Amarin CEO on Future of Heart Drug Vascepa

Watch the embedded video or at Bloomberg.com: https://www.bloomberg.com/news/videos/2018-11-20/amarin-ceo-on-future-of-heart-drug-vascepa-video




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Cumberland Advisors Week in Review (Nov 12, 2018 – Nov 16, 2018)

Cumberland Advisors Week in Review

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team. These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

Taking a look at Global Markets. “Embrace the Grind!” The day to day has had some whip to it. What prices looked good? Where did we put cash to work? How about energy? We have an update for you about International and Emerging Markets. WATCH HERE.

 

Cumberland-Advisors-Matt-McAleer-Update-November-09-2018-Video

 

MARKET COMMENTARY

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FEATURED VIDEO

David Kotok shares the latest on Trump, the Trade War with China, & Trade Relations.

Cumberland-Advisors-David-Kotok-Trade-Update-November-15-2018

David Kotok contends that the China-US Trade War policy is failing and that it can be reversed. He goes on to say that Trump could achieve a truce with Xi Jinping and that the world and markets will respond positively and businesses will then be able to plan capital expenditures, their expansion, and growth with some certainty. He further states that chaos coming out of Washington, which is seeded in a failing trade war policy, is causing our financial markets to be punished and it’s self-inflicted wounds. Watch this brief clip to see David enumerate in detail.

The video is available here.


IN THE NEWS

 

 


IN CASE YOU MISSED IT

    • Mexico and Trade

      Robert Eisenbeis, Ph.D. 2/07/2017

      With Trump, Trade, China, BREXIT, and NAFTA in the headlines, we revisit this commentary from Feb 2017. The state of US trade with Mexico is on the front page as policy makers attempt to stem the outflow of firms, jobs, and goods production from the United States. To put the issues in perspective, it is first helpful to have some facts on US trade in general and trade with Mexico in particular. By comparison with many countries, the US economy is still dominated by domestic production and consumption. In the euro area, for example, trade amounts to about 69% of GDP, and in the UK it is about 38%. In the US economy, by contrast, exports amounts to less than 16% of GDP, and imports are only about 12.5% as of yearend 2015. Our trade deficit in goods and services is slightly less than 3% of GDP in total, down from a peak in 2005 of slightly more than 5%. Continued…

 

  • Bursting Bitcoin Bubble?

    David R. Kotok 7/06/2018

    We have been asked again about Bitcoin and “bubbles” following the recent gyrations and the plunge. “Should I buy it?” asked a reader. First, we offer the required disclosure: We don’t own any cryptocurrency in any Cumberland managed account. And we don’t own any derivative or other form of crypto. We have avoided the group. We don’t see crypto as a deep-enough and mature-enough assemblage of tokens to qualify as an asset class – yet. That assessment may change at some point but not likely soon. Nick Colas and Jessica Rabe have been tracking Bitcoin for a while. They write about it from time to time. “We’ve been tracking Bitcoin wallet growth and Google search term volumes… as the carnage has unfolded. Our repeated message in these pages: the former is growing only slowly, and the latter is in outright decline. Bitcoin is ultimately a technology, and without incremental adoption growth it has a tough row to hoe.” Later in their research they add the following warning: “To be clear: we’re not calling a bottom on Bitcoin, but its complete decoupling from stocks may be one sign of a washout [s]ince it now resembles the time before anyone but computer nerds really cared about it.” Continued…

Have you subscribed to our YouTube Channel?Thank you for engaging with us, your comments always welcome.

 

Cumberland Advisors
Weekly Update
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The Failing Trump Navarro Trade War

The United States seems to be losing the ill-conceived Trump-Navarro trade war. The evidence of this loss continues to mount.

Market-Commentary-Cumberland-Advisors-Trade-War-Worsens

Here is an important Bloomberg catalog of specific facts and items and actions. (Note that this is not “fake news.”) “These Products Show How Hard It’ll Be to Beat China in Trade War,” https://www.bloomberg.com/news/articles/2018-11-11/trump-s-china-cold-war-yields-hard-look-at-global-supply-chains.

Meanwhile, Peter Navarro is doing a creditable job of shooting himself (and the country) in the foot. In POLITICO’s Morning Money for Nov. 12, POLITICO’s Doug Palmer reports,

“White House trade adviser Peter Navarro on Friday accused Wall Street ‘globalist billionaires’ of trying to sabotage … Trump’s handling of trade relations with China. ‘Consider the shuttle diplomacy that is now going on by a self-appointed group of Wall Street bankers and hedge fund managers between the U.S. and China,’ Navarro said in a speech at the Center for Strategic and International Studies.

“ ‘As part of the Chinese government influence operations, globalist billionaires are putting a full-court press on the White House in advance of the G-20 in Argentina. The mission of these unregistered foreign agents … is to pressure this president into some kind of a deal,’ he said. The blustery language came ahead of a planned meeting between Trump and Chinese President Xi Jinping later this month, which many hope will lead to a deescalation of trade tensions. However, Navarro seemed to downplay chances for major progress at the upcoming meeting.”

(The POLITICO article is behind a paywall, but for those who subscribe or wish to subscribe, the article link is http://go.politicoemail.com.)

Business Insider agrees with our assessment of the Trump-Navarro actions on trade and offers what it calls “the best hard evidence yet that the tariffs are causing major disruptions in the economy.” In an article titled “Trump’s trade war took a stunning bite out of the US economy, and it’s the strongest evidence yet that he’s shooting himself in the foot,” BI points to last week’s report on third-quarter US GDP and makes the point that while GDP growth came in at 3.5%, that figure would have been a whopping 5.3% if trade had not dragged it down by 1.9% – the largest negative contribution to GDP growth for trade in 33 years. (See https://www.businessinsider.com/gdp-trump-tariff-trade-war-us-china-2018-10.)

The Wall Street Journal’s editorial on November 13, 2018 was rightly harsh. It castigated Navarro statements and arrogance and ended with “Maybe the question to ask is whether Mr. Navarro is a Democratic Party agent.”

Trade War economic data bear out this view.

US GDP growth peaked in Q2. On examination, we can see that part of the Q3 growth was inventory building in anticipation of more tariffs. Who can rationally blame any American company from trying to protect itself from an unpredictable and incoherent policy?

Selectively, some US prices are rising as a result of tariffs. That trend is to be expected, and more prices are likely to rise if the tariffs are expanded or increased. Remember: A tariff the US imposes on an import is really a sales tax on you and me.

The Fed faces a dilemma and knows it. Does the Fed raise interest rates to fight an anticipated inflation caused by the Trump-Navarro tariffs? Or does the Fed view tariffs as a shock and ignore them? The Fed is now seeing the results of tariffs in its information gathering. At the December meeting we expect the Fed to raise rates a quarter point.

So far there are only limited indications that the Trump-Navarro trade war is impacting credit spreads. To follow this item, one must look at the spread in interest rates between the high-yield bond sector (rated below BBB) and the comparable US Treasury yield. Right now those spreads are tight, which means we aren’t seeing damage in credit sectors because of tariffs. If Trump gets a truce with China at the end of this month, we expect credit spreads to stay tight. If Trump and Navarro fail, we expect spreads to widen early next year as trade war damage mounts.

Note that an entire bureaucracy is expanding in Washington as the business of gaining tariff exemptions becomes an employment bonanza for lobbyists, lawyers, and consultants. So much for draining the swamp.

Where does this ill-advised trade war end? The best outcome is a resolved trade deal acceptable to both sides, one that has longevity and features dispute resolution, so that American business can make capital commitments with some confidence. Right now, capital investment is being deferred, since policy under Trump-Navarro is erratic.

Navarro now is under attack for the policy he has influenced. Post-election, the Trump administration is experiencing chaotic turnover. But Trump and Navarro will never admit any policy error. That is why Navarro now attacks “Wall Street” for its criticism of his policy design.

Apologies and rhetoric blaming China abound. Meanwhile, thousands of tariff-exemption applications are slowly being processed.

At the moment, US stock markets have accepted this trade war situation and seem to have completed their October-Halloween correction. The ghoulish Trump-Navarro trade war inflicted that correction. Now, the market likes the earnings picture. The market goes on climbing, finding toeholds in a wall of worry over trade war folly. But market agents are fraught with uncertainty and Trump Navarro policy is the cause. Add divided government and that uncertainty premium rises.

We now send a Saturday morning summary of the week’s commentaries and add video and press references. This a free link from the Cumberland website. Here is last Saturday’s note: “Cumberland Advisors Week in Review (Nov 05, 2018 – Nov 09, 2018),” https://www.cumber.com/cumberland-advisors-week-in-review-nov-05-2018-nov-09-2018/.

Meanwhile, the evidence of Trump-Navarro trade war damage to the US grows.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Funding Markets Face ‘Small Shock’ From Fed Unwind

(Bloomberg) — Between the reinstatement of the debt ceiling in March and the unwind of the Fed’s balance sheet, a “small shock is coming to the short-term funding markets,” Cumberland Advisors Chief Investment Officer David Kotok says in note.

Cumberland-Advisors-David-Kotok-In-The-News

• The 2019 debt-limit fight will occur in the shadow of “recent nasty midterms” and as the 2020 presidential election cycle fires up
• Treasury has to reduce its cash balance to $200b when the debt ceiling is reinstated on March 1; the reduction acts as an increase in bank reserves since it’s an actual transfer of cash from the Treasury to the banking system
o So the higher the Treasury cash balance at the Fed, the lower the excess reserves in the banking system and vice versa
• The Fed may also have to make another adjustment to the interest on excess reserves (IOER) rate; “note that for many technical reasons the Fed’s task is becoming more and more difficult as the Fed shrinks the balance sheet”
• Cumberland expects that by March/April/May the Fed will reach a point where “short-term funding markets will no longer have the luxury of those large balances of excess reserves”
o However, the timing is uncertain and the list of factors that could change things “stretches longer than a page”

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net




Deficit, Fed, Post-Midterms

“In 2016, President Trump pledged to eliminate the national debt ‘over a period of eight years’ (“In a revealing interview, Trump predicts a ‘massive recession’ but intends to eliminate the national debt in 8 years,” https://www.washingtonpost.com/politics/in-turmoil-or-triumph-donald-trump-stands-alone/2016/04/02/8c0619b6-f8d6-11e5-a3ce-f06b5ba21f33_story.html).

Market Commentary - Cumberland Advisors - Deficit, Fed, Post-Midterms

He then signed a $1.5T tax cut bill and a two-year spending deal that could push annual deficits above $2.1T, according to the CRFB (“Budget Deal Could Lead to $2 Trillion Deficits,” http://www.crfb.org/press-releases/budget-deal-could-lead-2-trillion-deficits).

“For the rest of his term, Trump plans to add $8.282T more to the federal debt, which will push the debt levels to about $30T in total (“New White House Report Shows Deficit Projections Have Doubled,” http://www.crfb.org/press-releases/new-white-house-report-shows-deficit-projections-have-doubled). That represents a 41% increase from the $20.245T debt under the Obama administration. Trump will add as much debt in four years during a time of economic prosperity as Obama did in eight years while fighting a recession. That will make Trump the second biggest contributor to debt in history.” (“Obama: US spends more on military than next 8 nations combined,” https://www.politifact.com/truth-o-meter/statements/2016/jan/13/barack-obama/obama-us-spends-more-military-next-8-nations-combi/). Source: https://seekingalpha.com/article/4204900-drowning-debt-road-30-trillion.

Some of my fishing buddies like to write alarmist newsletters and wring their hands over debt. One of those newsletters hit my inbox on Saturday morning, November 3. That one forecast dire future outcomes.

My fishing buddy may be right someday, but I will bet my fly rod against his bait-casting device that, for the next few years, the increased debt financing of the United States will not be a problem for markets. That will remain the case as long as the US dollar is the unchallenged world reserve currency, as it has been for decades.

When you survey the world and look at other countries’ economic systems and current situations, the US emerges as the best or, if you are a hand-wringing detractor, the least troubled. It is true that the expansion of debt slows down productivity growth. Debt service, even at low interest rates, is an allocation of a cash flow away from growth investment in capital deepening. There, the newsletter writer was correct. But by itself, rising debt issuance will not trigger a debt-service crisis for the US.

Comparisons with Italy or Greece are dramatic. But they are neither helpful nor accurate. And they are not true of our political system versus European systems.

It is true that the US is likely to run deficits exceeding $1 trillion annually. It is also true that President Trump said one thing about the deficit and did the opposite. It is true that the cyclically adjusted federal deficit is probably a lot larger under Trump than it was under Obama. Of course, Trump will never admit such a thing. And expect no such admission from a Republican Senate, nor from a Pelosi-led House.

And it is true that we are approaching a debt-ceiling fight, which will break out shortly after the 116th Congress is sworn in on January 3. Note that the new Congress will commence this activity amidst the ugliness of a politically divided government. The coming debt-limit fight will occur in the shadow of the recent nasty midterms and as the 2020 presidential election cycle fires up in earnest. No serious deficit-reduction measures are expected to advance in the forthcoming lame duck session. If anything, the deficit will be increased by the outgoing 115th Congress if they have a way todo it

Estimates are that the US Treasury will end 2018 with a cash balance of $410 billion (source: US Treasury and Barclays). That balance will be reduced to about $200 billion by March 1, 2019. Note that a reduction of the Treasury cash balance acts as an increase in bank reserves since it is an actual transfer of the cash from the Treasury to the banking system. That’s right: the higher the Treasury cash balance at the Federal Reserve, the lower the excess reserves in the banking system and vice versa. Remember: The Fed acts as the banker for the Treasury.

The deficit is being financed mostly by the rising issuance of Treasury bills, so a small shock is coming to the short-term funding markets in the next few months. We will see this in the spreads among the various measures in the short-term, riskless end of the yield curve. We may also see the Fed have to make another adjustment in the spread between the upper end of the fed funds limit and IOER (interest on excess reserves) as rates press the upper bounds of the Fed’s policy target. Note that for many technical reasons the Fed’s task is becoming more and more difficult as the Fed shrinks its balance sheet.

There is a debate among observers about the Fed’s policy direction and an additional debate about the Fed’s trying to do two things at once. It is hard enough for the Fed to get one thing “right.” Yet this Fed persists in trying to shrink its balance sheet and raise the target policy rate at the same time. We think by March or April or May the Fed will have reached a point where the short-term funding markets will no longer have the luxury of those large balances of excess reserves. The timing is uncertain here, and the list of factors that could change things stretches longer than a page. That said, the short-term funding markets are already showing increasing pressures, albeit small ones. I agree with Zoltan Pozsar, at Credit Suisse, that the additional pressures will soon be apparent.

When we see these pressures surface, there will be many who point to the rising federal deficit as the cause. We can almost hear the chorus now. But that will not be the reason, in our view. The reason will be that the Fed is doing two things at once, with impacts that are likely to collide. Therefore the Fed will add to the confusion about causality. As Ben Bernanke rightly pointed out, the Fed will eventually have to increase the size of its balance sheet. Any shrinkage now is temporary and counterproductive for the longer term.

Will there be a policy change? Will the Fed stop shrinking its balance sheet soon? I would like to say yes, but I doubt that it will. The Fed seems hell-bent on maintaining its schedule unless some shock occurs. Why we might need the shock as a wake-up call is beyond me. Will a new Congress ask that question?

President Trump hasn’t helped matters by bashing the central bank, though the decisions of the Fed are not likely to be influenced by any bashing. Most of the central bankers that I personally know take their roles very seriously and see themselves as avoiding politics and focusing on policy outcomes. But they are also doing two things at once without really explaining how the two policies intersect and interact. The Fed hasn’t explained, for instance, the market impact of raising rates while forcing duration into the market. But that is exactly what they are doing, and that is why they are risking a shock.

It would help if the Fed could offer markets clarity on the pathway to normalcy in the US. My expectation is that we won’t get it. And the task of interpreting the Fed will be increasingly difficult. Key indicators to watch are the spreads among the short-term funding instruments in markets where credit risk is not the issue. In our firm we review them daily. We look for a shift of a few basis points as a sign of pressure. And we look for nuances in Fed policy changes.

For the average investor these are difficult tasks. They require a lot of data surveillance. One has to track spreads between T-bills and repo and SOFR and fed funds and IOER. For those who wish to dig deeper into this subject, there are discussions and serous research papers at the websites of the Fed Board of Governors and the twelve reserve banks. The NY Fed is the center of this daily activity.

In the management of bond and ETF portfolios at Cumberland, we rarely make changes based on these minor basis-point shifts in funding markets, but we do watch them carefully. Our clients’ portfolios are separately managed accounts structured with investment objectives that are not adversely affected by these very small shifts. The opposite is true for very large institutional portfolios. Still, for us the daily watchful waiting remains critical, since it provides early-warning signs of trouble.

Right now there is little pressure evident in the high-credit-quality funding markets. There is excess liquidity, though it is being gradually withdrawn. As of now, the federal deficit is easy to finance, and there is no rollover risk (that is, no risk in refinancing short-term debt).

We don’t expect such risk to surface in the US in our post-midterms period. My friend who likened the US to Greece and Italy is in error. They have rollover risk; we don’t.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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‘That was shocking’: Strong job gains give GOP extra fuel heading into Election Day

Excerpt from The Washington Post,
‘That was shocking’: Strong job gains give GOP extra fuel heading into Election Day
By Heather Long and
Danielle Paquette
November 2, 2018

Cumberland-Advisors-David-Kotok-In-The-News

Hiring surged and wages grew more than they have in almost a decade, the government said Friday in a report seized on by Republicans just before the midterm elections as evidence their policies are delivering for American workers.

Trump and Republican candidates painted the jobs report as further proof of an economic boom, but many independent economists warn that growth has probably peaked and that it is likely there will be a slowdown, especially if trade tensions continue to escalate.

“The economy peaked in the second quarter of this year and has been slowing for four to five months,” said David Kotok, chair of Cumberland Advisors. “The trade war is slowing the growth rate, because tariffs are a sales tax imposed on Americans by the U.S. government.”

Markets jumped immediately after the release of the report Friday but ended the day in the red, with the Dow Jones industrial average down almost 110 points mainly on concerns that the U.S.-China trade battle won’t end soon.

Read the full article at The Washington Post




David Kotok: Market norms are being restored; expect single-digit returns – Money Life (Radio)

David Kotok, Chief Investment Officer/Co-Founder, Cumberland Advisors, joins Chuck Jaffe on his program, Money Life, for an interview about what’s normal for financial markets, the Great Recession, thoughts on the volatility of October 2018, trade wars, and how does he see the year and the decade finishing out. According to Kotok, the market is getting back to normal, and while it might be some new normal, it will have the traditional long-term returns of 8 to 10 percent for large-cap domestic stocks and lower single-digits for bonds, and he noted that correcting expectations should help investors find satisfaction in the market ahead.

David-Kotok-Radio-Money-Life-Blue

LISTEN BELOW OR AT THE LINK HERE: https://www.youtube.com/watch?v=AX4zGksLNVU


 

If you like this interview, many more are to be had at the moneylifeshow.com website.

NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




Responses to Climate Change & Markets

We thank readers for their many comments and criticisms regarding our commentary on climate change and markets. For those who missed the original piece, here is the link: “Climate Change & Markets,” https://www.cumber.com/climate-change-markets/.

Market Commentary - Cumberland Advisors - Climate Change & Markets ResponsesThere were diverse responses ranging from total disagreement to full endorsement. No one offered observations about the market section. Many agreed that there is climate change but argued that it is not manmade. Others said it was and is manmade. Still others argued that there has always been climate change, that there is not a lot new happening now, and that this warming is a natural cycle. Still others took the view that the formerly natural cycle ended with manmade rising CO2 levels. The debate is passionately argued on all sides. Readers may examine a compilation of responses that represent the range of views.

We asked our friend Bob Bunting to weigh in after he examined some of the responses. Bob and I are working together on a conference at USFSM that will discuss climate change and hurricanes and their impacts. The tentative date is January 25, 2019. More information will be forthcoming.

Here is Bob’s observation.

“As you know I have been in the camp that the predictions made are being presented in the upper extreme. That being said, every model including the Russian model is predicting more warming. The trend in all models is up, and the trend in observed temperatures is up. I believe the best forecast now is for about a one-inch rise in sea level for every 7 to 8 years in the future to about 2030 and then an acceleration of the sea level rise to about an inch every 4 years by 2070 or so. This would give us 6 to 8 inches of rise in the next 50 years or so. This is precisely the reason I feel we can deal with climate warming impacts while at the same time limiting damage by reducing carbon emissions over the next 25 to 50 years. I don’t agree with the speaker on Fox News (critic) who said that we should ignore most of the other models because they are government-funded. The military is government-funded; education is government-funded; the national parks are government-funded. They are all assets to society in some way and are not diminished in value just because they are government-funded. Big science has been funded by governments for years. The US NASA investment has driven the technological advancement of the US and world for more than 50 years. The Russian model may be correct, but it is an outlier, and we shouldn’t put all our eggs in that basket, nor should we take the most extreme predictions for warming and sea level rise as the ‘answer.’ We need to prepare for the most likely scenarios, those more in the middle, and then adjust as we go along. The models get better, and humankind advances in its efficiency.”

Bob’s mention of Fox News refers to a YouTube clip that was sent by John Wickser II (Amalfi Capital Partners). We will include John’s remarks and YouTube link below. We don’t agree with the Fox report but want readers to see all sides.

David,

…I really do think that this global “climate change” propaganda scare needs to have the proper perspective at a minimum…so that we don’t continue to be hurled headlong into a trillions dollar abyss to prop up corrupt government plutocrats. Please watch this U tube video with an open mind and I will pray that you issue an addendum to this Commentary when you have educated yourself more fully on this issue.

(ED Note: The video was removed from YouTube within 24hrs of this publication, we’ve posted a replacement as of 4:30pm on Nov 1, 2018)



Thanks and all the best,
John

Dear readers, these types of questions are the substance of real inquiry. We make the world a better place by learning more and engaging in civil discourse, which my Cumberland partners and I are pleased to facilitate. We appreciate that nearly all replies to our climate change piece were civil and polite and free of the maliciousness and acrimony we see in the daily flow of political debate.

And now for the responses.


RESPONSES TO CLIMATE CHANGE & MARKETS


Here is Loren:

David,

You might want to at least listen to the Live Stream (Ed: YouTube Video) below. I cannot do a better job than these guys. Very informative. Think your readers would benefit from it. Thanks.

Loren

The Heartland Institute, the world’s leading think tank pushing back at climate alarmism with scientific data, will be live-streaming two panel discussions of scientists and climate policy experts as “counter programming” of the Global Climate Action Summit this week in San Francisco.


 


And here is Lawrence:

David,
I don’t think Climate Change triggers are so simple…We only had 1+ Celsius degree change in the Earth’s temperature in the past Century..the Earth’s population was 1.6B in 1900 and now is 7B+…however, with the irrigation of Worldwide Grasslands for Agriculture, there is more vegetation on the Planet now than in 1900 (satellite studies) …even with the fairly recent destruction of Rain Forests…more vegetation, more oxygen..we have succeeded in cleaning our air in USA from lots of carbon monoxide–many parts of World have not–China is one.

You might want to read book by Dr. Patrick Michaels, Cato Institute, Noble Prize Climatologist…he goes into detail about Natural Climate altering factors…when I was in Australia I learned that the Great Barrier Reef was “dry” approx. every 200,000 years for at least the pst 1.2M years due to Climate change…yet it has renewed each time due to Natural occurrences…

We have had minor Climate warming for decades in the 1930’s-1940’s–remember the “Dust Bowl” in the Midwest…then we had a cooling period from the 1950’s-1970’s…now another warming…who really knows why?

“I don’t think the World Scientists are using the best “science” to understand/explain climate issues”, says Dr. Michaels. 32 World Climate Models show same results–only differing Model is Russian Model–and Russian Model has been more accurate according to Dr. Michaels…he says there are too many worldwide economic and other reasons to challenge data input in Models… he was on Mark Levin this past Sunday..his book is interesting and again, he is World renown Climatologist…I agree it would have been nice to have another Climatologist on the Levin show to debate Dr. Michaels science.

My opinion: Climate Change has more to do with Natural occurrences than man made. CO2 is significantly less percentage wise in atmosphere than in past several hundred+ years—Earth’s minor gases like CO2, methane, etc., make up less than 1/10 of 1% of Earth’s atmosphere!

Earth’s population increase from 1.6B in 1900 to 7B+ in less than 125 years is very concerning–Scary!..


And here is Alan.

Hi David,

I am a proud denier. I don’t deny climate change—always has changed, always will—but I do deny that carbon taxes, or any human activity, will be able to alter or change a natural cycle. Martin Armstrong said it best:

“Forecasting that the world was getting colder was not profitable for the academics. However, by blaming humans for it getting warmer was a winner! No government can tax people for the privilege of making the climate actually change regardless if it was true or not. But blame humans and it becomes a justified tax. If it’s nature – governments can’t make anything out of that one.”

For the record, I think we are heading into (if we already have not entered) a global cooling cycle. If I am right, I would rather live in Sarasota than Pittsburgh. Neither one of us is voting on climate change with our feet. Such is the foibles of human nature.

Best,

Alan


And here is Bill:

David:

I think there is a reasonable consensus among sensible people that climate change is occurring and most likely is a consequence of man (and woman) made increases in greenhouse gases. I do not believe that there is a consensus that extreme weather events such as hurricanes can as yet be reasonably attributed to climate change. We do know that losses are rising but that is a consequence of building in vulnerable places and has nothing to do with climate change.

I challenge you to document the case for more extreme weather events. Some data below, from Wikipedia. (Yes, I know that many do not consider it a respectable source but is sure is convenient for a purpose such at this.)

Please see my comments below the data as well.

RESPONSES TO CLIMATE CHANGE & MARKETS - Number of tropical storm and hurricanes per season

RESPONSES TO CLIMATE CHANGE & MARKETS - Chart

 

What to do? The theory of externalities provides a powerful case that there is next to nothing high-income countries can do without cooperation from India and China. Research, fine, but CAFÉ is a stupid waste of resources. At the present time, there are only two possibly effective things we can do. One is to further explore options for geo-engineering. If you are unfamiliar with work there, I suggest a bit of reading. Some of the ideas are quite fascinating and even promising. We will also have to raise seawalls in vulnerable areas, such as where you live.

I am an economist and not a so-called climate denier. I am a denier when it comes to wooly headed thinking.

Bill


And here is Gregory:

This article you shared “Trump and the End of Smugness” was great btw. I just shared it with some people.

The term “climate denier” is deliberate mischaracterization of those on the right of the political spectrum, much like the term trickle down economics. It’s also a mean-spirited comparison to the word “holocaust denier”. No real thought leader on the right denies the fact that the climate changes and man has some role in it, only that the costs imposed by many proposed regulations governing it outweigh the potential benefits to society. That’s WITH the assumption that other governments, besides the US, would actually be on board with them. In a deal like the Paris Accords, many countries would have growing emissions while the US is put at a tremendous economic disadvantage, leaving the world with an aggregate gain.

I’ll defer to respected economists like Mankiw.
http://freakonomics.com/2013/10/11/the-science-may-be-settled-but-the-economics-isnt/

“Even the moral argument is not without critique. With just a 1% real annual rate of growth, global per capita income rises from about $12,000 today to $77,000 by 2200. Even if climate change damages shrink the economy by 13% by 2200, as some have suggested, our distant descendants will be five times richer on average than we are. Are we to sacrifice our relatively modest wealth so they might be six-times richer that us?

And even if we are to value future generations as Stern suggests and morals may dictate, then are we not better off bequeathing them an economy that has grown unencumbered by carbon policy for a century or more?”

Again, the above hinges on a huge assumptions; that the climate models are accurate. But they simply cannot accurately predict how the oceans and atmosphere will interact over long periods of time on a planetary scale. They can’t predict with any accuracy what the climate will be like ten years from now much less 100. It is mainstream, agreed upon science, that there is a reasonable chance we could suddenly reverse course and enter a several hundred year period of global cooling, regardless of human interference, just like we did after Medieval and Roman times.

I’m assuming you’re familiar with the issues of back testing investing models; climate models are similar. According to the site where your Bloomberg article got it’s data “A way to test the accuracy of models is through hindcasting – see whether they successfully predict what has been observed over the past century.” But all that shows is they can fit the model to the history not predict the future.

Maybe 97% of scientists agree that man impacting the climate is real but it gives no indication of magnitude. 100% of scientists agree that if I poor a shot glass filled with water into my pool the water level will rise but rain and evaporation (nature) are going to have a much more meaningful impact. Bear in mind that intellectuals don’t get grant money, book deals, or promoted for being moderate. Being alarmist pays in this field. But even if we ignore that and assume your assumptions are correct, the correct policy prescriptions are debatable. Even if the assumptions were correct, and the policy prescriptions agreed upon; Do you suggest we attack China, and others, and force them to comply or do we allow the US economy to decline relative to theirs? I, like most who have studied international relations, believe the US remaining the lone super power is best for world peace and that more authoritarian states would carve up the world for themselves like they tried in the world wars.

Your choice of language gives away some bias and where you get your opinions from. Using the term “climate denier” suggests being unfamiliar with the opposing side of the debate which is an indicator of being stuck in an ideological echo chamber or experiencing cognitive dissonance. I appreciate the “Trump and the End of Smugness” article but now it almost seems like you just did it for appearances.


And here is Mathew:

I agree with you that climate change is real. The earth has become an ice ball twice and we had dinosaurs living as close to the poles as present day Alaska. Vast deposits of potash exist along the coast of NC where I live and they are far inland from the ocean and filled with oceanic fossils. They were deposited there over the millennia from the sea levels rising and falling. The globe has absolutely been warming ever since the end of the last ice age to put into perspective man’s limited time on the Earth. Approx. 10,000 years.

The debate in my mind and the mind of many is that this phenomenon is not man made. These fluctuations in climate and sea levels have been going on far longer than the presence of man much less the presence of industrial man. The amount of greenhouse gases emitted from one volcanic eruption is equal to decades of manmade gases. I see the climate change push as a coordinated global effort to demand even more government control of the people of this planet. Period… The sky is not falling my friend.


And here is my friend Dennis Gartman excerpted from his daily letter (October 25, 2018):

A PROFESSOR WRITES ON CLIMATE CHANGE: We begin by noting that we are long time believers in climate change and always have been. The climate changes and we have said from time to time that when we played golf in central Florida several years ago we came across sharks’ teeth imbedded in the sand there. It has been several hundred million years since Florida was under water deep enough to have monstrous sharks roaming those waters, but clearly the climate was materially different then… measurably, materially warmer and sufficient to have melted the glaciers to the extent that Florid was indeed under water. To the very best of our knowledge, however, there were very few automobiles roaming the land prior to that climate change several hundred million years ago, but we are open to correction on this fact.

That said and in light of the comment we wrote recently about the fact that we are uncommonly fortunate to live in the safest, least war-torn, healthiest, least dangerous, least travail insistent period of humankind, we note what, Dr. Roger Pielke, a Professor of Environmental Studies at the University of Colorado, recently wrote about global weather disasters in a letter-to-the-editor of The Wall Street Journal.

He wrote in “Some Good News—About Natural Disasters, of All Things“,

“Disasters certainly continue to cause catastrophic damage across the globe. The annual cost of disasters has doubled since reliable accounting of all events world-wide began in 1990, rising from about $100 billion to $200 billion a year in 2017 dollars.

“But it’s deceptive to track disasters primarily in terms of aggregate cost. Since 1990, the global population has increased by more than 2.2 billion, and the global economy has more than doubled in size. This means more lives and wealth are at risk with each successive disaster.

“Despite this increased exposure, disasters are claiming fewer lives. Data tracked by Our World in Data shows that from 2007-17, an average of 70,000 people each year were killed by natural disasters. In the decade 50 years earlier, the annual figure was more than 370,000. Seventy thousand is still far too many, but the reduction represents enormous progress.

“The material cost of disasters also has decreased when considered as a proportion of the global economy. Since 1990, economic losses from disasters have decreased by about 20% as a proportion of world-wide gross domestic product. The trend still holds when the measurement is narrowed to weather-related disasters, which decreased similarly as a share of global GDP even as the dollar cost of disasters increased.

“The decrease in disaster damage isn’t a surprise, because as the world population and economy have grown, the incidence of the most damaging extreme events has hardly changed. The Intergovernmental Panel on Climate Change reported in 2014 that there has been no increase in hurricanes, floods, droughts or tornadoes within the past 30 years. And 2018 is on track to have the lowest losses from disasters as a share of global GDP since 1990.”

(Ed: Full commentary by Roger Pielke Jr. available at the WSJ website)

When we moved to Raleigh, North Carolina to go to graduate school in 1972 and traveled to the Outer Banks for the first time we were struck by the desolate nature of the Banks. Homes were few, small and inexpensive. Now they are many, large and hugely expensive. When the smallest storms hit the Banks far more monetary damage can and will be done to these structures than the worst storms of that far more active time. Oh, and here we are in late October, only a month removed from peak hurricane time here in the US southeast and although we’ve suffered through Florence and Michael and as Mexico has suffered through Willa this week, the number of storms has been far fewer than in recent years. But we still believe in climate change; it’s just that we believe that man has had little if anything to do with it and that Mother Nature continues to hold the reins.

We are also certain that the fears stirred up by the eco-radicals are fears engendered by the Left to entice the public into adopting anti-business philosophies, hoping that in the end they can usurp political control yet again. Indeed, there is our great concern in this regard; that this is all a great charade with political rather than environmental intentions at the core.


And here is Richard from the Sierra Club:

David,

I hope you and your friends can bring some sanity to the politicians. I know you’re doing everything you can.

Maybe if enough investors stop contributing to climate deniers, they’ll get the message. Right now we have to overcome a major donor base that makes lots of money from fossil fuels and is reluctant to allow any regulations that affect profitability.

Two weekends ago, I attended the ‘Responsible Shale Energy Extraction’ Symposium” sponsored by UT-Arlington CLEAR. The event had over 180 attendees, 40+ companies represented, and over $55,000 being raised for graduate and undergraduate research.

The symposium featured many papers about how the fracking industry can now recycle wastewater and save money. There were also papers by Dr Anne Epstein about health considerations and by Professor Katherine Hayhoe about climate change.

When I asked two questions about what the industry was doing to slow down climate change, the response was complete denial of any responsibility. It was depressing. They just don’t get it.


And here is Bob:

Dear Mr. Kotok

Why the pejorative “Climate Change Deniers?” The climate debate was that CO2 into the atmosphere caused global warming. Everybody knows the climate is changing, as it has for the last billions of years. I think the people opposed to drastic government plans are thinking what if we do something that may help a little, while Russia, China, India, Africa and South America etc go their merry way? Seems like a plan by some to punish the evil United States with no benefit to the global warming scenario. I don’t deny the climate is changing, but I doubt all the hysteria and self appointed gurus are going to make any difference.

And a couple of side observations:
1) Remember the big scare of the coming ice age? What happened to that?
2) In Madison, WI where we lived the glacier was supposedly a mile thick. Then without Al Gore or automobiles or cars it melted. How did that happen?
3) Who is going to step up and shut down all airports, shipping, and coal power plants everywhere, including China and Russia and India?
4) Maybe the earth has a self correcting mechanism we don’t know about. Like the extinction of people??


William asked:

I agree with most of what you have said because we have facts. Do we know if we impose a carbon tax what will that do to our economy? Also even if we maintained all of Obama’s regulations would our weather be any different? Lastly, playing devils advocate why do you still transact business in the State of Florida?


And Donald noted:

You are the first person/entity that I know of to make the point about electric cars getting juiced up from coal fired plants. I have always argued that electric cars, per se, are not the answer. It depends upon how we reform our grid. Thank you for point this out!


And Lindsey Added:

David,

The unfortunate reality is until the masses put matters like global warming far above just making a profit. the influences of a few will drive policy over the good of the whole. The haves and have-not is widening and thus a critical mass of the have-nots feel left behind; left or right of center. This then results in the cyclical nature of our political policies. Mark when Obama became president some of his policies were directed under misleading or at best half baked assumptions on energy/environmental R&D.

Having a very long career in R&D I have seen first-hand how science can be manipulated to present a very biased not yet confirmed result.

Climate change is real yet I know there are many, yet to be proven assumptions.

I’ll leave on that note.
Lindsey


We again thank all readers for their responses.
David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Markets to Head Higher After Rocky Period (Radio)

David Kotok, Chief Investment Officer/Co-Founder, Cumberland Advisors, joined Bryan Curtis and Rishaad Salamat on Daybreak Asia. He says the fundamental issue for markets is still trade, he goes on to say whatever the outcome of the midterm elections, we will then have clarity for the next two years.

“Just lifting the uncertainty, I believe, will give the market room to recover. So, in our shop, we still see new highs by the end of the decade. We don’t see a recession. We do see a slowdown because of the trade war. We’re already seeing it. We do see a little more inflation for the same reason. Although a strong dollar helps dampen that as long as the currency stays that way. And we think markets are going to head higher after we get through this rocky period.”
-David Kotok

Running time 06:06

LISTEN HERE: https://www.bloomberg.com/news/audio/2018-10-31/markets-to-head-higher-after-rocky-period-radio

NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




A Trifecta of Hate

The recent trifecta of hate crimes casts a pall. It just feels so heavy. Somber reflection adds to the weight.

Cumberland Advisors Market Commentary by David Kotok

Conversations at meals and in meetings are muted. Sure, we talk about it. Sure, we mourn. And sure, we are lost for answers about these three heinous lone wolves. Sure, we worry about the next one and the one after that.

The political debate over fault-finding is rancorous and tiresome. I’m sick of hearing Fox blame the left. When Chris Farrell is interviewed by Lou Dobbs and attributes the source of funding for the Honduran march to George Soros and uses all the codes words for hatred and anti-Semitism, I’m disheartened. (See https://twitter.com/joshtpm/status/1056324117329297409?s=11.) To Fox’s credit, they subsequently pulled the interview and pledged not to use the interviewee again. (See https://www.newsmax.com/newsfront/lou-dobbs-cancels-show-george-soros/2018/10/28/id/888320/.)

I’m equally tired of CNN’s behavior, where, for example, in interviews of people who survived the Pittsburgh synagogue shooting, they ask baited questions such as, “Do you think President Trump said the right thing? Or said enough?” The anti Trump bias is the mirror image of the Fox pro Trump bias.  CNN feeds its constituency just as Fox feeds its constituency. The weight gets heavier. More somber reflection.

And here we go again about guns. Armed guards? No guards? Second Amendment? Legal purchase? Illegal purchase? No one seems to offer a rational and thoughtful way to reduce or eliminate or thwart the murderous lone wolves – unless the constitutionally protected freedoms that are currently threatened are removed. Do we really want to do that? I certainly don’t.

At the end of the day there is a pervasive sense that nothing will change. Perhaps that is the worst part of the aftermath of hate crimes as successive horrors give way to bleak reflection. No one I talk with expects anything to change.

Few expect politics to change for the better, either. Many believe bipartisanship is dead. I worry they may be correct. I worry that instead of seeking “a more perfect union,” we are on a trajectory of competitive dominance aimed at achieving destructive divisiveness.

Both political parties are responsible. The two-party system seems to be failing. But how do we change it when the insiders of those two parties are the powerful minority?

More Somber reflection. Our political situation is going to get worse.

Here is an example of a hopelessly partisan tweet by a leading Republican:

“We cannot allow Soros, Steyer, and Bloomberg to BUY this election! Get out and vote Republican November 6th. #MAGA” – House Majority Leader Kevin McCarthy, Oct. 27, Twitter

McCarthy later deleted that tweet, but not before an active progressive Democrat jumped on him and accused “the Kochs, the Mercers, and Adelson” of buying the election from the other political wing. See https://twitter.com/feysperson/status/1056378207065108480?s=11.

Implied in this comparison is how difficult bipartisan outcomes are to obtain. The writers of these tweets are using them to rouse political constituencies in adversarial ways only. The current system has no incentives for these folks to behave in any conciliatory manner.

Consider this deeper history, too.

It was a Democrat Senate leader, Harry Reid, who undermined the 60-vote rule in 2013 as his departing attack on the Republicans. (See https://en.wikipedia.org/wiki/Nuclear_option.) What went around came back around. In 2017 the Senate Republicans, led by Mitch McConnell, turned the tables by extending the “nuclear option” to the consideration of Supreme Court nominees.

The next chapter is about to unfold, and I fear it will make no difference which party gets the majority in the House of Representatives. We will quote the POLITICO Playbook for Oct. 28. (See https://www.politico.com/newsletters/playbook/2018/10/28/a-week-of-violence-anti-semitism-and-domestic-terrorism-334882 for the complete Playbook issue.)

“THE INVESTIGATIONS – ANTHONY ADRAGNA – The powerful weapon House Republicans handed Democrats: Democrats eager to investigate the Trump administration if they seize the House would have the GOP to thank for one of their most potent tools – a sweeping subpoena authority that Democratic lawmakers denounced as an abusive power grab three years ago.

“House Republicans changed the rules in 2015 to allow many of their committee chairmen to issue subpoenas without consulting the minority party, overriding Democrats’ objections that likened the tactic to something out of the McCarthy era.

“Now the weapon that the GOP wielded dozens of times against Barack Obama’s agencies could allow Democrats to bombard President Donald Trump’s most controversial appointees with demands for information. And many Democrats are itching to use it.” (For the complete POLITICO story on the subpoena rule change, see https://www.politico.com/story/2018/10/28/house-republicans-subpoena-trump-943265.)

We’ll stop. Heaviness and somber reflection from the trifecta of hate have brought fatigue. This last week was tough.

Readers may obtain the market outlook and our market comments and strategies from the Cumberland Saturday morning weekly summary. See http://www.cumber.com/cumberland-advisors-week-in-review-oct-22-2018-oct-26-2018/.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.