Tag Archives: ECB

by | March 13, 2015 · 9:41 am

Money for nothing

Hot dog is a product and you can buy it on the street. But it has a price. What if the price is $10? Or what about $5? What if I say $1? Does it sound better if I say I will pay you for every hot dog you buy? Anyway, that`s a great deal for you, and so is it for the money. It`s a product you can buy.

I can lend you some money, but what is the rate of interest? What if I say 10%? That`s a great deal for me. How about zero? Or even better, what if you can lend money from me, and at the end of the loan I pay you interest, just like a negative rate of interest. Is it fair?

Stack of $100 bills

Sorry buddy, but I`m not stupid. Of course I won`t pay you for a hot dog or money. I don`t know someone who will either. Do you know someone who would lend money for nothing? Or worse; who will lend money and get back less than the loan amount? No one I know.

People in Europe are looking for deals like this right now.

ECB`s QE is meant to reinvigorate Europe`s lethargic economies and prevent deflation. They started a bond-buying program on monday and investors knew that. They were positioned.

Germany issued 5-year bonds two weeks ago with negative interest rate, and they are not alone. Germany are joining a growing club of other countries in Europe who have done exactly the same. It may sound stupid, but investors do this because they want to make quick profit from it.

Investors was smart enough to think that ECB would buy German government bonds when they started the QE program on monday. But there is one problem; Germany runs a nearly balanced budget.

It means that they don`t issue many net new bonds. It might sell new bonds to replace those that mature, but investors already own those bonds. ECB came into the market as a new buyer and there weren`t any net new bonds.

The key question is this; price.

This is why investors was loading up before ECB`s bond-buying program. When Germany issued 5-year bonds, investors loaded up and waited for ECB to buy with both hands. The ECB must pay whatever price the market will bear to buy bonds. So what is the price?

Institutional buyers have been front-running the ECB program, and many of them have no intention of holding the bonds to maturity so the negative interest rate was of little consequence. As ECB work to devalue the euro, investors are repositioning themselves in stronger currencies, like the Swiss franc.

Since they want exposure to the stronger currency, they`re willing to pay negative interest rate on Swiss bonds.

Germany can afford to charge negative interest rates because of demand for their bonds from the ECB and the German Central Bank (the Bundesbank).

Non-euro countries like Switzerland are charging negative rates because they don`t want the hot money flowing into their currency. This is spilling over into the equity markets.

Private companies like Apple have started cashing in on the good, low and negative-interest rate deal for borrowers.

Apple have issued bonds in currencies like the Swiss franc because their cost of capital is so much cheaper than it would be in U.S dollars.

Apple issued bonds maturing in nine years at 0,375 percent interest and bonds maturing in 15 years at 0,75 percent.

Apple saved itself roughly 1,75 percent per year in interest by issuing bonds denominated in Swiss francs. 10-year U.S Treasury bonds yield is about 2,03 percent and 20-year bonds yield is 2,33 percent.

That`s not the whole story. Apple will use the money it raised to buy back shares and that will reduce the outstanding numbers of shares. With growing revenue and earnings, it can drive the stock price higher.

There is a risk in here, but in Apple`s case I don`t think they will struggle with this bet. They sold less than $1 billion in bonds, and has about $175 billion in cash stashed around the world, and the U.S dollar will remain strong.

Apple is a great example of how QE programs can drive interest rates lower and push the stock prices higher. Central banks are driving the markets.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | January 26, 2015 · 11:52 pm

Anti-Bail out party Syriza wins

The Anti-bail out party Syriza wins in Greece, and people call the left-wing party Syriza leader Alexis Tsipras a liar or Harry Potter, because they don`t know where he is going to get the money from. Tsipras says austerity era is over for Greece.

Syriza`s pledges is to rise the minimum wage by 29 percent and abolish property tax. In addition they will renegotiate write down on Greece`s debt. The coming weeks will be hectic for Syriza and the European Central Bank I think. The period of time between now and the end of february will be a key pivot point.

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The growth so far in the U.S has not been what people expected. The growth is very slow. In Japan they say that QE doesn`t help. In the U.S they say that the economy is looking good now, but a record number of people are still on food stamps. What about the Eurozone?

Greece remains saddled with €240 billion in debt and it is not possible for them to pay. They have tried many different things to get back on track but without luck. They tried to rise the tax and do some cuts, but that was not enough to save them from a deep recession.

The new government will face a big problem from day one, as the creditor states have frozen $8,8 billion in loan disbursements. The present government has reached a $17,4 billion ceiling for bond sales. Eurozone finance minister will extend negotiations until September. Germany has warned the new government that it must live up to its commitments to its creditors.

The Athens stock exchange (ASE Index) is down 3,2% with big losses fro Piraeus Bank (OTC: BPIRY) which is down -14,61%. Large Cap Index is down -5,6%. Alpha Bank (OTC: ALBKY) is down -4,41%. Eurobank Ergasias SA (OTC: EGFEY) fell -4,19%. National Bank of Greece SA (NYSE: NBG) is down -7,74%.

Greece`s government bonds also fell after concern eased that a Syriza victory would trigger a euro exit. Weak economic indicators combined with Syriza can put more pressure on Greek stocks. Euro rebounds and all the global stocks are trading up today. The Stoxx Europe 600 rose 2,02% today and ended at 372,39 points.

Many people in Greece said they voted on Syriza because they want a change. They think that Syriza will change Greece and the rest of the world. The economy has collapsed, so there has to be a change. Big change.

Deflation and a collapsed economy is not only the problem in Europe today. Another problem is that people in Europe have hated each other for thousands of years. How can you succeed in a country with so much hate?

Tomorrow it is 70 years since Holocaust.

A big shame in Europe!

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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by | January 22, 2015 · 11:32 pm

Mario`s Bazooka!

Europe is in trouble and the problem (one of them) is deflation. From December 2013 to December 2014 the inflation was -0,2%. ECB`s goal is like the FED`s; about 2%. The European Central Bank announced today that it will fight against deflation and recession by «printing more money».

Many people don`t know that the Central Banks are not printing money like they use to think; printing paper money. But others say «printing money» to make ordinary people understand what they are talking about.

ECB

Central banks have a tool to control growth and that is lowering or raising the interest rate. When the interest rate is low, people will spend more money which is good for the economy. Spending is also better than saving.

When interest rate is as low as it right now, the central banks need to do something. The tools they use is to «print more money», and that is quantitative easing QE. But does it help the economy? According to Obama in a speech yesterday; it does.

The banks use this money to buy bonds from investors such as pension funds and private investors that will use this «new» money. This again will increase the amount of money in the financial system, which is encouraging financial institutions to lend more to businesses and individuals. The goal is to allow them to invest and spend more and that will hopefully increase the growth.

QE makes the prices of government bonds to go up and reduces the yield paid out to investors, which means investors have to pay more to get the same income. This is why some pension scheme deficits have increased sharply in resent years.

It is Greek elections on Sunday, and ECB bond-buying could support confidence in troubled Euro zone members and prevent any fallout from Greek politics affecting other countries. Some said the Greeks are poised to reject the EU-imposed cost-cutting and vote for Syriza, which rejects the fiscal crackdown. The ECB will buy bonds from Italy and Germany and that will prevent them from selling their bonds if the economic situation in Greece worsens. Draghi said today that they can continue to print money the next 30 years. No one knows that this program will work.

QE was first used by the Bank of Japan (BOJ) to fight domestic deflation. BOJ had for many years claimed that QE is not effective and rejected its use for monetary policy. BOJ hade maintained short-term interest rates at close to zero since 1999.

During their QE, the BOJ flooded commercial banks with excess liquidity to promote private lending, leaving them with large stocks of excess reserves and therefore little risk of a liquidity shortage. The BOJ accomplished this by buying more government bonds than would be required to set the interest rate to zero. It later also bought asset-backet securities and equities and extended the terms of its commercial paper-purchasing operation.

Since the financial crises of 2007-2008, similar policies have been used by the United States, the United Kingdom and the Euro zone. QE was used by these countries because their risk-free short-term nominal interest rate were either at or close to zero.

ECB will start their € 1,1 trillion QE program in march. They will start buying 60bn euros of chiefly government debt each month. That includes rebundled private debt, asset-backet (public and privaate) securities and covered bonds worth about 10 billion euros on top of the roughly 50 billion euros in state bonds.

They will spend (as they signalled in 2009) € 60bn euroes each month until September next year. The Euro dropped down to an 11 year low against the strong dollar. The pair is now trading at $1,14.

Mario Draghi has delivered a bigger bazooka than investors were expecting, and the stock market in Europe, Asia and U.S skyrocketed today. Bull!

By the way; Denmark`s Central Bank followed the ECB today by cutting its main deposit rate again. This time to negative -0,35%. They had already lowered that rate to negative -0,2% from negative -0,05% on Monday this week.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | January 19, 2015 · 8:33 pm

Cautious Stock Market Investors

U.S markets will be closed today in observance of the Martin Luther King Jr holiday. Some markets will be open like futures, but I will stay away from the market today because of the lack of volume and liquidity.

I will follow oil and gold prices and all the commodity traders should keep in mind that Crude Oil inventories will be released on Thursday at 11:00am, instead of the normal Wednesday 10:30 am release due to Monday`s holiday.

Gold is on the move and can go up about 25%, and the precious metal is the best performing asset class so far this year. It`s golden days for day traders. Take a look at the oil price. It`s like roller coaster, jumping up and down, and oil had the biggest gain in 2 1/2 years, ending the trading session of friday 5,82% higher.

The reason why the stock market didn`t follow the oil price on friday can be the disappointing retail sales report in early trading on friday. Retail sales dropped 0,9% vs a 2% forecast. The S&P ended Friday with a 27 point gain, and ended the week 25 points lower. That`s down 1,24% for the week.

The Dow saw triple digit profits on Friday with a 191 point gain, and it closed at 17511,57, wrapping up the week with a 226 point loss. Friday`s Preliminary Consumer Confidence report was a beacon of hope for the bulls. The report not only beat expectations. That`s the highest level in 11 years!

A number of questions marks seem to have investors leaning back on their heals this year. This is; plummeting oil prices, geopolitical turmoil and continued divergence between the world`s major economies like Japan, China, U.S and the Euro zone.

All the investors eyes are on the world`s central banks. The Davos meeting later on this week will be interesting, and the ECB is expected to deliver a stimulus package later this month. Investors will wait for definitive word from the ECB regarding its widely anticipated stimulus plan.

Bond market rose across the board as interest rates dropped lower, with the 10-year Treasury rate falling below 2%. The downtrend in rates is not good, and is a symptom of deflationary pressures which is worse than inflation. Plummeting energy prices are adding fuel to the fire.

The U.S dollar continued its bullish climb last week, putting downward pressure on the commodity sector as a whole. This trend can last awhile longer.

Investors are cautions and it seems everyone is a bit hesitant to commit to new, bullish positions until some questions are resolved. I will wait for a clearer trend to emerge and 1,200 in small-cap stocks need to break before I call the bullish trend in equities alive.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | December 17, 2014 · 6:18 pm

Other predictions for 2015

Spending a few minutes reading the headlines today can make you feel bad. It feels like the world is on fire. Ebola, ISIS, Ukraine and some extremely currency movements. In a world like that, the U.S is seen as a safe harbor and the greenbacks is the safest, most reliable currency on the planet right now.

2015b

We witnessed a fantastic corporate earnings season, which was one of the best in the last decade. It is still a lot of work on jobs and housing, but the economy is well underway. How is it gonna be in the markets next year? No one knows, but there is a lot predictions out there. I will refer from two different investors today. One is positive and one is negative. Let`s take a look at the positive first;

No doubt, there is a market shift ahead, but it isn`t what you think it is. Based on different analysis, many indicators shows us that next year will be another fantastic year in the stock market. It will be another year to make money and the bull market will continue.

The bull market will not be what we have seen so far. It`s not gonna be another broad market rally like the rally we`ve seen the last few years. Stock picking will still be important, as there is a lot of stocks you should sell in 2015.

What you should buy is high-quality stocks with great fundamentals. You should buy one type of stocks next year.

Look at the truth about the economy. It took seven years to finally rebound from the Great Recession, and here are some key reasons why some investors expect the economy to keep charging ahead next year;

Fist of all; the oil shale revolution. According to the International Energy agency, the U.S will become the world`s leading oil producer next year. The energy boom will create jobs and lowering the gas and utility costs for consumers. That`s good news for the economy next year.

In addition; there will be low-interest rates. It may rise in the next 12 months, but the Fed will manage that rise slowly, which means it will remain ultra-low by historical standards, and that`s also good news for M&A activities, stock buybacks and cheap corporate borrowing that fuels stock prices, and business expansion.

Consumers are more positive to the economy and consumer confidence soared in October. Household net worth is back above 2007 levels, and consumer spending are rising at a moderate clip.

It looks safe in the U.S compared to the rest of the world. England`s housing market is collapsing. The Euro zone is on a brink to a deflationary disaster. Germany`s economy is deteriorating, and the growth has stalled in the once-hot BRICS. The U.S economy is surging. GDP was much stronger than expected 3,5% in Q3.

Chairwoman Janet Yellen has made it clear she intends to do whatever it takes to keep the economy and job growth strong. We survived the end of the Fed`s QE program and that was just one of the weapons in her arsenal.

The other one I talked about is negative. He expect the stock market to crash any time soon. It did in 1929, 1987, 2000 and 2008. The next crash will be next year he says. The bull market we have had over the past years is one of the longest, and most generous bull markets in history.

But, no bull markets lasts forever he says, and this one has about run its course. If you look at key long-term measures, U.S stocks are about 80% overvalued he says. There have been only five times when stocks have been more than 50% overvalued, and that is 1853, 1906, 1929, 1969 and 1999.

He said that each one of those years marked the peak of a massive, once-in-a-generation stock-market bubble. Only two of those bubbles were bigger than today`s, and that was in 1929 and 1999. This is the end of the line for this bull market he says.

You have to be sceptical about everything you read and it is very important to make up your own mind. I have heard about a 1929-stock-market-crash in ten years now. Many talked about a stock market crash all months this year. Same people talked about it in 2013 and 2012, but what we saw was a strong bull market.

But I can promise you one thing; one day they will have right!

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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