Credence Independent Advisors News: June Witnessed a Rise in UK Mortgage Approvals for the First Time in Four Months

The UK mortgage approvals did see an increase in June, after four months, but were still 12 percent lower than January highs.

The UK mortgage approvals saw a rise in June, after declining from February to May; amid new stricter lending rules imposed by banks.

According to the Bank of England, after a four month decline and witnessing an 11-month low of 62,007 in May, the mortgage approvals rose to a four month high of 67,196 in June.

The implementation of tighter lending policy at the start of the year by high street banks and building societies was responsible for the changes witnessed in the mortgage approvals over the first two quarters of the year. The introduction of the Mortgage Market Review in April, which was designed to curb the excessive lending seen in the run up to the last housing market crash, further compounded the situation.

Mark Carney’s view of the hot housing market being the biggest threat to the UK’s economic recovery has further frightened buyers and lenders. Even though there has been an increase in the mortgage approvals for June, the approvals are still well below the 74-month high of 76,214 seen in January. This points out that the demand has declined because of record prices and the fact that under the new rules fewer people are managing to secure a mortgage.

The housing market has also witnessed some changes, with Rightmove reporting the first asking price falls of the year at the start of July and Hometrack announcing that it is now taking twice as long to sell your house in London as it did in March.

Howard Archer, chief economist at IHS Global Insight says “Nevertheless, the appreciable rise in mortgage approvals reported by the Bank of England in June fuels uncertainty as to whether the recent loss of momentum in housing market activity is likely to be lasting or just a temporary development related to changing mortgage regulations, and whether there will be a significant easing back in house price growth.”

Archer further adds on that “We take the view that while house prices will highly likely keep on rising over the coming months, it is probable that the gains will be more restrained compared to the recent peak levels.”

Credence Independent Advisors News: Global Equity Markets at Their Best in August, After Five Months

The trading for the month of August ended on Friday the 29th, witnessing a rise in the global equity markets, reaching their peak in five months, since February. The rise was attributed to the strong U.S. data and German bond yields rising up from their record lows, amid expectations that the European Central Bank (ECB) would ease monetary policy next week, fading away.

The S&P 500 index; which is the U.S. benchmark, ended on Friday above the 2,000 milestone for the third time, setting a new closing high. The rise in the S&P for August is the best since February.

The euro-zone inflation fell down to its five-year low, which initially caused European shares to decline. However, the improvement of the U.S. economy caused the European shares to bounce back again. According to analysts, the decline in the euro-zone inflation was unlikely to lead ECB in to taking any action any time soon.

The U.S consumer spending also rose to a seven-year high in August, after witnessing a decline in July for the first time in six months; suggesting that the decline was most likely temporary. There was also a rapid rise in the factory activity in the Midwest, emphasizing the U.S. economy’s relatively strong fundamentals.

According to Andre Bakhos, the managing director of Janlyn Capital LLC “Economic numbers have been positive for the most part, people are drawing comfort from these numbers, using them as a justification for optimism.”

Wall Street and European stocks closed higher, with .MIWD00000PUS (MSCI’s gauge of worldwide stock performance) rising 1.9 percent in August, its best monthly performance since February. However, Wall Street outperformed European stocks by closing higher in August. For instance, the Nasdaq Composite .IXIC rose by 4.8 percent, the S&P 500 .SPX gained 3.8 percent and the Dow Jones industrial average .DJI climbed 3.2 percent.

The index of top European shares; the FTSEurofirst 300 .FTEU3 index closed up 0.33 percent at 1,373.82 points. The Euro STOXX 50 .STOXX50E rose 1.8 percent in August, its biggest monthly gain since February.

The start of the week witnessed a sharp decline in the European bond yields across the euro zone after Mario Draghi (President of ECB) highlighted a significant drop in inflation expectations. His comments also raised expectations that the ECB would deploy quantitative easing (QE), which is large-scale purchase of assets. These expectations helped in boosting enthusiasm for stocks, both in the euro zone and the U.S. and also weakened the Euro.

However, according to Wouter Sturkenboom, investment strategist at Russell Investments “What people realize is that for the ECB to engage in public-sector QE … the ECB has to see the whites of the eyes of deflation.”

After the report on euro zone inflation, the Euro rose to $1.3195. However it later retreated and fell down to $1.3139.

The benchmark 10-year U.S. Treasury notes US10YT=RR seesawed, falling 2/32 in price to push its yield up 2.3431 percent.

The benchmark for euro zone borrowing costs; the German 10-year Bund yields DE10YT=TWEB, rose half a basis point to 0.891 percent, having hit a record low of 0.86 percent on Thursday.

With the Midwest manufacturing data pointing to a stronger demand, the U.S. crude oil rose for a fourth straight day.

Credence Independent Advisors News: Key Considerations of Behavioral Finance

                                                       

The central issue in behavioral finance is explaining why market participants make systematic errors contrary to the assumption of rational market participants. Such errors affect prices and returns, creating market inefficiencies. It also investigates how other participants take advantage (arbitrage) of such market inefficiencies.

Some of the following traits know as heuristics follow.

Psychology concepts that affect the way you manage your investments.

In psychology and more specifically Behavioral Finance, heuristics are simple, efficient rules of thumb which people often use to form judgments and make decisions. They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others. These rules work well under most circumstances, but they can lead to systematic deviations from logic, probability or rational choice theory.

The resulting errors are called "cognitive biases" and many different types have been documented. These have been shown to affect people's choices in situations like valuing a house or deciding the outcome of a legal case and in making financial decisions. Heuristics usually govern automatic, intuitive judgments but can also be used as deliberate mental strategies when working from limited information.

"Investors are 'normal,' not rational." Behavioral finance reconciles the discrepancy between rational valuation and irrational market pricing. It's a booming field of study. Top behavioral finance gurus include Yale's Robert Shiller and GMO's James Montier.

There are several common behavioral biases that drive investor decisions.

Availability Bias is the ease with which a particular idea can be brought to mind. When people estimate how likely or how frequent an event is on the basis of its availability, they are using the availability heuristic. When an infrequent event can be brought easily and vividly to mind, this heuristic overestimates its likelihood. For example, people overestimate their likelihood of dying in a dramatic event such as a tornado or terrorism. Dramatic, violent deaths are usually more highly publicised and therefore have a higher availability. On the other hand, common but mundane events are hard to bring to mind, so their likelihoods tend to be underestimated. These include deaths from suicides, strokes, and diabetes. This heuristic is one of the reasons why people are more easily swayed by a single, vivid story than by a large body of statistical evidence. It may also play a role in the appeal of lotteries: to someone buying a ticket, the well-publicised, jubilant winners are more available than the millions of people who have won nothing.

When people judge whether more English words begin with T or with K, the availability heuristic gives a quick way to answer the question. Words that begin with T come more readily to mind and so subjects give a correct answer without counting out large numbers of words. However, this heuristic can also produce errors. When people are asked whether there are more English words with K in the first position or with K in the third position, they use the same process. It is easy to think of words that begin with K, such as kangaroo, kitchen, or kept. It is harder to think of words with K as the third letter, such as lake, or acknowledge, although objectively these are three times more common. This leads people to the incorrect conclusion that K is more common at the start of words.

Investors believe they are awesome at investing

Overconfidence may be the most obvious behavioral finance concept. This is when you place too much confidence in your ability to predict the outcomes of your investment decisions. Overconfident investors are often under diversified and thus more susceptible volatility.

Investors are bad at processing new information.

Being poor and processing new information is known as Anchoring and is related to overconfidence. For example, you make your initial investment decision based on the information available to you at the time. Later, you get news that materially affects any forecasts you initially made. But rather than conduct new analysis, you just revise your old analysis. Because you are anchored, your revised analysis won't fully reflect the new information.

Investors connect the wrong things to each other.

Representativeness - A company might announce a string of great quarterly earnings. As a result, you assume the next earnings announcement will probably be great too. This error falls under a broad behavioral finance concept called “heard investing.” A lot of investors incorrectly think one thing means something else. Another example of representativeness is assuming a good company is a good stock.

Investors absolutely hate losing money.

Loss aversion, or the reluctance to accept a loss, can be deadly. For example, one of your investments may be down 20% for good reason. The best decision may be to just book the loss and move on. However, you can't help but think that the stock might comeback.

This latter thinking is dangerous because it often results in you increasing your position in the money losing investment. This behavior is similar to the gambler who makes a series of larger bets in hopes of breaking even. This Heuristic leads largely into another heuristic known as gamblers Fallacy, which can be best described as flipping a coin 100 times and the first 99 flips have all been tales. Gamblers fallacy indicates that most of us would bet on the fact the next flip has to be heads. Even though the odds have not changed and as a standalone flip of a coin, the odds are still 50/50.

Investors have trouble forgetting bad memories.

How you invest your money in the future is often affected by the outcomes of your previous experience. For example, you may have sold a stock at a 20% gain, only to watch the stock continue to rise after your sale. And you think to yourself, "If only I had waited." Or perhaps one of your investments fall in value, and you dwell on the time when you could've sold it while in the money. These all lead to unpleasant feelings of regret.

Regret minimization (Fear of regret) occurs when you avoid investing altogether or invests conservatively because you don't want to feel that regret. This is the human psyches was of protecting ourselves from unwanted emotions.

Investors are great at coming up with excuses.

Sometimes your investments lose money. Of course, it's not your fault, right? Defense mechanisms in the form of excuses are related to overconfidence. Here are some common excuses:

• 'if-only': If only that one thing hadn't happened, then I would've been right. Unfortunately, you can't prove the counter-factual.
• 'almost right': But sometimes, being close isn't good enough.
• 'it hasn't happened yet': Unfortunately, "markets can remain irrational longer than you and I can remain solvent."
• 'single predictor': Just because you were wrong about one thing doesn't mean you're going to be wrong about everything else.