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Andrew Sachais
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Author Bio: Andrew Sachais’ focus is on analyzing markets with global macro-based strategies. He is a former hedge fund trader and has written for TheStreet.com and was an economist for Minyanville. Sachais takes into consideration global equity, commodity, currency and debt markets, and is a... More
My company:
Satch Capital Group
My book:
Robert Griffin III or: How I learned To Love the Backup
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  • Making Sense Of The Market

    Global asset markets remain heavily intertwined, with each asset class pulling on the next. This week was no different. Euro area equities, represented by the German DAX, continue to sky-rocket higher as monetary stimulus boosts sentiment, alongside a steadily improving economic environment.

    While it may not be the optimal time to enter German equities, for fear of chasing the market, waiting for a pullback and subsequent continuation higher may be the best strategy.

    Meanwhile, U.S. equities, with tightening monetary policy expected in coming months, look slightly overbought as a whole. This is not to say U.S. equities will correct anytime soon, but the last "great" entry point, after a long, distinguishable pattern was at the beginning of 2013, seen below in Guggenheim S&P 500 Equal Weight (NYSEARCA:RSP).

    Additionally, the NASDAQ has been in a parabolic trend higher since breaking out of a consolidation pattern in the middle of 2013. While there hasn't been a great long-term entry point since then, there is no evidence of a trend reversal yet.

    Meanwhile, Treasury bonds unexpectedly pushed higher in 2014, weighing on interest rates. When it became clear that the Federal Reserve was simply going to end stimulus, then raise rates after, the drastic fall of 10-year bonds in 2013 reversed course. After forming a double-bottom base, iShares Barclays 20+ Year Treasury Bond (NYSEARCA:TLT) broke higher in early 2014, and has pushed to record levels in the process. While it is still not clear when the Fed will tighten policy, interest rates will likely remain low for the time being, matching weak inflation pressures.

    Even as rates have fallen, the U.S. dollar, represented by PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), has experienced inflows due to the global preference of U.S. assets. The U.S. economy is relatively better off than many of its international peers, currently, and is positioned for an interest rate hike, while Europe and Japan are in the midst of further devaluing its currencies.

    The strong dollar has weighed on commodity prices. Oil prices have fallen over the last year as global supplies have outpaced demand. Since July, the price of oil has nearly halved, weighing on global inflation measures, as well as export revenue from commodity-reliant economies. The price of oil is in no hurry to rebound, and looks to be languishing near its 2009 bottom.

    Moreover, the price of gold has similarly been weak as the dollar strengthened. After drastically declining in early 2013, gold prices have trended sideways between 1150 and 1400, seen below. With future dollar strength, and low inflation measures world-wide, gold may fall even further in coming months.

    Lastly, it is prudent to look at domestic equity markets to understand the forces at play within sectors. As industrial metals have weakened over the last year due to slowing growth in China, as well as across the globe, Alcoa's (NYSE:AA) earnings have been under pressure. The full-effect is finally being realized in the company's stock price, which recently broke below the crucial 14 level.

    Meanwhile, as I stated earlier about equity markets not developing a clear long-term consolidation in a few years, the opposite is true for the high-beta iShares Russell 2000 Index (NYSEARCA:IWM). In recent weeks, high-beta small-cap stocks have broken higher out of a year-long consolidation, with the 120 level now likely holding very strong support.

    As a testament to the risk-sentiment felt in financial markets while small-caps break to the upside, select bio-tech stocks are also moving higher. Biogen (NASDAQ:BIIB) recently broke out of a year-long consolidation, and has moved nearly 30% higher over the last two months. Fundamental factors are driving the move, but the enthusiasm behind the move signals optimism in the sector.

    Lastly, Facebook (NASDAQ:FB) is also breaking to new highs. The social media giant provided some new innovations to its messenger feature this week, leaving investors predicting greater monetized expansion in the future.

    "TechCrunch reported that the social media giant would reveal new ways for third parties to use its Messenger app at the F8 Conference next week.

    The site reports through multiple sources that Facebook wants to make Messenger more useful after it noticed how Asian chat apps WeChat and Line have become platforms that do more than just provide a way to text with friends and family.

    Facebook will first focus on how third parties can construct ways for content and information to go through Messenger. The company will then assess the success or failure of these early measures and then possibly bring more utilities into the service," according to The Street.

    With technology and bio-tech sector's strengthening, as well as the ridiculously low yield of bonds, it is unlikely U.S. equities quickly reverse lower.

    U.S., Japan, and euro area equities all look attractive currently. Meanwhile, interest rates are likely to remain low as falling global inflation measures weigh on monetary policy. With a stronger U.S. dollar, and falling global demand, commodities are also being adversely affected.

    My current portfolio consists of Sony (NYSE:SNE), iShares MSCI Germany Index (NYSEARCA:EWG), Pfizer (NYSE:PFE), Huntington Bancshares (NASDAQ:HBAN), E*Trade Financial (NASDAQ:ETFC), iShares Dow Jones US Home Construction (NYSEARCA:ITB), American Eagle Outfitters (NYSE:AEO) ,Facebook, and SunEdison (NYSE:SUNE), with short positions on OGE Energy (NYSE:OGE) and Pricesmart (NASDAQ:PSMT). Facebook and SunEdison were just initiated, and could stand to gain considerably in coming months. Feel free to ask about rationalizations for current positions, as well as questions about possible positions you are looking at.

    Tags: SNE, PFE, EWG, HBAN, ETFC, ITB, OGE, PSMT, AEO, RSP, TLT
    Mar 21 6:11 AM | Link | Comment!
  • Stagnant U.S. Wages Continue To Bolster Dollar Store Stock Gains

    NEW YORK -- Dollar stores are in demand as wage growth remains stagnant.

    Since the financial crisis in 2008, real U.S. wages have been on the decline, and this has led many cash-strapped consumers to shop at discount variety stores such as Dollar General (NYSE:DG) , Dollar Tree Stores (NASDAQ:DLTR), and Family Dollar Stores (NYSE:FDO) .

    Read More: Warren Buffett's Top 10 Dividend Stocks

    As demand for deep-discount retailers has heightened, share prices have accelerated to record highs, as seen below.

    FDO Chart
    FDO data by Charts

    Deep-discount retailers offer inferior goods, as defined by economic theory. More specifically, demand for inferior goods acts contrary to normal goods.

    When a consumer's income falls, he or she is more likely to increase consumption of an inferior good and decrease consumption of a normal good.

    For example, an individual is more likely to decrease how often he or she dines out during times of economic hardship but may begin to buy more ramen noodles at the grocery store.

    This hypothetical situation is just what occurred in the U.S. economy in the aftermath of the financial crisis.

    In fall 2008, economies worldwide were in distress, but shareholders and executives of dollar stores had cause to rejoice. The highest-performing stock of 2008 among the Standard and Poor's 500 stock index was Family Dollar, which saw its share price rise 42%, while broader equity indexes declined 37%.

    This phenomenon happens as brand loyalty disappears during an economic crisis, allowing dollar stores to shake off their negative stigma. Frugality became in vogue during a crisis, as is shown in a November 2008 New York Times food article on spending a month creating gourmet meals with groceries found only at a dollar store.

    FDO Chart
    FDO data by YCharts

    Persistently low wage growth has kept consumers coming through the doors of dollar stores almost six years after the financial crisis began. Low wages were a main topic at the Federal Reserve's meeting last month in Jackson Hole, Wyo.

    Fed Chairman Janet Yellen said that the sluggish pace of nominal and real wage growth in recent years may reflect "pent-up wage deflation."

    She added that "the evidence suggests that many firms faced significant constraints in lowering compensation during the recession and the earlier part of the recovery because of 'downward nominal wage rigidity' - namely, an inability or unwillingness on the part of firms to cut nominal wages."

    As uncertainty over real wages and the future strength of the labor market remain, it looks as if dollar stores could continue to move higher.

    The chart below shows the relationship of real wages to Family Dollar and Dollar Tree's stock price since 2000. The correlation began to take shape as real wages gradually fell in the aftermath of the financial crisis.

    As real wages have failed to recover in recent years, the stock prices of discount retailers are seen spiking higher.

    Read More: Draghi: ABS Buys to Have 'Sizeable' Balance Sheet Impact

    August employment data are set for release Friday.

    Look for changes in wages to signal the current health of the U.S. consumer. If wages are stagnant, expect dollar stores to remain in demand.


    Data provided by Yahoo! Finance

    At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

    Follow @macroinsights

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


    TheStreet Ratings team rates FAMILY DOLLAR STORES as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate FAMILY DOLLAR STORES (FDO) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value." You can view the full analysis from the report here: FDO Ratings Report

    Tags: DLTR, FDO, DG
    Sep 05 12:42 PM | Link | Comment!
  • FDIC Coverage And Dodd Frank – What It Could Mean For Your Deposits

    Since the European financial crisis of 2011, new legislation has been written that could affect something as simple as your deposits at a bank. The traditional understanding is that, as a depositor, one has up to $250,000 of FDIC coverage per account. However, that may now change during the next financial crisis. In the simplest terms, too-big-to-fail banks (technically called "SIFIs"), such as JP Morgan Chase (NYSE:JPM), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC) and Morgan Stanley (NYSE:MS), would be transitioned from being FDIC-covered into FDIC "Orderly Liquidation Authority" (OLA) receivership status under new Dodd-Frank legislation in the event of a systemic risk.

    The new OLA status permits the FDIC to repay the banks' obligations to its depositors with stock instead of cash in the event of systemic distress. Much of this is known within the financial community as part of a broader package of bank reforms. However, a critical component of the reform regarding the most basic assumption we make when we walk into a bank and make a deposit may be being overlooked.

    Many depositors are unaware of how banks account for their deposits. When any one of us enters a bank, and makes a deposit, it is immediately recorded as a liability on the bank's balance sheet. Therefore, you, the depositor, are actually a "creditor" to the bank. The new OLA receivership rules state that the Federal Reserve and FDIC now have the authority, under financial distress, to convert your cash deposits, savings, and CD's at the bank into equity shares of the bank itself in order to make the bank whole. This is often called a "bail-in."

    What one financial advisor based in Los Angeles, California discovered is that the basic FDIC coverage of $250,000 per account is not a certainty any longer under the new rules. She and her father-in-law, a former attorney, wrote an email to the FDIC to get clarification on the issue of deposit coverage under OLA status, and this is what they wrote.

    -----Original Message-----

    From: FDIC STARSMail <StarsMail@FDIC.gov>

    To: <anonymous>

    Sent: Thu, Jul 10, 2014 2:03 pm

    Subject: FDIC Reply

    July 10, 2014

    Ref. No: SCC2014N-00XXXX-X

    Dear Mr. XXX:

    Thank you for contacting the Federal Deposit Insurance Corporation (FDIC). In your e-mail you specifically asked the following:

    "Re: FDIC Insurance

    Does the Dodd Frank Act place bank depositors at risk of losing their FDIC insurance?

    Presently the standard FDIC insurance amount is $250,000 per depositor, per insured bank, for each ownership category. This includes principal and accrued interest and applies to all depositors of an insured bank.

    The Dodd Frank Act has a provision giving the FDIC "Orderly Liquidation Authority" (OLA), for a "Globally Active Systemically Important Financial Institution" (GSIFI).

    OLA permits the FDIC to repay the banks obligations to its depositors with stock instead of cash. OLA permits conversion of the banks obligations to its depositors, ie savings accounts, checking accounts, CD's, to stock.

    If I am a depositor of a bank that is a GSIFI,which "fails", and becomes subject to the OLA, will I be covered under FDIC Insurance for $250,000 (cash to be returned to me)or will I be converted to a stockholder and receive stock in lieu of cash? Is this mandatory or discretionary with the FDIC?

    Does this change the present standard FDIC insurance for bank depositors?

    Does the OLA only affect deposits in excess of 250,000? What are the new rules? Pleaase explain. Does the OLA create a gap in FDIC protection for bank depositors where depositors will get stock instead of cash? Under what circumstances?

    The FDIC's response, after an initial, "We'll get back to you," was this….

    Your inquiry has been forwarded to the FDIC's Legal Division for review and response. You will receive a response directly from the FDIC Legal Division.

    If you have additional questions while the Legal Division reviews your inquiry, feel free to write us back or contact our office directly at (877) 275-3342.

    Sincerely,

    Federal Deposit Insurance Corporation

    Division of Depositor and Consumer Protection

    550 17th Street, N.W.

    Washington, DC 20429

    "I was shocked by the ambiguity of the FDIC's response. I would have expected to have a pretty swift and simple answer on these direct questions. The fact that the legal team of the FDIC needs to contact me is worrisome," says this financial advisor. "It goes completely against what we have come to expect in our generation of what happens to our cash at a bank under times of duress."

    She is still waiting for a response from the FDIC. Perhaps it's time we ask more questions of the new laws and their broader implications. It seems that the Federal Reserve and FDIC should at least be able to be more forthcoming about what their new legislation exactly means for regular Americans.

    Jul 15 5:30 PM | Link | Comment!
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