Bear of the Day: KINETIK Holdings (KNTK)

Energy was the big story in 2022, but lightning does not strike twice in the same place. Energy markets have been insane this year. A huge spike in demand as the world crawled out of its COVID-induced lockdown, put tons of pressure on prices. Disruptions stemming from war in Europe did not help things along either. However, recently it seems like prices are coming back down to Earth. The expectations for the future have reeled in as well. This is helping normalize this sector which had been a runaway winner this year.That’s a word to the wise for what might be on the horizon as the calendar turns over to 2023. The Zacks Rank, a system which sorts out stocks with the strongest earnings trends from those with the weakest, is flashing some warning signs. One stock flashing a warning sign is today’s Bear of the Day.I’m talking about Zacks Rank #5 (Strong Sell) Kinetik KNTK. Kinetik Holdings Inc. operates as a midstream company in the Texas Delaware Basin. It provides gathering, transportation, compression, processing, and treating services for companies that produce natural gas, natural gas liquids, crude oil, and water. The company is headquartered in Midland, Texas.The reason for the unfavorable rank is that earnings are moving in the wrong direction. Over the last 30 days, analysts have been cutting their earnings estimate numbers for both the current year and next year. The negative moves have dropped our Zacks Consensus Estimates for the current year from $3.25 to $2.04 while next year’s number is off from $3.09 to $2.61.The Oil and Gas – Field Services industry is in the Top 10% of our Zacks Industry Rank. That being said, there are a handful of names in this industry which are in the good graces of our Zacks Rank. Those stocks include Zacks Rank #1 (Strong Buy) stocks Halliburton HAL and NexTier Oilfield Services NEX. This Little-Known Semiconductor Stock Could Be Your Portfolio’s Hedge Against Inflation Everyone uses semiconductors. But only a small number of people know what they are and what they do. If you use a smartphone, computer, microwave, digital camera or refrigerator (and that’s just the tip of the iceberg), you have a need for semiconductors. That’s why their importance can’t be overstated and their disruption in the supply chain has such a global effect. But every cloud has a silver lining. Shockwaves to the international supply chain from the global pandemic have unearthed a tremendous opportunity for investors. And today, Zacks' leading stock strategist is revealing the one semiconductor stock that stands to gain the most in a new FREE report. It's yours at no cost and with no obligation.>>Yes, I Want to Help Protect My Portfolio During the RecessionWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Halliburton Company (HAL): Free Stock Analysis Report NexTier Oilfield Solutions Inc. (NEX): Free Stock Analysis Report Kinetik Holdings Inc. (KNTK): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksNov 24th, 2022

Valuation And Dividend Safety Analysis: Pfizer (PFE)

Pfizer (NYSE:PFE) is a well-known pharmaceutical company popular with dividend growth and income investors. The company has grown into one of the largest pharma companies. The company’s success in the past couple of years during the COVID-19 pandemic makes the stock attractive. Pfizer has used higher revenue, earnings, and cash flow smartly. Currently, Pfizer is […] Pfizer (NYSE:PFE) is a well-known pharmaceutical company popular with dividend growth and income investors. The company has grown into one of the largest pharma companies. The company’s success in the past couple of years during the COVID-19 pandemic makes the stock attractive. Pfizer has used higher revenue, earnings, and cash flow smartly. Currently, Pfizer is yielding over 3% and is a Dividend Contender. Even though Pfizer has performed relatively well during the bear market of 2022, the stock is trading at a low price-to-earnings ratio of about 7.65X, suggesting PFE is a long-term buy. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2022 hedge fund letters, conferences and more   Overview Of Pfizer Pfizer is one of the largest global pharmaceutical companies. In the past several years, it was reorganized into a worldwide R&D pharma company. In addition, the firm divested its consumer health and off-patent business. Today, Pfizer focuses on inflammation & immunology, oncology, vaccines, and rare diseases. Major brands and therapies include Prevnar, Ibrance, Xtandi, Sutent, Inlyta, Paxlovid, Comirnaty, Xeljanz, Enbrel, and more. Sales have more than doubled in the past two years because of the COVID-19 vaccine, Comirnaty, an anti-viral drug, and Paxlovid. Total revenue was $81,288 million in 2021 and $99,878 million in the past twelve months. Selected Data for Pfizer (NYSE) Ticker PFE Market Cap $277.80 billion Stock Price $49.49 Dividend (FWD) $1.60 Dividend Yield 3.23% P/E Ratio (FWD) 7.65 Source: Data from Portfolio Insight (as of November 30, 2022) PFE's Dividend And Dividend Safety PFE is a Dividend Contender with 12 consecutive annual increases. The forward dividend rate is $1.60 per share; the calculated dividend yield is ~3.23% at the current price. Unfortunately, this value is less than the trailing 5-year average of 3.66%. But the dividend yield is more than twice the S&P 500 Index's average. The company's last quarterly dividend increase was to $0.40 per share from $0.39 per share in December 2021. Investors should expect another increase at the end of 2022. Pfizer generally raises the dividend in the low-to-mid single-digits. That said, the dividend growth rate is slowing. It was 5.39% CAGR in the trailing five years and 6.91% CAGR in the past ten years. Additionally, Pfizer has outstanding dividend safety metrics from the view of earnings, free cash flow (FCF), and debt. Based on adjusted earnings, the forward payout ratio is about 35% based on an annual dividend of $1.60 per share and estimated diluted non-GAAP earnings per share of $6.47 in 2022. Our target value is 65% signifying the company’s dividend is safe. However, Pfizer's revenue and net income surged because of its success with the COVID-19 vaccine and anti-viral. Declining sales of these two therapies will probably result in a high payout ratio in the future. The dividend is also safe from the standpoint of FCF. In the last twelve months, FCF was about $23,362 million. The dividend required $8,927 million, giving a dividend-to-FCF ratio of about 38%. This percentage is almost half of our target of 70%, suggesting the dividend is safe. Pfizer is an acquisitive company and tends to use debt often. At the end of Q3 2022, PFE had ~$33,304 million in cash, cash equivalents, and marketable securities. It held $5,990 million in short-term debt, and long-term debt was $34,294 million. But debt is not a risk for the dividend with a leverage ratio of 0.16X and interest coverage of more than 31X. Pfizer has used the cash flow from COVID-19 revenue to plus up its cash position. Moreover, PFE has an A+/A2 upper medium investment grade credit rating, a bit lower after its reorganization. However, debt is not a concern for dividend safety. Competitive Advantage, Risks, and Valuation As one of the largest global pharmaceutical companies, Pfizer has significant scale in R&D, manufacturing, regulatory affairs, distribution, and marketing. Scale and size allow Pfizer to bring new therapies to market, partner with smaller companies, or acquire entire companies outright. Only a few other pharma companies can do so. Also, Pfizer has at least eight drugs with $1+ billion in annual revenue and a robust pipeline. In addition, the company has used its success with the COVID-19 vaccine and anti-viral to reinforce its pipeline. Pfizer faces risks with patent expiration, generics, competition, and FDA regulatory approvals. The political landscape is also filled with efforts to combat higher prices, especially in the United States. The Inflation Reduction Act may result in Medicare negotiating prices for some of Pfizer’s drugs. Pfizer is undervalued. At the current stock price, the company trades at a forward PE ratio of about 7.65X, below the range in the past decade of 14.4X to 15.3X, implying PFE is undervalued. But the dividend yield is higher than the trailing 5-year average. However, Pfizer is increasingly viewed as an excellent dividend stock. Popular dividend ETFs, like SCHD or VYM, include the stock in their top 10 holdings. The combination of market leadership, a growing dividend, dividend safety, and undervaluation makes PFE a long-term buy. Disclosure: None. Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.  Author Bio: Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha......»»

Category: blogSource: valuewalkNov 30th, 2022

FTX Post Mortem Part 2 Of 3: How Did We Get Here?

FTX Post Mortem Part 2 Of 3: How Did We Get Here? Authored by Scott Hill via, Last week we covered the collapse of FTX as it happened but there’s a lot more to the story. How did FTX grow from a tiny Hong Kong bucket shop into a top three Crypto exchange over the course of just a few years? What was Alameda research and were they ever legitimate? Most importantly, how exactly does an exchange lose track of up to $10 billion worth of customer deposits? Most of this material is still an educated guess, but the guessers are out there putting together clues from private discussions which have been leaked, the bankruptcy proceedings and first hand dealings shared on Crypto Twitter. It’s worth noting that there is a whole deep state angle to this story. I won’t go into it in this article because so little is known (see endnote) What we do know is mostly confined to the fact that FTX CEO Sam Bankman-Fried (SBF) was the second largest donor to Democrat political campaigns since 2019. His Co-CEO for part of the FTX Empire, Ryan Salame, was a top 10 donor to the Republican party in the same period. Sam Bankman-Fried met with SEC Chairman Gary Gensler seeking a “no action” letter on an enforcement matter in April, shortly before SBF began pushing the DCCPA, a bill which the Crypto industry mainly saw as a subtle crackdown on DeFi wrapped in a reasonable sounding regulatory framework. The biggest question mark is the identity of FTX CTO and co-founder Garry Wang. The man is a ghost with very little online presence and only a handful of photos. Famed short seller Marc Cohodes is under the impression that Wang is a state actor for the CCP. These questions are important and interesting, but they don’t make for a useful article because of the complete absence of detail. Alameda Research Alameda Research, the market maker or crypto hedge fund founded by SBF in Hong Kong during the bull run of 2017 is the start of the rot. The official story is that the firm was formed from a team of young hotshots who learned to trade at Jane Street, a notoriously secretive global market maker which trades more than $10 trillion in securities volume each year. In January 2018 as Bitcoin was collapsing, Alameda research were performing the Japan arbitrage trade. They purchased Bitcoin in the US, moved it onto Japanese exchanges and cashed in on the gap between markets. The spread was often as wide as 10%. SBF claimed the firm made $10M on the arbitrage over the course of several weeks. This was a complicated trade. Japanese capital controls are strict with only Japanese nationals allowed to hold bank accounts, making it extremely difficult to get the money out of Japan and requiring a reasonable level of sophistication and corporate legitimacy to pull off. Following the Japan arbitrage, Alameda went after the “Kimchi Premium”. This was the same type of arbitrage trade, with Bitcoin on South Korean exchanges worth up to 20% more than Bitcoin on US exchanges. The capital controls were tighter, the ability to set up corporate infrastructure in the nation was more restricted and Bitcoin was in the middle of collapsing making trading the asset much more risky. Some people are suggesting that Alameda lost $10 million on the Kimchi Premium trade, but no one really knows whether any of this story is even true. I’m deeply skeptical of this entire backstory given what we have now seen about how careful SBF is with his public image. It’s entirely possible that this whole story was a fabrication to paint the picture of a boy genius trader with a Jane Street pedigree striking out on his own in Crypto land. Completely Absurd Fundraising In early 2018, Alameda Research established headquarters in Hong Kong. While SBF was a complete unknown to Crypto insiders at the time, Alameda Research was making a name for itself, frequently up the top of the Bitmex trading leaderboard. Crypto markets in 2018 were very different to the last few years. While 2017 had seen a burst of activity during Bitcoin’s bull run, volumes were still tiny and there were very few professional firms taking the asset class seriously. It’s completely plausible that in the absence of professional market makers, Alameda Research could have done very well. It also seems likely that the edge that such a small team had would have disappeared quickly as the market became more professional. Alameda Research only had a handful of employees. Nowhere near enough to build and execute a sophistical algorithmic market making strategy, such as those employed at Jane Street. In December 2019 an investment pitch deck for Alameda Research circulated among Crypto insiders. The firm was seeking to raise $200 million in debt funding and was offering 15% payments on the debt. The pitch itself made ridiculous claims about the firm’s edge and was riddled with red flags. “High Returns with no risk – These loans have no downside” Insiders that viewed the pitch deck were confused. The whispers within the industry were that this firm was highly profitable yet they seemed desperate to raise $200 million. Most stayed away and it’s unclear whether or not the fundraising was successful. Launch of FTX FTX was founded in May 2019 but had very little volume until the following year when they established the regulatory status to allow US customers to trade. FTX later acquired Blockfolio to obtain additional US licensing and the bones of a trading app. Even with this boost in volume, FTX was considered an unfavorable exchange to make markets for among established industry participants. The presumption was that Alameda Research was an embedded market maker that was given an unfair advantage on the platform and rival firms stayed clear. At the time SBF was still the CEO of both companies. There were claims of a separation of the firms, but it was known that they both operated out of the same offices in Hong Kong. It was rumored that Alameda had full access to customer position data and would hunt for liquidations. FTX was seen as a shady offshore bucket shop. By early 2021 little had changed in the industry perception of FTX, but volume was growing. In January SBF was busy arguing on Twitter, leading to the infamous “I’ll buy as much Solana as  you have, right now, at $3” tweet. He was not taken seriously until later that year when this huge Solana bet seemed to pay off. FTX gains Legitimacy By the middle of 2021, with Crypto in a raging bull market and FTX capturing significant market share, the exchange became too large to ignore. A big part of the story was China putting in place another round of Crypto bans in September which forced many major Crypto traders and market makers to find new venues to trade. Zhu Su, founder of disgraced Crypto Hedge fund Three Arrows Capital said recently that he had moved his fund’s trading from Huobi and Okex to FTX and Binance in the wake of the China ban. FTX gave them extremely favorable terms. A big reason that firms began to feel comfortable with FTX was the splashy fundraising FTX was able to pull off. Market participants assumed that among the billions of dollars of venture capital money that had been invested in FTX, someone had done basic due diligence on the firm. We now know that during these heady days of free money SBF was demanding investment commitments quickly from VCs or he would move on to the next phone call. There was a giant line of VCs desperate to get into an FTX round. The July fundraising list was a who’s who of Silicon Valley VC. Led by Sequoia, the round included Softbank, Temasek and VanEck. Apparently none of these firms insisted on even the most basic corporate controls, like installing a board of directors. A later round included a strategic investment from Blackrock. FTX was a blue ribbon investment. They all needed Crypto exposure now and FTX was the hottest Crypto startup in town. The other piece of the puzzle was that trading firms were now making money on FTX, when before they were simply getting their positions hunted by Alameda. Leverage was handed out in ample servings. Compliance was lax. Payouts were quick. It seemed to most that FTX had moved on from its shady beginnings to become a legitimate venue for market makers to use. Tokens A giant part of understanding exactly what went down at FTX is understanding the Tokens they had launched or partnered with. In 2019 FTX launched FTT, an Ethereum ecosystem token which represented a cut of exchange fees and offered discounts to traders for holding it. It was the same model that Binance launched their token with in 2017. Tokens would be bought out of the market with a portion of exchange profits on a regular basis, delivering a return to investors. A huge portion of FTT tokens were held on the FTX balance sheet as an asset. Even more egregious were the Solana ecosystem tokens which FTX helped launch. The leaked balance sheet showed that FTX had large holdings of Serum, Maps and Oxy. It showed Serum tokens marked as a $2.2 billion asset. Available market cap at the time was less than $500 million. We don’t know for sure, but it seems likely that loans were taken out backed by FTT and other minor tokens. Essentially, it seems that SBF invented his own currency from this air and then took out US dollar loans against it from anyone that would offer.  We haven’t heard from any major Crypto lender about whether or not they took FTT as collateral. We may never hear an admission on that point. What we do know is that Solana DeFi, where SBF had significant influence, largely took these minor tokens as collateral for loans on much more generous terms than seems reasonable now. And why wouldn’t Crypto lenders offer loans to FTX on whatever collateral was offered? FTX was the fastest growing exchange in industry history. It had prestigious investors. Its CEO was throwing around cash on advertising and political donations. Surely FTX was profitable enough to service their loans. So what happened to the money? When FTX blew up there was a balance sheet hole of somewhere between $6-10 billion. It was reported as “missing customer funds” but judging from recent public comments made by SBF it seems more likely that there was a complex web of loans and cross company funding arrangements than just straight up theft of customer assets. An underreported part of this story which fills in a key gap is that the offshore FTX entity apparently didn’t have its own bank account. Wires to the offshore exchange would go directly into a bank account held by Alameda Research. It seems that FTX didn’t secretly transfer customer funds to its associated hedge fund, it probably didn’t even make loans between companies. The most likely explanation is that Alameda Research just had direct access to customer funds  which were wired to them. While shocking, it wouldn’t be as egregious if the FTX terms didn’t explicitly say that assets were held on trust for customers. FTX wasn’t supposed to touch customer funds once they were deposited. Maybe that’s the whole point, that SBF was relying on some bizarre technicality or legal fiction to convince himself that he had the right to deal with customer assets. Did I mention that both of his parents are compliance lawyers, with one a leading expert on tax havens. If there’s anyone that could access the advice to set up a complex piece of legal fiction entitling him to pilfer customer funds in a defensible way, it’s SBF. Liquidations That only explains how Alameda Research got access to customer funds, but how did they lose the funds? Alameda Research is a market maker primarily and was the key integrated market maker on FTX. Among other things that gave Alameda the ability to purchase liquidated positions of customers, likely at a huge discount. In a bull market this is a hugely advantaged position to be in. Say Bitcoin drops 5% in an hour and longs get liquidated, Alameda was able to purchase those long Bitcoin positions and then resell them later, after the liquidation cascade was over and price had recovered. Alameda was exempt from liquidation on FTX, so they could hold underwater positions for as long as they wanted without being forced to close them. In a bear market, Alameda would likely accumulate underwater positions that they couldn’t get out of without incurring a large loss. Other market makers will generally sell a liquidated position off as soon as possible, to avoid being liquidated themselves. This doesn’t appear to be a check and balance that was in place for Alameda’s operations on FTX. Another key feature of the leverage trading offered at FTX was cross asset collateral. Essentially this means that leverage was offered on the entire portfolio of a customer. There wasn’t a segregation of collateral, users could simply offer up a mixed list of tokens and take margin loans against the whole pie. This included FTT and Serum at much more generous collateral ratios than other exchanges offered. Whatever low quality collateral you had, FTX would take it, and it seems that it would end up on Alameda’s books when a customer was liquidated. Luna Eclipse In a collapsing market, this lack of controls over Alameda is potentially disastrous. Luna had the most high profile collapse in the history of Crypto tokens in May this year, losing 99.7% of its value in a week before getting as close to absolute zero as possible. FTX and Binance were the major venues for trading the Luna collapse. Traders bought the dip on leverage all the way down. It seems likely that Alameda took all of those liquidated positions onto their own balance sheet. Luna started its collapse at around $90. The following week it was at essentially zero. There is no way that Alameda could have sold off all of those liquidated customer positions as the token collapsed. This type of liquidation transaction is known as “toxic flow” and is a surefire way to bankrupt a market maker. If FTX’s famously specialized liquidation engine simply meant that customer positions were shunted onto the Alameda balance sheet to be cleared at a later date, then the amount of toxic flow from junk tokens in the last year would build up quickly. This seems to be the only way the size of the hole makes any sense. Other Problems If we assume that Luna blew a giant hole in the balance sheets within the FTX empire then what happened next makes a whole lot more sense. SBF went on a buying spree as Crypto lenders collapsed, backstopping insolvent firms and being proclaimed as Crypto’s JP Morgan. In the cold light of day a more likely explanation than wanting to save the industry is wanting to save himself. If insolvent Crypto lenders like Voyager and Celsius had given loans to FTX, taking FTT and other minor tokens as collateral then those tokens would be seized and sold into the market during a bankruptcy, cratering the price and liquidating FTX loans with other lenders. Don’t forget, for tokens like Serum, FTX held and likely pledged as collateral more than the entire free float on the market. All of this isn’t to say that funds didn’t go missing in other ways though. According to the Bankruptcy filings, FTX had loaned more than $1 billion to SBF individually and $2.3 billion to his investment company, Paper Bird Inc. There were also 9 figure loans to other executives and Bahamas real estate purchased by SBF’s parents and associates worth $300 million. There are even suggestions that the $420 million meme fundraise in October 2021 basically just ended up in the pocket of SBF, rather than productively invested in the company. It seems like the FTX balance sheet was used as a slush fund for SBF. None of this in any way can add up to $6-10 billion in stolen customer funds and it’s unlikely that the mechanism was brazen theft. The scenario outlined above, poor trading controls at Alameda creating bad debt within the corporate structure and a CEO that was scrambling to keep the empire afloat, is far more likely. This also casts a new light on the “generous terms” offered to other major market participants in 2021. Taking VC money What if Alameda’s goal wasn’t to make money, but to lose money to other traders in a perverse growth hack used to attract the next round of “smart money” investors? After all, at best Alameda had been making a few hundred million from trading over the course of its existence and likely much less than that. As spreads closed with more market makers flooding into the asset class it’s much easier to take money from Sequoia and Softbank than it is to make money trading. Running an unprofitable casino is a terrible business, but selling an unprofitable casino that looks extremely busy to a private investor is a fantastic business. This part of the story seems like the inevitable end state of the 2010s dominance of Venture Capital and private investing. After a decade of easy money, low interest loans and an insatiable appetite for tech investments we were bound to see someone game the system. In 2021 VCs were not doing diligence, they were shoving newly raised funds into startups as fast as possible. Venture capital firms invested $643 billion in 2021. Almost double the pace of 2020 and five times as much as was committed in 2012. For context, noted scam company Theranos raised $1.4 billion over 13 years. FTX raised $1.8 billion in only 3 years. The entire story of the growth of FTX is a story of the driving forces of tech stock investing being applied to Crypto and fintech. The problem is that when a social media company blows up, users just lose their photos and social graph. When a fintech or Crypto company blows up, customers lose their funds and lives are ruined. A big part of the problem with FTX was that tech growth hacking and the infinite pot of VC money was applied to financial services with little regard for the safety of users. No one did the diligence. The regulators were asleep at the wheel. “Grow fast and break things” isn’t an appropriate model for the financial sector. We Have Questions… This article mostly dealt with how FTX managed to grow so fast and then blow up so spectacularly but it didn’t touch on the why. As stated in the introduction, there are some major question marks about state entanglement, potential involvement of intelligence operatives and the corruption of captured regulators are all major open questions that I just don’t have answers to. Was FTX a plant to bring down the Crypto industry and justify tighter regulation? Was FTX a front for money flowing from Crypto traders and Tech VCs into Democrat coffers? Why is the mainstream media reporting on this event as if SBF is just a failed entrepreneur who dreamed too big, rather than a fraud who appropriated customer funds? Who was behind the success of FTX? Who is Gary Wang? We likely won’t ever get satisfactory answers to these questions. The family political links between major characters in this story are deeply suspicious. As one Crypto Twitter account that has been covering the news relentlessly said: “This FTX fiasco is *really* doing its best to confirm every single conspiracy theory anyone has ever had about anything.” Next week in the conclusion of this three part article I’ll cover some of the fallout surrounding the FTX collapse that is important to understand and the lessons being learned by the industry in its attempt to rebuild. [A good place to start down the deep state rabbit hole in all this is Mathew Crawford’s  ‘A Grand Unified Theory of FTX’ – which I printed off to read and it clocks in around 65 pages – markjr] *  *  * Today’s post is from contributing analyst Scott Hill. To receive further updates of this series and our overall investment thesis for digital assets (even in this climate), subscribe to the Bombthrower mailing list.  Tyler Durden Sun, 11/27/2022 - 20:30.....»»

Category: worldSource: nytNov 28th, 2022

Cathie Wood is buying the dip in Coinbase, adding $53 million this month as the FTX collapse pressures the crypto industry

Wall Street has soured on Coinbase since the FTX debacle, but ARK's Cathie Wood sees a buying opportunity as the stock price crumbles. Photo by PATRICK T. FALLON/AFP via Getty Images Cathie Wood's ARK Invest bought over 1.3 million shares of Coinbase this month, per Bloomberg.  Coinbase is trading near record lows of about $41 per share, down from a high of $429 in April 2021.  In total, Wood's Ark holds about 8.7 million shares of Coinbase, or about 4.7% of the company's total outstanding shares.  Coinbase shares have plunged to all-time low as the fallout from Sam Bankman-Fried's FTX collapse spreads, but Cathie Wood is seeing a buying opportunity. Coinbase stock is down roughly 20% over the last week, closing Monday's trading session at $41.23. That's a far cry from the nearly $430 the shares reached shortly after the exchange went public in April 2021. Amid the plunge, Wood's ARK Invest has bought over 1.3 million shares this month alone, worth about $53 million, according to Bloomberg data.That brings the fund's total stake to about 8.4 million shares, or about 4.7% of Coinbase's total outstanding shares. The majority of ARK Coinbase holdings are part of its flagship fund, ARK Innovation ETF, making up its 13th largest position. Wood has been a longstanding bitcoin bull, even amid the crypto bear market and souring sentiment from other Wall Street players. Analysts from Bank of America and Daiwa Securities downgraded Coinbase stock this month, and the company now has its fewest 'buy' recommendations in over a year. But it's not just Coinbase that Wood has homed in on this month. ARK Invest has ramped up purchases of Grayscale Bitcoin Trust, as well as Silvergate Capital, a crypto bank, according to Bloomberg.Both Coinbase and Silvergate Capital have lost more than 80% in 2022. Grayscale has shed about 76%. Meanwhile, bitcoin and ether, the two largest cryptocurrencies, have lost 66% and 70% year to date, respectively.Read the original article on Business Insider.....»»

Category: worldSource: nytNov 22nd, 2022

Tether stablecoin loses its dollar peg as contagion from FTX"s collapse spreads through the crypto market

Despite reassurances from founders of the stablecoin, Tether has continued to push back its timeline on being audited by an independent firm. Tether dropped to well below $1 Thursday as crypto markets showed signs of stress.Justin Tallis/Getty ImagesTether briefly lost its dollar peg on Thursday after the implosion of FTX shook the confidence of the entire crypto market.Tether is the third largest cryptocurrency with a current market value of about $70 billion.The stablecoin fell to a low of $0.98 Thursday morning before recovering most of its losses.Tether lost its dollar peg on Thursday after the ongoing implosion of Sam Bankman-Fried's FTX shook confidence in the entire cryptocurrency market. The development is unsettling because it adds to concerns of contagion spreading throughout the crypto market as trust declines considerably. For example, bitcoin has seen volatile trades, falling more than 20% to below $16,000 earlier as a cascade of margin calls threatens to unwind much of the leverage seen in crypto markets. It's now back above $17,000.Tether, which is the third largest cryptocurrency and the world's largest stablecoin, fell to a low of $0.98 in Thursday morning trades before it recovered most of those losses. The stablecoin has a market value of just under $70 billion, which is down 16% from its peak of about $83 billion. The decline has come amid an ongoing bear market in cryptocurrencies, and as concerns grew about the balance sheet holdings of Tether following the collapse of stablecoin TerraUSD in May.But while the leaders behind Tether have repeatedly reassured investors that their stablecoin is indeed backed by reserves at a one-to-one exchange ratio, they have continued to push back the timeline on being independently audited.Responding to the downfall of FTX, Tether co-founder William Quigley told CNBC on Wednesday that crypto exchanges and currencies shouldn't lever up highly volatile assets with debt."Everyone thought that the major exchanges were not susceptible to any kind of serious meltdown. And once again, we keep going back to whether it's 3AC, or Voyager, or Celsius or Luna, and it's the matter of debt. Debt is toxic with crypto," Quigley said."And it just violates a basic principle of finance; you don't lever up highly volatile assets," he continued. "When Wall Street came into this market last year big time … I think one of things they dragged in was their fascination with leverage," he later added.The CTO of Tether, Paolo Ardoino, tweeted on Thursday that the stablecoin processed about $700 million in redemptions over the past day with no problems. "No issues. We keep going," he said. In a Wednesday blog post, Tether once again reassured its holders that it has almost $70 billion of collateral that can back redemptions. But until an independent audit is conducted, it's likely that suspicions will continue, leaving the possibility for the stablecoin to break its peg again. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 10th, 2022

A Proven Strategy to Bypass the Economic Uncertainty

There's certainly no absence of potential catalysts to push equity prices one way or the other. The rally off the October lows has clearly favored the Dow 30 holdings, as the major blue-chip average temporarily exited correction territory yesterday. Meanwhile, tech has not fared as well, as the Nasdaq remains near its bear market lows. The S&P 500 continues to hover in a bear market, down more than 20% from its January peak.There’s certainly no absence of potential catalysts to push equity prices one way or the other, as investors await several results from both the midterm elections as well as a slew of companies that have yet to report third-quarter earnings. And with October’s CPI release due out tomorrow morning, the end of this week is shaping up to be a market mover.The hard penny investing environment continues, as opposed to the easy dollar, ultra-low interest rate market setting we saw for much of the last decade. Yes, the Fed has begun to drop hints of slowing the pace of future rate hikes, but markets aren’t likely to meaningfully turn the corner until that process becomes clearer. And while it remains to be seen if we are headed for an official recession, stocks tend to put in bottom before that period ends. One of the ways we can bypass the current economic uncertainty is to identify leading industry groups. Quantitative research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. Focusing on stocks within the top-performing industries provides a constant ‘tailwind’ to our investing results. Including this step in our selection process also allows us to narrow down the investment universe and select stocks with the best profit potential.The best-performing industry groups are dynamic and constantly evolving, so investors would be wise to stay abreast of these groups. The stocks within these groups will typically be leading the market – and it is these stocks that we want to target for long trade initiations. Below is one example of a group that is outperforming in the current market environment and whose constituents are receiving positive earnings estimate revisions.The Zacks Food-Confectionery industry, part of the Consumer Staples sector, is currently ranked in the top 8% of all industry groups. More specifically, this group is ranked #20 out of all 252 Zacks Ranked Industries. This group has steadily outperformed the market this year as we can see below:Image Source: Zacks Investment ResearchLet’s take a deeper look at a highly-rated stock within this leading industry group.Hostess Brands, Inc. (TWNK)Hostess Brands is a packaged food company that develops, manufactures, and distributes snack products primarily in the United States. TWNK provides a wide range of sweets such as donuts, pastries, cookies and wafers under various recognized brands like Twinkies, CupCakes, Donettes, HoHos, and Cloverhill.A Zacks #2 (Buy) stock, TWNK has exceeded earnings estimates in each of the past four quarters, delivering an average earnings surprise of 8.9% over that timeframe. The company most recently reported Q3 EPS last week of $0.23/share, a 9.52% surprise over consensus estimates. Sales of $346.2 million also beat estimates by 7.18%. The sustained success has aided TWNK’s stock this year, returning north of 40% while the major averages hover in a deep correction.Image Source: Zacks Investment ResearchFor the full year, analysts have raised their earnings estimates by 1.04% in the past week. TWNK is projected to post 2022 EPS of $0.97/share, reflecting growth of 10.23% relative to last year. Sales are seen climbing 17.68% to $1.34 billion.Make sure to keep an eye on TWNK as the stock continues to outperform the market. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Hostess Brands (TWNK): Free Stock Analysis Report To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 9th, 2022

Peter Schiff: The Gold Train Has Left The Station

Peter Schiff: The Gold Train Has Left The Station Via, Gold rallied by over $50 an ounce last Friday and the rally has extended into this week with the yellow metal moving back above $1,700 an ounce. In his podcast, Peter Schiff explained why he thinks that gold has bottomed and this is a significant reversal. Commodity prices in general have been rallying over the last several days. News that China might be close to ending its zero-COVID policies sparked the rally. Industrial metals and oil both saw big gains. This is bad news for the Federal Reserve. It’s going to see inflation being pushed higher even as the economy continues to soften.” Increased Chinese demand as the country’s economy reopens could also be a problem for the Fed. The central bank focuses on fighting inflation by lowering demand. But as Peter pointed out, demand is global, not just domestic. I always talk about how we can have higher inflation during a recession because I realize that prices are not just determined by the ability of Americans to pay, but it’s the ability of everybody all around the world to pay. Americans are competing with foreigners for the same goods. And, it’s also not simply a function of demand, but it’s a function of supply. Even if demand in America goes down, supply in America could go down even more because demand outside America goes up, and supply is diverted from the United States abroad. So, even if American consumers are buying less, there are even fewer goods available for them to buy. And so, what ends up happening is fewer goods get bought, but the ones that do get bought are bought at ever-increasing prices.” Dollar weakness could further exacerbate the situation. Despite Jerome Powell’s hawkish comments after the November Fed meeting, the dollar failed to make a new high. I think as it becomes more obvious that the dollar has seen its highs and is headed lower, I think you are going to get a rush to liquidate long dollar positions. So many people have been piling into the dollar as the only safe haven, as the least-dirty shirt in the hamper, the dollar milkshake theory — whatever it is, a lot of people have been buying dollars, and they are long dollars. The assumption was that the dollar would keep on rising. But the minute that momentum is lost, there is tremendous downside as everybody looks to unwind those positions.” Peter said another signal that the dollar has reached its high is gold has reached its low. Of all the big moves in the market during the week, I think the most significant move was the one made by gold.” Gold made a new 52-week low interday last Thursday (Nov. 3). But on Friday, gold rallied with the price rising by $52. If you look at the trading pattern for gold, it was an outside reversal week, where during the week, gold took out the low from the prior week, it took out the high from the prior week, and then it closed above the prior week’s high.” Peter called it “a very significant reversal.” And it continued this week with gold rallying back above $1,700 an ounce on Tuesday (Nov. 8). Silver charted a similar rally. The difference was that silver did not make a new 52-week low last week. When you see gold making a new low, but that new low not being confirmed by silver, that is an indication of a bottom because silver is normally weaker than gold until you get to the end of the bear market, and then silver starts to have some relative strength in relation to gold.” Peter said gold mining stocks also confirmed the bottom. As a group, miners also failed to make a 52-week low even as gold did. What makes me more confident in this call is the fact that even though gold itself made a new 52-week low on Thursday, the gold stocks did not. And then we had the explosive move up on Friday where both the GDX and the GDXJ rose better than 10% on the day. It is very rare that you see gold stocks up 10% in a single day.” While both $50 up-moves in the price of gold and 10% rallies in mining stocks are rare, Peter said he thinks it will become less so in the coming months. I figure, before too long, we’re going to finally see the price of gold rally by $100 in one day.” Peter also pointed out that we’ve already seen healthy demand for physical gold. You can already see the demand in physical gold and silver, where demand is skyrocketing. Central bank demand is skyrocketing.” In fact, central bank demand set a Q3 record with a huge increase in unreported buying. Many speculate that the mystery buyer was China. That makes a lot of sense to me. I think China is really trying to stockpile its gold, especially if China is thinking of doing something, maybe making a move against Taiwan. They’re not going to do that until they’ve really shored up their gold holdings. They want to divest themselves of US dollars and US Treasuries and be loaded up with gold before they do anything that may invoke sanctions.” Peter said it’s only a matter of time before investors realize that the price of gold is not only going to rise commensurate with the cost of producing it, but it’s going to rise more. Because as investors lose confidence in the ability of the Fed and other central banks to rein in inflation, now they’re more motivated to hedge against inflation because they can no longer count on the central banks to protect them. They have to look for their own protection, and they can find it in gold.” In this podcast, Peter also talks about the continued decline in tech stocks, and the decline labor force participation rate. Tyler Durden Wed, 11/09/2022 - 08:45.....»»

Category: blogSource: zerohedgeNov 9th, 2022

Can The Dollar Once Again Be Anchored By Gold? One Congressman Believes It Can

Can The Dollar Once Again Be Anchored By Gold? One Congressman Believes It Can Authored by Thorstein Polleit via The Mises Institute, On October 7, 2022, US congressman Alex Mooney (a Republican from West Virginia) introduced a bill (the Gold Standard Restoration Act, H.R. 9157) that stipulates that the US dollar must be backed by physical gold owned by the US Treasury. The initiative clearly indicates that the increasingly inflationary US dollar is triggering efforts to get better money. It should be noted that there have already been many legislative changes to make precious metals more attractive as a means of payment in recent years: in many US states, the value-added and capital gains taxes on gold and silver, but also on platinum and palladium, have been abolished. Mr. Mooney’s proposal is divided into three sections. The first section of the bill establishes the need for a return to a gold-backed US dollar. For example, it is said that the US dollar—or more precisely, the bill refers to “Federal Reserve Notes”—that is, banknotes issued by the US Federal Reserve (Fed)—has lost its purchasing power on a massive scale in the past: Since 2000, it has dropped by 30 percent, and since 1913 by 97 percent. The bill also argues that with an inflation target of 2 percent, the Fed will not preserve the purchasing power of the US dollar but will have it halved after just thirty-five years. Moreover, the bill points out that it is in the interest of US citizens and firms to have a “stable US dollar.” The bill highlights that the inflationary US dollar has been eroding the industrial base of the US economy, enriching the owners of financial assets, while endangering workers’ jobs, wages, and savings. The second section of the bill describes in more detail the technical process for reanchoring the US dollar to the US official gold stock. It states that (1) the US secretary of the Treasury must define the US dollar banknotes using a fixed fine gold weight thirty days after the law goes into effect, based on the closing price of the gold on that day. The Fed must (2) ensure that the US banknotes are redeemable for physical gold at the designated rate at the Fed. (3) If the banks of the Fed system fail to comply with peoples’ exchange requests, the exchange must be made by the US Treasury, and in return, the Treasury takes the Fed’s bank assets as collateral. The third section specifies how a “fair” gold price in US dollar can develop in an orderly manner within thirty days after the bill has taken effect. To this end, (1) the US Treasury and the Fed must publish all of their gold holdings, disclosing all purchases, sales, swaps, leases, and all other gold transactions that have taken place since the “temporary” suspension of the redeemability of the US dollar into gold on August 15, 1971, under the Bretton Woods Agreement of 1944. In addition, (2) the US Treasury and the Fed must publicly disclose all gold redemptions and transfers in the 10 years preceding the “temporary” suspension of the US dollar’s gold redemption obligation on August 15, 1971. What to Make of This? The bill’s core is the idea of reanchoring the US dollar to physical gold based on a fair gold price freely determined in the market. (By the way, this is an idea put forward by the economist Ludwig von Mises (1881–1973) in the early 1950s.) In this context, the bill refers to US banknotes. However, banknotes only comprise a (fractional) part of the total US dollar money supply. But since US bank deposits can be redeemed (at least in principle) in US banknotes, not only US dollar cash (coins and notes) could be exchanged for gold, but also the money supply M1 or M2 as fixed and savings deposits could be exchanged for sight deposits, and sight deposits, in turn, could be withdrawn in cash by customers, and the banknotes could then be exchanged for gold at the Fed. As of August 2022, the stock of US cash (“currency in circulation”) amounted to $2,276.3 billion. Assuming that the official physical gold holdings of the US Treasury amount to 261.5 million troy ounces, and the market expected US cash to be backed by the official US gold stock, a gold price of about $8,700 per troy ounce would result. This would correspond to a 418 percent increase compared to the current gold price of $1,680. If, however, the market were to expect the entire US money supply M2 to be covered by the official US gold stock, then the price of gold would move toward $83,000 per troy ounce—an increase of 4.840 percent compared to the current gold price. Needless to say, such an appreciation of gold has far-reaching consequences. All goods prices in US dollars can be expected to rise (perhaps to the extent that the price of gold has risen). After all, the purchasing power of the owners of gold has increased significantly. Therefore, they can be expected to use their increased purchasing power to buy other goods (such as consumer goods, but also stocks, houses, etc.). If this happens, the prices of these goods in US dollar terms will be pushed up—and thus, the initial purchasing power gain that the gold dollar holders have enjoyed by being tied to the increased gold price will melt away again. Moreover, if US banks were willing to accept additional gold from the public in exchange for issuing new US dollar, reanchoring the US dollar in gold would increase the upward price effect. A reanchoring of the US dollar in the US official gold stock will result in a far-reaching redistribution of income and wealth. In fact, it would be fatal for the outstanding US dollar debt: US dollar goods prices would rise, caused by a rise in the US dollar gold price at which the US dollar is redeemable for physical gold, thereby eroding the US dollar’s purchasing power. In the foreign exchange markets, the US dollar would probably appreciate drastically against those currencies that are not backed by gold and against currencies which are backed by gold not as fine compared to the fineness of the gold backing of the US dollar. The purchasing power of the US dollar abroad would increase sharply, while the US export economy would suffer. US goods would become correspondingly expensive abroad, while foreign companies gain high price competitiveness in the US market. Once the US dollar is reanchored in gold, today’s chronic inflation will end; monetary policy–induced boom-and-bust cycles will come to an end; the world will become more peaceful because financing a war in a gold-backed monetary system will be very expensive, and the general public will most likely not want to bear its costs. However, there is still room for improvement. A “Gold Standard Restoration Act” will deserve unconditional support if and when it paves the way toward a truly “free market for money.” A free market in money means that you and I have the freedom to choose the kind of money we believe serves our purposes best; and that people are free to offer their fellow human beings a good that they voluntarily choose to use as money. In a truly free market, people will choose the good they want to use as money. Most importantly, in a truly free market in money, the state (as we know it today) loses its influence on money and money production altogether. In fact, the state (and the special interest groups that exploit the state) no longer determine which kind of gold (coins and bars, cast or minted) can be used as money; the state is no longer active in the minting business and cannot monopolize it anymore; there is no longer a state-controlled central bank to intervene in the credit and money markets and influence market interest rates. That said, let us hope that the Gold Standard Restoration Act proposed by Mr. Mooney will pave the way to reforming the US dollar currency system—and that it will eventually move us toward a truly free market in money. Tyler Durden Wed, 11/02/2022 - 10:45.....»»

Category: blogSource: zerohedgeNov 2nd, 2022

Nobel laureate Paul Krugman warns the US economy"s rebound won"t last - and flags housing and exports as key worries

The Fed's interest-rate hikes have boosted the dollar and raised mortgage costs, which doesn't bode well for exports and house prices, Krugman said. Paul Krugman.REUTERS/Brendan McDermid Paul Krugman brushed off the rebound in US GDP last quarter, saying it would be short-lived. The Nobel laureate expects pressure on exports and housing demand to weigh on economic growth. Krugman noted the Fed's rate hikes have boosted the dollar and increased mortgage costs. Paul Krugman has shrugged off data showing US growth rebounded last quarter, as he expects a housing-market slump and weaker exports to shrink the economy down the line."While this report made all the people who screamed 'recession!' look as foolish and partisan as they were, it was not, if you look under the hood, a sign that the worst is over," he said in a  Twitter thread on Thursday."It suggests, at least to me, that there's a lot of contraction still in the pipeline," Krugman added.The Nobel Prize-winning economist noted that a smaller trade deficit fueled the 2.6% annualized increase in US gross domestic product (GDP) in the third quarter. He expects that growth driver to disappear as the US dollar's surge this year has made American exports less competitive, and overseas recessions could sap demand for US products.Krugman pointed to the Federal Reserve hiking interest rates from near zero in March to above 3% today as the key reason why he's still worried about an economic downturn. He noted that higher rates have created a trade headwind by boosting the dollar, and eaten into Americans' finances and their ability to buy houses by raising mortgage costs."Both should exert strong contractionary effects over time," he tweeted.The New York Times columnist and economics professor added that real residential investment has only fallen by 12.5% since the fourth quarter of last year. He deemed that a fairly small decline when mortgage rates have soared and mortgage applications have plunged."So there's probably a significant amount of housing contraction still ahead," he said.Krugman recently argued the Fed has already done enough to beat back inflation, as the impact of its hikes on housing demand and trade will relieve upward pressure on prices. He warned any further hikes would increase the risk of a painful recession.The veteran economist has also pointed to a shrinking ratio of job vacancies to workers as evidence the US economy is "just at the beginning of a large Fed-induced cooling/contraction."Read more: The "ultimate buy-and-hold" investment fund that hasn't changed its strategy since 1935 is crushing 94% of competitors this year. Here are its top 10 holdings — and how it's beating the bear market.Read the original article on Business Insider.....»»

Category: worldSource: nytOct 28th, 2022

Futures Slide After Tech Wreck Goes 0 For 5

Futures Slide After Tech Wreck Goes 0 For 5 With the core of tech earnings season now behind us, FAAMG goes 0 for 5 on earnings as lackluster earnings from the group this week dampened sentiment and underscored the impact of the Fed’s tightening regime. While macro data didn't help the cause - the GDP report showed the US economy rebounded after two quarterly contractions (all driven by net exports)and  briefly assuaged concerns of an imminent recession, consumer spending remains under pressure because of persistent inflation - after the bell, AMZN out with an extremely disappointing miss which sent the stock down as much as 21%, followed by AAPL with a low quality beat driven by As such, Goldman's Michael Nocerino writes that this morning is going to be harder to compartmentalize these prints (like we have with MSFT, GOOG, META) given AMZN and AAPL make up 10% weighting of the S&P. And sure enough, the Nasdaq 100 was poised to extend a $675 billion wipeout of the past two days as disappointing earnings prompted a liquidation spree amid  the deteriorating profit outlook. Nasdaq 100 futures slumped 1% by 7:30 a.m. in New York, set to trade lower for a third day as reports from and Apple hurt sentiment. Contracts on the S&P 500 were down 0.4%, having dropped as much as 1% earlier. And yet, despite recent weakness, the S&P 500 is set for a second week of gains for the first time since August, amid growing speculation the Fed will be forced to pivot soon.  The 10-year benchmark Treasury yield surpassed 4% as a rally in government bonds began to fizzle. Government bonds this week were buoyed by hopes that policymakers are preparing a downshift in aggressive rate hikes amid softer economic data. The dollar collapse, which defined much of this week amid speculation of coordinated intervention, has also started to crack and the dollar index is sharply higher today after the yen tumbled following the BOJ's announcement to maintain YCC and not change monetary policy for a long time, despite some half-baked rumors to the contrary. Amazon shares plunged 14% in premarket after the tech giant projected its slowest holiday quarter growth in history. Meanwhile, Apple edged higher after posting weaker-than-expected iPhone and services sales for its latest quarter, marring an otherwise upbeat report. The combination of weaker earnings and higher interest rates is making technology stocks look increasingly unappealing to investors. The sector could face more pressure ahead as valuations continue to look elevated, Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note. “There are now two stock markets -- it’s increasingly important to look at the equal-weighted S&P as mega-cap tech (which dominates the normal SPX) enters an extended period of underperformance,” Vital Knowledge analyst Adam Crisafulli wrote in a note. “We continue to think tech is entering a period similar to the ‘99/’00 dotcom boom and bust.” “These tech results will likely drive broader sentiment down,” said Columbia Threadneedle’s global equity portfolio manager Natasha Ebtehadj on Bloomberg TV. “Apart from tech, other earnings have held up relatively well so hopefully that will provide some support to markets.” “We are starting to see some companies’ bleeding in terms of forecasts and unfortunately we’re starting to see the big caps in the market disappointing,” Banque Syz CIO Charles-Henry Monchau said in an interview with Bloomberg TV. “Earnings for us is still a headwind.” Besides the tech rout, bank stocks were also lower in premarket trading Friday, putting them on track to snap a five-day winning streak. In corporate news, Binance, the world’s largest cryptocurrency exchange, confirmed that it’s an equity investor in Elon Musk’s $44 billion acquisition of Twitter. Despite - or perhaps thanks to - Marko Kolanovic' latest ringing endorsement of all things China, Hong Kong-listed peers plummeting and on course to end a three-day winning streak. Here are some other premarket movers: Intel rises as much as 5.6% in premarket trading on Friday, after the chipmaker said it was aggressively addressing costs, with a target of $3 billion of reductions in 2023. The chipmaker, and fellow tech companies like Amazon and Meta, are being pressed to wind back spending after years of bulking up. Pinterest jumped almost 10% in US premarket trading, as the social media company’s results offered analysts respite amid the “wreckage” in the advertising sector demonstrated this week by disappointing earnings from Meta Platforms and Alphabet. Analysts raised their price targets on the stock following Pinterest’s revenue beat and outlook for the fourth-quarter, despite threats from a darkening macroeconomic environment. US cloud stocks could come under pressure on Friday, after Amazon reported sales for its AWS cloud unit that missed analyst estimates, stoking worries that other providers could also see weakness as enterprise customers pull back on spending. Core Scientific shares slide 4.9% in US premarket trading, after the bitcoin miner slumped 78% on Thursday in its worst day on record after saying it may seek bankruptcy protection. Barclays downgraded the stock to equal- weight from overweight on solvency worries. Gilead Sciences shares gain 4.8% in premarket trading after the biopharmaceutical company boosted its guidance for adjusted earnings per share and its 3Q earnings came ahead of analyst estimates. Analysts noted the strong performances from Gilead’s core HIV and oncology businesses, as well as the company’s Covid drug Veklury. Mullen Automotive drops as much 10% in US premarket trading, with shares in the electric car startup set to ease further after surging more than 40% this week amid heavy mentions on social media and positive sentiment around its I-GO electric vehicle. In Europe, the Stoxx 50 fell 1.1% with France's CAC 40 outperforming peers, dropping 0.7%, FTSE MIB lags, dropping 1.4%. Miners, tech and real estate are the worst performing sectors in Europe. Here are some of the biggest European movers today: OMV shares rise as much as 10%, hitting the highest since July as analysts say 3Q results looks robust operationally. Kongsberg gains as much as 7.4% after it reported Ebitda for the third quarter that beat the average analyst estimate. Danske Bank A/S shares rise as much as 5.5%, the most in more than a decade after the lender said it’s close to resolving its money- laundering scandal at an estimated cost of 15.5 billion kroner ($2.1 billion). Electrolux rises as much as 5.5%, flipping from earlier losses of as much as 5.9%, after the Swedish appliance maker published 3Q results weighed down by poor sales in North America, but offset by a new cost-savings package that includes cutting up to 5,000 staff. Credit Suisse shares gained as much as 4.7% in Zurich after a record one-day drop on Thursday, when it slumped 19% following the presentation of its new strategic plan including a capital raise and a carve out of its investment banking business. Natwest fell as much as 9.4% after reporting costs that were higher than expected in the latest hit to the sector as a mortgage crisis looms and a recession looks likely. Universal Music shares drop as much as 8.5%, the most since June, with analysts saying there were some “weak spots” in the record company’s results and positives around its outlook may already have been priced in. Valeo shares fall as much as 8% with analysts flagging underperformance for the auto-parts firm. STMicro shares fall as much as 6.6%, the most since May, after the chipmaker guided fourth-quarter revenue slightly below average analyst estimates. Earlier in the session, Asian equities were poised for a third weekly drop as Chinese shares slumped, offsetting an earlier reprieve from declines in US Treasury yields and the dollar. The MSCI Asia Pacific Index fell as much as 1.8% on Friday, on track to end the week with losses. Chinese stocks traded in Hong Kong plunged again to 2008 lows, snapping a three-day rally, after the party congress dashed hopes for more market-friendly policies. Read: China Stocks in Worst Ever Post-Congress Rout as Gloom Persists President Xi Jinping’s tighter grip on China has “caused some investors to finally throw in the towel, with the most dramatic impact on the technology stocks,” saidJonathan Pines, head of Asia ex-Japan at Federated Hermes in a note. Meanwhile, Japanese stocks edged lower after the Bank of Japan stood by its ultra-low interest rates. Singapore bucked the region’s trend to rise more than 1%. Friday marked the busiest day for Asia earnings this results season. Chinese automaker BYD Co., Industrial & Commercial Bank of China Ltd. -- the world’s largest bank by assets -- and Japanese electronics firm Keyence Corp. are among the 239 MSCI Asia Pacific Index members that reported earnings. Stocks have rebounded this week after a slew of dovish signals from central bankers revived hopes that the pace of policy tightening will slow. Traders will watch for more clues at the Federal Reserve’s meeting next week, where it is expected to deliver a fourth-straight 75 basis point hike. Japanese equities closed lower after the Bank of Japan maintained its easy monetary policy. Stocks had opened lower amid concern over tech earnings at home and in the US, but were trading little changed around midday before the BOJ’s announcement. The Topix fell 0.3% to close at 1,899.05, while the Nikkei declined 0.9% to 27,105.20. The yen was trading around 146.4 per dollar, swinging between gains and losses. Volume on the Prime market jumped to 5.77 trillion yen, the highest since the market reorganization, as passive funds adjusted holdings on the latest rebalancing of the Topix. Hoya Corp. contributed the most to the Topix decline, decreasing 4.4% after disappointing earnings. Out of 2,166 stocks in the index, 641 rose and 1,448 fell, while 77 were unchanged. The BOJ again maintained its ultra-low rates even as other central banks are tightening. While this divergence had driven the yen’s weakness this year, the currency has rallied almost 4% since last week, from a three-decade low that triggered suspected intervention from Japan. “If the BOJ is lucky, the dollar will weaken from current levels, and the depreciation in the yen will remain at a reasonable level,” Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings, wrote in a note. “Otherwise, we could see the dollar-yen spike above the 150 level despite the BOJ’s direct interventions, which do nothing more than burning money.” Australian stocks also fell: the S&P/ASX 200 index dropped 0.9% to close at 6,785.70, ending a four-day winning streak, dragged by iron ore miners including BHP Group after the steelmaking raw material extended its rout to the lowest in more than two years. Materials, technology and healthcare sectors led the benchmark index’s drop on Friday. Still, the index made a weekly gain of 1.6%. In New Zealand, the S&P/NZX 50 index climbed 0.3% to 11,129.53 Stocks in India advanced for the second consecutive week, moving closer to their record levels seen last year, helped by a rally in financial companies amid robust earnings.  The S&P BSE Sensex Index rose 0.3% to 59,959.85 in Mumbai, its highest level since Sept. 14. The NSE Nifty 50 Index advanced by an equal measure. For the week, the indexes have risen more than 1% and are about 3% short of their record levels seen a year ago. Twelve of the 19 sector sub-gauges compiled by BSE Ltd. declined, led by metal companies. For the week, auto firms were among best performers as vehicle sales picked-up during the ongoing festive season.  Corporate earnings for September quarter have been supportive of the rally in Indian markets. Out of the 23 Nifty companies, which have so far reported earnings, 16 have either matched or beat the consensus view, while five missed. Top lenders including ICICI Bank and Axis Bank, have reported higher-than-expected profits, helped by rising credit demand.  In FX, the Bloomberg Dollar Spot Index extended yesterday’s bounce from a five-week low as the greenback advanced 0.4$ versus all of its Group-of-10 peers ahead of US inflation data. EUR and DKK are the strongest performers in G-10 FX, JPY and AUD underperform; yen trades at ~147 per dollar. The yen was the worst G-10 performer, snapping a three-day advance, as the Bank of Japan stood by its ultra-low interest rates amid fresh government support, pushing back against lingering market speculation it will adjust policy as it continues to predict inflation will cool below 2% next year Australia’s dollar was also among the worst performers as commodity prices slumped. The nation’s sovereign bonds rallied as it caught up with events in Europe and the US on Thursday The euro fell for a second day on the back of broad-based US dollar strength. European bonds extended a drop after French inflation data for October came in hotter than expected. Front-end bund yields rose by around 10bps, while the long end added around 7bps. BTPs added 10-12 bps across the curve. In rates, the Treasury curve bear-flattened, pushing yields 2-7bps higher as yields trade near session highs after erasing late-Thursday gains that coincided with Amazon’s after-market plunge. Treasuries track bigger losses in bunds, where German curve aggressively bear-flattens as ECB hike premium is added into front-end. Economic data are focal point of US session, including personal income/spending inflation gauge and University of Michigan sentiment. US yields are cheaper by as much as 10bp in belly of the curve, flattening 5s30s by 7bp to as low as -6.2bp; 10-year yields around 4%, cheaper by 8bp on the day with bunds cheaper by additional 6bp in the sector. German curve bear-flattens as 10-year yields rise 14bps to 2.1%; 2s10s, 5s30s spreads are tighter by 2bp and 3bp on the day as front- end and belly yields are cheaper by 17bp on outright basis. Italian BTP spread widens to Germany; Italy inflation hit an all-time high of 12.8% in October. In commodities, oil pared its weekly gain as investors shied away from risky assets on a dimming outlook for China and the wider global economy. West Texas Intermediate slid below $88 a barrel. Moving to metals, the complex is once again under USD-induced pressure with precious metals unable to derive any substantial allure from their traditional haven status; base metals hit on sentiment, particularly APAC weakness in China. Spot gold falls roughly $12 to trade near $1,651/oz. Bitcoin is under modest pressure though resides in narrow ranges and despite the DXY reclaiming 111.00, Bitcoin still holds onto the USD 20k handle. Looking ahead, today’s data line up in the US will include Q3 employment cost index, which as Nikileaks just informed us... The bottom line: while the Fed isn’t data-point dependent and the decision for next week of 75 basis points seems unlikely to change, another uncomfortably high ECI reading might argue for a somewhat higher terminal rate and could muddy the debate over slowing the pace in Dec. — Nick Timiraos (@NickTimiraos) October 28, 2022 ... will be closely watched by the Fed so a big beat here and futures will tumble even more. We also get, September personal income, personal spending, PCE deflator and pending home sales. In Europe, Germany and France will release Q3 GDP and October CPI figures, with the latter also due for Italy. Other indicators will include consumer spending and PPI for France, PPI and hourly wages for Italy and economic and industrial confidence for the Eurozone. The earnings list will be lighter than in previous days but will feature key commodity companies like Exxon Mobil, Chevron, Equinor and Eni. Other notable reporters will include AbbVie, NextEra Energy, Sanofi, Porsche, Airbus, Volkswagen, Colgate-Palmolive, BBVA and LyondellBasell. Market Snapshot S&P 500 futures down 0.8% to 3,790.50 STOXX Europe 600 down 0.6% to 406.72 MXAP down 1.7% to 135.55 MXAPJ down 1.9% to 432.30 Nikkei down 0.9% to 27,105.20 Topix down 0.3% to 1,899.05 Hang Seng Index down 3.7% to 14,863.06 Shanghai Composite down 2.2% to 2,915.93 Sensex little changed at 59,792.78 Australia S&P/ASX 200 down 0.9% to 6,785.72 Kospi down 0.9% to 2,268.40 Brent Futures down 0.7% to $96.30/bbl Gold spot down 0.7% to $1,651.18 U.S. Dollar Index up 0.31% to 110.93 German 10Y yield up 4% to 2.04% Euro down 0.2% to $0.9946 Top Overnight News from Bloomberg As China’s hovers near the weak end of a daily 2% trading band against the dollar, the specter of extreme measures -- however unlikely -- is growing. Already, there are signs that China is intervening in foreign-exchange markets, like Japan has done. A one-time revaluation and restricting the yuan’s range are other major tools The ECB’s monetary policy will have to move into restrictive territory to get inflation under control, Governing Council member Peter Kazimir said The ECB is under no obligation to repeat the 75 basis-point interest-rate increases enacted at the last two meetings, Governing Council member Francois Villeroy de Galhau said The ECB will continue to lift borrowing costs as it steps up its battle against record euro-area inflation, and remain flexible about the magnitude of individual steps, according to Governing Council member Bostjan Vasle The ECB needs to deliver a “substantial” increase in interest rates at its final meeting of the year in December, despite a strong likelihood of a technical recession in the euro area, according to Governing Council member Gediminas Simkus Hopes that the euro zone can stave off a recession got a boost as Germany defied expectations by reporting another quarter of economic growth, though momentum slowed dramatically in France and Spain A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks traded mostly lower but off worst levels following a mixed lead from the US. ASX 200 was pressured by its IT sector following the Meta-induced losses seen on Wall Street. Nikkei 225 drifted off worst levels heading into the BoJ announcement but saw little action on the return from lunch break after the BoJ maintained its policy unchanged whilst upping its inflation forecasts across the board. KOSPI conformed to the broader risk tone, although losses were shallower than peers. Hang Seng and Shanghai Comp opened lower with the tech sector underperforming after the downbeat sectoral lead from the US, whilst NY Times reported that the Biden administration is weighing further controls on Chinese technology. Agricultural Bank of China (1288 HK) Q3 2022 (CNY): Net 68.5bln, NIM 1.96%, NPL ration 1.40%. ICBC (1398 HK) 9M 2022 (CNY): net profit 265.82bln, NPL 1.4% at end-Sept. Top Asian News China Names Beijing Mayor Chen Jining As Shanghai Party Boss BOJ Keeps Ultra-Low Rates as Team Japan Sticks to Policy Path BOJ Changes Bond Purchase Plan for First Time During a Quarter Russia Export Windfall Finds Sanctions Haven in Yuan, Quasi-Bank Iron Ore on Track for Longest Run of Weekly Losses Since 2014 European bourses are pressured across the board, Euro Stoxx 50 -0.9%, deriving direction from downbeat APAC and US after-market trade. Within the region, sectors are predominantly in the red with Tech dented amid US after-market updates while Basic Resources slips after Glencore's downbeat production report. Stateside, the NQ -1.3% is the clear underperformer amid pressure from the below after-market earnings; ES -0.8%, pressured though magnitudes a touch more contained ahead of key US price data. Inc (AMZN) - Q3 2022 (USD): EPS 0.28 (exp. 0.22), Revenue 127.1bln (exp. 127.45bln); Q4 22 revenue view 140-148bln (exp. 155.150bln). AWS: 20.54bln (exp. 21.191bln). Click here for details. CFO said the Co. is preparing for what could be a slower growth period. Co. is being very careful on its hiring and is seeing weakness in Europe relative to the US. -13% in the pre-market. Apple Inc (AAPL) Q4 2022 (USD): EPS 1.29 (exp. 1.27), Revenue 90.15bln (exp. 88.90bln) Q4 product sales: iPhone: 42.63bln (exp. 43.21bln) iPad: 7.17bln (exp. 7.94bln). Mac: 11.51bln (exp. 9.36bln). Click here for details. CFO says total company revenue will decline in Q4; sees nearly 10ppt negative Y/Y impact from FX. +0.5% in the pre-market. Intel Corp (INTC) - Q3 2022 (USD): Adj. EPS 0.59 (exp. 0.32), Revenue 15.3bln (exp. 15.25bln). Click here for details. +4.5% in the pre-market Top European News European Stocks Fall Amid Earnings Flurry as Tech, Miners Drop UK Lenders Face Biggest Mortgage Test Since Financial Crisis Appliance Maker Electrolux to Cut Up to 8% of 50,000 Staff Saab Ramping Up Capacity Ahead of Sweden’s NATO Membership Porsche’s Soaring Profit Can’t Drive Away Year-End Concerns FX DXY extends recovery gains to probe 111.000 and this time thanks in large part to the Yen as BoJ sticks to ultra-accommodation, dovish guidance and passive role in terms of intervention; USD/JPY eyes 148.00 from around 146.00 at one stage and near 145.00 yesterday Aussie and Kiwi rattled by risk aversion and their US rival's revival, AUD/USD just over 0.6400 and NZD/USD under 0.5800 Euro cushioned by strong inflation data and some hawkish ECB rhetoric, but capped at parity vs the Buck and more hefty option expiries Yuan undermined by a weak PBoC fix and losses in Chinese tech stocks on reports of further US controls PBoC set USD/CNY mid-point at 7.1698 vs exp. 7.1638 (prev. 7.1570); weakest Yuan fix since Feb 2008. China's CBIRC says those who sell the Yuan now will regret it, via Bloomberg citing a report. China has a resilient economy and its positive long-term trend will continue. Fixed Income EGBs are under broad pressure as ECB speakers come out in full hawkish force alongside hotter than expected regional CPI data, ex-Spain. Specifically, the Bund has been pushed below 139.00 and the accompanying 10yr yield to above 2.10% while BTPs are similarly pressured though the spread vs. Germany has narrowed to around 200bps. Gilts are bucking the trend somewhat and retain a slight positive bias, with attention turning to next week's BoE where the magnitude is centered around 75bp vs 100bp+ in recent weeks. Stateside, USTs are in-fitting with EGBs ahead of their own price metrics via PCE Price Index this afternoon, with yields elevated as such though the curve is a touch flatter. Commodities The complex looks set to end the week with another session of relatively limited explicit newsflow and as such participants focus remains on broader macro developments and pricing. Currently, the crude benchmarks are pressured by around 1% or just shy of USD 1.00/bbl on the session though are still set to end the week with upside of just over USD 2.00/bbl, at the time of writing. Moving to metals, the complex is once again under USD-induced pressure with precious metals unable to derive any substantial allure from their traditional haven status; base metals hit on sentiment, particularly APAC weakness in China. Central Banks BoJ maintained its policy unchanged as expected with rates at -0.10% and QQE with yield curve control maintained to target 10yr JGB yield at around 0%, via a unanimous vote, whilst also maintaining dovish forward guidance, as expected. BoJ Quarterly Outlook Report saw Core CPI upgraded across the board, but the FY23 and FY24 forecasts were below the BoJ’s 2% target, both at 1.6% (upgraded to 1.4% and 1.3% respectively), whilst warning that the risks to prices are skewed to the upside. Real GDP growth was downgraded for FY22 and FY23 but upgraded for FY24. The BoJ said there is a need to watch FX and its impact on the economy. The central bank also said it will make changes to the way it buys ETFs from Dec 1st, the Bank will take now into account the holding cost of each ETFs and select those with the lowest trust fee ratio in making purchases. BoJ Governor Kuroda (post-meeting press conference) says must be vigilant to the impact of FX moves; CPI to undershoot 2% from next year; will not hesitate to ease monpol. if needed. Click here for full details. BoJ Quarterly Schedule of Outright Purchases of Japanese Government Bonds; to increase frequency of purchases in November. ECB's Simkus says QT discussion in December should be about start dates and amounts, via Reuters. ECB's Villeroy says the ECB will bring inflation back to 2% in 2-3 years; no obligation to raise rates by 75bps at the December meeting. ECB's Kazmir says rates will rise in December and in early 2023, crossing neutral like a 'runaway train', must get rates into restrictive territory. A risk that Eurozone inflation will remain higher for longer, and remains above target. Risk of a recession in the Eurozone are growing. ECB's Muller says they must decide on how to gradually cut bond holdings, via Bloomberg; rates will continue to increase in the near term, they are still now and are not restrictive. Geopolitcs US will soon provide additional military assistance to Ukraine, according to the White House spokesperson, US is not seeing any signs of Russia making preparations to use a "dirty bomb", via CNN. Biden administration is weighing further controls on Chinese technology, according to NYT. France and Germany "agreed that recent American state subsidy plans represent market-distorting measures that aim to convince companies to shift their production to the US... and that is a problem they want the EU to address.", according to Politico sources. North Korea fired two short-range ballistic missiles that landed outside of Japan's Exclusive Economic Zone, according to South Korea. US Event Calendar 08:30: 3Q Employment Cost Index, est. 1.2%, prior 1.3% 08:30: Sept. Real Personal Spending, est. 0.2%, prior 0.1% Sept. Personal Income, est. 0.4%, prior 0.3% Sept. Personal Spending, est. 0.4%, prior 0.4% Sept. PCE Deflator MoM, est. 0.3%, prior 0.3% Sept. PCE Deflator YoY, est. 6.3%, prior 6.2% Sept. PCE Core Deflator YoY, est. 5.2%, prior 4.9% Sept. PCE Core Deflator MoM, est. 0.5%, prior 0.6% 10:00: Sept. Pending Home Sales (MoM), est. -4.0%, prior -2.0% Pending Home Sales YoY, prior -22.5% 10:00: Oct. U. of Mich. Sentiment, est. 59.6, prior 59.8 Oct. U. of Mich. Current Conditions, est. 65.0, prior 65.3 Oct. U. of Mich. Expectations, est. 56.0, prior 56.2 Oct. U. of Mich. 1 Yr Inflation, est. 5.1%, prior 5.1% Oct. U. of Mich. 5-10 Yr Inflation, est. 2.9%, prior 2.9% DB's Jim Reid concludes the overnight wrap I think we can now officially call this the 6th pivot anticipation trade over the last 12 months. What started out as a WSJ Timiraos tweet last Friday, got momentum from weaker housing data, moved onto a dovish BoC, and then reached the ECB yesterday. Although they hiked 75bps, they signalled a more dovish tone than expected. So much so that our economists now think they will hike 50bps in December relative to their previous 75bps forecasts. They still think the terminal rate will hit 3% but the profile is much more uncertain now. Their base case is a further 50bps in February and then two successive 25bps hikes to get to 3%. The BoJ maintained the dovish flavour of the last week, as expected, keeping policy rates unchanged and its yield curve control program in place. Back to the ECB, to quote DB's Mark Wall from his review piece "the press conference had elements that leaned dovish". These included the increased probability of recession, the lagged impact of rapid monetary tightening and the absence of reference to “several” more hikes. Other comments pushed back as too dovish an interpretation, such as the emphasis on uncertainty, the more inflationary wording on wages and the fact that even after this hike the Governing Council was no closer to defining the terminal rate." There's lots more in the piece including on all the TLTRO news. All in all, this further amplified the dovish rates trade since Friday. If only I had a fraction of the power to move global markets as WSJ's Nick Timiraos. In terms of the highlights yesterday, markets took around 25bps of cuts out of terminal ECB rates to now around 2.6%. This put pressure on the euro (-1.16%) which fell below parity again as 2y yields weakened across major European markets, including Germany (-17.0bps), France (-9.8bps) and Italy (-31.0bps). 10y yields fell as well, with periphery bonds (BTPs -32.1bps) outperforming the ones in Western Europe (Bunds -15.1bps and OATs -18.3bps). In their recap of the meeting (link here) our European rates strategists tied the Italian outperformance to the communications that principles around QT would be pursued in December, and that ahead of any implementation, which was more dovish than what was anticipated going into the meeting. They also note that BTPs outperformed from the generally dovish tone that defined the entire meeting. So this sets us up very nicely for Powell and the Fed next week. What could have been a bog standard incremental 75bps now becomes a “will they or won’t they” endorse the pivot party? I'd imagine the most dovish Powell could be is to say that December's decision between 75bps and 50bps will be data dependent. I'm not sure he can go further than that with two CPI and NFP reports in the interim. This dovish global move this week has taken the headline pressure off a poor week for US tech earnings with Meta falling -24.56% yesterday after the prior night’s results. Last night it was the turn of Apple and Amazon. The former slightly disappointed analysts on weaker iPhone and services revenues and, after flitting between gains and losses, actually managed to finish after-hours trading +0.38% higher on offsetting strength in other business lines including Mac sales. Apple is proving a stand out, however, as the latter was a bit of a shocker with company forecasts for the lucrative holiday period much lower than expected. Shares fell a dramatic -12.98% after hours. If sustained today that would drop it to a market cap of below $1tn. In November last year we were as high as $1.9tn, so quite a fall to say the least. This has left S&P and Nasdaq futures down -0.44% and -0.69% overnight. Another big macro event yesterday was the release of Q3 GDP in the US and the print came in at +2.6%, above the 2.4% consensus estimate and a strong rebound from -0.6% in Q2. However, the lion’s share of gains in growth came from net exports and demand-related components showed muted growth. In other data releases, a downbeat tone came from a miss on durable goods orders (+0.4% vs +0.6% expected) although initial jobless claims came in a touch lower than expected (217k v 220k). This morning, all eyes will be on GDP and inflation data from Germany and France along with Italian CPI data. For US bonds, stronger-than-expected economic rebound didn’t fully outweigh the passthrough from the dovish ECB, with yields declining by -13.0bps on the 2y and -8.4bps on the 10y. Net net that took out -10.7bps off the peak Fed Funds futures rate priced in for next May and -27.7bps since Timiraos' tweet when terminal pricing had breached 5%. Nevertheless, the dollar index was still up +0.81% for the day as the Fed is currently being out-pivoted by other global central banks. Heading into big tech earnings after the close, stocks gyrated between gains and losses, but ultimately slumped into the close with the S&P 500 finishing down by -0.61%. Meta’s outsized impact on tech was seen in Nasdaq’s underperformance (-1.63%) after the stock lost -24.56% during trading hours and the share price closed at its worst level since early 2016. Sector-wise, industrials led the pack (+1.14%) on strong earnings (Caterpillar gained +7.71% and Honeywell climbed +3.27%) with financials close behind (+0.75%) on a steeper curve whilst, on the other hand, IT (-1.52%) and communications (-4.12%) weighed down on the S&P 500. It was thus unsurprising that despite a big loss on the day for the index, 55% of its members actually finished higher by the close since the two sectors together take up nearly a third of the index by weight. Along with Caterpillar and Honeywell, we got an earnings beat from McDonald’s, who’s share price climbed +3.31%. In Europe, the Stoxx 600 (-0.03%) closed nearly flat ahead of today's major data releases and despite the tailwinds from falling European yields. Showing growth concerns, cyclical sectors like IT (-1.76%), materials (-0.87%) and industrials (-0.47%) were a major drag on performance together with healthcare (-1.13%) and consumer discretionary stocks (-0.65%). So energy (+3.76%), real estate (+2.56%) and utilities (+1.07%) did most of the heavy lifting to keep the index afloat for the day. In data, we also had a tailwind from an upward surprise in Germany’s consumer confidence, which rose to -41.9 from -42.5 (vs consensus of -42.3). Data from Italy was more mixed, with a miss on consumer confidence (90.1 vs 93.5 expected) but a beat on the manufacturing gauge (100.4 vs 100). Asian equity markets are mostly trading lower this morning due to weaker earnings posted by Wall Street’s tech giants. As I type, the Hang Seng (-1.91%) is the largest underperformer followed by the CSI (-1.27%), the Shanghai Composite (-0.83%) and the Nikkei (-0.35%). Elsewhere, the KOSPI (-0.09%) is swinging between gains and losses. As mentioned, the Bank of Japan (BOJ) continued its dovish tone, keeping interest rates unchanged due to weak growth prospects, while keeping YCC in place. In its quarterly review of its projections, the BOJ mentioned that it sees core consumer inflation to hit 2.9% for FY2022 and 1.6% the following year. It projects inflation to hit 1.6% in fiscal 2024. Ahead of the BOJ’s rate announcement, Japan’s Prime Minister Fumio Kishida unveiled a new economic stimulus package that will include 29.1 trillion yen ($199 billion) in government spending. The overall size of the package will likely reach 71.6 trillion yen, when spending by municipalities and companies is taken into account. Staying on Japan, Tokyo CPI inflation rose sharply to +3.5% y/y in October (v/s +3.3% expected), picking up from +2.8% increase in September. At the same time, the core inflation hit +3.4%, the highest level since 1989 while sharply accelerating from September’s +2.8% gain, indicating broadening inflationary pressure. Separately, Japan’s jobless rate surprisingly rose to 2.6% in September from previous month’s 2.5% while the Job-to-applicant ratio improved for the ninth consecutive month to a 2-1/2-year high of 1.34 in September from 1.32 in August. Looking ahead, today’s data line up in the US will include Q3 employment cost index, September personal income, personal spending, PCE deflator and pending home sales. In Europe, Germany and France will release Q3 GDP and October CPI figures, with the latter also due for Italy. Other indicators will include consumer spending and PPI for France, PPI and hourly wages for Italy and economic and industrial confidence for the Eurozone. The earnings list will be lighter than in previous days but will feature key commodity companies like Exxon Mobil, Chevron, Equinor and Eni. Other notable reporters will include AbbVie, NextEra Energy, Sanofi, Porsche, Airbus, Volkswagen, Colgate-Palmolive, BBVA and LyondellBasell. Tyler Durden Fri, 10/28/2022 - 08:05.....»»

Category: smallbizSource: nytOct 28th, 2022

Newton’s Law of Stock Market Motion

Newton’s First Law of Motion states that an object in motion tends to stay in motion unless an external force acts upon it. In the year 2022, we have been reminded how efficiently the stock market facilitates moving money from impatient people to patient people. A bull market in stocks tends to stay in motion […] Newton’s First Law of Motion states that an object in motion tends to stay in motion unless an external force acts upon it. In the year 2022, we have been reminded how efficiently the stock market facilitates moving money from impatient people to patient people. A bull market in stocks tends to stay in motion unless an external force acts upon it. In this case, the external force is the price of money. Two-year Treasury bond rates have soared in the last 18 months as seen below: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2022 hedge fund letters, conferences and more   Find A Qualified Financial Advisor Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now. Source: Bloomberg Warren Buffett explained in his 1999 Allen and Co. talk how the price of money rising nullified the benefit of owning common stocks from 1964-1981. He then went on to explain the huge bullish price movement from 1981-1998 as being heavily affected by the consistent decline in interest rates. The lower interest rates served as a wind in the sails of common stock ownership. Economic growth from 1964-1981 was 4.3% and from 1981-1998 it was 2.7% on average. This is a good corollary to our view that increased rates help Main Street but not Wall Street. Newton's Second Law Of Motion Newton’s Second Law of Motion states that when a force acts on an object, it will cause the object to accelerate. The larger the mass of the object, the greater the force will need to be to cause it to accelerate. This law may be written as force = mass x acceleration. Isn’t it ironic that the Federal Reserve Board 2022 tightening efforts might have actually caused a short-term acceleration in inflation? After all, interest rates are the price of money. Therefore, as prices for other things were accelerating, the Fed drastically accelerating the price of money in a relatively short period of time was akin to throwing gasoline on a fire. Newton's Third Law Of Motion Newton’s Third Law of Motion states that for every action, there is an equal and opposite reaction. What this means is that pushing on an object causes that object to push back against you, the exact same amount, but in the opposite direction. For example, when you are standing on the ground, you are pushing down on the Earth with the same magnitude of force that it is pushing back up at you. Sir John Templeton reminds us that “bull markets follow bear markets and bear markets follow bull markets.” We believe that just like Newton’s laws establish symmetry in the world of physics, so does the world of economics have symmetry. The bigger and longer the bull market/financial euphoria episode, the greater punishment must be handed out in the ensuing bear market. Charlie Munger has said that the financial euphoria episode which culminated in 2021 was the biggest of his career because of the totality of it!” Is the 2021 euphoria episode being met by a powerful external force? The answer is an abrupt increase in the fed funds rate (both powerful and external) which was complicated by starting 12-18 months later than when it was needed. For this reason, you must expect an equal and opposite reaction. The darlings of the prior era, which drafted the most heavily on the winds of cheap money, should be the biggest duds on a going-forward basis. It also means that the companies which benefit from the strength in the economy due to the prior liquidity and the inflation created by the prior liquidity should lead the following bull market. The wheels of motion have been put in place for oil and gas to be the leading group of the next bull market and the external forces are exacerbating energy’s favorable circumstances. What kills the price of oil are the incentives to drill and the stock market reward for doing so. The body politic and the ESG investing craze has assured that investment in fossil fuels has been retarded for five to ten years. Price regulates price and supply only happens to expand if the rewards match the risk. In conclusion, trust the symmetry that exists in the world of common stock investing. Expect Newton’s laws to ring true, and as always, fear stock market failure. Warm regards, William Smead The information contained in this missive represents Smead Capital Management’s opinions, and should not be construed as personalized or individualized investment advice and are subject to change. Past performance is no guarantee of future results. Bill Smead, CIO, wrote this article. It should not be assumed that investing in any securities mentioned above will or will not be profitable. Portfolio composition is subject to change at any time and references to specific securities, industries and sectors in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk. In preparing this document, SCM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. A list of all recommendations made by Smead Capital Management within the past twelve-month period is available upon request. ©2022 Smead Capital Management, Inc. All rights reserved. This Missive and others are available at»»

Category: blogSource: valuewalkOct 26th, 2022

A decades-long bear market could hit the US stock market as the Fed gets serious about reducing its $9 trillion balance sheet, hedge fund manager Boaz Weinstein says

"I'm very pessimistic. There isn't a rainbow at the end of all this. [Quantitative tightening] is going to be a real headwind for investors." Traders look on after trading was halted on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020Lucas Jackson/ReutersThe US stock market could fall into a decades-long bear market similar to Japan in 1989, according to hedge fund manager Boaz Weinstein.Weinstein told the Financial Times the Fed's quantitative tightening will drive the decline lower."I'm very pessimistic. There isn't a rainbow at the end of all this," Weinstein said.Hedge fund manager Boaz Weinstein is warning investors about the potential of a decades-long bear market that will plague US stocks, similar to the decline that Japan's stock market has been dealing with since 1989.Japan's Nikkei 225 index topped out in 1989 and never recovered those highs, as an ageing and declining population has sparked concerns of how the country will grow into the future. The Nikkei is still 30% below its all-time high. Weinstein, who runs the near $5-billion hedge fund Saba Capital, told the Financial Times that the Federal Reserve's quantitative tightening policies will drive big declines in asset prices. In other words, don't fight the Fed."I'm very pessimistic. There isn't a rainbow at the end of all this. [Quantitative tightening] is going to be a real headwind for investors," Weinstein told the FT. Weinstein is zeroing in on the Fed's plans to reduce its near-$9 trillion balance sheet, which expanded considerably since the 2008 financial crisis and the onset of the COVID-19 pandemic as a series of quantitative easing measures were implemented to shore up liquidity in credit markets.But now the Fed is on track to reduce its balance sheet by $95 billion per month, rolling off a combination of its treasuries and mortgage-backed securities holdings. And that will serve as a headwind as the Fed sells its bonds into the market, essentially sucking liquidity out of financial markets."There's no reason that this difficult [economic] period will only last two to three quarters [and] ... no reason to think we'll have a soft landing or a shallow recession," Weinstein said.The Fed is still hoping for a soft landing even as it moves forward with more interest rate hikes, with the central bank highlighting in its September meeting minutes that the labor market still remains strong, with the unemployment rate sitting near multi-decade lows.But Weinstein isn't holding his breath, telling the FT that developed stock markets like the US "could certainly" follow the path of Japan's Nikkei 225."That changed the psychology about whether being a stockholder is such a prized status," Weinstein said.Now investors have to grapple with a lot of headline risks, including Russia's ongoing conflict in Ukraine, a slowing economy in China, and rising inflation and interest rates.The hedge fund manager is holding onto credit default swaps as insurance against further equity losses, as he believes a recession will ultimately lead to corporate defaults and widening credit spreads."In this sell-off you have so many things that are problematic swirling around, some that are contradictory. There's a lot of fear, but there's been a lot of time for people to think about [the issues]," Weinstein said.Read the original article on Business Insider.....»»

Category: smallbizSource: nytOct 24th, 2022

The Elf on the Shelf: Finding the Beauty in Cosmetics

We can learn much from this theme about identifying top stocks in this environment. One of the great joys in adulthood is watching our young population grow and experience the beauty of life. The Elf on the Shelf is a popular children’s book that follows an elf whose job is to keep an eye on children for Santa. In the Christmas-themed story, the elf reports back to Santa about which children are being naughty or nice, or so the story goes.We can learn much from this theme about identifying top stocks in this environment. As investors, it’s our job to keep a close eye on our individual stock holdings, rewarding our portfolios with stocks that have been nice and are showing strength. We’ve seen throughout this year as well as previous bear markets that cosmetics – in particular women’s makeup and skin care – have proven to be somewhat recession-proof.Part of the Consumer Staples sector, the Zacks Cosmetics industry is currently ranked in the top 35% out of over 250 industries. Quantitative research has illustrated that roughly half of a stock’s future price movement can be attributed to its industry group. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months.By focusing on stocks within the top industries, we can provide a constant ‘tailwind’ to our investing success. Let’s take a closer look at a Zacks Rank #1 (Strong Buy) stock that is outperforming the market and recently hit new 52-week highs, all while the major averages hover in deep correction.e.l.f. Beauty, Inc. (ELF)e.l.f. Beauty is a global provider of cosmetic and skin care products under the e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare brand names. The company offers eye, lip, face, and skin care products. ELF sells these items through national and international retailers and direct-to-consumer channels, including e-commerce platforms.ELF has surpassed earnings estimates in each of the past four quarters, delivering a trailing four-quarter average earnings surprise of 76.95%. The company most recently reported fiscal Q1 EPS back in August of $0.39/share, a 69.57% beat over the $0.23 consensus estimate. The stock has responded well and has advanced nearly 21% this year.Image Source: Zacks Investment ResearchAnalysts have increased their EPS estimates for ELF recently. For the fiscal second quarter, estimates have been revised upward by 7.14% in the past 30 days. The Q2 Zacks Consensus Estimate is now $0.15 per share, with sales expected to grow 15.1% to $105.74 million during the quarter.Image Source: Zacks Investment ResearchWhat the Zacks Model Unveils The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.With an Earnings ESP +7.58% and a Zacks Rank #1 (Strong Buy) rating, another earnings beat may be in the cards for ELF investors when the company reports fiscal Q2 results on November 2nd.With a best-in-class ‘A’ rating in each of our Zacks Growth and Momentum Style Score categories, it’s not difficult to see why ELF is a compelling investment. Make sure to keep an eye on ELF as well as the cosmetics industry. Free Report Reveals How You Could Profit from the Growing Electric Vehicle Industry Globally, electric car sales continue their remarkable growth even after breaking records in 2021. High gas prices have fueled his demand, but so has evolving EV comfort, features and technology. So, the fervor for EVs will be around long after gas prices normalize. Not only are manufacturers seeing record-high profits, but producers of EV-related technology are raking in the dough as well. Do you know how to cash in?  If not, we have the perfect report for you – and it’s FREE! Today, don't miss your chance to download Zacks' top 5 stocks for the electric vehicle revolution at no cost and with no obligation.>>Send me my free report on the top 5 EV stocksWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report e.l.f. Beauty (ELF): Free Stock Analysis Report To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 21st, 2022

Cracks In The World Economy Are Starting To Show

Cracks In The World Economy Are Starting To Show Submitted by QTR's Fringe Finance Friend of Fringe Finance Lawrence Lepard released his most recent investor letter this week, with his updated take on the monetary miasma spreading across the globe. For those that missed it, Larry also talked with me on my podcast just days ago. I believe him to truly be one of the muted voices that the investing community would be better off for considering. He’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely. Larry was kind enough to allow me to share his thoughts heading into Q4 2022. The letter has been edited ever-so-slightly for formatting, grammar and visuals. This is Part 1 of his letter. Part 2 can be found here.  In the third quarter, virtually all asset classes went for a roller coaster ride – a sharp bear market rally in  July and August, followed by a vicious sell off in September as the Fed continued its Hawkish tone at  Jackson Hole in late August and then raised the Fed Funds rate in September to 3.00-3.25%. Recall that  as recently as February 2022 Fed Funds was at 0.0-0.25%.  Year to date through 9/30/22, the S&P 500 and Nasdaq are down -24% and - 33%, respectively. Gold and Gold Miners (GDXJ) are down -9% and -30% year to date, respectively.  Bloomberg’s US Aggregate Bond Index is down -15%. Only the Bloomberg Commodity Index (broad  commodities like oil that are benefiting from inflation) is up year to date (+13.5%).  The Fed’s hawkishness has caused an enormous amount of wealth destruction. As the chart below shows,  US stocks and bonds have created a drawdown of $18 Trillion in the US equity and fixed income markets,  far worse than 2008 and 2020’s market value destruction. Yet, despite this the Fed maintains that a “soft landing” is still attainable in this downturn. We believe this “soft landing” will be about as accurate as their prior contention that “inflation is transitory”. CENTRAL BANK HAWKS Throughout the 20th century, bouts of inflation tended to be modest (with the exception of short periods where externalities drove much higher inflation – e.g., WWII or Vietnam). However, once the pure fiat economy emerged post 1971, inflation and credit cycles became more the norm with a periodic crisis about every decade. Notice in the chart below how rapid the price of a can of Campbell’s Soup inflated once we went off the gold standard (see arrow at 1971). With inflation, growing fiscal deficits and the Fed’s increasing intervention in controlling interest rates  and money supply, various crises often popped up as the chart below shows.  Notice how the Fed Funds Rate (blue line) would be increased by the Fed, only to lead to a unique crisis.  Note further, how at each crisis, the Fed was forced to rapidly lower rates and come to the rescue.  Well, we are on our way to the Fed creating the next major crisis. Throughout 2022, the Fed has yet  again, tried to fight inflation (mind you, inflation largely of their own making – even when accounting for Covid supply chain issues and the Ukraine War). The Fed has been as aggressive as they were in the late 1970s in raising rates this year and reducing the money supply. FRAGILE, LEVERED WORLD  A levered global economy is a fragile system when the cost of debt begins to increase, and particularly sensitive to aggressive rate moves like the Fed has been conducting. Many just assume that “things will  be fine; rates can rise and the Fed can solve inflation like it did in the 1970s.”  However, the world is far more leveraged than in the 1970s. Global Debt/GDP is 2.5x larger than in the  1970s (see chart below). As a subset of that, the US has a Federal Debt/GDP level of 130% vs. only 30%  in the 1970s. Financing costs matter a lot in an economy that has accumulated such a huge debt load over the past 40-50 years.  Moreover, the maturity profile picture of US Government debt is not pretty. The chart below depicts the  US Treasury bond maturities. Notice how the vast majority of the outstanding US Treasury bonds mature in the next 4 years. Former Treasury Secretary Mnuchin tried to extend the duration, but alas there was  scant demand for long term US Treasuries. Now, yes – it’s easy to conclude that the US will easily  refinance that debt. But what if rates are a lot higher given a lack of buyer interest? Or if Japan sells  their $1.2 Trillion + of US Treasuries they hold? Or US Fiscal Deficits balloon further which requires  even more treasury debt issuance? Leverage is dangerous like a grenade. Particularly, when US interest rates spike as shown below. The  extremely rapid increase in the interest rate on the US 2 year Treasury bonds is going to wreak havoc on  the US Treasury’s interest expense, which in turn will have a huge impact on the US Federal budget.  It is important to understand the math associated with higher US Government interest rates. With over  $31T of debt, the US Government budget is at great risk of running unsupportable deficits if interest rates  continue to increase. In the fiscal year ended 9/30/22, the US Federal Government incurred interest  expense of $392B. Today, on a going forward, run-rate basis, the Treasury has interest expenses of $672B  annualized. If rates continue to increase to say an average of 4%, interest expense would be $1.2T, and  5% would imply $1.6T. The latter number is almost $1.0T larger than our current run rate. Granted, this math assumes all the debt rolls over instantly, however, the average duration on the Treasury debt is  around 3 years, so higher rates will impact interest expenses very shortly.  Get 50% off: If you enjoy this article, would like to support my work and have the means, I would love to have you as a subscriber and can offer you 50% off for life: Get 50% off forever US FEDERAL BUDGET DEFICITS ARE ABOUT TO BALOON BIGGER  Presently, the Congressional Budget Office (CBO) is projecting a $1.0T Federal deficit in 2022.  However, this number is distorted for several reasons. First, Federal tax receipts in 2022 were almost  $600B above trend line due to capital gains taxes collected from stock market investors in a raging bull  market that did not end until 2021 (capital gains taxes were paid in April 2022). Second, Social Security,  which represents $1.2T of annual spending is about to get a 8.7% COLA adjustment upward, so the cost  will increase by $104B. Third, the President just forgave over $400B of Student Debt (it is unclear if this  will flow through the budget, but it should). Fourth the Congress has passed several bills including an  infrastructure bill and an inflation protection act. Each will add hundreds of billions to the deficit. And  finally, the economy is slowing down rapidly following the Fed’s rate hikes. In past downturns (2000,  and 2008) tax receipts have fallen between 8 and 15% and social expenditures have increased by similar  percentages. We foresee a Federal Budget Deficit that will easily approach or exceed $2.0T in the 2023  fiscal year. All of this spending will need to be paid for by issuing new debt. So pro forma one year  from now, the Government will be paying interest on at least $33T of Treasury debt.  We also know that historically gold has performed best when Government deficits are large and growing.  We do not believe the market understands what a deficit problem the US is about to encounter. When it  becomes more apparent that the US has a Fiscal and Debt servicing problem and that interest costs are  making it worse, then the demand for US Treasury securities will fall. This in turn will lead to higher  interest rates. Ultimately, we believe the Fed will be forced into Yield Curve Control (YCC) because  they will do the same math and determine that the US Treasury is unable to carry the higher interest  burden. However, recall that YCC can only be accomplished by growing the Fed balance sheet to issue  new debt (QE) which is used to purchase old debt. This would constitute a pivot and would be wildly  inflationary. CRACKS IN THE WORLD ECONOMY ARE BEGINNING TO EMERGE  Despite the fact that the US fiscal situation is getting worse, the Fed’s aggressive tightening actions have  led to exceptional relative strength in the US Dollar. This strength has hurt countries all over the world  as they pay a higher price for dollar based imports (~80% of global trade is priced in dollars – think oil,  steel, copper, fertilizer etc.) and on any dollar denominated debt.  We are already beginning to see major economic cracks emerge as a result of this aggressive Fed  tightening and its impact on the dollar.  Great Britain, in particular, is a good preview of how a crisis can unfold as interest costs impact a bond  market. A new Prime Minister in the UK made a policy error (arguably) by promising tax cuts and  increased social spending to cap the costs of higher electricity for businesses and citizens. The UK bond  and currency markets did not like this very much. As you can see in the chart below the Great British  Pound (GBP) began to depreciate rapidly (white line in chart below). Simultaneously, interest rates in  the UK began to increase quite rapidly (blue line in chart below). What had started out as trends during  2021 and the first half of 2022 turned into routs.  In turn, this left UK Pension Funds with massive mark to market losses as their interest rate and currency  hedges were reeling and their bond holdings were declining in value.  The resulting Bloomberg Headline read: BOE Pledges Unlimited Bond Buying to Avert Imminent Gilts Crash  On September 28th, the Bank of England was forced to come in with a £65bn assistance package to buy  bonds from Pension funds. Kerrin Rosenberg, a UK Pension expert said, “If there was no intervention  today, gilt yields could have gone up to 7-8% from 4.5% this morning an in that situation around 90% of  UK pension funds would have run out of collateral,” Another UK banker said “the leverage unwind in  UK gilts came close to triggering a Lehman moment.”  This episode serves as a preview of what will become writ large in terms of a WSDC (World Sovereign  Debt Crisis). Central Banks will be forced to avert crises by going right back to printing money and  buying bonds via Quantitative Easing (QE).   This UK Sovereign debt and currency crisis, which then led to a Pension crisis is a major issue that may  be the big grenade that sets off our next major crisis. In essence – a summary of what UK Pensions have done is:  They were desperate for yield to be able to fund future pension payments`  Over 2/3 of UK Pension Funds entered into a scheme called LDI (liability-driven investment  strategy). In LDI, the funds lever up with only small amounts of equity and invest in derivatives to enhance their returns.   It's similar to what many US funds have done called Risk Parity - whereby funds  desperate for yield in their 60/40 stock/bond portfolios, and thinking bond prices are  stable, lever up their bond portfolio to get even greater yield  In both LDI and Risk Parity, that works fine, until the underlying asset (bonds) lose value rapidly  in a rising rate environment. Then, the fund’s leverage bites them badly and margin calls ensue. JP Morgan estimates that mark to market losses on derivatives linked to LDI could be over GBP125  billion. (6% of UK GDP). But now, assume this environment where both global stocks and bonds  continue to decline together – this can ripple to the Risk Parity funds too. Indeed, as the chart below shows, it is rare for stocks AND bonds to decline at the same time:  Furthermore, there is a fascinating historical record associated with the two prior instances. Both were  precedent to a revaluing of currencies versus gold. In the 1931 example the declines in stocks and bonds  led to Roosevelt’s devaluation of the dollar in 1934 (a 70% devaluation versus gold) and in the 1969  example it was only two years before the US was forced to abandon the Gold Standard in the Nixon  shock1. What will happen this time? Suffice it to say, we believe this is truly going to be historic.  Beyond the UK, cracks are beginning to emerge even in the massive $20 Trillion+ US Treasury market  (something that has rarely ever been seen before). Last Wednesday October 12, Yellen addressed US  Treasury market liquidity concerns and the possible need for the US Treasury itself to provide liquidity  to that market (the irony, given the Treasury has deficits yet plans to use even more borrowed money to  provide liquidity!) Part 2 of Larry’s letter can be read here.  About Larry Lepard Larry manages the EMA GARP Fund, a Boston based investment management firm. Their strategy is focused on providing "Monetary Debasement Insurance". He has 38 years experience and an MBA from Harvard Business School. On Twitter he is @LawrenceLepard Managing Partner and, via email, he is Disclaimer: QTR is long various gold and silver miners and have both long and short exposure to the market through equities and derivatives. I have no position in Larry’s funds. Larry is a subscriber to Fringe Finance and has been on my podcast. The excerpts from Larry’s letter, above, shall not be construed as an offer to sell, or the solicitation of an offer to sell, any securities or services. Any such offering may only be made at the time a qualified investor receives from EMA formal materials describing an offering plus related subscription documentation. There is no guarantee the Fund’s investment strategy will be successful. Investing involves risk, and an investment in the Fund could lose money. The strategy is also subject to the following risks: Currency Risk, Non-US Investment Risks, Issuer Specific Risk. Tyler Durden Fri, 10/21/2022 - 08:16.....»»

Category: dealsSource: nytOct 21st, 2022

Futures Soar Despite Latest UK Newsflow Rollercoaster Fiasco

Futures Soar Despite Latest UK Newsflow Rollercoaster Fiasco It was another overnight emotional and markets rollercoaster session thanks to the constant chaos of newsflow  and confusion out of the UK. Just around midnight ET, the Financial Times reported that the Bank of England would delay the start of its gilt-sale program (i.e. Q.T.), sending UK gilts, sterling and US equity futures sharply higher. Those gains, however, turned to losses when the central bank denied the report in a statement just around 5am ET, pushing the yield on the UK 10-year bond seven basis points higher to 4.05% while cable dumped 0.5%. That said, the BOE didn’t rule out the prospect of the BOE announcing a delay at a later time. The central bank has already delayed the start of the sales once, during the fallout from the government’s fiscal plan last month Despite the reversal by the BOE, the huge meltup which we said would be triggered on Monday by Friday's massive shorting, extended for a second day, encouraged by the reversal of uber-bear Michael Wilson who as we noted yesterday, expects a bear market rally pushing the S&P as high as 4,150, and helping the S&P to close above a key technical level on Monday. Nasdaq 100 futures rose 1.8%, while S&P 500 futures advanced 1.6% at 7:30 a.m. in New York, as tech giants Amazon and Microsoft led major technology and internet stocks higher in premarket trading, while the 10-year Treasury yield holds steady at about 4% and the Bloomberg dollar index was flat. In premarket trading, bank stocks traded higher as Goldman Sachs becomes the last of the big six US lenders to report earnings this quarter, beating on the top and bottom line (a more detailed report to follow). In corporate news, Credit Suisse is exploring a sale of its US asset-management operations and moving closer to securing financing for other businesses. Amazon and Microsoft lead major US technology and internet stocks higher in premarket trading, set to extend their gains for a second straight session. Nvidia (NVDA US) +2.7%, Amazon (AMZN US) +2.3%, Alphabet (GOOGL US) +2%, Meta (META US) +2%, Apple (AAPL US) +1.7% and Microsoft (MSFT US) +1.7%. Here are some other premarket movers: AVEO (AVEO US) shares jump 38% in US premarket trading hours to $14.43 after LG Chem said it will buy the biotech for $15 per share in an all-cash transaction with an implied equity value of $566m on a fully diluted basis. Target (TGT US) stock rises 2.7% in US premarket trading after it was upgraded to buy from hold at Jefferies, which says the combination of a subdued valuation and improvements in the supply chain and inventory positioning supports a bullish stance on the retailer. FuboTV (FUBO US) shares rise as much as 11% in premarket trading, with analysts saying the firm’s decision to end operations of its Fubo Sportsbook betting unit will help its bottom line. Juniper (JNPR US) shares gain as much as 2.6% in US premarket trading after Piper Sandler upgraded the internet infrastructure company to neutral from underweight with the expectation that management can continue to increase product revenue numbers in full-year 2023 by around 10% year-on-year. Keep an eye on MongoDB (MDB US) after its shares were raised to neutral at Redburn as the stock is trading 20% below 2020 valuation lows and the brokerage sees no further downside that justifies a sell rating. Watch US timber stocks as RBC reshuffles ratings in the sector ahead of the third-quarter earnings season, which analysts say will mark a “sharp return” to normalized pricing, while downgrading Resolute (RFP US) and Western Forest Products (WEF CN) to sector perform from outperform. "Investors keep pushing stock indices higher following the rebound over the annual lows at the end of last week, and growing risk appetite can now be seen across different asset classes,” said Pierre Veyret, a technical analyst at ActivTrades. As risks including high inflation, slower growth and the energy crisis still remain, “this is still seen as a technical correction,” he added. Another reason for the continued meltup is because JPMorgan's inhouse permabull, Marko Kolanovic, who has been long and wrong all year, appears to have thrown in the towel and late on Monday the Croat trimmed the extent of equities overweight in his model portfolio this month, citing “increasing risks around central banks making a hawkish policy error and geopolitics.” As we have said before, the bear market won't end until Marko turns bearish, so that was another piece of the puzzle falling into place. Kolanovic says go underweight corporate bonds over equities. The crash will not end until he turns bearish — zerohedge (@zerohedge) July 11, 2022 Meanwhile, the Bank of America monthly global fund manager survey “screams macro capitulation, investor capitulation, start of policy capitulation,” opening the way to an equities rally in 2023  the bank's Chief Investment Strategist, Michael Hartnett wrote in a note on Tuesday. They expect stocks to bottom in the first half of 2023 after the Federal Reserve pivots away from raising interest rates. “There’s still a strong feeling of a bear market rally about trading over the course of the last week,” said Craig Erlam, senior market analyst at Oanda Europe Ltd. “The economic landscape looks treacherous and we don’t even know if we’re at peak inflation and interest rate pricing yet. Those are substantial headwinds that will make any stock market rebound extremely challenging.” In Europe, stocks rose for a fourth day, with most industry groups in the green. Risk sentiment was firmly bullish, with cyclical stocks leading the rally, while technology shares also outperformed. Autos, tech and financial services lead gains in Europe as Euro Stoxx 50 rallies 1.4%. FTSE MIB outperforms peers, adding 1.8%. Here are the most notable European movers: AZA SS: Avanza shares jump as much as 17%, the most since Oct. 2019, after the Swedish retail trading and savings platform reported what Handelsbanken called a “strong beat” on net interest income. THG LN: THG shares surge as much as 12% after SoftBank sold its stake in the British online shopping firm. The sale removes an overhang on the stock and it could help sentiment that existing investor Qatar Investment Authority bought the majority of the stake, according to Bloomberg Intelligence analysts. TIT IM: Telecom Italia shares rise as much as 9.6% in Milan trading on speculation reported by Italian newspaper MF regarding potential interest for the company by CVC. PUB FP: Publicis shares rise as much as 4.7% after the advertising agency lifted FY organic growth guidance for a second straight quarter. GALP PL: Portuguese oil co. Galp falls as much as 6.8% as it says it received a force majeure notice from Nigeria LNG following flooding that caused a “substantial reduction” in the production and supply of LNG and natural gas liquids, according to a regulatory filing. N91 LN: Ninety One shares drop as much as 5.3% after the investment manager reported a decline in assets under management during the second quarter. ERF FP: Eurofins Scientific shares drop as much as 6.0%, the most since July 28, after the provider of testing services reported third-quarter revenue that fell year-on-year. ROG SW: Roche shares slide as much as 1.6% after the Swiss pharmaceutical group slightly missed consensus 3Q expectations on overall sales, but focus remains on its outlook and pipeline, analysts say. Earlier in the session, Asian equities rebounded, led by advances in tech stocks following a rally on Wall Street, as possible delays in bond sales by the Bank of England bolstered investor sentiment. The MSCI Asia Pacific Index rose as much as 1.5%, buoyed by TSMC, Tencent and Alibaba. All sub-gauges except real estate climbed.  The Financial Times reported that the BoE may delay selling billions of pounds of government bonds, easing investor angst after the UK’s botched fiscal plan. The UK central bank denied the report after most markets in the region were closed. Tech stocks listed in Hong Kong climbed after the Nasdaq 100 index had its best day since July.  Most benchmarks advanced, with notable gains in Australia, Japan, Hong Kong, and South Korea. Concerns that China is delaying the release of its 3Q GDP report amid the on-going party congress failed to quell the mood. The prospect of the BoE postponing QT “offers the potential for a decline in global rates volatility, a pre-condition for a broader improvement in cross-asset risk sentiment,” Stephen Innes, managing partner at SPI Asset Management, said before the bank’s denial. It’s been almost a year since Bitcoin hit a record. Even after Tuesday’s gain, the key Asian stock benchmark still trades close to its early-2020 low, as China’s virus lockdowns and property crisis weigh on growth. Asian stocks have underperformed their US and European peers this year as the Fed’s rate hikes pressure emerging market currencies, triggering an exodus of foreign funds Japanese stocks rose, following a rebound in US peers as the S&P 500 was seen pointing toward a technical recovery. Electronics makers were the biggest boost. The Topix rose 1.2% to close at 1,901.44, while the Nikkei advanced 1.4% to 27,156.14. Recruit Holdings Co. contributed the most to the Topix gain, rising 5.1% after announcing a buyback. Out of 2,166 stocks in the index, 1,809 rose and 279 fell, while 78 were unchanged. Australia stocks rebounded with tech and real estate shares leading; the S&P/ASX 200 index rose 1.7% to close at 6,779.20. The climb tracks a regional rally, buoyed after gains on Wall Street and a report of a possible delay in the Bank of England’s quantitative tightening.  In New Zealand, the S&P/NZX 50 index rose 0.6% to 10,847.34. In rates, Treasuries edged higher in early US trading after paring declines. Losses persist in gilts, where UK curve bear-flattens, with bunds also under pressure amid auctions by Germany, UK and Finland. US yields remain within 2bp of Monday’s closing levels, 10-year yields just under 4% with bunds and gilts trading cheaper by 6bp and 8bp in the sector. Gilt price action has been choppy; Long-end gilts take a breather, 10-year yield about 1bp higher after FT reported that Bank of England is set to delay quantitative tightening until gilt markets calm which the BOE later denied; UK sells 30-year notes later. In FX, the Bloomberg Dollar Spot Index pared losses to trade marginally lower; yen settles at around the 149 handle while the pound trades lower toward $1.13.  New Zealand’s dollar led G-10 gains after quarter-on-quarter inflation exceeded forecasts, fueling bets the central bank will need to keep raising interest rates The euro moved in a narrow range around $0.950, while the German 10- year yield reversed earlier losses to gain 6bps to 2.32% The pound weakened against all of its G-10 peers and fell below $1.13, following in an advance of as much as 0.5% to $1.1410. The long-term outlook for the pound has started to improve. At least, that’s what the options market is saying. The yen briefly rallied sharply versus the dollar after dropping to 149.29 per dollar, the lowest level since August 1990. Bank of Japan Governor Haruhiko Kuroda said that while the interest-rate differential with US has been a driving factor for the yen to weaken recently, the currency doesn’t move in parallel with the difference over the longer term The yuan stayed near 7.2 per dollar as the central bank kept the currency’s reference rate near 7.1 level in the last few sessions, a move that’s expected to slow the currency’s decline. USD/CNY falls 0.1% to 7.2000. It droped as much as 1.2% in early trade, close to the central bank’s fixing. USD/CNH little changed at 7.2075. In commodities, oil switched between gains and losses as traders weighed a tight market against concerns over a global economic slowdown. WTI and Brent December contracts are softer on the session and gave up earlier gains as the DXY creeps higher throughout the European morning. Spot gold is flat around the USD 1,650/oz mark in a USD 10/oz range – but still under its 10 and 21 DMAs at 1,673.56/oz and 1,668.63/oz. LME metals are mostly lower amid the recent rise of the Dollar, whilst Rio Tinto forecasted annual iron ore shipments at the lower end of guidance and sees further downside risks to demand as the global economy slows. White House is reportedly planning an oil reserve release announcement this week with a release of another 10mln-15mln bbls in an effort to balance markets and keep prices from climbing, according to Bloomberg. EU financial services chief McGuiness called on the US to create new crypto rules and said any regulation imposed on the industry would need to be global for it to work, according to FT. Looking to the day ahead now, and data releases from the US include industrial production and capacity utilisation for September, as well as the NAHB housing market index for October. Central bank speakers include the ECB’s Makhlouf and Schnabel, as well as the Fed’s Bostic and Kashkari. Finally, earnings releases include Goldman Sachs, Netflix, Johnson & Johnson, and Lockheed Martin. Market Snapshot S&P 500 futures up 1.4% to 3,741.00 MXAP up 1.4% to 138.93 MXAPJ up 1.6% to 450.98 Nikkei up 1.4% to 27,156.14 Topix up 1.2% to 1,901.44 Hang Seng Index up 1.8% to 16,914.58 Shanghai Composite down 0.1% to 3,080.96 Sensex up 1.0% to 58,966.61 Australia S&P/ASX 200 up 1.7% to 6,779.22 Kospi up 1.4% to 2,249.95 STOXX Europe 600 up 1.1% to 402.75 German 10Y yield up 3% at 2.337% Euro up 0.1% to $0.9852 Brent Futures down 0.6% to $91.05/bbl Gold spot up 0.1% to $1,651.42 U.S. Dollar Index up 0.1% at 112.187 Top Overnight News from Bloomberg Just 10% of Britons have a favorable opinion of Liz Truss, a YouGov survey found, piling further woes on the beleaguered prime minister a day after she was forced to row back on the bulk of her economic vision for Britain UK trade unions have called on millions of workers to protest against any return to austerity after Britain’s new chancellor of the Exchequer warned that “some areas of spending will need to be cut.” There’s scope for a Polish central bank hike by as much as 100bps in November, Monetary Policy Council member Joanna Tyrowicz says in ISB News interview French rail, energy and other key workers are striking on Tuesday to demand a bigger share of corporate profits, raising pressure on President Emmanuel Macron to take further steps to ease the impact of surging inflation ECB policy maker François Villeroy de Galhau expects the central bank to continue to “go quickly” until its deposit rate reaches 2% at the end of the year, Financial Times reports, citing an interview A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were positive with the region inspired by gains in global counterparts following the UK Chancellor’s reversal of most of the measures of the 'mini-Budget' and with a report later suggesting a delay of QT by the BoE. ASX 200 was led by strength in tech and with the top-weighted financials sector also notching firm gains, while commodity-related stocks were somewhat varied with Rio Tinto choppy after a mixed quarterly activity report. Nikkei 225 reclaimed the 27,000 level to the upside, but was off highs with officials continuing to pledge to take action to address excess FX moves. Hang Seng and Shanghai Comp. gained although the mainland lagged amid COVID woes after Nanjing halted certain indoor venues due to rising cases, while the postponement of key Chinese data releases including Q3 GDP has led to some speculation that the data could be disappointing, although it was also suggested that the delay could be so that officials can concentrate on the Chinese Communist Party Congress. Top Asian News China's Nanjing halted certain indoor venues including bars, KTVs and gyms, while it also halted dine-in services due to an increase in coronavirus cases. RBA Minutes from the October 4th Meeting stated the decision to raise rates by only 25bps was finely balanced with the smaller move warranted by the scale of hikes already delivered and lags in policy. RBA added that the uncertain outlook argued for slower hikes for a time but noted further increases in rates are likely over the period ahead and that rates are not especially high, while the board emphasised the importance of keeping inflation expectations anchored and RBA said monthly CPI data confirmed broad-based pick-up in inflation, rents and utilities are expected to increase. RBA Deputy Governor Bullock said the board expects to increase interest rates further over the coming months with the pace and timing to be determined by data, while she added that as the board meets more frequently than most peers, it can achieve a similar tightening with smaller individual rate increases. European equity bourses traded with gains across the board but are off best levels. Sectors are mostly firmer with no overarching theme; Autos & Parts, Financial Services, and Industrial Goods lead the charge whilst Healthcare, Optimised Personal Care, Energy and Basic Resources sit at the bottom of the pile. US equity futures are firmer to a greater magnitude than their European counterparts, with the ES trading on either side of 3,750 whilst the NQ outperforms its peers. Intel's (INTC) MobilEye IPO is set to be priced between USD 18-20/shr, according to Bloomberg. Renault (RNO FP) and Nissan (7201 JT) are moving towards a "landmark" deal to reshape their alliance, according to Bloomberg; subsequently echoed by the Renault CEO in a Nikkei interview. Top European News BoE is reportedly expected to further delay quantitative tightening until gilt markets calm, according to FT. Subsequently, the BoE labelled this report as "inaccurate". UK PM Truss said she wants to accept responsibility and apologise for the mistakes made, while she added that she will lead the Tories into the next general election and is sticking around because she was elected to deliver for the country. PM Truss also stated the most vulnerable will be protected into next winter regarding household energy bills and that they are looking at exactly how they can do that, according to a BBC interview. ECB's Villeroy said the UK crisis shows the risk of a vicious loop and that the pensions turmoil underscored the need for non-banks to build liquidity buffers, according to FT. European Commission to unveil proposal of further emergency energy measures for coming winter (including joint purchasing & alternative benchmark) at 14:30BST/09:30EDT, according to journalist Keating. FX Kiwi elevated as stronger than expected NZ CPI metrics lift RBNZ rate outlooks, NZD/USD probes 0.5700 before pullback Sterling underperforming after making stellar gains on Monday as BoE says FT's QT delay report is inaccurate; Cable sub-1.1300 from just over 1.1400 at one stage Loonie lags within a 1.3771-1.3657 range as crude prices sag Euro pivots 0.9850 vs Buck as DXY holds around 112.000 and Fib resistance at 0.9858 hampers EUR/USD Yen pares some losses from under 149.00 against Dollar amidst some unsubstantiated talk of intervention The CBRT's move to raise the required level of bond holdings for FX deposits means that banks must hold an additional TRY 80-100bln of bonds, via Reuters citing bankers. BoJ and FSA are to hold 17th cooperation on financial stability, according to reports. Fixed Income Gilts saw an initial bounce at the open on overnight FT reporting around a potential delay to QT; however, this was modest in nature and has since given way to marked pressure following BoE labelling it as "inaccurate". The overall complex is pressured, with Gilts lagging though Bunds are in close proximity and below 136.00 post poor 7yr-supply and ahead of ECB speak. Stateside, UTS have been following their peers directionally though magnitudes are more contained overall pre-data/Fed speak; yield curve mixed, overall. Commodities WTI and Brent December contracts are softer on the session and gave up earlier gains as the DXY creeps higher throughout the European morning. Spot gold is flat around the USD 1,650/oz mark in a USD 10/oz range – but still under its 10 and 21 DMAs at 1,673.56/oz and 1,668.63/oz. LME metals are mostly lower amid the recent rise of the Dollar, whilst Rio Tinto forecasted annual iron ore shipments at the lower end of guidance and sees further downside risks to demand as the global economy slows. White House is reportedly planning an oil reserve release announcement this week with a release of another 10mln-15mln bbls in an effort to balance markets and keep prices from climbing, according to Bloomberg. Note, this would come from part of a previously announced 180mln bbl sale announced earlier in the year UAE supports Saudi Foreign Ministry's statement regarding the OPEC+ decision and fully stands with Saudi Arabia in its efforts to support energy stability and security, according to the state news agency cited by Reuters. Geopolitics US Commerce Department issued a temporary denial order against Ural Airlines for operating in apparent violation of US export controls on Russia, according to Reuters. Ukraine President Zelenskiy says there is no space left for negotiations with Russian President Putin, via Reuters. Russia's Kremlin, when asked if Russia's nuclear umbrella extends to annexed territories, says all the territories are parts of Russia and their security is provided as with all other Russian territories, via Reuters. Japanese Chief Cabinet Secretary Matsuno said Japan is to impose additional sanctions against North Korea, according to Reuters. Officials revealed that China recruited dozens of former British military pilots to teach Chinese armed forces how to defeat western warplanes and helicopters in a “threat to UK interests”, according to Sky News's Deborah Haynes. US Event Calendar 09:15: Sept. Capacity Utilization, est. 80.0%, prior 80.0% 09:15: Sept. Manufacturing (SIC) Production, est. 0.2%, prior 0.1% 09:15: Sept. Industrial Production MoM, est. 0.1%, prior -0.2% 10:00: Oct. NAHB Housing Market Index, est. 43, prior 46 16:00: Aug. Total Net TIC Flows, prior $153.5b 16:00: Aug. Net Foreign Security Purchases, prior $21.4b Central bank speakers 14:00: Fed’s Bostic Takes Part in Workrise Panel Discussion 17:30: Fed’s Kashkari Discusses the Economy DB's Jim Reid concludes the overnight wrap We’ve discussed recently how we shouldn’t underestimate just how much the UK’s recent woes have impacted global markets. Correlation doesn’t equal causality, but the UK news has again seemed to heavily influence global markets over the last 24 hours after the UK government officially announced one of the biggest U-turns in political history and ditched the bulk of what remained of their mini-budget. However the risk momentum was also helped by a view that earnings season has starting relatively well versus beaten up expectations. Even overnight the UK is moving global markets again as reports from the FT that the BoE is going to delay QT at around 5am this morning have pushed equities futures over a percent higher with S&P 500 (+1.95%) and NASDAQ 100 (+2.17%) contracts soaring. This follows a big session yesterday with the S&P 500 (+2.65%) and the STOXX 600 (+1.83%) both posting strong advances that were led by the more cyclical sectors. Tech stocks were one of the big outperformers, with the NASDAQ (+3.43%) and the FANG+ Index (+4.83%) seeing even stronger advances, whilst banks were another outperformer with those in the S&P 500 up +3.48% in their 4th consecutive advance. The moves were also supported by some positive corporate news, with Lufthansa raising their full-year forecasts whilst Bank of America saw trading revenue beat expectations and net interest income rise to a record in Q3, a common theme among banks benefitting from heightened market volatility and rising policy rates. Bank of America joins the other large US banks to report with JPMorgan (+5.94% since releasing earnings), Citi (+1.44% since), Wells Fargo (+3.68%), and Morgan Stanley (-2.75%) all having reported the last few days. That comes as earnings season is moving into full flow, with today’s releases including Netflix, Goldman Sachs and Johnson & Johnson. We’ve had 38 S&P companies report so far, and while major financials have grabbed a lot of the headlines there have been a number of key corporate reporters including consumer staples Walgreens (+3.32% since their earnings), health care provider United Health Group (+2.38% since reporting), food and beverage retailer PepsiCo (+6.24% since reporting), and airline Delta (+6.61%). The breadth of reporters should expand with the major US banks largely now in the rear-view mirror. Back to the UK and there was an increasing sense of what was coming yesterday, with the first reversal happening two weeks ago as they U-turned on the abolition of the top 45% rate of income tax. Then on Friday we had a second reversal as PM Truss announced that corporation tax would go up after all, in line with the previous government’s plans. But yesterday saw Chancellor Hunt announce that almost everything else would be going as well, including the planned cut in the basic rate of income tax to 19% from April 2023, which will instead be kept at 20% indefinitely. It’s clear the UK are now desperately trying to claw back their market credibility, as not only have the government reversed course on most of the tax cuts, but they also said they’d revisit the scale of their energy support package as well. Previously, energy prices were set to be capped at £2,500 per year for the average household over the next two years. But the government are now saying that will only go up until April 2023, and after that they’d review what support would be given instead, and were aiming to “design a new approach that will cost the taxpayer significantly less than planned”. Furthermore, the government’s statement implied there was more to come in the fiscal statement on October 31, as it said that government departments “will be asked to find efficiencies within their existing budgets”, and that there’d be “further changes” on fiscal policy “to put the public finances on a sustainable footing”. UK assets surged on the back of the announcements, with sterling +1.66% higher versus the US dollar after having been as much as +2.38% up, just as yields on 10yr UK gilts tumbled by -35.7bps to 3.96%. In fact, apart from September 28 when the Bank of England began their intervention, that’s the largest daily decline in the 10yr gilt yield since the Conservatives won a surprise victory in the 1992 general election, so we are still experiencing unprecedented volatility. Meanwhile, sterling (+0.31%) is trading higher again this morning ($1.1393) on the FT story that QT is set to be delayed. Back to yesterday and the declines in real yields were even more pronounced than nominals, with the 10yr real yield down by -47.9bps on the day, which again is the largest daily move since the BoE intervention began. That said, even with the recent declines, the spread of UK 10yr yields over German bunds is still wider than it was prior to the mini-budget at +169bps, which points to the fact that investors are still charging a larger premium for holding gilts, even with the recent U-turns. Sovereign bonds rallied with Gilts in Europe, with yields on 10yr bunds (-7.7bps), OATs (-8.8bps) and BTPs (-13.3bps) all moving lower on the day. Those declines were seen across maturities, and came as we also had a further decline in both US and European natural gas futures that left both at their lowest levels since the summer. In Europe, they were down by a further -13.26% yesterday, which leaves them at a 4-month low of €123 per megawatt-hour, with mild weather supporting storage levels. Treasury yields initially rallied in lock step with European yields, reaching a rally of -11.1bps shortly after the New York open. Once Europe called it a day, however, yields steadily marched higher to close the day roughly unchanged (-0.6bps) and back above 4%. There wasn’t any specific catalyst of higher 10yr yields, other than perhaps US-based investors are more focused on the Fed and inflation outlook than on UK financial instability. The strength in US equities throughout the day probably also contributed to a stronger growth perception in the US, driving the +4.3bps steepening in 2s10s that we saw today. This morning in Asia, the UK is back influencing Treasuries as 10yr UST yields have gone from flattish to around -4.5bps lower after the FT BoE headlines. Asian stock markets are also higher with the Nikkei (+1.52%), the Hang Seng (+1.61%), Kospi (+0.99%) stronger still on the FT/BoE headlines. Elsewhere, Chinese shares are lagging with the Shanghai Composite (+0.17%) and the CSI (+0.08%) edging up after declining earlier. We were meant to get the Q3 GDP release and a slew of other economic data from China overnight, but we found out yesterday that it was being delayed. The unusual move comes as the ruling Communist Party is holding its twice-a-decade event i.e., 20th National Congress. So far, no date for a rescheduled release has been given. Minutes from the Reserve Bank of Australia’s (RBA) October meeting revealed that the central bank’s surprise decision to ease back to a 25bps hike instead of the 50bps hikes was “finely balanced” as the board members wanted to monitor the impact of its tightening on household spending in an uncertain environment. The minutes also highlighted that further rate hikes are likely required over the period ahead with the pace and timing to be determined by data. Elsewhere, New Zealand’s consumer prices rose +7.2% y/y in the third quarter, much higher than the market expected +6.6% increase, thus cementing the prospect of further aggressive hikes by the Reserve Bank of New Zealand (RBNZ). In spite of the positive market moves over the last 24 hours, there was further bad news on the DM data side, with the New York Fed’s Empire index showing a third consecutive monthly contraction at -9.1 (vs. -4.3 expected). The prices paid index also ticked up relative to last month, reaching 48.6. Meanwhile in Canada, data from the central bank showed that inflation expectations over 1 and 2 years ahead were continuing to rise, although 5-year ahead expectations moved lower. That came as their business outlook indicator in Q3 fell to 1.69, which is the biggest quarterly decline in that indicator since Q2 2020 as the pandemic’s impact was fully felt. To the day ahead now, and data releases from the US include industrial production and capacity utilisation for September, as well as the NAHB housing market index for October. Over in Europe, there’s also the German ZEW survey for October. Central bank speakers include the ECB’s Makhlouf and Schnabel, as well as the Fed’s Bostic and Kashkari. Finally, earnings releases include Goldman Sachs, Netflix, Johnson & Johnson, and Lockheed Martin. Tyler Durden Tue, 10/18/2022 - 08:00.....»»

Category: worldSource: nytOct 18th, 2022

O’Reilly & AutoZone Outperform The S&P: Is Either A Better Stock?

Auto parts retailer O’Reilly may be forming a constructive cup-with-high-handle pattern. Analysts expect the company to earn $31.82 per share this year, which would be an increase of 2%. Shares of rival AutoZone are up 5.4% since it reported fiscal fourth-quarter results in mid-September. The company topped earnings estimates and delivered stronger-than-ever same-store sales. Car […] Auto parts retailer O’Reilly may be forming a constructive cup-with-high-handle pattern. Analysts expect the company to earn $31.82 per share this year, which would be an increase of 2%. Shares of rival AutoZone are up 5.4% since it reported fiscal fourth-quarter results in mid-September. The company topped earnings estimates and delivered stronger-than-ever same-store sales. Car parts retailers O’Reilly Automotive (NASDAQ:ORLY) and AutoZone (NYSE:AZO) are both attempting to climb out of consolidations, as they outperform the broader market. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2022 hedge fund letters, conferences and more   Find A Qualified Financial Advisor Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now. O'Reilly Automotive O’Reilly has been correcting since mid-August when it retreated from a high of $750.88. On a weekly chart, it’s clear that its current consolidation is part of a larger cup-with-high-handle pattern. Historically, that pattern can be constructive, as the slight pullback after an interim high serves to shake out weak holders, or those who are snagging some profits. In a bull market, though not necessarily a bear, that price action can set up a fresh rally as buyers with conviction snap up shares. With a market cap of $46.18 billion, O’Reilly easily qualifies for S&P 500 membership. However, it only comprises 0.155% of index weighting. That means it will tend to follow the broader market, rather than having any influence on its price actions. MarketBeat earnings data for O’Reilly show the company missed bottom-line views in the past two quarters, and missed revenue expectations in the most recent quarter. Nonetheless, economic conditions have been favorable for O’Reilly, as well as AutoZone and smaller rivals. Inflation, and especially higher costs of both new and used vehicles, mean consumers keep cars longer, opting to repair problems rather than get a new vehicle. Indeed, the earnings data also show increases coinciding with the pandemic. Analysts expect the company to earn $31.82 per share this year, which would be an increase of 2%. O’Reilly operates more than 5,800 stores in 47, and through acquisition, now operates stores in Mexico using the Orma banner. When it reported its second quarter in late July, the company actually lowered its same-store sales guidance, citing inflationary pressures on its customers. Even so, the stock is up 5.5% since the report. Its sector, Consumer Discretionary, as tracked by the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA:XLY). That sector is also home to AutoZone, which has an 8.16% year-to-date gain, meaning it’s also outperforming. Analysts have a “moderate buy” rating on AutoZone, the same rating as O’Reilly. AutoZone AutoZone shares are up 5.4% since it reported fiscal fourth-quarter results in mid-September. The company topped earnings estimates and delivered stronger-than-ever same-store sales. Earnings data compiled by MarketBeat show that AutoZone outpaced both sales and earnings views in each of the past 10 quarters. That’s a better past track record than O’Reilly, and that can often bode well for future performance, but is there any indication that AutoZone can continue driving up with strong results? Wall Street sees earnings coming in at $123.98 per share for the full year, up 8%. For fiscal 2024, that’s expected to rise another 15%, to $142.45 per share. While the expectations and results and recent price performances of the two companies are roughly comparable, what sets them apart? According to MarketBeat data on institutional ownership, the big investors have put in about the same amount into O’Reilly and AutoZone in the past 12 months. Because both are S&P 500 index components, funds tracking that benchmark have to align their holdings with index weighting. In addition, stocks that are substantially the same when it comes to their business models and other core metrics can be interchangeable when it comes to actively managed funds. The two companies also have similar market capitalizations. While AutoZone is more reticent about offering guidance, you can extrapolate that its customers are facing the same challenges as O’Reilly’s, so O’Reilly’s guidance isn’t necessarily a warning sign. In the end, it may boil down to the chart pattern, and the timing of each stock’s breakout when the market returns to a rally, or at least when more buys present themselves. In addition, if you are looking for exposure to the auto parts retailing industry, you have other options, such as fellow S&P component Advance Auto Parts (NYSE:AAP). This stock has lagged O’Reilly and AutoZone in terms of profitability, but that may be changing as the company focuses on efficiency. In addition, Advance’s price performance lags industry peers, as it shows a year-to-date decline while the others are holding up well in a broad market downturn. While the old advice to “buy low, sell high” is certainly a truism, it’s often a better strategy to focus on stocks showing strength while others languish, at least in the near term. Should you invest $1,000 in Advance Auto Parts right now? Before you consider Advance Auto Parts, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Advance Auto Parts wasn't on the list. While Advance Auto Parts currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys. Article by Kate Stalter, MarketBeat.....»»

Category: blogSource: valuewalkOct 14th, 2022

The Dollar: Safe Haven Or Leaky Lifeboat?

The Dollar: Safe Haven Or Leaky Lifeboat? Authored by John Hathaway via, The "strong U.S. dollar" has been, of late, the most topical affliction for gold. Already sagging under the weight of hawkish Fed speak, receding financial liquidity, competition from crypto and disappointment from its failure to rise to new highs on the back of high inflation. The investment consensus appears to be one of highly convicted bearishness. Technical charts bear this out, with the metal breaking to a three-year low. The U.S. dollar lifeboat is no longer safe for occupancy. The U.S. dollar lifeboat is no longer safe for occupancy. The wait for gold to be rediscovered as a safe haven is nearing an end. The parabolic ascent of the U.S. dollar (USD) against all currencies and commodities, however, contains the seeds of its own demise. It is akin to the panicky overcrowding of a leaky lifeboat. The facade of USD strength foretells a comeuppance for all paper currencies: A steep devaluation relative to gold. As noted by economist Mohamed El-Erian, the "relentless appreciation of the dollar is terrible news for the global economy." (Fortune, 9/26/2022). It is the latest and maybe final refuge of safety certain to disappoint clingers on as much as the late lamented "ultrasafe” refuge, U.S. government debt securities which are down 12.47% year-to-date through October 3, 2022. What comes next? Could it be the rediscovery of gold, the one and only safe haven still relatively unscathed? The kiss of death for the strong USD may well have been delivered by the Bloomberg Businessweek cover below. Overcrowded consensus trades are often top-ticked by magazine covers, a long-standing media tradition in keeping with Business Week’s "Death of Equities" cover in 1979. Extreme Dollar Strength May Lead to Instability Dollar "strength" is a mirage. It is the reverse image of all other paper currencies' weaknesses. In our view, the dollar "wrecking ball" may well represent the last stand for paper currencies in general, all of which are the ever-increasing issuance of fiscal decay. Should the Federal Reserve (the "Fed") stick to its Kamikaze inflation-fighting mission, the interest rate on U.S. debt will accelerate from its current monthly upward creep of 8.7 basis points (Figure 1). When annualized, that rate of gain translates to a nearly $300 billion addition to the fiscal deficit. The latest 12-month interest bill of $716 billion is based on a minuscule average annual interest rate of 1.971%. The average maturity on the debt is 6.7 years. Factors that would accelerate this monthly creep to a gallop would be the continuation of Fed hawkishness plus sales by foreign holders of U.S. Treasuries to defend their national currencies. Figure 1. Interest Expense (12mo sum, not Fiscal YTD) vs. 1-Month Basis Point Change in Interest Rate Paid on Debt (2011-2022) Source: Meridian Macro Research LLC. Data as of 8/31/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. The days of the Fed purchasing 60-80% of annual government borrowing needs through balance sheet expansion have been decreed over. Quantitative tightening will add to supply already swollen by trillion+ dollar deficits. In addition, the Fed monetary MENSAs did not consider that foreign Central Banks would resort to selling their holdings of U.S. Treasuries to support their sinking currencies. To support the yen's decline, the Central Bank of Japan sold $21 billion of U.S. Treasuries, resulting in a 3% one-day decline (September 26, 2022) in long-dated U.S. Treasuries. If you add foreign holdings of $7.5 trillion in U.S. Treasuries to the normalization (via quantitative tightening) of the $8.8 trillion Fed balance sheet, this tallies $16.3 trillion. What slice of that supply overhang leaks into the market as governments rush to defend their own currencies battered by U.S. dollar strength remains to be seen. As Luke Gromen (Forest For the Trees, 9/30/2022) noted, rising interest rates against a backdrop of falling inflation would likely be based on an unfavorable market assessment of U.S. sovereign credit risk. How far will price discovery be allowed to operate in the face of a potentially massive mismatch between supply and demand? We reckon that market price discovery is on a very short leash, irrespective of the chorus of Fed Speak promising restrictive liquidity as far as the eye can see. Alarm Bells for the U.S. Dollar? Strong U.S. dollar alarm bells are beginning to ring far and wide: "The spillover effect of the Fed's interest rate hikes has triggered many deep-rooted problems in the global economic and financial system…The dominant global status of the dollar means many central banks are forced to raise interest rates following the Fed, even if economic activities in those countries are under pressure or their domestic inflation remains soft." – Sheng Songcheng, former director of the People's Bank of China's statistics and analysis department. (Bloomberg, 9/28/2022). Multiple warnings of Treasury market dysfunction are surfacing. According to Ralph Axel, Bank of America rates strategist (as quoted in Grant's, 9/16/2022): "Declining liquidity of the Treasury market arguably poses one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007." In our view, U.S. Treasury market fragility combined with a potentially historic mismatch between supply and demand is the perfect recipe for stifling price discovery. As noted by the Wall Street Journal (The First Central Bank Casualty, 9/29/2022), citing the Bank of England's rapid response to the rapid depreciation of the pound, "central bankers are easily spooked into rescue mode". The MOVE index (Figure 2), broadly reflects bond market stress, with recent readings the highest since the 2008 Global Financial Crisis. Figure 2. MOVE Index Chart (2002-2022) Source: Bloomberg. Data as of 9/30/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. While the Fed may have been resolved at one time to look askance at the damage to the U.S. equity and bond markets when it embarked on its anti-inflation crusade, we believe that it was ignorant, even clueless, as to the economic repercussions of rising interest rates and draining liquidity. We have long believed that the consequences of applying a tight money regimen are different this time. The difference between the days of Paul Volcker and today is the much greater level of leverage in the U.S. and the world economy. The financial system of 2022 was built on submarket interest rates. What was painful medicine in 1980 is poison to the financial system of 2022. Figure 3. Global Debt is Fast Approaching $300 Trillion (2014-2022) Source: IIF, BIS, IMF, National Sources. Data as of 9/14/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Figure 4. U.S. Debt to GDP (1980-2022) Source: Bloomberg. Data as of 9/30/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Hard Landing? We believe the effects of collapsing leverage are only beginning to surface. The Fed's laser focus on unemployment and CPI (consumer price index) inflation as the sole metrics to guide policy is in our opinion misplaced. Both are lagging indicators. By the time they are flashing green for the Fed to relent, long-lasting damage will have been inflicted. Waiting for unemployment to rise or the CPI to print 2% could take well into 2023. By then, the current recession that is underway will have steepened into an "L" shape, meaning an economic recovery delayed for years. Collateral damage includes more than the still overvalued equity market. Don't take it from us. As noted by Stanley Druckenmiller in a 9/28/2022 CNBC interview, the Fed engineered the: "Wildest raging asset bubble I've ever seen… We've had 30 trillion QE [quantitative easing] globally over the last ten years. When you have free money and you have bond buying for that period of time, it creates bad behavior….That 30 trillion has created all sorts of stuff that's probably under the hood." Druckenmiller sees a "hard landing" in 2023. In our view, a hard landing is not priced into the equity market where the consensus estimates of earnings at 225.10 for the S&P 500 Index seem far too optimistic. As those estimates come down, so will the equity market. Figure 5. Wilshire 5000 vs. GDP (2000-2020) Source: Bloomberg. Data as of 9/30/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Our view continues to be that exigent circumstances will cause the Fed to abort its anti-inflation mission. Timing is always and everywhere speculation, but realistically there are too many leaks in the dike (faltering Treasury market liquidity, widening credit spreads, chaotic FX markets) for the Fed's resolve to last much longer. Fed Vice Chair Brainard, in a nod to unruly markets, stated (WSJ, 9/30/2022) that the: "Fed was attentive to financial vulnerabilities that could be exacerbated by the advent of additional adverse shock but the drive to tame inflation could set a higher bar for the Fed to deviate from its plans to raise rates." Really? Will the Fed drive the world economy over a cliff just to save face? Highly dubious, in our opinion. Markets will celebrate a pivot, but the rally may not be long lasting. Most likely, inflation will survive an aborted Fed assault and public policy will revert to papering over mistakes as in 2008. If so, the outperformance of gold relative to financial assets may last for years. The historical precedent is from year-end 1968 (DJII 903.11) to year-end 1981 (DJII 932.95). During the same stretch, gold rose from $39.11 to $460/oz. Gold May Anticipate a Fed Pivot Gold and mining stocks may anticipate the coming pivot in advance of the headlines. Mining stock valuations on a relative and absolute basis are at rock bottom. The risk/reward is asymmetric to the upside. Figures 6-8 speak for themselves. The real investment challenge, all too familiar to the contrarian, is to muster the patience to wait. To paraphrase the words of stock trader Jesse Livermore, "get right and sit tight. It was never my thinking that made big money for me. It was always my sitting. Got that? My sitting tight". The U.S. dollar lifeboat is no longer safe for occupancy. The wait for gold to be rediscovered as a safe haven is nearing an end. Figure 6. Historical P/NAV: North American Coverage Long-Term Average Source: Company reports; FactSet; Scotiabank GBM estimates. Data as of 10/03/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Figure 7. Miners' Dividend Yields are >70% than the S&P 500 Source: Bloomberg. Data as of 9/30/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Figure 8. Precious Metal Equities Valuations at a Trough (GDM Index – EV to Best EBITDA) Source: Bloomberg. Data as of 7/27/2022. Included for illustrative purposes only. Past performance is no guarantee of future results. Tyler Durden Thu, 10/13/2022 - 13:07.....»»

Category: smallbizSource: nytOct 13th, 2022

Low Volatility ETFs to Play Market Volatility

Low-volatility ETFs are in vogue as stock market volatility and uncertainty are not showing any signs of a slowdown. Low-volatility ETFs are in vogue as stock market volatility and uncertainty are not showing any signs of a slowdown. Persistently high inflation and an economic downturn caused by an aggressive Fed rate hike are weighing heavily on the stocks. Notably, all three major indices are in a bear market.Against such a backdrop, investors seeking to remain invested in the equity world could consider low-volatility ETFs. These funds — iShares MSCI USA Min Vol Factor ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV, SPDR SSGA US Large Cap Low Volatility Index ETF LGLV, SPDR Russell 1000 Low Volatility Focus ETF ONEV and Fidelity Low Volatility Factor ETF FDLO — could be solid options for investors in the current choppy market.Low-volatility ETFs have the potential to outpace the broader market in bearish market conditions or in an uncertain environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets (read: Why Low Volatility ETFs are Beating the Market).Market TrendsThe Dow Jones Industrial Average is down 19.5%, while the S&P 500 has declined 24.7%. The tech-heavy Nasdaq Composite has underperformed, tumbling 33.4%. The rapid tightening of policy to combat inflation has sparked worries of a recession, leading to a sell-off in the stock markets.The Federal Reserve raised interest rates by 75 bps for the fourth consecutive time, which pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The central bank also signaled additional large rate hikes. Per Reuters, money markets are giving it a 92% chance that the Fed will hike its benchmark rate another 0.75 percentage points when it meets in November.An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans, which will likely cut consumer spending, hurting economic growth (read: Guide to Interest Rates Hike and ETFs).The world's largest economy added 263,000 jobs in September, while the unemployment rate fell to 3.5% from 3.7% in August. The job growth marks a gradual slowdown from the August 315,000 gain and the lowest monthly increase since April 2021. Additionally, manufacturing activity grew at its slowest pace in almost two and a half years last month, according to the Institute for Supply Management.Further, the latest round of selling in chip stocks in the wake of weak demand and U.S. controls on China sales added to the chaos. This pushed the Nasdaq and S&P 500 to fresh bear market lows on Oct 11.ETFs Set to ShineiShares MSCI USA Min Vol Factor ETF (USMV)iShares MSCI USA Min Vol Factor ETF offers exposure to the stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. It holds 172 stocks in its basket, with none accounting for more than 1.8% of the assets. Information technology takes the top spot at 21.9%, while healthcare, consumer staples and industrials round off the next three spots.With AUM of $28.1 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 3.5 million shares. USMV has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.Invesco S&P 500 Low Volatility ETF (SPLV)Invesco S&P 500 Low Volatility ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 103 securities in its basket. Invesco S&P 500 Low Volatility ETF is widely spread across sectors, with utilities, consumer staples, healthcare and financials receiving double-digit exposure each (read: 5 Winning ETF Strategies for Q4).Invesco S&P 500 Low Volatility ETF has amassed $9.8 billion in its asset base and trades in a solid volume of around 3.3 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV)SPDR SSGA US Large Cap Low Volatility Index ETF follows the SSGA US Large Cap Low Volatility Index, which utilizes a rules-based process that seeks to increase exposure to stocks that exhibit low volatility. It holds 146 stocks in its basket, with key holdings in industrials, financials, information technology, consumer discretionary and utilities.With AUM of $563.7 million, SPDR SSGA US Large Cap Low Volatility Index ETF charges 12 bps in annual fees and trades in an average daily volume of about 21,000 shares.SPDR Russell 1000 Low Volatility Focus ETF (ONEV)SPDR Russell 1000 Low Volatility Focus ETF tracks the Russell 1000 Low Volatility Focused Factor Index and focuses on stocks that exhibit low volatility and offer downside protection. It holds 470 securities in its basket with AUM of $554.7 million and an expense ratio of 0.20%. Industrials, consumer discretionary, financials and technology are the top four sectors with double-digit exposure each.SPDR Russell 1000 Low Volatility Focus ETF trades in an average daily volume of about 12,000 shares and has a Zacks ETF Rank #3.Fidelity Low Volatility Factor ETF (FDLO)Fidelity Low Volatility Factor ETF offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. It holds 129 stocks in its basket. Fidelity Low Volatility Factor ETF has garnered $408.8 million in AUM and trades in an average daily volume of 57,000 shares. FDLO charges 29 bps in annual fees from investors.Bottom LineThese products could be worthwhile for low-risk-tolerance investors and have the potential to outperform the broad market, especially if recession fears continue to dent sentiments. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports SPDR Russell 1000 Low Volatility Focus ETF (ONEV): ETF Research Reports Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports Fidelity Low Volatility Factor ETF (FDLO): ETF Research Reports SPDR SSgA US Large Cap Low Volatility Index ETF (LGLV): ETF Research Reports To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 12th, 2022

Emerging Market Energy Company Flashes Strong Buy Signal

Many emerging markets have finally started to display relative strength versus U.S. equities. “Those who do not study the past will repeat its errors. Those who study it will find other ways to err.” – Bob FarrellGiven the current volatility in U.S. markets, individual stocks can decline more than 10% on any given day. In this choppy, downward-trending environment, profiting from the long side on domestic stocks is very difficult. In contrast to the severe bear markets experienced by the major U.S. indexes, emerging markets have presented opportunities that are performing much better as we head deeper into the final quarter of the year.After over a decade of underperforming, many emerging markets have finally started to display relative strength versus U.S. equities. A historic bull run that culminated in the COVID-19 melt-up (exacerbated by overly accommodative fiscal and monetary policies) left domestic stocks unwanted and overvalued. And while 2022 hasn’t been kind to most U.S.-based companies, it’s a completely different story when it comes to emerging markets.Many emerging markets were undervalued prior to the beginning of this year. As such, they’ve weathered the global slowdown relatively well, and their stocks haven’t been hit nearly as hard. In fact, in some cases, individual stocks in these markets have flourished.The iShares MSCI Brazil ETF EWZ is an example of an emerging market ETF that has outperformed this year. EWZ seeks to track the investment results of an index composed of Brazilian equities. The iShares MSCI Brazil ETF has risen nearly 20% this year, all while the major U.S. markets continue to hover in a deep bear market. EWZ contains a diverse set of companies spanning many different sectors.We’re going to explore one company within the EWZ ETF that is standing out above the rest. This company represents over 7% of the total EWZ holdings. It’s also part of the Zacks Oil and Gas – Integrated – Emerging Markets industry group, which currently ranks in the top 36% out of more than 250 industry groups. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months.Digging a bit deeper, the industry has returned north of 46% this year versus a more than 23% loss for the general market:Image Source: Zacks Investment ResearchIn addition, the group is displaying favorable characteristics as we can see below:Image Source: Zacks Investment ResearchLet’s take a closer look at one individual stock within this group that is flashing signs of outperformance.Petróleo Brasileiro S.A. Petrobras (PBR)Petróleo Brasileiro explores for, produces, and sells oil and gas globally. PBR is engaged in the prospecting, drilling, refining, processing and transporting of crude oil and natural gas. One of Brazil’s energy giants, PBR was incorporated in 1953 and is based in Rio de Janeiro, Brazil.PBR has exceeded earnings estimates in each of the past two quarters. The oil and gas company most recently posted Q2 EPS back in July of $1.39/share, a 21.93% surprise over the $1.14/share consensus estimate. Furthermore, the company pays an enviable $3.60 (25.3%) dividend and has a market capitalization of nearly $93 billion.The stock has performed admirably this year, with PBR shares advancing more than 83%. The upward-trending pattern is showing no signs of a reversal at this point, and it’s likely that higher highs are in store.Image Source: StockChartsAnalysts are expecting full-year EPS estimates to rise 128.15% this year to $5.43/share. Revenues are projected to increase 45.73% to $122.37 billion. PBR stock boasts a highest possible ‘A’ rating in each of our Zacks Growth, Value, and Momentum Style Score categories. It’s not difficult to see why this stock is a compelling investment, particularly in this difficult market environment. Free Report Reveals How You Could Profit from the Growing Electric Vehicle Industry Globally, electric car sales continue their remarkable growth even after breaking records in 2021. High gas prices have fueled his demand, but so has evolving EV comfort, features and technology. So, the fervor for EVs will be around long after gas prices normalize. Not only are manufacturers seeing record-high profits, but producers of EV-related technology are raking in the dough as well. Do you know how to cash in?  If not, we have the perfect report for you – and it’s FREE! Today, don't miss your chance to download Zacks' top 5 stocks for the electric vehicle revolution at no cost and with no obligation.>>Send me my free report on the top 5 EV stocksWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Petroleo Brasileiro S.A. Petrobras (PBR): Free Stock Analysis Report iShares MSCI Brazil ETF (EWZ): ETF Research Reports To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 11th, 2022

5 Top-Ranked ETFs With Lower P/E Ratio

We have highlighted five ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market. Wall Street wrapped up its worst first nine months of a calendar year since 2002 as persistently high inflation and an economic downturn caused by an aggressive Fed rate hike continued to weigh on investor sentiment. This has made stocks cheaper, compelling investors to buy the dip (read: 5 Solid ETFs Under $20 for Your Portfolio).Using our database, first we selected ETFs with a Zacks Rank #1 (Strong Buy) or 2 (Buy). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a rising market. Then, we narrowed down the list to funds having a lower P/E ratio than 21.7 for the broad market fund SPY.We have highlighted five ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market. These are Invesco S&P SmallCap Energy ETF PSCE, U.S. Global Jets ETF JETS, First Trust Financials AlphaDEX Fund FXO, Invesco DWA Healthcare Momentum ETF PTH and Invesco S&P MidCap Value with Momentum ETF XMVM.All three major indices are in a bear market. The Dow Jones Industrial Average is down 21% while the S&P 500 is off 25%. The tech-heavy Nasdaq Composite has underperformed, tumbling 32%. The Federal Reserve has been on an aggressive tightening policy to fight skyrocketing inflation, which is near its highest levels since the early 1980s. In its fight, Fed Chair Jerome Powell raised interest rates by 75 bps for the fourth consecutive time that pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The rapid tightening has sparked worries of a recession, leading to a sell-off in the stock markets.An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending, thereby hurting economic growth (read: 4 ETFs to Play the Key Events in Q4).However, Wall Street started the week on a high note, with the S&P 500 staging its biggest two-day rally since 2020. The rally seems to come from the speculation that inflation might ease and interest rates have peaked. A slowing labor market suggests that inflation could fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively.ETFs to BuyInvesco S&P SmallCap Energy ETF (PSCE) – P/E Ratio: 3.72Invesco S&P SmallCap Energy ETF offers exposure to the companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 28 stocks in its basket (read: Oil ETFs Up on Steep OPEC+ Output Cuts).Invesco S&P SmallCap Energy ETF has accumulated $120.3 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 173,000 shares and has a Zacks ETF Rank #2.U.S. Global Jets ETF (JETS) – P/E Ratio: 4.32U.S. Global Jets ETF provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. The product holds 49 securities and charges 60 bps in annual fees.U.S. Global Jets ETF has gathered $2 billion in its asset base while seeing a heavy trading volume of nearly 7 million shares a day. JETS has a Zacks ETF Rank #2 (read: Time for Top-Ranked Airlines ETF?).First Trust Financials AlphaDEX Fund (FXO) – P/E Ratio: 8.01First Trust Financials AlphaDEX Fund targets the broad financials sector and follows the StrataQuant Financials Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. Holding 100 stocks in its basket, the ETF has amassed $1.1 billion and charges 61 bps in annual fees.First Trust Financials AlphaDEX Fund trades in an average daily volume of 111,000 shares and has a Zacks ETF Rank #2.Invesco DWA Healthcare Momentum ETF (PTH) – P/E Ratio: 8.86Invesco DWA Healthcare Momentum ETF follows the Dorsey Wright Healthcare Technical Leaders Index and holds a basket of 54 U.S. companies. It has AUM of $237.4 million and charges 60 bps in annual fees. Biotechnology takes the largest share at 40.2% while healthcare providers and services, and pharmaceuticals round off the next two with double-digit exposure each.Invesco DWA Healthcare Momentum ETF trades in a light average daily volume of 7,000 shares and has a Zacks ETF Rank #2.Invesco S&P MidCap Value with Momentum ETF (XMVM) – P/E Ratio: 10.77Invesco S&P MidCap Value with Momentum ETF follows the S&P MidCap 400 High Momentum Value Index, which is composed of securities in the S&P MidCap 400 Index having both the highest value scores and momentum scores. It holds 81 stocks in its basket with key holdings in financials, materials, consumer discretionary, and industrials.Invesco S&P MidCap Value with Momentum ETF has accumulated $180.5 million in its asset base while trading in a volume of 15,000 shares per day, on average. The fund charges 39 bps in annual fees and has a Zacks ETF Rank #2. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report SPDR S&P 500 ETF (SPY): ETF Research Reports Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports U.S. Global Jets ETF (JETS): ETF Research Reports Invesco DWA Healthcare Momentum ETF (PTH): ETF Research Reports First Trust Financials AlphaDEX ETF (FXO): ETF Research Reports Invesco S&P MidCap Value with Momentum ETF (XMVM): ETF Research Reports To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 8th, 2022

"The Crisis Is Upon Us" - Macleod Warns "We Have Never Seen Anything Like This"

'The Crisis Is Upon Us' - Macleod Warns 'We Have Never Seen Anything Like This' Authored by Aladair Macleod via, Gold has never been more attractive... In our lifetimes, we have not seen anything like the developing economic and financial crisis. Rising interest rates are way, way behind reflecting where they should be. Interest rates have yet to discount the continuing loss of purchasing power in all major currencies. The theory of time preference suggests that central bank interest rates should be multiples higher, to compensate for the current loss of currency purchasing power, enhanced counterparty risk, and a rapidly deteriorating economic and monetary outlook. There is no doubt that the majority of investors are not even aware of the true scale of danger that interest rates pose to their financial assets. Some wealthier, more prescient investors are only in the early stages of beginning to worry. But if you liquidate your portfolio, you end up with depreciating cash paying insufficient interest. What can you do to escape the fiat currency trap? This article argues that having everything in fiat currencies is the problem. The solution is a flight into real money, that is only physical gold — the rest is rapidly depreciating fiat credit. Owning real money is the only way to escape the calamity that is engulfing our current economic, financial, and fiat currency world.  Avoiding risk to one’s capital From conversations with family and friends, one detects an uneasy awareness of increasing risk to investments. There are two broad camps. The first and the majority are only aware that interest rates are rising, and their stocks and shares are falling in value but fail to make the connection fully. The second camp is beginning to worry that there’s something very seriously wrong. Investors in the first camp have usually delegated investment decisions to financial advisers, and through them to portfolio managers of mutual funds. They have taken comfort in leaving investment decisions to the experts, and besides the odd hiccup, have been rewarded with reasonably consistent gains, certainly since the early noughties, and in many cases before. They trust their advisers. Meanwhile, their advisers are rewarded by the volume of assets under their management or by fees. Both methods of reward ensure that the vast majority of professional managers and advisers are perennially bullish, further justified by that long-term bullish trend.  This leaves the majority of investors being led into believing that falling financial asset values represent a buying opportunity. After all, their experience for some time has been that it is wrong to sell when markets fall, because they have always recovered and gone higher. And this is the approach promoted by the majority of professional financial service providers because they are always bullish. The other far smaller camp is comprised of those who think more for themselves. They are beginning to make a connection between rising interest rates and falling markets but are badly underestimating the extent to which interest rates should rise.  This camp knows that the sensible thing to do when interest rates rise materially is to sell financial assets. They know that investing in physical property, tangible assets, is equally dangerous because at the margin prices are set by mortgage interest rates which are now rising. But they equally find that just sitting on cash is an unattractive proposition, with consumer prices rising and chipping away at its purchasing power. So, what is to be done? Just leaving it in the bank pays derisory interest. And besides, the proceeds of liquidated portfolios usually exceed government deposit guarantees, which means taking onboard the risk that banks might fail. There are things that can be done, such as investing in short term government bonds as a temporary solution, and perhaps buying some inflation-linked government bonds (TIPS). Other than investing in TIPS, the loss of purchasing power problem remains unresolved. And increasingly, these savvy investors are now waking up to currency risk, particularly if they are British, European, or Japanese. The cost of investment safety in nearly all currencies is rising relative to the dollar. I tell these people that the problem is simple: they have all their eggs in a fiat currency basket. The black and white solution is to get out of fiat by selling financial assets and the fiat cash raised by hoarding real money, that is physical gold in bar and coin form. The argument usually falls on deaf ears, because people only understood the monetary role of gold before the Second World War. That generation has mainly passed away. Why gold is so important has to be explained all over again to a sceptical audience. We then meet two further barriers raised by the sceptics: gold yields nothing, when investors have been used to receiving dividends and interest. And if gold is the answer, why is it performing so badly? These questions will be addressed. But all is at stake. Driven by interest rates rising even more and as the bear market continues, investors relying on investment managers and financial advisers will lose nearly everything.  A seventies redux Global economic conditions today are strikingly similar to UK financial markets in late-1972 and early 1973. Previously, in the autumn of 1970 the new Chancellor of the Exchequer, Tony Barber, had come under pressure from Prime Minister Edward Heath to stimulate Britain’s economy by running an inflationary budget deficit, combined with a deliberate suppression of interest rates from 7% to 5%. Heath was a Keynesian disciple. And in those days, the Bank of England was under the direct command of Heath’s government, its so-called independence only arriving far later.  The rate of price inflation rose slightly from 6.4% in 1970 to 7.1% in 1972. The inflationary consequences of the Barber boom and the reduction of interest rates to negative real values were beginning to bite. Meanwhile, investors had enjoyed an equity bull market. Consumer price inflation then began to rise in earnest. In 1973 it was 9.1%, in 1974 16%, and in 1975 a staggering 24.2%. All this is being replicated today — we are probably where Britain was in late-1972. While the dramatic increases in the rate of price inflation were unforeseen in 1972, being far greater today the stimulus of budget deficits and suppressed interest rates is having a more rapid effect. The gap between official interest rates and the rate of price inflation is magnitudes greater, with the Bank of England’s base rate at 1.75% and consumer prices rising at 8.6%. Even the Bank expects significantly higher CPI rates, with independent estimates forecasting yet higher CPI rates in the new year. Similar stories are to be found worldwide. The comparison with the UK in the early 1970s suggests the inflationary and interest rate consequences today are likely to be even more dramatic for financial assets and for the currencies themselves. In May 1972, the FT30 Index (the headline measure of share prices at that time) peaked at 534, and a year later had already declined significantly, as interest rates began to rise. In late-October 1973 the bubble in commercial office property began to implode. The proximate cause was the rise in short-term interest rates from 7.5% in June 1973 to 11.5% in July, and 13% in November. Consequently, banks which were lending to commercial property speculators collapsed in the notorious secondary banking crisis. And the FT30 Index continued to decline until early-January 1975, losing 74% from the May-1972 peak. Similarly, this is beginning to play out today. What’s happening now differs in some key respects from the UK in the early seventies. From negative and zero starting points, interest rates have much more substantial increases in prospect. The gap between bond yields and consumer price inflation is now far larger in the US, EU, and UK than anything seen in the early seventies. It suggests the consequences of rising interest rates today are likely to be far more financially violent than that experienced in the UK between May 1972 and January 1975. We will be lucky if equity markets lose only 74% this time. But overall, the lesson is clear: sharply rising interest rates are lethal for investors. We now turn to gold. Bretton Woods having been suspended in August 1971, the price of gold in sterling rose from £17.885 per ounce at that time when sterling interest rates were 6%, to over £40 when interest rates were raised to 13% in November 1974. The lesson learned is that the best hedge out of an inflation-driven collapse of conventional investments is gold. The common belief that rising interest rates are bad for gold because it has no yield is disproved. Furthermore, the evolution of investment services since the 1970s is worth noting. In those days, a good stockbroker was skilled at steering his clients through the dangers to their wealth from market uncertainties. Admittedly, his clients were never the pre-packaged masses, but were typically individuals with personal wealth whom he personally knew. Today, passive investors are little more than cannon fodder for a system that absolves itself of any responsibility for outcomes. They are a majority that always get wiped out by delegating all decision making to the so-called experts.  Only those who think for themselves have come to understand that there is something seriously wrong. Investment risks are escalating, and investors must take proactive steps to protect their capital. Unlike their contemporaries in the 1970s who were not so intellectually corrupted by Keynesianism, they have less knowledge of gold, and why it performed so well as an asset in that decade. They need to have a crash course in understanding money and credit, and the distinction between the two. Gold is money — everything else is credit So said John Pierpont Morgan in his testimony before Congress in 1912. He was not expressing an opinion, but stating a legal fact, a legal fact which is still true to this day. Despite all attempts by the authorities to persuade us otherwise, despite periods of bans on ownership and Roosevelt’s outrageous confiscations of gold bullion and coin from the people he was elected to represent, the legal position of gold being money and the rest only credit remains the case. It is why central banks accumulate and retain large reserve balances in gold, and why they refuse to part with them. It is why in official circles the topic is taboo. Ever since the end of barter many millennia ago, transacting people have used media whose primary function was to allow an exchange of goods. Over time, many forms of money were tried and discarded, leaving metals, particularly copper, silver, and gold universally regarded as most durable and capable of being rendered into recognisable coins of a standard weight. Our coins today reflect this heritage. While not containing the original metals, they often reflect the metals’ colours: the highest value looking like gold, intermediate silver, and the lowest copper.  A few thousand years passed before the Roman jurors ruled on monetary matters. Roman jurists were independent from the state. And despite many attempts by emperors and their henchmen to overturn their rulings, their rulings were robust and survived. Jurisprudence, or the science of law, became an independent profession in the third century B.C. Five centuries later, in the second century A.D., the classical era began. From then onward, the legal solutions offered by independent jurors received such great prestige that the force of law was attached to them.  Of particular interest to our subject were the rulings of Ulpian, who defined the status of moneyin the context of banking. On “depositing and withdrawing”, Ulpian starts with a definition: A deposit is something given another for safekeeping. It is so called because a good is posited [or placed]. The preposition de intensifies the meaning, which reflects that all obligations corresponding to the custody of the good belong to that person.[i] He then makes a distinction between a regular deposit; that is a specific item to be retained in custody, and an irregular deposit of a fungible good, stating that: …if a person deposits a certain amount of loose money, which he counts and does not hand over sealed or enclosed in something, then the only duty of the person receiving it is to return the same amount.[ii] Ulpian’s rulings in the early third century still define money and banking today. They were consolidated in The Digest, one of four books in the Corpus Codex Civilis established by order of the Emperor Justinian in about 530AD. Roman law became the basis of all significant European legal systems, and through Justinian, Ulpian’s rulings continue to apply.  In Britain’s case, Rome had left long before Justinian’s emperorship, so Roman rulings were not an explicit part of common law. However, when common law and the Court of Chancery merged in 1873 the distinction between custody deposits and mutuum contracts (when fungible goods such as money coins are transferred to another’s possession under a commitment to return a similar quantity) became unquestionably recognised, fully validating what had been common banking practice since the seventeenth century. Of the three forms of metallic money, gold became the standard in Britain in 1817, and all significant currencies which had not done so before became exchangeable for gold in preference to silver in the 1870s. It is therefore correct to say that today, gold is the only form of true money in our monetary system, while silver’s monetary role is merely dormant. The rest is credit. Bank notes issued by central banks, are the primary form of credit. No longer exchangeable for gold coin, they are simply issued out of thin air. In addition to the government’s general account with its central bank, in modern times they have started issuing other forms of credit, all of which are provided through commercial banks and reflected in commercial bank credit, such as payment for securities bought from investing institutions which do not have accounts at the central banks. This is the payment mechanism for quantitative easing. Commercial bank credit makes up all the circulating media which are not banknotes, typically representing over 95% of commercial transaction settlements. Bank credit can be expanded at will. The chart below shows how the sum of bank notes and commercial bank credit in US dollars measured by M3 has increased since 1970.  Colloquially, this is monetary inflation. More correctly, it is credit inflation because true money, that is gold, is almost never used in transactions. Since the suspension of Bretton Woods in 1971, the amount of M3 credit has increased by 33 times. At the same time, the price of gold has increased by 38 times from $42.22 per ounce, the rate at which it was fixed to the dollar before Bretton Woods was suspended. In other words, real money, which is gold in metal form, has fully compensated for the devaluation of the dollar due to the increase in dollar credit since 1971, though the credit expansion since Roosevelt devalued the dollar against gold is supplemental to these figures. There is more on this later in this article. If you bought gold when Nixon suspended the Bretton Woods agreement, you would have preserved the purchasing power of your money compared with owning bank notes or possessing instant withdrawal bank deposits. There were ups and downs in the relationship between gold and paper currency, but to make it clear, gold coin or bullion can only be compared with cash and non-yielding bank deposits. It cannot be compared with a yielding asset. Gold is not an investment. But owning bonds, equities, or residential property is most definitely investing for a return. Normally, it makes sense to spend and invest instead of holding onto cash, whether that cash be true money or bank credit. After all, the reason to maintain money and paper credit balances is to enable the buying and selling of goods and services, with any surplus being put to use by investing it. But it must be understood that in these times of rapidly depreciating currency, an investment must also overcome the hurdle of currency depreciation. When stocks are soaring and they pay dividends, the hurdle can be overcome. However, we must introduce a note of caution: when stocks are soaring, it is generally on the back of bank credit expansion which leads to a temporary fall in interest rates, a situation which is reversed in time. The next chart puts residential property prices in context. Priced in sterling, London property prices have soared 114 times since 1968. In true money, which is gold, they have only risen 29%. But the average property buyer buys a house with a mortgage, putting down a partial payment, while paying off the mortgage over time, typically twenty or thirty years. His capital value will have multiplied considerably more than the 114 times reflected in the index, against which mortgage payments including interest will have to be offset to properly evaluate the investment. Furthermore, the utility of the accommodation afforded is not allowed for but is an additional benefit of property ownership. Taking currency prices, mortgage finance, and yield benefits into account, investment in a home in London has proved to be a better use of capital than hoarding gold, but not by as much as you would think. As remarked earlier in this article, at the margin property values depend on the cost of mortgage finance, which is tied to interest rates. So, what is the outlook for interest rates? Understanding interest rates There is a widespread assumption that interest rates represent the cost of borrowing money. In the narrow sense that it is a cost paid by a borrower, this is true. Monetary policy planners enquire no further. Central bankers then posit that if you reduce the cost of borrowing, that is to say the interest rate, demand for credit increases, and the deployment of that credit in the economy naturally leads to an increase in GDP. Every central planner wishes for consistent growth in GDP, and they seek to achieve it by lowering the cost of borrowing money. The origin of this approach is strictly mathematical. First published in 1871, William Stanley Jevons in his The Theory of Political Economy was one of the three original proposers of the price theory of marginal utility and became convinced that mathematics was the key to linking the diverse elements of political science into a unified subject. It was therefore natural for him to treat interest rates as the symptom of supply and demand for money when it passes from one hand to another with the promise of future repayment. Another of the discoverers of the theory of marginal utility was the Austrian Carl Menger, who explained that prices of goods were subjective in the minds of those involved in an exchange. With respect to interest, Menger was the probably the first to argue that as a rule people place a higher value on the possession of goods, compared with possession of them at a later date. Being the medium of exchange, this becomes a feature of money itself, whose possession is also valued more than its possession at a future date. The discounted value of later ownership is reflected in interest rates and is referred to by Mengers’ followers as time preference. He argued that the level of time preference was fundamentally a human choice and therefore could not be predicted mathematically. This undermines the assumption that interest is simply the cost of money because human preferences drive its evaluation. Eugen von Böhm-Bawerk, who followed in Menger’s footsteps saw it from a more capitalistic point of view, that a saver’s money, which was otherwise lifeless, was able to earn the saver a supply of goods through interest earned from it.[iii] Böhm-Bawerk confirmed that interest produced an income for the capitalist and to an entrepreneur was a cost of borrowing. But he agreed with Menger that the discounted value of time preference was a matter for the saver. Therefore, savers are driven mainly by time-preference, while borrowers mainly by cost. In free markets, this was why borrowers had to bid up interest rates to attract savers into lending instead of consuming. In those days, it was unquestionably understood that money was only gold, and credible currencies and credit were gold substitutes. That is to say, they circulated backed by gold and were freely exchangeable for it. Gold and its credit substitutes were the agency by which producers turned the fruits of their labour into the goods and services they needed and desired. The role of money and credit was purely temporary. Temporal men valued gold as a good with the special function of being money. And as a good, its actual possession was worth more than just a claim on it in the future. But do they ascribe the same time preference to a fiat currency? To find out we must explore the nature of time preference further as a concept under a gold standard and also in an unanchored currency environment, in order to fully understand the future course of interest rates. Time-preference in classical economics Time-preference can be simply defined as the desire to own goods at an earlier date rather than later. Therefore, the future value of possessing a good must stand at a discount compared with actual possession, and the further into the future actual ownership is expected to materialise, the greater the discount. But instead of pricing time preference as if it were a zero-coupon bond, we turn it into an annualised interest equivalent.  Obviously, time preference applies primarily to lenders financing production, which requires the passage of time between commencement and output. Borrowed money must cover partly or in whole the acquisition of raw materials, and all the costs required to make a finished article, and the time taken to deliver it to an end-user for profit.  The easiest way to isolate time-preference is to assume an entrepreneur has to borrow some or all of the financial resources necessary. We now have to consider the position of the lender, who is asked to join in with the sacrifice of his current consumption in favour of its future return. The lender’s motivation is that he has a surplus of money to his immediate needs and instead of just sitting on it, is prepared to deploy it profitably. His reward for doing so is that by providing his savings to a businessman, his return must exceed his personal time-preference.  The medium for matching investment and savings is obviously credit. The financing of production above all else is what credit facilitates. We take this obvious function so much for granted and that interest is seen to be a cost of production that we forget that interest rates are actually set by time-preference.  Intermediation by banks and other financial institutions further conceal from us the link between interest and time-preference, often fuelled by the saver’s false assumption he is not parting with his money by depositing it in a bank.  When a saver saves and an entrepreneur invests, the transaction always involves a lender’s savings being turned into the production of goods and services with the element of time. For the lender, the time preference value for which interest compensates him must always exceed the loss of possession of his capital for a stated period. But with credit anchored to sound money, the level of interest compensation demanded by savers for time preference is strictly limited. The case for fiat currencies is radically different. Time preference and fiat money So far, we have considered time preference measured in a currency which is credibly tied to money, legally gold. Under a fiat currency regime, the situation is substantially different because of fiat currency’s instability. The ubiquity of unbacked state currencies certainly introduces uncertainty over future price stability and the value of credit. Not only is the saver isolated from borrowers through the banking system and often has the misconception that his deposits are still his property (in which case time preference does not apply), but his savings are debased through persistent inflation of the currency. The interest he expects is treated as an inconvenient cost of production, to be minimised. Interest earned is taxed as if it were the profit from a capitalist trade, and not compensation for a temporary loss of possession of his property. It is not surprising that with the saver regarded as a pariah by Keynesian economists, little attention is paid to time preference. But if savers were to collectively realise the consequences of this injustice, they would demand far higher interest rate compensation for losing possession of their capital. They would seek redress for loss of possession, monetary depreciation, and counterparty risk, all to be added and grossed up for taxes imposed by the state. That will not happen until markets take pricing of everything out of government control. There is an old adage, that in the struggle between markets and the desires of governments markets always win in the end. It is essential to understand that if the driving forces behind time preference for savers are not satisfied, eventually they will dump their credit liquidity in favour of real money, which is only gold and possibly silver, and for goods that they may need in future. The seventy or so recorded hyperinflations of fiat currencies have demonstrated that when currency and credit lose their credibility, they lose all their purchasing power. As these circumstances unfold, the market response is to drive interest rates and bond yields substantially higher, because time preference is failing to be satisfied. If the authorities resist by suppressing interest rates, the currency simply collapses. And then there is no medium to value financial assets, other than by gold itself. The consequences of contracting bank credit So far, this article has only touched on the important role of bank credit in the economy. Bank credit finances virtually all the transactions that in aggregate make up GDP. Banks are now contracting their credit, being dangerously leveraged in the relationship between total assets and balance sheet equity at a time of failing economies.  The consequences for GDP are widely misunderstood. It is commonly assumed that an economic downturn is driven by higher interest rates and their impact on consumer demand. That is putting the cart before the horse. If banks withdraw credit from the economy, it is a mathematical certainty that nominal GDP falls. It is the withdrawal of credit that is responsible for downturns in GDP. It is the rest that follows. There can be little doubt that with balance sheet leverage averaging over twenty times in the Eurozone and Japan, and with some British banks not far behind, that the global contraction of bank credit will be severe. The effect on less leveraged banking systems, such as that of the US, will be profound due to the international character of modern banking and finance. World-wide, businesses are set to become rapidly insolvent due to credit starvation and bankruptcies will become the order of the day.  Central banks are facing an increasing dilemma, of which the investing public are becoming increasingly aware. Do they intervene with unlimited expansion of their credit to replace contracting commercial bank credit, or do they just stand back and let these distortions wash out? Effectively, it is a choice between undermining their currencies even more or allowing them to stabilise. They will almost certainly attempt to mitigate the effects of commercial bank credit being withdrawn. Attempts by central banks to control the expansion of their own balance sheets through quantitative tightening will be abandoned, and quantitative easing reintroduced instead. And just as the expansion of commercial bank credit reduces interest rates below where they would normally be, the withdrawal of commercial bank credit tends to increase interest rates, as borrowers struggle to find any available credit. There’s no point in central bankers turning to central bank digital currencies for salvation because there is too little time to introduce them. Since the 1980s, having moved progressively towards expanding credit for purely financial activities and taking on financial collateral against loans, the contraction of bank credit is bound to have a profound effect on financial markets as well. Collateral will be sold, market-making curtailed, and derivative positions reduced. Driven partly by Basel 3 regulatory requirements, banks will amend their activities to prioritise balance sheet liquidity. Corporate bond holdings will be sold in favour of short-term government treasury bills. Long-term government debt will be sold for shorter maturities.  There can be little doubt that banks contracting credit exposed to financial markets is far easier and quicker than withdrawing credit for GDP-qualifying transactions. And just as the expansion of commercial bank credit for purely financial activities since the 1980s has been substantial, its contraction will not be trivial. The effect on valuations is set to repeat the consequences of bank failures in the Wall Street crash of 1929-32, when the Dow lost 89% of its value. There is also a symbiotic effect between the contraction of bank credit in the GDP economy and financial markets, with the losses and bankruptcies of the former further depressing confidence in the latter. Unless central banks intervene, it amounts to a perfect storm. But their intervention only serves to destroy the purchasing power of their unbacked currencies, in which case interest rates will rise stratospherically anyway. Comments on gold’s recent underperformance The chart above presents gold as it should be presented, with unstable fiat currencies being priced in real money, which is gold. For technical analysts, the current bear market for these major currencies relative to gold started in mid-December 2015, and the four currencies in the chart have been indexed to that point. Since then, they have all declined, with sterling down 51.6%, the yen down 45.9%, the euro down 41.6%, and the dollar down 37%. It should be noted that at this stage of the global bear market, sterling, the euro, and yen are seen to be most vulnerable to interest rate rises. Their government bond yields have become marooned at lower levels than equivalent US Treasuries, seen in the fiat world as the riskless investment. The euro and yen face the consequences of interest rates suppressed by the ECB and BOJ respectively into negative territory. Sterling has long suffered from a credibility problem relative to the dollar, and gilts still yield less than US Treasuries. While the dollar is the least bad currency, nevertheless inflation of the dollar’s total bank credit over time has been dramatic. It was noted above that since 1971, US M3 credit and currency has multiplied 33 times, while the price of gold in dollars has multiplied 38 times. But M3 had already increased from $44.18bn in 1934, when the dollar was devalued from $20.67 an ounce to $35, to $605bn in August 1971 when Bretton Woods was suspended. Including the expansion of M3 from 1934 makes the increase to date 490 times. In other words, gold has yet to discount much of the dollar’s post-depression credit and currency expansion. In approximate terms we can conclude that the gold-dollar relationship has yet to fully adjust to the dollar’s long-term inflation. In price terms, that gives some comfort to gold bulls, but not too much should be read into the relationship. More importantly, there is nothing discounted in the dollar gold price for the likely future deterioration of the fiat dollar’s purchasing power. Therefore, we can conclude that as well as being real money and all the rest being credit, gold prices at the current level offer an unrecognised safe haven opportunity for investors unhappy to leave the proceeds of their liquidated portfolios in fiat cash. Summary and conclusion It is with great regret that we must admit that the majority of investors who delegate the management of their capital into the hands of professional fund managers and investment advisers are likely to suffer a destruction of wealth that could become almost total. The reason is that these advisers and managers are comprised of a generation which has not experienced how destructive the link between persistent price inflation, rising interest rates, and collapsing financial asset values can be. Furthermore, to fully understand the link and current factors driving interest rates higher is not in their commercial interests. What happened in the 1970s has been described as stagflation — a portmanteau word suggesting something not understood by mainstream economists today. Looking at their economic models and the assumptions behind them, for them a combination of a stagnant economy and soaring inflation is unexplained. The effect they ignore is that inflation is a transfer of wealth from the private sector to the state, and from savers to the commercial banks and their favoured borrowers. The more the expansion of currency and credit, the greater the transfer of wealth becomes, and the impoverishment of ordinary citizen results. We are not arguing necessarily that inflation, measured by consumer price indices, will continue into the indefinite future, though a case for that outcome is easily justified. What is being pointed out is that current interest rates and bond yields should be far, far higher. With CPI already increasing in excess of 8% annualised in the US, EU, and UK factors of time preference indicate that interest rates and bond yields should be multiples higher than they are currently. This article has explained the role of bank credit in the economy. Bank credit finances virtually all the transactions that in aggregate make up GDP and non-qualifying financial activities. Banks are now contracting their credit, being highly leveraged in the relationship between total assets and balance sheet equity. They find themselves exposed to cascading losses in an economic downturn, which risks wiping out their balance sheet equity entirely. Surely, central banks and their governments will do what they have always done in the past in these circumstances: inflate their currencies, if necessary towards worthlessness. The argument in favour of getting out of financial and currency risks into real money — that is gold — has rarely been more conclusive. Tyler Durden Sat, 10/01/2022 - 12:30.....»»

Category: blogSource: zerohedgeOct 1st, 2022