Five Things You Need to Know: Here's a TIP: Investors Are Banking on Inflation
Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1.Here's a TIP: Investors Are Banking on InflationCaught the following headline on Bloomberg when we walked in this morning: "TIPS' Yields Show Fed Has Lost Control of Inflation." The gist of the story is that the yield on the five-year Treasury Inflation-Protected Security TIPs) is negative for the first time ever, and has been trading that way since Feb. 29. The real yield is currently -.20%. Five-year TIPS are now yielding about 2% less than five-year Treasuries.What does this mean? Does a negative yield mean a Treasury Inflation-Protected Securities holder has to pay to own the security? In a way, yes. It means if you buy TIPs here you are essentially paying the government to do so because the yield is less than the Treasury equivalent.Now why would anyone do that? Because TIPs are designed to provide protection against inflation. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI. TIPs pay interest twice a year at a fixed rate and that rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.When TIPS mature an investor is paid the adjusted principal or original principal, whichever is greater. What the current negative yield situation means is that investors believe headline inflation is going to remain elevated and are willing to give up the real yield for the inflation-adjusted return of principal.TIPS have returned 6.2% this year, compared with 3.7% from Treasuries, according to tracking indexes compiled by Merrill Lynch (MER).On the one hand, buying TIPs here might seem a bit like fighting the Federal Reserve, though not in the way one might typically think of "fighting the Fed." The bet on TIPs would be that the U.S. central bank is sacrificing price stability for higher growth, allowing inflationary pressures to continue to build.That's the conventional wisdom to be sure, and we disagree with it. It's true, the Fed is not fighting inflation; they're fighting deflation. TIPs holders better hope the Fed doesn't lose.
2. Barron's Joins the "Tinfoil Hat Club"Last week when sitting around wearing my tinfoil hat and pondering the potential nationalization of Fannie Mae (FNM), little did I know I would soon be joined in the "tinfoil hat club" by Barron's. The weekly newspaper was out this weekend with a pretty wonky story on Fannie Mae ("Is Fannie Mae Toast?") and the possibility the mortgage giant may be "the next government bailout.""Just maybe a bailout of Fannie, in effect a nationalization, would be a good thing," the article said. "A retooled Fannie could pursue its important social mission without the distraction of trying to please Wall Street. Of course, it's doubtful if this happens that the shareholders would be along for the ride."It certainly appears at least some shareholders have reached that conclusion as well, which is really what prompted the Five Things piece on the nationalization of the GSE's in the first place. Fannie Mae and Freddie Mac (FRE) are down more than 40% since the beginning of the year.As for nationalization being "a good thing"? Well, Barron's will have to remain in that particular club without us.
3. The Next Real Estate Bubble?First residential real estate. Now, increasing signs of stress in commercial real estate. Next? Perhaps the farm. According to an interesting piece in the New York Times over the weekend ("A Global Need for Grain That Farms Can’t Fill"), the flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.A separate Associated Press story noted that farmland values rose 16% in parts of the upper Midwest, the largest increase in nearly 30 years. USDA officials found that the average value of an acre of Wisconsin farmland, about $2,250 in 2002, had jumped to $3,366 in 2006.
4. Apparently, We Aren't Going to Just Sit Home Twiddling Our Thumbs Every DayAmusement park operator Six Flags (SIX) may not be the most important stock in the universe at around a buck 65 a share, but we took a listen to their conference call this morning mainly because we were interested in their take on a consumer recession and what that means for discretionary entertainment dollars.Mark Shapiro, Chief Executive Officer noted the headwinds right off the bat: "From October 15th to the end of 2007 the stock market was down 15%, driven by the credit crunch, driven by the housing bubble, driven by oil prices, driven by a retail sector that was down really across the board from a Christmas shopping standpoint, just overall it's the same climatethat we're experiencing right now," he said.True enough. But what caught our ear was the inventiveness in Shapiro's pitch that Six Flags is somewhat recessionary proof. Despite the economic headwinds, what ends up happening historically is the long-distance vacation, the big-ticket items are what get sacrificed, Shapiro said. The short, close to home and affordable vacations usually historically ramp up."We just believe that people are not going to stay in their house every single day just twiddling their thumbs," he said. "Recent results from BJ's (BJS) and Costco (COST) indicate the consumers are essentially trading down for specialty stores, they're trading down from department stores, they're looking for lower price alternatives and we believe Six Flags is such that it is exactly a low-priced alternative."Fair enough. So does that mean the company gets hammered when the economy improves and people can afford to vacation again?
5. Anti-Consumption Sentiment Turns Against the "Good Consumers"Ran across a fascinating piece in the Washington Post that merges neatly with our thesis that as social mood darkens, consumption will increasingly be targeted as a societal evil. What was unexpected, however, was that the target in this anti-consumption piece wasn't the Neiman Marcus set, but "good consumers.""Let us buy Anna Sova Luxury Organics Turkish towels, 900 grams per square meter, $58 apiece. Let us buy the eco-friendly 600-thread-count bed sheets, milled in Switzerland with U.S. cotton, $570 for queen-size.Let us purge our closets of those sinful synthetics, purify ourselves in the flame of the soy candle at the altar of the immaculate Earth Weave rug, and let us buy, buy, buy until we are whipped into a beatific froth of free-range fulfillment.And let us never consider the other organic option -- not buying -- because the new green consumer wants to consume, to be more celadon than emerald, in the right color family but muted, without all the hand-me-down baby clothes and out-of-date carpet."The aggressive cynicism in the first three paragraphs is also a bit surprising. There's no attempt to gently persuade going on here. The commentary is forthright and harsh:"Consuming until you're squeaky green. It feels so good. It looks so good. It feels so good to look so good, which is why conspicuousness is key."It speaks to the magnitude of the shift in social mood that we may be seeing.http://www.minyanville.com/
Posted by Jenny at 10:37 PM 1 comments
Saturday, March 8, 2008
Banking on rise of mobile phone portals
With more gadgets using mobile technology, the rise of a banking portal for mobile phones seems likely. The question is whether Monitise, a UK company, will be behind that portal.Since spinning off in June from Morse, a technology consultancy, it has signed partnerships with big banks and telecoms companies in the UK and US. It also claims to have achieved “scalability” – with much of the investment in system development done and the remaining challenge just rolling it out.Since floating at 22p, Monitise shares have fallen to 12½p, giving it a market capitalisation of about £32m ($63m). So far, 110,000 customers have signed up, below Monitise’s own expectations. The company is not expected to be profitable until 2010 and its revenue model is still evolving.In the UK, banks pay a fee per-user per-month, while in the US they must also pay a monthly licence fee. There are many competitors. Alastair Lukies, chief executive, thinks 30 companies offer similar technology.In November, Qualcomm, a wireless technology company, bought Firethorn, a smaller US rival to Monitise, for $210m (£107m). That could mean Monitise is undervalued or overmatched, depending on your point of view.http://www.ft.com/
Posted by Jenny at 3:12 AM 0 comments
Gold Price Jumps as Banking Stocks Tumble; Platinum Gains Despite "No Actual Shortage"
Gold Prices shot higher early Tuesday to hit a one-week high of $918.90 per ounce – up more than $18 from yesterday's low – as European equities bounced from a sharp fall in banking stocks.The value of Credit Suisse, the second largest Swiss banking group, sank nearly 10% at the opening in Zurich today after it trebled the size of write-downs on its debt investments.Only last week banking analysts agreed that Credit Suisse had "weathered 2007 comparatively well" after it wrote down $1.4 billion for Oct. to Dec."This is a disaster, this could be the tip of the iceberg," says Peter Thorne, an analyst at institutional brokerage Helvea."According to the presentation Credit Suisse gave a week ago their exposures to residential mortgages were $7.9 billion and collateralized debt obligations were $2.4bn, and now they have just written down $2.85bn down."Here in London – where Northern Rock has finally been nationalized after receiving more than $50 billion in tax-funded support – shares in Barclays lost 4.5% at one point today after the UK's third largest bank cut second-half profits by one fifth.Again it blamed credit investment write-downs, as well as lost earnings from securitization. All told, the world's biggest financial institutions have now written down $145 billion since the US subprime collapse began in July 2007, according to Reuters data.The Gold Price, in contrast, has risen by one-third or more since then against all major currencies."Additional buying [from Newcrest Mining] has certainly been a supporting factor for gold over the past few months," says today's note from Mitsui, the precious metals dealer, "but it has not been the only story and with the current consolidation continuing, the market looks set to test higher again soon."Australian gold miner Newcrest today reported a net loss of A$8.1 million (US$7.4m), driven by the cost of buying back 3.4 million ounces of gold – previously sold forward during the two-decade bear market in gold ending 2001 – over the last six months."As of the 15th February," Mitsui adds, "Newcrest still holds 622,302 ozs on its hedge book."Elsewhere in the precious metals market today, platinum futures jumped "limit up" in Tokyo today and rose to a new record high of $2,145 per ounce in London as South Africa's energy shortage continued to drive speculators into the white metal."The platinum market was already worried about supplies in South Africa and this power problem emerged to trigger more buying," says Hisaaki Tasaka, a precious metals analyst at Ace Koeki in Tokyo, Japan."But at the moment, we are not seeing an actual shortage in supplies," he notes, "because lease rates have not surged."New mining supply outweighed physical platinum demand by 1,715 tonnes last year, according to Johnson Matthey, the world's No.1 platinum distributor. Enough to meet 26% of annual consumption, that excess supply in the platinum market has grown four times over since 2002.Meantime on the currency markets this morning, the European single currency jumped almost one cent vs. the Dollar – capping the Gold Price in Euros below €623.50 per ounce – despite news that construction output in the 14-nation Eurozone shrank for the second month running in December.Eurostat, the official data agency, also revised Nov.'s output further down, taking the total contraction so far to 1.6%. Inflation in the cost of living, on the other hand, surged to a 14-year high of 3.2% at the end of 2007, squeezing the European Central Bank's room for maneuver.Copper futures today rose 1% in Shanghai on news that global stockpiles have shrunk to a five-month low.Ahead of Wall Street's return after the long Presidents Day weekend, US crude oil futures rose for the second session running to hit a five-week high above $96.40 per barrel in London – more than 1% higher from Friday's close in New York."It's likely that Opec will make a cut [to output] as in their view the market is well supplied," said one Swiss analyst to Bloomberg earlier.The Opec oil cartel – which pumps 40% of the world's daily supply – has cut its demand forecasts for April to June by 1.6 million barrels per day. Yesterday the Iranian oil minister said that "cutting production has been the normal process every year in March."Prices of bauxite, the aluminum ore, continued to rise, taking the gain since the start of January above 30% – double the gains of 2007 as a whole – after Indonesia, which supplies more than two-thirds of China's bauxite demand, cracked down on illegal mining, restricting output.Robusta coffee today gained 1.2% in London, taking its rise since New Year's Day to 22%, a "record start" according to Bloomberg data.http://goldnews.bullionvault.com/
Posted by Jenny at 3:10 AM 0 comments
Friday, January 4, 2008
Posted by Jenny at 10:37 PM 1 comments
Saturday, March 8, 2008
Banking on rise of mobile phone portals
With more gadgets using mobile technology, the rise of a banking portal for mobile phones seems likely. The question is whether Monitise, a UK company, will be behind that portal.Since spinning off in June from Morse, a technology consultancy, it has signed partnerships with big banks and telecoms companies in the UK and US. It also claims to have achieved “scalability” – with much of the investment in system development done and the remaining challenge just rolling it out.Since floating at 22p, Monitise shares have fallen to 12½p, giving it a market capitalisation of about £32m ($63m). So far, 110,000 customers have signed up, below Monitise’s own expectations. The company is not expected to be profitable until 2010 and its revenue model is still evolving.In the UK, banks pay a fee per-user per-month, while in the US they must also pay a monthly licence fee. There are many competitors. Alastair Lukies, chief executive, thinks 30 companies offer similar technology.In November, Qualcomm, a wireless technology company, bought Firethorn, a smaller US rival to Monitise, for $210m (£107m). That could mean Monitise is undervalued or overmatched, depending on your point of view.http://www.ft.com/
Posted by Jenny at 3:12 AM 0 comments
Gold Price Jumps as Banking Stocks Tumble; Platinum Gains Despite "No Actual Shortage"
Gold Prices shot higher early Tuesday to hit a one-week high of $918.90 per ounce – up more than $18 from yesterday's low – as European equities bounced from a sharp fall in banking stocks.The value of Credit Suisse, the second largest Swiss banking group, sank nearly 10% at the opening in Zurich today after it trebled the size of write-downs on its debt investments.Only last week banking analysts agreed that Credit Suisse had "weathered 2007 comparatively well" after it wrote down $1.4 billion for Oct. to Dec."This is a disaster, this could be the tip of the iceberg," says Peter Thorne, an analyst at institutional brokerage Helvea."According to the presentation Credit Suisse gave a week ago their exposures to residential mortgages were $7.9 billion and collateralized debt obligations were $2.4bn, and now they have just written down $2.85bn down."Here in London – where Northern Rock has finally been nationalized after receiving more than $50 billion in tax-funded support – shares in Barclays lost 4.5% at one point today after the UK's third largest bank cut second-half profits by one fifth.Again it blamed credit investment write-downs, as well as lost earnings from securitization. All told, the world's biggest financial institutions have now written down $145 billion since the US subprime collapse began in July 2007, according to Reuters data.The Gold Price, in contrast, has risen by one-third or more since then against all major currencies."Additional buying [from Newcrest Mining] has certainly been a supporting factor for gold over the past few months," says today's note from Mitsui, the precious metals dealer, "but it has not been the only story and with the current consolidation continuing, the market looks set to test higher again soon."Australian gold miner Newcrest today reported a net loss of A$8.1 million (US$7.4m), driven by the cost of buying back 3.4 million ounces of gold – previously sold forward during the two-decade bear market in gold ending 2001 – over the last six months."As of the 15th February," Mitsui adds, "Newcrest still holds 622,302 ozs on its hedge book."Elsewhere in the precious metals market today, platinum futures jumped "limit up" in Tokyo today and rose to a new record high of $2,145 per ounce in London as South Africa's energy shortage continued to drive speculators into the white metal."The platinum market was already worried about supplies in South Africa and this power problem emerged to trigger more buying," says Hisaaki Tasaka, a precious metals analyst at Ace Koeki in Tokyo, Japan."But at the moment, we are not seeing an actual shortage in supplies," he notes, "because lease rates have not surged."New mining supply outweighed physical platinum demand by 1,715 tonnes last year, according to Johnson Matthey, the world's No.1 platinum distributor. Enough to meet 26% of annual consumption, that excess supply in the platinum market has grown four times over since 2002.Meantime on the currency markets this morning, the European single currency jumped almost one cent vs. the Dollar – capping the Gold Price in Euros below €623.50 per ounce – despite news that construction output in the 14-nation Eurozone shrank for the second month running in December.Eurostat, the official data agency, also revised Nov.'s output further down, taking the total contraction so far to 1.6%. Inflation in the cost of living, on the other hand, surged to a 14-year high of 3.2% at the end of 2007, squeezing the European Central Bank's room for maneuver.Copper futures today rose 1% in Shanghai on news that global stockpiles have shrunk to a five-month low.Ahead of Wall Street's return after the long Presidents Day weekend, US crude oil futures rose for the second session running to hit a five-week high above $96.40 per barrel in London – more than 1% higher from Friday's close in New York."It's likely that Opec will make a cut [to output] as in their view the market is well supplied," said one Swiss analyst to Bloomberg earlier.The Opec oil cartel – which pumps 40% of the world's daily supply – has cut its demand forecasts for April to June by 1.6 million barrels per day. Yesterday the Iranian oil minister said that "cutting production has been the normal process every year in March."Prices of bauxite, the aluminum ore, continued to rise, taking the gain since the start of January above 30% – double the gains of 2007 as a whole – after Indonesia, which supplies more than two-thirds of China's bauxite demand, cracked down on illegal mining, restricting output.Robusta coffee today gained 1.2% in London, taking its rise since New Year's Day to 22%, a "record start" according to Bloomberg data.http://goldnews.bullionvault.com/
Posted by Jenny at 3:10 AM 0 comments
Friday, January 4, 2008
