Why Ending QE3?

Why Ending QE3

The Federal Reserve received today encouraging signals from the U.S. economy. The Consumer Price Index indicated a rise (0.5%) in the price of goods, mainly sustained by the higher cost of gasoline, fact confirmed by the Core Consumer Prices Index that was reported in line with expectations at 0.2% (the last index excludes the energy and food’s costs). It is important to see the inflation being kept under control but on the other side, low values of the index of prices are not much help for the economy. The industrial production has taken a balanced value, particularly sustained by more confident homebuilders. Since January 2006 the house building industry started to lose its pulse and now it seems that it may regain its rhythm.

The positive outlook was maintained by the speech of one of the FOMC members today. Even if the growing rate is not as high as expected, it is stable and represents the ground for the monetary policies that are implemented. If the economy is continuing at this pace, the tapering of QE3 is expected to start later this year with an end in the first quarter of 2014. Further improvements are expected especially in the job and housing market. It is important to remember the fact that United States is seriously affect by the global negative sentiment (recently, the IMF revised down its global growth projections) and the fact that economies like China are slowing down.


FED, Took No Decision Today

FED, Took No Decision Today

Ben Bernanke had a very clean speech, emphasizing all the possible scenarios and the correspondent solutions. He didn’t said that the QE3 is going to be ended at a certain point for sure but neither he said that QE3 will continue for an undetermined period. The key factors of this equation are the signals of the American economy, especially the labor market and inflation. Lately, the U.S. enjoyed positive results and the rising star that lead to such positive news is the housing market.

As for the rest of the year, “a highly accommodative monetary policy will remain appropriate for the foreseeable future”. At a certain point, trying to soften the effects of its last speaking, Ben Bernanke gave the impression that the indulgent measures are of need so the QE3 program and the “forward guidance” represent the main 2 tools which need important reasons before being removed (key levels are expected in the labor market <<6.5%>> and inflation <<near the 2% target>>).

In order to properly end his speaking, Ben Bernanke wanted to notify the investors that “the Committee would be prepared to employ all of its tools, including an increase in the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.”

If we are to compare the pro QE3 attitude of Ben Bernanke today and the contra QE3 ideas that Esther George transmitted yesterday ,as a representant of half of the FOMC members, which would be the most probable scenario? We should wait the tomorrow’s report where the chairman of Fed is expected to take a more clear position.


USD Or JPY What Would Traders Choose?

USD Or JPY What Would Traders Choose

From the top of this year, hit in May, the US dollar lost about 9.5%. It managed to recover about 78% of this fall after Federal Reserve announced that it will start tapering the QE program this year and stop it in 2014.

Chart: USDJPY, H4

Yen is becoming a week currency because of the monetary easing started by BoJ. The program already shows an improvement in Japan’s economy so the Central Bank will maintain it a current values until the end of the year. They are targeting deflation and the devaluation of the currency, in their opinion, is just the effect.

During the past 7 days USDJPY has consolidated in a symmetrical triangle right under the 78.6 retrace of the latest impulse of the main uptrend. This means that investors are not yet convinced in which currency to invest. While they are waiting for further signals from the Central Banks, we can look for technical signals to understand in which they will invest next.

If the price will break the upper line and close on a 240 minutes time frame above it could trigger a new rally for the US dollar and target the 102.00 price. On the other hand, if the price will close under the lower line we might witness a drop to 96.70 (the 61.8 Fibonacci retrace of the uptrend).


Any Movement Is Tied To The Economy

Any Movement Is Tied To The Economy

As I mentioned in my early statement, Ben Bernanke didn’t manage to really impress the markets neither yesterday nor today. Maybe the only factor that would make a difference is the fact that yesterday the chairman of Fed made it clear that is very flexible in taking decisions while today his attitude may have shift more towards a dovish one, with the promise that even if by the end of next year the QE3 will be ended, the Fed will keep its policy highly accommodative.

The manufacturing in Philadelphia increased considerably at values last met in March 2011, possible marking the start of an upward trend for the American economy. Last month, only 334.000 individuals filled an unemployment insurance, leading the labor market to the greatest shape since May. In an attempt to approach the situation of gold, Ben Bernanke highlighted another positive aspect of the current economic situation, the fact that investors feel safer now and they don’t make safe deposits as much as in the near past. For all that, taking in consideration a more consistent period of time, the data are mixed, so it’s too soon for the Fed to take a firm position concerning the QE3. Along with close supervision of the evolution of the economy, gradual steps will be made and changes of situations can occur.

Looking For A 15% Drop On eBay Share Price

In almost 4 years eBay Inc. gained about 480%, rallying from 10$ per share all the way to 58 dollars per share, having an all-time high around 59 bucks. From the first day of 2013 the price started to consolidate itself in a rectangle.

This price pattern was drawn right above the rejection line of an ascending channel. Until now the buyers did not have enough force to drive the price through the key resistance and now it will be even harder. The company announced a profit of 0.63$ per share, missing the estimates of 0.64$ per share. The price dropped suddenly 4 dollars from 57.50 to 53.50.

Taking into consideration the factors mentioned earlier and combining them with a negative divergence on the 14 weeks RSI we can say that we have some good signals of shorting. The confirmation would come with a close under 50$ per share, sending the price back into the channel. The support it is found next to the trend line at about 45$ per share. From the current level to the support it is about a 15% drop.

Keeping in mind that until the end of 2012 bulls were pretty strong, we should keep an eye over the resistance. A break and close above 59 – 60$ per share could trigger another rally targeting 65 and 70.00 levels.


Japan May Face A Small Obstacle

Starting with April this year the QQE program (quantitative and qualitative monetary easing) has been launched. Through this program, the Government is increasing annually the monetary basis by 60-70 trillion yen. The quantitative aspect is determined by the great amount of JGBs bought monthly while the qualitative aspect is represented by increasing average remaining maturity of the Bank’s JGB purchases to about 7 years. Positive effects have been observed in terms of stocks (whose prices rose), a flat long-term interest rates, a more favorable consumer’s sentiment and increased expectations for inflation.

The pace of growth is expected to evolve as: 2.8% for fiscal 2013, 1.3% for fiscal 2014, and 1.5% for fiscal 2015. The only disturbing factors are the two scheduled consumption tax hikes (this scenario is valid if the global economic situation remains stable otherwise, the strongest obstacle remains the anxious global economic evolution). An increase in the sales tax in considered to be mandatory in order to sustain the “repair” rhythm of the country’s finances.

In the meantime, Japanese officials are visiting China on the 29th and 30th of July in an attempt to build a mutually beneficial relationship and to solve the territorial disputes.

Obama Gives Hope To The Middle Class

Obama Gives Hope To The Middle Class

President Obama expressed his satisfaction regarding the evolution of the American economy and highlighted the importance of the wellness of the middle class in order to have the economy running at optimal parameters. Also, the creation of jobs represents the main concern, giving the fact that creating jobs is the nucleus of the American economy. If Americans work hard, every field of the economy will run smoothly. In order to rich this point, reforms are needed and consumers need to understand and accept further changes in this regard.

As the spotlight is the unemployment rate problem, further measures are considered: a revolution of the manufacturing industry, a new tax credit, plans for rebuilding the infrastructure, simplifying of the tax code , simplifying the procedures for investments and starting small businesses, large investments in renewable energy (wind and solar energy), rising the minimum wage.

On the other side of the planet, the interest rate of Australia is likely to be lowered again, the second time this year, as the latest inflation data doesn’t look disturbing (currently 2.4%, dropping from 2.5% in the second quarter of the year). The governor of RBA believes that there is still room for this move and further depreciation of the currency is not a surprise. The consumption still needs to be stimulated and the consumers need to trust their economy enough to start investing in more risky assets. As a measure of fighting the decreasing trend that the Australian economy is following lately, especially because its main exporter China is slowing as well, the Central Bank is willing to boost employment by residential constructions. Today, the building approvals were reported down to -6.9% a considerable drop that seems to darken the overall picture.


Syria, An Oil Bomb Ready To Explode

Syria is the main subject at the current moment. United States are holding the Syrian government accountable for killing their own citizens with chemical weapons last week. Not only the United States, but also UK and France are blaming Assad for the killings in Ghouta and all of them are willing to intervene.

It didn’t take long for protestants to appear. The protests in Libya had a negative impact on oil production. A shortage in the oil offer brought higher prices for both WTI and Brent oils. But this is just the beginning. Syria itself produces around 164000 barrels a day, so it is not that important for the oil market. But if United States will intervene, here, to get rid of the Bashar al-Assad, the conflict will be ramified and the entire Middle East will be engulfed in a war.

While USA has allies like U.K. and France, the Syrians have their own allies. Iran is a longtime Syrian ally and they warned the US that they will back them up, and they are not alone because Russia is also backing up the Syrians. If only of these two allies would enter a war the price of oil would rally at a fast pace and could touch new highs.

Chart: Brent Oil, WTI Oil (Daily)

For the moment Brent Oil, lower part of the chart, has broken today the rejection line of an up channel and rallied almost 3 percent today, touching the highest level in the past 6 months at 114.42$ per barrel. If today the closing price will be around this level and the United States, U.K. and France would still want to intervene in Syria, we might see the Brent oil going towards 119$ per barrel, since there are no other visible resistance until there.

The WTI has broken the upper line of a symmetrical triangle, which was drawn during the last month. A close of the day above the upper line of the triangle as well as a continuation of this conflict could easily push its price towards the target of the triangle at 113.40$ per barrel.

The probability for the US to intervene in Syrian and to try to get rid of Assad is big. It matters now when and how they will do this.


What About Investing For The Long Term In Yahoo! Inc.?

Yahoo, representing the internet information providers’ industry, was founded in 1994 by Stanford Ph.D. students David Filo and Jerry Yang. Since then it has evolved in an American multinational internet corporation headquartered in California. Yahoo is known for its web portal, search engine Yahoo! Search and other many related services.

Yahoo’s market capitalization is $28.51 billion with 11.700 employees. Its main competitors are AOL with a market capitalization of $2.80 billion and Google with $289.74 billion in market capitalization. What have been interesting about this company are its latest and frequent acquisitions. Starting with May 2012, we may observe 11 acquisitions made. Almost the same pace of purchasing start-ups with huge potential is found at Amazon and Google with 7 acquisitions each in the last year, and Facebook with 9 purchases for the same period of time.

The companies purchased by Yahoo are the following: OntheAIR, Snip.it, alike, Jybe, Summly, Astrid, GoPollGo, MileWise, Loki Studios, Tumblr and PlayerScale. What all these services have in common? They are trying to provide the best communication channels, innovative ways to ease human’s activities, new ways to organize our days and interesting sources of entertainment. Moreover, 10 of these acquisitions have in common Marissa Mayer as CEO and have been bought since the beginning of 2013. If we look at Google, former workplace of Marissa Mayer, it owns assets like Gmail and YouTube which are enormously valuable speaking about traffic generated and online ads sold. One of the latest acquisition of Yahoo is Tumnblr, which is a powerful tool with 55 million bloggers and 300 million visitors per month, possibly stealing users from Google and Facebook. There are voices saying that Yahoo is prepared for even bigger acquisitions as Hulu, Zynga and Daily Motion. It looks like Marissa Mayer is ready to go further with these acquisitions. All these actions are part of the plan that is intended to make Yahoo a leader in the internet information providers’ industry.

Furthermore, what is the meaning of buying a startup? May this action eventually lead to an extraordinary investment idea? Some more of you may say yes, as I tend to answer this question. Because startups are small companies designed to grow fast, they are characterized by fully dedicated people with innovative ideas that can lead to the creation of remarkable products and services. Big companies have recently added on their investment portfolio the buying of startups, as the examples cited above. Also, outstanding examples of startups are Skype (initially acquired by eBay for $2.5 billion, 65 % of Skype being bought for $1.9 billion in 2009 and in 2011 Microsoft acquired Skype Communications for $8.5 billion) and PayPal (acquired by eBay for $1.5 billion 2002).

If you are really thinking about investing in Yahoo, then you need to know that it is part of 10 indices and is traded on the NASDAQ stock market.

FOMC About To Change Its Perspectives

FOMC About To Change Its Perspectives

As Willian C. Dudley indicated in his last speech, the FOMC members decided that the time to discuss the tapering of the QE3 program has come. Even if there are still doubts concerning this decision, FOMC members decided that risks of an economic downturn have diminished since the Fed started to run this bold program. Yesterday, Moody’s Investors Service started the positive data string with revising its outlook to stable from negative, decision that has been postponed for 5 years before being implemented.

The decision of the rating agency doesn’t necessarily reflect a real improvement of the economy. Actually, it reflect an impulse given to an economy that recovers at a slower pace that before (the labour market started to recover, but not as expected). Economists keep being positive and expect an improvement in the second half of this year, but is difficult to ignore real facts that make these expectations difficult to be accomplish. Thus, high prices on oil, slow growth in exports and increased mortgage rates represents factors that will most probably lead to a poor growth of the economy.

Concerning the outlook for the inflation, the oppininons are devided. The highly accommodative monetary policy supproters (that now had remained less) believe that the inflation is far from reaching the target, while other oppinions are reflecting big expectations about a suitable inflation in short time. Follow the reports on the U.S.’s economy for the next short term in order to understand if the QE3 will be reduced by the end of this year or by the middle of 2014 but, in all cases, this program will be over soon.