The Only Consensus on Wall Street Is Tuesday’s Election Will Be Felt for Years to Come

Date: 02‑11‑2020

Source: The Wall Street Journal

Many money managers and strategists are reluctant to project confidence after being caught off guard by a number of market‑jolting shocks

Jim Baird remembers sitting on his couch four years ago watching election results stream in. At first, all was calm. Then Donald Trump unexpectedly seized the lead—sending Dow futures and overseas markets careening overnight.

Mr. Baird grabbed his laptop to draft a memo to his clients. He didn’t go to sleep until 5 a.m. By 8 a.m., he was back in the office.

“I’m hopeful we won’t have a repeat of that this year,” said Mr. Baird, chief investment officer of Plante Moran Financial Advisors in Kalamazoo, Mich.

Whether markets will prove more orderly after Tuesday’s elections is anybody’s guess. Investors are heading into what could be the most volatile week for markets all year. Although national polls show Democrat Joe Biden leading in the presidential race, many money managers and strategists are reluctant to project confidence after being caught off guard by a number of market‑jolting shocks over the years, including Mr. Trump’s 2016 victory, the U.K.’s Brexit vote and the coronavirus pandemic.

About the only consensus across the Street now is that Tuesday’s elections will have stark consequences for investors for years to come.

It is true that stocks have historically risen regardless of who has controlled the White House. But the stock market will enter the week in a vulnerable position, having closed out its worst month since March after a steep rise in coronavirus cases heightened fears of more lockdowns. The S&P 500 fell 5.6% last week, trimming its gains for the year to 1.2%.

Moreover, Messrs. Trump and Biden have sketched out dramatically different visions for everything from the pandemic to energy policy to immigration, leaving investors betting there will be unique sets of winners and losers depending on who wins the presidency.

Roughly 6 in 10 investors with at least $1 million in investible assets already have made changes to their portfolios ahead of the elections—with many increasing the share of cash they have on hand or shifting money from one sector to another, UBS found in a survey. And more than half of investors say they anticipate making additional changes to their portfolios depending on who wins Tuesday’s elections.

Those making tweaks to their portfolios have already had a noticeable effect on the markets.

As polls have shown the chances of a Democratic sweep rising, long‑term bond yields and shares of smaller U.S. companies have climbed, too. The thinking there is that a blue wave would increase the chances of Washington pushing through a multitrillion‑dollar coronavirus‑aid package to bolster the economy. In contrast, a divided Congress seems less likely to be able to agree on a sweeping fiscal stimulus package.

What matters most is “not who wins the White House. It’s who wins the Senate,” said Richard Bernstein, chief executive and chief investment officer of Richard Bernstein Advisors.

Still, even those who buy into the conventional views of what a divided Congress or blue wave might look like caution that polls and policy proposals aren’t foolproof tools for making market bets.

Take the 2016 race: Pundits widely predicted a Trump victory would shave upward of 10% or 15% off the S&P 500. They seemed right for a few hours on election night—but by the close of the next trading day, stocks were higher.

“Figuring out the news isn’t necessarily good enough, because the paradigm might change. One day after the election we may go back and be revisiting all our rules of thumb,” said Bruce Monrad, chairman and portfolio manager at Northeast Investors Trust.

Strategists also had widely agreed that a Trump presidency would lead to deregulation across industries, boosting the energy and financial sectors. They were right at first. But today, energy and financial stocks are among the worst‑performing groups in the S&P 500 since Mr. Trump’s inauguration, hurt by broader forces such as a collapse in oil prices and historically low interest rates.

What the twists and turns of the past few years have taught investors is that winning market bets are hard to predict, but even tougher to time correctly.

Dave Donabedian, chief investment officer of CIBC Private Wealth Management, said he has been in constant communication with clients since August. His webinars, phone calls and emails have aimed to relay one message: Don’t be tempted to overhaul portfolios now based on what might happen on Nov. 3.

Hedge funds and billionaire investors may be more aggressive in trying to exact quick wins over the next week. Four years ago, prominent investors such as Jeffrey Gundlach and Carl Icahn turned against conventional Wall Street wisdom and correctly bet that Mr. Trump would win. On the flip side, hedge‑fund manager George Soroslost nearly $1 billion betting the market would fall after Mr. Trump’s victory.

But most long‑term investors see trying to game election night itself as a losing proposition. The market will adjust, whether a blue wave results in massive stimulus and a tax increase, a divided Congress results in more of the status quo or something else altogether follows the elections, Mr. Donabedian said.

In his mind, the only true risk to the stock market is if there is a contested result.

“We’ll be on call [Tuesday], but hoping people will be able to sleep through the night anyway,” Mr. Donabedian said.

Wall Street says it is braced for losses. Now what?

Date: 15‑10‑2020

Source: The Economist

One question is what they do with their earnings

Most bankers have been working frantically for the past six months. Traders handled record‑high volumes in choppy markets. Their colleagues issued mountains of equity and debt as companies sought to withstand the economic downturn by amassing capital. Commercial bankers offered forbearance to struggling borrowers, and were forced to write down the value of loans as the likelihood of being repaid fell. As a result, investment‑banking revenues soared in the first half of the year, and most commercial banks suffered losses as they set aside provisions for bad loans. That made for slender profits at Bank of America, Citigroup and JPMorgan Chase, the big hybrid banks. Goldman Sachs and Morgan Stanley, which are more skewed towards investment banking, posted stellar profits. Wells Fargo, a mostly commercial lender, lost money.

Verstummtes Orakel: Warum US-Anlageguru Warren Buffett die Wall Street meidet

Buffett befindet sich im Investmentstreik, weil ihm die Preise der Firmen zu hoch sind. Und weil er dem Wirtschaftsboom unter Trump offenbar nicht traut

Alexander Hahn, derstandard.at

11. August 2019, 09:30

Warren Buffett, auch als Orakel von Omaha bekannt, findet keine passenden Unternehmen für eine Investition.

Offenbar hat das Orakel von Omaha nach zehn Jahren Börsenboom das Vertrauen in den Aufschwung verloren – der US-Anlageguru Warren Buffett investiert nicht mehr. Stattdessen häuft seine Investmentholding Berkshire Hathaway, einst aus einer Textilfirma entstanden, immer mehr Cashreserven an. Neuer Rekordstand Mitte des Geschäftsjahres 2019: beachtliche 122 Milliarden US-Dollar.

Dabei ist der 88-Jährige nicht ganz freiwillig in den Investmentstreik getreten. „Wir suchen weiter nach dem einen Mammutdeal“, hatte Buffett noch im Mai die Berkshire-Hathaway-Aktionäre in der Hauptversammlung wissen lassen – allein, in Zeiten, in denen die Bewertungen „in den Himmel ragen“, wird selbst ein Starinvestor wie Buffett nicht so leicht fündig.

Ein Auge zugedrückt

Dabei hat der an sich sehr preisbewusste Investor in früheren Boomphasen schon einmal bei etwas höheren Kursen ein Auge zugedrückt – allerdings nur, wenn er von der Qualität eines Unternehmens und des wirtschaftlichen Aufschwungs überzeugt war. Denn als sogenannten Value-Investor gelten für ihn folgende Grundsätze: Der Börsenpreis eines Unternehmens muss unter seinem inneren Wert liegen, und das Geschäftsmodell der Firma muss leicht verständlich sein.

Auf dieser Basis sammelte der aus Omaha im US-Bundesstaat Nebraska stammende Investor seit seiner Übernahme von Berkshire Hathaway in den 1960er-Jahren kontinuierlich große Aktienbestände von Unternehmen an, darunter klingende Namen der US-Wirtschaft wie American Express, Coca-Cola oder Gillette.

Markige Sprüche

How Wall Street Became a Cult of Risk

Date: 20-06-2019
Source: Scientific American By Gillian Tett

What caused the global financial crisis? And how can the United States avoid a repeat? Those questions have sparked endless handwringing among economists, policymakers, financiers, and voters over the last decade. Little wonder: the crisis not only entailed the worst financial shock and recession in the United States since 1929; it also shook the country’s global reputation for financial competence.

Before the crisis, Wall Street seemed to epitomize the best of twenty-first-century finance. The United States had the most vibrant capital markets in the world. It was home to some of the most profitable banks; in 2006 and early 2007, Goldman Sachs’ return on equity topped an eye-popping 30 percent. American financiers were unleashing dazzling innovations that carried newfangled names such as “collateralized debt obligations,” or CDOs. The financiers insisted that these innovations could make finance not only more effective but safer, too. Indeed, Wall Street seemed so preeminent that in 2003, when I published a book about the Japanese banking crisis, Saving the Sun, I presumed that one of the ways to “fix” Japanese finance was to make it more American.

Limits on Wall Street Pay Are Back on Regulators’ Agenda

Date: 06-03-2019
Source: The Wall Street Journal

Some bank executives are open to new rules, hoping for softer pay limits now than if a Democrat becomes president in 2020

The Fed and five other regulators would be involved in any new regulation on banker pay.

WASHINGTON—Long-dormant efforts to restrict Wall Street pay are back on the agenda as regulators turn to unfinished business left over from the 2010 financial overhaul.

Banking regulators are discussing reviving a proposal that would require big banks to defer some compensation for executives and to take back more of their bonuses if losses pile up at a firm, according to people familiar with the matter.

The talks are in early stages and involve top officials from at least three bank regulators: the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Federal Reserve, the people said. Some bank executives are open to having the agencies write a new version of the rules, betting the limits would be milder during the Trump administration than if a Democrat takes the White House in 2020.

Time Split to the Nanosecond Is Precisely What Wall Street Wants

Date: 30-06-2018
Source: The New York Times By John Markoff

SAN FRANCISCO — Computer scientists at Stanford University and Google have created technology that can track time down to 100 billionths of a second. It could be just what Wall Street is looking for.

System engineers at Nasdaq, the New York-based stock exchange, recently began testing an algorithm and software that they hope can synchronize a giant network of computers with that nanosecond precision. They say they have built a prototype, and are in the process of deploying a bigger version.

For an exchange like Nasdaq, such refinement is essential to accurately order the millions of stock trades that are placed on their computer systems every second.

Ultimately, this is about money. With stock trading now dominated by computers that make buying and selling decisions and execute them with blazing speed, keeping that order also means protecting profits. So-called high frequency trading firms place trades in a fraction of a second, sometimes in a bet that they can move faster than bigger competitors.

Why Wall Street’s Love Affair With Tech Hasn’t Cooled

Date: 31-03-2018
Source: The Wall Street Journal

Analysts cite big tech’s solid earnings outlook and its dominance across sectors from retail to social media

Wall Street still isn’t ready to break up with the market’s technology darlings.

Stock ratings among analysts and brokerages have largely held steady for big tech firms even as their shares have slumped, a sign the tidal wave of bad news hitting the industry hasn’t destroyed confidence in the popular stocks.

Analysts cite big technology companies’ strong earnings outlook and dominance across industries from retail to social media, as well as the likelihood that any additional regulations imposed by lawmakers will take time to implement.

Insider trading has been rife on Wall Street, academics conclude

Date: 08-02-2018
Source: The Economist

One study suggests insiders profited even from the global financial crisis; another that the whole share-trading system is rigged

INSIDER-TRADING prosecutions have netted plenty of small fry. But many grumble that the big fish swim off unharmed. That nagging fear has some new academic backing, from three studies. One argues that well-connected insiders profited even from the financial crisis.* The others go further still, suggesting the entire share-trading system is rigged.**

What is known about insider trading tends to come from prosecutions. But these require fortuitous tip-offs and extensive, expensive investigations, involving the examination of complex evidence from phone calls, e-mails or informants wired with recorders. The resulting haze of numbers may befuddle a jury unless they are leavened with a few spicy details—exotic code words, say, or (even better) suitcases filled with cash.

What Does the Brexit Deal Mean for The City of London and Wall Street Banks?

Date: 09-12-2017
Source: The Wall Street Journal

Bankers push for more clarity as the U.K. moves into the next phase of Brexit negotiations

The U.K. and the European Union Friday reached a deal on the opening terms in their Brexit negotiations. What does that mean for London’s finance industry?

Not a ton. “It doesn’t do anything concrete,” said Joe Cassidy, a partner at consultancy KPMG. “All this does is allows us to move onto the next stage of the discussion.”

But the next stage includes two important things for the City of London: First, an agreement on a transition period that would maintain regulatory certainty over several years as businesses adjust after Brexit, and second, a potential EU-U.K. free-trade agreement for financial services.

Transition Deal

Wall Street’s 2017 Market Predictions: Pathetically Wrong

Date: 24-11-2017
Source: The Wall Street Journal

Forecasting is difficult, but this year showed exactly how pointless it can be: Markets performed opposite of virtually all predictions

We all like to remember our successes and forget our failures, and finance is no different. As investors’ inboxes once again become clogged with annual outlooks from Wall Street’s scribblers, there is little admission of the nearly universal failure to predict what happened this year—even though the things the analysts missed are much more interesting than their forecasts.

There are two big lessons to learn from the mistakes of the year-end crystal-ball gazing. The first is that when everyone agrees that prices can only go in one direction, it is dangerous. The second is more nuanced: We really know an awful lot less about how the economy works than we thought.