When we wrote on Wednesday that it was probably too early to take an aggressive position in the British Pound we apparently weren’t kidding. Overnight, the British pound crashed, falling as much as ten percent in the early Asian session. This is one of the world’s largest and most liquid currency markets. The pound-dollar pair is the third most traded currency pair in the world, with $470 billion exchanged on a daily basis. For some perspective on that number, Apple, the world’s largest publicly traded company, only trades about $4 billion per day. What caused the crash in the pound? The … [Read more...]
Is Your Zip Code Sabotaging Your Portfolio?
You may have heard of home bias in investing. If you haven’t, home bias is the tendency of investors to own a large amount of domestic securities, despite the vastly greater number of opportunities available in foreign markets. The U.S. stock and bond markets only account for about two-thirds of the global total, but U.S. investors allocate almost 75% of their portfolios to the U.S. Favoring domestic versus foreign markets isn’t the only bias among investors though. According to J.P. Morgan, there is also a regional bias in investing. A regional bias? Indeed, the chart below from J.P. … [Read more...]
Is the British Pound a Good Buy Today?
The biggest casualty of the Brexit vote thus far has not been the stock market or the bond market as many predicted, but the market for British pounds. The pound sold-off yesterday and is now trading at a more than two-decade low. Technical analysts would likely tell you that charts don’t offer much in the way of support for the world’s former premier reserve currency. Based on the charts, a move toward parity looks possible, though we wouldn’t say probable. For some perspective, I’ve included a long-term chart (yes really, really, long) on the pound / dollar exchange rate. The pound is … [Read more...]
Alert: Buy Ratings to the Highest Bidder
This is a disturbing trend. Bloomberg BusinessWeek reports that some companies are now paying brokerage clients to cover them. This is similar to the credit rating agency model that has been criticized so often for the conflicted advice it produces, but this is worse, much worse. Here’s more from BusinessWeek (emphasis is mine) With brokers increasingly unable to subsidize research with indirect payments, France’s Natixis SA is pioneering a novel approach: charge clients for coverage, a model that has proved fraught with conflicts for debt-rating companies. Analysts Jean-Jacques Le Fur and … [Read more...]
Government Investment in the Stock Market?
What do you do when after years of insisting that bigger stimulus and more government intervention for more time are the exact recipe for economic success, only to discover that your cherished theories have come up short? Cue the esteemed former Treasury Secretary (and possibly future Fed Chair) Mr. Lawrence Summers. This is the same Mr. Summers who contends that the disappointing rate of economic growth for the last number of years is a problem of secular stagnation and not a problem of poor policy and burdensome regulation. Seems a little convenient coming from one of President Obama’s … [Read more...]
Deutsche Bank: This is How a Death Spiral Starts
Monday we wrote about the sharp sell-off in Germany’s largest bank, Deutsche Bank. We posed the question, is one of the world’s largest banks in a death spiral? While the verdict may still be out, things aren’t looking good for Deutsche Bank. Yesterday, Bloomberg reported that a number of funds that clear derivatives trades with the bank withdrew their excess cash and positions. This is how a death spiral starts for a big bank. A few counterparties start walking away and then a few more do the same and then the loss of business pressures results, and then a few more banks walk away and if … [Read more...]
The Marvel of American Energy Productivity
Two years ago, the shale oil industry was knocked down. The house of Saud cooked up a scheme to put the U.S. shale oil industry out of business. Instead of limiting production, the Saudi’s decided to make a play for market share. Oil prices plunged as a result, reaching lows not seen since the height of the financial crisis. Some U.S. firms went bust, others slashed expenses, and many were forced to scale back their investment plans. But two years later, the U.S. shale oil industry is getting back up. Firms have adjusted to the lower price of oil by cutting costs and getting more … [Read more...]
Merger Activity in Pipeline Shares Heats Up
The last big takeover in the pipeline industry (only announced a couple of weeks ago) was Enbridge Energy buying Spectra energy. The acquisition created North America’s largest energy infrastructure company. This week, another of Canada’s pipeline giants is jumping into the fray with an offer to buy Columbia Pipeline Partners LP. I hope you aren’t missing the boat here. Consolidation in pipeline shares is unlikely to stop with the Columbia acquisition. The Wall Street Journal has the details on the takeover. TransCanada Corp. said Monday it had offered $848 million to buy Columbia … [Read more...]
Where do Gasoline Prices Go from Here?
Gas prices are up big YTD, but they continue to trade at deeply depressed levels when compared to their 2014 highs. Many market participants are counting on a rebound in oil and gasoline prices in the long-run, but when is the long-run and how high will oil and gas prices go in the long-run? According to Morningstar we can expect a recovery in oil prices to about $65 per barrel within two years, a year ahead of the firm’s prior estimates. Oil Supply-Demand Gap Should Clear in 2018 We've accelerated our estimate for oil market clearing due to stronger-than-expected demand and supply … [Read more...]
Is one of the World’s Largest Banks in a Death Spiral?
Deutsche Bank is one of the world's largest and most important banks and its shares are cratering. The stock is down over 50% YTD and it is taking a beating again this morning. Over the weekend, it was reported that German Chancellor, Angela Merkel ruled out giving the bank state-aid. That may have been a mistake as investors now smell blood. If Deutsche Bank's counter-parties start backing away from doing business with the bank and the German government doesn't come to its rescue, there may be no way for the bank to recover. … [Read more...]
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