URUP2

Hmmm… That's An Idea

“…Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?” – T. S. Eliot

Old Data

The Future of Big Data: Distilling Less Knowledge Per Bit

Money Quote: “It is both unknowable and all-knowing. It answers all questions, if only we know how to interpret those answers.”

 

Photo: WITCH

Year: 1951

Short for the Wolverhampton Instrument for Teaching Computing from Harwell, the WITCH was also known as The Harwell Dekatron Computer. It was slow (a multiplication took 5-10 seconds), but this was justified by its ability to run long periods of time unattended. It could therefore be left on its own with a large amount of input data. At one point it was left running over the Christmas and New Year holiday and was still working when the staff came back 10 days later. – Courtesy of Pingdom via Wired

 

“Accuracy is the twin brother of honesty; inaccuracy, of dishonesty.” – Hawthorne

Head Scratcher

Italics are the poster’s personal opinion and the poster thinks the article’s author has underestimated his audience (at least the poster hopes so).

Money Quote? – “While several high-profile money managers of active funds have raised concerns about ETFs, equity ETFs account for about 7 percent of the U.S. stock market’s value, according to data compiled by Bloomberg.” 

ETFs Are ‘Weapons of Mass Destruction,’ FPA Capital Managers Say

April 27, 2017, 11:16 AM EDT April 27, 2017, 12:38 PM EDT
  • The rise of passive investing distorts stock prices, they say
  • They question how ETFs will hold up in major market selloff

Exchange-traded funds are “weapons of mass destruction” that have distorted stock prices and created the potential for a market selloff, according to the managers of the FPA Capital Fund.

“When the world decides that there is no need for fundamental research and investors can just blindly purchase index funds and ETFs without any regard to valuation, we say the time to be fearful is now,” Arik Ahitov and Dennis Bryan, who run the $789 million fund, said in an April 6 letter to investors in the actively managed fund.

The flood of money into passive products is making stock prices move in lockstep and creating markets increasingly divorced from underlying fundamentals, the managers said. As the market moves ever higher, there’s the potential for a sharp decline. The U.S. ETF market has about $2.7 trillion in assets, the majority in products that track indexes. ETFs have attracted more than $160 billion in new flows so far this year, Bloomberg data show.

“This new market structure hasn’t been tested,” Bryan said in a telephone interview, noting that the stock market has never gone through a major downturn when passive investors were as important as they are now. “We could get an onslaught of selling.”

For more than two decades under former manager Robert Rodriguez, Los Angeles-based FPA Capital was among the top-performing stock funds in the U.S. From 1986 to 2010, it returned 14.5 percent a year compared to 8.5 percent for the Russell 2000 Index, according to a data compiled by Bloomberg.

Fund Struggles

The fund has struggled in recent years, in part, because the managers, finding too few attractive stocks to buy, have parked 35 percent of their money in cash. FPA Capital trailed 99 percent of peers over the past five years and the Russell 2000, with a 4 percent annual return, according to data compiled by Bloomberg. The fund is a concentrated stock fund. Its biggest equity holding as of March 31 was Western Digital Corp., which makes computer-storage devices.

While several high-profile money managers of active funds have raised concerns about ETFs, equity ETFs account for about 7 percent of the U.S. stock market’s value, according to data compiled by Bloomberg…

Found this chart by using the google – thanks Credit Suisse and the FT

Money Chart: ETFs as a percentage of overall US trading

So, what happens when those equity ETFs that account for 7% of the US Stock Market’s VALUE, but 30% of its trading volume (dollar value) all start selling? (insert your favorite falling knife reference here).

…In a February letter to investors, Seth Klarman, who runs the $30 billion Baupost Group, said that as more investors opt for passive investing over active management “the more inefficient the market is likely to become.”

In the same letter, Klarman cited Nikolaos Panigirtzoglou, a global market strategist at JPMorgan Chase in London, who, according to Klarman, has warned that the inflows into ETFS will “make markets more brittle” and “susceptible to more severe crashes.”

But Jim Rowley, senior investment strategist at Vanguard Group, disagrees with the naysayers. Vanguard, which has roughly $3 trillion in assets in passive products, including almost $700 billion in ETFs, has examined more than 20 years of market history, he said. The conclusion: markets are as volatile as ever and the dispersion in the performance of individual stocks is as great as it was before indexing became popular.

“We didn’t find any relationship between indexing and market dynamics,” he said.

Hmmm… He seems impartial. How about a relationship between indexing and an individual stock’s price performance versus its peers?

Ahitov isn’t totally pessimistic. Should stocks sell off indiscriminately, there will be bargains for smart value investors. “Dennis and I will buy the good stocks that are cheap,” he said.

https://www.bloomberg.com/news/articles/2017-04-27/etfs-are-weapons-of-mass-destruction-fpa-capital-managers-say

 

On You Huskies…

Husky Sled copy

Launching the Nanomedicine Academy of Minority Serving Institutions

Money Quote: “Northeastern boasts several pioneers in the field, including Thomas Webster, the Art Zafiropoulo Chair in Engineering and the chair of Northeastern’s chemical engineering department, and Srinivas Sridhar, Arts and Sciences Distinguished Professor of Physics and director of Northeastern’s Electronic Materials Research Institute… Recently the two received a $496,000 grant from the National Science Foundation to launch the academy – a scalable, interactive network that will use Web-based videoconferencing to live broadcast graduate courses and research protocols in real-time from a classroom at Northeastern to students enrolled at four partner institutions: the University of Puerto Rico Mayaguez, Tuskegee University, Morgan State University, and Florida International University.”

Living up to the Man’s Best Friend Legacy over at NU

Restart – Let’s take a moment to thank the pioneers of tiny-car racing shall we?

Tiny Car Racer copy

Moore’s Law at work in the Open-Wheel category!

Money Quote: “The NanoCar race is mostly a fantastic human and scientific adventure that will be broadcast worldwide. The event will take place in October 2016.”…

NanoCar Race, the first-ever race of molecule-cars (w/video)

Apparently, drivers couldn’t see the tiny green flag!

The world’s first international race for molecule-cars, the Nanocar Race is on

A Society Grows Great When…

The-Sentinels-of-St-Edwards2-819x1024

Old Men Plant Trees Whose Shade They Know They Shall Never Sit In

Steven L. Stockton, Director of Civil Works for the US Army Corps of Engineers repeated that Greek proverb in closing his remarks at the recent CG/LA North American Infrastructure Forum in Washington DC. While the Director was preaching to a rather large choir, it was clear that (outside the Hotel) the gospel he was preaching was Greek to most of the executive & legislative officials populating the district.

Speaker Takeaways:

Andres Gluski – CEO of AES Corp.

  1. US Infrastructure is losing versus major competitors.
  2. The private sector has to be involved due to the size of the US debt and our spending on entitlement programs.

Susan Grey – Global Head of Infrastructure at S&P (Regarding consumer perceptions of public/private partnerships and infrastructure)

  1. The #1 concern for the public is roads & bridges.
  2. The #2 concern is public transportation.

Mark Freedman – Boston Consulting Group (On the construction industry globally and nothing really groundbreaking)

  1. Rebound in North America (strongest in the US / Canada a little slower) with some strengthening in Europe.
  2. Expect depressed oil prices going forward.
  3. Overall for infrastructure, O&M spend is well above capital projects spend (no surprise there).

Best P3 Infrastructure Projects That Presented (my personal opinion)

  1. Virginia & Various Utilities: Atlantic Coast Pipeline (they are leveraging the Marcellus Shale intelligently). Link
  2. Virginia: Transurban (The I-495 & I-95 Toll Lanes are things we in the Bay State only dream of even if they do get a little pricey with dynamic tolling). Link
  3. Anbaric Holdings – Maine & Vermont Greenlines (High Voltage Transmission of Canadian Hydropower via underground lines). Link
  4. Honorable mentions to the Ports of New Orleans and South Louisiana.

The best conference takeaway is still the hope that a staggering debt load won’t be the only legacy we leave to those coming after us. There are lots of folks who understand the economic multipliers that modern infrastructure offers (even in congress) and their number is growing.

If infrastructure is of interest to you or your business, this is a very well run, and well attended, conference. Tell Norm I sent you.