Tag Archives: Janet Yellen

Some banks are trading at record low

«Money makes the world go around», and most of the money in this world is in the banks. Simply because it is their product. They sell money like hot dogs on the corner. How hot are bank stocks at the moment?

Bank stocks have plummeted so far in 2016. Some of them are trading at 25 – 30 percent of their book value. A brutal start of the year for the banks, and the question is when is the time to jump in again?

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Stoxx 600 Banks Index is down nearly 30% and tells us that the market is oversold. Normally it`s oversold at 30, but now it is below 20. It is the lowest ever! The valuation of the European stocks is 13 times estimated earnings, which is down from its peak at 17.

Many investors obviously jumped in today and lifted the European stock market. A rebound in bank stocks lifted the marked up from its lowest level since 2013, and Deutsche Bank AG announced earlier today that they will buy back about $5,4 billion in bonds.

Deutsche Bank AG is up over11% on the news on friday. Credit Suisse is up over 6%. Many bank stocks are up on friday. Not only in Europe. JPMorgan Chase & Co, which is nearly ten times larger than Deutsche Bank AG is also up about 8% on friday (12:30 pm New York).

Many of the bank stocks did never rebound from the peak in 2007, and many of them are trading at record low levels. How easy is it for the banks to do business with low rates and low oil prices in the middle of a currency war?

Fed Chair Janet Yellen said in the testimony this week that the turmoil in the financial markets are threatening the stability and bank stocks are contributing. Thomas Jefferson said in 1816; «I sincerely belive…. that banking establishments are more dangerous than standing armies.»

That`s 200 years ago!

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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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The Auto Industry is strong

The U.S auto industry is up 75% since 2009, and is on the way to a new record year of annual sales, according to GM. U.S auto sales was only 10,4 million vehicles in 2009 but has skyrocketed to as much as 18,2 million so far in 2015, and this is the highest level since 2001.

Did someone say the U.S economy is bad? October was a huge month for the auto industry, despite concerns about a slowdown in consumer spending and stagnant wages. According to World Bank, the GDP per capita in the U.S was last recorded at 46405,26 dollars in 2014. That`s an all time high.

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Fiat Chrysler automotive reported its 67th straight month of YoY gains. Up 14,7% from 2014. Ford Motor Co is up 13%. Toyota Motor Corp; up 13%. Nissan Motor Co; up 12,5% in October, while GM said its sales is up 16% to 262,993 vehicles last month. The best October since 2004.

We cannot say the same about Tesla. They lowered the number of vehicles it plans to sell in 2015. From 50,000 – 55,000 to about 50,000 – 52,000. Tesla`s earnings growth in 2015 is -159,03% vs industry earnings growth at 24,50%, while P/E is down -85,86%.

Despite that, the most hyped stock in the market is up over 11% on Wednesday. Tesla announced Q3 results on Wednesday and they missed while burning a record amount of cash. Q3 non-GAAP gross margin dropped from 29,4% in 2014 to 25,1%.

Tesla released the new SUV a month ago and they have spent a lot of money into the production of this new model, so investors will want to see that sales of their new Model X are offsetting those costs. Tesla`s ongoing cash burn is the company`s worst cash burning quarter in their history.

Tesla`s Model 3 will be their most cost-effective model starting at $35k, and Tesla said they will start taking orders in March next year. The stock is up on Wednesday because of Musk`s forecast and that was as usual bullish.

Tesla has been working hard on building its gigafactory outside of Reno in Nevada. Their goal is to produce cheaper batteries and China is in focus for Tesla, because weaker sales can move the manufacturing facility to the region, as China is a key market for luxury cars.

What about Volkswagen?

Volkswagen`s recall is one of the biggest in Europe with 11 million vehicles worldwide. That`s more then they sell in one year. Rebates may help them to slow the decline, but the German carmaker`s market share in Europe is at its lowest in six months. Do I need to say more?

All this is happening while the rests of the world is waiting for the driverless cars which may become sooner than expected. GM now tries to beat Google to the driverless future. Steve Jobs talked about building Apple Car as early as 2008, so we expect to see Apple as well in the market and sooner than we know.

I`m not in doubt; the electric car is the future of the auto industry.

There is one problem. If we`re gonna help the rich, we need to help the poor. People need money and jobs. That`s how you create consumers.What we see in Tesla`s stock today is the stock market in miniature. Bad news is turned into good and the stock is rising high in the sky.

The auto industry looks strong, but Q3 reports seems to give us a sign of slower sales and earnings, and I haven`t seen that since 2009. But stimulus in China and Europe helps the stocks to rally.

Fed Chair Janet Yellen said the economy is solid on Wednesday in testimony before the House Financial Services committee in Washington. She said that would spur December rate hike. She said; «Domestic spending has been growing at a solid pace».

The rate has been near zero since 2008 and the Fed have waited for labor markets to move closer to their goal of full employment. The unemployment rate stood at 5,1% in September. The auto industry need consumers.

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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. UA-63539824-1.

 

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Will the Fed raise rates on Thursday?

Do you belive the Fed will hike on Thursday?

If so, you are among economists and strategists that belive so, but traders are betting strongly against it, and that alone is enough to wait at least one month before liftoff, according to Morgan Stanley.

CME FedWatch tool says the probability is at just 21 percent, and Morgan Stanley said its readings on trading show a 30 percent probability that «overstated the chance» of a rate rise.

Lessons learned in 1994 that reverberated into 1999 and 2004 will prelude a rate hike until the futures market prices one in. In 1999 and 2004, the central bank waited for market expectations to exceed 50 percent before moving, learning a lesson from 1994 when it tightened.

CNBC said there is one good reason the Federal Reserve won`t vote to raise interest rates, and that`s History. So, what is all this about?

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Rates have been near zero since the recession, and the Fed have delayed its first-rate hike since 2006. But why is the interest rate so low? See it like this; The lower the rates, the more problems it is in the economy.

When the economy is strong and everything is okay, interest rates are hiked in order to curb inflation, but when we face tough times, the Fed will cut rates to encourage lending and inject money into the economy.

Investors can predict what the Fed (or other central banks) will do by looking at economic indicators such as;

Retail Sales: Consumer spending
The Consumer Price Index (CPI): Inflation, and
Non-farm Payrolls: Employment levels

If these indicators improve and the economy is doing well, rates will be raised, but if the improvement is small, it will be maintained. Drops in these indicators can mean a rate cut in order to encourage borrowing.

Other indicators to foreshadow changes in the economy is building permits, average weekly hours, new orders and the spread between 10-year Treasuries and the Federal Funds Rate, which is published every month by The Conference Board.

Raising rates will have an impact on the markets. Raising interest rates will cause the dollar to appreciate over the Euro, which means the pair EUR/USD will decline, which is good for the U.S dollar.

If Chairwoman Janet Yellen sends out a dowish signal on Thursday, it may help to boost stocks and undermine the dollar. Investors will pay less attention to gold and allocate more of their capital into equities.

A hawkish message, including a rate increase, may help unpin the dollar and undermine stocks and gold. So, the upside will be limited for gold in both scenarios, unless we see a massive selloff in equities and the dollar.

Changes in monetary policy will ultimately cause currency exchange rates to change, and paying close attention to the news and analyzing the actions of the Fed (in this case) is vital for forex traders.

The interest rates impact currencies because the greater the rate of return, the greater the interest accrued on currency invested and the higher the profit. So how can you profit on it? The strategy is very simple, but also very risky. You can simply borrow currencies with a lower interest rate in order to buy currencies that have a higher interest rate, and this strategy is known as carry trade.

The shift in interest rate represent a monetary policy-based response as a result of economic indicators that assess the health of the economy. Most importantly; they possess the power to move the market immediately. So, how healthy is the U.S economy?

Nonfarm Payrolls is up: 215K
May, June Revisions: 14K
Unemployment Rate: 5,3%
Avg. Hourly Wages: 0,2%
Labor Force Participation: 62,6%
Consumer Price Index: -0,1%

A key measure of inflation dropped 0,1% last month for the first time since January due to sliding gasoline costs, and this is something for the FOMC (Federal Open Market Committee) on its policy meeting Wednesday and Thursday this week.

Central bank leaders have said they want to be confident inflation is heading toward their 2 percent target. Low inflation is a sign of economic weakness, and raising rates too soon risks harming the economic expansion.

IMF (International Monetary Fund) and the World Bank have asked the Fed to delay its first-rate hike since 2006.

The world`s financial watchdog is the BIS (the Bank of International Settlement) and are considered the «bank of central banks». BIS has warned that a Fed rate hike could have a huge effect on the global economy and particularly in emerging markets.

According to a BIS report, much of the global financial system remains anchored to U.S borrowing rates, and a rate hike at home tends to have an impact on higher rates in other economies. The enormous amount of debt in the emerging markets has the potential to move the markets even with a small rate hike.

Everybody knows that sooner or later, a rate hike might be necessary. No matter the results in the financial markets will be. Some belive the Fed will hold off on raising rates until December.

I really look forward to Janet Yellen`s speech on Thursday at 2 p.m. Washington time.

 

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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. UA-63539824-1.

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Is this the end of QE?

Two things are important right now. Earnings and the Fed. 80% of the S&P companies that have reported earnings have beaten estimates, according to Bloomberg. The catalyst for last week`s 4% rally was the reported earnings, and will continue to be the catalyst this week for any move in the market.

Todays FOMC Statement and Fed Funds rate decision will also play a big role in the market this week. Interest rate is very important in the stock market, and the big question for investors now is when the Fed will start to raise the interest rates. Any hint or insight will likely stir the markets.

Fed Chair Janet Yellen is worried about the low inflation, and the inflation gauge has fallen short of the Fed`s 2% target. The risk of deflation may weight against raising interest rates too soon.

Prices as measured by the personal consumption expenditures index rose 1,5% from a year earlier in August, and oil prices is something Fed has no control over. As you may know, the oil prices has dropped over 20% so far this year.

Many investors expect the Fed to end its third round of asset purchases today, while others say the central bank should consider a delay in ending QE in light of the falling inflation. It is possible for the Fed to reduce the monthly purchases by $10 billion and leave the final $5 billion reduction for December.

The Fed will still hold a record $4,48 trillion balance sheet accumulated during QE 3 despite an end of QE today. That will limit the supply of securities and keep the yield lower as their borrowing cost is limited.

Market volatility and sign of slowing global growth will make the Fed to act with caution, and it`s expected to see the interest rate to near zero for a «considerable time» after bond buying ends. Fed`s benchmark rate has remained at zero to 0,25% since December 2008, but it is expected to see the rate to increase in mid-2015.

FOMC`s next meeting is in December.

 

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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Filed under Quantitative Easing

Rolls Royce up 6% on buybacks

 

All the commodities are up today. Silver up +0,92%, Gold +0,76%, Copper +0,23% and Oil (brent) is up +0,31%. Nikkei is also up today, as it advanced +1,62%. ASX 200 is up +1,59%. Europe is in a green territory too. Stoxx 50 is up +1,11%, FTSE 100 is up +0,83%, CAC 40 +0,89% and DAX is up +0,78% to 10,008,17 points right now (13:14:00 CET).

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(Picture: Rolls Royce)

The crude oil price have never been so high this year and that`s because the conflict that is going on in Iraq right now. The Iraqi government forces battling Sunni militants for control of the country`s biggest refinery. The rally in Asia and the rest of the global stock market is because of the FOMC meeting yesterday.

The stocks rallied after the U.S Federral Reserve signaled that rising inflation won`t trigger an interest rate rise any time soon. investors liked it and sent the European bourses up sharply today. Asian equities posted strong gains, and S&P 500 rose to another record high yesterday.

The Fed Chair Janet Yellen slashed its 2014 growth forecast but expressed confidence that the economy will continue to recover steadily in the coming years, which could warrant a slightly more aggressive pace of interest rate hikes when they start.

That probably won`t be until the middle of next year, and Fed Char Janet Yellen dismissed the resent rise in inflation to its highest in over a year as «noise». Some people were speculating that the Fed would have to come up with a more hawkish commentary and obviously they have been disappointed.

But there were one loser yesterday after FOMC meeting yesterday; the dollar, which fell against major and emerging market currencies, in tandem with U.S Treasury yields, hitting a five-year low against sterling.

A big winner in the European stock market among the blue-chips was Rolls Roys RR.L. An auto car maker for the luxus market. The stock rose 6% after it announced a one billion pound ($1,69 billion) share buyback.

 

Reports today:

08:30 a.m EST Unemployment Claims

10:00 a.m EST Philly Fed Manufacturing Index

 

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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