mark tuminello

Fed Expected to Increase Interest Rate Amidst Economic Growth

mark tuminello economic growthA recent survey of economists has shown that there is a general confidence that the United States economy is on a solid, self-sustaining path. Many expect the Federal Reserve to raise interest rates as early as the third quarter of 2015. This information comes out as growth estimates are not being met and a disappointing first quarter of 2014, yet almost all economists of the 48 surveyed by Reuters thought the recovery to be durable as job growth continues to rise.

Millan Mulraine of TD Securities noted that the ‘successful transition to self-sustaining growth will remove one layer of uncertainty and provide the necessary condition for the Fed to consider raising rates.

Economists predict that the economy will grow over 2% this year, but not as high as 2.5%, a popular early prediction. 2015 could experience growth up to 3%. The lowering of this year’s predictions is a result of the poor performance in this first quarter, which was hampered by a particularly cold winter. We can expect a high rebound rate, but altogether the first half of 2014 will come to growth of just 1%.

The good fortune is modest, to say the least, but faith in recovery is good news nonetheless. Last month job growth finally recouped all the jobs lost during the recession, a major milestone in the recovery. The pace of job recovery is expected to continue by an average of nearly 250k per month. Unemployment, with this kind of growth, may fall below 6% by 2015.

More than the numbers, this survey marks a changing attitude, a perception shift from just a year or two ago. Consumers seem to be more ready to spend, personal donations to charitable organizations are up, and business is adding jobs and preparing for growth. This growth on all fronts really does need to continue in order to maintain economic growth.

A negative coming out of the survey is wage growth, which isn’t expected to improve much in the coming year.

When the Fed raises the benchmark interest rate in late 2015, economists think it will be a raise of half a percent, which would more than double current rates. The Fed has already scaled back the amount of bond purchases. All of this could be sped up or more aggressive depending on how numbers change month to month.

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Starbucks to Fund College Education for Employees

mark tuminello starbucks collegeStarbucks has been making headlines after their announcement of their bold plan to pay for college education for their employees. The program is a partnership between Starbucks CEO Howard Schultz and the president of the online degree program Arizona State University Michael Crow. Both men came from underprivileged beginnings; Schultz was raised in the Bayview housing project in Brooklyn.

The program was born out of the fact that children raised in situations similar to them are much less likely to complete a four-year degree. The pair said as much during the presentation of the program recently at the New York Times Center.

The fact of the matter is that employees of Starbucks do not have a college education. It is reported that a full 50% of students drop out of college mostly because of the high costs of attending.

Here’s the plan: Starbucks employees who work 20 hours a week will be eligible for the Starbucks College Achievement plan, which offers full tuition for juniors and seniors to complete a bachelor’s degree through Arizona State University. 50% reimbursement is available for freshmen and sophomores.

The hopes for the plan are two-fold. The central mission is to make a dent in the growing situation of class-based education. Low-income students have less than a 10% chance of finishing college. The second mission is to shine a light on the situation, perhaps in the hopes that more programs like this could be initiated at some of the other major employers in the country.

The presentation was given to 170 employees of Starbucks, each picked by their managers as excellent employees who are in need of the program. Secretary of Education Arne Duncan was present to answer questions. He later thanked Schultz for fostering such a positive, employee-focused culture.

A 17-year old employee raised in Bushwick projects by a single mom was particularly moved by the announcement. She told the crowd that she ‘only committed to one man in [her] life, and that’s you.’ Schultz jumped out of his seat to give her a big hug.

Schultz later remarked that he doesn’t believe that the primary role of a for-profit business is to make money. To truly create value for shareholders, a business must create long-term value for people. The full tuition reimbursement joins a similar plan for part-time employees for health insurance, a program started in 1988.

While there are risks in providing these kinds of programs to employees – Schultz admitted he had no idea how many employees would take advantage of the program. Nobody expects this to damage the future of the coffee company.

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Speed-Reading Apps Aren’t All They Claim

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It seems that some people out there are obsessed with reading as much as possible in the shortest amount of time. For people who read regularly, we know that reading is about so much more than the sheer quantity of information taken in. So much is published every day, there is simply no chance of reading even a significant portion of it.

A new slew of apps have been getting a lot of attention – apps that focus on speed-reading. Besides being a foolhardy attempt to take in more information in each reading session than necessary, apps like Fastr or Spritz are simply too good to be true.

These apps rearrange the reading interface, showing one word at a time instead of the entire piece. The creators claim this method eliminates the need for the eyes to move while reading, which can boost reading speeds to 400 – 1000 words per minute. They also claim that when reading like this, comprehension doesn’t suffer.

The journal Psychological Science has thankfully published a study taking this claim to task.

mark tuminello speed reading

Looking at the speedy succession of words above, you’ll probably find that 500 words per minute is do-able. The short sentence given is somewhat easy to follow. But what happens when you’re in the middle of Anna Karenina? Is this speed sustainable with real comprehension? What about appreciation?

In terms of comprehension, what is helpful for readers who truly want to take in information and process it, we need the ability to go back every once in a while and re-look at a word again. The study shows that most readers look back at words about 10% to 15% of the time. This is specifically for comprehension.

For the study, researchers selected 40 students who didn’t know what the test was all about. Their heads were restrained so that eye movement could be tracked, and they were told to read a series of sentences for comprehension. Some of the sentences were repeats, with one version being clearly written, the other being ambiguous. Additionally, some students had words they’d already read covered up by eye-tracking software – this made it impossible to go back and reread words.

Students who were not able to go back to look at words again understood less. This doesn’t directly address the efficacy of speed reading apps, but it does seem to suggest that 500 words per minute with no backtracking would harm comprehension. This is even more true when sentences are ambiguous.

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Mark Tuminello Goodreads Profile

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Mark Tuminello GoodreadsMark Tuminello keeps an active Goodreads account, where he tracks some of the books he reads.  With Goodreads, users can rate, review, and recommend books.  It’s a must for active readers who want an interactive database of their favorite books and authors.

 

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The GOP May Begin Reconsidering Entire Economic Platform

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mark tuminello pethokoukisThomas B Edsall yesterday published an op-ed piece in the New York Times about the Republican’s party new in-fight – their entire economic platform.  This is a bigger fight than gay rights and immigration reform – is it true?  Edsall gets his information from an article from The Week by the American Enterprise Institute’s James Pethokoukis.

Pethokoukis has written a scathing article of an economic manifesto by Ted Cruz, Mike Lee, and Ed Meese, all big names in the GOP.  Pethokoukis calls the manifesto tired, stumbling, and ignoring the facts that taxes will need to be raised someday because of a rising elderly population and that there is no evidence of a debt crisis in the United States.

In this debate, Pethokoukis represents conservative thinkers who have evolved, looking for alternatives to broad, far-right policies and goals.  Along with Michael Gerson, and Peter J Wehner, he wrote a piece for the journal National Affairs called A Conservative Vision of Government, which goes against typical tea party thought that all government intervention is inherently a bad idea.

This new right sees the dominant economic thinking of the Republican party as overly negative about the government, coming from a kind of apocalyptic view of life in modern America.  They point out that this kind of economic philosophy that would abandon those who can’t help themselves, to allow injustice to occur to the weakest members of society, is a failure of American principles.  Recent stalling of upward mobility can even be attributed to this, they admit.

This could represent the beginnings of real reform in the party, but many are doubtful any Republicans really want to take on the tea party head on.  These reformers are being described as too timid in their efforts to shake up the parties strongly-held beliefs about economics.  They say it goes beyond ending a blanket opposition to taxes in any form.  It’s really about changing a culture in which there is no attachment or empathy for the poor and the weak of society.

That said, the dissenting voices are significant.  The GOP are worried about working class voters in the north and the midwest, particularly in the coming presidential election.  More and more these voters are not seeing the deficit as an equal problem to the suffering economy.  How long will they support cuts to entitlements and no tax raises on the rich?  These dissenters could be just the thing the party needs to win back these voters before they defect.

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What Is Risk Reversal?

mark tuminello risk reversalRisk reversals can be used in a number of situations.  They are sometimes in the form of delta hedging, when an investor wants to protect assets from downside risks in price.  He wants to buy a put.  If he is okay with limiting his upside potential on the starting asset, it’s possible to sell a call to finance the purchase of the put.  It is thusly possible to create a position at no initial cost, one that is protected from major downside price movements.

Risk reversals are basically a put of a strike traded against a call of a higher strike.  So a 95/105 risk reversal means that 95 puts are bought and 105 calls are sold (or the puts are sold and the calls are bought).  More often than not, the put and the call options are out-of-the-money upon initiation of the risk reversal.

Another time someone would consider a risk reversal is as a way to get trading option skew.  If the trader things that the ratio of puts to calls is too volatile, it might be smart to consider selling puts to buy calls.  That’s a risk reversal.  Because a trader will be more interested in the volatility than the dollar values, he will delta hedge the combo (another term for risk reversal) when executed as a skew play.  In this way, the delta hedge serves the risk reversal as a way to focus the exposure to volatility.  Delta hedging options, lest we forget, means the strategy hinges on volatility instead of directional movement.

Here’s an example of when a trader would price a risk reversal as a skew trade, making him more interested in the implied volatility levels.  If his model uses volatility levels of 25 percent for the put, 20 percent for the call, he will consider whether the put is too high or low.  It’s important that his model is very accurate in terms of implied volatility.

Pricing and managing risk reversal is one of the more difficult option strategies.  It helps to select the combo with the put and call at similar levels of vega, gamma, theta, vomma, and vanna.  This way, many of them will cancel each other out.  This tactic is often used when combos are used as skew trades.  The trader can in this way minimize exposure.

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