Currency

Investing Pros And Cons Of A Blue Washington

The SPDR S&P 500 ETF Trust rallied once again on Thursday, and investors are clearly feeling optimistic about the economy’s near-term outlook after Democrats successfully gained control of the Senate earlier this week.

While a Democratic “blue wave” in Washington is certainly bullish for the market in several key ways, Commonwealth Financial Network chief investment officer Brad McMillan said Wednesday there are both pros and cons to Democrats running the show.

Blue Wave Pros: The biggest near-term pro for investors is that Democrats now have a clear path to more aggressive stimulus measures, including the possibility of $2,000 stimulus checks. McMillan said the federal government would likely also provide much-needed help for state and municipal governments.

In the longer term, McMillan said investors can expect increased infrastructure spending and more constructive trade policy following four years of isolationist policies from the Trump administration.

Blue Wave Cons: While Democratic policies could serve as a major tailwind for many companies, the impact of the blue wave is not all positive. CLICK for complete article

The Fed is Juicing Stocks

We came across the following bullet points from a Seeking Alpha article titled- The Fed is not Juicing the Stock Market.

  • It makes for a great headline, but the Fed is not the cause of this rally.
  • Every dollar the Fed has pumped into the economy is spoken for, and it is not in equities.
  • The truth is a lot more boring and scary than the conspiracy theory.

After explaining how the Fed is not culpable for rising stock prices, the author ends the article with the following challenge: “So please, I invite anyone to explain to me, like I was a 5-year-old, what exactly is the mechanism that explains “the Fed is juicing the market,” when we know exactly where all the Fed’s money is, and we know that it isn’t in the market.”

We are always up for a challenge.

The following article describes four ways in which the Fed juices the stock market.

Draining the Asset Pool

The Fed conducts monetary policy by governing the Fed Funds Rate. To do this, they buy and sell Treasury securities via open market operations. When the Fed wants to lower rates, they buy Treasury debt. In doing so, they reduce the supply of investible debt, making remaining debt more expensive (lower yield). They most often buy or sell short term Treasury Bills to affect the short term Fed Funds rate. Open market operations also add or drain the banking system’s liquidity to help further hit their target.

More recently, with Fed Funds at zero percent, they have conducted QE or large-scale asset purchases. These operations help manipulate rates across the maturity curve and not just Fed Funds. QE, as with traditional open market operations, reduces supply, boosts prices, and lowers yields.

With knowledge of the Fed’s modus operandi, let’s go swimming…CLICK for complete article

NYSE Reverses China Company Delisting Plans … For Now

In a confusing move for everybody, the New York Stock Exchange (NYSE) has scrapped plans to delist three Chinese companies it announced just four days earlier.

Just last week, the NYSE had said it had determined that the three companies–China Mobile, China Telecom and China Unicom Hong Kong– were “no longer suitable for listing,” and cited President Trump executive order from last November when declared a national emergency due to a threat posed by China’s military-industrial complex.

According to the order, starting in November this year, U.S. investors are banned from buying shares of companies that Washington alleges are owned or controlled by the Chinese military.

Yet, after “further consultation with relevant regulatory authorities,” the exchange said in the statement late Monday it would no longer go ahead with plans to remove three companies from its index, scheduled for January 11th.

In a brief statement announcing its reversal, the exchange said that the companies would continue to be listed and traded on the NYSE “at this time.”

Even though no official reason was provided for the decision, some media reported that the exchange was influenced by the U.S. Treasury’s desire to reverse the ruling.

Such speculation roiled hardliners who have been targeting China…CLICK for complete article

But Tesla’s market capitalization is higher than the combined total of Toyota, Volkswagen, Daimler, GM, BMW, Honda, Ford, and Fiat-Chrysler. The zoo has gone nuts.

Tesla announced today that it finally almost reached 500,000 deliveries in a calendar year, with its 499,550 vehicles delivered globally in 2020, and that it finally hit its target of producing 500,000 vehicles a year – two years behind its promises. Back in May 2016, it had promised in its quarterly report that it would produce 500,000 vehicles in 2018.

But it didn’t happen in 2018, far from it, and it didn’t happen in 2019 either. It finally happened in 2020. That promise in May 2016, like so many of Tesla’s and CEO Elon Musk’s promises, had caused its shares to surge.

Every promise Tesla and Musk issue is worth many billions of dollars in the company’s market capitalization, which then allows the company to raise many more billions of dollars by selling more shares. In 2020 alone, it raised $12.3 billion through share sales, on top of the $20 billion or so it had raised since its IPO. CLICK for complete article

 

I’m starting the New Year wondering if the Malicious Market Gods have launched the planet on to a new more vomit-inducing loop of the rollercoaster?

It feels like we’ve become anaesthetised and insensitive to shock.. The bizarre has become normal and we simply shrug it things that would have seem impossibly improbable just a few years ago. We forget the lessons of the past – thus are doomed to repeat them. I can’t fathom some of the headlines: Bitcoin soared to $34500 on the third day of the new year, and proponents snake-oil salesmen sagely proclaiming it’s headed for $100k by year end. Donald Trump is still plotting to hold the White House, yet Republicans still support him. Brexit got done but didn’t. The ECB is going to focus on climate change. And markets look set to rise and rise and rise and rise….

Whoa.  Hand me a bottle of common sense….

The end of the old year and the beginning of the new is the traditional time to address fundamental questions about future returns, risk, value and the economic outlook.  Jan 1st is just another date, and these are concepts investors should be constantly questioning. Everyone is determined that 2021 will be a better year! Which the market takes to mean – going higher…

Boy Scout Time: Be Prepared…

As the narrative develops, the outlook changes. A new time frame leads to an increased danger of confirmation bias, misreading the lessons, and reinforcing false-positive highlights. Which is why I’m concerned the overly rosy market “past performance in 2020” is setting us up for a nasty rash of reality in the coming 12 months.

There you go.. in my very first paragraphs of the New Year I’m sounding bearish! I’m not. I’m merely reminding readers of the possibility that all that glitters is not necessarily gold.

I fully expect 2021 will see a sharp recovery and uptick in global economic activity. Successful vaccination programmes and repressed consumer demand will drive massive discretionary spending, but drive up retail debt to pay for it. Governments will keep their fingers on the fiscal boost button, and the money presses busy, to sustain economies through to the end of the pandemic and beyond. As money seeps into the real economy – which hasn’t happened despite years of QE – inflation is a distinct possibility.

There will be good news, and bad news to balance it. Consequences are inevitable. Reflating the global economy creates new risks that will need to be addressed; the years of too low interest rates, inflation, and mismatched risk returns.

Full Article

 

Why Apple Could Emerge As Tesla’s ‘First True Competitor’

Apple Inc’s ambitions in the transportation space mean the iPhone maker could emerge as Tesla Inc’s “first true competitor,” Loup Ventures analyst Gene Munster said Monday.

Regardless of the approach the Tim Cook-led company takes, it has transportation industry ambitions that could result in “meaningful revenue” and pitch the tech giant head-on with Tesla, wrote Munster.

A Marriage Of Titans: “Apple building a car is not news,” the analyst noted — mentioning the company’s self-driving car project, Project Titan, that started in 2014.

In that era, Munster says, the company had three avenues, “First, build an Apple-branded car. Second, build software and license it to other automakers. Third, acquire Tesla.”

The analyst dismissed all likely Project Titan outcomes, noting that the Apple-Tesla marriage, on the table five years ago, did not occur because both the firms felt strongly about design…CLICK for complete article