Shares of Google’s parent Alphabet (GOOGL) are sliding after the company’s second quarter report, despite an earnings per share and revenue beat. Nonetheless, several Wall Street analysts remain bullish on the stock as they believe the quarter does not change Alphabet’s positive growth story. RESULTS: Last night, Alphabet reported second quarter earnings per share of $5.01 and revenue of $26.01B, above consensus of $4.46 and $25.64B, respectively. The company reported its aggregate paid clicks were up 52% and its aggregate cost-per-click was down 23% from the prior year. Alphabet reported its traffic acquisition costs, or TA...
The interaction of a bubble in real estate prices with the banking and financial sector drove the US economy into the Great Recession. For an overview of how the US housing market is faring a decade after dysfunctions in housing market finance helped bring on the Great Recession that started in 2007, a useful starting point is The State of the Nation’s Housing 2017, by the Joint Center for Housing Studies of Harvard University. Here’s the pattern of overall US housing prices: adjusted for inflation, home prices are about 30% above their level in 2000, but still below where they were at the peak of the housing bubble in 2006. Per...
There are no two ways about it: it’s been a rough month, quarter, and year for the world’s reserve currency. The widely-followed US Dollar Index started the year in peak “Trump Trade” euphoria, with traders expecting a burst of fiscal stimulus to boost the economy and accelerate the Fed’s pace of tightening. Since then, the dollar index has fallen by over 9% as President Trump has struggled to enact his agenda, the Fed has taken its foot off the gas pedal, and most recently, other global central banks have shifted to a more hawkish posture. As the chart below shows, the dollar is deep in the dumps against its maj...
All eyes are currently on the crucial two-day FOMC meeting slated to start today. The central bank is expected to hold rates steady and lay out plans to unwind its $4.5 trillion balance sheet. It will likely reduce bond holdings by a maximum of $50 billion per month, or $600 billion per year. Both the latest Bloomberg survey and Reuters’ poll reveal that the Fed will unveil the timing of its balance sheet unwinding in September and wait until December to raise interest rates again. As such, rate sensitive ETFs are in vogue. In the latest testimony, Fed Chair Janet Yellen stated that she is not in a rush to raise interest rates and will ...
A couple weeks back, I opined that the next big problem for the stock market might revolve around global central bankers changing their monetary policy tune on a coordinated basis. The idea was simple. Stocks have enjoyed the benefits of capital creation via global QE programs since the crisis ended in early 2009. The key has been that when banks print money, the cash must go somewhere. And the bottom line is that a fair amount of the freshly minted QE capital consistently found its way into the U.S. stock and bond market. The worry is that the majority of the world’s central bankers (save Japan, of course) looked to be ready to reverse cou...
Draghi Won’t Taper? The bond market gives us a picture of what investors are expecting from policy makers. The chart below shows the bond spreads the riskier European countries are trading at compared to the German Bund. The spreads of these countries, formerly known as the PIGS, have been tightening in the past few months. This buying might be coming from the ECB itself or it might be a signal of the ‘risk on’ trade. In terms of policy, this tightening of spreads forecasts that Draghi won’t taper anytime soon. It will be important to watch these spreads in the coming weeks as we get closer to the ECB’s decision on whether/how much ...
As the Redfin (RDFN: $13/share) IPO approaches, investors must decide whether the firm is a traditional real estate brokerage or a technological innovator likely to disrupt the traditional real estate brokerage market. RDFN currently looks like a traditional brokerage and generates roughly 90% of its revenue from traditional commissions. The company’s ultimate mission is to revolutionize the way American’s buy and sell their home by leveraging technology to lower costs and provide a smoother, faster real estate transaction process. Will the tech focus be enough to set RDFN apart in the fragmented residential brokerage market? Can RDFN bec...
The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was declined from 5.8 % (was reported as 5.7 % last month) to 5.7 %. The index authors stated “The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.” Analyst Opinion of Case-Shiller HPI Many pundits believe home prices are back in a bubble. Maybe, but the falling inventory of homes for sale keeps home prices relatively high. I continue to see this a situation of su...
While interest rates have risen from depths that saw the 10-year treasury yielding 1.36% on 7/3/16, to 2.25% today, given Fed plans to tighten and pledge to shrink its balance sheet should rates be even higher? The Fed will typically engage in the monetary policy of tightening and lift the Fed Funds rate when the two key components of its mandate, full employment and inflation are at its target rate, indicate that it’s warranted to do so. One could most definitely make the argument that with an unemployment rate of 4.3%, lowest since the 4.4% in October 2006, that employment is in good shape. And while some metrics within the employment r...
Gold, silver and the USD Index didn’t do much in yesterday’s trading, but that was not the case with mining stocks. The divergence between gold stocks and gold was particularly visible and the implications are once again particularly important. Let’s take a look at the charts, starting with the HUI Index (gold stock chart courtesy of StockCharts). The gold stocks’ reaction to the recent USD weakness and gold’s previous move higher has been weak for many days, but Monday’s session took the weakness to the extreme. Gold ended the session more or less unchanged and this lack of a continuation of the rally was enough for the H...