Taps Coogan – February 13th, 2024

It’s been a long time coming but we’ve finally arrived: a majority of assets under management in the US are now invested in passive funds. Via Holger Zschaepitz:

Passive funds have overtaken active. That’s changed a lot b/c the number of active managers is down a lot, David Einhorn says in MIB podcast: "There’s entire segments now mostly in the smaller part of the market where there’s literally nobody paying any attention…I view the… pic.twitter.com/aMqxEZ5DXx

— Holger Zschaepitz (@Schuldensuehner) February 13, 2024

Perhaps best articulated by Nassim Taleb’s Fooled by Randomness all the way back in 2001 (mandatory reading for investors), the reality is that the overwhelming majority of active managers (and retail investors) underperform benchmarks such as the S&P 500 or the Russel 3000 over long periods of time. In others words, they under perform various measures of the ‘average’ performance of US listed stocks, meaning that their performance is worse than what one might expect from random chance.

That reality has led an ever larger number of people to realize that they are better served by investing in passive ETFs than paying people that have no demonstrable skill to do worse (or to try themselves). That’s all well and fine and a very important reminder that prognosticating about ‘macro’ economics and markets, as we do here, should not be confused with an approach investing, a distinct discipline that we discuss extremely rarely here.

All that being said, there is something regressive about an ever greater percent of capital being directed at passive instruments. For markets to function properly and generate returns for investors, they must be making endless capital allocation decisions and enabling price discovery. That inescapably depends on active investment decisions and while any individual active investor is likely to underperform, assets accrue to the few who out-perform, creating a ‘paradox’ where markets outperform their average constituent. But what happens when there aren’t any active managers left?

We’re not there yet, but we are asymptotically converging towards it. It probably means markets are getting less ‘efficient’ which is hardly a bad thing for those active investors who actually know what they’re doing, but may spell trouble for the indexes.

The post Passive Funds Finally Overtake Active Management appeared first on The Sounding Line.

Taps Coogan – February 14th, 2024

The following article is reposted from Statista.com:

The year of the dragon commenced Saturday according to the Chinese lunar calendar. Carrying the zodiac sign that has been associated with the birth years 2024, 2012, 2000 and 1988 most recently is considered desirable among Chinese as people born under the dragon sign are said to be more lucky, intelligent and successful. Babies born from Saturday onward until before lunar new year 2025 will carry the sign.

The status of the dragon as the star among star signs is considered so outstanding that Chinese people have been known to attempt to have a child in dragon years. While very low birth rates in recent years mean that China could use a dragon baby bump, is it actually happening? Data by the National Bureau of Statistics of China shows that if at all, only one such incident has so far happened in 2012. That year, China saw around 14.5 million births, the most since 1999 despite an otherwise falling trend. However, the early 2010s saw a lot of ups and downs in China’s birth rate, and while 2012 was in fact the biggest up, it could have been incidental. Right now, China’s birth rate has fallen so low that even a small bump the size of the one that happened in 2012 would do little to counteract the massive downwards trend in births in recent years.

While there have been reports that in previous decades as well, births plummeted in the year following the year of the dragon, the data shows that in the year 2000 as well as in 1988, this development was part of a general downwards trend that started before the “dragon years” and continued after them. Despite this, other positive developments could come out of the year of the dragon frenzy as the wedding industry and gold sellers report an increase of dragon-related demand.

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Taps Coogan – February 16th, 2024

An enormous amount has been written about the soaring market capitalization of the ‘Magnificent Seven’ tech companies (Microsoft, Apple, Amazon, Nvidia, Meta, Tesla, Google) and the following chart, via Michael Arouet, highlights why. Their combined market cap now exceeds that of any other country’s entire stock market.

Chart for future history books, Magnificent 7 market cap compared with rest of the world pic.twitter.com/OvYcNeBkQm

— Michael A. Arouet (@MichaelAArouet) February 16, 2024

The high degree of market concentration into a small collection of big-tech names is nearing historic levels, at least within a domestic context. As the following chart from Deutsche Bank highlights, this is the most concentrated the market has been since the early 1930s (after, not before, the 1929 bubble and the start of the Great Depression):

Without diminishing the pretty obvious market structure risks associated with such a high degree of concentration, it is nonetheless important to point out that unlike during the Dot-Com bubble, big-tech valuations have risen largely in step with exploding earnings growth. The result is that, while expensive, the Magnificent Seven, are really not that much more expensive than the rest of the market once factoring in their higher earnings and growth. This is even more the case if one excludes Nvidia from the list, whose valuation is extremely extended.

In other words, this period is really not a particularly good parallel to classic stock bubbles like 1929 or 2000 (stocks are only up about 5% over the last 25 months), but instead highlights the ‘winner takes all’ dynamic of our tech-dominated economic era.

The post Magnificent Seven Worth More Than any Other Country’s Market appeared first on The Sounding Line.

Taps Coogan – February 23rd, 2024

The following article is reposted from Visual Capitalist:

Japan’s top companies are worth a combined $2 trillion.

In this graphic, we use data from CompaniesMarketCap to list the country’s largest corporations, as measured by market capitalization as of Feb. 2, 2024.

Automaker and Electronics Company Lead

Japan is the third largest economy in the world after the United States and China, and also one of the top producers of manufactured goods globally.

The country’s largest company, automaker Toyota, has a market cap of over $273 billion. The company is the largest automobile manufacturer globally, producing about 10 million vehicles per year. It is also the 20th biggest company in the world.

In addition, the automaker is considered the most valuable brand in Japan, worth $53 billion.

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In second place, Sony Group produces a variety of consumer electronics and entertainment products, including televisions, audio equipment, cameras, smartphones, and video games. The company also includes brands such as Sony Pictures and Sony Music, as well as a financial arm.

The list also includes Mitsubishi UFJ Financial (MUFJ), Japan’s largest financial group with nearly $3 trillion in assets, and Recruit, an HR company that owns the job search engine Indeed, as well as the employer review site Glassdoor.

Nintendo, a well-known brand outside of Japan, ranks 13th among the biggest Japanese companies.

At the bottom, Japan Tobacco is the company responsible for selling two well-known American brands, American Spirit and Camel, outside of the United States.

Most of the largest companies in Japan are in the consumer discretionary sector (24%), followed by financial firms (20%) and industrial groups (16%).

The post Visualizing Japan’s Top 25 Companies by Market Cap appeared first on The Sounding Line.

Taps Coogan – February 25th, 2024

As the following chart from Michael Arouet highlights, India has overtaken China to become the largest destination for foreign direct investment:

India replacing China as the favorite for foreign direct investments in one chart pic.twitter.com/KrycWAvQyS

— Michael A. Arouet (@MichaelAArouet) February 25, 2024

We’ve been banging the ‘India’ drum for years and in that time India has become the fastest growing large economy, perennially among the best performing emerging markets for investors, and now the largest recipient for foreign direct investment. The perception of India as an exclusively low skill/capital ‘textiles’ manufacturing destination is fast becoming obsolete as all the world’s largest electronics manufacturers now make significant portions of their products in India (Samsung, Apple, Google, Sony, etc…).

China, on the other hand, is now embarking on the largest population and workforce contraction in modernity, is seeing essentially no foreign direct investment, is struggling with one of the biggest property bubbles in memory, and has a totalitarian Marxist dictator-for-life running the country.

While there is a compelling argument that Chinese equity markets made a significant low a couple weeks ago and may see strength in the medium term relative to that low, they have returned essentially nothing to investors over the last 15 years, a statement that will remain true even after a large rally.

The post India Overtakes China as World’s Top Spot for Foreign Investment appeared first on The Sounding Line.

Taps Coogan – February 27th, 2024

The following article is reposted from Statista.com:

Despite the ongoing transition to 5G, which has thrown a lifeline to smartphone manufacturers struggling to keep up growth in the maturing smartphone market, global smartphone shipments dropped to the lowest level in a decade last year. According to estimates from IDC, smartphone vendors shipped 1.17 billion devices last year, down more than 20 percent from 2016, when smartphone shipments peaked at 1.47 billion units.

While many experts think that “peak smartphone” is already behind us, market research group IDC remains hopeful for the industry to return to growth in 2024 and beyond. “The tide has finally turned and it feels safe to say the worst is behind us,” Nabila Popal, research director at IDC, said in November 2023. “As we enter the new era of low single-digit growth and lengthened refresh cycles, it is clear the market is maturing. While the total available market will remain below pre-pandemic shipment levels throughout the forecast, the bright side is that average selling prices and market value will remain notably higher than before.”

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Taps Coogan – March 13th, 2024

Readers have probably noticed that I have not updated The Sounding Line much in the last few weeks. Increasing demands in my personal and professional life mean that I simply don’t have enough time in the day to devote to regular updates to this site.

You can follow me on X/Twitter where I intend to remain active (increasingly so), as it provides a quicker format for sharing news stories and short-form commentary. I hope to continue to write longer format articles here when I have something worth saying, but it won’t be a regular occurrence for a while.

So, if you enjoy this site and want to keep in touch, make sure to either subscribe so you’ll be emailed when I do eventually write something, or better yet, bookmark/follow my X/Twitter profile.

As always, thank you so much for your readership, see you on X!

The post Update appeared first on The Sounding Line.

Taps Coogan – March 15th, 2024

Well, my plan to step back from this site lasted a day. I love running this site so I am going to try to keep it going. I don’t exactly know what that means yet. There will be some changes, I have less free time, so there will probably be fewer articles written by me and hopefully more news links. I’ll discuss changes later. On to the article:

Despite a lot of glowing coverage coming from parts of the supposedly small-government ‘conservative’ media and political class, the bill recently passed by the House to ‘ban’ TikTok represents a sweeping new power for the President to ban apps/websites at his discretion.

Despite many inaccurate/irrelevant takes from the likes of the Citizen’s Free Press, The National Pulse, Raheem Kassam, Peter Navarro, and others on the right claiming that the bill is not a threat to Americans’ freedom of speech or their freedom to read and watch what they want, or claims that it only applies to TikTok, I have actually read the bill. They are wrong.

It is short, easy to understand, and sweeping. You should read it too.

Let’s be totally clear as to what it does.

It allows the President/Attorney General, at his discretion to ban, or force that it be sold to new owners, almost any website or application that has more than one million views per month and features some sort of user generated content. User generated content could be as simple as a comment section or the ability to share messages/files PRIVATELY with another user (think Whatsapp, Signal, an encrypted email service, etc…). Essentially every remotely popular media site, blog, social media app, video game, file sharing app, email service, etc… you can think of is covered.

In order for the President/AG to block such an app/website, there are a bunch of narrowly defined attributes that have to be met that the totally irrelevant takes from the Citizens Free Press, Raheem Kassam, Peter Navarro, etc… focus on.

Those takes are totally irrelevant because the bill also allows the President/AG to ban any such app/site that meets the following simpler criteria: The app/site, or its owners or operators, is “subject to the direction or control of a foreign person or entity” as determined by the President/AG, where the “foreign person or entity” is from an adversarial country, as determined by the President/AG, and where the site poses a national security threat as determined by… the President/AG.

Not only does the bill apply to the site/app in question but to any hosting services, software engineer, and anything/anyone that works on, maintains, or distributes the app/site. It would become de facto banned to have anything to do with such an app/site and nearly impossible for Americans to legally access it unless it was sold to new owners.

So what would it take to ban X/Twitter under this bill?

The President/AG would have to determine that Elon Musk, or any other significant/controlling owner, is “subject to the direction or control of a foreign person or entity.” i.e. being influenced by the Russians, and could interfere in an election.

That’s it!

No trial, no convictions, no due process.

Musk would then be stuck trying to prove, after the fact, to a political DC Judge who hates him, that he isn’t ‘foreign directed,’ a term that is undefined by the bill, presumably without being able to see or challenge the classified sources in the ‘Crossfire Hurricane’ dossier presented against him by the government. Oh, and Musk would only have 90 days to make the challenge in court.

And that, ladies and gentlemen, is a bill that just secured a near unanimity of GOP votes in the House and has backing of prominent ‘conservative’ voices. Stupid is as stupid does…

The post ‘Ban TikTok’ Bill Is a Censorship Nightmare appeared first on The Sounding Line.

Taps Coogan – March 19th, 2024

The following article is reposted from Statista.com

Japan is about to end its negative interest rate policy eight years after cutting its short-term policy rate to -0.1 percent in February 2016. Back then, the negative interest rate was introduced to supplement the policy of “Quantitative and Qualitative Monetary Easing” in the country’s long battle with deflation and subdued economic growth. Since the 1990s, Japan has repeatedly seen protracted periods with very low or negative inflation, forcing the country’s central bank to implement aggressive policies aiming to stimulate the economy and return to its 2-percent inflation target.

The Bank of Japan is expected to announce the first rate hike since February 2007 after the conclusion of its two-day meeting on Tuesday, as it has apparently seen enough evidence of core inflation stabilizing at or above the target level of 2 percent – the BOJ’s stated prerequisite for altering its policy stance. Last Friday, the Japanese Trade Union Confederation, known as Rengo, announced that this year’s spring wage negotiations resulted in average pay increases of 5.28 percent, the highest level in 33 years. Meaningful wage growth is considered key in the fight against deflationary pressures in the hopes that higher wages boost consumer demand and keep prices aloft. According to a BOJ source cited by Nikkei on the weekend, this year’s wage hikes are high enough that “even reflationists who are cautious about modifying monetary policy would accept a change in policy.”

Japan is the last major economy to employ a zero or negative interest rate policy, after central banks around the world rapidly hiked rates to curb inflation. Japan’s Nikkei index rallied in anticipation to the BOJ’s possible landmark decision, rising 2.67 percent on Monday for its largest daily increase since February 13.

The post Japan Ends Negative Rates with First Hike Since 2007 appeared first on The Sounding Line.

Taps Coogan – March 21st, 2024

The following map from TeleGeography shows the world’s energy pipelines and seabed cables. The only commentary that I’ll add is that I cannot personally vouch for the details.

The post Map: Energy Pipelines and Seabed Cables appeared first on The Sounding Line.