Club Investors Capital

01/25/2017

HISTORIC DAY FOR THE DOW.

The Dow Jones Industrial Average climbed past 20,000 for the first time as stocks around the world extended a rally after corporate earnings reignited investors’ optimism in economic growth. Bonds sold off with oil.

The index for American blue chips took the round-number milestone after a handful of rallies fell short in the past month. It was the second-fastest 1,000-point trip in its history. European equities jumped the most since Nov. 9, swept up in trades favoring banks and cyclical companies. The yield on 10-year Treasury notes topped 2.50 percent. The Mexican peso slumped after Donald Trump said he plans to unveil actions that include steps toward building a border wall. Oil fell on increased U.S. stockpiles.

“With a swift move towards signing executive orders, coupled with underlying positive economic data, clarity has begun to hit the headlines, and all the US indexes are celebrating,” Quincy Krosby, market strategist at Prudential Financial Inc. said. “Clarity is the markets’ oxygen.”

The stock surge comes as Trump moves to fulfill pro-growth campaign promises, including identifying possible infrastructure projects, approval of two oil pipelines and cajoling of American carmakers to build plants in the U.S. Corporate earnings added to the bullish sentiment, with Boeing Co. the latest company to post results that topped expectations.
Other global-growth signals such as rising bond yields are feeding higher bank lending margins, and re-invigorated spending is boosting consumer cyclicals.

10/22/2016

BREAKING NEWS
20 Minutes ago:
AT&T Agrees to Buy Time Warner for Around $80 Billion

A person briefed on the matter said on Saturday, a move that would create a new colossus in the worlds of media and telecommunications.

The proposed transaction could be announced as soon as Saturday, barring last-minute changes, this person added.

Putting together AT&T, a sprawling video and internet empire that encompasses cellphone and cable service along with DirecTV, and Time Warner’s media holdings, which include HBO, CNN and the movie studio Warner Bros., would create a formidable new player and potentially spur even more deals. In recent weeks, the family that controls CBS and Viacom has urged the two companies to consider a merger.

Executives and advisers to both companies have held talks for several months, with the discussions becoming more serious over recent weeks.

The potential union would probably face heavy scrutiny from government regulators, who have shown increasing skepticism about such mega-mergers.

An announcement would come weeks before the presidential election, with both candidates having promised to crack down harder on big deals. Hillary Clinton has said that she intends to bolster the government’s antitrust enforcement division.

10/17/2016

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Alejandro A. Revuelta.

01/15/2016

Dow Sinks 450 Points in Global Equity Rout as Crude Falls to $30.

Stocks tumbled around the world, with U.S. equities headed for their lowest levels in 15 months, and bonds and gold jumped as oil’s plunge below $30 sent markets reeling. Treasuries extended gains as economic data and earnings added to concern that global growth is faltering.
QUICKTAKE
Oil Prices
The Dow Jones Industrial Average sank 450 points, European stocks fell into a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign as global equities added to the worst start to a year on record. Oil touched $29.28 a barrel as Iran prepares to export into a global supply glut. A measure of default risk for junk-rated U.S. companies surged to the highest in three years. Yields on 10-year Treasury notes dipped under 2 percent as doubts grow that the Federal Reserve will raise interest rates. Gold surged 1.6 percent with the yen on haven demand.

Crude’s drop to a 12-year low is sending shock waves around the world at the same time concern is mounting that China’s policy interventions will fall short of stoking growth in the world’s second-largest economy. Energy firms are laying off workers and currency markets from commodity-producing countries are in turmoil. The slump is also denting the outlook for inflation around the world, causing traders to curb bets on how far the Federal Reserve will raise interest rates this year.
“Markets have to go through several stages and right now they’re just holding their head and crying,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “The drama and issue overnight is more related to oil prices not finding a floor. If it was just China and everything else was OK, we’d see through that. But when China is down and oil drops everyday, the market recognizes it has substantial issues.”
Adding to the unease, Intel Corp. dropped 10 percent after predicting first-quarter sales that fell short of some estimates. The semiconductor maker’s note of caution came at the start of an earnings season that may see U.S. profits fall faster than any time since the financial crisis.
Templeton's Arnold: Tremendous Opportunities in Europe
Stocks
The Standard & Poor’s 500 Index plunged 2.9 percent at 12:55 p.m. in New York, falling past its August trough to the lowest level since October 2014. The gauge is headed for a third weekly decline, its longest slide since July. The Dow tumbled 521 points as none of its 30 members advanced, while small caps added to a bear market.
Reports showed sales at U.S. retailers declined in December to wrap the weakest year since 2009 and the Fed’s New York manufacturing index at minus 19.7 in January.
The Stoxx Europe 600 Index retreated 2.8 percent, heading for a weekly drop of 3.4 percent. Europe’s benchmark closed more than 20 percent from its record in April -- meeting the common definition of a bear market.
Commodities
West Texas Intermediate crude fell as much as 6.2 percent, before trading 5.8 percent lower at $29.40 a barrel. Brent fell 3.9 percent to $29.69 a barrel.
International sanctions on Iran may be lifted Monday, allowing for a boost in oil shipments from the fifth-biggest member of the Organization of Petroleum Exporting Countries.
Oil will turn into a new bull market before the year is out as the price rout shuts down production, putting the U.S. shale-oil boom into reverse in the second half of the year, according to Goldman Sachs Group Inc. As U.S. production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, the bank said in a report.

Gold, up 0.5 percent today at $1,083.28 an ounce, is headed for its worst week since November after failing to overcome resistance watched by traders who study charts near its 100-day average.
The Bloomberg Commodity Index, which measures returns on 22 raw materials, dropped 1.2 percent.
Emerging Markets
The MSCI Emerging Markets Index fell 1.9 percent on Friday and 4 percent this week. Shares in Shanghai entered a bear market for the second time in seven months, dropping more than 20 percent from its December high and sinking below its low during the depths of a $5 trillion rout in August.
The Shanghai Composite Index sank 3.6 percent on Friday, extending losses after a report that some banks in Shanghai have halted accepting shares of smaller listed companies as collateral for loans. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.6 percent to a four-year low.
Energy producers dragged Russia’s Micex index down 3.6 percent, extending this week’s drop to 7.3 percent, it’s worst performance for the period since March 2014. Brazil’s Ibovespa slid 2 percent. India, South Korea, Poland and Thailand lost at least 1 percent.
Currencies
Russia’s ruble sank 2 percent and South Africa’s rand fell 1 .3 percent, leading a gauge of emerging-market currencies down 0.5 percent, capping its third weekly decline. Over the five day period, the ruble slid 3.7 percent and the rand lost 2.1 percent. Brazil’s real and Mexico’s peso lost at least 0.9 percent on Friday.
The Hong Kong dollar fell 0.15 percent to HK$7.7933 per dollar, taking its two-day drop to 0.4 percent, the most since October 1992. The global foreign-exchange situation is complicated and it’s possible the currency will decline to the weaker side of the peg, the city’s Financial Secretary John Tsang told reporters. The existing exchange-rate system limits declines to HK$7.85 and caps gains at HK$7.75.
Australia’s dollar slid 1.7 percent to the weakest level since April 2009. The Canadian dollar fell for an 11th straight day in its longest run of losses on record. New Zealand’s kiwi slumped 1.4 percent.
The yen appreciated against all its 16 major peers as turmoil in markets boosted demand for havens. The euro also gained, while the Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, rose for a sixth day.
Bonds
Treasury 10-year note yields fell below 2 percent to the lowest since October, casting doubt on the Fed’s ability to raise interest rates.
U.S. Treasuries gained as traders pulled back expectations for the number of Fed interest-rate increases this year. Data compiled by Bloomberg shows they expect the effective fed funds rate will rise to 0.7 percent in a year’s time, implying one increase, compared with policy maker estimates for four. The 10-year yield fell 10 basis points to 1.99 percent.
The risk premium on the Markit CDX North American High Yield Index, a gauge tied to U.S. junk-rated companies, surged to the highest level since November 2012. Junk-bond funds reported $2.1 billion of redemptions in the week through Jan. 13, according to data provider Lipper.

12/29/2015

NEW YORK (TheStreet) -- GoPro (GPRO) shares are advancing 0.95% to $18.09 on Tuesday afternoon on anticipation that 2016 will be a great year for drones, and due to the positive app performance on Christmas Day. "The story for GoPro this holiday appears to be that less people than a year ago took advantage of promotional pricing to buy one for themselves, but more people received GoPros as gift," Dougherty & Co. stated.

08/14/2015

China effectively devalued the yuan by 1.9% on Tuesday, with the possibility of more to come under a new system of daily fixes. There are three main ways to interpret Beijing’s motivation.

First, China believes the yuan is overvalued compared to the currencies of its trading partners, and the central bank is committed to liberalize controls and allow market forces to play a larger role in day-to-day trading. This is the optimistic reading.

Second, China is a victim of the U.S. Federal Reserve’s quantitative easing, which flooded the world with cheap dollar liquidity and now is poised to spark crises in emerging markets as it raises interest rates. This would mean China is trying to delink from the rising dollar more than it is trying to devalue the yuan.

Or third, Beijing has joined a wave of beggar-thy-neighbor devaluations sweeping the region. This would be the worst news for Chinese and global growth.

As is often the case with currency issues, all three may play a role. But none of them changes that the devaluation is unlikely to give the Chinese economy much of a boost. It will increase volatility and pressure on the yuan, which had its biggest one-day loss in two decades on Tuesday, and it could have contagion effects around the globe.

Opinion Journal Video
Silvercrest Asset Management Chief Strategist Patrick Chovanec on the risks of devaluing its national currency, the yuan. Photo credit: Getty Images.
China has benefited from sound money throughout most of the reform era that began in 1979. Even during the 1997 Asian currency crisis and 2008 global panic, Beijing kept the yuan’s value steady while others devalued. It earned the respect of markets for doing so.

The risk that an emerging-market country will debase its currency discourages foreign investment and encourages citizens to store savings overseas. It’s no coincidence that under the stable-yuan regime local entrepreneurs reinvested in the mainland economy, and China’s growth was faster and more sustained than even Japan and South Korea in their boom years.

Then why is Beijing blinking now? One clue comes from the July economic data released over the weekend. China’s exports, expected to be down 1.5%, fell by 8.3%. Pockets of manufacturing have been especially hard hit, as reflected in sluggish electricity use and falling rail cargo. Especially scary is the prospect of deflation; producer prices were down 5.4% from a year ago. Then there is the recent stock-market meltdown that has sapped economic confidence.

So supreme leader Xi Jinping may be using devaluation to jump-start exports and stop deflation. That’s the prescription usually offered by the International Monetary Fund, the U.S. Treasury and other worthies. But Mr. Xi should have first read up on the 1997 crisis.

Thailand, Indonesia and South Korea all tried to devalue their way out of that crisis after having held their currencies stable for a decade. The result was a capital stampede that exhausted reserves and led to high inflation. Domestic institutions that had borrowed in dollars found themselves unable to service debts. The dislocation damaged exports and their economies.

We can hope that China’s devaluation and its effects will be more limited. Chinese financial markets are less exposed to foreign borrowing and Beijing has such large reserves that a balance-of-payments crisis is unlikely. But some investors will flee the yuan, and the resulting volatility and drain on liquidity could have unexpected consequences.

More worrying is that the devaluation works against the much-needed rebalancing of the economy from manufacturing and exports and toward services and domestic demand. The devaluation has diminished the global buying power of Chinese savers by 1.9% at a stroke, which hardly encourages consumption. And it signals that manufacturers will continue to receive state support.

China’s economic rise has been notable for technocratic competence and a steady hand. The recent response by the Xi government to slower growth is troubling above all if it signals the short-sighted mistakes that often lead emerging markets into trouble.

A move to liberalize currency controls, or a panicky bid to lift exports? An editorial in The Wall Street Journal.

07/09/2015

Market Complexity Broke the NYSE Before Saving It.

So today the New York Stock Exchange published its explanation of why it shut down for much of yesterday. Here it is. Basically NYSE did a software update, and when it opened up the machine to put the updated software in, some bats got into the machine and flew around breaking stuff, and so NYSE had to open the machine back up and catch all the bats, and that took a while. I may not fully understand how computers work.

Here though I want to focus on the first sentence of NYSE's explanation, which is this:

On Tuesday evening, the NYSE began the rollout of a software release in preparation for the July 11 industry test of the upcoming SIP timestamp requirement.

So the software update was not to like change the font for the stock symbols; it was to prepare for "the upcoming SIP timestamp requirement." Let's talk about that. The SIP is the Security Information Processor, which "links the U.S. markets by processing and consolidating all protected bid/ask quotes and trades from every trading venue into a single, easily consumed data feed."

We talked yesterday about how stocks trade. A bunch of electronic trading firms post bids to buy shares, and offers to sell them, at a bunch of places. Those places are all basically computers in New Jersey, but they go by names like "the New York Stock Exchange" and "Nasdaq" and "BATS Y." When you want to buy stock, you go to your broker, and your broker looks at all the exchanges (the computers in New Jersey) and sees which one has the lowest offer -- that is, which one has the electronic trader who will sell the stock the cheapest. Then he goes and buys the stock for you there.

Conveniently, all those exchanges provide their bids and offers to the SIP, so your broker can just look at the SIP to see what the cheapest price for the shares is. But as with everything involving electronic trading, this is controversial. The SIP is slow. All the exchanges send their information to the SIP, which aggregates it into one feed and then sends it back out to SIP users. If you are an electronic trading firm, you might instead subscribe directly to the information feeds from the exchanges. This costs you more money, but the information gets to you faster than the SIP does. So when the SIP says that shares of XYZ stock are trading at $10, you might know that price is out of date by, say, a whopping 0.0001 seconds, and that the current price is $10.01. And if you can find someone who will still sell you the stock at $10.00, you can turn around and sell it for $10.01 and make an easy penny.

This is not particularly supposed to happen: If the price is $10.01, brokers aren't supposed to sell their customers' stock for $10.00. But lots of people worry that it is happening, and that high-frequency traders who know that the price is $10.01 get to buy at $10.00 in the time it takes the SIP to update. The concern is that some brokers and venues execute customer orders using SIP data that is out of date, leaving their customers vulnerable to high-frequency traders who take advantage of them. (It's "front-running," for some definition of front-running. It's also frequently called "latency arbitrage.") This concern is the big motivating intuition behind IEX, the dark pool at the center of "Flash Boys," which uses a magic shoebox to delay high-frequency traders' orders to make sure they're not trading on information before IEX reacts to it.

Exchange went dark dealing with market fragmentation, but the market was too fragmented to care.

07/09/2015

Greece Gets Last-Minute Help From France on Bailout Proposal

ATHENS — As Greece engaged in a last-minute scramble on Thursday to formulate a bailout proposal that could determine whether it remains in the euro, France, its most sympathetic ally among Europe’s big powers, stepped in to give a helping hand.

While the assistance appears to be mostly technical, it highlighted the contrasting approaches being taken by the two leading powers in the European Union. Germany has stood firm against concessions to Greece, while France has thrown itself into the search for a deal.

The French assistance appeared to be an effort to make sure the Greek proposal, due by midnight, would be as thorough and salable as possible to Greece’s creditors and would smooth the way for a compromise on a new bailout package to keep Greece afloat financially and inside the euro.

“There is a group of people who have been sent to help the Greeks, to try to transform words into action,” said a French government official with knowledge of the effort.

Unlike Germany, France has thrown itself into finding a deal to keep Greece afloat and in the eurozone, and sent a group of officials to help the Greeks on their proposal.

03/10/2015

The World Bank reckons unconventional and higher-cost players such as U.S. shale drillers and even biofuel producers may be the new swing producers in the oil market.

Still, OPEC's fate isn't completely sealed. It may benefit from the fact that, unlike other commodity producing groups, OPEC isn't governed by a legal clause on how it can intervene in the market, giving it more flexibility to respond, according to the bank.

"The last time they were in a parallel situation, with oil prices plummeting in the 1980s, you had all these proclamations that OPEC was dead," said Benn Steil, also at the Council on Foreign Relations, where he's director of international economics. "Yet they weren't, because when the fundamental forces of the business settled at a higher level of oil prices, they started to regain some relevance."

You can read the World Bank study, which was authored by John Baffes, Ayhan Kose, Franziska Ohnsorge and Marc Stocker, here

Alexandre Révolta

Policy Research Note No. 1

03/06/2015

Abstract:

It is critical to alleviate problems of energy and air pollutant emissions in a metropolis because these areas serve as economic engines and have large and dense populations. Drivers of fossil fuel use and air pollutants emissions were analyzed in the metropolis of Beijing during 1997-2010. The analyses were conducted from both a bottom-up and a top-down perspective based on the sectoral inventories and structural decomposition analysis (SDA). From a bottom-up perspective, the key energy-intensive industrial sectors directly caused the variations in Beijing's air pollution by means of a series of energy and economic policies. From a top-down perspective, variations in production structures caused increases in most materials during 2000-2010, but there were decreases in PM10 and PM2.5 emissions during 2005-2010. Population growth was found to be the largest driver of energy consumption and air pollutant emissions during 1997-2010. This finding suggests that avoiding rapid population growth in Beijing could simultaneously control energy consumption and air pollutant emissions. Mitigation policies should consider not only the key industrial sectors but also socioeconomic drivers to co-reduce energy consumption and air pollution in China's metropolis.

Doris Zh Alexandre Révolta

“Under the Dome” had hundreds of millions of views on Chinese websites in the past week within days of its release, more than any other video in recent years.

03/03/2015

The Nasdaq Composite added 0.9 percent to 5,008.10 by 4 p.m. in New York, as both the Standard & Poor’s 500 Index and the Dow Jones Industrial Average rallied to records. The Stoxx Europe 600 Index retreated 0.2 percent. Yields on 10-year Treasuries rose nine basis points to 2.09 percent. The Bloomberg Dollar Spot Index gained 0.4 percent, while the yuan slipped to a two-year low after China cut interest rates. Brent slid 4.9 percent from its highest level in 2015 on concern over the global oil surplus, while U.S. crude dropped 0.3 percent.
Consumer purchases in the U.S. rose 0.3 percent in January, adjusted for inflation, adding to signs the recovery is on a strong footing as the Federal Reserve assesses inflation and jobs data to gauge the timeline for raising interest rates. Euro-area consumer prices fell less than predicted last month, offering some relief to the region’s central bank as it prepares to put its stimulatory bond-buying program into action.
“With February as strong as it was, to see some follow-through here is encouraging,” Walter Todd, chief investment officer for Greenwood, South Carolina-based Greenwood Capital, said by phone. “We got some decent data this morning and with numbers out of Europe better than expected and the Chinese central bank cutting rates over the weekend, it’s a combination of those things that have us moving higher.”
Stock Surge
Global equities from Europe to Asia rallied last month to multiyear highs, while the best month since 2012 for the Nasdaq Composite left the technology-stock barometer within striking distance of its dot-com era record. The gauge now stands less than 1 percent below its bubble peak. At its current pace, the Nasdaq Composite is poised to rise for nine straight quarters, a feat it’s never accomplished.
Momentum is building in stocks that have the fastest profit growth, with companies from Apple Inc. to Intel Corp. spending more money than anybody else to buy back shares. While the advance has brought the Nasdaq Composite close to new highs, valuations are only a fraction of where they were 15 years ago, data compile by Bloomberg shows.
Unlike the dot-com era, when investors snapped up Internet companies on expectations rather than profit, today’s gains are built on earnings driven by demand for products such as Apple’s iPhone and Google Inc.’s web-search services.

Alexandre Révolta

March 3 -- Westwood Capital’s Lincoln Ellis and Bloomberg Contributing Editor Paul Kedrosky discuss the performance of the Nasdaq. They speaks on “Bloomberg West.”

02/14/2015

Canadian dollar in freefall.

Developed markets aren’t necessarily immune, especially those such as Canada and Australia, which rely heavily on exports of oil, iron ore and other commodities. Prices of those goods, which are denominated in dollars, have fallen as the greenback has strengthened and demand has weakened.
The effects can be seen in Canada, where central bank Governor Stephen Poloz said this week that rising U.S. interest rates could have an additional tightening effect, with a separate IMF report in January saying an overvalued housing market may cool.
Hong Kong, which has fixed its currency to the U.S. dollar since 1983, typically raises borrowing costs in tandem with the Fed. Property prices in the city may fall as much as 20 percent this year because of a weaker rental outlook and the potential for interest-rate increases, according to a December report from investment bank Bocom International Holdings Co.
Previous Cycle
From 2004 to 2006, the Fed raised its benchmark interest rate from 1 percent to 5.25 percent. During that stretch corporate bond yields in the U.S. surged from a then all-time low of 4.9 percent to as high as 6.9 percent in June 2006, Bank of America Merrill Lynch index data show.
The Fed’s Open Market Committee in January added “international developments” to a list of issues it takes into account to set policy, alongside domestic concerns such as inflation and the labor market.
While the global environment is unlikely to stop the Fed from raising rates initially, the level of market turmoil may influence the pace and magnitude of subsequent moves, said Edwin Truman, a former head of the Fed’s international-finance division.
“Either it will be a non-event, which may lead to further small moves sooner rather than later, or if it’s a big event, they will just sit on their hands,” said Truman, who is now a senior fellow at the Peterson Institute for International Economics in Washington.