Buffet wiring the future

Berkshire Hathaway's subsidiary Business Wire has taken a direct stance in the fight against high frequency traders. As previously addressed, I am very much against HFT as it does not help market liquidity or stability. In a press release, it was announced HFT firms  will no longer have direct access to the feeds of Business Wire. This is a real issue for HFT firms as this is a huge arbitrage strategy; they get direct access to business announcements from business wire in order to save a few microseconds from the time it would take to get it from a new outlet such as Dow Jones or Bloomberg. These microseconds allow them to capitalize on information latency.

This will not hurt the bottom line for Berkshire Hathaway at all. It is clear this is more of a symbolic move and has been applauded by proponents for trading reform. Buffet and HFT are in a very different business. Buffet buys shares in companies that can survive, grow, and profit for generations. These investments do not need to be sold. HFT firms on the other hand simultaneously buy and sell securities in microseconds, clogging queues, and essentially front running. If you are an individual investor wishing to make money in the stock market, I would like to suggest being comfortable holding on to your shares for more than a few microseconds.

Buy companies that will not need to be sold.

Market Correction: Opportunity or Panic?

There is no doubt the market has gone into correction. It was understood that based on the 2013 performance at some point there was going to be some sort of correction, how big and when it was going to occur was the question. By May of 2013 alone, the market crushed expectations. But, increased tapering, valuations concerns, questionable manufacturing numbers, and lack of confidence in emerging markets has pulled the market into correction. For now, it looks like we have recovered and my bullish outlook on the year remains upbeat.

The taper in the US has been viewed as a negative; economics 101 tells us that an increase in lending rates will slow economic growth. While this is true, I have a different view on the situation. The Fed's balance sheet is at an all time high, I for one am glad to see them scale back their buying and force institutions to buy back treasuries. I do not have serious fears about inflation like some but this program has been unprecedented and it is yet to be determined what effect it will have in the long term. Although the CPI index has not been inflated, perhaps inflation can only be seen in the rapid increase of financial markets. The real economy and the financial economy are two very different things and have seen very different growth rates. Although the market has really been pushing, the S&P is still trading at 15 times twelve months earnings. Additionally, the taper signals that the FED sees growth in the economy, which there has been. This is a good thing. We are not in a rational market when the unemployment rate falls and the market falls because the FED may cut QE. Another promising sign are the spike in GDP numbers that have been largely thrown out by the street. At the same time, the FED is doing exactly what it has said it would do. Bernanke's unemployment target was 6.5%, it is currently at 6.6% and I have no doubt Janet Yellen has the same target. In some ways, it is nice to see a governmental institution sticking to its word.

With that said, reflecting on this recovery it still shocks me that there has not been any fiscal support at all. This is not a political blog but politics and finance are unbelievably intertwined. On the left, you have a President who ran on the premise of change, transparency, and increasing support to the poor. Although he had a huge win in the passage of the Affordable Care Act, how much change has he made? Underemployment is still inching down very slowly (thanks to the FED), student loan debt is at an all time high, and the real economy really has not recovered. Just last week Obama signed a farm bill that reduces food stamps -- was this what he meant by aid to the poor? Sure, financial markets are booming and US companies are reporting strong earnings but they are not hiring at a rate many would like to see. Why aren't they hiring? It is not because of increased taxes or compliance costs, it is because there is uncertainty about the future of the US economy. This stems directly from the current political climate. If the US itself is not investing in itself through education, infrastructure, and R&D, why should companies? Companies would rather buyback their own, often overvalued shares than invest in the real economy.

Congress cannot make it more any more clear they are divided. Anyone who has watched a Sunday morning talk show in the past six years can attest to this. The constant fighting between the two parties is literally painful. There has been no fiscal support to aid this recovery because congress cannot get its act together and pass anything. We have experienced a period with the least amount of bills passed ever. Sure, we have a budget now but it is not long term in structure and it only cuts $20 Billion from the deficit. Our representatives have not been able to give CEOs any reason to think that long term investments in the US will result in a respectable return on capital. There is no leadership for any party. Luckily for us growth in emerging markets has cooled off and the US stock market is pretty much the only game in town given rising interest rates.

For the year, I am still very bullish on the financial sector as well as utilities and manufacturing. Exposure to these sectors can be found cheaply through the spdr sector ETFs as well as some undervalued closed-end funds. I am still cautiously optimistic on the economy as the disconnect between the real economy and the financial economy is not found on cnbc.