|Dow||+14.07 to 17,280.06|
|S&P 500||-0.94 to 2,010.41|
|Nasdaq||-13.64 to 4,579.79|
|10-YR Yield||-0.04 to 2.587%|
|Gold||-$3.60 to $1,226.50|
|Crude Oil||-$0.64 to $92.43|
It’s official! Scotland will stay in the United Kingdom!
By a 55-45 percent margin, Scottish citizens voted “No” on the secession referendum. British Prime Minister David Cameron sounded jubilant in response, saying:
“The people of Scotland have spoken. It is a clear result. They have kept our country of four nations together. Like millions of other people, I am delighted.”
But to keep the 307-year-old union intact, British officials recently promised more autonomy and perks for Scotland. So they will have to follow through to keep the peace.
That should result in a slightly more decentralized U.K. government. But the removal of “secession risk” should also help the U.K. economy resume its upward trend. Unemployment is plunging, and growth is picking up there – key factors that put the Bank of England firmly in the U.S. Federal Reserve camp when it comes to hiking rates soon.
At the same time, Japan’s economy continues to sink into the abyss. gross domestic product collapsed at a 7.1 percent rate in the second quarter, the worst decline since early 2009 when the global economy was in recession. The country’s debt load has surged to more than 200 percent of GDP, and a recent tax hike has tanked retail sales.
The Japanese yen is collapsing as a result! Yen futures plunged as low as 0.9143 against the dollar this morning.
|Some 55 percent of voters in Scotland chose to remain in union with the rest of the United Kingdom.|
That’s the lowest level in six years! While the yen is deeply oversold, and we could get a short-term correction at any time, there doesn’t look to be any meaningful long-term support here until the 0.80-0.85 level, either. Or stated another way: With the economy weak, and the Bank of Japan likely to print even more yen and buy even more assets in response, I don’t know what pulls the yen out of this death spiral.
So what does all of this mean for you? How will it impact stocks heading into the final quarter of 2014?
Well, we know the economic data in the U.K. is relatively strong, helping offset the drag from Europe.
We know the U.S. economy is chugging right along, helping push U.S. stocks to fresh highs earlier this week.
We know the Japanese are desperate to do just about anything to goose asset prices and the economy.
|“Put it all together, and it could be the recipe for a further year-end ramp in U.S. stocks and the U.S. currency.”|
And we know the European Central Bank is being very aggressive there, too, printing money in an attempt to boost inflation and growth on the Continent.
Put it all together, and it could be the recipe for a further year-end ramp in U.S. stocks and the U.S. currency! That would likely be accompanied by a further decline in U.S. bond prices, and a rise in interest rates – not to mention outperformance by the very same, domestically focused sectors I’ve been highlighting all year!
We should also see dramatic underperformance in European and Japanese shares, at least for U.S. investors, because of the unfavorable currency translation effects. Remember: When you invest in a foreign stock market, and that country’s currency tanks against the greenback, you lose money on the currency translation even if the foreign stock market doesn’t move at all!
So buckle up and make sure you re-read many of my recent columns for my best investment ideas! It should be a very interesting end to a very interesting year.
What are your thoughts on all of this? Did you expect the Scottish vote to shake out this way, and is the resounding “No” outcome influencing your investment strategies? How about Japan? Have you bought any Japanese stocks, and if so, how is it working out for you?
Finally, what do you see happening in the remaining three months of 2014? A major year-end ramp? A serious correction? Something in between? Let me know at the Money and Markets comment section below.
|Our Readers Speak|
Many of you continue to be engaged on the topic of interest rates, and I’m glad to see that. Rates are the lifeblood of all capital markets, and after remaining quiet for most of 2014, they’re waking up again in a jiffy!
Reader Bob disagrees that the Federal Reserve has any plans to change its tune. He said: “Don’t look for Yellen to raise interest rates. If anything, she will be behind the curve of any market forces taking interest rates higher.
“Remember that when she was still co-chair, she mused about absolute negative interest rates even before the ECB acted with its own ridiculous welfare package for the eurozone banks. All of this monetary insanity has created even bigger bubbles than those preceding the crash of 1929. The only Fed Reserve members with any brains are Charles Plosser of Philly and Richard Fisher of Dallas.”
Bob, I appreciate the comments. I agree that Yellen is behind the curve and will TRY to remain that way.
But look at 2-year Treasury Note yields! They have already almost tripled to 0.57 percent from around 0.2 percent at the 2013 low. Look at 5-year Treasury Note yields, which hit a 40-month high of 1.88 percent earlier this week! The bond market IS forcing Yellen’s hand, and knows that her low-rate pledges of the past year or so aren’t worth squat.
I’ve read a lot of comments about how rates can’t go up. But I’ve been following the bond market closely for more than 15 years, and I can tell you they are already going up – everywhere! And I’m convinced that I have already seen the lowest rates I will ever see in my lifetime. We shall see.
As for the economy and the banking system, Reader Mike S. said: “Now, that the Big Banks have been saved and the economy is improving (Thank You President Obama and the Democratic members of Congress), we need to reinstate the Glass-Steagall Act of 1933, the removal of which in 1999 by the majority Republican Congress (Gramm/Leach/Blyley) allowed the banks to go crazy (just as in the late 1920s) … and implode in October 2007 (just as in 1929).
“I find it interesting that a lone Democratic female Senator from the Harvard Business School, Elizabeth Warren, is currently championing the reinstatement of Glass-Steagall. Let us pray that some of the Republican members of the House turn their backs on the big donations from the big banks and do the right thing.”
Mike, I think the problem isn’t necessarily that the big banks were allowed to do more securities-focused businesses as part of the Gramm/Leach/Bliley bill. I think it’s that regulators didn’t crack down when they got out of control doing so.
Regulators fell down on the job yet again in the early-2000s. They failed to do anything about the burgeoning housing boom – despite multiple warnings from people like me that things were getting totally out of control.
Most importantly, I believe the Fed kept monetary policy too easy in both instances. That aided and abetted the banks’ reckless behavior. The Fed basically put a liquor cabinet of booze in front of a bunch of alcoholics, left the room, and assumed they wouldn’t give in to temptation and start drinking.
Lastly, I came across yet another comment about how the economic recovery is failing to impact a broad swath of America. Reader Thomas R. said: “Yes, the economy is improving for the top 5% and the safety net is improving for the bottom 25%. The middle class, however, is still being slaughtered by at best stagnant if not declining incomes, inflation, higher taxes, increased fees especially for health care, and excessive government regulations.”
Thomas, I have no objections to the problems facing Middle Class America that you cited. This recovery, so far, has done a lot more for the 1-percenters, as I’ve chronicled here in Money and Markets, than it has for many others.
But the figures and data I’ve seen over the past few quarters have been improving across the board. That indicates a broadening out of the recovery. The Fed’s exit from artificial stimulus and “Reverse Robin Hood” behavior (as one poster characterized things the other day) will only help more.
That doesn’t mean all of our challenges have gone away. This certainly isn’t a 1990s-style, super-broad recovery. But if we can keep on this course, more Americans will get their share of the pie – not because of Washington policy, but in spite of it!
Keep those comments coming, everyone, right here at the Money and Markets comment section below. I’ll do my best to address as many as I can.
|Other Developments of the Day|
- Alibaba Group (BABA) priced its IPO at $68 late yesterday, the high end of its expected range. That means the Chinese e-commerce firm raised a total of $21.8 billion in the transaction, the biggest U.S. IPO ever. They opened trading at $92.70 near midday. It could even top the Agricultural Bank of China’s 2010 IPO ($22 billion) – the largest IPO anywhere in the world, ever. That would happen if the firms underwriting the share sale exercise their over-allotment option and issue more shares.
- Here we go again: People are lining up by the hundreds in cities around the world to get their hands on Apple’s (AAPL, Weiss Ratings: A-) latest smartphone. The iPhone 6 and iPhone 6 Plus both went on sale this morning.
- Apple already said that it got pre-orders for 4 million units in the first 24 hours it was taking them. But as I shared recently, I had no desire to camp out at the local mall here in Palm Beach Gardens to buy a 6 today!
- It’s Merger Mond … er … Friday. The mega-cap software firm SAP (SAP, Weiss Ratings: B-) said it would buy Concur Technologies (CNQR, Weiss Ratings: C-) for $8.3 billion. It’s paying $129 per share, 20 percent above where CNQR was trading before the news hit. Concur focuses on business travel and expensing software, among other things.
The French are now bombing ISIS, with strikes in Iraq over the past day. The U.S. has already hit more than 100 targets as part of the battle, and the U.K. or a handful of Arab nations may launch their own attacks in the weeks ahead
Reminder: You can let me know what you think by putting your comments here.
Until next time,