Succinct Summation of Week’s Events 11.6.15 (plus Valeant & 1900 market)

Once again, the weekly eye-shot.  Once again, mostly good news, kind of a nice change of pace ain't it?  As I have mentioned before, since Valeant Pharmaceuticals has been so much in the news lately, I thought a more in-depth look was in order, so tonight I provide it.  A second bonus tonight is a very cool graphic showing the entire history of the S&P since 1900.  A very interesting representation of this and past recessions, but still nothing compared to the volatility of the period 1920-1945.

Succinct Summation of Week’s Events 11.6.15

by Barry Ritholtz - November 6th, 2015, 4:30pm

Succinct Summations for the week ending November 6th, 2015

Positives:

1. Nonfarm payrolls came in at 271k, well ahead of the 190k expected.
2. Unemployment came in at 5%, down from 5.1% previously.
3. PMI Manufacturing Index rose from 53.1 to 54.1, which was in line with expectations.
4. Construction spending rose 0.6% m/o/m and 14.1% y/o/y, both were above expectations.
5. ADP employment came in at 182k, slightly below expectations but still a fine reading.
6. ISM Non-Manufacturing Index came in at 59.1, above the 56.7 expected and up from 56/9 previously.
7. Average hourly earnings rose 0.4%, above the 0.2% expected rise.
8. Consumer Credit outstanding surged to $28.9 billion, the largest gain ever.
9. The S&P 500 increased for the sixth straight week.

Negatives:

1. ISM Manufacturing Index came in at 50.1, in line with expectations.
2. The MBA mortgage applications composite fell 0.8% w/o/w.
3. Initial jobless claims came in at 276k, the 4-week moving average has ticked up slightly to 262.75k.

How’s Your Story Going to Fail?

by Barry Ritholtz - November 2nd, 2015, 11:00am

Everyone loves a good story. The problem, as we have seen time and again is that these stories can kill your portfolio and your returns. Look no further than Valeant Pharmaceuticals on the public side, now suffering through a 60 percent haircut; the private equivalent would be blood-testing company Theranos. In both case, the narrative is failing.

Story-telling is an issue that comes back to haunt us again and again. We can’t help it; we seem to be hard wired to love a great yarn. Whether it’s Ulysses or “Star Wars” or a “disruptive, revolutionary, scalable new technology” (or some other set of buzzwords), we’re suckers for a well-told tale, special effects optional.

Pick just about any hot stock or sexy startup, and beyond the hard numbers, there is often a great narrative about why this company is going to be the next fill in the blank (Apple, Netflix, Google, etc.). All you need to do is to squint a little, ignore the lack of earnings, minor accounting concerns or some newfangled metric no one else follows.

The story is fantastic; sometimes, too fantastic.

Why are we fools for legends before they fall? For most of human history, there were no iPhones (unthinkable) or texting (OMG!). There weren’t even pens and paper to jot down a few notes. Hence, a good, intriguing narrative was important; it was a memorable way to share important information that could be passed from person to person, generation to generation. These stories often imparted important and occasionally life-sustaining information. No wonder we all love a good yarn.

The problem with these stories is that they introduce both emotions and bias into the account. More often than not, that leads to trouble in the world of investing.

Continues at Why the Story Failed at Valeant and Theranos

Stock Market Since 1900

by Barry Ritholtz - November 4th, 2015, 3:30pm

Source: JPM Quarterly Chart Book