Monday Digest #113
Weekly summary of finance, economic and tech news. Vision from DreamTeam. With 💜
The Fed. Results of the meeting
As expected, the regulator raised the rate by 0.25% to 0.75%-1.00%. In 2017 there are 2 more rate hikes are expected. Recall that according to Taylor’s rule, the rate should already be at the level just above 3.8%.
#Interesting: In the matter of tightening monetary policy, the Fed is guided by data on 3 indicators: GDP, unemployment and inflation. According to calculations of The Federal Reserve Bank of Atlanta, GDP growth in the 1st quarter will be just 1.2%, although in January it was forecasted 3%. The current quarter in this case will be the second weakest economic growth since 1987.
In addition, by its actions the Fed can ruin economic activity, which is already quite weak, especially if you look at the macroeconomic indicators. However, there are objective reasons for further increasing the rate. First of all, this is inflationary pressure, control of which is the mandate of the Fed: February data on producer prices showed an increase of 2.2%, and this is the maximum since 2012.
More details on why the Fed will have to raise the rate, and what will be the results of inaction or too slow raising of the rate, see here — read. Also see Taylor’s rule — read. [# Core]
Elections in the Netherlands
On the eve of parliamentary elections in the Netherlands:
- The victory was won by the party of Prime Minister Mark Rutte — People’s Party for Freedom and Democracy (UDSS), having won 32 seats in the parliament.
- Eurosceptics, represented by the extreme right “Freedom Party”, in spite of expectations, took only second place and can claim 20 seats.
- The third place with a slight lag in one voice is divided by the “Christian Democratic Democracy” and “Democrats-66”.
Experts:
“Sensations did not happen: Holland predictably broke the trend of Brexit and Trump. Special changes in terms of foreign policy, or in terms of relations with the EU, should not be expected there. Of course, there is a correction of the electorate, and the government will take this into account in terms of a more stringent migration policy both at the national level and at the EU level. “
[# Core]
Kiev without IMF support: risks
Deputy Chairman of the National Bank of Ukraine Oleg Chury:
“Without the support of the International Monetary Fund, Kiev will lose control over the hryvnia rate, and a rapidly growing external debt can lead to default. The Ukrainian government will not be able to independently support the hryvnia exchange rate. To prevent a “financial catastrophe,” Kiev will have to appeal to international institutions. “
In 2017, Ukraine expects to receive about $ 5 billion from the IMF. The funds are needed to prevent a financial catastrophe and to carry out much-needed structural reforms.
“This year we plan to receive about 5 billion dollars from the IMF, payments to the IMF in 2017 will be somewhere around $ 800 million (the main amount) and about $ 200 million is interest” — Churiy explained. The National Bank says that without tranches for this amount, keeping the hryvnia from devaluation will be impossible”.
A representative of the NBU reminded that in the next three years the country will have to pay about 12.5 billion dollars. “If we take it purely mathematically, without further obtaining loans from the IMF, we will not be able to fulfill these obligations. In other words, we will go into default, this must be understood by everyone” — Churiy said.
# Ouropinion: there are prerequisites for a significant devaluation of the hryvnia to 50 UAH per dollar and, possibly, higher.
PostBrexit
The exit of Britain from the European Union forces large companies to seek new places of deployment of their European headquarters, and the choice increasingly falls not in favor of Paris.
Case 1: Dublin
For example, there is a high probability that the new headquarters of Bank of America Corp. in the EU will be in Dublin, if as a result of Brexit Britain will lose easy access to a single market. This was stated by one of the company’s leaders in Germany.
The bank is likely to move some workplaces to other cities throughout the EU, including Frankfurt, Madrid, Luxembourg and Amsterdam, Nikolaus Naerger said at a press briefing organized by the Association of Foreign Banks in Germany. The bank has not made a final decision on Dublin and can choose another destination, said Nagerger, head of corporate banking in Germany, Switzerland and Austria.
Case 2: Amsterdam
The two largest banks of Japan (Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc.) have chosen to “move” the capital of the Netherlands. The reason is in affordable office rent prices, moderate taxes and a high level of knowledge of the English language.
# Interesting Due to the peculiarities of Dutch tax law and international agreements, companies could apply schemes to optimize tax deductions by creating two Irish and one Dutch company — “Double Irish Dutch Sandwich”. This scheme consists in the redistribution of profits to offshore jurisdictions:
- One company that is a tax resident in Ireland,
- The second company, registered on the territory of the Netherlands,
- A third company registered in Ireland, but a resident of an offshore zone.
The corporation, which uses the Double Irish Dutch Sandwich scheme, transfers the intellectual property of the first company, the second company sublicens the intellectual property rights of the first company, and the third company sublicens the rights of the second company. Thus, the profit goes to offshore jurisdiction, which allows you to get away from some of the tax payments.
Important: this scheme can only be used by companies registered before January 1, 2015 in the Netherlands. However, “nothing lasts forever”, and now, until 2020, they need to switch to alternative taxation regimes: The European Commission imposed these restrictions after in 2014, Facebook, Google, Apple legally increased billions of dollars from taxation.
The stock market is overvalued more than in 1929 and 2008
Wall Street’s “Foreteller” John Hussman:
“Now there is the most dangerous and overvalued stock market — more than 2007, 2000 and even more than 1929, when the Great Depression began.”
According to the World Bank, the total US stock market is currently estimated at more than 150% of the annual gross domestic product. This is much higher than historical norms and about the same as in the market in 2000.
“Veterans” of the market note that even if Wall Street is overpriced, as some suggest, to prevent a reassessment before the correction is hardly possible. This is what happened in 1929, 2000 and 2007–2008. But the more estimates are stretched, the more dangerous the situation becomes.
#Ouropinion: The seasonality factor indicates that US stock indices are likely to continue to grow in the uptrend until the beginning of summer 2017. This year, the stock behaves fairly standardly and it can already be assumed that for 2017 the well-known saying “Sell in May and go away.”
Long-term passive investors need to be extremely cautious when building a portfolio in the US stock market. Before 2021 it is not recommended to buy. In 2021 the formation of the bottom of panic sales and the main bearish trend is expected. = >> These are good opportunities for active strategies in the US market.
It should also be remembered that the market is collapsing as a result of successive (serial) increases in the rate of the US Federal Reserve. So far we see only positive market reactions, but the farther the FRS comes in, the closer the moment of passing the equilibrium point and the beginning of problems with bad debts.
In any case, no matter how it is expected, the black swan will still appear unexpectedly for most, as the public is extremely positive.
Crisis in Venezuela
The Venezuelan government has extended the state of emergency in the country’s economy for another 60 days since March 13, the text of the decree published in the “Gaceta Oficial publishes”.
“The extension of the emergency is connected with extraordinary conditions in the social, economic and political spheres,” the decree reads.
This is the sixth extension of the state of emergency in the economy, introduced in January 2016. This tool enables the president to take the necessary measures to ensure the rights of the population and internal discipline in Venezuela. Signed earlier by President Nicholas Maduro, decrees on the state of emergency were rejected by the opposition parliament. [#Factology]
Producers of shale oil hedged oil until 2020
According to Bloomberg, the worst enemy of OPEC is not the US shale producers, but the hedging that supports them.
The fact is that many manufacturers have already secured their future income through financial contracts that guarantee stable prices for their oil for most of the period remaining until the end of this decade.
Catherine Richard, Chief Executive Officer of Warwick Energy Investment Group, which owns shares in more than 5,000 oil and gas wells:
“For many in the shale industry, prices will begin to pose a threat to profits only if they fall below $ 40.”
Pioneer Natural Resources Co., one of the most active oil producers in the Perm basin, hedged 85 percent of the forecast production for 2017 in February. According to the company, another 10 percent of the production volumes expected in 2018 are protected from the possible fall in prices. Founder and Chairman of the Board of Directors of Pioneer Scott Sheffield:
“Oil prices will drop to $ 40 if OPEC and its allies do not extend the agreement on production cuts expiring in this June.”
The rate of bitcoin fell below $ 1000
Coin Telegraph: After removing the issue of registration of bitcoin-fund from the agenda, the community’s attention returned to the problem of scaling bitcoin. The current difficulties in accumulating unconfirmed transactions, increasing commissions and the general slowness of the network are pushing community members to use another protocol — Bitcoin Unlimited (BTU). Now about 30% of the miners said they support BTU. When their share exceeds 50%, the issue of the network’s hard-core (protocol change) will be inevitable.
Co-founder and CEO of Civic.com Winnie Lingham:
“The danger is on the horizon. If bitcoin “bifurcates”, all forecasts will be in vain, and this year we will not see the price of $ 3 thousand for BTC. An ordinary user can get confused among two crypto-currencies of one brand. In addition, because of the confusion, traders can simply refuse both from BTU and from BTC.
In case the split scenario is implemented, the Bitfinex, Bitstamp, BTCC, Bitso, Bitsquare, Bitonic, Bitbank, Coinfloor, Coincheck, itBit, QuadrigaCX, Bitt, Bittrex, Kraken, Ripio, ShapeShift, The Rock Trading and Zaif plan to support the BTU.
Because of this statement, quotes of the crypto currency showed a small increase, having managed to rise to almost $ 1200, but later went down again. At the end of last week, the rate of bitcoin against the US dollar has updated the lows since early February, having fallen by more than 20%.
British “shazam” for pictures
New Scientist: British developers have created a mobile application Smartify for pictures recognition. How it works: The new application uses augmented reality technology and an image recognition system that allows the user to instantly get information about the picture that interests him. For using it you need to point the gadget camera to a work of art, after which the accompanying text will appear on the screen. The user can save the pictures in the application gallery.
The application does not work with all the pictures, but only with collections of partner museums: the Louvre (Paris), the Metropolitan Museum (New York), the Rijksmuseum Art Museum (Amsterdam) and the Wallace Collection (London).
It is reported that museums and galleries providing information for the application will have access to demographic information of users for more effective advertising and marketing programs. [#Interesting]
