Quote of the Week
“The most important rule is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum downturn. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.” – Paul Tudor Jones
Dark Days in Mudville
It truly is a dark day in Mudville; mighty Casey has struck out. How about those Cats! Also, Tom’s mighty Michigan State Spartans were eliminated. There is a dark cloud over our office today. All the women in our office don’t seem to care. I think they are smarter than the men. From a trend analysis standpoint, it should have been obvious. The Cats have struggled coming out of the gate this season and it finally caught up with them. The Buffalo Bulls were better prepared and played with more energy. It just goes to show that Hope is not a basketball strategy and Hope is not an investment strategy. It is much better to look at the facts and the trends.
Keeping in the theme of the basketball tournament, in the history of the NCAA Basketball Tournament, a 16th seed has never, ever, beaten a one seed until this year. But on Friday, the University of Maryland, Baltimore County (UMBC) beat the University of Virginia which was not only a number one seed, but the top-ranked team in America.
When the Federal Reserve finishes its regularly scheduled meeting on Wednesday I don’t expect the unexpected. Based on the federal funds futures market, there is a 100% chance that the Fed will boost the federal funds rate by 25 basis point, to a new range of 1.5% to 1.75%.The markets are even giving a roughly 20% chance that the Fed raises rates 50 basis points That’s better odds than UMBC had, but I think it’s highly unlikely given that this is Jerome Powell’s first meeting as Fed Chief.
The rate hike itself is not worrisome. It’s expected and at 1.75%, the federal funds rate is still below inflation and the growth rate for nominal GDP. There are also still more than $2 trillion dollars in excess bank reserves in the system. The fed is a very long way from being tight.
Instead, investors should focus on how the Fed changes its forecast of what’s in store for the economy and the likely path of short-term interest rates over the next few years. For nerds like me, this will be the news of the week.
Last week was a down week for the markets. The Dow was down 1.54%, the S&P 500 was down 1.24% and the Nasdaq was down 1.24%
This week has started off with a big drop in the markets. I think it is being driven by the announcement that 50 million users of Facebook had their personal information revealed. Shares of the social media giant fell after reports said political analytics firm Cambridge Analytica was able to collect data on 50 million people’s profiles without their consent. Cambridge Analytica is closely tied to Steve Bannon who was the head honcho at Breitbart News Network.
It appears that this is another indication of systemic problems at Facebook. Brian Weiser, an analyst at Pivotal Research said in a note today (Monday) that “it is clear that Facebook did not make sufficient efforts to recover user’ data which was used in ad targeting in the 2016 US election. Facebook also did not disclose the leak to users or investors.
The UPI for our software remains at 17 out of 100. Our allocation for most inventors remains the same: 85% equities, 0% bonds, 10% alternatives, and 5% cash.
So, You Think Block Chain Is A Fad?
Last week I was participating in a webinar about the technology (Blockchain) that supports cryptocurrencies i.e. Bitcoin. The information that was being presented was pretty much what anyone can get on the internet. I was about to sign out of the webinar when the host put up a chart that blew my mind. The chart showed that many of the largest and well-known companies in the world are converting $1,982.2 trillion (give or take a trillion or so) of assets to blockchain friendly form to be able to reap the transactional efficiencies inherent in this technology. The companies included IBM, GE, Wal-Mart, J. P. Morgan Chase, NYSE, Nasdaq, UBS, Samsung, Goldman Sachs, Citibank, Visa, Microsoft and many more. I hadn’t realized just how convinced the corporate world is that blockchain technology is here to stay and that companies are aggressively integrating it into their product offerings and operations. The following are a few examples of what these companies are doing with blockchain.
IBM has flung itself full-bore into blockchain. In 2017, the company created a division wholly devoted to researching use cases for blockchain technology. IBM has 1,500 employees who focus on blockchain and “over 400 different client engagements and solutions,” said Marie Wieck, general manager of blockchain at IBM. “This is probably the most interest I’ve seen in an individual technology since the early days of the internet and e-business,” Wieck said. Test pilots the company has explored include a collaboration with Stellar.org and KlickEx Group to make it possible to perform cross-border payments on the blockchain and a partnership with Maersk to digitize the paper trail associated with global shipping.1
The company also operates IBM Blockchain, a public cloud service platform based on the open source Hyperledger from The Linux Foundation. With this software, customers can create their own blockchains and explore applications of the technology.
IBM has gone a step further and even incorporated blockchain technology into its own internal operations, said Bridget van Kralingen, IBM’s senior vice president of industry platforms. The company’s Global Financing division uses the technology to expedite dispute resolution and reconciliation, while another division that performs maintenance of ATMs and small-business computer environments has implemented the blockchain to keep track of its supply chain of parts. “This is going to change business models. It’s a technology,” van Kralingen said. “Last year was proving out many pilots and scaling out initial networks, now we’re saying this is a different business model.”1
Wal-Mart had a blockchain test pilot with mangoes in the U.S. and pork in China, back in October 2016. “Since our successful pilot text, Walmart has continued to expand our progress in testing blockchain technology for food traceability and transparency. In August 2017, we joined nine other global food retailers in a blockchain consortium in the U.S. Three weeks ago, we announced with our partners JD and Tsinghua University in China to launch a blockchain alliance in China” said a Wal-Mart spokesperson.1
Microsoft has a website describing, “Why blockchain on Azure?” which is the software giant’s cloud offering. “Our mission is to help companies thrive in this new era of secure multiparty collaboration by delivering platforms and services that any company—including ledger startups, retailers, health providers, and global banks—can use to improved shared business processes,” a Microsoft spokesperson said.1
Back in September 2016, Microsoft announced a collaboration with Bank of America Merrill Lynch on blockchain technology to fuel the transformation of trade finance transacting.1
“In addition, Microsoft is working on open source solutions to improve the speed, governance and security of existing blockchain protocols like Ethereum, Hyperledger, Quorum and R3’s Corda,” a Microsoft spokesperson said. “The solution is called the Coco Framework and it enables existing ledgers to process transactions at close to standard enterprise database speeds.”1
Many pundits feel that blockchain is going to be another internet. Stay tuned for huge changes in the very near future.
1Market Watch, January 16, 2018, Tomi Kilgore and Jacob Passy
By the Numbers
GUARANTEED CONTRACT – The Texas Rangers owe Prince Fielder $72 million over the 2018-19-20 seasons even though he stopped playing in July 2016due to his 2nd neck surgery. MLB teams typically take out insurance contracts that pays the ballclub in the event of a player’s career-ending disability (source: Texas Rangers). – Michael A. Higley, BTN 03-19-2018
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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs. The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.