Wednesday, June 4, 2014

Wednesday, June 04, 2014

Good Morning America, How Are You?

A wonderful Wednesday to you, wherever you are in the world. 

Yesterday saw rainstorms and hail.  Our storms were not anything like Nebraska saw over the last few days.  Most of my plants survived the hour or so of hail we had, but Nebraska was not so fortunate.

My peonies were devastated, with the early bloomers destroyed.  Luckily, I have many late bloomers, and hopefully our thunderstorms are about to end of the season.  Iris will open in a few days.  If you have deer (like we do), peonies and iris seem to be very deer resistant.

Summary:  JUNE 5 - The EURO Show

1.   Remember, June 5 is the Super Mario show at the ECB in Europe.  Expectations are high, and speculation on what will happen is all over the map; except there seems to be a consensus that whatever happens will be good for the equity markets.  Personally, I think the expectation are too high, and investors and traders will find it a oh-hum moment. 
a.    An ECB rate cut tomorrow will not be the central bank's last move.  It is battling a prolonged period of low inflation.  Reportedly, ECB is debating a cut of 10-15 basis point in both the benchmark lending and deposit rates.  For deposit rates, this would take the rate into negative territory.
b.    Many expect the ECB to lower its inflation forecast from the 1% in March.  May data indicates inflation slowed to its lowest levels in four years.

2.   One of my newsletter readers asked, "Why with all the problems in the Eurozone and the Ukraine situation, is the Euro currency significantly more valuable than the US Dollar?"  As I'm sure you know, the dollar went into a free fall against every currency starting in 2002.  In general starting in 2008, the dollar has been a trading range.  If you are a currency trader, some of the moves do not seem like a trading range.  The dollar loss in percentages was significant.  The Euro Chart looks like the inverse of the dollar chart. 
a.    Basically, currency traders agree (if they agree on anything) that the Euro is the offset to the US dollar.  The Eurozone is the US' larges trading partner. 
b.    There are lots of things to consider on why the Euro is more valuable than the dollar. One thing stands out though.  The investors (and traders) are focused on the Fed's Monetary Balance that just keeps climbing to the moon and beyond.  In May 2013, the balance was $3.3 trillion, but in 2014 it is roughly $4.27 million.  That is nearly a Trillion dollar increase, while the ECB monetary balance is decreasing. 
c.    Therefore, the Euro should be stronger than the Dollar.
d.   It is possible this relationship could reverse tomorrow as the ECB could adopt a Bernanke like stimulus plan.  If, however, they settle for negative interest rates, the Euro has already priced that in, and the Euro could rise.  That will not make the ECB happy, and they know that is the risk.
e.    Traders knowing the risk added 1/4 of cent to its value yesterday.  And the Euro is up in the futures market before the opening.
1.   Life insurance?  Dai-ichi Life Insurance buys Protective Life (PL) in the US for$5.7 billion.  There is plenty of analysts evaluating the purchase, but the interesting thing is why a life insurance company would purchase a foreign life insurance company where both countries (Japan and the US) are growing old.  There is so much money awash in the markets, that price of purchases begin to seem a little irrational.  Did you see what Apple paid for "Beat"? 
2.   Speaking of Apple, did you hear that Apple (AAPL) is dropping Google (GOOG) as Spotlight's Web search in favor of Microsoft's Bing?  Bing has such a small search share estimated at just 5.48% of the mobile/tablet search share.  The default search engine for Safari is still Google, however.
3.   Stock market in the USA is expected to open down.  However, that has happened a lot this week and last, and the markets recover during day trading in NY.  Market is still waiting for ECB tomorrow, and I don't expect any major moves today.  Watch out for long covering, where the longs on market have to cover in a downturn.  That could be interesting, although it is not my nor anyone I know of expectation today.

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