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Facebook Is Getting The Attention But You Should Be Watching The Fed
Facebook is still center stage, and it is likely to remain that way. The good news, the stock found a bounce today, around $162.50. But do not be fooled the stock is still problematic because it is hard to predict what comes next. The news of Cambridge Analytica just does not seem or feel like a one-off event, and it would not surprise me to see it leads to more of these type of things turning up. For that reason, one needs to continue to remain cautious, and now is not the time to play hero, while the leaders of the company have yet to comment. The market has a funny way of bringing things to the surface and forcing the situation, and it could be the case this time too, the market will turn up the heat in the coming days if leadership continue to remain quiet.
Amazon Now Number 2
Let’s move on, because Amazon became the second most valuable public company behind Apple, passing Alphabet. I guess there is no stopping Amazon. There is no point in doing any analysis or looking at the chart because it just does not matter. Amazon just keeps going up, and to go against it at this point is useless. At this pace, it should pass Apple really soon too.
I mean Goldman has it going to 1,900, easy. Now nobody can surpass Amazon’s dominance in the cloud. Last week it was 4 straight years of 50 percent growth in advertising leading shares higher, now it is the dominance in the cloud, that even not Microsoft or Google will be able to overthrow. We should face facts, nothing can stand in the way of Amazon quest for Global domination. Soon the World will be too small to contain Amazon and harnassing the power of the Sun, Amazon will spread its reach throughout the Solar System, and the Galaxy. It’s market cap will soar to $1 Googol. Laugh, I’m having fun.
Well, Roku is no longer a compelling short according to Oppenheimer, and it got an upgraded to a “perform” rating from “underperform.” Well, the short seller would still disagree with this because that borrow rate is still an astronomical 83 percent, and that is lower than it was a few days ago when it hit 109 percent on March 14.
While the implied volatility term structure is still in backwardation, with the market seeing more volatility in the future than the present.
Tomorrow, at for a little bit the focus will move away from Facebook, and the Fed will take center stage, with commentary on the future of interest rate hikes. Yeah, the Fed will probably raise rates by 25 bps, but they say afterward is what matters.
The 3-month Eurodollar Deposit Rate continues to surge higher, it indicates that the cost to borrow dollars outside of the US is continuing to get more expensive, and that is likely because the market is continuing to expect interest rate here in the US to climb. It could also be a sign there is an urge from foreign investors to get there hands on dollars outside of the US, and are willing to pay higher rates to hold on to those Dollars, as a sign some are betting the Dollar’s recent weakness may soon start reversing.
Libor rates reflect the same, which makes sense. But again, it too really surging in a big way in recent weeks. We can see that in the chart below the trend was reasonably consistent, but since the beginning of the year, we can see the rate has started to climb more materially.
In fact, Libor has been rising at a faster pace than the three month Treasury bill recently too, which would seem to suggest that the market is starting to price in the potential for perhaps as many as 4 in 2018, based on the effective fund’s rate of 1.4 percent presently.
I would disagree with the Fed raising rates four times, as I think it would be awful for the economy, and the notion of raising rates to cut them later seems stupid to me. But I’m not even an economist, so…
The dollar will be the thing to watch immediately following the Fed announcement and commentary. We can see in the chart below how stubborn the dollar has been, around 88 on the dollar index.
The euro has been weakening versus the dollar as well and has been unable to rise above 1.25.
While the yen has even found a floor around 106 to the dollar.
Again, the rising rate to borrow dollars aboard, and the stubbornness of the dollar to continue to fall further suggest a reversal in the dollar is likely on the way, and a more aggressive Fed could be the trigger.
I hope I am wrong because that will likely not be good for stocks over the short-term.
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Michael Kramer and the clients of Mott Capital own shares of GOOGL
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
© 2018 Mott Capital Management, LLC. Use, publication or reproduction in any media prohibited without the permission of the copyright holder.
Tags: #sp500 #facebook #amazon #alphabet #fomc #fed #libor #eurodollar #rates
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.