Change is in the air as Elon Musk discusses colonizing Mars and we see the world’s largest IPO in two years. Read more in this edition of Steady Investor’s Week…
Getting Over Brexit – European banks garnered a lot of negative attention this week, as questions surfaced over Deutsche Bank’s solvency (more on that below). But that negative attention overshadowed some positive indicators. Business confidence in Germany climbed to its best reading since May 2014, and indicators suggest the Brexit hangover may be over. The same applies to broader Europe, where Eurozone economic sentiment was much better than expected in September. A confidence rebound of the biggest players (Germany, Italy, France) caused the economic sentiment index to rise from 103.5 in August to 104.9 in September. This is well above expectations, which were too low based on overblown Brexit fears.
Trouble at Deutsche Bank? – Deutsche Bank has had a tough quarter, with its stock price battered over concerns of its weak capital position. Conflicting reports exist on the bank, where on one side Germany’s Angela Merkel ruled out any state assistance for the lender, but the CEO John Cryan denies ever having asked for any. At issue is Deutsche Bank’s legal tussle with the U.S. Justice Department, which could involve the U.S. seeking up to $14 billion in penalties. That sum would severely bruise the bank, but in reality the settlement amount will likely be a much lower figure. The market appears to be pricing-in the worst case scenario, and selling pressure has mounted in light of negative interest rate policy (NIRP) that is hurting banks’ net interest margins. This story is still in early development phases, but at last check Deutsche Bank has plenty of cash on hand and is adequately capitalized in accordance with Basel II rules.
The Largest IPO of the Year – actually, the world’s largest IPO in two years. It was a yawn-worthy event. Shares of Postal Savings Bank of China were listed for sale on the Hong Kong market, but investor enthusiasm was about as muted as it could get. The company managed to raise $7.4B – not a small sum by any means – but priced near the low end of the range they were looking for. Investors seemed wary of banking issues in China, particularly amidst reports of shadow lending and a commercial debt market that is secretly much larger than expected. With the China economy slowing, fears are that leverage ratios are out of control.
Will There Be a Stock Market in Space? – maybe?? At a conference this week in Mexico City, Tesla CEO Elon Musk gave a speech titled, “Making Humans a Multiplanetary Species,” where he unveiled plans for an “interplanetary transport system” that would take large numbers of people and cargo to Mars with the ultimate goal of colonizing the planet. He believes we could be inhabiting the planet as early as 2025, with a growing population of colonists from that point forward. Who knows, maybe the colony will have a marketplace before the year 2100 for buying and selling Martian securities. We prefer it here in Chicago.
U.S. Q2 GDP Reports – the Bureau of Economic Analysis released their 3rd estimate of real gross domestic product figures for Q2, showing that the U.S. economy increased at an annual rate of 1.4 percent in the second quarter of 2016. In the first quarter, real GDP increased 0.8 percent. Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) decreased $12.5 billion in the second quarter, in contrast to an increase of $66.0 billion in the first. Personal consumption figures remained firm on lower gas prices and a slight uptick in wages. Steady as she goes.
Staying steady is easier said than done. It’s common for investors to overestimate their ability to stay steady over the long-term, especially when markets experience many ups and downs. Instead of putting your nerves on a nail-biting roller-coaster as you debate whether to hold or sell, employ a timeless key to investing that can help you sleep more soundly. Ask yourself, “do my asset allocations reflect my personal risk and reward equation?” At Zacks Investment Management, our focus is on risk-adjusted returns to optimize for this equation as defined by you. Know too that Morningstar currently ranks five of our investment strategies in the top 10% of their respective classes (as of 6/30/16)—we call this our “Dean’s List.” Learn more about these strategies and how they might steady your nerves by clicking below…
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