Mon, 25th July 2016

Anirudh Sethi Report


Archives of “stock” Tag

Brexit ‘will be horrible for UK economy’ – fund manager

The vote to leave the European Union will have a “horrible” impact on the UK economy, which could “judder to a halt”, a leading fund manager has said.

Richard Buxton, chief executive of Old Mutual Global Investors (OMGI), described Brexit as “really bad news”.

He told the Guardian he feared the move could lead to a recession.

Financial markets would remain volatile while the government negotiated an exit deal with the EU, Mr Buxton added.

OMGI has managed funds worth £26bn for both institutional and individual investors.

Speaking to the newspaper, Mr Buxton said the stock market had priced in a “pretty significant recession” for the UK given the slide in share prices of companies such as house-builders and banks.

Shares in two of the UK’s biggest house-builders, Barratt Developments and Persimmon, have fallen almost 30% and 25% respectively since 24 June – the day the referendum result was announced.

Asian funds flowing into Japanese stocks

Asian investors are gradually strengthening their presence in the Japanese stock market.

The number of Asian funds based outside Japan and holding Japanese stocks on March 31 was 35% higher than it was one year earlier, according to U.S.-based research firm Ipreo.

 In addition to funds in Hong Kong and Singapore, where many U.S. and European asset management firms operate, South Korean and Indian firms are now investing in Japanese stocks.

Eastspring Investments, a Singapore-based asset management unit of major British life insurer Prudential, is a major shareholder of Japanese shipping company Mitsui O.S.K. Lines, also known as MOL, and of financial services providerCredit Saison.

Eastspring Investments held $8.7 billion worth of Japanese stocks at the end of 2015, up about 150% from three years earlier.

Overnight US Market :Dow closed down 23 points ,S&P 500 -2 Points

Stocks on Wall Street ended mixed Thursday as investors turned their eyes to solid employment data and a deal in the food sector.

The Nasdaq composite finished up 0.4%, but the Dow Jones industrial average and the S&P 500 slid 0.1% each.

All three major U.S. stock indexes are again with striking distance of their levels before the Brexit vote last month.

Investors are still grappling with the fallout from the ‘Brexit’ vote, which puts Britain on track to exit the European Union in coming years. Wall Street is also looking ahead to Friday’s June jobs report, which could shed light on the strength of the U.S. labor market following two straight months of disappointing job growth.

On the economic front, payroll processor ADP reported that private employers added 172,000 jobs in June, above the 160,000 analysts had forecast. The number of Americans filing for first-time unemployment benefits last week fell 16,000 to 254,000, also a better reading than economists had forecast.

Equities were higher in Europe, with the broad Stoxx Europe 600 rising 1.5%. Germany’s DAX index rose 0.9%, while the CAC 40 in Paris was 1.4% higher and the FTSE 100 in London was 1.6% higher.

Overnight US Market :Dow closed up 78 points ,S&P 500 Up 11points

U.S. stocks shook off early losses to end higher Wednesday as U.S. government bond yields bounced back from fresh record lows amid continued market turbulence following the surprise Brexit vote.

The Nasdaq composite sprang 0.8%, the S&P 500 climbed 0.5% and the Dow Jones industrial average gained 0.4%. All three indexes began the day in negative territory.

Tuesday and early Wednesday financial markets had switched back to risk-off mode, following a sharp rally last week in stocks, commodities and other so-called risk assets. Wall Street has been held back by continued concerns related to the fallout from Brexit vote, which has put tremendous downward pressure on the British pound, which hit a fresh 31-year low against the dollar Wednesday.

But stocks starting rallying back at mid-morning and the gains gained steam in the afternoon after release of the minutes from the Federal Reserve’s last policy meeting showed the central bank is in no hurry to raise interest rates.

The Poisonous Gap Between Paper Wealth And Real Wealth

“Understand that securities are not net economic wealth. They are a claim of one party in the economy – by virtue of past saving – on the future output produced by others. Fundamentally, it’s the act of value-added production that ‘injects’ purchasing power into the economy (as well as the objects available to be purchased), because by that action the economy has goods and services that did not exist previously with the same value. True wealth is embodied in the capacity to produce (productive capital, stored resources, infrastructure, knowledge), and net income is created when that capacity is expressed in productive activity that adds value that didn’t exist before.

“New securities are created in the economy each time some amount of purchasing power is transferred to others, rather than consuming it. Once issued, all of these pieces of paper can vary in price later, so the saving that someone did in a prior period, embodied in the form of some paper security, may be worth more or less consumption in thecurrent period than it was initially. That’s really the main effect QE has – to encourage yield-seeking speculation that drives up the prices of risky securities, but without having any material effect on the real economy or the underlying cash flows that those securities will deliver over time.

“If one carefully accounts for what is spent, what is saved, and what form those savings take (securities that transfer the savings to others, or tangible real investment of output that is not consumed), one obtains a set of ‘stock-flow consistent’ accounting identities that must be true at each point in time:

1) Total real saving in the economy must equal total real investment in the economy;

2) For every investor who calls some security an ‘asset’ there is an issuer that calls that same security a ‘liability’;

3) The net acquisition of all securities in the economy is always precisely zero, even though the gross issuance of securities can be many times the amount of underlying saving; and perhaps most importantly,

4) When one nets out all the assets and liabilities in the economy, the only thing that is left – the true basis of a society’s net worth – is the stock of real investment that it has accumulated as a result of prior saving, and its unused endowment of resources. Everything else cancels out because every security represents an asset of the holder and a liability of the issuer.”

Stock-Flow Accounting and the Coming $10 Trillion Loss in Paper Wealth
John P. Hussman, April 6, 2015

Meanwhile At The Most Systemically Dangerous Bank In The World…

Another day, another fresh record low in Deutsche Bank’s stock price…

For comparison’s sake, Deutsche Bank is analogically equivalent to where Lehman was in August 2008… when the stock soared 16% on chatter of a Korean Development Bank bailout… which then was denied, crashing the stock and ending the party… 

Shares in Lehman Brothers rose substantially Friday as investors renewed hopes that the troubled investment bank was moving closer to raising capital to buffer it against a deteriorating economic environment.

Capping a volatile week, the stock soared 16 percent on a report that the state-run Korea Development Bank was considering buying the bank, an idea that a spokesman for the South Korean firm said was “erroneous.”Lehman’s stock closed the day up 5 percent at $14.41.

The spokesman for Korea Development Bank told The New York Times that the bank was in the process of being privatized and was looking at various acquisitions. But he denied that buying Lehman was an option.

“We have various thoughts for our future, but we don’t have any specific institutions in mind,” said the spokesman, who declined to be named, citing company policy.

Lehman’s suddenly soaring stock underscores the volatility surrounding the firm as it scrambles to assess its options in the face of an abysmal third quarter. Only days ago, its shares tumbled more than 13 percent.

We wait for chatter of a Deutsche Bank ‘offer’ rumor any day now.

Apple ‘conservative’ on orders, says key supplier ASE

ASE Chief Operating Officer Tien Wu, left, listens to Joseph Tung, the company’s chief financial officer. (Photo by Cheng Ting-Fang)

Advanced Semiconductor Engineering, the world’s biggest chip assembler and tester, on Tuesday said Apple is being more conservative in placing orders compared with a year ago, while Chinese smartphone brands are trying to grab market share despite softening demand.

“The big client in the U.S. is a little more conservative when placing orders this year,” said Tien Wu, ASE’s chief operating officer, ahead of the company’s annual shareholder meeting. Apple is ASE’s  biggest customer, contributing 31.2% of the company’s revenue of 283.3 New Taiwan dollars ($8.73 billion) in 2015.

“In the smartphone market, meanwhile, other players besides Apple are more aggressive regarding booking chips this year,” Wu said. But, he added, “I don’t think anybody is overly aggressive this year, so I don’t think there would be any serious inventory correction issue similar to last year.” 

Wu said sales would improve quarter by quarter in 2016, although he declined to say whether demand for the second half of the year and the full year would be stronger or weaker compared with last year.

The $555 Trillion Derivatives Debt Implosion Is About to Begin

The next crisis is here.

The BREXIT or British exit from the EU is this crisis’ Bear Stearns: an unexpected situation that Central Banks will go all out to sweep under the rug.

Whether or not they will succeed remains to be seen. But what has started cannot be undone.

For seven years, the Central Banks have maintained the illusion that all is well. Meanwhile, global leverage has exploded to record highs, with the bond bubble now a staggering $100 trillion in size.

To top it off, over $10 trillion of this is sporting negative yields in nominal terms. Indeed, globally bond yields are at levels not seen since the BRONZE AGE.

The Brexit is just the first jolt to this house of cards. It won’t be the last. Spain, Italy and other EU problem countries will soon be lining up to renegotiate their debt levels with the EU.

At that point it’s GAME OVER.

Globally over $500 trillion in derivatives trade based on bond yields.

Jason Zweig’s Rules for Investing

1. Take the Global View: Use a spreadsheet to track your total net worth — not day-to-day price fluctuations.

2. Hope for the best, but expect the worst: Brace for disaster via diversification and learning market history. Expect good investments to do poorly from time to time. Don’t allow temporary under-performance or disaster to cause you to panic.

3. Investigate, then invest: Study companies’ financial statement, mutual funds’ prospectus, and advisors’ background. Do your homework!

4. Never say always: Never put more than 10% of your net worth into any one investment.

5. Know what you don’t know: Don’t believe you know everything. Look across different time periods; ask what might make an investment go down.

6. The past is not prologue: Investors buy low sell high! They don’t buy something merely because it is trending higher.

7. Weigh what they say: Ask any forecaster for their complete track record of predictions. Before deploying a strategy, gather objective evidence of its performance.

8. If it sounds too good to be true, it probably is: High Return + Low Risk + Short Time = Fraud.

9. Costs are killers: Trading costs can equal 1%; Mutual fund fees are another 1-2%; If middlemen take 3-5% of your cash, its a huge drag on returns.

10. Eggs go splat: Never put all your eggs in one basket; diversify across U.S., Foreign stocks, bonds and cash. Never fill your 401(k) with employee company stock.