(MENAFN- ProactiveInvestors) Fed Vows Patience on Rates While Dropping Considerable Time
Here is the opining of this article on the Fed’s meeting reported by Bloomberg:
The Federal Reserve said it will be patient on the timing of the first interest-rate rate increase since 2006 replacing a pledge to keep borrowing costs near zero for a “considerable time” and raised its assessment of the labor market.
“The committee judges that it can be patient in beginning to normalize the stance of monetary policy” the Federal Open Market Committee said today in a statement in Washington removing a calendar-based phrase with language that gives it more flexibility to respond to economic data. “The committee sees this guidance as consistent with its previous statement that” rates are likely to stay near zero for a “considerable time.”
The labor market “improved further” the Fed said. “Underutilization of labor resources continues to diminish” it said dropping the word “gradually” used in its previous statement.
The change in guidance is another step in the Fed’s plan to exit from the loosest monetary policy in its 100-year history. While a faster-than-expected drop in unemployment is pushing the central bank toward raising rates next year plunging prices of oil and commodities are holding inflation below its target.
Today’s statement didn’t mention global market turmoil sparked by oil and the Russian currency crisis.
Restating language introduced in October the FOMC said evidence of faster progress toward its goals of full employment and price stability could accelerate the timing of a rate increase while disappointing figures could delay it.
The Fed repeated it will continue reinvesting proceeds from its bond portfolio until after interest rates start to rise. Three rounds of so-called quantitative easing have swollen the Fed’s balance sheet to a record $4.49 trillion. The central bank stopped purchases at the end of October.
Minneapolis Fed President Narayana Kocherlakota Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher all dissented. Kocherlakota said the decision “created undue downside risk to the credibility of the 2 percent inflation target.”
David Fuller's view
Three Fed officials dissented but I think Janet Yellen’s decision was correct. She knows the Dollar’s strength - reflected here by the Euro-dominated US Dollar Index (DXY) and the Asia Dollar Index (ADXY) - is now a headwind for US exporters. Additionally soft commodity prices should keep inflation in check for up to a year. Most importantly much of this year’s job creation and wage increases have come from the US’s booming energy sector which is about to see a shakeout in fracking due to low prices for crude oil.
This item continues in the Subscriber’s Area and includes a review of stock market indices.
Garry Kasparov: I See No Exit Strategy for Vladimir Putin
Here is an excellent short interview with this outstanding strategist produced by Bloomberg.
David Fuller's view
Putin will have to be dragged out of the Kremlin. I assume that many capable Russians will be focussing on how to achieve this in 2015.
Rob Arnott: Emerging Markets Are Worth the Risk
Here is a section from this thought provoking article from Bloomberg: Arnott is making long-term bets on emerging markets because his calculations make him gloomy about U.S. stocks and the long-run growth of the U.S. economy. As he told Bloomberg.com the rest of the world is full of opportunity for the patient and brave investor.
What’s the biggest source of risk for investors today
Markets are expensive. The most popular markets particularly U.S. growth stocks are priced to an expectation that things will sort out very very well. It leaves very little room for disappointment.
What assets or investments are overhyped
U.S. equities are among the more expensive markets in the world. I wouldn’t describe it as a bubble but I’d describe it as very expensive. U.S. stocks are priced at a Shiller P/E ratio – price relative to 10-year earnings – of 27 times. It’s been higher twice in history during the tech bubble and in 1929.
So anyone buying U.S. equities is making one of two assumptions. [First that] U.S. equities are still today priced to offer solid long-term returns relative to the whole spectrum of alternatives available. I don’t believe that.
Or they believe they’ll hear the bell chime when the merry-go-round stops. And they’ll hear it before others do. That’s a pretty heroic assumption.
Or [they can] recognize that maybe this is a game that they prefer not to play. I fall squarely in the latter camp.
So what games do you play instead
There’s a [wide range] of markets available to us and some are pretty cheap. Emerging market stocks are priced at 15 times their 10-year earnings. If you use a fundamental index they’re priced at 11 times their 10-year earnings. Eleven times. That’s cheap.
I’d much rather put my money there and wait patiently than try to play the game of guessing how much further this bull market can run. Folks who harbor the illusion that they can pick the top are deluding themselves.
David Fuller's view
Certainly Rob Arnott is right about the US market being expensive today. However its leadership in technology and the number of sector-leading multinational Autonomies makes it an attractive prospect for the longer term in my opinion.
This item continues in the Subscribers’ Area.
My personal portfolio
Two investment purchases and one trade result
David Fuller's view
Details and charts are in the Subscribers’ Area.
The Markets Now
Monday January 12th 5:30pm to 8:30pm at East India Club 16 St. James SquareLondon SW1Y 4LH
David Fuller's view
Here is the new brochure. I am looking forward to this opening session for 2015. There are certainly plenty of opportunities in the markets in addition to some inevitable risks which we all hope to avoid. We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of technology in which we all have an interest. Our November session at the East India Club was a sell-out attracting plenty of knowledgeable delegates who contributed to a lively session. I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests. If you have the time do join us for a drink and further chats at the Club’s cash bar after 8:30pm.
Ruble Rebounds on Central Bank Stability Steps as Sberbank Soars
This article by Ksenia Galouchko and Lyubov Pronina for Bloomberg may be of interest to subscribers. Here is a section:
“Authorities made a combined effort giving strong signals to the market that they are doing anything it takes to stem the ruble rout and turn things around” Bernd Berg a London-based emerging-market strategist at Societe Generale SA said in e- mailed comments. “As a result the ruble is gaining strongly.”
Russian lenders and companies are concerned about coming foreign-currency debt payments central bank First Deputy Governor Ksenia Yudaeva said in an e-mailed statement today. The measures are intended to balance supply and demand to help stabilize the ruble rate as soon as possible she said.
Eoin Treacy's view
Yesterday’s action had a climactic feel to it and today’s rebound suggests that the central bank’s interest hike to 17% is gaining some traction. However if yesterday’s low is to hold beyond the next few weeks and months some bullish catalysts will need to fall into place for Russia. Among these would be a firmer oil price easing of sanctions or a de-escalation of military tensions in Ukraine.
Entering The Connected Life Era
Thanks to a subscriber for this report from Deutsche Banks which may be of interest to subscribers. Here is a section:
With all the innovation happening across the software layers mentioned above and all the new ways to engage with users across these many new device types in the Connected Life era the next logical question to ask is “what is this all worth to an ecosystem” Below we attempt to answer that question from the standpoint of software services and advertising. Importantly we do not attempt to quantify the hardware opportunity. What we attempt to quantify is once or or Xiaomi has a user in its ecosystem what kind of ARPU is likely to be generated from all the software services and advertising opportunities.
As we mentioned above given how engagement models are changing rapidly in the Connected Life era we firmly believe the right approach when assessing the monetization potential per user is measured in terms of sessions (not time spent). We further analyze the respective monetization potential for different engagement models (push vs. pull vs. paid) on various devices. Breaking down user sessions based on commercial intent and the ad engagement approach on various devices is important because different engagements and behaviors monetize at different rates. For example – a search on for a commercial term carries a very high eCPM whereas a newsfeed ad on or may not carry the same level of user intent. If we extend to ad formats we are likely to see in the Connected Life era like push notifications and card-based offers displayed on smaller screens the commercial intent of these engagements is going to fragment further. Lastly a number of new services are being introduced on mobile devices for the first time and those subscriptions and in-app-purchases carry very high revenue per session and eCPM equivalent rates. For example if a user pays $10 per month for a Spotify subscription and accesses the service three times per day (~100 times per month) each session would amount to around $0.10 or the equivalent of a $100 ad eCPM.
Eoin Treacy's view
A link to full report is posted in the Subscriber's Area.
The evolution of the internet experience over the last decade has been nothing short of remarkable and is still having profound effects on how we are marketed to and how people respond to these additional stimuli.
Young people spend much more time on Instagram YouTube Amazon Prime etc than they do consuming conventional media. Since they represent the prime 18-34 age bracket prized by advertisers companies are eager to capture their attention.
This is a rapidly developing sector so we can anticipate continued aggressive competition. However as anyone who has moved from an Android to device or vice versa can testify you need a good reason to migrate from one ecosystem to another.
A great deal of good news has already been priced into related shares.
MUCH aDO about the MUST Dos
Thanks to a subscriber for this interesting report focusing on . Here is a section:
We believe there has been a long-standing frustration within as to the UK investor base being underweight the stock (22% vs. 33% for the peer group see Figure 13 and Figure 14 page 15) with various iterations of management seeking to address the relative imbalance.
Since SAB listed (with ) has been a significant underperformer relative to the peer group. That underperformance has coincided with and ’s EPS growth materially underperforming the same peer group. UK investors have been right to be underweight .
One clear MUST DO
Too simplistic but in order to rectify the relative imbalance of the UK investor weighting needs to do only one thing: grow its EPS in line with or ahead of the peer group. Execute that MUST DO (in a sustainable way) and the ‘issue’ of the UK investor base will likely disappear over the long-term.
August 2011 targets
In August 2011 then CEO Walsh established a set of what we consider excessive targets. Expecting any large FMCG business to grow EPS at double digits over a sustained period is too aggressive in our view as it likely ultimately undermines sustainability; ‘even’ PMI gave up its double digit target in 2014.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
China’s crackdown on lavish gifts between party cadres and the ban on imbibing expensive liqueur at “business dinners” weighed on the shares of luxury drinks producers. straddles both the retail and luxury sides of the market and as such underperformed for the last year.