If you have been around a while, you get used to certain things happening at certain times. For example, on the second weekend of February, the world celebrates Valentine's day, which typically brings the rush of romantic feelings for those of us who are participating in a relationship. Investors in the world's capital markets can be forgiven for not feeling much love these days as 2016 has seen the stock market drop no fewer than 10% over the last month and a half. Usually, Valentine's day gifts revolve around chocolates and hearts. This year, you might want aspirin and a blindfold to stop you from looking at the brokerage statement. So, what could be the cause of such a swoon?
The world seems a flutter with questions about everything. Will the United States dip into recession? Will China devalue it's currency? Will oil continue to drift even lower? Will negative interest rate policies put further pressure on bank earnings? How much exposure do European banks have to oil and commodity producers? What do European derivative books look like and how much are they tied to U.S big banks? What affect does currency volatility have on the unwinding of the carry trade tied to the euro and Japanese yen (carry trade is borrowing in a low interest rate currency to invest in a higher interest rate country)? Will the current frontrunners in the U.S. presidential race, Donald Trump, Hillary Clinton, and, gulp, Bernie Sanders, continue to lead the way and presage an ominous change to populist policies or even worse, radical financial regulations? Are corporate earnings under pressure from a weakening global economy? All or any of these could be reasons for what is troubling those who might put capital to work. At least for the last six weeks or so, it might be more appropriate to say, to investors seeking shelter in an uncertain world.
Last week, in her semi-annual testimony to Congress, Janet Yellen seemed to indicate she was not inclined to rule out negative interest rate policies, but the mechanics of implentation would make such a scenario difficult. In fact, the Fed head seems committed to the course of of a gradual climb to interest rate normality. Yesterday's better than expected .2% increase of retail sales bolsters this policy argument, as well as the upward revision to December retail sales. The bottom line is there remains plenty of questions, which further reinforces Nitezche's long standing belief.
Elsewhere in the market, the earnings parade continued non stop. PepsiCo Inc (N:PEP) reported a nice number, and Twitter (N:TWTR) met expectations as the market yawned. Yelp Inc (N:YELP) produced a shakey figure, while Jamie Dimon, highly regarded CEO of Chase Corporation (N:CCF), decided to buy 26 million of Chase stock after it got hammered during the thursday thrashing. Other notables joining the buying spree include David Tepper of Appaloosa and Seth Klauman of Baupost. Both purchased sizable stakes in energy concerns like pipelines and exploration and production entities. Pepsi, Coke and Davita met expectations, which only shows people continue to have to drink and receive dialysis. In the travel world, Expedia (O:EXPE) and TripAdvisor Inc (O:TRIP) posted strong growth and had good outlooks. The deal space saw Leapfrog Enterprises Inc (N:LF), mentioned in the column a while back, acquired by VTech Holdings Ltd (OTC:VTKLY) for the whopping price of $1 dollar a share. Kroger (N:KR) is rumored to be acquiring The Fresh Market Inc (O:TFM) in consolidation of the grocery and natural foods industry. Finally, there were rumors Chesapeake Energy (N:CHK) may be looking at restructuring their large debt obligations. There will be plenty more of these kinds of speculations in the energy industry so get used to it.
Thanks for reading the blog this week, I hope you enjoyed it. If you have any comments or questions about investing or the blog, please email me at information@y-hc.com
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