Opening Bell 01.09.2014

Your world at 9am

world equity markets 2014-09-01

Equities

Major
DAX(DEU) +0.08%
CAC(FRA) +0.34%
UKX(GBR) +0.20%
NKY(JPN) +0.28%
SPX(USA) +0.33%
MINTs
JCI(IDN) +0.58%
INMEX(MEX) +0.43%
NGSEINDX(NGA) +0.42%
XU030(TUR) -0.82%
BRICS
IBOV(BRA) +1.65%
SHCOMP(CHN) +0.52%
NIFTY(IND) +0.23%
INDEXCF(RUS) -1.62%
TOP40(ZAF) -0.46%

Commodities

Energy
Brent Crude Oil +0.09%
Ethanol +0.55%
Heating Oil +0.05%
Natural Gas -0.66%
RBOB Gasoline +0.28%
WTI Crude Oil -0.20%
Metals
Copper +0.33%
Gold 100oz +0.00%
Palladium -0.13%
Platinum -0.07%
Silver 5000oz +0.04%

Currencies

USDEUR:+0.09% USDJPY:+0.08%

MINTs
USDIDR(IDN) +0.07%
USDMXN(MEX) -0.02%
USDNGN(NGA) +0.54%
USDTRY(TUR) -0.11%
BRICS
USDBRL(BRA) -0.27%
USDCNY(CHN) -0.03%
USDINR(IND) +0.11%
USDRUB(RUS) +1.07%
USDZAR(ZAF) -0.11%
Agricultural
Cattle +0.81%
Cocoa -0.92%
Coffee (Arabica) -0.18%
Coffee (Robusta) +0.10%
Corn -0.49%
Cotton +0.74%
Feeder Cattle +0.18%
Lean Hogs +2.36%
Lumber +0.49%
Orange Juice -1.75%
Soybean Meal +2.26%
Soybeans +1.44%
Sugar #11 -0.64%
Wheat -0.85%
White Sugar -0.61%

Credit Indices

Index Change
Markit CDX EM -0.26%
Markit CDX NA HY -0.18%
Markit CDX NA IG +0.81%
Markit CDX NA IG HVOL +0.99%
Markit iTraxx Asia ex-Japan IG -2.89%
Markit iTraxx Australia -2.37%
Markit iTraxx Europe +3.12%
Markit iTraxx Europe Crossover +11.53%
Markit iTraxx Japan -0.73%
Markit iTraxx SovX Western Europe +0.12%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) -1.21%
A bit of a wobble in credit markets but NKY is in the green this morning and most equity markets ended on a positive note on Friday.

Must reads

Today, the Supreme Court will decide what to do with captive coal blocks. (ET)

Rajan: Bad loans not all that “scary.” (FP)

15 million bank accounts opened on a single day. Why? (LiveMint)

The Enforcement Directorate (ED) has begun a comprehensive probe against a dozen popular online retail companies in the country for alleged violations of foreign direct investment rules. (TTI)

Good luck!

Monthly Recap: Popeye, Spinach and Ponzis

world.2014-07-31.2014-08-28

Equities

The Nifty ended the month +3.02% (+2.63% in USD terms)

Major
DAX(DEU) +0.67%
CAC(FRA) +3.18%
UKX(GBR) +1.33%
NKY(JPN) -1.26%
SPX(USA) +3.12%
MINTs
JCI(IDN) +0.94%
INMEX(MEX) +5.16%
NGSEINDX(NGA) -1.34%
XU030(TUR) -2.68%
BRICS
IBOV(BRA) +9.81%
SHCOMP(CHN) +0.71%
NIFTY(IND) +3.02%
INDEXCF(RUS) +1.97%
TOP40(ZAF) -1.28%

Commodities

Energy
Brent Crude Oil -2.83%
Ethanol +4.96%
Heating Oil -1.19%
Natural Gas +5.86%
RBOB Gasoline -7.51%
WTI Crude Oil -2.81%
Metals
Copper -2.79%
Gold 100oz +0.26%
Palladium +3.93%
Platinum -2.71%
Silver 5000oz -5.83%

Currencies

USDEUR:+1.95% USDJPY:+1.19%

MINTs
USDIDR(IDN) +0.95%
USDMXN(MEX) -1.04%
USDNGN(NGA) +0.24%
USDTRY(TUR) +0.99%
BRICS
USDBRL(BRA) -1.29%
USDCNY(CHN) -0.49%
USDINR(IND) -0.07%
USDRUB(RUS) +4.01%
USDZAR(ZAF) -0.22%
Agricultural
Cattle -1.08%
Cocoa +1.78%
Coffee (Arabica) -0.89%
Coffee (Robusta) -3.00%
Corn +0.49%
Cotton +8.76%
Feeder Cattle -0.88%
Lean Hogs -16.68%
Lumber +7.11%
Orange Juice +6.06%
Soybean Meal +12.51%
Soybeans -10.93%
Sugar #11 -5.96%
Wheat +4.01%
White Sugar -3.31%

Credit Indices

Index Change
Markit CDX EM -0.74%
Markit CDX NA HY +0.63%
Markit CDX NA IG -4.36%
Markit CDX NA IG HVOL -9.19%
Markit iTraxx Asia ex-Japan IG -3.92%
Markit iTraxx Australia -1.64%
Markit iTraxx Europe -5.20%
Markit iTraxx Europe Crossover -16.58%
Markit iTraxx Japan -1.29%
Markit iTraxx SovX Western Europe -1.68%
Markit LCDX (Loan CDS) -0.18%
Markit MCDX (Municipal CDS) -5.31%
EM credit was an under-performer when compared to investment grade credit. Brazilian equity markets were on fire, clocking in more then 9% this month.

Index Performance

index performance.2014-07-31.2014-08-28

Sector Performance

sector performance.2014-07-31.2014-08-28

Top winners and losers

TATAMOTORS +17.53%
M&MFIN +18.72%
BPCL +19.68%
RPOWER -19.41%
JINDALSTEL -15.21%
RCOM -14.11%
Tata Motors had a whopper of a month, thanks to its mass-marketization of JLR. The coal scam finally caught up with power and steel companies.

ETFs

JUNIORBEES +3.75%
NIFTYBEES +3.33%
BANKBEES +3.21%
CPSEETF +2.03%
PSUBNKBEES +0.97%
INFRABEES +0.12%
GOLDBEES +0.06%
Gold’s under-performance continued…

Yield Curve

yield Curve.2014-07-31.2014-08-28

Inter-bank Lending Rates

mibor.30days.2014-08-28

Total return bond indices

Sub Index Change in YTM Total Return(%)
GSEC TB +0.13 +0.62%
GSEC SUB 1-3 +0.10 +0.32%
GSEC SUB 3-8 -0.17 +0.63%
GSEC SUB 8 -0.17 +0.37%
Long bonds continued to get compressed and the yield curve continued to flatten out…

Investment theme performance

It was not a good month or week for high-beta strategies. Quality and value continued to outperform.

Thought to sum up the month

Some “truths” stick around long after they have been debunked simply because they get repeated often enough. For example, Malcolm Gladwell’s “10,000-hour rule”, spinach being a good source of iron, and the myth about “educating” the investor.

Take Ponzi schemes for instance. In the US, in the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses. In India, people bought “Certificate of Goat Keeping” in a polled livestock breeding racket. And in spite of abundance of literature, investors continue to chase performance.

“Attempts to correct irrational investor behavior through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited. Instead of teaching, financial professionals should look to implement practices that influence the investor’s focus and expectations in ways that lead to more prudent investment decisions.”

Source:

Weekly Recap: Happiness of Pursuit

world.2014-08-22.2014-08-28

Equities

The Nifty ended the week +0.52% (+0.46% in USD terms.)

Major
DAX(DEU) +1.40%
CAC(FRA) +3.02%
UKX(GBR) +0.66%
NKY(JPN) -0.74%
SPX(USA) +0.65%
MINTs
JCI(IDN) -1.19%
INMEX(MEX) +1.21%
NGSEINDX(NGA) -0.08%
XU030(TUR) +1.92%
BRICS
IBOV(BRA) +5.11%
SHCOMP(CHN) -1.05%
NIFTY(IND) +0.52%
INDEXCF(RUS) -2.85%
TOP40(ZAF) -0.77%

Commodities

Energy
Brent Crude Oil +0.94%
Ethanol +1.57%
Heating Oil +0.86%
Natural Gas +6.38%
RBOB Gasoline -4.09%
WTI Crude Oil +2.51%
Metals
Copper -1.88%
Gold 100oz +0.61%
Palladium +2.14%
Platinum +0.23%
Silver 5000oz +0.00%

Currencies

USDEUR:+0.81% USDJPY:+0.14%

MINTs
USDIDR(IDN) +0.14%
USDMXN(MEX) -0.37%
USDNGN(NGA) +0.19%
USDTRY(TUR) -0.64%
BRICS
USDBRL(BRA) -2.02%
USDCNY(CHN) -0.15%
USDINR(IND) +0.07%
USDRUB(RUS) +2.80%
USDZAR(ZAF) -0.23%
Agricultural
Cattle +2.84%
Cocoa -0.10%
Coffee (Arabica) +7.11%
Coffee (Robusta) +2.72%
Corn -1.91%
Cotton +0.58%
Feeder Cattle +1.24%
Lean Hogs +5.69%
Lumber -0.54%
Orange Juice +2.30%
Soybean Meal +1.62%
Soybeans -6.68%
Sugar #11 -0.96%
Wheat -0.27%
White Sugar -0.73%

Credit Indices

Index Change
Markit CDX EM -0.13%
Markit CDX NA HY -0.02%
Markit CDX NA IG -0.34%
Markit CDX NA IG HVOL -1.60%
Markit iTraxx Asia ex-Japan IG -1.81%
Markit iTraxx Australia -0.53%
Markit iTraxx Europe -2.39%
Markit iTraxx Europe Crossover -15.19%
Markit iTraxx Japan -1.89%
Markit iTraxx SovX Western Europe -1.60%
Markit LCDX (Loan CDS) +0.06%
Markit MCDX (Municipal CDS) -4.63%
SPX crossed 2000 for the first time after the dot-com crash. Credit indices, especially that of Europe, ended mostly in the green. Its not pretty in Europe and QE might just be around the corner…

Nifty Heatmap

CNX NIFTY.2014-08-22.2014-08-28

Index Returns

index performance.2014-08-22.2014-08-28

Sector Performance

sector performance.2014-08-22.2014-08-28

Advance Decline

advance.decline.line2.2014-08-22.2014-08-28

Market Decile Performance

Decile Mkt. Cap. Adv/Decl
1 (micro) -7.31% 69/70
2 -4.28% 64/73
3 -0.70% 65/73
4 -0.68% 60/79
5 -0.67% 75/63
6 -0.80% 67/71
7 -0.85% 69/70
8 -0.45% 69/69
9 -1.05% 68/70
10 (mega) +0.25% 68/71
It was the large caps that held the market up. Small and mid-cap consolidation continued…

Top winners and losers

GODREJCP +6.11%
GSKCONS +6.78%
BAJAJFINSV +9.10%
JINDALSTEL -20.86%
RPOWER -13.36%
DLF -8.96%
All eyes and ears on the Supreme Court’s decision on the coal scam on Monday. Will they de-allocate and order a fresh bidding? Will they take a more pragmatic approach?

ETFs

NIFTYBEES +0.74%
INFRABEES +0.42%
JUNIORBEES -0.10%
GOLDBEES -0.12%
BANKBEES -0.22%
PSUBNKBEES -2.08%
PSU banks – the biggest drain on Indian productivity?

Investment theme performance

High beta got pummeled due to its banks and real estate exposure. Momentum ended flat.

Yield Curve

yieldCurve.2014-08-22.2014-08-28

Bond indices

Sub Index Change in YTM Total Return(%)
GSEC TB +0.07 +0.12%
GSEC SUB 1-3 +0.07 +0.15%
GSEC SUB 3-8 -0.15 +0.69%
GSEC SUB 8 -0.11 +0.95%
Long bond yields continued to compress. If India’s credit rating doesn’t get revised higher, will we see a snap-back?

September Nifty OI

nifty.puts.calls.SEP.2014-08-22.2014-08-28

September BankNifty OI

bank-nifty.puts.calls.SEP.2014-08-22.2014-08-28

Thought for the weekend

New research throws doubt on the classical idea that people are driven by relentless and consistent pursuit of self-interest to maximise their well-being. Nobel laureate Daniel McFadden: “We are in fact challenged by choice and we use all kinds of ways such as procrastination to avoid having to make choices. One of the reasons is that there are risks associated with making choices.”

The hedonic treadmill we are on can be characterised as not the pursuit happiness but the happiness of pursuit. That’s what that people really care about.

Source: Understanding better how people really make choices

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Investor education is a waste of time

When you read about Ponzi schemes, “chit funds”, teak plantations, ULIPs, variable annuities, etc… you might be led to think that these are because people don’t know any better. So maybe we only try and educate them, they’ll know how to spot these scams and stay way from them. However, that doesn’t seem to be the case.

Ponzi schemes are everywhere

You would think that in the US, after all the billions of dollars spent on education, regulation and enforcement, people would know better. From ponzitracker.com:

Nearly six years after the word “Ponzi scheme” became a household name thanks to Bernard Madoff, Ponzi schemes continue to proliferate and leave a trail of financial destruction in their wake as demonstrated by newly-compiled data showing more than $1 billion of newly-uncovered schemes and over 600 years in prison sentences handed down in the first half of 2014. In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses. This equated to the discovery of a Ponzi scheme (1) more than once per week, (2) every 4.9 days, or (3) every 118 hours. Included in this list are at least three Ponzi schemes with estimated losses of at least $100 million or more, with the estimated $300 million in losses in the alleged TelexFree Ponzi scheme ranking as the largest Ponzi scheme exposed in the first half of 2014.

“Real” Finance is strange

Morgan Housel at fool.com:

  • People are ignorant around costs.
  • If I want to be a firefighter, I need extensive training. If I want to manage the firefighters’ retirement fund, I need a nice suit and a sales pitch.
  • Finance is filled with people who remain in business despite awful track records.
  • Finance is taught overwhelmingly as a math-based field, in which students learn how to calculate beta by hand and dissect a balance sheet in their sleep. In the real world, finance is overwhelmingly a psychology-based field, where the best investors are those who control their emotions.
  • There are few other subjects in which people have an obligation to understand something, yet so many willingly choose not to.

The Behavior gap is as wide as ever

In the US, over the past 20 years, “equity fund” investors achieved an average 5.02% annualized return, which is 4.2% less than the 9.22% that he/she could have achieved by simply investing funds in an S&P500 index-tracking fund.

Investors chase performance. Here’s how Vanguard simulated performance chasing behavior in a recent study:

Initial investment: At the start of the analysis period, we invested in any fund in existence for the full three-year period from 2004 through 2006 that had an above-median three-year annualized return.
Sell rule: Using three-year rolling periods of returns, we moved forward one calendar year at a time. Funds that achieved below-median three-year annualized returns at any time were sold, as were funds that were discontinued.
Reinvestment rule: After any sale, we immediately reinvested in each fund that achieved an average annualized return within the top-20 performing funds in the style box over the prior three-year rolling period.

Here are the results:

performance chasing

Sounds legit

Real Step Pashupalan brought to you by Step Up Marketing Pvt. Ltd (SUMPL) (Source)

SUMPL is engaged in rearing of livestock mainly goats etc. for its customers long with the rearing of the livestock, SUMPL has also been selling livestock to the customers for a consideration wherein the purchaser has the option of keeping the purchased livestock with SUMPL for breeding and rearing purposes only for a period of 3.5 years as per the terms and conditions laid down in the application form given to the purchaser at the time of purchase of the livestock. In case the purchaser of the livestock decides to keep the same with SUMPL for rearing, a Certificate of Goat Keeping would be issued by SUMPL bearing a registration number against the goats which purchaser opted to keep with them.

And if owning goat certificates is not your thing, how about real estate? Viswas Real Estates and Infrastructures India Limited (VREIL) came out with these gems: (Source)

  • Own Your Property Advance Scheme Monthly Plans
  • Lumpsum Property Advance Schemes
  • LPAS-MIS Platinum Plan, and
  • Own Your Property Advance Scheme (Daily) Plans

It was sort of like a layaway plan for real estate combined with insurance. The customer pays a monthly installment of 500/- which at the end of the year becomes 6,000/- which is the total property advance paid. On this amount, the estimated compensation value (ECV) is 600/- and thus, the refund amount with ECV after one year is 6,600/-. On receipt of the total advance amount, VREIL executes simple mortgage deed (without possession) in favour of the investor. VREIL also offers insurance coverage in conjunction with its schemes.

Yes, regular people invested in these plans and SEBI recently busted them.

Conclusion

Regulators and policy makers would do well to study the behavioral and psychological forces that cause investors to make irrational decisions. The focus so far has been on the brain, it should be on the investors’ hearts instead.