Tag Archives: Markets

BREXIT! A Rational View

Today’s markets are roiled by the decision of voters in Great Britain to exit the European Union (EU), which has been dubbed “BREXIT.”  As with most events in the investment world, there are people out there who make a living scaring you.  Rather than panic, we recommend you step back and think rationally what this means.

KEEP CALM

First, why did the British people vote to leave the EU despite the unified opposition of both of Great Britain’s major political parties?  The answer is that more than half of their voting public was tired of being told what to do by un-elected bureaucrats in Brussels (the capitol of the EU).  The people wanted to have a say in how they were going to be governed.  In effect, BREXIT was a revolt of the masses against the classes.

Polls prior to the election indicated that the vote would be against BREXIT, opting to stay in the EU.  The result surprised much of the big money which led to today’s panicked selling at the open.

As we prepare these comments we see a small rebound from the opening bell but the day is young and we don’t know where we’ll be at the end.  But if we step back, we think that Brian Wesbury of First Trust has some worthwhile thoughts:

The bottom line is that investors should ignore scare stories about what would happen if BREXIT wins.  Great Britain runs consistent trade deficits with the rest of Europe. Regardless of what foreign leaders say before the vote, if the British vote to leave, the rest of the EU is going to chase them to the ends of the earth.  No way will they allow one of their biggest export markets to become more distant.  They will beg the UK to sign a free trade deal.  In addition, and this is actually great economic news, it would free the US and UK to sign a free trade deal that the EU is now holding up.

Any market volatility would be short-lived and any swing to the downside would be a buying opportunity.  BREXIT is not a reason to sell.  In fact, freedom is a good thing

Have questions?  Ask us.

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The Liquidity Trap – Or How to Lose $4.5 Billion

Liquidity is defined in the Dictionary of Finance and Investment Terms as “the ability to buy or sell an asset quickly and in large volume without substantially affecting the asset’s price.”

In layman’s terms it means being able to get to your money quickly and without a major loss.  Liquid assets are things like checking accounts and money market funds.  They can also include mutual funds and stocks in large companies that trade on a major stock exchange, although in times of severe financial stress even these may see major price swings.

But there are lots of things people own that are not liquid.  The typical family’s home is a large part of their wealth.  Homes are not liquid; they can’t be sold quickly and converted to cash in times of need.  What a home can be sold for is a guess; something that millions of people learned when the housing bubble burst in 2008.  Families found that the value of their home was tens, even hundreds of thousands of dollars less than their mortgage.

Besides a home, many stocks are not liquid.  Shares in small companies with a few shares outstanding may not be liquid.  Even the very wealthy are finding out that the liquidity trap can turn them from billionaires to paupers in short order.  Forbes Magazine listed Elizabeth Holmes, the founder of Theranos,  as America’s richest self-made woman last year with a fortune estimated at $4.5 billion.  The most recent listing gave her net worth at zero.  The reason for this is fairly simple.  Her net worth was based on the value of one stock: Theranos.  The stock was not publicly traded and if she had tried to sell some of it the share price would have plummeted because it would show a lack of confidence in the future of the company.

So when Theranos ran into serious problems Holmes could not get out and her fortune literally disappeared into thin air.

The average person can avoid the liquidity trap by following a few simple rules.

  1. Do not put too much of your personal wealth in things – like homes – that can’t be easily sold.
  2. Do not put too much of your personal wealth in one stock. You do not want your net worth to evaporate because of poor decisions by corporate management.
  3. Smart investors spread their financial assets widely.  Realizing that they cannot accurately predict the future, they own stocks and bonds, domestic and foreign.  If they don’t have the means to diversify using individual stocks and bonds they use mutual funds or ETFs.
  4. Get an advisor. Most smart people use professionals when they need medical, legal or financial advice.

For more information, contact us.

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Keeping Your Eye on the Ball

Investors face a fire-hose torrent of information every day.  Determining what’s important and what’s irrelevant is critical.  Projections of doom and gloom are interspersed with promises of fabulous wealth if only we invest in a certain way.  99% of it is useless or even counter-productive, meant to entice the unwary investor to chase after chimeras that are simply not real.

Today’s issue of First Trust’s Monday Morning Outlook:

Honest question: How much time does the Apple Inc. Board of Directors spend debating whether the Federal Reserve will hike rates once or twice more in 2016?  We don’t really know the answer, but we would guess the best answer is zero.

Now, how much time does CNBC spend debating this question, along with potential actions of the Japanese and European Central Bank?  Answer: Way, way too much.

Business news should cover business, not government, but somehow, over the years, people have been led astray and many now think actions by the government are more important than actions of businesses and entrepreneurs.  Nothing could be further from the truth…

So, while the TV debates between day traders rage on, it doesn’t really matter whether the Fed lifts rates in June, or not.  The difference between a 0.5% and 0.75% federal funds rate matters little to corporate America and entrepreneurs.  In fact, higher rates will most likely make money more available, not less.  If the Fed really wanted to tighten policy, it would get rid of all excess reserves, but it won’t.  So, we suspect a symbolic rate hike in June, no matter what the talking heads’ endless debates about the matter suggest.

As investors we want to follow the lead of Boards of Directors, not the lead of what passes for business journalism these days.  No matter what they say, it is the entrepreneurial class that drives economic activity, not the government.

After all, Greenspan, Bernanke and Yellen have never pulled all-nighters drinking Red Bull and writing Apps for the iPhone.  That’s what changes lives, not quarter point rate hikes.

Professional investors have learned the difference between meaningful information that has a real impact on portfolios and simple distractions.  If you are interested in seeing how this process works, contact us.

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Norfolk Southern beats the street

From the AP:

NORFOLK, Va. (AP) _ Norfolk Southern Corp. (NSC) on Thursday reported first-quarter earnings of $387 million.

On a per-share basis, the Norfolk, Virginia-based company said it had profit of $1.29.

The results beat Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of 97 cents per share.

The railroad posted revenue of $2.42 billion in the period, also surpassing Street forecasts. Three analysts surveyed by Zacks expected $2.4 billion.

Norfolk Southern shares have decreased slightly more than 2 percent since the beginning of the year, while the Standard & Poor’s 500 index has risen slightly more than 2 percent. In the final minutes of trading on Thursday, shares hit $82.63, a decline of 19 percent in the last 12 months.

 

NSC shares rose 4.8% in after-hours trading.

 

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Before the Bell 4/8/2016

Markets at a Glance

Major Stock Indexes

(Yesterday’s Close)

8:56 AM EDT 4/8/2016

Last Change % CHG
DJIA 17541.96 -174.09 -0.98%
Nasdaq 4848.37 -72.35 -1.47%
S&P 500 2041.91 -24.75 -1.20%
Russell 2000 1092.79 -16.03 -1.45%
Global Dow 2278.87 11.68 0.52%
Japan: Nikkei 225 15821.52 71.68 0.46%
Stoxx Europe 600 332.18 4.08 1.24%
UK: FTSE 100 6193.97 57.08 0.93%

Currencies

8:56 AM EDT 4/8/2016

last(mid) change
Euro (EUR/USD) 1.1360 -0.0019
Yen (USD/JPY) 108.70 0.49
Pound (GBP/USD) 1.4084 0.0028
Australia $ (AUD/USD) 0.7548 0.0042
Swiss Franc (USD/CHF) 0.9569 0.0011
WSJ Dollar Index 86.44 -0.09

Futures

8:46 AM EDT 4/8/2016

last change % chg
Crude Oil 39.12 1.86 4.99%
Brent Crude 41.24 1.81 4.59%
Gold 1234.5 -3.0 -0.24%
Silver 15.190 0.032 0.21%
E-mini DJIA 17573 115 0.66%
E-mini S&P 500 2050.50 15.50 0.76%
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Stocks, Bonds, Currencies and Commodities at the End of the First Quarter

Markets at a Glance

Major Stock Indexes

9:22 AM EDT 4/1/2016

Last Change % CHG
DJIA 17685.09 -31.57 -0.18%
Nasdaq 4869.85 0.55 0.01%
S&P 500 2059.74 -4.21 -0.20%
Russell 2000 1114.03 3.59 0.32%
Global Dow 2285.09 -29.76 -1.29%
Japan: Nikkei 225 16164.16 -594.51 -3.55%
Stoxx Europe 600 329.64 -7.90 -2.34%
UK: FTSE 100 6086.65 -88.25 -1.43%

Currencies

9:22 AM EDT 4/1/2016

last(mid) change
Euro (EUR/USD) 1.1379 -0.0002
Yen (USD/JPY) 112.04 -0.54
Pound (GBP/USD) 1.4210 -0.0150
Australia $ (AUD/USD) 0.7621 -0.0036
Swiss Franc (USD/CHF) 0.9607 -0.0010
WSJ Dollar Index 86.79 0.21

Futures

9:12 AM EDT 4/1/2016

last change % chg
Crude Oil 36.99 -1.35 -3.52%
Brent Crude 38.81 -1.52 -3.77%
Gold 1219.9 -15.7 -1.27%
Silver 14.980 -0.484 -3.13%
E-mini DJIA 17486 -109 -0.62%
E-mini S&P 500 2038.25 -13.25 -0.65%
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Global Stocks Lower After Brussels Explosions

Major Stock Indexes

4:09 PM EDT 3/22/2016

Last Change % CHG
DJIA 17582.57 -41.30 -0.23%
Nasdaq 4821.66 12.79 0.27%
S&P 500 2049.80 -1.80 -0.09%
Russell 2000 1096.95 -1.63 -0.15%
Global Dow 2315.94 -7.42 -0.32%
Japan: Nikkei 225 17048.55 323.74 1.94%
Stoxx Europe 600 340.30 -0.52 -0.15%
UK: FTSE 100 6192.74 8.16 0.13%

 

Currencies

4:09 PM EDT 3/22/2016

last(mid) change
Euro (EUR/USD) 1.1224 -0.0018
Yen (USD/JPY) 112.28 0.33
Pound (GBP/USD) 1.4214 -0.0154
Australia $ (AUD/USD) 0.7623 0.0045
Swiss Franc (USD/CHF) 0.9724 0.0025
WSJ Dollar Index 87.26 0.10

Futures

3:59 PM EDT 3/22/2016

last change % chg
Crude Oil 41.48 -0.04 -0.10%
Brent Crude 42.54 0.31 0.73%
Gold 1248.5 4.3 0.35%
Silver 15.895 0.048 0.30%
E-mini DJIA 17497 -31 -0.18%
E-mini S&P 500 2041.75 -1.00 -0.05%

Government Bonds

4:08 PM EDT 3/22/2016

price chg yield
U.S. 10 Year -6/32 1.939
German 10 Year 7/32 0.215
Japan 10 Year 3/32 -0.101
 
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Thoughts from around the investment world – 4

Today we’re featuring First Trust.  Here are some unconventional thoughts from their March 21st Morning Monday Outlook:

1 – The Panic of 2008 was not caused by tight monetary policy.

2 – Zero percent interest rate policy (ZIRP) and Quantitative Easing (QE) did not save the US or global economies.

3 – Monetary policy in the US is getting looser as the Fed hikes rates, and,

4 – Negative interest rates in Japan and Europe are not working.

If anyone’s interested we would be happy to provide a summary of their thoughts on these subjects.  We think it’s important to look at the economic world from the perspective of people who live in “Realville” and examine conventional wisdom, which is so often wrong.

Regarding the first point, keep in mind that all the “smart people” in and out of government were convinced that real estate was safe because it could not go down.  Flipping houses for ever more ridiculous prices became a national obsession and formed the basis for an entire cable TV network.

And when it ended the ultimate culprits pointed the fingers of blame to everyone except themselves, leaving millions poorer.

We will have more to say on these topics in subsequent posts, including the new phenomenon of negative interest rates which some central banks have already adopted.

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At the Close 3/4/2016

Markets at a Glance

Major Stock Indexes

4:18 PM EST 3/4/2016

Last Change % CHG
DJIA 17006.77 62.87 0.37%
Nasdaq 4717.02 9.60 0.20%
S&P 500 1999.99 6.59 0.33%
Russell 2000 1081.94 5.89 0.55%
Global Dow 2260.78 21.25 0.95%
Japan: Nikkei 225 17014.78 54.62 0.32%
Stoxx Europe 600 341.80 2.38 0.70%
UK: FTSE 100 6199.43 68.97 1.13%

Currencies

4:18 PM EST 3/4/2016

last(mid) change
Euro (EUR/USD) 1.1012 0.0055
Yen (USD/JPY) 113.88 0.18
Pound (GBP/USD) 1.4232 0.0055
Australia $ (AUD/USD) 0.7429 0.0077
Swiss Franc (USD/CHF) 0.9928 0.0005
WSJ Dollar Index 88.80 -0.41

Futures

4:08 PM EST 3/4/2016

last change % chg
Crude Oil 36.22 1.65 4.77%
Brent Crude 38.91 1.84 4.96%
Gold 1262.4 4.2 0.33%
Silver 15.535 0.389 2.57%
E-mini DJIA 16965 46 0.27%
E-mini S&P 500 1994.75 4.25 0.21%

Have a great weekend.

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