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Investment Research Since 1978

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Stock Splits: Addition through Division?

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"The perception is sort of the driving factor." It's a "psychological boost." These words spoken by directors at wealth funds refer to stock splits. Despite having little to no effect on the value of a company's shares, stock splits are popular with investors. Tesla recently announced it would seek to split its stock again. The Wall Street Journal reports: Tesla Inc. on Monday said it would seek to split its highly priced stock for the second time in two years. Already in 2022, both Google parent Alphabet Inc. and Amazon.com Inc. have unveiled plans for 20-for-1 splits. Stock splits … [Read more...]

Are Inversion Fears Overblown? FT’s Lex Says Yes

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Portions of the Treasury yield curve have inverted, but the FT's Lex service downplays the risk of the current yield picture. They write: Wall Street is obsessing over the US yield curve these days. No wonder. An inverted US yield curve, in which short-term interest rates are higher than long-term ones, is widely seen as an ominous sign of looming recession risks. On Monday, the yield on 30-year Treasuries fell below that on five-year ones for the first time since 2006. That comes after yields in other parts of the curve — namely the five to 10-year and three to 10-year — inverted last … [Read more...]

Bank of Japan’s Unlimited Bond Buying Sends Yen Tumbling

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When a central bank offers to buy an unlimited number of its government's bonds, is it any surprise when its currency falls hard on the news? The value of the yen has dropped sharply on the news that the Bank of Japan will buy an unlimited number of 10-year Japanese government bonds to support the country's economic stimulus. The Financial Times reports: The yen dropped to a seven-year low on Monday as the Bank of Japan bucked the global trend for tighter monetary policy, stoking speculation that the central bank could intervene to prop up the currency for the first time since 1998. The … [Read more...]

Buying a Car? Don’t Expect a Discount

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Negotiating with car dealers is hard enough, after two years of shortages, it's even worse, especially for shoppers looking for less expensive models. David Welch reports for Bloomberg on carmakers' shift toward higher-priced models, and what that means for car buyers. He writes: For decades, transactions in U.S. car dealerships went something like this: A couple walks into a showroom, expresses interest in buying a sedan, the sales rep says, great, our MSRP is $26,000, and the two sides sit down to negotiate the price lower until they settle on a level both can accept. The MSRP, or … [Read more...]

Have Western Economies Become Too Globalized?

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In the Financial Times, Oaktree Capital Management co-founder and co-chair, Howard Marks, analyses the impact of the Russian invasion of Ukraine on the globalization of western economies, and what the future may hold. He writes: Over recent decades, many industries moved a significant percentage of their production offshore, bringing down costs by using cheaper labour. This process boosted economic growth in the emerging nations where the work was done, increased savings and competitiveness for manufacturers and importers, and provided low-priced goods to consumers. But offshoring also led … [Read more...]

Raising Rates Could Kill Debt-Laden Emerging Markets

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Emerging market economies could be at risk as the Federal Reserve begins raising interest rates. Nathaniel Taplin suggests that the Fed could sink emerging markets "again." He writes: When the U.S. central bank starts raising interest rates, emerging markets often begin to submerge again: Their borrowing costs rise, their currencies fall and, to add insult to injury, slower U.S. growth dents demand for their products. Will this time be the same as the era of zero interest rates ends? Much remains uncertain—not least the trajectory of oil prices and war in Ukraine—but it is possible to make … [Read more...]

Bond ETF’s Fair Weather Liquidity Poses Risks

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In the Financial Times, Tatjana Puhan explains how heavy trading of ETF bond funds could lead to lower liquidity during times of market stress. She writes: The market volatility triggered by the Ukraine war is a reminder that crises can expose hidden stresses and strains that have built up over time in the financial system. Boom time changes to market structures can turn into significant risks when there is an abrupt turn in conditions, particularly when trading liquidity dries up. In that context, investors should note one recent change to the financial plumbing of US markets. The New … [Read more...]

War Uncertainty Plagues Middle East with Threat of Famine

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Ukraine is the breadbasket of Europe and the surrounding regions of the Middle East and North Africa. Without grain supplies from Ukraine and nearby Russia, food could become scarce and unaffordable in the region. Heba Saleh and Emiko Terazono report for the Financial Times: Russia’s invasion of Ukraine has made life even harder for Fadia Hamieh, a Lebanese university lecturer who was already struggling to make ends meet in a country with a failing economy. Since the start of March, flour has disappeared from the shops and the price of bread has increased by 70 per cent. “Supermarkets are … [Read more...]

Record Orders for E-Bikes in Response to Surging Oil Prices

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As oil prices have surged, Americans are turning to electric bikes to fill their transportation needs without relying on petroleum fuels. Bloomberg's Ira Boudway reports: The Pedego Electric Bike store in St. Louis normally closes for the month of February because there are not enough sales to justify keeping it open through the winter. This year, with an unusually large number of phone calls coming through, it re-opened early. February wound up being a “bonanza of a month” at the store, according to Pedego chief executive officer Don DiCostanzo, who oversees the e-bike brand’s 208 … [Read more...]

Americans Find the Limit of Their Patience With Price Increases

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A mixture of stimulus checks and changes in buyer behavior during the COVID-19 pandemic led to a massive increase in consumer spending. Now, with inflation at 40 year highs, shoppers may have finally reached the limit of what they are willing to pay for certain goods. Suzanne Kapner reports for The Wall Street Journal: Apparel retailers and department stores are bumping up against pockets of price resistance, a sign that consumers are curtailing spending as inflation remains at the highest level in four decades. Macy’s Inc. M +1.47% tried to raise prices on some mattresses and sofas by … [Read more...]