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John Deere Q1 Results Drag Down Agribusiness ETFs

Before the opening bell on Friday, the world’s largest agricultural equipment maker, Deere & Co. (NYSE: DE ), reported disappointing fiscal first-quarter 2016 results. Though the company surpassed our earnings estimates, it missed on revenues and provided a bleak outlook for full fiscal 2016, reflecting another year of declining sales and continued pullback in the global agricultural sector. Deere Q1 Results in Focus Earnings per share came in at 80 cents, comfortably beating the Zacks Consensus Estimate of 71 cents, but deteriorating 28.6% from the year-ago period. Revenues declined 15% year over year to $4.77 billion and lagged our estimate of $4.79 billion. The global agricultural slowdown and weakness in construction equipment markets were the major culprits for the lackluster revenue performance and this trend is likely to continue this year. Additionally, a strong dollar continues to weigh on the company’s profitability (read: Top and Flop Currency ETFs YTD ). As a result, the manufacturer expects 2016 to be another challenging year with overall equipment sales expected to drop 8% for the second quarter and 10% for fiscal 2016. Segment wise, the company expects global construction and forestry equipment sales to decline about 11% in fiscal 2016, including negative currency translation of 2%, and global sales of agriculture and turf equipment to drop 10%, including negative currency translation of 4%. The company also expects net income of about $1.3 billion for fiscal 2016. Market Impact Based on bleak outlook, shares of DE dropped as much as 4.7% on the day while trading volume was also heavy with around 9 million shares exchanged in hand compared with the 3-month average of around 3.6 million shares. Rough trading is expected to continue in the ETF world as well over the next few days, especially among those that have the largest allocation to this big agricultural equipment maker (see: all Materials ETFs here ). However, investors should closely monitor the movement of these funds and the stock, and could tap the beaten down prices with a low risk in the basket form. This is especially true as Deere has a solid Zacks Rank #2 (Buy) with additional flavors of a Value and Momentum Style Score of ‘B’ each. iShares MSCI Global Agriculture Producers ETF (NYSEARCA: VEGI ) This fund follows the MSCI ACWI Select Agriculture Producers Investable Market Index and offers investors global exposure to 128 firms that are primarily engaged in the business of agriculture. Here, Deere occupies the third position with a 7.9% allocation. From a sector look, agricultural chemicals takes the largest share at 47%, closely followed by farming/fishing (20%) and industrial engineering (18%). American firms dominate the fund’s holding with 45.4% of total assets, followed by a double-digit exposure to Switzerland. The ETF is less popular and illiquid with $24.7 million in its asset base and around 10,000 shares in average daily volume. The ETF charges 39 bps in fees per year from investors and has shed 2.2% post Deere results. Market Vectors Agribusiness ETF (NYSEARCA: MOO ) This fund is by far the most popular and liquid choice in the space with AUM of about $758.4 million and average daily volume of nearly 215,000 shares. It tracks the Market Vectors Global Agribusiness Index and charges 57 bps in annual fees. In total, the fund holds 53 securities in its basket with DE occupying the third spot at 6.8% of total assets (read: Market Crashing! ETFs & Stocks That Deserve Love ). The product provides nice diversity across business segments with agricultural chemicals accounting for 37% share while industrial engineering (17%), farming/fishing (14%) and packaged food products (13%) round off the next three spots. In terms of country allocation, half of the portfolio goes to the U.S. firms while Canada, Switzerland and Japan get a decent exposure of around 8% each. The fund lost 1.5% on the day of the earnings release. Original Post

Below Zero: Negative Yields, Negative Rates And The Price Of Baked Beans

The Japanese did it. The Europeans did it. Even the educated Swedes did it. So will the Fed ever lower interest rates below zero? Markets fell out of bed last week on fears the Fed might shift from a Zero-Interest Rate Policy (“ZIRP”) that alleviated the pain of the financial crisis to a Negative Interest Rate Policy (“NIRP”) to keep the monetary stimulus to the economy alive. Why does it matter The “feasibility study” being undertaken at this stage is a long way from a policy announcement, but would indicate a very different interest rate path to December’s announcement. This volte face alone would query the Fed’s credibility. Add to that the known unknown of how markets might operate in this Through the Looking Glass world where you pay to lend money to the lender of last resort, and some basic assumptions around the supply of, and return on, capital have to be adapted. How does it “work”? The short answer is: we’ll see. In theory, by charging financial institutions to sit on surplus cash, they are forced to put that cash to work, for example lending to corporates to keep their wheels turning. In this way, negative rates act as a stimulus to the velocity of money, rather than the quantum of money supply. What are the issues? Issue number one is that it turns the fundamental relationship between providers and users of capital on its head. Aside from that are the legal and technical issues around how NIRP can be implemented in any jurisdiction. But, as we have seen so far – where there’s a will there’s a way. The sector most vulnerable is the banking sector as negative interest rates wreak havoc on Net Interest Margins – the spread between banks’ borrowing and lending rates that is the cornerstone of their profitability. Hence the rather brutal round of price discovery that took place in the banking sector as a response to this new known unknown. From negative yields to negative rates Short-term real yields on government debt (i.e. nominal yields, adjusted for inflation) went negative in 2008 during the financial crisis. Short-term nominal yields on government bonds, issued by, for example, the US and Germany, have dipped in and out of negative territory thereafter, as a safety/fear trade signaling that those investors would rather pay governments to guarantee a return OF their capital, than demand corporates to promise a return ON their capital. So economically speaking, negative yields are not new. But what is new is that negative interest rates are being adopted as a central bank policy. How have markets reacted? Markets hates grappling with new concepts where there is no empirical data from the past on which to make hypotheses. Hence the “shock” increase in risk premia despite the ostensible further lowering of the cost of capital. Renewed interest in gold is the natural reflex for those scratching their head as monetary policy grows “curiouser and curiouser”. What next? Central b anks are adding NIRP to the armory of “unorthodox” levers at their disposal to achieve orthodox aims. To what extent this new weapon is deployed will depend on the underlying development in fundamentals around growth, jobless rates and inflation targeting. Those targets set the course to which monetary policy will steer. Whether the new policy levers have more efficacy than the old remains to be seen. Baked beans, anyone? The UK’s baked bean price war of the mid 1990s, provides a parallel to the topsy turvey economics of negative pricing. To gain and retain customer market share, the big three British supermarkets slashed baked bean prices to around 10p a tin. Tesco’s then broke ranks and slashed prices further to 3p a tin (subject to max 4 cans per customer per day). Not to be outdone by its bigger rivals, Chris Sanders of Sanders supermarket in Lympsham, Weston Super Mare made history by selling baked beans for MINUS Two Pence (subject to max 1 can per customer per day). Janet Yellen – you now know whom to call. While it didn’t alter the fundamentals of the retail sector, it did mark the end of an irrational era of skewed economics. For the optimists out there, perhaps NIRP heralds the same? Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

3 Momentum Stocks And ETFs To Play

After over a month-long storm, the global market has finally taken a breather. Heavy sell-offs triggered by the Chinese market slowdown, global growth issues and a steep plunge in oil prices now appear overdone. The factors – mainly oil and China – for which the market went into a tailspin, brought the recent relief. The Chinese central bank let the value of the yuan rise sharply against the U.S. dollar on Monday, when the biggest one-day jump in the currency was seen in almost a decade. The move finally prevented long-standing high-level talks about a meaningful deceleration in yuan. On the other hand, developments were positive in the oil patch, with prices soaring as the market mulled over the possibilities of a deal to limit supplies later in the year. Also, stimulus hopes in Japan and Europe to boost waning economies charged up the market. Back home, retail sales for January came in at the stronger side. Retail sales gained 0.2% in January – higher than the consensus estimate of a 0.1% increase. All these developments have brought back the risk-on trade sentiments – which were long missing – in the market. Among the top U.S. ETFs, investors saw the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) add 1.7%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) advance 1.4% and the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) move higher by about 2.3% on February 16. Not only the U.S. market, the all world ETF iShares MSCI ACWI Index (NASDAQ: ACWI ) was up 2%, the iShares Asia 50 ETF (NYSEARCA: AIA ) jumped 2.8%, the China ETF iShares China Large-Cap (NYSEARCA: FXI ) advanced 4.2%, the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) moved higher by 1.7% and the iShares MSCI Japan ETF (NYSEARCA: EWJ ) climbed 3.7%. While we do not believe these bounces have legs, investors’ sentiments about risky investments became relatively relaxed lately especially because of compelling valuation. Thus, momentum investing might be an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks which are sizzling on the market. Below, we highlight three momentum stocks and three ETFs that may find a place in investors’ wish list. Stock Picks For stocks, we have chosen top picks using the Zacks Screener that fits our criteria of a momentum score of “A”, stock Zacks Rank #1 (Strong Buy) and positive estimate revisions for the current quarter. Here are the three recommended stocks. Delta Apparel Inc. (NYSEMKT: DLA ) Based in South Carolina, this retailer of apparel has delivered an average positive earnings surprise of 36.36% over the trailing four quarters. The consensus estimate for the current quarter has risen from $0.07 to $0.33 per share in the last 30 days, as one analyst raised the forecast, while none cut the estimate. Along with a Momentum score of “A”, the stock also has a Value score of “A”. This Zacks Rank #1 stock is up 13.8% so far this year (as of February 16, 2016). OraSure Technologies Inc. (NASDAQ: OSUR ) The company makes and markets oral fluid diagnostic products and specimen collection devices in the United States, Europe and internationally. OSUR is down 1.1% so far this year. The stock currently has a solid Zacks Industry Rank in the top 18%. It also has a Growth score of ‘A”. The consensus estimate for the current quarter has risen from breakeven to $0.01 per share. It has delivered an average positive earnings surprise of 216.7% over the trailing four quarters Tyson Foods Inc. (NYSE: TSN ) Based in Arkansas, Tyson Foods, together with its subsidiaries, operates as a food company worldwide. The stock currently has a Growth score of “A”, a Value score of “B” and a solid Zacks Industry Rank in the top 1%. In the last 30 days, its projection of earnings increased from $0.86 to $0.93. While one analyst raised the estimate, another cut it in the last 30-day frame. This high-momentum stock is up 16% so far this year (as of February 16, 2016). ETF Picks iShares MSCI International Developed Momentum Factor ETF (NYSEARCA: IMTM ) The $11-12 million fund looks to track the performance of large- and mid-capitalization developed international stocks exhibiting relatively higher momentum characteristics. The product charges 30 bps in fees and yields 1.73% annually. No stock accounts for more than 2.41% of the basket. The fund has a diversified double-digit exposure in the Consumer Staples, Discretionary, Financials, Industrials and Healthcare sectors. The product is heavy on Japan (32.23%), while Germany and U.K. also have solid exposure of 11.33% and 10.07%, respectively. IMTM is down 6.8% so far this year, but added 3.4% on February 16, 2016. The fund has a Zacks ETF Rank #3 (Hold). iShares S&P 500 Momentum Portfolio ETF (NYSEARCA: SPMO ) The $2.4-million fund tracks the performance of stocks in the S&P 500 Index that have a high momentum score. The fund charges 25 bps in fees and is heavy on Consumer Discretionary (31.9%) and Healthcare (27.5%). Consumer Staples and IT also have double-digit exposure. SPMO is down 7% year to date, but added over 2.2% on February 16, 2016. Cambria Global Momentum ETF (NYSEARCA: GMOM ) This active ETF seeks to preserve and grow capital from investments in the U.S. and foreign equity, fixed income, commodity and currency markets, independent of market direction. The bond fund iShares 3-7 Year Treasury Bond ETF (NYSEARCA: IEI ) holds the top position with 11.73%, followed by other U.S. Treasury funds, namely the Vanguard Short-Term Bond ETF (NYSEARCA: BSV ) and the iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) in the next two spots. The fund charges 94 bps in fees and yields 1.91% annually. Equity ETFs also get a place in the fund. The fund has lost just 1.7% so far this year, while it added 0.2% on February 16, 2016. This could be a great pick in the bear market as well. Original Post