This is a stock market blog about portfolio management,foreign stocks, exchange traded funds and the occasional musing about my firefighting experiences. The point here is to share process

Markets Continue To Melt (higher!)

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Macro

 

The Bank of Japan (the central bank) left rates on hold at -0.1% and also revised its timetable for achieving 2% inflation to 2020. There is a quote that goes something like “inflation is the easiest thing in the world to create, except when you need it.” Before the financial crisis, the only concern was that of inflation. The crisis was a deflationary event that fortunately did not create a deflationary debt spiral but global GDP has not really gotten going, for developed countries anyway, and countries are struggling to get inflation to levels that would go with healthy growth. The Great Depression from almost 90 years ago cast a pall over the country for decades and that appears to be a possibility with the Financial Crisis. One difference (there are many) is that developed countries have demographics working against them, moreso Japan and Europe. If there is always a bull market somewhere, and we believe in that saying, finding it may become a little harder to do.

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Domestic equity markets mostly moved higher last week except for the Dow Jones Industrial Average which fell 0.27%. The S&P 500 gained 0.53%, the NASDAQ added 1.16% and the Russell 2000 was up 0.48%. The yield curve flattened some last week as the Ten Year US Treasury Yield fell to 2.23% as the previous week’s dovish sentiment from Janet Yellen was echoed by ECB president Mario Draghi. If you’ve been following this report lately you know that we watch the impact that the slope of the curve has on style and sure enough as the curve flattened growth outperformed value as it usually does (steepening tends to be better for value).

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Barron’s cited good ole fashioned earnings as contributing to the melt up in US equities. They note that second quarter earnings are on pace to grow by 10% getting a boost from the decline in the US dollar. The idea of course is that companies that sell abroad benefit by selling products in a currency that is inflating against the greenback. A few years ago, earnings faced major headwinds as the dollar rallied. There always has been, and will be, a pendulum effect as the dollar is weak for a time (much of the previous decade), strong for a time (much of the current decade) and now maybe weak again for a time, at least this year.

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Uruguay has legalized the sale of recreational marijuana through pharmacies under government supervision. Some media accounts are referring to this as an experiment on the part of the socially liberal country. All things cannabis is a burgeoning investment theme with companies listing on global markets, an ETF trading in Canada and increasing analyst coverage of the space. As we have written before about ESG, more and more advisory clients will become interested in the space both for reasons of personal use and any potential investment merits. We won’t weigh in on whether this becomes a profitable investment theme, but there is likely to be more companies and investment products targeted to the space and probably worthwhile for advisors to learn about even if only to tell clients not suitable for them in an informed manner.

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ETF News

 

JP Morgan filed for several hedge fund replication strategies it will bring to market in the ETF wrapper. Recently AdvisorShares hosted a call with Doug Kass and Dennis Gartman and one interesting point made by Kass (although there many interesting points of course) is that hedge funds don’t hedge anymore, too many of them are long only. There are quite a few ETF and traditional mutual fund replicators tracking various strategies and while several are quite large (more than $1 billion in AUM) they seem as a group to struggle to gain mass. The long only comment from Kass captures the problem of mismatched expectation. A true hedge fund probably isn’t looking to gain 100% when the stock market is up 20% and more importantly, a true hedge fund probably isn’t looking to correlate too closely to the equity market.

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Interesting Reads

 

Some GOT analysis (you’re on your own for spoilers); Game of Thrones season 7: The Hound’s redemption arc is turning him into an essential character;

 

Death is such an essential part of the Game of Thrones universe that it’s easy to become numb to it unless it happens to a favorite character or in particularly awesome fashion. But the Hound’s recognition that the poor father and daughter he abandoned to their certain deaths in season four deserved better, while a small concession, is one of the most dramatic perspective shifts the show has executed.

Sports

 

A good story about a great tennis player as Wimbledon Finalist Roger Federer Spends $13.5m To Open 81 Schools In Malawi;

 

With 15 programs running in Switzerland, Malawi, Botswana, Namibia, South Africa, Zambia and Zimbabwe already, The Roger Feder foundation has set the goal of changing the lives of one million children by 2018.

 

Pictures

We are in Washington State this week to check out Rainier, Olympic and North Cascades National Parks, go to a couple of Red Sox games (in town to play the Mariners) and see some family. All the park-looking pictures above are from Mount Rainier; one of the entrance from the west, two from Skyline Trail and two from Comet Falls Trail. The dog is Pips. Long time readers know the story but my wife has worked in animal rescue for many years. Pips is a cattle dog and they can be difficult to adopt as was the case with Pips, actually impossible to adopt. He needs to be a working dog not a pet. Joellyn found Conservation Canines which does animal research (they track animal population by scat and use dogs to find the scat) through the University of Washington (actually located in Eatonville). We brought Pips up from Prescott in 2011 and he immediately became their star. When we visited on Friday, one of the workers actually said that he’s created a lot of awareness for the organization (he’s been on multiple magazine/newspaper covers), he’s really done a lot for them. Like many cattle dogs, he has bonded to just one person, the director of the organization, but when they brought him out to us to say hello he got very excited, he clearly recognized us and that surprised everyone. It did become overwhelming for him, he just laid down and started working that bone in the picture and that was about it but seeing him again was awesome.

 

Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, Metro UK, VOX

Is A Minsky-esque Moment Coming?

The weekly Market Update is posted and includes the following;

In several previous weekly updates we have talked about volatility in political headlines increasing but not being matched by equity market volatility as measured by the CBOE Volatility Index. In addition to the above mentioned volatility in the slope of the yield curve, WTI has become more volatile as measured by the VIX for crude oil which can be tracked through symbol OVX. Since March 1st it has increased 19% while the VIX has declined 26%, closing last week at 9.51.

Please click through to read the entire update.

The rear of a Type 4 engine that I believe is from the Tonto National Forest in Arizona. Forest Service trucks usually are usually numbered with a state abbreviation like AZ or CA, then a three letter code for the forest like TNF in the picture and then the engine number. This one doesn’t have a state identifier.

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Type 6 engine from Lolo National Forest in Montana

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Panoramic of the staging area behind our fire house for the structure protection group assigned to Walker during the Goodwin Fire.

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Even The “Experts” Get It Wrong Occasionally

My latest post for Alpha Baskets is published and includes the following;

The best example of why this is, comes from the tech wreck. For a while, the options market appeared to be giving money away, you could sell a semi-deep out of the money put on a $300 stock and easily bring in a couple of thousand dollars. This worked for a time and then the crash came and put sellers were paying $250 for stock trading at $80 on their way to much lower prices. That’s permanent impairment of capital, Holmes.

Please click through to read the entire post.

Mendocino National Forest parked along side Goodyear AZ Fire Department

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Private contractor type 4 engine

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Bureau of Land Management law enforcement

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Do Investors Want More Correlation?

The weekly Market Update is posted at Alpha Baskets and includes the following;

The history of earnings recessions was that they lead to economic recessions but this did not happen (yet?). This is one of several supposed to’s in the aftermath of the crisis that did not pan out as people expected. Another one was maintaining a zero percent interest rate policy would cause extreme price inflation and obviously CPI has been floundering for years, the bigger risk to ZIRP arguably was deflation and luckily things didn’t play out that way either.

Please click through to read the entire update.

A couple of pictures of Klamath National Forest Water Tender 17 filling up at our station house during the Goodwin Fire.

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And

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Finally a type 6 from Timber Mesa Fire

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The Goodwin Fire

On June 24th a fire broke out southeast of Walker that was quickly named the Goodwin Fire (pretty much any fire bigger than a smoldering stump gets a name). The terrain was very thick with manzanita and chaparral at the lower elevations (about 5000 feet) and Ponderosa pine higher up. This was what the smoke looked like from my house around 4-5pm on June 24th.

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At around 6pm on that first day I went out with one other firefighter to scout the fire.

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There really wasn’t much to do or worry about for a couple of days in terms of an immediate threat but we knew very early that it was going to be declared a Type 1 incident, the most serious, because of how tricky the terrain was and the massive values at risk (houses). I got a call on Sunday from the Type 1 Incident Management Team (IMT) liaison on Sunday the 25th inviting me to a briefing Monday at 11am at the Incident Command Post (ICP). I worked with the same liaison in 2012 when the Gladiator threatened Walker, far less of a threat than the Goodwin Fire turned out to be. This first meeting was not worrying as the fire was a long way from threatening my area (Pine Flats and Turkey Creek on the other side of the fire were different stories). I had plenty of time to take pictures of fire apparatus at the ICP.

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Before that first briefing on Monday I had gone several times to one spot that offered a great lookout of the fire, and Monday afternoon I took our County Supervisor out too look at the fire (local politician), I also took him out on Tuesday as well. This was what the smoke looked like from that viewpoint on Monday afternoon.

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Tuesday’s 11am briefing was uneventful in terms of engendering much concern but on the way home the smoke had changed and I saw this on Walker Rd coming back, the smoke got much darker and was much more active.

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I was on a day-job related conference call at 1pm on Tuesday and during the call I was getting notification that things were changing rapidly with the fire. With basic fire behavior, between 2:30pm and 4:30pm is when bad things are most likely to happen in a wildfire. This is about the time that things went wrong for the Granite Mountain Hotshots in 2013. On Tuesday though, the Goodwin Fire blew up at about noon and raced north toward Mayer and burned across Highway 69. This was abhorrent fire behavior. As a result of the fire behavior on Tuesday, Walker was put on pre-evacuation. My wife evacuated that day with the dogs to avoid what might have been a traffic jam on Walker Rd.

This was what the smoke looked like on Wednesday morning June 28th. This was the first all hands on deck day at Walker Fire.

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The response from our crew was epic. Wednesday the station house was a hot bed of activity with not just firefighters but also law enforcement (both sheriff deputies and Jeep Posse members). The pace was very fast, my phone, texts and email were all blowing up, we were trying to strategize our actions and then shortly after 11am the word came that Walker was evacuated which was very surprising.

There is a phrase related to being an EMT that it is their emergency, it is your job. If you are having a medical emergency you don’t want the person working on you to be emotionally involved. The fire threat made it both our emergency and our (volunteer) job. Much of the call/text flow was people outside of the emergency response realm just wanting to know what was going on. This made it very difficult to manage.

Given the evacuation, we had a bit of a dilemma. We had a dozen or so people at the station all with there personal vehicles. We had eight pieces of apparatus (or fleet) at the station. With imperfect information, we were not going to let our house burn down with our trucks inside. We moved five rigs down to Costco along with most of the personal vehicles. We kept one brush truck, our structure engine and a water tender as a mini-task force.  A few of our guys baby sat the trucks at Costco all night. The Costco management gave us cases of water, tons of food and checked on the guys regularly. We can’t thank them enough for all they did for us.

That night, this is still Wednesday, I stayed in Walker with two other firefighters and our station boss. We all stayed at our own houses with the plan of calling each other if anyone smelled smoke.

Thursday a structure protection task force comprised of several engines and a hand crew showed up for the first of what turned out to be three days working in our area. They staged behind our station house.

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Early in the day on Thursday I took the Division Supervisor and the Task Force Leader from the structure protection task force on a long drive through the area to help them formulate how they would work in the area. We then made a plan to also do structure protection such that we stayed out of their way, could get work done and maintain communications.

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We did more structure protection work on Friday as did the task force. By Saturday they had less than a days work and so it was a short day for the task force in Walker. From there the fire started to wind down and the evacuation was lifted on Monday July 3rd.

Circling back to Friday, I was feeling good about the fire as I headed into the 11am briefing. The news from the briefing was not good. The Operations Section Chief said it was 50/50, maybe 60/40 that the fire could be stopped at what was a crucial spot and crucial time. Elsewhere I said this moment was Thursday but actually it was Friday. I felt sickened but we still had work to do. As the afternoon wore on however it was clear that the wind was working in our favor. Driving up later in the afternoon we saw great news. The black arrow was the trouble spot and no smoke was coming from there. The yellow arrow, that entire slope down was unburned and covered with retardant. The red arrow is pointing to the area creating the smoke but that was at least one ridge line away if not more. Big sign of relief.

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This was one of the most amazing weeks of my life. It was stressful, it was challenging in terms of problem solving and my family being away. But it was also an opportunity to help the community, find out that our training is productive (I was confident in our training but we don’t have many chances to execute on this sort of scale) and be a part of an incredible chapter in our department’s history.  In terms of being a manager of people it was awesome see our department succeed when things were hitting the fan. I try very hard to put people in spots where they can succeed and while not infallible it was very fulfilling to see and be a part of far more successes on this incident than problems.