Author Archives: Scalper1

Market Lab Report – Premarket Pulse 2/19/16

Major averages fell yesterday on lower volume after their three-day straight-up-from-bottom bounce. Leadership remains highly questionable, adding suspicion to the current bounce. Generally, follow-through days that eventually fail tend to do so rather quickly, and so far Wednesday’s FTD appears headed for the same fate as the January 28th FTD. A number of stocks also ran right into resistance yesterday, as Gil Morales discussed in yesterday’s live intraday webinar. The CPI came in flat this morning vs. expectations of -0.1%, but excluding food and energy, core prices jumped 0.3%, the biggest gain since August 2011 due to rising medical care and housing costs. Over the past 12 months, core prices are up 2.2%. Of course, the CPI components continue to be manipulated with the ones rising the fastest removed from the CPI, thus the CPI is merely a measure of the current basket of components chosen to keep inflation low which also artificially boosts GDP, and gives the Fed  more room to hike rates. That said, even with this distortion, it is interesting that core prices are up 2.2% over the past 12 months suggesting that the Fed has less room to maneuver than expected in terms of reducing interest rates. Serious slack demand for goods is of course creating lower prices in some sectors, which counters rising prices in other sectors from all the money that has been printed since QE began in late 2008. Futures are off more than half a percent at the time of this writing.

When Earth Rumbles, Will Silicon Valley Tumble?

As Silicon Valley remains firmly rooted as the global center of technology and innovation, rarely mentioned is one huge fact that could blunt a ton of good vibes: The area is due for a  major earthquake. “There are going to be infrastructure problems,” David Walters, Cisco Systems ( CSCO ) director of global safety and security told IBD. “If it’s 6.5 or greater, the bottom line is that a lot of people are going to be walking.” The U.S. Geological Survey says there’s a 72% chance of a magnitude 6.7 or greater earthquake on one of the region’s many faults in the next 30 years. The percentage shoots up to 89% for a magnitude 6 or greater quake, USGS scientist Morgan Page told IBD. Either could be catastrophic. “The Bay Area has the highest density of active faults per square mile of any urban center in the country, and on a long-term basis it has the highest amount of earthquake energy released per square mile of any urban center in the country,” David Schwartz, a geologist with the U.S. Geological Survey, told the East Bay Express in 2005. “So we’re really kind of living at ground zero.” Silicon Valley Earthquake Damages Could Near $200 Billion A magnitude 7 or greater quake would “likely” spur damage to buildings and infrastructure in the range of $95 billion to $190 billion, says Renee Lee, an analyst with Risk Management Solutions, a firm that models risk for insurance companies. “Despite the area being really well educated about earthquakes, and the substantial investments in infrastructure, we will expect to see some pretty significant damage if there’s a quake along the Hayward fault.” Scientists have long considered the Hayward fault one of the most likely candidates for a major quake within a few decades. The fault runs through Oakland and other heavily populated East Bay cities. What’s all but certain is that Silicon Valley will experience widespread utilities losses — water, power — as well as damage to buildings and infrastructure such as roads and bridges. A phenomenon called liquefaction — in which normally solid soil acts like a liquid — could wreak havoc on any firms with offices near the San Francisco Bay’s shore. Oracle’s main campus, for example, sits atop what’s called bay fill, a material that is highly susceptible to liquefaction. ( Oracle ( ORCL ) spokeswoman Jessica Moore refused to comment on the company’s business-continuity plans in the event of an earthquake, or any other natural disaster.) Facebook ( FB ) and Alphabet ( GOOGL ) also have large campuses located on land susceptible to liquefaction — though less so than Oracle’s (neither of these companies responded to requests for comment). The liquefaction risk to Apple ‘s ( APPL ) office in Cupertino is low. The good news is that the Internet will almost certainly continue to function, for the most part. Service disruptions are likely, but the core backbones that tie the Bay Area to the Internet will remain intact. That might not have been the case 15 years ago, though “even then there were major fiber cuts that the Internet weathered fine,” Mike Leber, CEO of Hurricane Electric, an Internet backbone provider, told IBD via email. And many Silicon Valley companies have been sure to locate data centers in other parts of the country, so service disruptions are less likely. “Our data centers are located at sites which have limited potential for severe weather and seismic events,” Yahoo spokeswoman Carolyn Clark told IBD in an emailed statement. Yet, though the experts can make educated guesses, no one knows how a big one might affect Silicon Valley, or any area, says Anne Wein, a USGS operations research analyst. “The hard work is going to be to get a description about what will happen,” she told IBD. “We’re just not there yet.” The USGS is studying the issue, what it calls “Project Haywire,” and is aiming to complete its research in April, according to spokesman Justin Pressfield. In the meantime, uncertainty will persist. “We haven’t had a major earthquake in the U.S. since we have become so connected with wired and wireless technology,” Wein said. “Do we have new vulnerabilities? How much redundancy is there? How will this new technology help us recover?” Of 15 large Silicon Valley tech companies — and several startups valued by investors at more than $1 billion — that IBD contacted for this report,  Adobe Systems ( ADBE ), eBay ( EBAY ), Oracle and PayPal ( PYPL ) declined to comment and nine did not return the request. Cisco provided access to executives for a wide-ranging interview, and Yahoo issued a brief statement. When asked why tech firms are reluctant to discuss business-continuity plans, Sam Singer, a public relations executive who specializes in crisis situations,  said tech companies are “better at talking about services and products. They’re not prepared to talk about public policy issues, safety issues, even though they ought to be.” He says that there’s no reason why companies shouldn’t be able to describe how they would deal with a natural disaster in the Bay Area without giving away proprietary information. “It’s important that companies discuss earthquakes,” Singer said. “They need to be leaders, and offer reminders to their employees, the public and the news media that we live in earthquake country.” Dick Evans, president of the Business Recovery Managers Association, a networking and information group for disaster recovery planners, told IBD that his group used to have more membership among major Silicon Valley firms. At the moment, he said, “we don’t have as many as we would like.” What Preparedness Might Look Like Cisco has been active in preparing for quakes. It might take the issue more seriously than others, in part, because it’s among the tech giants that were around during the Loma Prieta earthquake of 1989, Walters says. That quake, centered near San Jose and San Francisco, killed 63 people, displaced 12,000, destroyed an estimated $6 billion worth of property and caused an unknown amount of productivity losses. At Cisco’s main offices in San Jose, Walters says the company maintains what it calls “Arks,” which store water, food, tents and emergency supplies for all employees on site — enough supplies to last up to three days. And executives all carry three-day survival backpacks in their vehicles, he says. The company also has a mobile operations center that can staff 13 — and can turn it into a kind of mobile office for execs. The company has five command-and-control centers around the world — with satellite communications abilities and backup generators for incident response vehicles. And the company conducts earthquake drills at its main offices. “We have the right processes, right supplies,” Walters said. “We know as much as we can about the fault lines and we want to be as knowledgeable as possible.” He adds that USGS scientists come in from time to time to talk about the fault lines with Cisco’s safety and security team. The company also monitors incidents around the globe, and has a Tactical Operations team that it deploys on humanitarian missions to restore communications connectivity. Yahoo was willing to share a few details of its plans, though declined to provide access to business continuity executives. Spokeswoman Clark, in a statement, said “Yahoo has prepared our technology, as well as our physical spaces, to allow us to continue to run and operate our business either in California or other parts of the world in the event of catastrophe. We have invested at our mission-critical facilities to provide for alternative power supplies that will allow those facilities to run in the event of a loss of power or other utilities.”

ECB To Further Stimulate Economy: 5 Euro Mutual Funds To Buy

The Eurozone economy is trying hard to crawl back to its pre-crisis peak. It is currently grappling with issues like a slower growth rate, slump in bank stocks as well as a refugee crisis. Europe was subject to a continuous inflow of refugees from war-torn nations like Syria, Afghanistan and Iraq. In addition, global headwinds such as the sluggish growth rate in China and a continuous slump in oil prices are causing a lot of heartburn for the region. The European Central Bank (ECB) introduced reform measures to boost its fragile economy, which fell short of expectations. Nevertheless, the ECB President Mario Draghi’s assurance at the European Parliament that more stimulus measures are on the way boosted investor sentiment. He believes that the Eurozone economy is on a firmer ground than what it seems. He also sounded pretty confident about the state of the beleaguered banking sector. As for the refugee crisis, most of the economists believe that it won’t have a large economic impact as it is more of a political issue. In fact, ageing nations such as Germany’s manpower will stand to improve. In order to cash in on these positives, investors may look toward investing in Europe-focused mutual funds. These funds not only delivered positive returns during the period of crisis, but are also poised to perform well on the back of an improving economy. Lackluster Growth, Bank Stocks Take a Hit The 19-country Eurozone expanded at an annual rate of 1.1% in the final quarter of 2015, less than what it was at the onset of the 2008 global economic crisis. Greece falling back into recession and Italy’s economy remaining stagnant were some of the major reasons that pulled back the broader economic growth in the Euro region. The ECB responded to the crisis by trimming a key interest rate to negative 0.3% in December and extending its bond-buying program of 60 billion euro a month until March 2017. These measures were taken to boost the ailing Eurozone economy and achieve the desired inflation rate of less than 2%. However, these steps were not enough to impress investors as they were anticipating deeper rate cuts and additional asset purchases. The inflation rate in the single-currency area stood at 0.4% in January, way below the level expected. Meanwhile, banks’ stocks in Europe took a beating. The Stoxx Europe 600 Banks Index that covers 47 regional companies engaged in the banking sector tanked more than 20% year to date. Ultra-low interest rates are hampering the profits that banks make from loans. The spread between long-term rates at which banks lend and short-term rates at which banks borrow has shrunk considerably. A Confident Draghi Given the wild swings in banks’ shares, Draghi reassured investors about the health of the banking sector. Draghi emphasized that even though low-interest rates adversely affected banks, the monetary stimulus measures employed since the financial crisis have increased the resilience level of the broader financial system. He said that Eurozone banks have boosted their financial strength by increasing core tier one capital ratios from 9% to 13%. The banks are also in a “good position” to handle bad loans. He added that “the ECB’s supervisory arm is working closely with the relevant national authorities to ensure that [their] non-performing-loan policies are complemented by the necessary national measures.” Moreover, Draghi said that “[they] will not hesitate to act” to stimulate the Eurozone economy and push the inflation rate to its desired level. He pledged to revive the economy by “reviewing and possibly reconsidering the monetary policy stance in early March.” He has already fought back to improve sentiments by keeping interest rates unchanged in January. After hearing from Mario Draghi, economist Howard Archer of IHS Global Insight said that the ECB may cut the interest rate from a negative 0.3% to a negative 0.4% in March. The ECB might also increase its asset purchases by 20 billion euro to 30 billion euro from the current level. If this comes about, stocks are certainly expected to move north. 5 Euro-Focused Mutual Funds to Buy Given the optimism exuded by Draghi, investors might have a look at funds exposed to the Eurozone. Our analysis is based on selecting funds that have overcome bottlenecks by posting commendable returns. Further, fueled by solid fundamentals, these funds are also poised to perform well in the near term. These funds have positive 3-year and 5-year annualized returns, carry a low expense ratio, have minimum initial investment within $5000 and possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). When it comes to the refugee crisis, however, it will be prudent to keep an eye on the region to arrive at informed decisions. Fidelity Europe (MUTF: FIEUX ) seeks growth of capital over the long term. FIEUX invests a large portion of assets in securities of European issuers and other investments that are tied economically to Europe. This fund’s 3-year and 5-year annualized returns are 1.6% and 1.4%, respectively. Annual expense ratio of 1.01% is lower than the category average of 1.47%. FIEUX has a Zacks Mutual Fund Rank #1. Invesco European Growth A (MUTF: AEDAX ) seeks long-term growth of capital. AEDAX invests a major portion of its assets in securities of European issuers and in derivative instruments that have economic characteristics similar to such securities. This fund’s 3-year and 5-year annualized returns are 2.1% and 4.5%, respectively. Annual expense ratio of 1.37% is lower than the category average of 1.47%. AEDAX has a Zacks Mutual Fund Rank #2. T. Rowe Price European Stock (MUTF: PRESX ) seeks long-term growth of capital. PRESX invests the majority of its assets in European companies. This fund’s 3-year and 5-year annualized returns are 3.1% and 4.2%, respectively. Annual expense ratio of 0.95% is lower than the category average of 1.47%. PRESX has a Zacks Mutual Fund Rank #2. JPMorgan Intrepid European A (MUTF: VEUAX ) seeks total return from long-term capital growth. VEUAX invests primarily in equity securities issued by companies with principal business activities in Western Europe. This fund’s 3-year and 5-year annualized returns are 2.4% and 2.9%, respectively. Annual expense ratio of 1.41% is lower than the category average of 1.47%. VEUAX has a Zacks Mutual Fund Rank #2. Fidelity Nordic (MUTF: FNORX ) seeks long-term growth of capital. FNORX invests a large portion of assets in securities of Danish, Finnish, Norwegian and Swedish issuers and other investments that are tied economically to the Nordic region. This fund’s 3-year and 5-year annualized returns are 10.5% and 7.5%, respectively. Annual expense ratio of 0.99% is lower than the category average of 1.86%. FNORX has a Zacks Mutual Fund Rank #1. Original Post