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Gold and Silver: Where Do They Go From Here?
https://federationofglobalmerchants.com/2020/08/14/gold-and-silver-where-do-they-go-from-here/ Investors know by now that one of the leading indicators of an unstable and unpredictable stock market is a surge in the price of precious metals like gold and silver. In February, amidst the COVID-19 pandemic, the markets officially entered a recession, even though just months later several of the major indices have reached all-time highs. It was a brief dip into recessionary territory, but this sort of volatility is what gives investors hesitation in putting their money into the stock market, rather than something that is perceived to be more stable. Gold future contracts are selling well above $2000 per ounce for the rest of 2020 and well into 2021 as well showing that investors are confident that gold will continue to rise in price. Silver is also surging reaching new all-time highs on a daily basis. So investors may be curious as to how to get into this red-hot market, especially as the markets continue to fluctuate. Gold: For centuries now gold has been literally the ‘gold-standard’ of currency and wealth. Dating back all the way to around 40,000 B.C. in Spanish caves, gold is a naturally occurring element that has both fascinated and lured people for as long as barter systems and wealth has been recorded. Currently, gold is enjoying its highest valuations in history as investors flock to the stability of the precious metal through various streams. So what is the allure of gold and why is it so stable? Warren Buffett once said, “Gold is a way of going long on fear.” That is quite a statement from perhaps the greatest investment mind of our generation. But what does this mean for the novice investor? Even the most successful blue-chip stocks can crash. Obviously the more prominent and profitable companies with mega market caps will not crash as easily as smaller companies, but given the volatility of the pandemic, we can see anything happen. But as stock markets fluctuate on a daily basis, the price of gold remains mostly stoic. Not as manipulatable as stock prices, gold is as steady as it gets for investors. What makes gold so stable? It is a combination of factors, first and foremost, it is a physical and tangible element which makes it possible for people to store and stockpile. It does not corrode or wear down over time, making it durable and ensuring that the value remains. There is also a finite supply of it in the world. This reinforces that it will always keep a certain level of valuation as the supply is kept in check. Today, as the Federal Reserve tries desperately to pump money into the American economy to stave off a global recession and keep companies afloat. Printing more American dollars helps in the interim, but it is a temporary band-aid for the bigger problem. As more of the dollar gets created the more it gets devalued as a form of currency. This is another reason why gold is skyrocketing. The two valuations always work inversely to each other, so as the greenback continues to plummet, the price of gold will continue to surge which makes perfect sense if one thinks about it. The value of gold is priced in American dollars per ounce, so if the value of an American dollar retreats, the cost of gold will rise in response. So how can investors take advantage of the current state of gold? In the age of internet investing, there are plenty of ways to invest in gold or anything in that matter. Most American platforms give inventors the ability to buy fractional shares of companies. While this comes in handy for expensive stocks like Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), or Tesla (NASDAQ:TSLA), it also allows investors to diversify their funds across multiple companies to form a basket approach to an industry. There are also plenty of ETFs or Exchange Traded Funds, available for investors to consider. These funds have the diversification of a mutual fund or index fund, but trade like individual stocks. Here’s a few of the better gold ETFs to consider if you are looking to get into the industry:
IAU – iShares Gold Trust: One of the better known gold ETFs out there, iSHARES is a reputable brand with great overall market performance. The fund has returned over 17% to inventors already this year, and with the price of gold projected to continue to rise, this fund should keep delivering for investors into next year.
DGL – Invesco DB Gold Fund: Another well known and reputable ETF, the Invesco Gold Fund has slightly higher fees than iSHARES but has also had a slightly better return so far this year.
IAUF – iShares Gold Strategy ETF: Another iSHARES ETF, this one has parts of IAU, as well as gold futures contracts, to get a long term forecast of the price of gold so the investor gets exposure to a wider range of gold options.
There are dozens of other ETFs available for investors that cover everything from miners to the finished products. Mining company stocks are another great way to get exposure. As the demand for gold increases, these mining companies should see a rise in their revenues and eventually, their profits as well. These changes will be reflected in their stock prices and we have already seen some of this already this year.
ABX – Barrick Gold: One of the largest gold mining companies in the world, this Canadian company has seen healthy gains in their stock price so far in 2020. Over the last 52 weeks, Barrick investors have enjoyed a 131% increase in stock price. With mining projects ongoing in Canada, America, Australia, South America, and Africa, Barrick has already announced that it is on track to achieve guidance this year despite closures from COVID-19.
FNV – Franco-Nevada Gold: This stock price rose almost 15% in July alone. Franco-Nevada operates as a funding company to gold mining companies, rather than actually doing the mining themselves. Sustainalytics, a guidance and analysis company, rated Franco-Nevada number one amongst 104 precious metal companies.
NEM – Newmont Goldcorp: The largest gold stock by market-cap and the only stock to trade on the S&P 500, Newmont is probably the safest company for gold investors to invest in. On top of steady returns and low volatility in the stock price, the company pays a fairly healthy dividend as well.
With gold at all-time highs, we can begin to question how high the precious metal may go. With a second wave of the coronavirus making its way around some parts of the world, and America, still making its way through their initial wave, the uncertainty that exists in today’s markets may continue into 2021. Some Wall Street analysts have forecast gold to rise as high as $10,000 per ounce, but that seems like a little ambitious. Gold has just recently hit all-time highs at $2000 per ounce and to imagine that it can run up another 500% in the next few years seems far-fetched at this point in time. That would require the markets to enter an extended bear-market, which of course is possible after a decade of a bullish run, but it would also require the American dollar to continue to be further devalued. Gold is pegged to continue to rise for the rest of this year though and well into 2021. That means investors and analysts are foreseeing a further devaluation of the American greenback as well as continued volatility in the markets and economy. Is gold a safe haven? Some people believe it is, but if you are an investor that enjoys high returns over long periods of time, investing in precious metals may not be for you. Investors love the stability of gold but the returns are never astronomical, with the last few months being an exception. It helps to have a portion of your portfolio dedicated to precious metals to diversify and protect you from any sudden market corrections, but investors should not be looking at gold as a short-term way to get wealthy. Silver: The other precious metal that has been flying sky-high of recent months is silver, the eternal younger brother to gold. Mined from silver-ore, it is a highly malleable metal that was once valued higher than gold by the Ancient Egyptians. Today, it is relatively low in price per ounce compared to gold, reaching all-time highs recently of just under $30 per ounce. Silver is another stable alternative to gold, and at lower prices, it may be a little more affordable for the novice investor to jump into. Like with gold, silver has an inverse relationship to the American dollar, and to all currencies in general. Again, this is another reason why silver is hitting all-time highs right now, with silver future contracts predicting a steady rise to mirror gold, well into 2021. There is also something that Wall Street calls the gold silver ratio, which is exactly what it sounds like: the ratio of the price of gold per ounce to the price of silver per ounce. This ratio has historically moved together, which makes logical sense if both precious metals are independently moving inverse to paper currencies. Historically, the gold and silver prices do move together though as the general ratio has been in the range of 17:1 to 20:1. Silver also has numerous ways for investors to get involved in, including silver mining and production companies, as well as the ever popular silver ETFs. These Exchange Traded Funds have gained popularity amongst retail investors in recent years as a way of purchasing a diversified product as a single equity with low costs, and no trading fees if your platform allows it. Here are a few of the better performing silver ETFs that investors can look into adding to their portfolios if they are interested in the precious metal:
SLV – iShares Silver Trust: Probably one of the better known silver ETFs, this is fully backed by silver bullion and coins held in a vault. While usually fairly steady, this ETF has enjoyed a 52-week increase of 152% with much of that coming in the last few months.
SIVR – Aberdeen Standard Physical Silver Shares ETF: Very similar to SLV but with lower fees, this is an ideal fund for novice and experienced investors to get into as they start to diversify their portfolios.
DBS – Invesco DB Silver Fund: Again another stable ETF for investors to get into, and another good performing one as well. Just as with their gold ETF, Invsco focuses on silver futures contracts for this fund, so it is a nice long-term play if investors are bullish on silver.
Just as with gold, investors can get a slice of the silver pie by buying shares of silver mining companies as well. Here are a few of the top silver mining company stocks that investors can look into adding to their portfolios.
PAAS – Pan American Silver Corp.: This Canada based miner is focussed on the exploration, development, extraction, refining, processing, and reclamation of silver. They operate mines in Peru, Mexico, Bolivia, and are developing more as well for the future.
WPM – Wheaton Precious Metals: Another Canadian based company that deals with miners of gold, silver, palladium, and cobalt. Wheaton is not a direct miner, rather they purchase these precious metals from other mining companies.
AG – First Majestic Silver Corp.: Canadian companies seem to be dominating the silver industry, and First Majestic is another of those. This company focuses mainly in Mexico for gold and silver.
Silver may never be as popular as gold for investors to keep track of but the two precious metals move in a synchronized fashion, and both are looked upon by investors as safe havens for their money when the market is in flux. The rest of 2020 seems like a wildcard right now, with many analysts expecting a further correction to the markets at any point. There seems to be an inevitability to a market crash of some sort, whether it is as big as the one that happened back in February and March, remains to be seen. Investors are looking at the precious metal industry to hold their funds to wait out any sort of correction or crash. If this does happen, we may expect a pullback in precious metals too as investors selloff to get back into some stocks at their low levels. Such is the ebb and flow of the economy during turbulent times like the current one we are in. At the same time, what if a market correction does not happen? Will the uncertainty continue or will investors feel relatively secure in the way the markets are progressing? This could cause a reduction in the demand for silver and gold, culminating in lower prices in the future. Of course this also depends on the Federal Reserve diminishing their rate of printing paper currency to bailout the economy, which does not seem like a reality in the short-term at least. Another point of contention for investors is the ongoing economical and political tensions between China and America. The two world powers have been feuding for the past couple of months over various things, but it escalated as China social media app Tik Tok gained popularity in North America. It was alleged that TikTok was sending data and information from mobile phones back to China, though nobody is sure of their intended use of this data. Regardless, the markets have stumbled several times lately because of this. Both sides have threatened economic sanctions and the banning of certain product use in each country. The prices of silver and gold have shot up as the tensions have escalated between the two governments, as investors flock to the precious metals. Many of the biggest companies on the major stock indices rely on China for materials or production, so any sort of breakdown in supply chains could cause an enormous change to their stock prices. An example of this is a sudden 5% correction in the price of Apple (NASDAQ:AAPL), as it was thought that iPhone sales would decline if China’s chat platform WeChat was banned in America. There are other factors that may have an effect on gold and silver prices as well. In this modern economy, many of the retail investors have trended towards younger adults with a sudden influx of income. Popular platforms such as Robinhood combined with increased time at home during the quarantine, have caused retail investor usage to skyrocket during the pandemic. Many of these investors are more lured in by the shiny new objects of cryptocurrencies like Bitcoin. Perhaps we will start thinking of these cryptocurrencies as a modern day version of precious metals one day, as many investors and some analysts, believe that Bitcoin may be a safe haven in the future. Already, the price of Bitcoin has risen above $12,000 in August, mirroring the highs of gold and silver. If the demand for Bitcoin rises higher than the demand for precious metals, we may see an investor migration to cryptocurrencies rather than tangible metals. Conclusion: Gold and silver are staples of our global economy, and will continue to be so as long as the demand for precious metals exists. In times of uncertainty, gold and silver are viewed as safe relative to the volatility of the stock market. Sure, their prices can vary as well, but because they are tied to a less dynamic valuation that is based on an inverse relation to paper currency, their prices will not and can not fluctuate as much as the liquidity of individual stocks. As long as the world remains in flux, there will be a general feeling of instability, especially for global markets. A second wave of COVID-19 in the third or fourth quarter of 2020 could prove to be enough to push the markets over the edge and into another recession. The bull market has been rallying for over a decade now, with astronomical gains over the last few years, especially for sectors like the big tech FAANG stocks. Another factor to consider is what a Biden government could bring to the world if he is elected over President Donald Trump in October. A new government could ease some of the tensions with China, as well as within America itself. These are all big what ifs, and could all have potential impacts on the economy and the world. As long as all of these factors are up in the air, investors will be looking to gold and silver as ways of stabilizing their portfolios and protecting their finances from a potential market crash in the future.
USD (DXY) up 0.00%, EUR up 0.18%, GBP down 0.11%, JPY up 0.01%, CNY Onshore down 0.41%, CNH Offshore down 0.42%, AUD down 0.40%
VIX down 1.22% to 9.75
Gold up 0.06% to $1,283.60
Silver up 0.08% to $16.84
Copper up 0.43% to $294.20
WTI Crude up 1.15% to $52.74
Brent Crude up 0.90% to $58.42
Natural Gas down 0.07% to $3.06
Corn down 0.35% to $3.53/bu
Wheat down 0.11% to $4.61/bu
Bitcoin up 2.42% to $4,255.00
Treasuries 2yr yields are up ~1.2bps at 1.483%, 10yr yields are up ~3.6bps at 2.346% and 30yr yields are up ~3.3bps at 2.896%
Japan 10yr yields 0.057%, up ~2.8bps on the day
France 10yr yields 0.792%, up ~3.3bps on the day
Italy 10yr yields 2.153%, up ~1.6bps on the day
Spain 10yr yields 1.634%, up ~0.8bps on the day
Germany 10yr yields 0.501%, up ~3.7bps on the day
What’s happening this morning? There wasn’t any major news out overnight (once again). Most of the financial media is discussing themes and trends that have been present for weeks – reflation sustainability, inflation firming, central bank tightening schedules, expansionary fiscal policies (US, Germany, Japan, etc.), US politics (prospect of tax passage, etc.), etc. A lot of the commentary seems to have a skeptical tone with regards to the weeks-long reflation moves and this doubt continues to act as kindling for the recent market shifts (positioning and sentiment are playing a role too, esp. as we head into the final days of the month and quarter – recall many had prepared for the SPX to trade poorly in H2:Aug but the opposite happened and the index is now up ~3.7% from its 8/21 low. This has undoubtedly spurred some chasing along the way). As far as Thurs morning trading, things are relatively subdued this morning. Asia’s major indices saw mixed price action – TPX +0.71%, NKY +0.47%, Hang Seng -0.8%, SHCOMP -0.17%, Taiwan TAIEX -0.29%, Korea KOSPI +0.02%, Australia +0.11%, and India +0.1%. There weren’t many huge themes in Asia although the USD rally is creating some anxiety (the DXY surged Mon-Wed and is flattish so far Thurs). Tech stocks in Taiwan were mixed-to-down small. Europe’s major equity indices are flat-to-up small. Banks remain the big upside standouts (both in Europe and the US) as this group more than any other encapsulates the global reflation sentiments (banks, tech, industrials are outperforming in Europe this morning while basic resources, retail, and utilities lag. H&M is one of the weakest stocks in Europe on back of earnings while the USD strength is hitting basic resources). The Treasury weakness continues as 10yr yields rise a further ~3-4bp so far Thurs morning (10yr yields are higher throughout Europe too). US S&P futures are flat-to-down small.
Calendar of events for Thurs 9/28 – the focus will be on German inflation for Sept (8amET), the BOE “20 Years On” conf. in London (at which Carney will speak), US Q2 data revisions (8:30amET), US advance goods trade balance for Aug (8:30amET), Fed speakers (George, Fischer, Bostic), Gary Cohn’s interview on CNBC’s Squawk Box (during the 8amET hour), Paul Ryan’s interview on CNBC’s Squawk Box, Brady’s comments on tax reform, analyst meetings (AEE and AFL), and earnings (ACN, BBRY, CAG, MKC, MTN, and RAD pre-open and KBH and SGH after the close).
Calendar of events for Fri 9/29 – the focus will be on the China Caixin manufacturing PMI for Sept (Thurs night/Fri morning), the German jobs data for Sept (3:55amET), Eurozone CPI for Sept (5amET), US personal income/spending for Aug (8:30amET), the US PCE for Aug (8:30amET), the Chicago PMI for Sept (9:45amET), the final Michigan Confidence numbers for Sept (10amET), Fed speakers (Harker), and analyst meetings (CMP).
Calendar going forward – there aren’t many major scheduled events on the calendar until CQ3 earnings (the week of 10/16 is the first busy one of the season) aside from a few eco numbers (including the US Aug PCE Fri 9/29 and the US Sept jobs report Fri 10/6). The market largely appreciates that tax will be a CQ1:18 event and thus isn’t looking for anything substantive on that front over the coming months. The next big monetary policy events include the ECB (10/26), BOE (11/2), and anything on the Fed staffing front (i.e. when does Thy God-Emperor Trump make a decision on Yellen?).
Top Headlines for Thursday
US politics – there wasn’t anything incremental overnight but a ton of postmortem articles were published on the events this week (tax unveil, Alabama run-off, Corker retirement, healthcare failure, etc.). The tone of most of these articles is cautious with regards to the outlook for the GOP and the party’s agenda – “Alabama defeat weakens and isolates Thy God-Emperor Trump as his problems grow” (http://wapo.st/2xDxquK), “Bannon focused on repeating Alabama, challenging incumbent Republicans across the country” (http://politi.co/2ybnL1C), “Political disruption helps fuel GOP’s woes” (http://on.wsj.com/2wYIYH4), “Tues was a disastrous day for the whole GOP” (http://on.wsj.com/2fsuf0C), “GOP pitches deep tax cuts, w/few details on paying for them” (http://wapo.st/2yuPgPV), “ Thy God-Emperor Trump/GOP tax plan omits details on who pays” (http://politi.co/2yvcKEH), “ Thy God-Emperor Trump and his congressional allies are about to make the trajectory of debt even worse” (http://on.wsj.com/2fsuTLB), etc.
Sen. Bob Corker says tax reform will make healthcare look like ‘a piece of cake’ – The Hill http://bit.ly/2wlgLus
Healthcare/ACA – insurers decide to stay in the ACA exchanges for ’18 despite fears of broad exits – WSJ http://on.wsj.com/2yIx4D8.
TWTR more effective than FB in disrupting US election - there is evidence that Twitter may have been used even more extensively than Facebook in the Russian influence campaign last year – NYT http://nyti.ms/2yuUTgW
Internet execs (from FB, GOOGL, and TWTR) have been asked to testify before Congress in the coming weeks – Reuters http://reut.rs/2fTffK4
Thy God-Emperor Trump’s pick to head the DOJ’s antitrust division gets approved by the Senate – Bloomberg https://bloom.bg/2yttKeo
All about reflation and rotation: what happened on Wed. US stocks saw solid gains overall on Wed but the bigger story was ongoing rotation as the SPX’s ~40bp advance was somewhat overshadowed by the ~2% ramp in the R2K, the ~1.6% climb in the BKX, the 75- 130bp decline in both staples and utilities, the 7bp increase in 10yr yields, and the ~50bp DXY advance. The latest phase of the reflation trade kicked off back on 9/11 and is now in its 3rd week, encouraged along the way by firmer global inflation readings (China, India, UK, US, etc.), hawkish central banks actions/rhetoric (FOMC, BOC, BOE, etc.), and pro-growth policies in the US (the GOP tax blueprint). Thus it isn’t that stocks rallied solely in response to the Republican tax unveil but instead that blueprint helped to exacerbate existing reflation tendencies. Most of the big sectoral moves comported w/the reflation playbook as small caps and financials (esp. banks/brokers) did very well while staples, REITs, utilities, and telecoms lagged. Tech was something of an outlier – normally super-cap tech would lag during big reflation trades but that wasn’t necessarily the case on Wed.
Economic data/monetary policy update for Thurs 9/28. It was a pretty slow morning of news on this front. GfK consumer confidence in Germany for Oct softened slightly (it came in at 10.8 vs. the St 11). Some of the regional inflation numbers in Germany for Sept showed firming M/M (the full German inflation number will hit at 8amET). Eurozone confidence numbers for Sept came in relatively solid this morning (http://bit.ly/2fB5gMz). The New Zealand rate decision was largely as expected (http://bit.ly/2fsBZQb). o Fed’s Rosengren called for “regular and gradual” rate hikes as disinflationary pressures appear temporary while labor markets continue to tighten – Bloomberg https://bloom.bg/2xD4Tpa
North Korea tensions/challenges – North Korean provocations could increase in Oct, Chinese exports of food to NK spike, US to rotate strategic military assets into South Korea. o North Korea is likely to engage in more provocative behavior in Oct to coincide w/the founding of the North Korean community party and China’s Communist Party Congress. South Korea’s national security adviser Chung Eui-yong said he expected Pyongyang to act around Oct. 10 and 18 – Reuters http://reut.rs/2k6dgX1 o US strategic assets to be rotated into South Korea – the will send “strategic” military assets to South Korea on a more regular basis to better deter North Korea – Washington Post http://wapo.st/2yIoLHu o China’s agricultural exports to North Korea spiked in Jul and Aug; the increase in food shipments shows the resilience of ties between the two countries – WSJ http://on.wsj.com/2xHTq9F
Japan election outcome grows cloudier as Party of Hope gathers strength - the biggest opposition Democratic Party on Thurs said it would step aside to let its candidates run under the Party of Hope banner – Reuters http://reut.rs/2fsHYVk
Brexit negotiations – there are signs of a thawing in the EU-UK Brexit negotiation process as the EU makes a small concession – Bloomberg http://bit.ly/2wYsLlj
Company-specific news update for Thurs morning 9/28 – there are a few items in focus this morning including Toshiba/Bain, H&M, EFX, HAIN, and more. o Toshiba – a deal is (finally) signed – Toshiba struck a formal deal to sell its memory unit to a Bain-led group for $17.7B. The Bain consortium includes AAPL, Dell, STX, Hoya, and Hynix. The two sides hope to close the transaction by Mar. WSJ. http://on.wsj.com/2wYGopc o STX announces details on its participation in the Toshiba deal; STX has committed to provide up to $1.25 billion in financing to support the acquisition. Seagate expects to enter into a long-term NAND supply agreement with Toshiba Memory that will provide continuity of raw NAND for Seagate's expanding SSD product portfolio. Seagate expects this transaction to be accretive to its earnings. o AAPL not giving up fully on LCDs – AAPL could wind up buying advanced LCD panels from Japan Display next year, suggesting the co doesn’t plan on shifting its entire product lineup to OLED. WSJ. http://on.wsj.com/2wm6EWp o HAIN strikes agreement w/activist Engaged Capital – the agreement will overhaul the board and potentially opens the door to a sale of the company (the board will form a group to consider strategic alternatives). WSJ. http://on.wsj.com/2xLOzo1 o EFX – the co’s acting CEO has an editorial in the WSJ this morning – “On behalf of Equifax, I’m sorry” – the article announces a series of steps and actions aimed at rectifying the fallout from the recent hack. http://on.wsj.com/2yvbLUX o H&M – the stock is one of the weakest in all of Europe after reporting disappointing earnings. o HUN, Clariant – White Tale Holdings, the activist group seeking to block the merger, has increased its stake in Clariant slightly – Reuters http://reut.rs/2xCiooZ
Company-specific news update from Wed night 9/27. There wasn’t anything major other than a few SMID-cap earnings (CMTL, JBL, PIR, PRGS, and THO) and none were particularly controversial. JBL beat for its FQ4/Aug period and while FQ1/Nov EPS was guided a bit under the St this stock has already come off a decent amount from its highs on the recent AAPL anxiety (and thus should be fine off the report). PRGS’s FQ3 numbers were inline w/the upside preannouncement and FQ4 was guided inline. PIR’s report was fine but the guidance fell a bit short of expectations. Away from earnings, a group of US senators are calling for an investigation into the recent deal struck between AGN and a Native American tribe (http://nyti.ms/2xGRxtP). According to Bloomberg, Novartis is considering a bid for AAAP (https://bloom.bg/2xHOjGa). What could move the market? Expectations on key topics/events
Taxes – now what? An update on the path forward. With the GOP tax blueprint out in the open Congress will now get down to the hard work of filling in the details and getting a bill to Thy God-Emperor Trump’s desk. However, a budget resolution still needs to pass before anything can get done on the tax front (as this will contain reconciliation instructions permitting the Senate to utilize a simple majority vote on tax). The House should have an easier time moving a tax bill (it probably isn’t shocking to think they could pass something by Thanksgiving) but the Senate is a bigger problem. Sen. Hatch has made several comments on tax that people should be paying more attention to (including that he will essentially ignore the 9/27 blueprint and write his own bill) and Sen. Corker also has expressed skepticism (he said tax reform would make healthcare look like “a piece of cake”). It’s important to remember that the Senate GOP majority is 1) small and 2) divided (as was evidenced by healthcare failing twice) and one of those two descriptions will become more apt after 12/12/17 (the date of the Alabama special Senate election). Once the Senate does move something it still has to be reconciled w/the House and voted on all over again. Taking all this into account, it seems like tax will be a CQ1 event at best. Beyond Mar ’18 the focus will shift towards the Nov mid-terms and that tends to freeze the legislative process. And if there are a lot of aggressive GOP primaries (something which could happen given Moore’s victory in Alabama’s run-off) that could slow the legislative process even more.
Taxes – what do investors expect? The GOP blueprint on 9/27 is being looked at as an opening “best case” bid that will likely differ substantially from the ultimate bill (to the extent there even is one). The final corporate rate will probably wind up being around ~25- 27% while the individual changes will focus more on the lower-end of the income spectrum (doubling the standard deduction, higher child credit, etc.) without meaningfully adjusting deduction rules or consolidating the existing bracket structure. “Repatriation” will happen in some form but the mechanism proposed in the GOP blueprint is quite complex. o Repatriation mechanics – the language in the GOP tax blueprint concerning repatriation and foreign earnings is somewhat confusing. What it sounds like they are proposing is: 1) all int’l earnings accumulated to this point will be hit w/a 1x tax assessment (note – this is different from the int’l cash balances companies report in their filings). The 1x tax rate isn’t specified but most assume it will be somewhere around 10% and companies can pay it over the course of a few years; 2) going forward the aim is to shift to a quasi-territorial system whereby all foreign profits of US companies will be taxed at a reduced rate (it isn’t clear what that reduced rate will be). It sounds like this tax will be imposed regardless of whether the money is actually repatriated. Bottom Line: this system would be an improvement over the current one BUT the proposed changes are very complex and this GOP blueprint today is a lot different from the George W Bush-era 1x repatriation holiday of last decade.
Gov’t funding – the current CR (continuing resolution) will fund the US gov’t until 12/8.
Debt ceiling – the debt ceiling will be suspended until 12/8 but during that time Treasury will refresh its extraordinary measures and buy itself additional months (McConnell recently told the NYT that the debt ceiling won’t become binding again until “well into” 2018). o The debt ceiling – Thy God-Emperor Trump and Schumer have apparently agreed to pursue a deal that would permanently eliminate the debt ceiling (although it’s unclear whether this will actually happen given the enormously busy agenda facing Washington in Dec).
Infrastructure spending – the F18 budget may include nominal funding for an “infrastructure bank” but no one anticipates a major infrastructure spending initiative.
Fed staffing – it may not be until later this year before Thy God-Emperor Trump unveils his intention for the Fed chair. The WSJ on 9/6 said Gary Cohn’s chances of getting the job had declined while Yellen could be asked to stay (CNN echoed that reporting on 9/7) and Bloomberg (on 9/7) says Thy God-Emperor Trump is considering as many as 6 additional people to become chair, including Kevin Warsh, Glenn Hubbard, John Taylor, Lawrence Lindsey, Richard Davis, and John Allison. Recent media reports suggest the frontrunners are Yellen and Warsh. Note that in addition to the chair decision, Thy God-Emperor Trump has several additional positions to fill at the Fed (Fischer’s resignation announcement on 9/6 created the latest opening).
Calendar of events to watch for Mon Oct 2
Calendar for the week of 10/2 – the main focus this week will be on the initial Oct eco numbers (ISMs/PMIs, auto sales, and US jobs) but otherwise it should be pretty quiet as investors await the start of CQ3 earnings (banks kick off the season on Thurs 10/12 but the heavy volume of release doesn’t begin until the week of 10/16).
Calendar for Mon 10/2 – the focus will be on the China NBS manufacturing/nonmanufacturing PMIs for Sept (Fri night/Sat morning 9/30), Eurozone manufacturing PMIs for Sept (4amET), Eurozone unemployment numbers for Aug (5amET), US manufacturing PMI for Sept (9:45amET), US manufacturing ISM for Sept (10amET), US construction spending for Aug (10amET), Thy God-Emperor Trump’s deregulation speech at the White House, and Fed speakers (Kaplan).
Calendar for Tues 10/3 – the focus will be on the Eurozone PPI for Aug (5amET), US auto sales for Sept (JPMorgan is modeling a SAAR of 17.4MM), analyst meetings (F/Ford, INTU, NTAP, and SHW), the WFC CEO testimony before the Senate Banking Committee, the EFX former CEO testimony before the House, and earnings (PAYX and LEN pre-open and IDT after the close).
Calendar for Wed 10/4 – the focus will be on the Eurozone services PMI for Sept (4amET), Eurozone retail sales for Aug (5amET), the RBI rate decision (5amET), the US ADP jobs report for Sept (8:15amET), the US services PMI for Sept (9:45amET), the US services ISM for Sept (10amET), Yellen’s comments (3:15pmET), analyst meetings (BWXT, BXP, MNK, and TTD), the EFX former CEO testimony before the Senate, and earnings (AYI, MON, PEP, RPM, and Tesco PLC pre-open and CAFD and RECN after the close).
Calendar for Thurs 10/5 – the focus will be on the ECB minutes (7:30amET), US factory orders/durable goods for Aug (10amET), Fed speakers (Williams, Harker, George), analyst meetings (BKH, CLX, LUK, and TWOU), and earnings (ISCA and STZ pre-open and COST, HELE, and YUMC after the close).
Calendar for Fri 10/6 – the focus will be on Germany factory orders for Aug (2amET), the US jobs report for Sept (8:30amET), US wholesale inventories/trade sales for Aug (10amET), US consumer credit for Aug (3pmET), and Fed speakers (Bostic, Kaplan, and Bullard). Catalysts – big events to watch over the coming months
Tillerson to travel to China – Sept 28-30.
US inflation – the Aug PCE will hit Fri 9/29.
Catalonia parliament independence vote – Sun 10/1.
China mainland markets closed Mon 10/2-Fri 10/6 for the National Day holiday.
Autos – US Sept auto sales get reported Tues 10/3; Ford/F’s CEO will also be giving a strategic update on that same day (this will be the first major update from the new CEO at Ford).
WFC CEO appearing before Senate Banking Committee on Tues 10/3.
EFX former CEO Richard Smith testifying before House panel on Tues 10/3 and before a Senate panel on Wed 10/4.
Yellen delivers opening remarks at Community Banking conf. Wed 10/4. 3:15pmET.
ECB meeting minutes – Thurs 10/5.
US jobs report for Sept – Fri 10/6.
North Korea - South Korea’s national security adviser Chung Eui-yong said he expected Pyongyang to act around Oct. 10 and 18 (Reuters).
WMT analyst meeting – Tues 10/10 (note that KR has an analyst meeting the next day, Wed 10/11).
PG shareholder meeting – Tues 10/10 (decision to be made on Peltz’s board seat request).
Fed minutes – minutes from the 9/20 meeting will be released Wed 10/11. 2pmET.
HON – the co will announce its portfolio review decision before earnings in Oct.
Bank earnings – the CQ3 earnings season kicks off w/Citigroup and JPM Thurs morning 10/12 while BAC, PNC, and WFC all report Fri 10/13.
US inflation – the Sept CPI will hit Fri 10/13.
CQ3 earnings – the week of Mon 10/16 is the first busy week of the CQ3 reporting season.
Iran – Thy God-Emperor Trump will certify whether Iran is complying w/the nuclear agreement around mid- Oct.
China - the National Congress of the Communist Party of China starts Oct 18.
China Q3 GDP and Sept retail sales, IP, and FAI (Wed night/Thurs morning) – Thurs morning 10/19.
Japan – the country will hold snap elections on Sun 10/22.
Flash PMIs for Oct – Tues 10/24
ECB meeting/press conf. Thurs Oct 26. The ECB is expected to provide guidance on LSAP tapering at this meeting.
US Q3 GDP report – Fri 10/27
Fed meeting – decision Wed 11/1 (no press conf. or supplemental).
BOE decision – Thurs 11/2. The BOE is expected to hike rates at this meeting.
Thy God-Emperor Trump trip to China – he is scheduled to visit China in November.
GE – the co will likely hold an analyst meeting in Nov at which it will provide a refresh of its long-term financial guidance.
OPEC meeting – the next formal OPEC leaders meeting is Nov 30 (a decision on extending the production agreement beyond Mar ’18 could be reached at this gathering).
US gov’t funding/debt ceiling – current legislation funds the gov’t and suspends the debt ceiling until 12/8 (the debt ceiling is unlikely to become binding again until “well into” 2018).
Alabama special Senate election – Tues 12/12.
Fed meeting – decision Wed Dec 13. There will be a press conf. and supplemental. The Fed is expected to hike rates at this meeting.
Dassault Systemes has agreed to buy U.S. peer Exa Corp in a deal valued at about $400 million – Reuters http://reut.rs/2ftGHxm
HAIN strikes agreement w/activist Engaged Capital – the agreement will overhaul the board and potentially opens the door to a sale of the company (the board will form a group to consider strategic alternatives). WSJ. http://on.wsj.com/2xLOzo1
HUN, Clariant – White Tale Holdings, the activist group seeking to block the merger, has increased its stake in Clariant slightly – Reuters http://reut.rs/2xCiooZ
Toshiba – a deal is (finally) signed – Toshiba struck a formal deal to sell its memory unit to a Bain-led group for $17.7B. The Bain consortium includes AAPL, Dell, STX, Hoya, and Hynix. The two sides hope to close the transaction by Mar. WSJ. http://on.wsj.com/2wYGopc
Thy God-Emperor Trump’s pick to head the DOJ’s antitrust division gets approved by the Senate – Bloomberg https://bloom.bg/2yttKeo
Westinghouse Electric – Blackstone and Apollo have teamed to make a bid for bankrupt Westinghouse – Reuters http://reut.rs/2wXfAFR
Full catalyst list
Thurs Sept 28 – Eurozone confidence measures for Sept. 5amET.
Thurs Sept 28 – German inflation for Sept. 8amET.
Thurs Sept 28 – US Q2 data revisions (GDP, PCE, etc.). 8:30amET.
Thurs Sept 28 – US advance goods trade balance for Aug. 8:30amET.
This post outlines the rules of /Cindicator and provides answers to the most common questions. We'd like to ask the community to participate in FAQs suggestions (you can add your comments below). Also check sidebar for links to our Medium, Facebook, Twitter, Telegram etc. DISCLAIMER We can’t sell our tokens to U.S. and China citizens and residents: U.S. citizens or permanent residents of the US, or those who have a primary residence or domicile in the United States, including Puerto Rico, the U.S. Virgin Islands and any other possessions of the United States can not be holders of our tokens (CND). We also can’t sell our tokens to citizens and permanent residents of China. Rules for the app We at Cindicator also won’t tolerate scams or cheating. If you try to cheat using our application (for example - register multiple accounts and send the same forecasts) - we will have to ban you. Rules for this subreddit
No inappropriate behaviour. This includes, but is not limited to: personal attacks, threats of violence, slurs of any kind, posting people's private information.
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In case of any questions, please contact us at [email protected]. FAQ What is Cindicator? Cindicator is a fintech company that creates the social and technological infrastructure needed to make effective decisions under volatile conditions of the new economy. By combining a large number of diverse financial analysts and a set of machine-learning models into a single system, we are developing a Hybrid Intelligence infrastructure for the efficient management of investors' capital in traditional financial and crypto-markets. How does it work?
Cindicator creates questions on Crowd Intelligence platform - app.cindicator.com
Analysts make their prediction on the daily basis, answering a number of specific questions about price levels of different financial assets, macroeconomic indexes, events significantly influencing the market, future ICOs.
Right after the question closes (deadline), the artificial intelligence system synthesises accurate forecasts using machine learning algorithms based on the accumulated statistics predicted by forecasters. Machine learning models dynamically calculate various weights for each analyst, identify stable systematics in their errors and calculate corrections for the errors, eliminate noise, and generate final predictions and trading indicators.
What does Cindicator stand for? Crowd Indicator: we refer to the famous “Wisdom of the crowds” concept. In a nutshell: it means that group of people is more likely to provide right answer than an individual. Hence, crowd indicator - an indicator of collective intelligence. Are there any Cindicator products already completed? Yes, there are several products that already completed and ready to use. They include: Collective Intelligence platform - applications for Android, iOS, web platform, CindicatorBot - Analytical Indicators, Cryptometer (arbitrage) bot, Token Sale Review bot, other different products are in development. What is Crowd Intelligence platform? Crowd Intelligence platform is a platform that we launched in December 2015 and where over 115,000 of analysts generate various forecasts daily, answering a number of specific questions, for example: Shares of Twitter, Inc. (TWTR) fell 5.87% and closed at 30.81 USD on Thursday, September 6 a day after testimony before the Senate Intelligence Committee. Will Twitter stock manage to recover and trade above 32.7 USD by September 27? The cryptocurrency Bitcoin settled at $6753.3 at 10:30 AM UTC at Bitfinex exchange on Sunday, September 23. What will be the maximum and the minimum price of BTC/USD from 12:01 AM UTC on Monday, September 24 until 11:59 PM UTC on Sunday, September 30? Apple Inc. (AAPL) is scheduled to reveal its Q4 earnings on Thursday, November 1 after the market close. In your opinion, will Apple Inc. report earnings per share (EPS) above current Wall Street consensus of $2.77? Bitcoin crypto market share settled at 54.46% at 07:30 AM UTC on Monday, October 15. In your opinion, will Bitcoin's market share climb above 57.2% (+5%) at any time before November 14? And much more - visit the app to check all questions! What is Cindicator Bot? If we were asked to describe the product in one sentence, we would say: Cindicator combines the data from our analysts’ forecasts, processes it through several layers of ML algorithms, and delivers notifications with indicators via Telegram bot. For now we’re offering Cindicator’s users 9 types of indicators, most of them tackling both crypto- and traditional financial markets analysis. You can find levels of access and description of indicators on website and in this post. We’ve been carrying out back and forward testing of the indicators for quite some time already - you can find this information here https://goo.gl/aYf6ph. What is Cryptometer bot? The Cryptometer Bot 2.0 measures prices across multiple exchanges to anticipate and detect early signs of cryptocurrency market volatility and provides you with real-time price movements on your selected crypto assets. It is helping traders find the right arbitrage opportunity and profit in everyday trading in a simple way. You can find more information about this bot on website and this post. What is Token Sale Review bot? Token Sale Review is an exclusive analytical product that helps you identify the token sales that are the most sustainable and the most promising in the long run. A stop list tracks scams and projects with excessive risks. Access to this product is strictly limited and by application only. You can find more information about this bot on website and this post. Bots guide:https://cindicator.com/Cindicator-bot-reg-manual.pdf Video guides:https://www.youtube.com/playlist?list=PLhGvusYMn3Hcq0WjlhJOTsxqIJcX3qG1e Levels of access Cindicator Bot Beginner - 5k CND Explorer - 30k CND Trader - 200k CND Expert - 700k CND Cryptometer bot - 1 million CND Token Sale Review bot Beginner - 8k CND/month Intermediate - 14k CND/month Advanced - 20k CND/month What is the problem Cindicator is solving? The main problem in current financial analytics is centralisation. This is because analysts cluster their forecasts and opinions in open access and these opinions impact upon the opinions of other analysts. Decentralization is one of the many necessary characteristics we are working on in the context of the wisdom of the crowd. Figuratively speaking, the suggestion of each unique person contains two types of information: useful signal and unique chaotic noise. Cindicator cuts through this centralization bias by aggregating opinion from a wide range of diverse forecasters from different countries with different professional backgrounds, with different personal experience. After we combine lots of such different suggestions, we have useful signal amplification, and noises mutually cancel each other as they are quite unique and random. When people don’t discuss the problem before making a suggestion they are unlikely to include alien biases into suggestions and keep the uniqueness of their subjectivity – their personal noise, so the sum of noises will go to zero and the signal becomes accurate. Why does Cindicator need the issuance of our own infrastructure tokens? The issuance of our own infrastructure tokens is conditioned by the need to create an internal economy in the ecosystem that will establish transparent and fair relations among all participants making up the system: forecasters/analysts, traders, financial investors, data scientists, and the Cindicator team. What the name of the token? Can I mine Cindicator tokens? The token is also called Cindicator (CND). Unlike proof-of-work blockchains such as Bitcoin, there is no mining in Cindicator. What are Cindicator tokens? Cindicator tokens are ERC-20 compatible tokens distributed on the Ethereum blockchain pursuant to a related ERC-20 smart contract (the “CND Tokens”). Why people from PRC and USA are not allowed to buy Cindicator tokens? Due to legal reasons we can’t sell our tokens to U.S. and China citizens and residents: U.S. citizens or permanent residents of the US, or those who have a primary residence or domicile in the United States, including Puerto Rico, the U.S. Virgin Islands and any other possessions of the United States can not be holders of our tokens (CND). We also can’t sell our tokens to citizens and permanent residents of China. If your indicators are so valuable, why wouldn’t you use them only for yourself for trading? The answer is that simple: we are a technological company and specialise in the Hybrid Intelligence technologies. We create infrastructure and products based on it, and those products, infrastructure and data they yield can be used by hedge-funds or other companies with financial expertise. This way it’s a mutually beneficial business. We don't want to try entering completely different field of the big finance. In other words, the same question can be addressed to the Bloomberg, for example. To be exactly accurate - we do use our indicators for our own good - but this is a very small part of Cindicator business model. Which products can I access as a Token holder? By buying tokens, CND token holders will get exclusive access to part of the Hybrid Intelligence infrastructure being developed. Holders of CND infrastructure tokens will receive a different level of access to Cindicator’s indicators, ratings, and internal analytical products. Token holders will be able to access the following parts of the infrastructure: indicators of traditional markets and crypto-markets (the probability of the rise or fall of asset prices, the probability of beating consensus in corporate and macroeconomic events, indicators certain price levels being reached, indicators of the probability of significant events influencing the market); auxiliary service products for trading (Telegram bots, notifiers, and portfolio monitoring products); analytical products (ICO ratings, market condition analysis, ICO due diligence, and investor portfolio analysis); market indices and sentiments generated by Hybrid Intelligence (in development). Will your indicators still provide value if many people can gain access to them? The fact that token holders can use data from the analytical infrastructure products will not affect the value of the data received from Hybrid Intelligence, since each indicator or index is not an unambiguous trading signal, but only an additional metric in the market that helps analyse an investment decision. These data and analytical products will assist token holders and make the ecosystem transparent. A part of the infrastructure intended to be directly used in capital management (by traders' teams, machine-learning models, and trading strategies) will remain in the centralized part of the system. This is necessary in order to make sure that Hybrid Intelligence can be used most efficiently on the next stage, when interested funds will be provided with access to the entire infrastructure (for more detailed information, please, see White Paper Section 4.6). Cindicator - just another Prediction Market? Cindicator is not a prediction market. We are different in infrastructure, goals and business model: We enhance collective intelligence of our forecasters with Artificial Intelligence. Prediction markets usually just gather opinions. We aim at creating Hybrid intelligence - an effective combination of human mind and machine intelligence. Prediction markets aim at making correct predictions. We create products for financial markets: not only forecasts and signals, but also strategies, indices, sentiments, trading bots and tools, SaaS products. Thus our clients and source of income are financial markets’ players. Prediction markets focus on predictions - and for many of them analytics are important part of cash inflow. We on the other hand have never made or plan to make our forecasters risk their own money. You can read this article to know more about comparison of collective intelligence platforms. Is Cindicator just another trading signal provider? No, Cindicator is a technological ecosystem that also creates a number of products for traders and hedge funds. Cindicator’s ultimate goal is to set up a decentralized intellectual technology that effectively implements the potential of Hybrid Intelligence for the benefit of all participants of the ecosystem. In the future the technology strives to be fully automated: the only resource necessary for it to function will be the mental investment by the analysts. Is the crowd able to give reliable predictions? Usually we don’t expect crowd to be wise. However, crowd doesn’t necessarily mean chaotic and impulsive mass. In case of Cindicator, “the crowd” consists of independent financial analysts from all corners of the Earth. We could call it a consensus - yet the word we use refers to a well-known concept called “Wisdom of the crowds”. A famous example: in 1906, British scientist Francis Galton came to a rural fair where visitors were invited to guess the weight of a bull put on public display and to write this figure on a special ticket just for entertainment. Organizers of that show promised prizes for those who managed to guess a true figure. Thus, about 800 people - some of them professional farmers, others far from pastoral matters - took part in the voting. After collecting all the tickets for analysis after the fair, Galton calculated the average arithmetic value from the entire sample: 1197 pounds. The actual weight of the bull was 1198 pounds. Astonishing result, isn’t it? In order to make “Wisdom of the crowds” work, a few things must be secured: Analytics must look at the situation independently and provide answer privately - because otherwise they risk to become influenced by some opinion and produce biased results Group of people must be large. The more people - the more accurate their consensus is. Questions must be formulated in quantitative way. Watch a 5-mins video where BBC's professor Marcus du Sautoy explains how a group of people know more than one individual: https://www.youtube.com/watch?v=iOucwX7Z1HU Have you acquired investments already? Cindicator has already acquired around $570,000 of investments from angels and venture funds. We also got $140,000 worth grants for technologies from Microsoft, Facebook and Amazon. During Cindicator Token Sale $15,000,000 hardcap has been reached. How experienced your team is? The Cindicator team has been created by a synergy of like-minded people with a variety of expertise in maths, data science and finances working together with one collective mind. About 85% of the team members are graduates of top STEM universities. We understand the value of building the right Team, Community, and Ecosystem. We are actively expanding the scientific community around our infrastructure, business and ecosystem giving access to our work and technologies so we can act together to solve important and relevant problems. Cindicator have a strong advisory board: Charlie Shrem - Chief Operating Officer at Jaxx.io, Founder of Bitcoin Foundation Anthony Diiorio - CEO and Founder at Decentral and Jaxx, Founder at Ethereum Markus Killick - CEO ISOLAS LLP law firm, Chairman Gibraltar Stock Exchange Evan Cheng - Director of Engineering at Facebook Reese Jones - Associate Founder at Singularity University Etienne Brunet - Investment Executive at Illuminate Financial Simone Giacomelli - Founder at Vulpem Stepan Gershuni - General partner at bits.capital Anton Govor - Managing Director, Head of Strategy at Moscow Exchange Andrei Rusakov - Partner, co-founder at Data Capital Management Julian Zegelman - Corporate Attorney, Partner at Velton, Zegelman PC Roman Storm - Blockchain and Solidity developer at blockchainlabs.nz Konstantin Gladych - CEO and Co-founder at Changelly.com instant cryptocurrency exchange Vivian Cheng - Associate at Cota Capital Boris Ryabov - Managing partner at Bright Capital
Authored by Dog Kass via RealInvestmentAdvice.com, White House Politics: (When asked what he wanted to give thanks for during a press gaggle Thanksgiving Thursday, Trump responded), “_for having a great family and for having made a tremendous difference in this country. I’ve made a tremendous difference in the country. This country is so much stronger now than it was when I took office that you wouldn’t believe it… And I mean, you see, but so much stronger people can’t even believe it. When I see foreign leaders they say we cannot believe the difference in strength between the United States now and the United States two years ago.” _– President Trump (Comments on Thanksgiving) Policy: _“You only think I guessed wrong! … You fool! You fell victim to one of the classic blunders – the most famous of which is “never get involved in a land war in Asia” – but only slightly less well-known is this: Never go in against a Sicilian when death is on the line!” _– Vizzini,The Princess Bride The Economy: “The missing step in the standard Keynesian theory (is) the explicit consideration of capitalist finance within a cyclical and speculative context… finance sets the pace for the economy. As recovery approaches full employment… soothsayers will proclaim that the business cycle has been banished (and) debts can be taken on. But in truth neither the boom nor the debt deflation… and certainly not a recovery can go on forever. Each state nurtures forces that lead to its own destruction.” _–_ Hyman Minsky The Markets: “Every new beginning comes from some other beginning’s end.” _–_Seneca the Elder Contrary to the expectations of many (including myself), the uncertainties following the surprising Trump presidential election victory, which produced a number of possible outcomes (some of them adverse), was enthusiastically embraced by investors in 2017 and in the first month of this year. A market on steroids was not a conclusion or forecast by any mainstream Wall Street forecaster that year. There was no sell side strategist who expected equities would rise anywhere near the 20%+ gains in the major indices recorded in 2017, nor do I know any who predicted that the S&P Index would make more than 70 individual highs a year ago. As I expected, that enthusiasm continued in and through most of the month of January, 2018. But, after a year of historically low volatility and ever-rising stock prices, the bullish consensus became troubled as the complexion of the market changed throughout most of 2018 . As I noted in last year’s commentary, I thought that the biggest surprise in 2018 would be that extrapolation of the market uptrend didn’t work after many years of working, and that we will witness the emergence of multiple non-consensus developments, including:
A dramatic drop in the price of bitcoin (to under $2,000)- A devastating decline in many bitcoin collateral plays- A much higher oil price- A slowing (not expanding) rate of economic domestic growth as the tax bill “trickles up,” not down- A mean reversion higher in volatility- The bursting of the global short volatility bubble which serves up a 20% drop in equities (aided by both weaker earnings results and lower valuations).- And, of course, I anticipated that there would be an abundance of surprises in the fertile political arena with the incalculable Orange Swan at the helm in Washington, D.C., and in his role as the “Supreme Tweeter.”“Expect the unexpected and, whenever possible, be the unexpected.” – _Kurt Vonnegut, Breakfast of Champions_As we enter 2019, the scent of_ “Group Stink_” is still thick despite a heady list of multiplying uncertainties. Nevertheless, while the _Bull Market in Complacency_ has been pierced in October, 2018, most market forecasts remain optimistic.
Warren Buffett once observed that a bull market_ “is like sex. It feels best just before it ends.'” _While some of us in the ursine crowd debate whether the investment orgasm has already passed, in the extreme it finally may be Minsky’s Moment and year after nine years of recovery and prosperity following _The Great Recession._This year I have decided to publish my _“Surprise List”_ a bit earlier than usual. As you all know, my Surprises are what I term to be _Probable Improbables_ – events that have a greater possibility of occurring than are seen by the consensus. I try to make you think apart from that diabolically dangerous_ “Group Stink”_ and, particularly as it relates to politics (but with other subjects as well), I feel that I should offend you at least once, or I am not doing my job. But, any offense is meant in the spirit of the great Romantic poet William Blake who taught us that “_Opposition is true friendship._” My Surprises are shorter in length than in previous years. _(I want to quickly get to the important points of the Surprise List – available on one or two pages – rather than deliver a more flowery prose and bunch of stories that I have commonly done in the past)._We will start the new investment year about one month from now with a completely different _“feeling”_ of previous years – as I mentioned previously, the complexion of Mr. Market seems to have changed:
Investors (retail and institutional), previously comfortable being among the herd of optimism, are beginning to panic.- The dominant investors of the decade – Exchange Traded Funds and Quantitative Strategies and Products (e.g. risk parity) – are selling into weakness (just as they bought into strength) – serving to overwhelm active investors.- Hedge funds are completing another unfavorable year in which their investment performance is poor. Against a backdrop of a high fee structure (at a time in which passive management fees are “moving to zero” ) – redemptions are growing and even some of the most competent managers are hanging up their spikes and closing down.- Public companies, in some measure to increase the value of their stock options) who have gone on a massive buying streak of their own securities (propping up stocks and nominal EPS at the expense of building their businesses and improving productivity) may begin to get second thoughts as stocks founder and interest rates have risen.- The two “shiny objects” crypto currency and FANG – revered and hyped by the many – is likely having a more profound impact on the herd’s newly found negative sentiment than many realize.- Global economic growth prospects continue to grow more ambiguous – with the schmeissing of the price of crude oil another warning and conspicuous signpost of a broadening slowdown.- The Federal Reserve has made a profoundly important change from easing to restraint._“In ambiguous situations, it’s a good bet that the crowd will generally stick together — and be wrong.” _– Doug Sherman and William Hendricks
The core themes and roadmap for 2019 is that a standard run-of-the-mill Bear Market may run into something bigger in a year enveloped in unprecedented political turmoil (and electorate disgust and anger), an escalating trade (and cold) war with China and continuing global economic disappointments — dragging down a mature, an extended and fully exploited economic growth and market cycle. Not surprisingly, my Surprise is that a slightly down year of performance for the S&P Index in 2018 may turn out to be something worse in 2019. But the biggest and most provocative surprise is the decline and fall of President Trump in 2019 – in which an anti-imperial rebalancing is successfully mounted by a more assertive Congress, bringing the country back into constitutional equilibrium. Without further fuss, here are my outside of consensus 15 Surprises for 2019: 1) A U.S. Recession in 2019 Followed by Stagflation: We learn, in 2019, the extent to which economic activity was pulled forward by the protracted period of historically low interest rates – as capital spending, retail sales, housing and autos founder further. With U.S. Real GDP growth dropping to +1% to +2% in the first half of 2019, inflation remaining stubbornly high (especially of a wage-kind as the labor market remains tight) and with cost pressures unable to be passed on, the threat of recession intensifies. By the third quarter of 2019 U.S. Real GDP turns negative. Tax collections collapse as government spending continues to rise. The budget deficit forecasts are lifted to over $2 trillion. The U.S. falls into a recession in the last half of 2019 – followed by a lengthy period of stagnating economic growth and higher inflation (stagflation). A dysfunctional, non-unified and discombobulated Europe also falls into a recession in 2019 – with significant ramifications for U.S. multinationals that populate the S&P Index. U.S./Chinese trade tensions push the global economy down the hill as the year progresses and GDP growth in China comes in below +5.0%. The IMF reduces it’s global economic growth forecast three times next year. S&P per share earnings fall by over -10% in 2019. 2) The Federal Reserve Pauses and Then Cuts as Currencies and Interest Rates Swing Wildly: It’s a wild year for fixed income and currency volatility. The Fed cuts rates in 3Q2019 and by year-end announces that QE4 will commence in January, 2020. The 2018 tantrum in Italian bonds is just a precursor for hissy fits throughout the European bond market as the ECB is no longer expanding its balance sheet and tries to get out of NIRP. The BoJ throws in the towel on their drive for higher inflation. The Japanese bond market sees sharp selloff. During 2019 the yield on the ten year U.S. note falls to 2.25% before ending the year at over 3.50% as the selloff in European and Japanese bonds and the announcement of QE4 drive our yields higher. Gold falls to $1050 before ending the year at over $1700. 3) Stocks Sink: Though the third year of a Presidential cycle is usually bullish – _it’s different this time._Trump confusing _brains with a bull market_ can’t fathom the emerging Bear Market. At first he blames it on Steve Mnuchin, his Secretary of Treasury (who leaves the Administration in the middle of the year). Then he blames a lower stock market on the mid-term election which turned the House. Then he blames the market correction on the Chinese. The S&P Index hits a yearly low of 2200 in the first half of the year as the market worries about slowing economic and profit growth and a burgeoning deficit/monetization. The announcement of QE4 results in a year end rally in December, 2019. In a continued regime of volatility (and in a market dominated by ETFs and machines/algos), daily swings of 1%-3% become more commonplace. Investor sentiment slumps as redemptions from exchange traded funds grow to record levels. The absence of correlation between ETFs and the underlying component investments causes regulatory concerns throughout the year. Congress holds hearings on the changing market structure and the weak foundation those changes delivered during the year. Short sellers provide the best returns in the hedge fund space as the S&P Index records a second consecutive yearly loss (which is much deeper than in 2018). As the Fed cuts interest rates the US dollar falls and emerging markets outperform the US in 2019. I, like many, are concerned about corporate credit (See Surprise #8) and though credit is not unscathed, it is equities that bear the brunt of the Bear since they are below credit in the company capitalization structure. Bottom line, after a steep drop in the first six months of the year, the markets rise off of the lows late in the year in response to this shifting political scene (the decline of Trump) and a reversal to a more expansive Fed policy – ending the year with a -10% loss. 4) Despite the Appearance of the Bear, FANG Stocks Surprisingly Prosper (Both Absolutely and Relatively) as Investors Seek Growth (at any cost) In a Slowing Economy – Facebook’s Shares Rebound Dramatically: While there is a growing consensus that FANG will lead a Bear Market lower – that is not the case as growth, in a general sense, is dear and cherished by market participants next year. Among FANG, Facebook‘s shares have a reversal of fortune (and is the best performing FANG stock) as the company announces aggressive management changes and moves to remedy the misinformation trap. As more previously unrevealed information reduces her valuation, Sheryl Sandburg’s special status as a female leader (in a seascape of men at Facebook and in industry) is questioned. In the first half of 2019, Sandberg becomes a sacrificial lamb and is sacked – and is forced to lean out after leaning in. At the suggestion of Warren Buffett (who has accumulated a sizable stake in the company), former Board Member Donald Graham is named as the new, independent and Non-Executive Board Chairman of Facebook. This unexpected move encourages FB investors to believe that the company is quickly moving to fix its multiple data and privacy issues. Fewer (than feared) Facebook members opt out and growth in usage resumes in the back half of 2019. FB’s stock popularity (and market capitalization) increases as it becomes a more dominant holding in “value investors” portfolios – the shares trade above $200/share late in the year. 5) “Peak Trump” – the President Bows Out in His Pursuit of a Second Term: The President’s dismissal of the murder of Washington Post reporter Jamal Khashoggi is seen as delivering tacit support to Saudi Arabia’s MBS – it is a pivotal turning point in Trump’s popularity and ultimate reputational decline in 2019. _“Pay enough and you can get away with murder”_ becomes the mantra of the Progressive Left. Trump acceptance by his Republican party peers quickly diminishes as they are further worried about his motivation to side against the findings of his own intelligence department. After Trump’s personal dealings with authoritarian and autocratic countries are revealed in the Mueller probe (along with possible emoluments violations), Trump’s popularity fades further as Lindsay Graham and other prominent Republicans repeal their support and denounce the President. An anti-imperial rebalancing is mounted, in which a more assertive Congress brings the country back into constitutional equilibrium. Though the public and political leaders (even on the right)_ increasingly reject the President, there are no impeachment efforts by the Democrats. Instead (and surprisingly), House Speaker Pelosi (recognizing that constructive steps are the recipe for a Democratic 2020 Presidential win) exacts discretion and stops the Democrats from moving on an impeachment in the House. Democratic leadership turns to reforms and a torrent of new legislation in the areas of improving the environment and climate control (and the halt of growth in fossil fuel by the development of alternative energy programs), the opioid crisis, education, crime, voting rights, healthcare and prescription drug prices, immigration, etc.- showing the electorate that their Party can demonstrate the framework for a positive agenda, a vision and a social contract (and can rule instead of obstruct).But, most importantly… With real GDP turning negative in 2019’s second half, Democrats attempt to replace Republicans’ supply-side economics with a smarter theory of growth. Recognizing just as inflation and other ills opened the door for criticism of Keynesian economics in the 1970s, so have inequality and disinvestment done the same for critiques of supply side today. In 2019, the Democrats turn the table on the supply-siders and give a voice through thoughtful proposed legislation (making the affirmative case for the Democratic theory of growth geared to raising wages and putting more money in the hands in working- and middle-class people’s pocket and investing in their needs). Americans enthusiastically embrace this alternative (of how the economy works and grows and spreads prosperity) and reject and defeat the long standing Republican economic narrative – seeing it as a better way to spur on the economy_ (than giving rich people more tax cuts)._ Asking the question _“has it worked for you?_” and given the fairy tale of added revenue from growth (and the widening hole in the deficit),_ rampant inequality, the fear of being bankrupted by medical catastrophe and massive student debt obligations Democrats provide a practical alternative to cutting taxes for the rich and decreasing regulation which has failed to unleash as much innovation and economic activity that was promised by the Administration. The legislation, which puts more money in middle class pockets, defends and supports the notion that the public sector can make better decisions than the private sector. Referred to as the _“middle – in economic bill,”_ is cosponsored by a leading, conservative and respected Republican member of Congress and begins to gain bipartisan support in Congress, driving a stake through the supply-side’s heart. Despite his loss of popularity (which plummets to 25%)_ and the push back from the Republican establishment, Trump declares he is still planning to run for President. Nevertheless, a challenge from Senator Mitt Romney (who’s motto is “Make Republicans Great Again”_) gains steam as McConnell, Graham, Kennedy Et al. throw their support for the Senator. As Trump’s problems multiply, Romney becomes the heavy favorite to defeat Trump in the Republican primary. Recognizing a sure election defeat, by year-end the President announces that his medical team has disclosed a health issue and he is advised not to run for office. _Reluctantly, _Trump agrees and bows out of the 2020 Presidential race late in the year. The Trump mantra of “Make America Great Again” i_s replaced by _“Make Economic Uncertainty and Market Volatility Great Again.”#MAGA/#MUVGA 6) The Year of the Woman: With a Trump withdrawal from 2020 the election is wide open. The arc of history influences the Democratic Presidential nomination march and the leading candidates that emerge for 2020 are mostly women. The potential contenders include progressive firebrands like Elizabeth Warren, Stacey Abrams, Kristen Gillibrand and Kamala Harris, and moderates like Senator Amy Klobuchar and Rhode Island Governor Gina Raimondo. Michael Bloomberg, Howard Schultz and Joe Biden bowout from the race by year end 2019 By year-end, Klobucher, Harris and Warren surface as the three leading Democratic Presidential candidates. It appears that an all women Democratic ticket (President/Vice President) is increasingly likely. Nationally, several high profile sexual harassment suits are disclosed. Allegations against a number of well known television, other entertainment and political icons/leaders serve to reinforce the candidacy of the above women who aspire to gain the Democratic Presidential nomination. After Congressional hearings, non partisan and strict harassment legislation are introduced forcing several well known male politicians to resign from office. 7) A New (But Old) Shiny Object Appears As A Stock Market Winner in 2019: Bitcoin trades close to $3,000 in December, 2018 and spends most of 2019 under $5,000 (as numerous trading irregularities, thefts and more frauds are exposed). England’s Financial Conduct Authority (FCA) takes the lead, in instituting a comprehensive regulatory response to regulating the crypto currency markets. The U.S. follows by imposing broad-based crypto currency regulation in 2019. A leading business network (who’s bitcoin “bug” has become the new cover of magazine contrary indicator!) faces a class action suit for their seeming encouragement in buying into the asset class in their too frequent broadcasts during 2018. Several crypto currency guests who were prominent on the network’s coverage are indicted for fraud. In an agreement with regulatory authorities, the biz network’s programming is reconstituted. Marijuana stocks, after a weak final few months in 2018 (are down by over 50% from their highs), explode back to the upside reflecting a quickened pace of alternative health applications. (MJ) is the single best performing exchange traded fund and (TLRY) makes another move to $300/share. 8) Private Equity, High Yield Debt and Leveraged Loan Problems (Which Have Doubled in Size Over the Last Ten Years) Emerge as the Resurgence of Leveraged Finance Comes to An End: Private equity, in particular, the biggest winner in the decade long cycle since _The Great Decession of 2007-09,_ suffers – and so do the endowments at several prestigious universities. Covenant- lite financings in junk and leveraged loans – often in opaque and complex structures – topple under the weight of loan defaults. (HYG) (last sale: $83.17) trades $75-$80 as redemptions spike. Publicly-held private equity shops (KKR) and Blackstone (BX) are among the largest percentages losers in 2019, High yield bonds fulfill their characterization as “junk,” and are among the worst performing asset classes. The spread between junk bonds and Treasuries more than doubles – widening dramatically during the summer months. 9) The China/U.S.Rift Intensifies as Trump’s Anger Shifts Towards That Region: The trade war with China goes into full effect with 25% tariffs. Walmart (WMT) is adversely impacted and its shares fall by -20% from the recent highs. The Chinese retaliate against major American brands like Apple (AAPL) . _(“Peak Apple” actually happens and its shares fall below $125/share)._Peter Navarro resigns. A major cyber-attack against the U.S. financial system, who’s source is initially not diagnosed, is ultimately reportedly to have been delivered by China. The U.S. enters a cold war with China that resembles the emergence of the cold war with Russia in 1948 – it becomes clear it will be lengthy, nasty and unfriendly to the trajectory of worldwide economic growth. 10) Bank Stocks Are Surprising Winners in 2019: Despite some pressure in net interest margins (and income), sluggish loan demand and a pickup in loan losses – bank stocks (and EPS) are surprisingly resilient and manage to have a positive return next year as better relative EPS growth is supported by aggressive buybacks and (starting) low valuations. Investors look forward to a recovery in economic growth in 2020-21 and bank stocks (flat for most of the year) have a vigorous move in the last few months of the year and are one of the few sectors to advance in 2019. Oil stocks, depressed from the late 2018 crude oil price fall also recovery mightily in the later months of 2019 as the price of oil advances coincident with dovish turn in monetary policy. 11) Tesla’s Problems Shift From Production to Demand to Financial: Tesla (TSLA) loses its tax subsidy in the U.S. and in the Netherlands (a large market for them). European competition grows. Europe doesn’t allow the Tesla Model 3 due to safety reasons. The Chinese won’t let an American company have video data over millions of miles of roads and bans Tesla. Lenders balk and access to the public debt market evaporates. The company’s financial position deteriorates and its credit default swaps widen dramatically. An accounting “issue” surfaces – and it morphs into an accounting fraud. Elon Musk, who has leveraged his TSLA equity holdings, faces margin calls and is forced to sell Tesla shares. After being rushed to the hospital after an overdose, Musk leaves his CEO post to enter drug rehab. 12) Berkshire Hathaway (BRK.A) (BRK.B) Announces the Largest Takeover in History – The Transformational Acquisition of 3M for $150 billion. 13) Amazon (AMZN) Makes a Bid for Square (SQ) but Alphabet/Google (GOOGL) Eventually Acquires Both Square SQ and Twitter (TWTR) 14) With its Share Price Consistently Trading Under Its Book Value During the First Few Months of 2019, Goldman Sachs’ (GS) Partners Take the Brokerage Private in a Leveraged Buyout at $238/share. 15) Brexit Happens: The world continues and the pound is the best global currency.
Here Are 5-“Also Eligible” Surprises:
AE1) Ford (F) defaults on its loans. Steve Rattner again becomes the “car czar.”- AE2) A major and unexpected global event judged to be impacted by climate issues causes a massive amount of health problems and deaths. Demand for a reversal of Trump policy on climate change comes from his within his own Party and represents another fissure between the White House and the legislative branch.- AE3) Warren Buffett announces his successor. The name, however, is no surprise.- AE4) Angela Merkel doesn’t make it thru the year and Germany has a new leader. - AE5) As is typical with maturing economic cycles, two large accounting frauds of S&PIndex constituents are uncovered late in the year. A previously “sainted” and revered CEO does a prep walk.
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