Sunday, March 22, 2015
Market Outlook | March 23, 2015
“The hardest tumble a man can make is to fall over his own bluff.” (Ambrose Bierce 1842-1914)
Summary
The Federal Reserve continues to send mixed signals about the rate hikes that stirred a massive response from participants. However, the numbing effect of prior QE policy keeps comforting investors to not fear volatility or to seek shelter in equity markets. Ongoing chatter of rate hikes has yet to change the well established, current status-quo. Yet, the Fed is struggling to justify a critical decision regarding rate hikes when multiple macro indicators suggest a fragile economy.
Bluffing Games
A Fed bluff game is taking shape as it relates to interest rates. The bluff—in terms of potential rate hikes as the "economy is improving" statement—seems hardly tangible when digging further, of course. Unless one assumes the broad equities indexes tell the full story, the rate hike expectations by some for June or even autumn of this year remain rather ambitious.
Year after year threats of a Fed rate hike have been discussed and pondered, but there's been a lack of basis for it. At least no convincing evidence exists right now for those looking beyond headline employment numbers.
As the heating equity markets dance with new or near all-time highs, there is a clear message from investors based on behavior:
1) "We get it." There are not many places to put capital when various central banks are lowering rates. Especially in an already well documented low rate environment. The ECB decision of lowering rates is not noble, but rather follows the footsteps of the US and UK policies of boosting asset classes via low interest rates. In short, the message is quite clearly across regions.
2) "We don't mind." The indirect responses by investors regarding QE future consequences is ambivalence. This is felt in sentiment since worry (or volatility) has failed to influence near-term discussions. Both reactions are visibly based on increasing inflow into equities within the last two weeks, as well as the lack of any meaningful selling pressure. Short-term thinking continues to look at QE as good policies while disregarding the “unknown” future results.
The stock market appears to serve more as a distraction rather than a good measure of well being; however, it still manages to serve as a great tool for increasing asset values despite this. Surely, those looking to create wealth are amazed and impressed with the multi-year bullish run. Essentially that encourages irrational behavior, and some signs of too much “cheerfulness” are persisting.
Mind Games vs. The Tangible
Why would one suspect of a rate hike? How is that justified? The numbing effect from QE/low rates combined with feel good data emphasis may have most likely created an illusionary feeling about the reality of economic health. If wages fail to grow, as exhibited in US along with soft business activities, then why would rates rise? A questions that's been pondered and asked for a long while now:
“Meanwhile, everything other than monthly job gains seems to be in the pits. Wage growth throttled back in February after showing a spark, U.S. factories felt the pinch from a stronger dollar, and credit-card use hit a 14-month low in January, to name just a few.” (Bloomberg, March 17, 2015)
Perhaps, the more press releases and crafty words from the Fed the more reason to be suspicious. As more and more capital begins to blindly trust the Fed, then nasty surprises await—so far the “surprise” has not arrived, and the market is chasing trends rather than unlocking economic mysteries. The trigger for the downside surprise is the revelation of the economic weakness from consumer spending to business expansion. All the signs are there if the collective market decides to pay closer attention.
Value of Risk
The volatility index for the S&P 500 index hit annual lows last Friday. This reflects the inverse response of those seeking further reward in equity markets. Once again, the perception of pending turbulence is very low. The impact of a strong Dollar on corporate balance sheets may be discussed much sooner than imagined. Plus, at what point are companies going to justify their valuations? Regardless of a rate hike (or not) the irrational nature of the markets will require a reality check. However, valuation is more of a historical exercise than a tool to anticipate the next move. The challenge today for capital allocators is to find alternative and rewarding ideas beyond the status-quo. Energy related areas have adjusted their value after massive sell-offs, while Technology continues to benefit. A collective decline in share value is not overly feared, and risk is downplayed mainly due to the Fed’s ability to convince participants of their solid plan.
The more trust in the Fed, the lower the volatility index. Perhaps, believers are too optimistic of the Fed’s plan, some going so far as to defend some of the unexplainable valuations. At least this is what the market is saying, and investors are left to make a choice for the months ahead.
Article Quotes:
“IN THE EVENT, the FOMC caught the Street napping. The latter was so obsessed with ‘patience’ that Dr Yellen‘s totally cool and dispassionate explanation that removing patience from its statement did not indicate that it was impatient took many millions of highly paid IQ points totally by surprise. Wednesday’s knee-jerk reaction to buy stocks and bonds and to sell the dollar – the spike in dollar/euro up to US$1.10 certainly triggered a few painful stop-losses – didn’t last, but what will last, I hope, is the lesson that the Fed is no longer given to spoon-feeding the markets. Markets have become complacent and have continued to believe that central banks and their monetary policy decisions are principally here for their benefit. Dr Yellen may be grey and boring and the least charismatic Fed President in many years – being less charismatic than Ben Bernanke takes quite some doing – but that does not mean she’s stupid. The decision to make policy data-dependent buries forward guidance ¬– in my view not a minute too soon – but also shows that she and her Merry Men are not being dovish for dovishness' sake but that they will not be pushed into a tightening cycle simply because that is what the market expects. In that, they are ahead of the game and the Street had better get its skates on if it wants to catch up.” (IFR, Anthony Peters, March 20, 2015).
“The problem with northern Europeans is that they regard Greece as a typical European nation. This is not true. Greece is different. It has not experienced all the ideological movements that formed western Europe. There has been no Renaissance, Reformation or Enlightenment. It is a border country between east and west. According to Samuel P Huntington (in his The Clash of Civilizations and the Remaking of World Order), it belongs to an entirely different civilisation: the Orthodox one, together with Serbia and Russia. Having had a lot of problems with the west (starting with the Fourth Crusade, which instead of liberating Jerusalem sacked Constantinople), Greeks have always felt a deep mistrust of western initiatives. Being insecure because of their problematic identity (east-west/ancient-modern) they tend to reject change and restructuring. Theoretically they like reforms – as long as they do not affect their life.(This is why Greek politicians have been consistently sabotaging all changes, in order not to confront their electoral clients and the almighty unions of the public sector.) So instead of reforms, Greeks got pay cuts and austerity measures that resulted in a 26% unemployment rate – and a 25% loss of national income.” (The Guardian, March 21, 2015)
Levels: (Prices as of Close: March 20, 2015)
S&P 500 Index [2108.10] – Few points removed from the intra-day highs of 2,119.59 reached on February 25, 2015. Again, the positive trend is reinforced.
Crude (Spot) [$46.57] – The bottom remains fragile and undefined. In the current round of near-term trading, the $44 range may create a new test for buyers and sellers. Clearly, the supply-demand picture continues to suggest that prices at current levels seem reasonable.
Gold [$1,166.00] – Following an over 10% decline in gold since late January, some investors are wondering if there is a bottom in sight. Longer-term indicators suggest the negative cycle takes a few years to shake-out as the decline remains intact.
DXY – US Dollar Index [100.33] – Stabilized after reaching another multi-year high. An explosive first quarter thus far as the dollar strength remains emphatically in place.
US 10 Year Treasury Yields [1.93%] – Continues to struggle to hold above 2%: A common, but powerful theme from the last few months.
Sunday, March 15, 2015
Market Outlook | March 16, 2015
“When a symbol unmoors itself from what it symbolizes, it loses meaning. It becomes ineffective.” (Arundhati Roy)
Summary
No shortage of discouraging headlines these days as it relates to variables impacting future growth. Concerns are accumulating as key markets slowly digest the harsher realities of growth conditions. Commodities confirm a slowing demand in China and emerging economies. Eurozone showcases the political nightmare created by the economic woes of post 2008. US assets, including the Dollar, march on higher with an enviable position against other markets. More pressure is building for financial markets to readjust the risk perception and justifiable valuations despite QE efforts to re-boost Eurozone. Bulls appear more nervy than in prior quarters, as this bullish cycle’s resilience is tested—again.
Misleading Symbolism
For a while the stock market in the US has symbolized economic well-being, while also serving as a barometer for wealth creation and even perceived by some as the nation’s key sentiment indicator. Of course, the financial markets remain a tool for wealth creation regardless of varying perceptions. In the last six years though, the wealth creation of S&P 500 or Nasdaq index disguised as well-being incorrectly describes the sentiment of the average citizens' well-being. To add insult to injury, small business and middle class day-to-day matter are not at the forefront because of this glorified and overly-celebrated bullish run. Finally, in a period where the Eurozone and China are slowing and severely fragile, US assets are enjoying a relative advantage that’s so great that the absolute concerns have been ignored. Typically, the political discourse is overly focused on the stock market as somewhat of a gauge. Meanwhile, the low interest rates, low inflation, lower commodity pricing and less business friendly policies tell a much grimmer story for the vast majority.
Desperate Bargain Hunting
The dollar strength has reminded many of the woes not only in Europe but mainly in Emerging Markets, with very few exceptions. As investors are optimistic about India, other nations like Brazil, Turkey and Venezuela are scrambling to deal with the turmoil. In fact, the interconnected economic and political crisis is not only reflected in financial markets, but also in social unrests. A classic example is Brazil where currency is collapsing and outrage is expanding:
“Rousseff’s government is raising taxes and cutting spending as a means to shrink the budget deficit and avert a downgrade to its sovereign credit rating after years of ballooning spending and subsidized lending.” (Bloomberg, March 15, 2015)
Interestingly, opportunistic capital is seeking investments in Emerging Markets these days, but the growth potential seems mysterious. On one hand, bargain hunters these days have to look at EM, especially as the US becomes saturated and a bit expensive. Here is one example:
“China’s $653 billion sovereign-wealth fund is looking to invest more in emerging markets, according to an infrastructure investing official at China Investment Corp…. CIC is reconsidering its approach to investing in infrastructure because assets in developed markets have become too expensive, with 'inflated pricing' at auctions.” (Wall Street Journal, March 11, 2015)
As 2014 illustrated, the capital outflow from EM and commodities was felt with massive selling. Now those planning ahead for 2-3 years are asking the questions regarding the piling on the NASDAQ (US tech and biotech), which is hardly cheap, versus EM infrastructure or commodity related investments.
As EM and commodities continue to decline in value then bargain seekers are eager to take further risks, but the bottoming process will require further patience. As oil and gold speculators learned in last few weeks, the commodity cycle unwinding takes a while.
Mysterious Catalysts
As the Nasdaq trades near its all-time highs, nostalgic memories of the tech bubble naturally resurfaces. Of course, when the S&P 500 index reached all-time highs in 2007, the Nasdaq was not quite at historic highs. A few years since the 2007 peak, in a synchronized manner, US assets have climbed higher—mainly during a period where innovative themes are rewarded and low interest rates boost equities. Not to mention, when commodities are out favor the innovative segments, such as tech and biotech, naturally attract further capital. Speculators may seek a rotation, but the evidence is not quite clear.
Meanwhile, the ECB actions of low rates and higher equities will be tested further. For now, most of the stimulus damage is realized in the declining Euro. So much noise persists on what the Eurozone's next moves will be, but the reality is still grim for those looking beyond recent European equities appreciation. Yet, the known catalysts (i.e. Fed or earnings) in the past have let down those seeking or expecting a correction. The chatter of the Fed raising rates has picked up tons of momentum but with inflation, wages and commodities remaining low it is not quite convincing that rates would rise. Perhaps, the catalysts are not only the Fed’s action or anticipated action, instead it is culminating issues that have been ignored. At some point, a boiling point for list-worries can inflame a further spike in volatility. The catalyst that can tilt sentiment in a vibrant manner remains mysterious for now. However, the pressure is clear from all angles and regions.
Article Quotes:
“These are some of the reforms that countries like Italy and Greece, but also France and Germany, need to implement. The ECB’s QE buys political leaders time, but it remains to be seen whether they are prepared to use it — and a bit of political capital — to create consensus around the need for reforms. And even if they did, it’s hard to say if reform proposals could make their way through parliaments and, finally, to implementation. Indeed, the incentives to go through a painful process of change are not there, surely not in the short term. What the ECB seems to have done with QE is to provide a large carpet under which to sweep issues that require complex, long-term solutions that do not necessarily advance the political agenda of their proponents and might undermine their political ambitions. Indeed, by buying more time for the euro in the short term, Draghi may have pushed any long-term solution further away. Fostering complacency is the implicit risk in the decision to extend the ECB’s safety net and to support economic growth in the eurozone, as opposed to just keeping prices in line with the agreed inflation target. Complacency has never been in Draghi’s frank and forceful vocabulary. But in reality, even if it correctly addresses the issue of medium-term growth, the ECB’s move limits the incentive to focus on what will happen to Europe’s single currency, the euro, in the longer term if member states are unable or unwilling to modernize their economies, make them more productive, and adapt to the constraints posed by the euro.” (Foreign Policy, March 13, 2015)
“Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself. China’s strongman leader, Xi Jinping, is hoping that a crackdown on dissent and corruption will shore up the party’s rule. He is determined to avoid becoming the Mikhail Gorbachev of China, presiding over the party’s collapse. But instead of being the antithesis of Mr. Gorbachev, Mr. Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society—and bringing it closer to a breaking point. Predicting the demise of authoritarian regimes is a risky business. Few Western experts forecast the collapse of the Soviet Union before it occurred in 1991; the CIA missed it entirely. The downfall of Eastern Europe’s communist states two years earlier was similarly scorned as the wishful thinking of anticommunists — until it happened. The post-Soviet 'color revolutions' in Georgia, Ukraine and Kyrgyzstan from 2003 to 2005, as well as the 2011 Arab Spring uprisings, all burst forth unanticipated. China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989. Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP rule was inevitable. Others were more cautious—myself included. But times change in China, and so must our analyses.” (Wall Street Journal, March 6, 2015)
Levels: (Prices as of Close: March 13, 2015)
S&P 500 Index [2053.40] – The near-term test for this bullish trend is ability to hold above 2040. Since November 2014 buyers have debated between the 2000-2080 range.
Crude (Spot) [$44.84] – A few points removed from the January 29, 2015 lows of $43.58. Clearly, the boom and bust nature of commodities takes a while to settle in. The break above $50 ended up being short-lived.
Gold [$1,152.00] – Over a 10% drop since late January peak. Again, further confirmation that Gold trades more like a commodity and remains out of favor.
DXY – US Dollar Index [100.33] – The explosive run continues as a new landmark is reached (over 100). With every strength the dollar exhibits the further the weakness of Emerging Market currencies and the Euro goes. The highs from September 2001 remain the next major landmark point. Rather a profound macro trend.
US 10 Year Treasury Yields [2.24%] – A new range formed between 2-2.20% and stabilized around 2%, but further upside momentum in rates remains unconvincing.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, March 09, 2015
Market Outlook | March 9, 2015
“The art of simplicity is a puzzle of complexity.” Doug Horton (1891-1968)
Summary
The long celebrated bull market remains intact, but questions are being asked. Pressure is building for US stocks for two primary reasons: 1) The reported government data continues to suggest improving economy (i.e labor conditions), which triggers possibilities of interest rate hikes. When investors look two steps ahead they quickly interpret the perception of rate hikes as negative for stocks. 2) QE has been magical in the lift-off of asset prices. With the stimulus efforts winding down and current valuations not so cheap, justifying another powerful upside move with no major breather seems less pragmatic for average investors.
Stock Volatility: Part laughable & mostly unfathomable
Low volatility in stocks has been the norm for a long while. Mild spikes of turbulence have been mostly short lived. Occasionally, day to day traders may be obsessive about the mild swings, but there has yet to be anything meaningful. Meanwhile, long-term fund managers have not feared volatility as serious threat. It begs the question, why is stock volatility so low? Is the ebb and flow of this market credible?
Just like European bond yields (with few exceptions) continue to go lower, the decline in volatility echoes the same ol' signal of an audience that's “not worried.” Has volatility been numbed by QE or predicted by the Fed? Perhaps. A mystery for now, but when low rates (rate cuts) become the fashionable and over-arching theme from Asia to central Europe to Latin America, then it is safe to say that markets seem more "predictable" than usual. Over 19 central banks have cut rates this year including Oman, Turkey, Poland and Indonesia. Of course, the perception of “predictable” is here on a relative basis. At the end of the day, nothing is actual predictable despite all the noise from pundits, analysts, and government officials.
Amazingly, QE is the driver of higher stocks and lower volatility and is the same factor that’s producing scramble for higher yielding assets. Basically, QE, the "simple" tool of lowering interest rates, is the same tool that ignores the complex and uneasy climate for business operators.
Mild Awakening
Last year's turbulence in currencies and commodities served as a reminder of the slow environment global cycle. Danger has been reflected from Russia to Brazil and from commodity sensitive currencies. It comes as more like a gut check regarding the fragile conditions of Emerging Markets and the slowing growth rate that is driving lower commodity supply. It is no secret that Euro Zone and Emerging Markets are not robust in their economic growth.
1) Outflow of stocks—more outspoken bearish sentiment and mild sell-offs after a range bound action.
2) Relentless Nasdaq momentum has triggered questions regarding a potential 'tech bubble,' given the high valuations. Are the bubble-like traits serious?
3) US Dollar along with US assets are heavily sought after as we learned last year, but there are not enough bargains to attract newer capital. The 'safe haven' rotation is not in early innings. In fact, the more EM currencies collapse the more the dollar benefits. The world's misery is the US dollar's benefit. A strange, but vital, reality.
It is only a matter of time before a referendum on Fed policies is looming, at least in US. Sure, ECB is yapping about the glorified QE in a time where US markets are getting tired (or numb) of the tricky stimulus efforts of low rates. What if suppressed volatility is a myth or an illusion? The celebrated six-year bull market has been challenged by bears before and triumphed with vigor. Yet, the triumph is not substantive if wage growth, middle class jobs, and corporate health fail to share alongside this asset appreciation celebration.
Puzzling, But Practical Questions:
• S&P 500 and other broad stock indexes are near all-time highs. Therefore, what if job data continues to improve? How much upside is left in stock prices?
• If the Economic conditions are improving, as data suggests, then rates would have to rise? Rising rates are interpreted as bad news for stocks.
• In post QE world, who knows how valuations will play out in the US?
The current market pricing for equities is hard to defend for quarters and years ahead. QE is not a long-term solution, either. And volatility index appears disconnected from reality. Not an attractive set up for pragmatic observers even with the glossy "all-time highs" environment.
Article Quotes:
"In the United States, years of Federal Reserve stimulus aimed at reviving the real economy led to the wave of share buybacks while firms neglected capital expenditure (capex). Few people expect European firms to match the staggering sums in the United States, where over $2 trillion of stock was bought back between 2009 and 2014, according to Reuters data. Nevertheless, about $8 billion worth of buybacks have already been announced by a dozen European companies this year, including ABInbev (ABI.BR) and ASML (ASML.AS). That appetite is likely to keep growing: European firms have over $1.5 trillion in cash on their balance sheets and few obvious places to reinvest it to earn a return. Borrowing costs are already at record lows relative to their earnings power, and with the ECB set to depress rates further with its quantitative easing (QE) program, buybacks are an easy answer. If the United States is any guide, big buybacks will attract criticism. A report by Barclays from September found that, even though capex remained the top form of U.S. cash-flow spending, the rate of growth of buybacks had far outstripped capex and this meant less cash was being reinvested for growth." (Reuters, March 5, 2015)
"If monetary policy is too aggressive and expectations of inflation start to rise, so too will interest rates. Like the golfer back on grass, the central bank can then use normal interest-rate policy to rein things in. The main problem with QE recently is precisely that central banks have been reluctant to take a full swing, to do “whatever it takes” to restore inflation expectations. The problem is more acute in Japan and Europe than in the United States, though it has been a problem here, too. So far, all the new money hasn’t created inflation — but it would if banks started unloading the massive holdings of reserves they received from the Fed. As long as those holdings remain bottled up in the banking system, there is no direct effect. Central banks assure us not to worry because if things ever do heat up, they have more than adequate tools to deal with the problem before inflation spikes.
The central banks are almost certainly right in theory, though one can imagine practical circumstances where exiting from QE could get tricky. Obviously, central banks can simply reverse the process as the global economy strengthens, selling off long-term bonds to soak up reserves. Then that money doesn’t get into the economy to cause inflation. And if all else fails, the central bank does have other tricks up its sleeve. For example, the Fed might be able to invoke financial stability concerns to force banks to temporarily hold much higher reserves. Such a move would be hugely controversial, but in emergency situations, central banks are used to that." (Boston Globe, March 1, 2015)
Levels: (Prices as of Close: March 6, 2015)
S&P 500 Index [2071.26] – Signs of selling pressure appear at 2100. Overall, the bullish trend is intact; however, buyers are losing vigor in the near-term. Interestingly, in December visible signs of buyers started to stall at 2080. Again, that will be tested in the near-term, despite the cheery all-time highs achieved on February 25th.
Crude (Spot) [$49.10] – A multi-week bottoming process appeared around $50. Further upside momentum isn't quite visible. Interestingly, the 50-day moving average now stands at $49.82, which is in-line with current prices.
Gold [$1,202.00] – The January run from $1,180 to $1,280 seems very short-lived and lacked follow-through. Signs of stabilization seem to be around $1,200 for now.
DXY – US Dollar Index [97.66] – The dollar strength continues to re-accelerate. Despite the multi-week pause, the demand for the US dollar remains intact, even given the turbulent global climate.
US 10 Year Treasury Yields [2.24%] – Interestingly, the 10-year yield is back at familiar levels from few months ago. The 200-day moving average stands at 2.30%. Perhaps, the January 2015 lows of 1.63% established lows in the near-term.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 16, 2015
Market Outlook | February 17, 2015
“Illusion is the first of the pleasures.” Voltaire (1694-1778)
Summary
The equity markets reminded us yet again that brewing crisis in foreign policy, escalating religious and regional conflicts, or dampening economic climate are not factors in impacting collective share prices of key indexes. For now, perception based realities are preferred over confronting future realities. Central Banks remain the dominate force in financial markets and continue to shape and influence this multi-year, well known narrative. Hence, stocks (via participants’ actions) are de-emphasizing the alarming responses from currencies and commodities as participants are primarily reacting to the low interest rate climate.
Illusionary Realities
The reality remains that the bullish market is in place and turbulence is nearly off the radar. Interestingly, DAX (German index) was trading around or at all-time highs even before the ECB stimulus decision. Before the ECB’s QE launch, developed market assets were appreciating for a several years, with US assets being the biggest beneficiaries of capital inflow. However, a rising stock market in the US or Germany may not necessarily project a better economic growth ahead or an increase in labor productivity. For now, economic nuances are not the decisive factor as long as crisis is averted and GDP is not negative. Until then the trend lives on.
Similarly, liquid assets that are in stable footing are in high demand; it makes sense that the DAX and US broad indexes are in favor. When all is said and done let’s not forget: The S&P 500 index has risen over 33% since the peak in October 2007. Basically, if one solely relies on stock indexes, then the financial trauma of 2008 would seem long forgotten. (As if the crisis then was illusionary). Worrying has not paid as much as accepting the consensuses of the Fed’s action. This all-time high may seem illusionary to others, but that’s essentially the reality of the “scoreboard.”
The conflict between the rewarding stock market and mixed economic data are not highly debated at the forefront. In a way, there is a numbness to bad results that have given unimpressive economic results from Greece to Italy to Japan. Sure, Emerging Market woes have been felt and those woes left a massive dent last year. Yet, it feels that markets appear less sensitive to matters related to weak GDP, labor numbers, or other government related policies. Amazingly, if slightly positive news comes out regarding retail sales or consumer trends, then markets are sensitive to the upside. That suggests that the various bad news have been heard, incorporated, and certainly not feared. The same applies to the energy sector and commodity related nations where the negative shock has been somewhat flushed out. The perception driven financial inter-workings may easily confuse someone since all-time high indexes are not tangible.
Safety Redefined
For most part, fund managers are not making philosophical or bold macro statements in their trading decisions. Simply, it remains convenient to ride the upside wave and not fight the established trend. Surely, this is the popular and so called “safe” approach. This investment behavior plays into the Fed’s script. After all, in the post 2008 era, it is hard to dispute the fact that those central banks have masterminded this rally. Induced by low interest rates and desperate measures to restore confidence, the Fed’s game plan has work as crisis is not a near-term threat.
Capital allocators were not dwelling on Eurozone crisis. Even now there is not much of a collective worry regarding the Greek talks. The Greek Exit is an unsolved headline matter and has not reshaped broader sentiment at this point. In addition, a break-out in volatility is not quite feared these days. Similarly, the Ukraine-Russia discussion is not much of an event, despite Russia's economic and currency collapse—highlighted by massive oil correction. Instead, the near-term mindset is about riding the trend, seeking bargain opportunities in energy, and obeying the commands of the Federal Reserve (until told otherwise). For good or for bad, betting on volatility is not as safe is it once seemed. However, predicting the confluence of negative events is a daunting challenge. Perhaps, most have realized that and not bothered dwelling on the gloomy outcome. The “safe” approach is shaped by recent patterns, which is understandable from a human behavior point of view.
Dullness
This ongoing meme of lower rates and lower volatility that results in higher stock markets has overly-simplified the art and the science of financial markets. If risk is taken out of the equation then it is hard to know what is real and what is not. Perception alone is too powerful. Is the middle class doing well? Are small businesses being created? Is there new innovation across traditional sectors? Underneath the surface there is plenty brewing for keen observers, but it has not translated into actionable results. Decimated Emerging Market currencies, Oil price impact on Middle East, occasional negative bond yields, attitudes towards Eurozone, and other political factors are heating up. However, the markets cannot pinpoint on the nuanced base-daily movements. Instead, attention is nearly all Fed-centric, which makes it easier for some to track and tricky for others to trade.
Article Quotes:
“With rapidly falling world oil prices, disinflation pressures are unlikely to abate any time soon. According to the latest World Economic Outlook forecasts (IMF 2015) and our estimates, headline inflation is expected to stay low through 2015 in euro peggers and remain below targets in Hungary, Poland, and Sweden. In fact, the sharp decline in oil prices since June 2014 will drag inflation lower, as the commodity price drop filters through to domestic prices. Is this good or bad for the economy? A 2009 Vox column by Robert Ophèleon the Eurozone’s previous disinflationary episode in the wake of the Global Crisis remains a reliable guide in thinking through this issue. The prospect of lower cost-of-living and production costs is undoubtedly a positive development in the short run:
• Lower energy prices boost the purchasing power of households and businesses. Given the still negative output gaps throughout the region, a pick-up in demand would be a boon for domestic producers.
• The lower consumer and firm outlays on goods and services would also ease the liquidity strains of debt service for heavily indebted firms and households, reducing the risk of default and the related negative effect on consumption and investment.” (VOXEU.org, February 16, 2015)
“After pulling more than $16 billion last year, investors have poured $4.97 billion into U.S. high-yield mutual funds and exchange-traded funds since December, according to Lipper. BlackRock Inc.’s junk-bond ETF, the largest of its kind, has seen inflows during each of the last 13 days, the longest streak of deposits in more than two years. Junk bonds are benefiting from demand for higher-yielding assets as the European Central Bank’s new round of bond purchases pushes yields on more than $1.7 trillion of debt worldwide below zero. The resurgence is sending down borrowing costs for speculative-grade borrowers.” (Bloomberg, February 10, 2015)
Levels: (Prices as of Close: February 13, 2015)
S&P 500 Index [2,096.99] – Another all-time high revisited, again. Previously surpassing 2,050 was a challenge. Now, the index is slightly above the previous all-time highs from December 29, 2014.
Crude (Spot) [$50.02] – The two week rally is pausing. Investors regain confidence after of a new bottom around $45. Further catalysts are needed to stimulate an extended upside move.
Gold [$1,222.50] – In the past twelve months, buyers’ appetite kept fading at the $1,300 range. A long drawn out bottoming process that’s kept up the intrigue, but demand is not picking up.
DXY – US Dollar Index [94.20] – In the last three weeks, the dollar has stabilized while maintaining its positive trend. It is in a mild pause after the explosive strength last year.
US 10 Year Treasury Yields [2.05%] – This month has showcased a mild uptick in yields above 2%. Recently, the move suggests that 1.70% appears like a new bottom for yields for now. However, this move above 2% is still not overly convincing.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 09, 2015
Market Outlook | February 9, 2015
“Reason is the slow and torturous method by which those who do not know the truth discover it.” (Blaise Pascal 1623-1662)
Synopsis
For months, investors have heard plenty about slowing Eurozone and Chinese economies. Both have been on investors’ radars and seem to lack clear or definitive answers as it relates to stopping the “bleeding” or redefining a new hopeful cycle. For now, a slow demise in the Eurozone and gradual deceleration in the Chinese economy remain in place despite some optimistic chatter in financial markets. The recent stimulus measures in both regions most likely signal an act of desperation rather than a clear-cut solution. Meanwhile, US stocks have maintained their relative appeal as buyers and sellers debate the next directional move.
The Slow Demise
When are these slowdowns going to be felt in a profound manner? At what point is it a shock? For now, data keeps reminding us of the fragile state of the global economy with seldom signs of revival. On a weekly basis, the weak conditions of European economies are revealed. Perhaps, that’s explained by the desperately needed stimulus (QE) earlier this year. This lack of growth is further visible by the very low yields (where negative yields are common these days). Then there is the political crisis, which is a front page issue. This is brewing further with the Greek exit from the Eurozone, which drives the suspenseful twist in this saga. The angst from the well-established crisis has dragged on—it is tangibly felt and politically has created unease for market stability.
“Even after two bailout packages, it is unrealistic to expect Greek taxpayers to start making large repayments anytime soon – not with unemployment at 25% (and above 50% for young people). Germany and other hawkish northern Europeans are right to insist that Greece adhere to its commitments on structural reform, so that economic convergence with the rest of the eurozone can occur one day. But they ought to be making even deeper concessions on debt repayments, where the overhang still creates considerable policy uncertainty for investors.” (Project Syndicate February 2, 2015)
There are plenty of unsettled worries. Beyond Greece—what if others leave the Eurozone? How is this settling for investors? Can we accept this slow demise? Regardless of spurts of optimism, the dire European conditions are too difficult to ignore for markets of all kinds.
The Gradual Deceleration
In terms of China, most of the discussion revolves around the slowing growth rate. It is quite evident that the slowing demand in commodities is closely tied to weakness in China. Clearly, this correlation between commodities and China (as well as Emerging Markets) is being realized by participants. Again, this result is not going to cause an overreaction these days.
“Coal imports dropped nearly 40 percent to 16.78 million tonnes, down from December's 27.22 million tonnes, and China also appeared to cut back on its strategic stocking of crude oil imports, which slid by 7.9 percent in volume terms.” (Reuters, February 8, 2015)
As these data points pile-up, the question remains: When does this turn to panic or loss of confidence? On one hand, the Chinese fund (FXI) is quite removed from its peak in 2007. The share prices of Chinese stocks in the last four years have stayed in a narrow range as positive news remains scarce. This may suggests that the disconnect between real economy and share prices is not overly misaligned unlike other markets.
On the other hand, a 2008 like crisis has not been felt, yet, which would express a lack of faith and confidence. Interestingly, FXI is up nearly 20% since early October as stimulus hopes to find a way to raise asset prices. Nonetheless, the Yuan is not quite close to Dollar or Euro status in terms of popularity. For now, tangible data confirms the struggle for a revival on the ground level economy. Massive dependence on stimulus efforts may create near-term optimism, but it is less likely to solve longer-term fundamentals.
“Weighed down by a property slump and overcapacity, China saw the biggest outflow of capital since at least 1998 last quarter. With money headed out of the country, the reserve-ratio cut is aimed at preserving the liquidity status quo.” (Bloomberg, February 4, 2015)
If capital is flowing out of China and into US assets then it is safe to say that wealth is not as comfortable staying in China as it did a decade ago.
The Standstill
Signs of mild instability have been brewing under the surface recently. A stock market shock or spike in stock volatility has not materialized, but some mild and indirect clues are building. The last sixty days reveal the uneasy responses and anxiousness about broad US indexes. The price swings illustrate the debate between believers of ongoing bullish rally versus doubters seeking a mild breather. The S&P 500 index has struggled to make new all-time highs in 2015 thus far. A very mild pause in the two year momentum may begin to invite tougher questions from investors. Similarly, VIX (Volatility index for US stocks) has gone back and forth between 16 and 24, with above 20 illustrating heightened investor anxiousness.
In addition, the positive labor data reinforces the consensus view of a possible rate hike in mid-year. However, the bond markets need to confirm if the economic strength presented in government data is plausible. Plenty of cynicism surrounds the guidance from the Fed, especially with low inflation and unimpressive wage growth that may not justify a rate-hike.
As seen in other markets, the commodity sell-offs (primarily in Crude) hurt corporations as much as they help consumers. The strong dollar impact on US companies has led to not-overly-thrilling results that hurt earnings. This impact of a strong dollar is to be discovered in upcoming quarters. As usual, if the Eurozone and China fail to offer a promising outlook, then the US benefits from the “safe haven” perception. This is a powerful edge that keeps assets higher, even if on an absolute level weakness is brewing.
Article Quotes:
“The central-bank stimulus spree of 2015 has the look of a global currency war. In quick succession, countries representing about a third of the world’s economic output—from the eurozone to China, Australia and Canada—have taken steps that have driven down the value of their currencies. But if it’s a war, it’s a gentle one so far. Half the central banks representing the Group of 20 developed and large emerging economies, whose top monetary and finance officials meet to discuss the global economy this week in Istanbul, have taken easing steps so far this year. The moves—mainly in the form of interest-rate cuts but also asset purchases—have ricocheted through foreign-exchange markets, driving the currencies of some countries down and those of others, primarily the U.S., up. That helps the economies of countries that are easing while complicating life for some central banks, such as the Federal Reserve, and creating challenges for exporters, from the U.S. to Switzerland and Denmark… Mention of currency war evokes images of countries deliberately trying to force their currencies down to boost exports and curb imports at their neighbors’ expense. By definition, it’s a zero-sum game… Unlike past easy-money campaigns, these latest efforts—from economies totaling about $36 trillion in annual output—aren’t aimed at addressing financial crises, as with the U.S.-led global effort six years ago. Rather, central banks are taking aim at the risks of too-low inflation and weak economic growth.” (WSJ, February 8, 2015)
“It is only ‘a matter of time’ before Greece is forced out of the eurozone, the former US Federal Reserve chairman Alan Greenspan forecast. The prediction came as the UK chancellor, George Osborne, said Britain was ‘stepping up’ contingency planning for dealing with any escalation of the crisis. The former US central bank chairman said it was hard to see any other final outcome of attempts by the new leftwing Syriza government in Athens to renegotiate the terms of the country’s €240bn (£179bn) international bailout.‘I don’t see that it helps them to be in the euro, and I certainly don’t see that it helps the rest of the eurozone, and I think it is just a matter of time before everyone recognises that parting is the best strategy,’ Greenspan told BBC Radio 4’s The World This Weekend. Osborne, who held talks in Downing Street last week with anti-austerity finance minister Yanis Varoufakis, will join fellow G20 finance ministers at a summit in Turkey on Monday where the situation in Greece will “dominate discussions.” He warned that a Greek exit – also known as Grexit – would cause “real ructions” and “real instability in financial markets in Europe.” (The Guardian, February 8, 2015)
Levels: (Prices as of Close: February 7, 2015)
S&P 500 Index [2055.47] – Back and forth swings between the 2000-2060 ranges have occurred for several weeks. Buyers and sellers are battling out the next critical move. Within the recent trading range the lowest point of 1972.56 (December 16, 2014) and the highest point 2093.55 (December 31, 2014) are key points.
Crude (Spot) [$51.69] – After attempting to find a bottom during most of January, Crude prices held above $50 this month. Sustainability remains questionable despite some easing of the selling pressure.
Gold [$1,259.25] – Stuck in a narrow trading range between $1200-1300. It is struggling to find a noteworthy upside catalysts.
DXY – US Dollar Index [94.80] – The last two weeks have had a mild pause on the well-defined trend of a strong dollar. It is way too premature to state whether or not the Dollar strength is being challenged.
US 10 Year Treasury Yields [1.95%] – A pronounced jump in yields in recent trading days has occurred. From the lows of 1.63% (January 30, 2015) to a close of 1.95% shows some early signs of stabilization in yields. Certainly, a convincing follow-through is needed.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, February 02, 2015
Market Outlook | February 2, 2015
“Narrative is linear, but action has breadth and depth as well as height and is solid.” (Thomas Carlyle 1795-1881)
Narrative Challenged
While a new year is barely being digested, a new calendar month is upon us. The long-lasting narrative of higher stock markets, lower yields, lower volatility, strong dollar and lower commodity prices appears mostly intact. More or less, this seems like a script directed by the central banks. This has become a familiar story, which is mostly understood by observers. It may seem convenient to stick with some of this trend; however, there are other hints and messages to consider in assessing future risks.
Interestingly, three key tradable markets are in agreement about the soft economic conditions on a global basis and the near-term anxiety those conditions may cause. The commodity, currency and bond markets are in-tune with weaker growth. Lack of inflation continues as growth expectations remain tepid. In turn, bond markets suggests that interest rate hikes are (or should not be) not feared. Yields of developed countries keep going lower and lower (even negative) in market government bonds. “Benchmark 10-year yields fell to a 20-month low as an inflation measure plunged in Europe by the most since 2009, amplifying the threat of worldwide deflation” (Bloomberg, January 29, 2015). The strength of the Dollar further emphasizes the rush to safety as profoundly exhibited in 2014. Rotation into the US dollar reflects weakness not only in emerging markets, but the fragility of commodity based economies, too. When closely examined, there is a theme that’s brewing across various markets and equities have yet to follow suit.
Immunity Tested
Meanwhile, the equity markets in the US benefit from the lack of attractive and liquid alternatives for investors. However, the stock market may be delaying the much needed adjustment in future (growth & stock price) expectations along with actual corporate profitability. When viewing the world through other markets, the US equity markets seem immune to crisis like responses so far. However, US stocks benefits from the demise of other investments and that’s the main lesson (or paradox) that many agree with.
There are plenty of observers who continue to ask if the weak commodity demand, stronger dollar and slowing China remain un-reflected in corporate share prices. At the same time, VIX, which measures the volatility of US stocks, has remained calmer than other jittery sentiment barometers. Perhaps, the cheered equity markets, conducted by the Federal Reserve, are slowly pausing after rewarding investors for a long time. Again, a sideways pattern in key stock indexes reflects a brewing near-term debate between buyers and sellers. This tug of war between market forces may explain the trading ranges in the last three months. After all, mild selling pressure was visible in US Equities in last October and December and earlier this year. The magnitude of those corrections was not enough to derail the bull market. Nonetheless, spurts of selling pressure create doubt on the upside movement. Essentially, the Fed’s credibility is on the line.
Last week's US GDP number confirmed slower than expected growth, and further confirmation waits from labor data this week. If the economy fails to justify the elevated equity prices, then this Fed script will be challenged again. As stated above, the bond and commodity markets are very skeptical of current and future growth. With that backdrop in mind, the next few weeks are suspenseful. More volatility can be expected when the perception of rosy stocks meets the reality of a sluggish economy.
Bold Message
Emerging market currencies continue to crumble from Russia to Turkey to Brazil. The foreign exchange markets reflect the damages felt from the slowdown in commodity markets and from the ongoing struggle for emerging market stability. For example, the Turkish Lira making new lows versus the US dollar is one talk that's surfacing. Aggressive risk takers may appreciate the risk-reward here, but collectively the severity of the currency crisis is being understood.
Energy dependent nations are not only Russia, Iran and Saudi Arabia. Recent commodity adjustments, especially in oil, are impacting Canadian and Australian currencies and companies. Here is one example: “The Canadian dollar hit a six-year low Friday after a report showing Canada’s GDP fell 0.2 per cent in November" (CBC News, January 30, 2015). Much of this weakness is driven by an energy dependent economy and the fallout will soon to be revealed by Canadian banks. Therefore, when all is said and done, the impact of commodity weakness reiterates the unstable and uncertain climate in international trade.
Article Quotes:
“Companies are now busily telling the markets about their results for 2014. Investors have paid little attention until the last few days, as instead a succession of central banks have dominated the agenda. But the earnings season for the fourth quarter is usually the most interesting and important of the year, as companies are also publishing full-year results, which tend to be more fully audited and leave less leeway for accounting jiggery-pokery, and providing forecasts for the future… As for revenues, anxiously watched for signs of economic strength, non-oil companies are heading for 4.3 per cent growth in the fourth quarter. This is down from the third quarter and unexciting, but still consistent with some underlying economic growth. Sales are expected to continue ticking on at about this rate during the first two quarters of this year, even as the oil price fall means that the S&P 500 as a whole is slated for an outright fall in revenues.” (Financial Times, January 30, 2015)
“Among the most important of the risks being overlooked is that a Greek exit would send the clearest of messages to the Eurozone public that Euro membership was no longer irrevocable. More importantly, it would send the message to Eurozone bank depositors that they could no longer count on the ECB to always be there to act as a lender of last resort. That realization could provoke a run on the banks in countries like Italy, Portugal, and Ireland where public and private debt levels are now at very much higher levels than they were in 2012 and where these countries now find themselves caught in deflationary traps. Another miscalculation that European policymakers might be making relates to the strength of the financial safety nets that they have put in place. To be sure, the Eurozone now does have a well-funded European Stability Mechanism and an ECB that is committed to buying as many of a member country’s bonds as might be needed. However, these mechanisms can only be activated should the countries being supported commit themselves to IMF-style economic adjustment programs. Considering the anti-austerity political backlash now characterizing these countries, it is far from clear that they would agree to submit themselves to the IMF’s tender mercies.” (The Manhattan Institute, January 25, 2015)
Levels: (Prices as of close: January 30, 2015)
S&P 500 Index [1994.99] – The multiple attempts to surpass 2040 have been unsuccessful. Staying above 2000 this week is an ultimate test since the index has held above 2000 three times before. December 16, 2014 lows of 1972.56 are on the radar for technical sell-offs.
Crude (Spot) [$48.24] – Several trading days in 2015 are hinting a possible bottoming process around $44- 46. Yet, participants are still digesting the new trading ranges after the epic sell-off.
Gold [$1,295.00] – Since mid 2013, Gold trading prices have been well defined between $1,200-$1,400. A bottoming process after the sell-off is linked with the commodity cycle. Importantly, staying above $1,300 in recent months seems to be a struggle, despite spurts of momentum.
DXY – US Dollar Index [94.80] – The multi-month acceleration has partially paused in recent days. However, the explosive strength in the US Dollar remains intact.
US 10 Year Treasury Yields [1.64%] – Last January’s highs of 3.05% seem like a long-time and long ways away. Below 2% has been a norm this year. July 2012 lows of 1.37% are the next critical benchmark.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Narrative Challenged
While a new year is barely being digested, a new calendar month is upon us. The long-lasting narrative of higher stock markets, lower yields, lower volatility, strong dollar and lower commodity prices appears mostly intact. More or less, this seems like a script directed by the central banks. This has become a familiar story, which is mostly understood by observers. It may seem convenient to stick with some of this trend; however, there are other hints and messages to consider in assessing future risks.
Interestingly, three key tradable markets are in agreement about the soft economic conditions on a global basis and the near-term anxiety those conditions may cause. The commodity, currency and bond markets are in-tune with weaker growth. Lack of inflation continues as growth expectations remain tepid. In turn, bond markets suggests that interest rate hikes are (or should not be) not feared. Yields of developed countries keep going lower and lower (even negative) in market government bonds. “Benchmark 10-year yields fell to a 20-month low as an inflation measure plunged in Europe by the most since 2009, amplifying the threat of worldwide deflation” (Bloomberg, January 29, 2015). The strength of the Dollar further emphasizes the rush to safety as profoundly exhibited in 2014. Rotation into the US dollar reflects weakness not only in emerging markets, but the fragility of commodity based economies, too. When closely examined, there is a theme that’s brewing across various markets and equities have yet to follow suit.
Immunity Tested
Meanwhile, the equity markets in the US benefit from the lack of attractive and liquid alternatives for investors. However, the stock market may be delaying the much needed adjustment in future (growth & stock price) expectations along with actual corporate profitability. When viewing the world through other markets, the US equity markets seem immune to crisis like responses so far. However, US stocks benefits from the demise of other investments and that’s the main lesson (or paradox) that many agree with.
There are plenty of observers who continue to ask if the weak commodity demand, stronger dollar and slowing China remain un-reflected in corporate share prices. At the same time, VIX, which measures the volatility of US stocks, has remained calmer than other jittery sentiment barometers. Perhaps, the cheered equity markets, conducted by the Federal Reserve, are slowly pausing after rewarding investors for a long time. Again, a sideways pattern in key stock indexes reflects a brewing near-term debate between buyers and sellers. This tug of war between market forces may explain the trading ranges in the last three months. After all, mild selling pressure was visible in US Equities in last October and December and earlier this year. The magnitude of those corrections was not enough to derail the bull market. Nonetheless, spurts of selling pressure create doubt on the upside movement. Essentially, the Fed’s credibility is on the line.
Last week's US GDP number confirmed slower than expected growth, and further confirmation waits from labor data this week. If the economy fails to justify the elevated equity prices, then this Fed script will be challenged again. As stated above, the bond and commodity markets are very skeptical of current and future growth. With that backdrop in mind, the next few weeks are suspenseful. More volatility can be expected when the perception of rosy stocks meets the reality of a sluggish economy.
Bold Message
Emerging market currencies continue to crumble from Russia to Turkey to Brazil. The foreign exchange markets reflect the damages felt from the slowdown in commodity markets and from the ongoing struggle for emerging market stability. For example, the Turkish Lira making new lows versus the US dollar is one talk that's surfacing. Aggressive risk takers may appreciate the risk-reward here, but collectively the severity of the currency crisis is being understood.
Energy dependent nations are not only Russia, Iran and Saudi Arabia. Recent commodity adjustments, especially in oil, are impacting Canadian and Australian currencies and companies. Here is one example: “The Canadian dollar hit a six-year low Friday after a report showing Canada’s GDP fell 0.2 per cent in November" (CBC News, January 30, 2015). Much of this weakness is driven by an energy dependent economy and the fallout will soon to be revealed by Canadian banks. Therefore, when all is said and done, the impact of commodity weakness reiterates the unstable and uncertain climate in international trade.
Article Quotes:
“Companies are now busily telling the markets about their results for 2014. Investors have paid little attention until the last few days, as instead a succession of central banks have dominated the agenda. But the earnings season for the fourth quarter is usually the most interesting and important of the year, as companies are also publishing full-year results, which tend to be more fully audited and leave less leeway for accounting jiggery-pokery, and providing forecasts for the future… As for revenues, anxiously watched for signs of economic strength, non-oil companies are heading for 4.3 per cent growth in the fourth quarter. This is down from the third quarter and unexciting, but still consistent with some underlying economic growth. Sales are expected to continue ticking on at about this rate during the first two quarters of this year, even as the oil price fall means that the S&P 500 as a whole is slated for an outright fall in revenues.” (Financial Times, January 30, 2015)
“Among the most important of the risks being overlooked is that a Greek exit would send the clearest of messages to the Eurozone public that Euro membership was no longer irrevocable. More importantly, it would send the message to Eurozone bank depositors that they could no longer count on the ECB to always be there to act as a lender of last resort. That realization could provoke a run on the banks in countries like Italy, Portugal, and Ireland where public and private debt levels are now at very much higher levels than they were in 2012 and where these countries now find themselves caught in deflationary traps. Another miscalculation that European policymakers might be making relates to the strength of the financial safety nets that they have put in place. To be sure, the Eurozone now does have a well-funded European Stability Mechanism and an ECB that is committed to buying as many of a member country’s bonds as might be needed. However, these mechanisms can only be activated should the countries being supported commit themselves to IMF-style economic adjustment programs. Considering the anti-austerity political backlash now characterizing these countries, it is far from clear that they would agree to submit themselves to the IMF’s tender mercies.” (The Manhattan Institute, January 25, 2015)
Levels: (Prices as of close: January 30, 2015)
S&P 500 Index [1994.99] – The multiple attempts to surpass 2040 have been unsuccessful. Staying above 2000 this week is an ultimate test since the index has held above 2000 three times before. December 16, 2014 lows of 1972.56 are on the radar for technical sell-offs.
Crude (Spot) [$48.24] – Several trading days in 2015 are hinting a possible bottoming process around $44- 46. Yet, participants are still digesting the new trading ranges after the epic sell-off.
Gold [$1,295.00] – Since mid 2013, Gold trading prices have been well defined between $1,200-$1,400. A bottoming process after the sell-off is linked with the commodity cycle. Importantly, staying above $1,300 in recent months seems to be a struggle, despite spurts of momentum.
DXY – US Dollar Index [94.80] – The multi-month acceleration has partially paused in recent days. However, the explosive strength in the US Dollar remains intact.
US 10 Year Treasury Yields [1.64%] – Last January’s highs of 3.05% seem like a long-time and long ways away. Below 2% has been a norm this year. July 2012 lows of 1.37% are the next critical benchmark.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 26, 2015
Market Outlook | January 26, 2015
“Speech was given to man to disguise his thoughts.” Charles M. de Talleyrand (1754-1838)
Divergence of Markets
The currency and commodity markets are in screaming crisis. Both markets have factored in the slowing global economic activity. Meanwhile, the equity markets from US to Europe to Japan paint an illusionary perspective of asset price appreciation, which disguises the pain felt at the ordinary economy. Sure, equity markets are not (and should not be) a reflection of well-being, but there is something troubling about masking the soft global demand. QE is one part, but the power of perception is an age old art, after all. At least those checking their own sanity can rely on the currency and commodity markets. These markets have not been shy in confronting these daunting and unavoidable realities. Unlike the stock markets of developed markets, notable and massive moves have been expressed from Crude to US Dollar. Perhaps, VIX (the volatility measure for S&P 500 index) is not always the best measure of current or potential turbulence—a lesson that’s been learned by various observers and risk takers in recent years.
The currency markets have showcased the profound rotation into US Dollars as the Euro continues to lose its popularity. The UK pound is trading at a seven year high against the Euro, and the Dollar is at multi-year highs as the scramble for safer asset continues. Capital has shifted away from Emerging Market (EM) currencies as unstable geopolitical climate becomes visible. Surely, the lack of demand in Emerging markets has benefited the US Dollar. Of course, the rush to safety is the main takeaway when dissecting the dollar strength. Importantly, the EM currencies tied to commodities were impacted the hardest, forcing a major adjustment.
Similarly, the commodity index peaked a few years ago. The exclamation point seen in Crude prices reshaped the whole landscape with oil trading below $50. It is remarkable to think on July 3, 2014 Crude oil stood at $104.06 going in to the July 4th holiday in the US. A stunning event even for those that expected price corrections, of course. Several months later, the soft global demand is not a speculative or theoretical statement. It is in fact here and participants have accepted these facts slowly. A dramatic drop in Crude and other commodities reflect the new era of soft global demand, unlike the 2003-2007 periods. Regardless of US QE efforts, the bust cycle in commodities has been in full gear since mid-2011 (CRB Index).
In addition, global yields agree with the message above. Overall yields are at or around historic lows. It was last January when US 10 year yields peaked at 3.05%. Since then staying above 2% has been a challenge, which reflects the lack of growth mixed with the rush to safer assets.
Same Ol’ Formula
The QE stimulus efforts do cause a sense of stability, which justifies higher stock prices. However, the QE actions reflect an act of desperation just as much as a stimulus effort. The idea is certainly nothing new and the attempt to reignite optimism does not guarantee solid results, other than a calmer market that has grown accustomed to this behavior.
Last week was highlighted by the roaring responses to QE. How familiar does this sound for close market observers? Further stimulus is here again, as seen before in the US, UK and Japan. Interestingly, the Eurozone has plenty of wounds to heal on tangible, real matters that impact economics and politics. Yet, from the visible crisis, the magic of QE is a proven model to create further wealth for investors while maintaining distractions for the rest.
Before the cheerleading on the impact of QE resumes, let’s remember that DAX (German stock index) already traded near or at all-time highs even before the ECB decision last week. Plus, QE announcement by ECB was hardly a surprise. Thus, the QE narrative as a solution is merely an effective marketing tactic by central banks and established leaders. Yet, if there is any lesson learned in crude prices, it is that when the truth comes out markets rattle and tumble and believers of deception get destroyed financially without mercy. With that perspective, investors are forced to take the easy option of believing the QE story or pausing to dissect matters further. As one famous hedge fund manager said:
"[QE] This is the biggest redistribution of wealth from the middle class and the poor to the rich ever" (Stanley Druckenmiller, CNBC, September 19, 2013).
A powerful statement considering the message is from someone worth $2 billion and who is quite the keen observer of financial markets. Perhaps, European investors should revisit these comments even while anticipating further rise in asset prices.
Reconciling Mixed Messages
There is a collective realization that there are very few liquid assets that generate attractive returns. This has been clear especially in the post-2008 period. At the same time, reliable assets with low odds of default appear scarce. Thus, after weighing various options, it is no surprise that developed markets and select currencies attract inflow of capital. In a relative world, someone must find a place to allocate capital that inflates not-so-rosy assets across various sectors. This has been witnessed in US junk bond markets in 2013, where the yield desperation drove investors into unattractive assets. Thus, a world of low rates fueled by additional QE only sets up future worries that may not be confronted right away.
However, at any given time markets have the right to respond by having a gut check and realizing the silly game that goes on. Alternatively, at some point investors that believed the Central Banks' stories may have a rude awakening. Perception is powerful, but when reality sinks in then sourness does not take too long to materialize. Thus, the risk of sole reliance on Central Banks is being understood and the conditions of the global economy are, more or less, known. Anything else beyond this is a choice left to investors who want to test their luck.
Article Quotes:
“Mario Draghi’s announcement of approximately €800bn in sovereign asset purchases by the European Central Bank over a 19-month period is what informed observers should have foreseen. If you expected less, then either you did not believe that the ECB president meant it when he promised at the end of last year to increase the ECB’s balance sheet by about €1tn, or you counted wrong. The additional quantitative easing is merely consistent with the goal he had already stated. The positive surprise, however, was the explicit link to the ECB’s inflation target, which carried a faint whiff of Mr Draghi’s 2012 pledge to do “whatever it takes” to save the euro. The phrasing of the actual statement was more circumspect. Each word was carefully chosen, as Mr Draghi said himself. The goal was not stated in terms of inflation rates or expectations, but in terms of the “path of inflation”. This is about the journey, not the destination. Asset purchases can stop before inflation is back to the official target of just under 2 per cent. This leaves the ECB a maximum degree of discretion on when to end the programme. The first question therefore is: how will the central bank use that discretion? This is where it becomes tricky. I struggle to come up with a scenario that would extend QE beyond September 2016. If the policy succeeds, it will rightly be stopped. If it fails to lift inflation rates at all, opponents will argue that it is ineffective and should be abandoned.” (Financial Times, Wolfgang Münchau, January 25, 2015)
“Morgan Stanley cut its estimate of where the euro will end 2015 to $1.05 from $1.12 previously. Bank of America Merrill Lynch sees the euro now falling to $1.10 by the end of the year, from $1.20 in an earlier forecast, while HSBC Holdings PLC analysts cut their year-end expectation to $1.09 from $1.15. The downgrades have echoed Wall Street’s failure to predict outsize pullbacks over the past year in global government-bond yields and oil prices. Those declines have increased investor unease over the risks facing the global economy….. U.S. Bank Wealth Management, which manages $126 billion, said the falling euro is causing eurozone sovereign bonds to lose their allure. U.S. Bank has positions in almost all eurozone sovereign bonds. But the low yields and dim prospects for the euro have the asset manager considering reducing them, particularly in German bunds… AllianceBernstein LP, which manages $473 billion, added to its bearish euro currency bets one week ago in expectation of a bold move by ECB President Mario Draghi at the central bank’s meeting this past Thursday, said Scott DiMaggio, director of global fixed-income investments. The move surpassed the asset manager’s expectations.” (Wall Street Journal, January 23, 2015)
Levels: (Prices as of close: January 23, 2015)
S&P 500 Index [2051.82] – The next hurdle on the upside is 2080. On three occasions the index has held above 2000. Bulls and bears battling out the next move between 2000-2080 is the near-term takeaway.
Crude (Spot) [$45.59] – Attempts to settle from the multi-month carnage. Mid- January lows of $44.20 are not far removed from Friday’s close. Meanwhile, the extreme lows of December 2008 at $32.40 are on the minds of technical / chart observers.
Gold [$1,295.00] – On November 6, 2014, the commodity bottomed at $1,142. A turning point when looking back as the near-term momentum is showing signs of life. Re-testing $1,400 is the next test for the gold bulls.
DXY – US Dollar Index [94.76] – A remarkable run in the last few months. The strength of the Dollar is not only reaffirmed, but showcases that the trend is relentlessly intact. Reaching 100 is the next milestone and that has not seen in over a decade.
US 10 Year Treasury Yields [1.79%] – The last few trading sessions suggest a bottoming attempt between 1.69% and 1.89%. A move above 2% is not quite convincing at this stage.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Divergence of Markets
The currency and commodity markets are in screaming crisis. Both markets have factored in the slowing global economic activity. Meanwhile, the equity markets from US to Europe to Japan paint an illusionary perspective of asset price appreciation, which disguises the pain felt at the ordinary economy. Sure, equity markets are not (and should not be) a reflection of well-being, but there is something troubling about masking the soft global demand. QE is one part, but the power of perception is an age old art, after all. At least those checking their own sanity can rely on the currency and commodity markets. These markets have not been shy in confronting these daunting and unavoidable realities. Unlike the stock markets of developed markets, notable and massive moves have been expressed from Crude to US Dollar. Perhaps, VIX (the volatility measure for S&P 500 index) is not always the best measure of current or potential turbulence—a lesson that’s been learned by various observers and risk takers in recent years.
The currency markets have showcased the profound rotation into US Dollars as the Euro continues to lose its popularity. The UK pound is trading at a seven year high against the Euro, and the Dollar is at multi-year highs as the scramble for safer asset continues. Capital has shifted away from Emerging Market (EM) currencies as unstable geopolitical climate becomes visible. Surely, the lack of demand in Emerging markets has benefited the US Dollar. Of course, the rush to safety is the main takeaway when dissecting the dollar strength. Importantly, the EM currencies tied to commodities were impacted the hardest, forcing a major adjustment.
Similarly, the commodity index peaked a few years ago. The exclamation point seen in Crude prices reshaped the whole landscape with oil trading below $50. It is remarkable to think on July 3, 2014 Crude oil stood at $104.06 going in to the July 4th holiday in the US. A stunning event even for those that expected price corrections, of course. Several months later, the soft global demand is not a speculative or theoretical statement. It is in fact here and participants have accepted these facts slowly. A dramatic drop in Crude and other commodities reflect the new era of soft global demand, unlike the 2003-2007 periods. Regardless of US QE efforts, the bust cycle in commodities has been in full gear since mid-2011 (CRB Index).
In addition, global yields agree with the message above. Overall yields are at or around historic lows. It was last January when US 10 year yields peaked at 3.05%. Since then staying above 2% has been a challenge, which reflects the lack of growth mixed with the rush to safer assets.
Same Ol’ Formula
The QE stimulus efforts do cause a sense of stability, which justifies higher stock prices. However, the QE actions reflect an act of desperation just as much as a stimulus effort. The idea is certainly nothing new and the attempt to reignite optimism does not guarantee solid results, other than a calmer market that has grown accustomed to this behavior.
Last week was highlighted by the roaring responses to QE. How familiar does this sound for close market observers? Further stimulus is here again, as seen before in the US, UK and Japan. Interestingly, the Eurozone has plenty of wounds to heal on tangible, real matters that impact economics and politics. Yet, from the visible crisis, the magic of QE is a proven model to create further wealth for investors while maintaining distractions for the rest.
Before the cheerleading on the impact of QE resumes, let’s remember that DAX (German stock index) already traded near or at all-time highs even before the ECB decision last week. Plus, QE announcement by ECB was hardly a surprise. Thus, the QE narrative as a solution is merely an effective marketing tactic by central banks and established leaders. Yet, if there is any lesson learned in crude prices, it is that when the truth comes out markets rattle and tumble and believers of deception get destroyed financially without mercy. With that perspective, investors are forced to take the easy option of believing the QE story or pausing to dissect matters further. As one famous hedge fund manager said:
"[QE] This is the biggest redistribution of wealth from the middle class and the poor to the rich ever" (Stanley Druckenmiller, CNBC, September 19, 2013).
A powerful statement considering the message is from someone worth $2 billion and who is quite the keen observer of financial markets. Perhaps, European investors should revisit these comments even while anticipating further rise in asset prices.
Reconciling Mixed Messages
There is a collective realization that there are very few liquid assets that generate attractive returns. This has been clear especially in the post-2008 period. At the same time, reliable assets with low odds of default appear scarce. Thus, after weighing various options, it is no surprise that developed markets and select currencies attract inflow of capital. In a relative world, someone must find a place to allocate capital that inflates not-so-rosy assets across various sectors. This has been witnessed in US junk bond markets in 2013, where the yield desperation drove investors into unattractive assets. Thus, a world of low rates fueled by additional QE only sets up future worries that may not be confronted right away.
However, at any given time markets have the right to respond by having a gut check and realizing the silly game that goes on. Alternatively, at some point investors that believed the Central Banks' stories may have a rude awakening. Perception is powerful, but when reality sinks in then sourness does not take too long to materialize. Thus, the risk of sole reliance on Central Banks is being understood and the conditions of the global economy are, more or less, known. Anything else beyond this is a choice left to investors who want to test their luck.
Article Quotes:
“Mario Draghi’s announcement of approximately €800bn in sovereign asset purchases by the European Central Bank over a 19-month period is what informed observers should have foreseen. If you expected less, then either you did not believe that the ECB president meant it when he promised at the end of last year to increase the ECB’s balance sheet by about €1tn, or you counted wrong. The additional quantitative easing is merely consistent with the goal he had already stated. The positive surprise, however, was the explicit link to the ECB’s inflation target, which carried a faint whiff of Mr Draghi’s 2012 pledge to do “whatever it takes” to save the euro. The phrasing of the actual statement was more circumspect. Each word was carefully chosen, as Mr Draghi said himself. The goal was not stated in terms of inflation rates or expectations, but in terms of the “path of inflation”. This is about the journey, not the destination. Asset purchases can stop before inflation is back to the official target of just under 2 per cent. This leaves the ECB a maximum degree of discretion on when to end the programme. The first question therefore is: how will the central bank use that discretion? This is where it becomes tricky. I struggle to come up with a scenario that would extend QE beyond September 2016. If the policy succeeds, it will rightly be stopped. If it fails to lift inflation rates at all, opponents will argue that it is ineffective and should be abandoned.” (Financial Times, Wolfgang Münchau, January 25, 2015)
“Morgan Stanley cut its estimate of where the euro will end 2015 to $1.05 from $1.12 previously. Bank of America Merrill Lynch sees the euro now falling to $1.10 by the end of the year, from $1.20 in an earlier forecast, while HSBC Holdings PLC analysts cut their year-end expectation to $1.09 from $1.15. The downgrades have echoed Wall Street’s failure to predict outsize pullbacks over the past year in global government-bond yields and oil prices. Those declines have increased investor unease over the risks facing the global economy….. U.S. Bank Wealth Management, which manages $126 billion, said the falling euro is causing eurozone sovereign bonds to lose their allure. U.S. Bank has positions in almost all eurozone sovereign bonds. But the low yields and dim prospects for the euro have the asset manager considering reducing them, particularly in German bunds… AllianceBernstein LP, which manages $473 billion, added to its bearish euro currency bets one week ago in expectation of a bold move by ECB President Mario Draghi at the central bank’s meeting this past Thursday, said Scott DiMaggio, director of global fixed-income investments. The move surpassed the asset manager’s expectations.” (Wall Street Journal, January 23, 2015)
Levels: (Prices as of close: January 23, 2015)
S&P 500 Index [2051.82] – The next hurdle on the upside is 2080. On three occasions the index has held above 2000. Bulls and bears battling out the next move between 2000-2080 is the near-term takeaway.
Crude (Spot) [$45.59] – Attempts to settle from the multi-month carnage. Mid- January lows of $44.20 are not far removed from Friday’s close. Meanwhile, the extreme lows of December 2008 at $32.40 are on the minds of technical / chart observers.
Gold [$1,295.00] – On November 6, 2014, the commodity bottomed at $1,142. A turning point when looking back as the near-term momentum is showing signs of life. Re-testing $1,400 is the next test for the gold bulls.
DXY – US Dollar Index [94.76] – A remarkable run in the last few months. The strength of the Dollar is not only reaffirmed, but showcases that the trend is relentlessly intact. Reaching 100 is the next milestone and that has not seen in over a decade.
US 10 Year Treasury Yields [1.79%] – The last few trading sessions suggest a bottoming attempt between 1.69% and 1.89%. A move above 2% is not quite convincing at this stage.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 19, 2015
Market Outlook | January 19, 2015
“All genius is a conquering of chaos and mystery.” Otto Weininger (1880-1903)
The Scramble
The start of the year opened all kinds of worries on matters that influence financial markets. To be fair, some of the headline worries were "known” for a while—even 2-3 years ago. Other concerns were “less known” a few quarters ago. Those who put all their faith in Central banks are realizing that surprises are part of risk-taking. Risk is unavoidable and volatility can erupt at anytime. The sole reliance on the message of policymakers and central banks is awfully dangerous at times, particularly during this chaotic junction. If one struggles to "dance with the unknowns" then the current market conditions maybe more treacherous, especially after a period of complacency.
Some of the “known” worries have been on the radar especially in recent months. Examples of this include: pending interest rate policies by central banks (i.e. anticipated rate cuts by ECB), impact of the strong dollar on companies' balance sheets and the lack of growth in the real economy globally. This is in addition to the lower global yields and inflation.
Meanwhile, less expected matters that require further digestion are now on the radar of average and casual money managers. At the forefront of investor curiosity is the massive oil sell-off and its impact on oil rich nations. Sure, this is part of the commodity cycle peak, but the crude price reset has reshaped the status-quo thinking of many analysts. In weeks and quarters ahead, the impact of energy fallout on US banks' balance sheets will be discovered and certainly pondered. In addition, damaging results from natural resources stir further questions of possible political unrest from Russia to other Eastern European nations.
Dealing with the Expected
The so called “known worries” is highlighted by the slow global growth environment, which is not only highly documented but is now presented in generic headlines. From the Eurozone to China to other Emerging Markets, finding growth is a massive struggle as confidence remains scarce by some measures. The evidence of frail economic conditions is piling on, especially in the Eurozone:
“The eurozone is struggling to avert a third recession since the financial crisis as the currency union grapples with high debt and a lack of international competitiveness. The [World] bank cut its outlook for growth in the region by 0.7 percentage point to 1.1% this year” (Wall Street Journal, January 13, 2015).
Clearly, Eurozone leaders are scrambling from dealing with an economic crisis that has quickly turned into a political mess. Of course, the very low yields in Europe illustrate the lack of growth along with the lack of inflation. Perhaps, this simply explains the desperate search for stimulus or reform.
Surely, the ECB talks of lower rates spark massive speculation as the currency markets continue to react. In fact, for months, the Dollar has been getting stronger, the Euro is weaker and further interest rate cuts in Europe are widely expected. Therefore, the Swiss announcement to unpeg the Franc is hardly a surprise when considered within this context. Importantly, the takeaway of Swiss disassociation from the Eurozone itself hints of ugliness to follow.
Colliding Forces
In this anxious period, it helps to reflect back to the sequence of events to enhance ones perspective. Before the markets were swept away with the rattling actions of the Swiss Franc, there were other factors to ponder in the currency and commodity world. Before Oil prices collapsed, the commodity indexes signaled an ongoing cooling cycle for Oil, copper and other hard commodities. Not to mention, weak global demands were also a prelude to Crude demise. Before the spike in volatility in early 2015, the unsettling actions during last October and December served as vital clues to the wobbly inter-connected markets. The dramatic shifts following the September hints are visible in various macro indicators:
On September 19th 2014, US 10 year treasury yields stood at 2.65%, VIX (Volatility index) was hovering around 11 and Crude prices closed at $92.41. What a difference few months make. US 10 year yields now trade at 1.83%, VIX spiked to 20 and Crude sits a little above $48.
Similarly, before Oil price's dramatic drop, the US dollar already began to strengthen—making it the story of 2014. Before the Swiss franc announcement, it was vastly expected that the Euro was set to go lower, especially with ECB expected to cut rates. So, what’s the new discovery? What’s the new surprise? Perhaps, the status-quo of low volatility, and the unshakable trust in Central Banks are not as stable as some imagined. The narrative of the financial markets is changing regardless of the foreseeable or unforeseeable events that have transpired. Crude below $50 and developed market yields near zero and the dollar at multi-year highs illustrates ultimate change. Stale models and expectations are forced to adjust, but before an adjustment some emotional responses are inevitable. Change is chaotic and expecting no change in the market narrative might be even more deadly than imagined.
Article Quotes:
“The Soviet war in Afghanistan was followed by a long-term decline in oil prices. The recent price slide – to $50-60 per barrel, halving the value of Russia’s oil production – suggests that history is about to repeat itself. And oil prices are not Russia’s only problem. Western sanctions, which seemed to constitute only a pinprick a few months ago, appear to have inflicted serious damage, with the ruble having lost nearly half its value against the US dollar last year. Though financial markets will calm down when the ruble’s exchange rate settles into its new equilibrium, Russia’s economy will remain weak, forcing the country’s leaders to make tough choices. Against this background, a stalemate in the Donbas seems more likely than an outright offensive aimed at occupying the remainder of the region and establishing a land corridor to Crimea – the outcome that many in the West initially feared. President Vladimir Putin’s new Novorossya project simply cannot progress with oil prices at their current level. To be sure, Russia will continue to challenge Europe. But no amount of posturing can offset the disintegration of the economy’s material base caused by the new equilibrium in the oil market. In this sense, the US has come to Europe’s rescue in a different way: Its production of shale oil and gas is likely to play a greater role in keeping Russia at bay than NATO troops on Europe’s eastern borders.’’ (Daniel Gros, Project Syndicate January 14, 2015)
“National central banks in the eurozone, with the notable exception of the Bundesbank, are not really worthy of the name; they are glorified think-tanks. It is the ECB that effectively “prints” the money that will be used to make the asset purchase necessary for quantitative easing (although how exactly this will happen remains unclear). While the credit risk of those bonds might sit on the books of the national central banks, that distinction would quickly be rendered irrelevant in the event of a disorderly default.To understand why, consider what would happen if a central bank lost money on its sovereign debt investments. The country’s treasury would have two options: It could exclude the central bank from the restructuring (in which case the other investors in the debt would demand a premium to hold the paper in the first place – the precise opposite of what quantitative easing should achieve) or it could demand that the central bank take the losses (a “haircut”, in the financial jargon).How would the central bank make good that loss? It could ask the country’s treasury to issue more debt. But, remember, it’s just defaulted, so that’s going to be tricky. Or, as it would effectively now owe euros to the wider eurozone, it could ask for the debt to be forgiven. If the rest of the club didn’t forgive the debt, the forlorn country would be forced to leave the eurozone; if they did, then – sorry, Germany – it would rather suggest that, despite appearances, the risk was actually being shared all along. So, the purchase of government bonds by national central banks will either drive up sovereign debt yields in the market (which somewhat neuters the quantitative easing programme) or the default risk must ultimately be shared among all the different eurozone countries (which is exactly what it was designed to avoid).” (The Telegraph, January 18, 2015)
Levels: (Prices as of close: January 16, 2015)
S&P 500 Index [2019.42] – Attempting to hold between 2000-2050. A wobbly pattern develops as the uptrend pauses. A break below 1950 may trigger a sell-0ff.
Crude (Spot) [$48.36] – In September 2008, Crude peaked at $147 and then bottomed at $32 in December that year. Of course, that transpired very quickly during a period of financial crisis, which resulted in a bottoming process around $32-40. Now, the bottom is mysterious as the intra-day lows of $44.20 are closely watched and on the radar.
Gold [$1,259.00] – In the last two and a half years, Gold has bottomed or attempted to bottom around $1,200. Surely, technical and non-technical observers have noticed this even before this current mild run. A break above $1,400 may send a strong message to observers of a noteworthy trend shift.
DXY – US Dollar Index [91.08] – Since July 1st 2014, the index has appreciated over 16%. Amazingly, in this 6+ month period showcased a steady uptrend. Strong signs of confirmation of a strengthening dollar are appearing.
US 10 Year Treasury Yields [1.83%] – Unlike during October and December 2014, treasury yields were not able to stay above 2%. This downtrend remains as the search for safety continues by investors. A notable point would be the 1.37% lows from July 2012 which serve as a key downside target.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 12, 2015
Market Outlook | January 12, 2015
“Something unpleasant is coming when men are anxious to tell the truth.” (Benjamin Disraeli 1804-1881)
Murmurs of Anxiousness
The last three months of trading have produced mixed emotions ranging from moments of edginess to reaffirmation of all-time highs. At times the volatility index has awakened from a deep sleep, especially as witnessed in October and December last year. But in most cases, the status-quo of higher stocks, lower volatility resumes in a customary and familiar manner. Of course, the commodity index tells the loudest story beyond oil’s recent price demise. The pricing of natural resources is adjusting as global investors re-think prior demand assumptions. Basically, global demand for commodities is slowing and that’s not breaking news. In fact, the summer of 2014 confirmed the collective collapse of commodities as exhibited by the CRB Index—a barometer for various commodities. Stability in commodity prices is desperately needed.
In a similar manner, the global yields that continue to dip lower in developed markets emphasize the lack of tangible growth and dropping inflation expectations. The US 10 year Treasury yields are now below 2%, and it may not be a short-lived stay considering other developed market yields. Spurring growth in an inter-connected world is a daunting task for governments and corporations these days. It’s evident in the struggles of Emerging Markets that capital is flowing into the US dollar at a faster pace. That said, tensions define most of the set-up that has formulated in recent weeks.
The Rate Challenge
The “rate hike” chatter is obsessive in financial circles, but justifying a strong economy in classic terms is rather difficult. The Fed’s narrative is hazy in many ways. To hike rates there needs to be growth, while keeping rates near zero is unnaturally risky. To explain, the economic numbers (i.e GDP, unemployment data), if taken at face value (without skeptical analysis), may lead one to conclude that there is a strong economic improvement. Yet, wage growth was not overly convincing, increasing healthcare costs led to the creation of more part-time jobs, and consumers’ financial health were not as vibrant as some painted.
“Wage growth is currently so low the Fed can afford to wait to see it actually pick up. Indeed, to be consistent with the Fed’s 2% inflation target, wages would need to be increasing by 3% to 4%.” (WSJ, January 9, 2014)
Thus, the Fed faces a known challenge between justifying and pleading that there is strength in real economy. At the same time, low inflation expectations and lower yields in financial markets do not support the glossy theory of low rates leading to more growth. Regardless of stock markets record high-like behavior, to claim a victory on the success of QE is misleading. Amazingly, in 2009 and 2010, many skeptics claimed that the zero interest rate policy is unhealthy and unsustainable. Now, a soaring stock market fails to reflect the angst in the consumer market. Therefore, for the Fed to blatantly ignore the behavioral responses of the financial market does not seem reasonable. The mystery of how the Federal Reserve responds draws a lot of opinions, but no hike approach should not be as surprising as some pundits think. In the same way that inflation did not end up being a major issue, there is a chance that higher US interest rates do not materialize as forecasted.
Bargain Search
Opportunist participants will seek bargains in oil prices as well as in Emerging Markets. Certainly, the drop in oil prices is still being understood. The speculation of a bottom in crude prices remains a big and unknown debate. Similarly, the impact of oil prices on the US junk bond markets remains suspenseful, which raise questions about both the risk and reward ahead. The Russian and Brazilian markets also seem appealing given the recent plunge. In the case of Russia, overcoming the big blow from the energy crisis surely is one of the highest risk-rewards lurking in the current market. The stimulus for an upside EM move is not fully understood as commodity based economics and currencies limp and attempt to recover. If investors feel that the US stock market is overvalued then a migration to EM’s is a possibility. However on an absolute basis, grasping the upside potential of developing markets seems much more difficult to decipher. Perhaps, the mystery is what attracts the risk-takers that seek to catch a new trend.
Article Quotes:
“The announced merger last week between China’s two train makers will enhance the country’s ability to penetrate foreign markets and expand transport infrastructure into the periphery. State owned CSR Corp and China CNR are already the world’s leading manufacturers of rolling stock with annual revenues of $16 billion each and combined capitalization of $26 billion, FT reported. Their main customers are China Railway Group (CRG) and China Railway Construction Corporation (CRCC), the nation’s builders of railways and other infrastructure. These companies are also refocusing their attention overseas. CSR and CCNR were split off from the same parent in 2000 to promote domestic competition. As China’s business increasingly looks abroad for projects, the combined company will rip benefits from economies of scale and compete more effectively with foreign companies such as Germany’s Siemens, France’s Alstom, Canada’s Bombardier, and Japan’s Kawasaki. This move gains from the nation’s favorable political course. In November 2013, China’s leader Xi Jinping proposed to build the “Silk Road Economic Belt,” envisioning the development of transport networks from the Pacific Ocean to the Baltic Sea. Towards this goal, China is willing to invest the initial sum of $40 billion for building ports, roads and rail links. Undoubtedly, the combined CSR-CCNR company is determined to play a key role in the revival of the Silk Road transport corridor.” (Silk Road Reporters, January 9, 2015)
“A more interesting perspective on Brazil’s lack of trade openness can be obtained by looking at the number and characteristics of exporting firms. The first result is that very few Brazilian firms export (see World Bank 2014). The share of exporters among all formal-sector firms is less than 0.5%. Indeed, the absolute number of exporters in Brazil – less than 20,000 – is roughly the same as that of Norway, a country of just over five million people compared to Brazil’s 200 million. This means that, while in Norway there is one exporting firm for about every 250 Norwegians, the ratio in Brazil is one for every 10,000 Brazilians. Of course, Norway and Brazil are vastly different countries. Norway is one of the richest countries in the world; its GDP per capita is almost ten times that of Brazil. Norway’s total GDP is about a quarter of Brazil’s, indicating that Norway can be more aptly described as a small open economy… Out of all Brazilian exporters, a much smaller number of firms make up the overwhelming share of exports – the top 1% of exporting firms generates 59% of total exports, while the top 25% of firms account for 98% of exports (Exporter dynamics database). We also observe little dynamism among Brazilian exporters. Even given the small number of exporters, Brazil has a very low entry rate – very few firms become new exporters. On the flipside, Brazilian exporters have a very high survival rate, meaning that the few firms that export are likely to continue doing so.” (VOX, January 11, 2015)
Levels: (Prices as of close: January 9, 2015)
S&P 500 Index [2044.81] – Early signs of slowing momentum. A break below 2250 is noteworthy for technical observers. Plus, a break below the 200-day moving average can spark additional selling. For now, a sideways range between 2000-2080 is forming in this wobbly set-up.
Crude (Spot) [$48.36] – Struggling to settle at a bottom. A few weeks ago the $54-58 range appeared to be the bottom. Now, the January 7, 2015 lows of $46.83 stand out as a potential low, but the chaotic sell-off is still unsettled.
Gold [$1,206.00] – Over last two months, Gold prices continue to indicate the bottoming process at around $1,200. After surpassing the 50-day moving average ($1,191), signs of very mild momentum appear. At least a pause in the selling pressure is visible.
DXY – US Dollar Index [91.08] – Multi-year highs continue as the momentum is heating up further. The unsettled global markets prefer the dollar over other currencies. Cyclically a recovery in the DXY appeared long over-due and is not materializing.
US 10 Year Treasury Yields [1.94%] – Below 2% mark an alarming new level. Last time, in October 2014, yields reached 1.86% and quickly bounced above 2%. After peaking at 3.05% in January 2014, yields have been on a constant decline reaffirming the bond rally.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Murmurs of Anxiousness
The last three months of trading have produced mixed emotions ranging from moments of edginess to reaffirmation of all-time highs. At times the volatility index has awakened from a deep sleep, especially as witnessed in October and December last year. But in most cases, the status-quo of higher stocks, lower volatility resumes in a customary and familiar manner. Of course, the commodity index tells the loudest story beyond oil’s recent price demise. The pricing of natural resources is adjusting as global investors re-think prior demand assumptions. Basically, global demand for commodities is slowing and that’s not breaking news. In fact, the summer of 2014 confirmed the collective collapse of commodities as exhibited by the CRB Index—a barometer for various commodities. Stability in commodity prices is desperately needed.
In a similar manner, the global yields that continue to dip lower in developed markets emphasize the lack of tangible growth and dropping inflation expectations. The US 10 year Treasury yields are now below 2%, and it may not be a short-lived stay considering other developed market yields. Spurring growth in an inter-connected world is a daunting task for governments and corporations these days. It’s evident in the struggles of Emerging Markets that capital is flowing into the US dollar at a faster pace. That said, tensions define most of the set-up that has formulated in recent weeks.
The Rate Challenge
The “rate hike” chatter is obsessive in financial circles, but justifying a strong economy in classic terms is rather difficult. The Fed’s narrative is hazy in many ways. To hike rates there needs to be growth, while keeping rates near zero is unnaturally risky. To explain, the economic numbers (i.e GDP, unemployment data), if taken at face value (without skeptical analysis), may lead one to conclude that there is a strong economic improvement. Yet, wage growth was not overly convincing, increasing healthcare costs led to the creation of more part-time jobs, and consumers’ financial health were not as vibrant as some painted.
“Wage growth is currently so low the Fed can afford to wait to see it actually pick up. Indeed, to be consistent with the Fed’s 2% inflation target, wages would need to be increasing by 3% to 4%.” (WSJ, January 9, 2014)
Thus, the Fed faces a known challenge between justifying and pleading that there is strength in real economy. At the same time, low inflation expectations and lower yields in financial markets do not support the glossy theory of low rates leading to more growth. Regardless of stock markets record high-like behavior, to claim a victory on the success of QE is misleading. Amazingly, in 2009 and 2010, many skeptics claimed that the zero interest rate policy is unhealthy and unsustainable. Now, a soaring stock market fails to reflect the angst in the consumer market. Therefore, for the Fed to blatantly ignore the behavioral responses of the financial market does not seem reasonable. The mystery of how the Federal Reserve responds draws a lot of opinions, but no hike approach should not be as surprising as some pundits think. In the same way that inflation did not end up being a major issue, there is a chance that higher US interest rates do not materialize as forecasted.
Bargain Search
Opportunist participants will seek bargains in oil prices as well as in Emerging Markets. Certainly, the drop in oil prices is still being understood. The speculation of a bottom in crude prices remains a big and unknown debate. Similarly, the impact of oil prices on the US junk bond markets remains suspenseful, which raise questions about both the risk and reward ahead. The Russian and Brazilian markets also seem appealing given the recent plunge. In the case of Russia, overcoming the big blow from the energy crisis surely is one of the highest risk-rewards lurking in the current market. The stimulus for an upside EM move is not fully understood as commodity based economics and currencies limp and attempt to recover. If investors feel that the US stock market is overvalued then a migration to EM’s is a possibility. However on an absolute basis, grasping the upside potential of developing markets seems much more difficult to decipher. Perhaps, the mystery is what attracts the risk-takers that seek to catch a new trend.
Article Quotes:
“The announced merger last week between China’s two train makers will enhance the country’s ability to penetrate foreign markets and expand transport infrastructure into the periphery. State owned CSR Corp and China CNR are already the world’s leading manufacturers of rolling stock with annual revenues of $16 billion each and combined capitalization of $26 billion, FT reported. Their main customers are China Railway Group (CRG) and China Railway Construction Corporation (CRCC), the nation’s builders of railways and other infrastructure. These companies are also refocusing their attention overseas. CSR and CCNR were split off from the same parent in 2000 to promote domestic competition. As China’s business increasingly looks abroad for projects, the combined company will rip benefits from economies of scale and compete more effectively with foreign companies such as Germany’s Siemens, France’s Alstom, Canada’s Bombardier, and Japan’s Kawasaki. This move gains from the nation’s favorable political course. In November 2013, China’s leader Xi Jinping proposed to build the “Silk Road Economic Belt,” envisioning the development of transport networks from the Pacific Ocean to the Baltic Sea. Towards this goal, China is willing to invest the initial sum of $40 billion for building ports, roads and rail links. Undoubtedly, the combined CSR-CCNR company is determined to play a key role in the revival of the Silk Road transport corridor.” (Silk Road Reporters, January 9, 2015)
“A more interesting perspective on Brazil’s lack of trade openness can be obtained by looking at the number and characteristics of exporting firms. The first result is that very few Brazilian firms export (see World Bank 2014). The share of exporters among all formal-sector firms is less than 0.5%. Indeed, the absolute number of exporters in Brazil – less than 20,000 – is roughly the same as that of Norway, a country of just over five million people compared to Brazil’s 200 million. This means that, while in Norway there is one exporting firm for about every 250 Norwegians, the ratio in Brazil is one for every 10,000 Brazilians. Of course, Norway and Brazil are vastly different countries. Norway is one of the richest countries in the world; its GDP per capita is almost ten times that of Brazil. Norway’s total GDP is about a quarter of Brazil’s, indicating that Norway can be more aptly described as a small open economy… Out of all Brazilian exporters, a much smaller number of firms make up the overwhelming share of exports – the top 1% of exporting firms generates 59% of total exports, while the top 25% of firms account for 98% of exports (Exporter dynamics database). We also observe little dynamism among Brazilian exporters. Even given the small number of exporters, Brazil has a very low entry rate – very few firms become new exporters. On the flipside, Brazilian exporters have a very high survival rate, meaning that the few firms that export are likely to continue doing so.” (VOX, January 11, 2015)
Levels: (Prices as of close: January 9, 2015)
S&P 500 Index [2044.81] – Early signs of slowing momentum. A break below 2250 is noteworthy for technical observers. Plus, a break below the 200-day moving average can spark additional selling. For now, a sideways range between 2000-2080 is forming in this wobbly set-up.
Crude (Spot) [$48.36] – Struggling to settle at a bottom. A few weeks ago the $54-58 range appeared to be the bottom. Now, the January 7, 2015 lows of $46.83 stand out as a potential low, but the chaotic sell-off is still unsettled.
Gold [$1,206.00] – Over last two months, Gold prices continue to indicate the bottoming process at around $1,200. After surpassing the 50-day moving average ($1,191), signs of very mild momentum appear. At least a pause in the selling pressure is visible.
DXY – US Dollar Index [91.08] – Multi-year highs continue as the momentum is heating up further. The unsettled global markets prefer the dollar over other currencies. Cyclically a recovery in the DXY appeared long over-due and is not materializing.
US 10 Year Treasury Yields [1.94%] – Below 2% mark an alarming new level. Last time, in October 2014, yields reached 1.86% and quickly bounced above 2%. After peaking at 3.05% in January 2014, yields have been on a constant decline reaffirming the bond rally.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, January 05, 2015
Market Outlook | January 5, 2015
“We must never neglect the patient's own use of his symptoms.” Alfred Adler (1870-1937)
Symptoms Reawakening
In summer 2011, the Eurozone (EZ) crisis mesmerized the financial markets by making “never-ending” headlines. Of course, those realizations shocked various markets, forcing European bond yields to go much higher. Doubts were raised about the Southern European market as bailouts averted disastrous conditions. Fascinatingly, those were only temporary solutions.
As some pundits have pointed out, the EZ economic crisis converted into a political crisis. The structural set-up for policy making is inefficient and helped drag out this unsolved matter even longer. That’s the core issue brewing today, as political leaders use this crisis as the basis for talk rather than plans for economic revival. Basically, it’s challenging to solve problems when various nations have diverse interests. The mainstream media has documented the conundrum that continues to plague Europe. This conundrum has provided a relative edge for the US financial and political system, which became a major market theme from 2011-2014.
Since then the EZ debt crisis symptoms were not eliminated from the banking system; even though bailouts via bond-buying calmed markets. But the political debate lives on. Surely, economic revival is hardly visible, which increases the tensions on the street level. In the last two years, bond yields in Europe are quiet and calm, and in Germany 10 year bond yields are near 0%.
“German five-year yields dropped below zero for the first time ever, touching -0.007pc on the first day of new year trading, implying that investors are willing to pay the German government to store their money for the rest of this decade.” (The Telegraph January 2, 2014).
Risk and volatility have been priced low recently, which has been part of the on-going global theme. Additionally, inflation remains way below prior expectations in developed markets. This mirrors the decline in commodity pricing and some wonder if too little inflation is an even a bigger problem. That said, it is difficult to visualize organic growth in the real economy, even in periods where financial markets' turbulence was held in check. This begs the question if markets are pricing risks in an accurate manner.
Revisiting Old Notes
As 2015 approaches, revisiting the notes from the volatile European summer of 2011 is a worthwhile start. This is better suited than the calm 2014, where ECB promised stimulus and most EZ concerns seemed under control. There will be future trading days where the EZ will dominate global market action. In the days ahead many anticipate volatility spikes driven by talks of Greek bonds or Greek exit from the Euro area. Other times, false signals (or rumors) will emerge due to bluffs by political actors. This may lead to irrational financial market spooks and chatter. The narrative of economic concern, mixed with politics, is set to create substantial discussions or worries. As for tangible growth or solutions, plenty of issues remain uncertain.
Realizations
In the last few years a few lessons have become clearer:
1. When bond yields continue to reach extreme lows, one concludes that growth is less visible.
2. Similarly, when Crude prices drop dramatically, then it is fair to say emerging market (mainly China) growth slows. This at least serves as a confirmation for doubters.
3. When the US dollar makes multi-year highs, it reflects the trouble of other currencies including weakness in Euro.
These three points are being digested by the market. They even give US stocks further reason to seem attractive—better returns than government bonds and less riskier than commodities or Emerging Markets. Obviously, these conclusions can lead to investors chasing returns and an “oversimplification” of risk. The danger in weeks and quarters ahead is the understanding of the risks rather than understanding what’s transpired during the last 5-6 years.
Thus, quantitative easing is the crux of policy discussion. If low rates fail to fuel a substantial economic stimulus (at least a meaningful one), then shouldn’t markets respond? Many wonder if the time for outrage in markets is long overdue. Beyond the outrage, analysts are trying to figure out if low oil prices boost consumers' spending and if a weaker Euro helps the German economy. Maybe there are new trends to exploit as realizations are digested.
However, what’s the cost of betting on the status-quo (high stocks, low volatility and low yields) staying the same? A suspenseful question with no convincing alternative answer thus far. If something seems without risk for too long, then some would presume it is likely dangerous. Yet danger has not affected the markets for a sustainable period. Perhaps, this first quarter could provide clues as to what markets call or view as “danger.” Until then, the status-quo remains the easy choice, but it is unknown if that’s the right choice for this year.
Article Quotes:
“But the ECB is not wholly responsible for the Eurozone disaster - after all, it has been forced to act as fiscal enforcer because of the absence of a unifying fiscal authority. The truth is that the Eurozone is in an unstable equilibrium. Inexorable forces are forcing it towards either consolidation or breakup. Consolidation means creation of a supranational fiscal authority with tax-raising and bond-issuing powers of its own. Breakup...Well, we all know what that means. QE will do nothing to fix this. Indeed nothing the ECB can do will deal with the fundamental problem of an incomplete and unstable monetary union. There is no political will for consolidation, and the growth of nationalistic political movements makes the disorderly exit of one or more Euro member states increasingly likely. This is the "black hole" theory of the Eurozone. Inexorable gravitational forces draw the countries of the Eurozone ever closer together. To start with, only the smaller and weaker countries experience the severe economic dislocation that is an inevitable consequence of the pull towards consolidation. But as they approach consolidation - the "singularity" - the economic depression of the periphery spirals out to core countries, including the most powerful. Even the mighty Germany is slowing...” (Pieria, Frances Coppola, January 2, 2015)
“Russian Arctic offshore energy efforts are in a period of unwelcome pause, and the flight of Western companies in the face of sanctions imposed by their home countries has left the future of these efforts up in the air. But this state is unlikely to last for long. Western firms have left incredible opportunity in their wake, and China is in the perfect position to benefit. Over the past 10-15 years, the People’s Republic of China (PRC) has systematically increased its activity in the high north through various avenues. Russia’s current relations with the West are likely to substantially boost this enterprise, which should concern the international community given the importance that the Arctic will play in the years to come. The region’s massive resource reserves, China’s growing presence, Chinese challenges to regional Arctic governance, and the current standoff between Russia and the West are a potentially potent combination. This situation should be recognized and efforts should be made to mitigate possible negative consequences. These efforts, however, should not be directed at preventing Chinese Arctic activity. China’s wealth and capital make it an important partner for Arctic nations in developing the high north, and it holds legitimate interests in the region. Rather, China’s entry into the Arctic must be managed responsibly through international channels to mitigate or prevent any harmful effects. Doing so may also create a rare avenue through which the West can seek common ground and understanding with Russia that can be built upon.” (The Diplomat, January 3, 2015)
Levels: (Prices as of close: January 2, 2015)
S&P 500 Index [2058.77] – After few days of trading above 2080, the index has retraced a bit. Of course, given light trading volumes of late December, jumping to a conclusion is pre-mature. All-time highs were set December 29th at 2093.55.
Crude (Spot) [$52.69] – Struggling to find a bottom after the bloody sell-off. Early signs of a bottom remain difficult to call as Friday’s lows near $52 are on the radar for keen observers.
Gold [$1,206.00] – More evidence of a bottoming process around the $1,200 price range. Interestingly, the 50 day average stands at $1,195.
DXY – US Dollar Index [91.08] –Another multi-year high put an exclamation point to the Dollar’s strength in 2014. From a long-term point of view, this strength appears set to continue as positive momentum continues to develop.
US 10 Year Treasury Yields [2.11%] – A drop below 2% would not be surprising at this junction. An October 15th low of 1.86% is in the realm of possibilities.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Subscribe to:
Posts (Atom)
