2013 Mexican vs US markets

Gambler's Fallacy

To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none … The cause-creating drive is thus conditioned and excited by the feeling of fear.

Friedrich Nietzsche


A well-known example of this is provided by the phenomenon called the gambler’s fallacy. The name refers to the fact that gamblers often seem to believe that a long row of events of one type increases the probability of the complementary event. Thus if a series of ‘red’ events occur on a roulette wheel, the gambler’s fallacy lead people to believe that the probability of ‘black’ increases. … Rather than accepting that the underlying mechanism may be randome people invent all kinds of explanations to reduce the uncertainty of future events

Erik Hollnagel

Peso ( MXP ) : 12.44 - 12.87 Rango Esperado / Expected Range

12.44 - 12.87 rango esperado para las proximas 4 semanas. Buena Suerte !
12.44 - 12.87 is the expected range for the next 4 weeks. Good Luck !

S&P500 (ES) : Posible objetivo 1485/ Potential to 1485

La grafica de Punto y Figua (PF) anexa muestra el potencial objetivo de este tendencia alcista. Suerte !
The attached Point and figure (PF) graph clearly shows the potential objective for this upleg. Good Luck !

10 Surprises for 2013: Blackstone

Byron Wien, Vice Chairman of Blackstone Advisory Partners, yesterday issued his list of “The Ten Surprises for 2013″. This is the 28th year Byron has given his predictions of a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event which the average investor would only assign a one out of three chance of taking place but which he believes is “probable”, having a better than 50% likelihood of happening.

Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. He joined the Blackstone Group in September 2009.

Firstly, how did he fare last year? In short, he hit bulls-eye with three items, was partly correct with five and got it wrong twice Here is a short summary, courtesy of Business Insider:

Right:

• Oil price declines to $85.
• S&P 500 Index heads above 1,400.
• Europe finally develops a long-lasting plan.

Wrong:

• The computer becomes the new weapon of choice.
• Congress finds a way to cut $1.2 trillion over 10 years.

Partly right:

• Real GDP growth exceeds 3%; unemployment drops below 8%.
• Obama beats Romney, Dems win House, GOP wins Senate.
• Investors shift currency buys to Australia, Scandinavia, Singapore and Korea
• The Arab Spring matures: Al-Assad is deposed, and Hamas, Hezbollah and Iran are weakened.
• Indexes in Brazil, China and India gain more than 15%.

Surprises for 2013

1. Iran announces it has adequate enriched uranium to produce a nuclear-armed missile and the International Atomic Energy Agency confirms the claim. Sanctions, the devaluation of the currency, weak economic conditions and diplomacy did not stop the weapons program. The world must deal with Iran as a nuclear threat rather than talk endlessly about how to prevent the nuclear capability from happening. Both the United States and Israel shift to a policy of containment rather than prevention.

2. A profit margin squeeze and limited revenue growth cause 2013 earnings for the Standard & Poor’s 500 to decline below $100, disappointing investors. The S&P 500 trades below 1300. Companies complain of limited pricing power in a slow, highly competitive world economic environment.

3. Financial stocks have a rough time, reversing the gains of 2012. Intense competition in commercial and investment banking, together with low trading volumes, puts pressure on profits. Layoffs continue and compensation erodes further. Regulation increases and lawsuits persist as an industry burden.

4. In a surprise reversal the Democrats sponsor a vigorous program to make the United States independent of Middle East oil imports before 2020. The price of West Texas Intermediate crude falls to $70 a barrel. The Administration proposes easing restrictions on hydraulic fracking for oil and gas in less populated areas and allowing more drilling on Federal land. They see energy production, infrastructure and housing as the key job creators in the 2013 economy.

5. In a surprise reversal the Republicans make a major effort to become leaders in immigration policy. They sponsor a bill that paves the way for illegal immigrants to apply for citizenship if they have lived in the United States for a decade, have no criminal record, have a high school education or have served in the military, and can pass an English proficiency test. Their goal for 2016 is to win the Hispanic vote, which they believe has a naturally conservative orientation and which put the Democrats over the top in 2012.

6. The new leaders in China seem determined to implement reforms to root out corruption, to keep the economy growing at 7% or better and to begin to develop improved health care and retirement programs. The Shanghai Composite (SSEC 2269.13 ↑0.00%) finally comes alive and the “A” shares are up more than 20% in 2013, in contrast with the previous year when Chinese stocks were down and some developing markets, notably India, rose.

7. Climate change contributes to another year of crop failures, resulting in grain and livestock prices rising significantly. Demand for grains in developing economies continues to increase as the standard of living rises. More investors focus on commodities as an investment opportunity and increase their allocation to this asset class. Corn rises to $8.00 a bushel, wheat to $9.00 a bushel and cattle to $1.50 a pound.

8. Although inflation remains tame, the price of gold reaches $1,900 an ounce as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous.

9. The Japanese economy remains lackluster and the yen declines to 100 against the dollar. The Nikkei 225 (N225 10649.90 ↑0.00%) continues the strong advance that began in November and trades above 12,000 as exports improve and investors return to the stocks of the world’s third largest economy.

10. The structural problems of Europe remain largely unresolved and the mild recession that began there in 2012 continues. Civil unrest subsides as the weaker countries adjust to austerity. Greece proves successful in implementing policies that reduce wasteful government expenditures and raise revenues from citizens who had been evading taxes. European equities, however, decline 10% in sympathy with the U.S. market.

Every year there are always a few Surprises that do not make the Ten because either I do not believe they are as relevant as those on the basic list or I am not comfortable with the idea that they are “probable.” Below are several “also rans” which did not make the Ten Surprises.

“Also Rans”

11. Having traded below 20 for most of 2012 the VIX  (14.56 ↓-0.82%) Volatility Index surges 33% to 30, providing a bonanza for traders. The decline in the S&P 500 increases market volatility.

12. The Newtown, Connecticut, massacre finally convinces Congress to do something about gun control. As a first step they ban future civilian purchases of automatic weapons, including handguns, with clips of more than ten rounds and require more extensive background checks on all gun purchases. “It should not be easier to buy a gun than rent a car” becomes a slogan.

13. Frustrated by an inability to increase revenues through raising income taxes, Congress begins to consider different approaches. There is more talk of a value-added tax as well as a wealth tax, and these ideas appear to be slowly gathering momentum.

14. Congress decides that high-frequency and other computerized algorithmic-based trading practices are putting the individual investor at a disadvantage. A transaction fee designed to slow down frenetic activity and protect against “flash crashes” and glitches is imposed on intra-day trades.

15. The planet finds itself saturated with technology. Semiconductor companies, software providers, social media favorites and personal computer manufacturers all report disappointing earnings and provide discouraging guidance. They lead the overall market lower. Users finally agree the present state of the art is fast enough and connected enough, and that they have more “apps” than they know what to do with. Apple (AAPL 542.10 ↓-1.26%) bucks the trend and trades above $700 as its products continue to enjoy enormous success abroad.

S&P500 : En punto de inflexion / At Inflection point

Hat tip : The Big Picture. Source : JP Morgan

PIMCO : Money for Nothin' Writing checks for Free

Investment Outlook
January 2013

 

Article Introduction

Article Main Body

It was Milton Friedman, not Ben Bernanke, who first made reference to dropping money from helicopters in order to prevent deflation. Bernanke’s now famous “helicopter speech” in 2002, however, was no less enthusiastically supportive of the concept. In it, he boldly previewed the almost unimaginable policy solutions that would follow the black swan financial meltdown in 2008: policy rates at zero for an extended period of time; expanding the menu of assets that the Fed buys beyond Treasuries; and of course quantitative easing purchases of an almost unlimited amount should they be needed. These weren’t Bernanke innovations – nor was the term QE. Many of them had been applied by policy authorities in the late 1930s and ‘40s as well as Japan in recent years. Yet the then Fed Governor’s rather blatant support of monetary policy to come should have been a signal to investors that he would be willing to pilot a helicopter should the takeoff be necessary. “Like gold,” he said, “U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Mr. Bernanke never provided additional clarity as to what he meant by “no cost.” Perhaps he was referring to zero-bound interest rates, although at the time in 2002, 10-year Treasuries were at 4%. Or perhaps he knew something that American citizens, their political representatives, and almost all investors still don’t know: that quantitative easing – the purchase of Treasury and Agency mortgage obligations from the private sector – IS essentially costless in a number of ways. That might strike almost all of us as rather incredible – writing checks for free – but that in effect is what a central bank does. Yet if ordinary citizens and corporations can’t overdraft their accounts without criminal liability, how can the Fed or the European Central Bank or any central bank get away with printing “electronic money” and distributing it via helicopter flyovers in the trillions and trillions of dollars?

Well, the answer is sort of complicated but then it’s sort of simple: They just make it up. When the Fed now writes $85 billion of checks to buy Treasuries and mortgages every month, they really have nothing in the “bank” to back them. Supposedly they own a few billion dollars of “gold certificates” that represent a fairy-tale claim on Ft. Knox’s secret stash, but there’s essentially nothing there but trust. When a primary dealer such as J.P. Morgan or Bank of America sells its Treasuries to the Fed, it gets a “credit” in its account with the Fed, known as “reserves.” It can spend those reserves for something else, but then another bank gets a credit for its reserves and so on and so on. The Fed has told its member banks “Trust me, we will always honor your reserves,” and so the banks do, and corporations and ordinary citizens trust the banks, and “the beat goes on,” as Sonny and Cher sang. $54 trillion of credit in the U.S. financial system based upon trusting a central bank with nothing in the vault to back it up. Amazing!

But the story doesn’t end here. What I have just described is a rather routine textbook explanation of how central and fractional reserve banking works its productive yet potentially destructive magic. What Governor Bernanke may have been referring to with his “essentially free” comment was the fact that the Fed and other central banks such as the Bank of England (BOE) actually rebate the interest they earn on the Treasuries and Gilts that they buy. They give the interest back to the government, and in so doing, the Treasury issues debt for free. Theoretically it’s the profits of the Fed that are returned to the Treasury, but the profits are the interest on the $2.5 trillion worth of Treasuries and mortgages that they have purchased from the market. The current annual remit amounts to nearly $100 billion, an amount that permits the Treasury to reduce its deficit by a like amount. When the Fed buys $1 trillion worth of Treasuries and mortgages annually, as it is now doing, it effectively is financing 80% of the deficit for free.

The BOE and other central banks work in a similar fashion. British Chancellor of the Exchequer (equivalent to our Treasury Secretary) George Osborne wrote a letter to Mervyn King, Governor of the BOE (equivalent to our Fed Chairman) in November. “Transferring the net income from the APF [Asset Purchase Facility – Britain’s QE] will allow the Government to manage its cash more efficiently, and should lead to debt interest savings to central government in the short-term.” Savings indeed! The Exchequer issues gilts, the BOE’s QE program buys them and then remits the interest back to the Exchequer. As shown in Chart 1, the world’s six largest central banks have collectively issued six trillion dollars’ worth of checks since the beginning of 2009 in order to stem private sector delevering. Treasury credit is being backed with central bank credit with the interest then remitted to its issuer. Should interest rates rise and losses accrue to the Fed’s portfolio, they record it as an accounting liability owed to the Treasury, which need never be paid back. This is about as good as it can get folks. Money for nothing. Debt for free.

Investors and ordinary citizens might wonder then, why the fuss over the fiscal cliff and the increasing amount of debt/GDP that current deficits portend? Why the austerity push in the U.K., and why the possibly exaggerated concern by U.S. Republicans over spending and entitlements? If a country can issue debt, have its central bank buy it, and then return the interest, what’s to worry? Alfred E. Neuman for President (or House Speaker!).

Well ultimately government financing schemes such as today’s QE’s or England’s early 1700s South Sea Bubble end badly. At the time Sir Isaac Newton was asked about the apparent success of the government’s plan and he responded by saying that “I can calculate the movement of the stars but not the madness of men.” The madness he referred to was the rather blatant acceptance by government and its citizen investors, that they had discovered the key to perpetual prosperity: “essentially costless” debt financing. The plan’s originator, Scotsman John Law, could not have conceived of helicopters like Ben Bernanke did 300 years later, but the concept was the same: writing checks for free.

Yet the common sense of John Law – and likewise that of Ben Bernanke – must have known that only air comes for free and is “essentially costless.” The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold. To date, central banks have been willing to accept that cost – nay – have even encouraged it. The Fed is now comfortable with 2.5% inflation for at least 1–2 years and the Bank of Japan seems willing to up their targeted objective to something above as opposed to below ground zero. But in the process, zero-bound yields and their QE check writing may have distorted market prices, and in the process the flow as well as the existing stock of credit. Capital vs. labor; bonds/stocks vs. cash; lenders vs. borrowers; surplus vs. deficit nations; rich vs. the poor: these are the secular anomalies and mismatches perpetuated by unlimited check writing that now threaten future stability.

Ben Bernanke has publically acknowledged these growing disparities. “We are quite aware,” he said in November 2011, “that very low interest rates, particularly for a protracted period, do have costs for a lot of people… I think the response is, though, that there is a greater good here, which is the health and recovery of the U.S. economy... I mean, ultimately, if you want to earn money on your investments, you have to invest in an economy which is growing.”

That growth now is to be measured each and every employment Friday via an unemployment rate thermostat set at 6.5%. We at PIMCO would not argue with that objective. Yet we would caution, as Bernanke himself has cautioned, that there are negative consequences and that when central banks enter the cave of quantitative easing and “essentially costless” electronic printing of money, there may be dragons.

Investment conclusions

Investors should be alert to the longterm inflationary thrust of such check writing. While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the “out” years towards which long-term bond yields are measured. You should avoid them and confine your maturities and bond durations to short/intermediate targets supported by Fed policies. In addition, be aware of PIMCO’s continued concerns about the increasing ineffectiveness of quantitative easing with regards to the real economy. Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice. Those purchases may be initially supportive of stock prices but ultimately constraining of true wealth creation and real economic growth. At some future point, risk assets – stocks, corporate and high yield bonds – must recognize the difference. Bernanke’s dreams of economic revival, which would then lead to the day that investors can earn higher returns, may be an unattainable theoretical hope, in contrast to a future reality. Japan we are not, nor is Euroland or the U.K. – just yet. But “costless” check writing does indeed have a cost and checks cannot perpetually be written for free.

William H. Gross

Managing Director

Bolsa Mexicana : Rendimientos 2012 por Emisora / Mexican Bolsa : 2012 Peformance

Es cuestion de saber donde buscar / It is a matter of knowing where to look.

Bolsa Mexicana de Valores
Rendimiento %
Emisora	Var % 2012
SANMEX B	178.80
PAPPEL *	165.26
POCHTEC B	160.07
ICH B	108.01
GFNORTE O	97.19
GFREGIO O	96.33
COMERCI UBC	93.42
ICA *	90.02
ALSEA *	87.98
ASUR B	86.38
GCARSO A1	85.17
SIMEC B	81.24
ALFA A	80.13
CEMEX CPO	77.29
KUO A	70.70
CMR B	68.97
OMA B	68.21
FUNO 11	65.18
MEXCHEM *	64.61
AC *	61.71
GAP B	60.62
NUTRISA *	60.36
HERDEZ *	59.50
PASA B	59.09
SANLUIS A	57.38
PINFRA *	53.68
GFINBUR O	52.81
GRUMA B	48.37
GISSA A	48.33
KUO B	48.05
SORIANA B	47.03
GFINTER O	46.24
BOLSA A	45.88
KOF L	44.17
VITRO A	42.82
CYDSASA A	40.98
SANLUIS CPO	38.33
C *	37.44
LIVEPOL C-1	35.37
BACHOCO B	35.11
QC CPO	34.46
FEMSA UBD	33.28
GFAMSA A	32.40
RCENTRO A	32.35
KIMBER A	31.38
OHLMEX *	31.36
GMODELO C	31.11
POSADAS A	30.50
ANGELD 10	28.57
LIVEPOL 1	28.57
CIE B	28.33
SPORT S	27.61
FINAMEX O	26.86
FEMSA UB	26.84
LAMOSA *	25.06
FRAGUA B	25.00
ALPEK A	24.75
CHDRAUI B	19.70
ILCTRACISHRS	18.74
INVEX A	18.18
Mexican Index (IPC)	17.88
NAFTRAC 02	17.86
BIMBO A	17.56
TLEVISA CPO	16.21
CIDMEGA *	15.47
VESTA *	14.47
VASCONI *	14.40
GPH 1	14.29
FRES *	12.57
CMOCTEZ *	10.45
IDEAL B-1	9.20
ACTINVR B	8.93
MEGA CPO	8.49
MFRISCO A-1	7.36
COMPARC *	7.30
MAXCOM CPO	6.89
PE&OLES *	6.45
GMDR *	6.25
ARA *	5.90
GBM O	5.77
CORPTRCISHRS	5.52
MASECA B	4.74
CREAL *	3.00
FIBRAMQ 12	2.44
BBVA *	2.11
INCARSO B-1	2.10
SAB *	2.10
CABLE CPO	1.69
GIGANTE *	1.45
MEDICA B	1.29
DINE A	0.94
ARTHACK 10	0.24
GFMULTI O	0.00
AMX A	-0.20
FIHO 12	-0.51
MONEX B	-0.61
LAB B	-1.41
GCC *	-4.11
AZTECA CPO	-4.61
AMX L	-5.82
BEVIDES B	-12.73
GEO B	-12.90
AUTLAN B	-13.63
HOGAR B	-14.57
CONVER A	-15.79
DIABLOI 10	-17.30
AEROMEX *	-18.46
DINE B	-19.81
EDOARDO B	-23.08
SARE B	-26.53
HOMEX *	-31.54
AXTEL CPO	-34.61
FINDEP *	-43.21
TMM A	-43.31
URBI *	-49.06
ELEKTRA *	-60.29
HILASAL A	-65.00

Cortesia : Vector Casa de Bolsa