AdvisorShares Weekly Market Review – Week Ending 6/16/2017
Highlights of the Prior Week
The Hike Everyone Was Expecting
The FOMC met last week and of course hiked rates to a new range of 1.00%-1.25%. The move was widely expected, built into Fed Funds futures pricing but seems to be widely derided as well. Barron’s made the argument that the policy group is underestimating the downward pressure on prices from creative destruction seen in things as mundane as unlimited data plans getting cheaper and cheaper. Eddy Elfenbein from Crossing Wall Street was not fan of the decision noting “on Wednesday morning, just hours before the Fed’s statement, the government released the inflation report for May. The report again showed that there’s absolutely no threat of inflation on the horizon. If anything, the rate of inflation has fallen off sharply over the last three months. It’s hard to justify rate increases to fight off an inflation threat that doesn’t exist.” We would also note that the ten year breakeven rate (the yield difference between the ten year treasury and ten year TIPS) had contracted by more than 30 basis points which signifies a decline in expectations for future inflation.
Eddy was referring to the CPI, which contracted by 0.1% and dragged down the year over year number to 1.7%. The treasury market may have supported the idea that the FOMC should not have hiked as the yield on the Ten Year Treasury Note fell four basis points on the week to 2.15%. It is the historical tendency of the FOMC to be reactive and to go too far in both directions. It is generally believed that there is a multi-month lag from the time a policy decision to hike (or cut) is made and when the impact will be felt in the economy, which contributes to that historical tendency. Regardless of what the experts think is coming next from the FOMC, it now has some room to maneuver should the need to cut rates emerge.
Central bank action has become somewhat less coordinated, assuming it ever was, as the Bank of Japan and the Swiss National Bank continue to maintain negative interest rate policies. China kept rates steady last week, which potentially puts pressure on the yuan which is an issue that does not get the attention it used to get. One bit of odd central bank news came out of the Bank of England as a couple of the policy makers thought a rate hike was in order amidst political uncertainty over the recently held election and just how exactly the Brexit will be implemented. This put upward pressure on the pound.
The digital retailer buying a supermarket specializing in overpriced kale merger news caused a stir on Friday. Barron’s coverage included an assessment from one analyst that “I wouldn’t be surprised if every grocery store has an emergency board meeting this (past) weekend” as several other grocer shares fell on the news. Aside from potential investment opportunities that could come, we are intrigued by creative-destruction opportunities that could fall to the consumer in terms of delivery, picking up groceries from an electronically delivered list. While not new ideas they lack ubiquity. Whatever Jeff Bezos might have in mind, we assume the transaction is not about maintaining the status quo.
Every year we like to take a look at the happenings during the Mount Everest climbing season. This year we have Tasmanian John Zeckendorff’s Ordeal On Mount Everest, Climbing On An Empty Tank:
The section between camps three and four was another eight hours of “very hard climbing”. Some of the challenges included the impact of the sun during some parts of the climb. “It was about 35 degrees [Celsius] so when the sun is out it’s a bit like a Tassie sun you don’t need an awful lot of sun to feel like its really hot,” he said. “The sun reflects back off the snow, so the sun is really bad. “Camp four is the start of the ‘death zone’. You are at 8,000 metres and you have only got one more ‘Mount Wellington’ to go — so a 900 metre climb to go — but it’s the steepest and some of the trickier bits on the mountain.” The conditions were so arduous in the high-altitude environment, at one point he took half an hour to make 20m..
One large insurer is playing fund wrapper arbitrage as it weighs its options In Fierce Battle Over Active ETFs, Nationwide Is On All Sides:
SportsNationwide’s three-pronged approach to the ETF business shows how much is at stake. The company’s tilting for a slice of an almost $3 trillion industry, and for some of about $10 trillion currently invested in actively managed mutual funds. While mutual funds have lost their luster in recent years, ETFs are booming. Active strategies, however, account for about 1 percent of ETF assets. That’s because many managers have balked at the daily disclosure demanded of these funds, fearing this would reveal their “secret sauce.”
The 24 Hours of Le Mans ran over the weekend. Autoweek took a look at history with Throttle-Back Thursday: Ferrari dominates the 1962 24 Hours of Le Mans. Click through for the pictures:
The July 14, 1962 issue of Competition Press, though, reminds us of what Ford — and, for that matter, the rest of the racing world — was up against: a dominant Scuderia Ferrari. Ferrari enjoyed a winning streak that lasted from 1960 through 1965; the victory in ’62 came courtesy of Olivier Gendebien and Phil Hill in a 4-liter prototype, but the field was peppered with other works cars and privateer Ferraris. Indeed, Ferraris claimed 2nd and 3rd place, too, as well as five of the top 10 places.
Source:Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg, Ycharts.com, Reuters, Barrons, ETF.com, XTF.com, Bespoke Investment Group, CME Group, ABC News Australia, Autoweek