on television and in publications like Barron's and TheStreet.com's RealMoney Pro service. So when Kass came to Yahoo Finance this week to discuss his new book Doug Kass on the Market: A Life on The Street, I had to get his opinion about one of the most public short-selling events in recent memory: Bill Ackman's crusade against Herbalife.

    Related: Short seller Kass on market highs: I am waiting to pull the trigger 

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  • Warren Buffett is the world's greatest investor, but Doug Kass is still short Berkshire

    Aaron Task at Yahoo Finance 1 mth ago

    At the 2013 Berkshire Hathaway annual meeting, aka "The Woodstock of Capitalism." tens of thousands gathered to show their devotion and affection for the company and its founder, Warren Buffett.

    But one invited guest came not to praise "the Oracle of Omaha" but to bury him -- at least rhetorically. Famed short-seller Doug Kass, managing partner of Seabreeze Partners, was invited by Buffett to play the role of "credentialed bear" and try to dissuade the crowd from owning Berkshire stock. It was a "professional highlight" Kass describes in his new book Doug Kass on the Market: A Life on The Street. 

    "I was kind of Daniel in the Lion's den," Kass explains in the accompanying video. "With 55,000 of [Buffett's] devotees...trying to stump him with original hard-hitting questions. But at the same time I wanted to be respectful because I worship at his investment altar."

    Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

  • Seeing 'trouble ahead' for stocks, but still making the bullish case

    Aaron Task at Yahoo Finance 1 mth ago

    After a blockbuster end to October and strong start to November, stocks have hit a lull. The 'slow and sideways' trendresumed Monday, with the Dow (^DJI) and S&P 500 (^GSPC) trading near breakeven for most of the day before ending with meager gains. Monday marked the fifth-straigh trading day the S&P 500 moved less-than 0.1%, matching a record, and there wasn't a whole lot of action early Tuesday either.