LIBOR Financial Volume 6, Issue 7

By December 2, 2015Newsletter
Volume 6, Issue 7 – Thanksgiving Edition
November 29, 2015
Happy Thanksgiving to all of our readers! We hope you enjoyed the time off
just as much as Wall Street did. – LIBOR Financial Team

US ECONOMICS.

The passing of Thanksgiving dinner officially marks the start of the holiday season and with that comes the revised upward revision in, not only your pants size, but also Q3 GDP statistics. The second revision reported that the nation’s gross domestic product grew at 2.1% compared to the previous estimate of 1.5%. Upward revisions were primarily due to revised data in inventories, showing businesses restocking shelves at a faster pace than the government estimated. Wall Street economists have been expecting upward revisions to GDP and the final set of numbers will come out on December 22. But it is expected that the rate of economic growth is to be about 2.5%, not much different from the 2.4% rate in 2014. With October’s strong job growth figure, this refined inventory number might provide enough lift for the Federal Reserve to raise rates in the month of December.

Kathy Ye  

GLOBAL ECONOMICS.

This past SundayArgentinians narrowly selected Mauricio Macri as their president-elect, the first break from the sharp leftist movement (dubbed the “pink tide”) that swept South America 17 years ago. Mr. Macri, a center-right politician who served as mayor for Buenos Aires, campaigned under the slogan Cambio (“Change”) and is said to usher in a new era for Argentinian politics, and perhaps South American politics as a whole. The seed of this cambio began with the rampant economic unrest that is currently plaguing the leftist South American governments. “When there’s no money, there’s no populism,” says Martha Lagos, head of the Chile-based polling firm Latinobarómetro. Many see Mr. Marci’s victory as the beginning of the end for populist governments in South America, particularly within Venezuela and Brazil.

His victory ends 12 years of the populist brand of leftist politics in Argentina that was spearheaded by former President Cristina Kirchner and her late husband Néstor. In tandem with the strong leftist current, in the past decade both Kirchner administrations have nationalized industries, stripped the central bank of independence, and increased spending and subsidies. Next month, Mr. Macri will inherit quite a difficult post: the Argentinian economy is currently characterized by a 25% inflation rate, stagnancy for the past 4 years, dwindling foreign-exchange reserves, a budget deficit of more than 6% of GDP, and an artificially strong currency that has deemed Argentine goods uncompetitive. For years, the deteriorating economic state has been patched up by quick-fix “bandaids.” For example, earlier in the year Argentina secured a currency swap with China that was meant to help stymie bleeding foreign exchange reserves. Since 2011, the bank’s reserves have plummeted from $52B to $26B, though even that has been criticized as inflated and unreliable. Under existing currency controls, the central bank has the authority to pick which imports are allowed, which has encouraged a thriving black market. Though the official exchange rate is 9.7 pesos for $1, it is rumored that one would actually get 15 pesos on the street. Earlier this week, American Airlines announced that it has stopped accepting Argentine pesos for tickets due to the rigid currency controls that have made it difficult to convert the payments into USD.

To combat these problems, Mr. Macri plans to gradually lift currency controls, restore investor confidence, and staunch the flow of foreign currency reserves in Argentina’s central bank. He does, however, recognize the support he needs to move forward. As he gave his first post- election speech, he pleaded the crowd, “I’m here because you got me here. So I ask you: please don’t abandon me.” It is with hope that the Argentinian people don’t abandon him — after all, it is quite difficult to shift tides alone.r ago, while the share of “negative” outlooks had risen.

Akriti Nagpal  

EQUITY MARKETS.

10 Dividend Stocks for 2016 with Yields up to 15.6%

If you’re a long-term growth investor, the S&P 500 Dividend Aristocrats (SPDAUDP, +0.13%) has a solid reputation for outperforming the S&P 500 Index. The S&P 500 Dividend Aristocrats contains 52 S&P 500 companies that have raised their annual dividend payouts for at least 25 consecutive years. Any income investor is aware that with interest rates being so low for so long, then market prices for bonds and dividend stocks are likely to fall as the Fed begins to raise interest rates. However, investors should keep in mind that even after the Fed begins raising the federal funds rate from 0% to 0.25%, rates are still likely to remain quite low for a long time. Therefore, income-producing securities may not fall as much as many investors fear, or maybe they’ll produce a strong recovery after the immediate hysteria of the Fed’s likely near-term policy change wears off. This list of 10 dividend stocks focuses on maximizing current income given that you are able to commit to holding the securities for many years.

FBR & Co. Director or Research, David Hilal, and his team published this list of their favorite 10 stocks from the S&P 500 Dividend Aristocrats stating that they used, “both quantitative and qualitative measures, such as a minimum yield of 3%, a dividend that we believe is extremely safe and in many cases expect to go higher, and stable to improving fundamentals that provide not just a floor for the shares but also can drive share appreciation.” Even if market prices for these stocks fall next year, your dividends will not decline and may even go up. Remember, these stocks are for those whose income is their main objective.

Kelly Stimmel  

STOCK HIGHLIGHTS.

TARGET (TGT): BEAR CASE

It’s apparent that online shopping experienced tremendous growth compared to previous years during the Black Friday frenzy. Between midnight and 5:30 P.M on Thursday, a record breaking $1 billion worth of sales was generated online. This reflects a 22% increase in online transactions since 2014. This growth in online shopping may indicate a shift in consumer preferences that would affect retailers who depend heavily on in-store customers for a majority of revenue. TGT, for example, only sees a 3% contribution to its top line from online sales. Although it had a successful Black Friday, the retailer fell short of growth projections from its online segment. TGT’s purely online retail competitors, such as Amazon, were able to benefit from this year’s emphasis on electronic shopping due to the relative simplicity of their operations and logistics compared to physical retailers. Now that consumer trends seem to be favoring e-commerce transactions, TGT will need to find a solution to stimulate its lacking online sales in order to expand its top line.

TARGET (TGT): BULL CASE

TGT had prepared for its fourth quarter by expanding its in-store inventory. Black Friday and the upcoming holiday season has been a fruitful one for TGT, as the most popular items that have been sold this past week were Apple products, including the Apple Watch and the iPad, and the Fitbit. Other products that were sold quickly were Nickelodeon’s Ninja Turtles along with Star War merchandise. However, for the long term, TGT hopes to focus more on customer traffic to boost sales and improve upon the customer’s shopping experience, which includes revamping the online business. Investments in the website, the shopping app, and even the delivery options will enable TGT to become more flexible to customer demand.

Matthew Lee  
Lawrence Lung  

FIXED INCOME MARKETS.

Trading volumes were low during Friday’s shortened trading session; the 10-year Treasury note hit a three-week low of 2.222%. This is a result of low yields in Europe, which drove buyers into US bonds. The two-year German government bond also fell to a record low of negative 0.412%, and the 10-year German yield declined to a one-month low of 0.460%. The European Central Bank will meet on Thursday, where it is predicted they will boost the size of its stimulus program to prevent another slowdown in the Eurozone economy. The US jobs market report meeting on Friday will further determine if the US economy is strong enough for the Fed to increase interest rates at their next meeting. Raising rates would draw more foreign investors into the US and increase the value of the greenback, but this market will drive bond prices down as the existing debt is reduced. Together, the ECB and the Fed’s monetary policies will face concern of unrestrained inflation, further raising the value of the dollar and offsetting bond market selling pressures. Andrew Brenner, Head of International Fixed Income at National Alliance Capital Markets, says, “next week is the most important week so far this year for global markets,” which could mean much volatility is to come.

On Friday, Gold moved at its lowest price in 6 years, trading at $1,051.60 per ounce. However, the low price and recent global events have not prompted long-term investors into this secure market. Gold pays zero interest and if the Fed decides to raise rates, gold will be urged to shift into interest-bearing assets, driving down the price even further. From the all-time high of $1,890 an ounce in September 2011 during the European debt crisis and downfall of the US credit rating, our current economic circumstances could drive gold prices to plummet to as low as $350 an ounce, forecasters say.

Michael Martino  

CURRENCIES.

Thanksgiving Affects Currencies

The US dollar has been on a strong upward trend for the past month. In the past week, the dollar broke through the 100.00 Dollar Index, although the upward trend has slightly leveled off within the past few days. This is most likely due to the Thanksgiving holiday, which historically marks a period where trading activity within the United States becomes less liquid, since Thanksgiving is a holiday not celebrated across the globe.

The AUD/USD has been sent into a period of higher volatility compared to last week, where the rate held steady at 0.723 due to decreased liquidity within the US domestic market. This week, however, we have seen the AUD/USD dip down to 0.717 before rebounding to a high of 0.727, until finally leveling off just under 0.720 near the end of the week. As we move into the upcoming week, there would appear to be a neutral outlook for the AUD as the post-Thanksgiving market stabilizes, and we are more likely to see a horizontal trend for the AUD/USD.

The EUR/USD pair, on the other hand, continues to follow a downward trend that originally started in October. The current exchange rate is 1.05977, which falls below the 30-year trend line of 1.0730. With the pair traditionally featuring high volatility, predictions are often difficult; however, it will be interesting to see whether the month closes on Monday at a rate above the 30-year trend line, which would suggest long-term support for the EUR/USD rate and ultimately present better risk/reward opportunities.

Lance Qian  

DEALBOOK.

Holiday Week’s Watch on the Market

Investors have placed an increasing focus on IPOs and M&A for the biopharmaceutical industry. In the past year, 23.6% of companies under the NASDAQ Biotechnology Indexhave participated in mergers and acquisitions. In fact, biotech companies’ revenue increased by $46.6 million between the previous year and 2013. It is also expected for R&D spending to increase as drug development thrives.

Moving to M&A action in the food industry, Pinnacle Foods Inc. (NYSE:PF) has agreed to the acquisition of Boulder Brands Inc. (NASDAQ:BDBD). Pinnacle’s growth is directed in the natural and organic retail foods, and this $975 million valued transaction will further expand their health and wellness portfolio.

Albertsons Companies, one of the largest food and drug retailers in US, is expected to trade publicly on December 1, and the joint managers include Goldman Sachs, BofA Merrill Lynch, and Citigroup. The revenue of Albertsons is $588,145.1 million over the course of 12 months. In addition, their price range is estimated to be $23-$26 per share, with a total of 65.3 million shares. Eyes will be on (NYSE:ABS) this upcoming week.

There has also been much speculation about Cisco and the growing pressure of investors for the firm to make a big acquisition. This is primarily because Cisco Systems Inc. (NASDAQ:CSCO) is ready to expand its firm, specifically in the Security and Cloud/SaaSsector. Companies that Cisco is expected to target include: Palo Alto Networks Inc. (NYSE:PANW), Fortinet Inc. (NYSE:RHT), and ServiceNow Inc. (NYSE:NOW). Cisco has been pinned to have a conservative M&A strategy, and it will be interesting to see an accelerated M&A growth from $15-$25 billion in the near future.

This holiday week has had a lot of eyes on the market while investors watch the moves of companies in various sectors. Some interesting IPOs to look out for throughout the next week include the Pulte Acquisition with an expected 7,000,000 shares and Sole Elite Group with an expected 2,000,000 shares.

Varuni Bewtra  

TECHNOLOGY.

And a Very Cyber Holiday to All!

Cyber Monday sales this year are expected to reach a record $3 billion, beating last year’s sales figures by 12%. The proliferation of sales and deals available online, coupled with a consumer preference for shopping through their computer or smartphone, has led to an increase in virtual sales of over 50% from a mere three years ago. Retailers have taken advantage of consumers’ purchasing habits prior to the holidays, and have thus expanded the quantity of deals offered accordingly. Rather than having a single day of sales, retailers like Walmart have opted to begin their Cyber Monday offerings on Sundaynight. Other firms, like Amazon, have taken their Cyber Monday deals to another level, and are instead advertising an entire “Cyber Week” of deals, starting Monday.  It’s no wonder many consumers are opting to stay in on Black Friday rather than braving the crowds, as the deals offered are often comparable to those in stores.

In other online news, the State Supreme Court judge of New York will soon be making a ruling regarding the fate of DraftKings and FanDuel in the state. The two websites allow members to take part in daily fantasy games related to sporting events.  Because there is an element of chance involved in the games’ outcomes, New York law contends that the business practices of the two firms should be placed under the category of illegal gambling. DraftKings and FanDuel argue that there is only a small element of skill required in order for the games to be considered legal under New York law.

Jakub Lipczyk  

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