Tag Archives: Financial Markets

Crypto, Market News

Financial Markets: Understanding The (Short) History Of Bitcoin

Leave a comment

Financial Markets: Understanding The (Short) History Of Bitcoin

Bitcoin markets have had a tumultuous year so far in 2018, and many digital investors have wondered about the possibility that this is truly the end for cryptocurrencies.  The financial markets have a long history, and many different types of asset classes are represented within that history.  Bitcoin traders will need to remember this in the event that we start to see extreme price volatility in cryptos.

But it is also important to have a longer-term perspective when trading these assets.  Cryptocurrency is still in its infancy, but most of the people trading in these markets have little experience with the dynamics of economics.  This is a problem, and it essentially assumes that crypto investors can “sidestep” the normal research that would be required in any other market (i.e. stocks, bonds, real estate, precious metals, etc).  This is especially true for anyone trading on margin, and it is critical to spend time reading a margin trading guide on cryptocurrencies before placing active positions in the market.  Conservative position sizes are always preferable for anyone looking to make steady, consistent gains in any financial markets asset.

Asset Bubble Price Chart

For these reasons, it is important to adopt the historical perspective whenever we are looking to make investments in cryptocurrencies.  When investors fail to adopt this type of approach, it is essentially a recipe for disaster — and it is something that can quickly lead to financial losses.  In the chart above, we can see the typical stages of an asset bubble, which tend to be fairly predictable in nature.  This is why it is important to look at the history of the financial markets whenever we are dealing with a new asset like Bitcoin (and the other cryptocurrencies).  There is never a substitute for good, old-fashioned market research as it generally pays dividends through patience and conservative investment practices.

Asset Bubble Price Chart

The problem with cryptocurrency investing is that many of its participants expected significant short-term gains in a market that had not yet proven itself in terms of financial viability.  In this chart, we can see that many different asset classes have experienced similar price activity when compared to the recent trends in Bitcoin.  If anything, these trend actually validate Bitcoin as a viable market asset because it is following a path that is similar to what has been seen previously in gold, stocks, and many other market assets.

Anyone that has bought or sold a cryptocurrency is essentially a crypto trader, and crypto traders must remember that the history is still unfolding.  The main questions will be answered once consumers understand how these digital assets will actually be used in everyday markets. This is what drives the real economy, and without this type of use cryptos will only be viewed as speculative in nature.  Market speculation is what creates “asset bubbles” and the people that tend to lose the most money in those types of situations are the retail traders buying into the hype after people have already started to lose interest.  

Bitcoin History

In this chart, we can see a more linear history of Bitcoin, from its earliest days of inception right through to its acceptance by the market (by major tech organizations like Microsoft, and many other important market entities).  This history continues to unfold, and we are likely to see many interesting developments in the future in terms of the ways cryptocurrencies are traded and used for investment.  There is never any market approach or technique which can replace traditional market research, but there are rules of investment discipline which should be obeyed whenever we are looking to profit from the underlying trends in valuation.

Going forward, traders and investors will need to continue asking critical questions:  What are the underlying trends for the main cryptocurrencies? How many e-commerce store are accepting their use?  Have brick-and-mortar stores started to accept Bitcoin for their transactions? These are all questions which need to be asked whenever we are making an assessment of where these digital currencies are likely to head in the future.

It will also be important to remember that the cryptocurrency space goes beyond the use of Bitcoin.  There are many different cryptos which are now commonly traded, and those cryptos can even be traded in relation to one another.  This has opened up entirely new markets for those looking to make investments in the financial markets. These forecasts should be useful to a totally new set of traders, and this could continue for many years to come.

Dividend Stocks, Long Ideas

Dividend Stocks: Prospect Capital Trading Near Lows

Leave a comment

Dividend Stocks: Prospect Capital Trading Near Lows

The Federal Reserve has set low interest rates for the US economy.  This makes dividend stocks especially attractive, and one of the most popular companies in this category is Prospect Capital Corp. (NASDAQ:PSEC).  Those with long positions in PSEC capture dividend yields of 10.5%, which is massive compared to most of the traded stocks in the market.

Stock Price Chart Prospect Capital (PSEC)
Stock Price Chart Prospect Capital (PSEC)

In this chart, Prospect Capital has posted negative earnings performances over the last three years:

Stock Market Earnings
Stock Market Earnings

Stock Analyst Recommendations:

Stock Analyst Recommendations
Stock Analyst Recommendations

The stock is trading at a 25% discount to net asset value (NAV):

Closed End Funds NAV Discount
Closed-End Funds NAV Discount

Stock Price Chart: PSEC Technical Analysis

Stock Price Chart: PSEC Technical Analysis
Stock Price Chart: PSEC Technical Analysis
Emerging Markets, Forex

China’s Move to Overthrow the Dollar: Will It Be a Success?

1 Comment

China’s Move to Overthrow the Dollar: Will It Be a Success?

China is known as one of the fastest-growing major economies worldwide. Despite this, its currency is barely used in the global market, placing it just next to pound, euro, and yen. This year, the long-held desire of China to overthrow its competitors will likely get a boost.  Bitcoin helped crypto markets reach new highs, as well.

At present, China is considered to be the largest importer of oil in the world. Last October 2017, Russia sold an S-400 air defense system to Saudi Arabia and such move symbolized a big shift eastward for the Kingdom. China has managed to finally persuade KSA to accept its currency, Renminbi or RMB (also known as yuan in international contexts), as a payment for oil. As a result, China saw this success as an indicator of the increasing power of RMB and a stepping stone towards challenging the world’s most powerful currency, the dollar.

Pricing oil in its own currency

Aside from pricing one of the most important global commodities, China is aiming to overthrow the dollar to lessen its dependency to it, and to reduce its exposure to this currency as well as to its politics. In order to do this, China plans to further price oil in its own currency through a futures contract.

  • China has opened more than 6,000 new forex trading accounts for this contract. China will most likely rely on state-owned oil companies to use the new RMB forex trading contract. By doing so, the number of trade activities may increase and sufficient liquidity may be generated.
  • China will likely approach its major oil suppliers in different regions in Russia, Middle East, and other parts of Asia (those who have already accepted RMD as a payment for oil).

Predictions in 2018

Interestingly, a number of analysts believe in the possibility that China might become successful in this endeavor. Market acceptance may be somewhat cold at first but may turn better over time. When this happens (as the Chinese hope), the percentage presence of yuan in the currency reserve basket will greatly increase; thus, ensuring a runaway success.

  • On the other hand, many analysts think that it is still too early to think about RMB’s currency dominance. The hardest challenge in China’s goal is to ensure that no country or entity should have a dominant advantage over the others. The Chinese central government still play a huge role in the nation’s energy division sector, despite being it the fastest growing and largest consumer of energy in the world.
  • Some analysts believe that if China puts too much state control in the global oil market, things may occur in any other way. Such manipulation may also hinder the drive to create a reputable oil pricing benchmark that is capable of competing against more reputable benchmarks. Given this, many would most likely expect that a Chinese currency-dominated oil benchmark will only be working under China’s control.
  • Apparently, another major hindrance standing in the path of China’s goal is RMB itself. To date, RMB is not yet readily convertible and is prone to various interventions and capital manipulations, and favoritism toward Chinese business companies.
Market News, S&P 500

Financial Stocks and Federal Reserve Monetary Policy

2 Comments

Bank of America: Financial Stocks and Federal Reserve Monetary Policy

  • The financial sector is rallying strongly, and Bank of America is leading the pack higher.\
  • But all eyes are on US President Donald Trump in his next selection for leader of the Federal Reserve.
  • These rallies could be at risk depending on the outcome, and shareholders in BAC could be some of the most deeply impacted if certain monetary approaches are favored in Trump’s selection.  

Stock markets continue to push in their upward surge and some of the strongest names over the last three months can be found in the financial sector.  Leading the pack higher in Bank of America Corp (BAC), which is a stock that we originally bought on the drop to $15 in a trade that is now showing profits of roughly 75% (not including dividends).   

The stock recently experienced the major range breakout that we were expecting, and investors that are long the stock will now need to gauge the likely monetary policy direction that is likely to be taken by the Federal Reserve as a means for understanding how to position going forward.  This is a factor that is more likely to influence financial sector trends more than any other single element in the equation, and Bank of America could be used by the market as a proxy for expressing any significant changes in the outlook.  

Stock Trade Ideas

Our stance is to remain long BAC but with the understanding that adjustments might need to be made if a move dovish monetary policy stance is signalled by Donald Trump’s next selection for leader of the Federal Reserve.

On a year-to-date basis, Bank of America has soundly outperformed the market with stock gains of nearly 26%.  We can compare this to the SPDR S&P 500 ETF (SPY), which has moved higher by only 15% for the period even though the broader environment has been characterized by optimism over tax reform and a pro-growth agenda for the US economy.  

Global Interest Rates

The disconnect here is significant, as it underscores the majority expectation for higher interest rate into 2018.  There are valid arguments in both direction with respect to whether or not these initial expectations have actually been satisfied.  But the real questions here lie in the monetary policy direction that will be undertaken by the Fed once its new leadership regime takes control.  

Currently, markets are dealing with three possibilities as Fed Chair (John Taylor, Jerome Powell, or the continuation of Janet Yellen in her current position).  There are very different implications here depending on which economist is ultimately selected, and those long BAC will almost certainly feel the resultant volatility in their positions over the next few weeks.

BAC Earnings Data: Yahoo Finance

Higher interest rates generally make it easier for banks to drive revenues and improve margins, but the policy course that has been taken by Janet Yellen has been far more dovish than many analysts initially anticipated.  We have seen conflicting commentaries from US President Donald Trump with respect to his assessment of Yellen’s approach to the economic recovery.  

But, over time, it has started to look as though Trump does favor this supportive stance as it is more likely to drive consumer spending and help stock markets maintain their record highs.  But, at the same time, Trump has shown an interest in appointing more hawkish names (i.e. Taylor and Powell).  

Fed Policy Direction

On the spectrum from most dovish to most hawkish, this list of possibilities moves from Yellen to Powell to Taylor and so the ultimate decision here will likely determine the trading tone that is seen for most of the first half of next year.  For BAC bulls, Taylor would likely lead to the most favorable outcome and this is important given the areas of weakness that were seen in Bank of America’s earnings report for the third quarter.  

Earnings of 48 cents per share did beat the market expectation of 45 cents (confirming the longer-term trends) but revenues were more erratic at $22.079 billion (also confirming the longer-term trends).  Trading revenues remain the central cause for concern, as annualized revenues from fixed-income trading fell a substantial 22% for the period.  

Bank of America Chart Analysis

This has put some cracks in the foundation, and the rallies in BAC could be at risk if the market if not convinced that the next Fed chief is ready to aggressively tighten policy in ways that match normalized historical trends. Given Trump’s recent comments, it would not be entirely surprising to see something of a “compromise verdict” where the US President selects Jerome Powell as Fed Chair and then appoints John Taylor in a secondary role at the central bank.  

Anything short of this is likely to lead to selling pressure in BAC.  Readjustments in our long position will be considered if an unfavorable outcome sends share prices back below 23 as it would suggest another period of consolidation that cannot be fully mitigated by the stock’s 1.73% dividend yield.  Until then, we will hold our positions and collect the dividend while the momentum is still positive.

 

Market News

Financial Markets: Securities Lending and Borrowing

Leave a comment

Financial Markets: Securities Lending and Borrowing

Securities or Stock Lending and borrowing (SLB) involves borrowing of shares by traders that they do not own.  Similarly, they can lend the stocks that they own but do not want to sell immediately.  SLB transactions carry an interest rate on the borrowing or lending of loans.  Moreover, the lending period/borrowing period is mutually fixed by the two concerned parties.  There are differences as well between SLB and loans.  The rate of interest is not under any form of control in the case of SLB and is totally dependent on the market.  Stocks in the futures and options segments are the ones that can be a part of the SLB process.   

Euroclear Group provides securities lending and borrowing solutions that enable the client firms to focus on increasing returns, liquid generation or enhanced risk management.  The true potential of the business firm’s portfolio while at the same time conforming to the regulations as they have changed over time.  Their automated securities lending and borrowing programs which are literally risk-free are secure and extremely flexible.  Settlement failures, as well as counterparty claims, are avoided by targeting the borrowing demand.  Clients are thus able to get confidential, flexible, risk-focused and secure solutions.

Time Tested Efficiencies

The robust securities and lending programs offered by Euroclear’s UK and Ireland are time-tested and proven that deliver settlement efficiencies that have not been available before to the client firms. The SLB programs fund different collateral operations, optimize settlements, and cover shorts.  For those firms that are opportunity lenders and borrowers, the GC Access Product from the Euroclear Group through Euroclear Bank allows for the baskets of HQLA lending and borrowing against different collaterals at the street level.  

Clients are encouraged to outsource the management of their collateral aspects related to activities regarding street lending to the Triparty Securities Lending service of the Euroclear group.  This enables businesses to firmly focus on their business opportunities in the market leading to better business performance.

There are many reasons which propel the business organizations to avail the securities lending and borrowing services (for example in the Australian market).  If a trader has ended up selling his securities short, there is a requirement to borrow those securities because it has an obligation to fulfill in the settlement required for the securities.  As per the rules prevalent in Australia, for this to happen, the trader must possess the securities and deliver them to the buyer within 3 days after the trade took place.  

Short selling might be reflective of the direction of the price of the security or it could be related to the view of the relative price.  Another reason to get involved in SLB is that in the derivatives market, the trader might want to sell securities that are not owned by it to hedge a derivatives position linked to equity.  This trader too must borrow securities to fulfill the settlement obligation that follows.  On a similar note, arbitrage and falls -driven borrowing can lead to situations in which the lending and borrowing of securities would be necessitated.

Options

Australian Stocks: Options Trading in the ASX 100

Leave a comment

Options markets have quickly risen in prominence over the last several years, and there are many reasons to explain why these trends have been seen.  Global markets are quickly adding many different trading instrument types in order to meet the needs of everyday investors.  

For those most focused on Australian companies, this will often mean establishing positions in the ASX options contract. These option types allow investors to gain market exposure to the stocks listed on the Australian Stock Exchange, which is one of the most interesting and dynamic stock collections in the world.

Just like bonds and mutual funds, trading options is a kind of investment portfolio strategy for sophisticated investors. Options are a derivative security type, with a price derived from (or dependent upon) one or more underlying assets. Working as a contractual agreement, options grant the rights of buying and selling those assets on or before a certain date and at a set price – known as the strike price.

CALL Options and PUT Options

There are two basic types of options: CALLS and PUTS.  With CALL options, the investor gets the right to buy a particular stock at a fixed price on a fixed timeline, but it is not an obligation to make the purchase. CALL options work like a future deposit. Within the expiry time, the stock can be bought at a fixed price (the strike price), and it does not matter if the market value of that stock has doubled during the timeline. This can help investors make big gains. CALL options are exercised when the market value of stocks seems to be going up in a bullish fashion.

With PUT options, investors have the right to sell a particular stock at a fixed price within an expiration timeline. Again, making the sale is not an obligation. This can be profitable in cases where the market value of the stock goes down while the investor can still sell it at the higher strike price. But for both CALL and PUT options, there is a set expiration date. After that, the right expires and all purchases and sales must be made at the actual market rate.

Options Premiums

A premium is the price/value of an option in options trading. It is the amount paid by the investor at the time the options trade is selected. Technically, the only potential risk for the buyer is to lose the initial premium amount paid for the option (in cases where the trader does not utilize his/her buying or selling right before expiration timeline). These premiums can range from narrow to wide bid/ask spreads, and are often quoted by market makers who build market activity in that specific option.

Expiration Date

Every option contract comes with an expiration date, which is the total life span of that contract. The right to buy/sell a stock is valid until that period of time. Expiration deadlines vary for different stocks and products. The premium is lost if the purchase/sale is not made within the specific time period.

 

Market News

Stock Trading: Oracle Shares Surges to New Highs

Leave a comment

Stock Trading: Oracle Shares Surges to New Highs

Stock markets continue to post major bull rallies but one sector that has been largely missed by investors is the technology space.  This can be seen in professional indices trading trends, which have recently shown that assets tied to the NASDAQ have underperformed those tied to the value of the S&P 500.

But we are starting to see some of these trends change, as tech stocks have been able to post better rallies in recent weeks.  One of the best examples here can be seen in Oracle Corp. (NYSE: ORCL) which is now trading at long-term highs.

Stock Price Chart: Oracle Corp. (NYSE: ORCL)

Stock prices in ORCL have surged above prior resistance levels en route to new highs above $45 per share.  “Information driven,” Oracle is one of the most prominent names in tech development and marketing of business software products, database technology software and cloud engineered systems.  Based in the USA and established in 1977, the company is a public multinational entity having more than 136,000 employees currently with head office in California’s Silicon Valley.  

Key products among others related to Oracle are storage, servers, oracle applications and oracle enterprise manager. Enterprise resource planning, supply chain management, and customer relationship management soft wares are also specialized names which are associated with Oracle. It reported annual revenue of $37.04 US billion Dollars (2016) and net income worth 8.90 US billion Dollars (2016).

Tech Manufacturing Companies

In addition to manufacturing and marketing of business software products Oracle also offers other services which comprise consultancy, training and financing which is also a unique element in relation to Oracle. Since its inception Oracle has gone through a comprehensive process of acquisition of entities both corporate and individuals.  In 1995, IRI software was acquired by it under consideration of $100 million US Dollars.  

Other notable acquisitions include:

  • PeopleSoft in 2005 $10.3 billion US Dollars
  • Seibel Systems in 2006 for $5.85 billion US Dollars
  • Hyperion Corporation in 2007 for $3.3 billion US Dollars
  • Sun Microsystems in 2010 for $7.4 billion US dollars
  • Micros Systems in 2014 for $5.3 billion US Dollars
  • NetSuite in 2016 for $9.3 billion US Dollars
  • Apiary in 2017  for which the valuation of purchase consideration is yet to be agreed

According to reports in 2015 Oracle after Microsoft was second-largest software maker revenue wise which is indeed an impressive and substantial outlook internationally. Since the beginning company has introduced multiple technological dimensions like UNIX-based Oracle applications in 1987, PL/SQL in 1988, 64 bit RDBMS in 1995.  

This was followed by its free database to qualify industry standard security evaluations in 2002, smart scans that enhance software query response in HP Oracle Database machine in 2008 and in particular initiative in the shape of Oracle 12c which can facilitate cloud services along with Oracle Database in 2015.  Conclusively, despite facing multiple challenges since the beginning, Oracle has proved itself among preferred and highly recommended global tech entities.

Long Ideas

Gilead Sciences: Sluggish After Healthcare Reform Debate

Leave a comment

Gilead Sciences: Sluggish After Healthcare Reform Debate

Gilead Sciences is an American biopharmaceutical company that discovers, develops and commercially sells a range of therapeutics including antiviral drugs for the treatment of Hepatitis, HIV, and influenza.

The company was founded in 1987 by Michael Riordan, a medical doctor. He served as CEO till 1996. A venture capital firm Menlo Ventures made the first investment of $2 million dollars in Gilead. In 1996, it entered a collaborative research agreement with Glaxo for the development of genetic code blockers or antisense. This was terminated in 1998 and its antisense intellectual property portfolio was sold to Isis Pharmaceuticals.

Gilead IPO

Its Initial Public Offering raised $86.25 million. It launched Vistide for the treatment of CMV in patients with AIDS. It collaborated with Pharmacia & Upjohn to reach more markets outside the United States. In 2010, it acquired CGI Pharmaceuticals for $120 million which expanded its research into kinase biology and chemistry. It also acquired Arresto Biosciences for $225 million and their research for treating fibrotic diseases and cancer. It acquired Pharmasset Inc. for $10.4 billion dollars.

Drug Pipelines

This gave it control over the HCV treatment market by holding Sofosbuvir (medicine for Hepatitis C). It was the first firm to manufacture a pill which is known to reduce the risk of HIV infection. It had a market capitalization of US $113 billion and its stock doubled its value after the acquisition. It was ranked the 4th best drug company by Forbes. It attributed its success to FDA approval and potentially revolutionary drug Sovaldi.

The drug has faced its fair share of criticism for its high price. The committee of finance of the United States Senate investigated wherein it sent letters to the CEO of the company as to how it derived its price. It has recently also acquired Phenex Pharmaceuticals, EpiTherapeutics and Nimbus Apollo. This has given access to treat liver diseases such as non-alcoholic steatohepatitis, inhibitors of histone demethylases which regulates gene transcription in cancer and potentially treating hepatocellular carcinoma and an anti-inflammatory drug filgotinib which may be used to treat arthritis and Crohn’s disease. It’s current president and chief executive officer is John F. Milligan.

Long Ideas, S&P 500

GE: Trump’s Infrastructure Policies Favor Blue-Chips

Leave a comment

General Electric is an American multinational conglomerate incorporated in New York. It offers a range of services from power and oil, gas and aviation to financial services and even software development. It is one of the original 12 companies listed on the Dow jones index and while it may have not been listed on the index continuously it currently features in the index. It was one of the earliest companies incidentally funded Thomas Edison’s electricity projects.

General Electric was one of the earliest companies incidentally funded Thomas Edison’s electricity projects. The Radio Corporation of America was founded through GE in 1919. It was also used as the retail arm for radio sales until their separation in 1930. GE has been involved in power generation and its history working with turbines, it introduced the first superchargers. These were incorporated into flights during World War I. It reacquired RCA in 1986 and by that NBC.

Changing Company Focus

In the 1960s, GE was considered one of the major computer companies. It had a line of both general and special purpose computers such as GE200, GE400 etc. IN 1970, GE sold most of its computer division to Honeywell, though it did retain its timesharing options for a while after. GE’s current business divisions include GE Power, GE Oil & Gas, GE Renewable Energy, GE Energy Connections, GE Aviation, GE Healthcare, GE Transportation, GE Capital and GE digital.

Through these GE participates in various markets ranging from generation and distribution of electricity, medical imaging equipment, automation, motors and aviation. It also offers financial services through GE Commercial Finance, GE Consumer Finance etc. GE has a history of large scale water and air pollution. IT heavily contaminated the Hudson river with PCBs between 1947 and 1977. It also polluted the Housatonic River with PCB discharges from 1932 till 1977. Recently GE has shifted its efforts towards using clean renewabl

Recently GE has shifted its efforts towards using clean renewable energy. It unveiled its EV solar Carport which has solar panels on its roof with electric vehicle charging stations under its cover. It has a renewable energy programme ‘Ecomagination’ which has resulted in over 70 green products such as halogen lamps, biogas engines being introduced into the market. It invested nearly $25 billion dollars into the project due to popular market response.

Long Ideas, S&P 500

Goldman Sachs: Financials Ride Trump Train Higher

Leave a comment

Goldman Sachs: Financials Ride Trump Train Higher

The Goldman Sachs Group is an American multinational financial company that provides financial services such as investment management, securities and is involved in investment banking. Investment banking accounts for about 21% of the group’s revenue. It gained a reputation as a white knight against hostile takeovers. It is one of the leading M&A forms and frequently tops the Thomson Financial league tables in size of transactions.

Goldman’s Business

It performs various activities such as financial advisory, underwriting etcetera. Investing and lending activities included 16% of its revenue while Institutional client services such as currency and commodities, equities trading accounts for 45% of its total revenue. It is a primary dealer in U.S Treasury securities market. It was founded in 1869 and is headquartered at New York City.

In August 2012, Goldman Sachs created the first social impact bond to support therapy for 16-18 year olds incarcerated on Rikers Island. It has implemented internal policies to address global warming and climate change. It has given around $119 million in grants since 1999 to promote youth education. It was ranked as one of the best places to work for by Fortune magazine and it supports employee philanthropic efforts. As a result the employees are highly loyal to the organisation.

Mortgage Market Criticism

As a result, the employees are highly loyal to the organization. Goldman Sachs has also been criticised as being responsible for the collapse of the mortgage market. It faced investigations from the Congress, the Justice Department and the SEC which it had to settle. It was alleged to have misled investors. Goldman Sachs has denied the allegations and stated that its customers were aware of the bets. It has been accused of various other ethical violations including insider trader based on information obtained from the U.S government and working to

Goldman Sachs has denied the allegations and stated that its customers were aware of the bets. It has been accused of various other ethical violations including insider trader based on information obtained from the U.S government and working together with dictatorial regimes and increasing prices of commodities through futures speculation. It was accused of helping Greece hide its debt by creating a special credit default swap to cover the high risk of Greece’s national debt. 

Goldman Sachs has donated money to both major American political parties during election cycles as well as the candidates and the super PACs of both parties. In 2016, Goldman employees donated $371,245 to the Republican National Committee and $301,119 to the Hilary Clinton presidential campaign but top employees were forbidden from donating to Donald Trump.