News for the Week of June 13 - 17, 2016

News for the Week June 13 – June 17, 2016
 

By David Abuaf, CFA
Investment Manager

Government / Political / nEconomic

1.       SCOTUS made it easier for patent holders tow in more financial damages from copycats

2.       Iran replaced the head of its state oil company as the country pushed to attract foreign firms

·         That’s like saying you’ve decided to chew gum so your breath smells better and people find you more attractive. I think there are additional measures needed to become more attractive for Iran!

3.       NATO defense ministers formally recognized cyberspace as a war domain

4.       State Department officials protested US policy in Syria, calling for targeted strikes against the Damascus government and urging regime change

5.       CIA’s chief said the campaign against Islamic State has failed to disrupt its terror capability. Ya think!? A bunch of radicals lose a high ranking member and that’s supposed to change them from not doing radical things?

6.       So, first we have our first major party female nominee for President, and now rumors are she’s considering Senator Warren as a choice for running mate

7.       Stupid politics. The UN deemed Saudi Arabia responsible for killing children in its conflict with Yemen. However, they managed to pressure Secretary-General Ban Ki-moon into removing its name from a list of countries responsible for violations against children because it is one of the largest donors to the UN

General Markets / Economic

1.       SCOTUS struck down Puerto Rico’s efforts to restructure its public utility debts

2.       International regulators want to limit the leeway of banks in assessing the riskiness of their assets

3.       An appeals court upheld net-neutrality rules, a defeat for cable and phone firms trying to fend off tighter broadband oversight               

4.       US retail sales rose solidly in May, a sign of accelerating growth as the Fed weighs the economic outlook amid softer hiring

5.       The US futures market is signaling that a recent jump in stock-market volatility is here to stay.

a.       Good news! Why? Because stocks are designed to return a premium to bonds. As bond yields fall, the premium stays the same (expect lower stock returns). However, as volatility increases, that premium invariably increases because the premium is based on volatility! :D

Company News

1.       Microsoft is buying LinkedIn for $26B

2.       Symantec agreed to buy Blue Coat for $4.65B, giving the computer security firm new technologies, along with anew CEO

3.       Disney opened up its Shanghai resort after years of planning and a cost of more than $5.5B. What’s sad about this is that I was in Shanghai one year ago and nobody talked about the resort!

4.       Tencent is nearing a deal for SoftBank’s majority stake in Supercell that would value the mobile-games company at over $9B

Interesting News

1.       Japan has opened up a restaurant for naked patrons, called Amrita. Wait staff will wear g-strings. However, they will NOT allow overweight people (no more than 30 pounds above recommended weight based on height), no tattoos allowed, nobody over the age of 60 or under 18. Oh, and if you fall into one of the “no” categories, you will not receive your entrance fee back (between $131-$536)

2.       A Turkish man was arrested for trying to sell a jewel-encrusted dagger that belonged to Muammar Qaddafi

3.       Bless you Outback Steakhouse. They just released a NEW Bloomin Onion, topped with bacon and fries and coming in at 2,300 calories

 

 

Commentary for Week of June 13 – June 17, 2016

by David Abuaf

Chart courtesy The Wall Street Journal

Chart courtesy The Wall Street Journal

Well, it looks like most of the world’s stock markets are afraid of a Brexit. Bond markets…not so much. The major US indexes fell more than 1% in volatile trading, caused by uncertainty about the potential outcome of the UK’s referendum on June 23 to leave the EU (my opinion, economic suicide, I highly doubt it will occur).

Also unnerving investors were fears of slowing US growth. The Federal Reserve not only kept rates steady, but they lowered their projection of US growth and future hikes. The Fed is now looking for annual economic expansion of 2% through 2018. That said, if everyone believed them, the markets would have tumbled last week and not faltered!

On the bond side, it does appear obvious that the markets in general are nervous, 10 year German bonds have fallen for the first time every below zero in yields. According to Michael Sheldon at North Star Wealth Partners, while he doesn’t expect a recession this year, he does believe that global bond market behavior “has an increasing number of investors worried that there is something out there that should have us more worried.” Aaron Clark at GW&K believes that with the Fed backing away from their own aggressive projections, “the Fed’s credibility is at risk.” However, he does believe that an EU exit might already be priced into US stocks as some European banks have seen a 40% drop on the year already, which has not even come close to US financials

Good news, the NYSE cumulative advance-decline line (measure of advancing stocks vs decliners) hit an all-time high last week – a tremendous sign of market health. Prices often follow the A/D line higher. However, Michael O’Rourke at JonesTrading believes market leadership of stocks has been suspect. On the year, the energy market has contributed 143% of the return on the S&P500 this year, 46% higher than the next biggest contributor (Utilities).

 

 

All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services

 

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