Week InReview

What do professional investors do?

"We document a striking pattern: while the investors display clear skill in buying, their selling decisions underperform substantially. Positions added to the portfolio outperform both the benchmark and a strategy which randomly buys more shares of assets already held in the portfolio. This result holds both in terms of raw returns and adjusted for risk. In contrast, selling decisions not only fail to beat a no-skill strategy of selling another randomly chosen asset from the portfolio, they consistently underperform it by substantial amounts. PMs forego between 50 and 100 basis points over a 1 year horizon relative to this random selling strategy, depending on the specification. As with buys, the selling result is robust when adjusting for systematic risk of the assets sold."

Friday | Jan 11, 2019
Fed minutes make Powell's press conference look like a flub
A market-soothing set of minutes to the Federal Reserve's Dec. 18-19 policy meeting raised questions Wednesday over why investors didn't get that same message three weeks ago. Instead, the Fed signaled "some further gradual increases" in interest rates were on the way. Chair Jerome Powell followed with a press conference that investors felt was overly dismissive of sharp price drops and volatility. Already down about 13 percent from the end of September, stocks skidded another 1.5 percent that day. (Bloomberg Economics | Jan 9)

We must prepare now for the likelihood of a recession
Paul Samuelson's quip that the stock market has predicted nine of the last five recessions cautions against overreacting to recent stock market moves. But credit spreads have widened considerably, commodity prices have softened and investors have started demanding higher yields for short-term U.S. bonds than for those with longer terms. Unlike equity markets, "yield curve inversions" have not historically tended to produce false recession predictions. The overall judgment of financial markets is that recession is significantly more likely than not in the next two years. (Financial Times | Jan 7)

Credit investors are still braced for a blow-out in spreads
Underneath the surface of a burgeoning calm in credit markets lies a fat-tailed monster: options traders preparing for a sell-off that would spark a surge in risk premiums to levels not seen in two years. Spreads in the cash market for U.S. corporate bonds have begun to reduce, tracking a relief rally in stocks after a tough year for the vast majority of asset classes. But fears linger in credit derivatives, with benchmark indexes implying a higher chance of a major surge in spreads. (Bloomberg Markets | Jan 7)

Pass the sickbag: What causes a flash crash?
Thin trading alone does not explain recent ones. Most regular flyers will have experienced an "air pocket," when their plane hits turbulence and suddenly dips, with unwelcome effects on their heart rate and digestive processes. In financial markets these have become known as "flash crashes" after a particularly volatile day for stock markets in May 2010. (The Economist | Jan 7)

Major Wall Street players plan exchange to challenge NYSE, Nasdaq
Morgan Stanley, Fidelity Investments, Citadel Securities LLC and a host of other financial companies plan to launch a low-cost bourse that will compete with the New York Stock Exchange and Nasdaq. Brokers and traders have complained for years about what they say are unjustifiably high fees charged by the big U.S. stock exchanges for data on stock trades. The news of the new exchange on Monday pushed down the share prices of the parent companies of the NYSE and Nasdaq. (Reuters | Jan 7)

Writhing markets force a rethink of 2019 Wall Street forecasts
The market's roller-coaster ride has prompted some Wall Street analysts to cut their 2019 forecasts, the latest sign of unease as the stock bull market approaches its 10th year. (The Wall Street Journal | Jan 6)
The Cyber Cafe
Cybersecurity news every Friday
Managing cyberwar with vodka
Informal meetings are helping the U.S., Russia and China better understand their tactics and strategies.  In cyberspace, conflict is the norm when it comes to nation-states. Russia's malware shows up  on U.S. power grids, and its online trolls try to influence elections. China, meanwhile, steals the personal data  and intellectual property of leading American corporations. The U.S., for its part, has its hackers on a  war footing .

Cyber attacks: Igniting the next recession?
Recessions are painful for most of us. Why most of us, and not all? Because in a struggling economy, cyber attackers can thrive. Cybercrime is one of the fastest growing and lucrative methods of attack.

Double trouble: Two-pronged cyber attack infects victims with data-stealing trojan malware and ransomware
A 'prolific' malvertising campaign has been used to distribute the Vidar information stealer and GandCrab.  Using Internet Explorer and Flash Player exploits delivered in the  Fallout exploit kit , the campaign is distributed by what researchers at Malwarebytes describe as a "prolific" malvertising campaign targeting high-traffic torrent and streaming sites and redirecting users toward two malicious payloads.
- ZDNet
Binge reading disorder
Hand-curated, chosen with love
Triple-B movie: 'Big Short' star fears for debt-laden companies
In an economic slump, buyers for BBB-rated bonds may be hard to find. Steve Eisman shot to fame after Michael Lewis's book "The Big Short," which homed in on his profitable bets on the U.S. housing market collapse which tipped the world into recession. Now the New York fund manager is eyeing another menace to the financial system: corporate bonds hovering just above a junk rating.

A Nobel Prize-winning psychologist says most people don't really want to be happy
We think we want to be happy. Yet many of us are actually working toward some other end. Happiness is a momentary experience that arises spontaneously and is fleeting. Meanwhile, satisfaction is a long-term feeling, built over time and based on achieving goals and building the kind of life you admire.

Books are good for your brain. These techniques will help you read more.
Reading books can exercise your brain and even boost your emotional intelligence. Despite this, about  a quarter of all Americans haven't read a book in the last year  and  our overall book-reading time is on the decline .