•  
Sun, 25th June 2017

Anirudh Sethi Report

  •  

Archives of “money” Tag

Bitcoin Plunges To 2-Week Lows On Triple-Whammy Of Concerns

After ralying over 80% in the last month, Bitcoin prices are tumbling (down 25% from record highs to 2-week lows) as cryptocurrencies face uncertainty on three fronts.

 

 

As iBankCoin reports, investors are spooked over recent cyberattacks, uncertainty surrounding a Bitcoin platform upgrade, and proposed legislation which adds cryptocurencies a list of reportable assets under existing anti-money laundering laws.

Cyber attack

The FOMC statement for June meeting -Full Statement

June FOMC Statement

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand. On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

Bill Gross: “All Markets Are Increasingly At Risk”

Picking up where he left off last week, when Bill Gross told Bloomberg that U.S. markets are at their highest risk levels since before the 2008 financial crisis “because investors are paying a high price for the chances they’re taking”, in his latest monthly investment outlook, the Janus Henderson bond manager says that investors should be wary as low interest rates, aging populations and global warming which inhibit real economic growth and intensify headwinds facing financial markets:

 Excessive debt/aging populations/trade-restrictive government policies and the increasing use of machines (robots) instead of people, create a counterforce to creative capitalism in the real economy, which worked quite well until the beginning of the 21st century. Investors in the real economy (not only large corporations but small businesses and startups) sense future headwinds that will thwart historic consumer demand and they therefore slow down investment.

Lamenting the onset of the new normal era, Gross says that “because of the secular headwinds facing global economies, currently labeled as the “New Normal” or “Secular Stagnation”, investors have resorted to “making money with money” as opposed to old-fashioned capitalism when money and profits were made with capital investment in the real economy”

Bitcoin Surges Above $3000 As Asian Premium Collapses

Bitcoin prices (in dollars) have surged above $3000 for the first time in history this morning as CoinTelegraph reports that South Korea and Japan, the third and fourth largest Bitcoin exchange markets, are no longer showing Bitcoin price premiums.

Source: BitcoinWisdom.com

Having reached over KRW4 million in late May (well north of $3600 when Bitcoin in dollars was trading at around $2400), the premium for Bitcoin in Korea (via Korbit) has collapsed to zero

Upcoming Week :Central banks in the spotlight

This week, it’s all about the central banks, and monetary policy-watchers will have their plates full with decisions on deck from the US, UK, Russia and Japan.

Here is what investors will be watching in the days ahead:

US Fed

The real focus will be on Fed chair Janet Yellen’s press conference following the meeting. She is likely to give some insight into how the Fed perceives the mixed bag of economic readings and whether that will knock the central bank off of its expected path for the year.

There could also be some adjustments on tap for the Fed’s inflation or unemployment projections in light of recent data. And, more importantly, Ms Yellen may offer some insight on the Fed’s plans for starting to reduce the size of its $4.5tn balance sheet, which bank officials have been teasing for several months now. The biggest question analysts are asking is whether that plan gets debuted at the September meeting or if central bankers would prefer to wait until December.

UBS economists offered this to help read the tea leaves next week:

S&P on the US: Rating affirmed, outlook remains stable

Standard and Poors, confirm USA rating at AA+/A-1

And keep the outlook at stable (S&P know how to play the game 😉 )
More:
  • On US says high general government debt, relatively short-term-oriented policymaking, uncertainty about policy formulation constrain ratings
  • Says some of administration’s policy proposals “appear at odds” with policies of traditional Republican leadership and historical base ​
  • Stability and predictability of US policymaking and political institutions are high
  • Disagreement across & within US political parties resulted in slower decision-making & has limited government’s ability to enact forward-looking legislation
  • “We don’t expect a meaningful expansion or reduction of the fiscal deficit over the forecast period”
  • S&P don’t expect a meaningful expansion or reduction of US fiscal deficit over the forecast period
  • On the Federal Reserve – expect slow and measured increases in the overnight rate as decisions remain data driven‍
  • Political divisions will continue to weigh on government’s ability to address public finance pressures in a more timely manner
  • Expect continued gains in manufacturing because of competitive labour costs, lower cost of natural gas stemming from shale gas production
  • Expects Congress to ultimately rasie or suspend the debt ceiling
  • Believe that at present prospects are more remote for deeper fiscal reform
  • outlook signals view that negative and positive rating factors will be balanced over the next 2 years

Headlines via Reuters

Japan’s central bank nearly doubles ETF holdings in one year

The Bank of Japan has stepped up purchases of exchange-traded funds as part of its monetary easing policy, with the balance surging to 15.93 trillion yen ($144 billion) as of March 31.

The total marks an 80% rise from a year earlier and more than a sevenfold increase since the central bank kicked off its quantitative and qualitative easing — adding riskier assets to its balance sheet — in April 2013. ETF purchases have gradually increased under the unconventional policy, expanding to 6 trillion yen a year in July 2016 from 3.3 trillion yen.

 The bank apparently buys frequently on days when the stock market dips in the morning, serving to stabilize share prices.

“The BOJ’s ETF purchases help provide resistance to selling pressure against Japanese stocks,” says Rieko Otsuka of the Mizuho Research Institute.

Should the current pace of buying continue, the BOJ’s ETF holdings would reach about 30 trillion yen in about two years. The market capitalization of the Tokyo Stock Exchange’s first-section companies comes to 550 trillion yen.

The bank’s growing market presence has raised concerns about the repercussions when the easing policy eventually winds down. When speculation of a BOJ exit grows, the anticipated cutbacks on ETF purchases would accelerate selling of Japanese stocks. As a precaution against a sharp market decline, “the BOJ many need to set aside provisions,” Otsuka says.

The 7-Trading Rules

Here are the rules – they are not unique or new. They are time tested and successful investor approved. Like Mom’s chicken soup for a cold – the rules are the rules. If you follow them you succeed – if you don’t, you don’t.

1) Sell Losers Short: Let Winners Run:

It seems like a simple thing to do but when it comes down to it the average investor sells their winners and keeps their losers hoping they will come back to even.

2) Buy Cheap And Sell Expensive:

You haggle, negotiate and shop extensively for the best deals on cars and flat screen televisions. However, you will pay any price for a stock because someone on television told you too. Insist on making investments when you are getting a “good deal” on it. If it isn’t – it isn’t, don’t try and come up with an excuse to justify overpaying for an investment. In the long run – overpaying will end in misery.

3) This Time Is Never Different:

As much as our emotions and psychological makeup want to always hope and pray for the best – this time is never different than the past. History may not repeat exactly but it surely rhymes awfully well.

4) Be Patient:

As with item number 2; there is never a rush to make an investment and there is NOTHING WRONG with sitting on cash until a good deal, a real bargain, comes along. Being patient is not only a virtue – it is a good way to keep yourself out of trouble.

5) Turn Off The Television:

Any good investment is NEVER dictated by day to day movements of the market which is merely nothing more than noise. If you have done your homework, made a good investment at a good price and have confirmed your analysis to correct – then the day to day market actions will have little, if any, bearing on the longer-term success of your investment. The only thing you achieve by watching the television from one minute to the next is increasing your blood pressure.

6) Risk Is Not Equal To Your Return:

Taking RISK in an investment or strategy is not equivalent to how much money you will make. It only relates to the permanent loss of capital that will be incurred when you are wrong. Invest conservatively and grow your money over time with the LEAST amount of risk possible.

7) Go Against The Herd:

The populous is generally right in the middle of a move up in the markets but they are seldom right at major turning points. When everyone agrees on the direction of the market due to any given set of reasons – generally something else happens. However, this also cedes to points 2) and 4); in order to buy something cheap or sell something at the best price – you are generally buying when everyone is selling and selling when everyone else is buying.

These are the rules. They are simple and impossible to follow for most. However, if you can incorporate them you will succeed in your investment goals in the long run. You most likely WILL NOT outperform the markets on the way up but you will not lose as much on the way down. This is important because it is much easier to replace a lost opportunity in investing – it is impossible to replace lost capital.

As an investor, it is simply your job to step away from your “emotions” for a moment and look objectively at the market around you. Is it currently dominated by “greed” or “fear?” Your long-term returns will depend greatly not only on how you answer that question, but how you manage the inherent risk.

 
 

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

 

US Student Debt Soars to $1.3 Trln, Hurting Household Purchasing Power

US student loans, having boomed in the past 8 years, surged to their all-time highest at an aggregated $1.3 trln, representing roughly 11 percent of total outstanding household debt in the US, with over 7 mln borrowers unable to serve their obligations.

The situation is significantly holding back the improvements in consumer sentiment, offsetting recent improvements in the labour market, and limiting the prospects of US economic growth.

With some 72 percent of the US GDP driven by consumer purchases, the mounting concerns over student loans, especially non-performing loans (NPLs), are becoming an increasingly prominent factor is assessing the prospects of any further economic acceleration. Particularly so, as the Federal Reserve is normalising the US monetary conditions with borrowing costs going up, the issuance of the debt and refinancing of existing loans is now more expensive, and the downside risks of the monetary policy are increasingly prominent in the projected dynamics of the broader GDP expansion.

According to the Federal Reserve Bank of New York, during the past 15 years, the burden of student loans in the US economy has increased from just 3.3 percent of overall household indebtedness in 2003 at $240.7 bln to the current $1.3 trln, or 10.6 percent of total household debt. About 44 mln Americans currently have a student loan to service, and about every sixth borrower has defaulted on their obligations.

Half Of Canadians Have $200 Or Less In Savings

Two months ago, when quoting the CEO of cell phone insurer Assurant, who appeared on Bloomberg TV to discuss business trends, one of his quotes caught our attention: “the reality is, half of Americans can’t afford to write a $500 check,” Colberg said. We decided to look into the CEO’s claim about the woeful state of US finances. What we found is that according to a recent Bankrate survey of 1,000 adults, 57% of Americans don’t have enough cash to cover a mere $500 unexpected expense. Turns out the CEO was right. And while that may appear dire, it is a slight improvement from 2016, when 63% of U.S. residents said they wouldn’t be able to handle such an expense.

The Bankrate survey findings echoed research published last year by the Federal Reserve, which found that 46% of respondents said they would be challenged to come up with even less, or $400, to cover an emergency expense, and would likely borrow or sell something to afford it. When the Fed asked what types of emergency expenses Americans had actually faced in the last year, more than one out of five cited a major unexpected medical expense. The average expense: $2,782, or almost seven times higher than the Fed’s hypothetical $400 surprise bill.

How does this stunning statistic compare to some other developed nations?

It turns out that the state of half of US finances, deplorable as it may be is positively shining, not to mention “twice as good”, when compared to the country’s neighbor to the north, where a recent Ipsos survey on behalf of accounting firm MNP, found that more than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations. Needless to say, if $500 in savings is bad, half that amount is outright bizarre.