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Markets rethink Turkey's rate hike and head south

  • Who could have thought raising interest rates 425 basis points would be bearish? A curious rally following Turkey's defense of the lira - it jacked rates to 12% from 7.75% - has completely reversed. One feels a 1992-like vibe where the Bank of England hiked like crazy to defend the pound, but then ultimately had to let it go (also creating a bottom in stocks).
  • In Europe, the Stoxx 50 (FEZ) is off 1.3%, with Turkey (TUR) now down 2.3%.
  • South Africa joins the party, unexpectedly hiking its benchmark interest rate by 50 basis points to 5.5%. EZA -2.8%.
  • A check of Brazil (EWZ -1.3%) and India (EPI -1.1%) - where monetary policy has also been tightened this week - finds them lower as well.
  • The money is flowing into U.S. Treasurys which continue a big 2014 rally. The 10-year yield is off five basis points to 2.71%. TLT +0.3%, TBT -0.5%.
  • Europe ETFs: ETFs: FXE, VGK, EUO, FEZ, ERO, EU, DFE, IEV, EPV, EZU, HEDJ, DRR, GXF, FEU, GUR, FDD, EUFX, ESR, UPV, ULE, FEP, ADRU, URR, FEEU, EURZ, DBEU, EURL, FIEU
  • Treasury ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, ZROZ, SBND, TLH, DLBS, VGLT, UBT, TLO, LBND, TENZ, TYBS, DLBL
Comments (8)
  • thodoris91
    , contributor
    Comments (51) | Send Message
     
    investors ain't stupid. central banks are useless
    29 Jan, 11:02 AM Reply Like
  • Jake2992
    , contributor
    Comments (820) | Send Message
     
    Or, more likely, the reason for the sell off has nothing to do with the interest rate hike. Why does there have to be a reason for every tick the market makes?
    29 Jan, 11:26 AM Reply Like
  • thodoris91
    , contributor
    Comments (51) | Send Message
     
    because raising interest rates by 4% shows a big problem in fundamentals that even investors who don't care about TRY will notice and go short
    29 Jan, 12:47 PM Reply Like
  • Jake2992
    , contributor
    Comments (820) | Send Message
     
    So what was the explanation for the market going down last week before the rate hikes were announced? Markets go up and then down. Pretending you know why will only hurt your investments.
    29 Jan, 12:54 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (722) | Send Message
     
    Greed and fear, that is the major reason the markets move over any particular short period of time. Look at the returns of 2013. You will see some due to earnings and earnings increases (good), some due to dividends and dividend increases (good) but most due to changes in P/E multiples (noise). The noise trumps in the short term, but the weight of earnings and dividends is what matters over the long term.
    P/E ratio's can't increase forever, they go up (greed/elation), they go down (fear); but over the true long term (10-20+ years) P/E ratio's mostly cycle around the mean.
    This is one reason why I emphasize dividends (either high or growing or both) in my investing.
    29 Jan, 01:52 PM Reply Like
  • Brian Bobbitt
    , contributor
    Comments (1874) | Send Message
     
    The 'markets', (meaning investors) are in a constant state of gold panning. Looking for the mother lode hither and yon. Almost a "let's try this creek" syndrome.
    I come to the 'puter every day trying to stay in touch with the machinations of the global, national and local markets to ascertain what I should be doing at a given moment.
    It leads to a frustration whereby before the afternoon is over, I feel like I need a break. (remember, I'm retired you know) HAH! In name only.
    I spend just as much time 'working' to find a way to raise my net worth as I did working for a living to raise my net worth.
    There are only a finite number of avenues to take with your investment dollars and they all leave you with a modicum of risk. You just ain't gonna find a worthwhile profit without taking risk.
    My idea is to minimize the risk by knowing as much as possible about which course I will set my ship on. Fully knowing the horse latitudes can be fearsome, and the tropics are the calmest except for that occasional hurricane or cyclone.
    Nowadays, one can use myriad tools to keep the storms affects at bay or at least minimized.
    My favorite way to calm the water is to write covered calls. It gives you a head start, and sometimes that is all you need to accomplish your objective.
    If you objective, [like mine] is to gain about 7-10% ( just enough for some spending money after taxes, commissions and inflation) Then a part of that percentage can be gleaned by selling covered calls. If you are right in your stock pick it will just go up a little, but not enough to have your stock called away.
    But what if it does? Usually option time frames are much less than 2 - 3 months,therefore you can do it 4 times a year. Now that can add up matey.
    If the stock goes down, you keep the premium and that is like a little insurance policy.
    In rising markets, that ain't a bad course to follow. Just may lead you to a warm sunny tropical island for vacation.Ship ahoy matey!
    Capt. Brian
    The Lost Navigator
    29 Jan, 12:31 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (722) | Send Message
     
    Covered calls work well when the markets are -10% to +10%. In sharp downturns you still take the loss but in sharp upturns you don't get the gain. Now for a retired person looking to decrease volatility, this isn't necessarily a bad trade-off. It's a decent component of an overall strategy but I wouldn't build one's entire portfolio around it. Asset diversification (not just stocks and bonds), dividend payers, money management techniques, etc. all also have their place.
    29 Jan, 02:00 PM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
     
    Screwy. With interest rates rising on these countries they should having a rising currency, the best of both worlds. But instead they pile into U S Treasuries, probably the most overpriced asset class in the world. Total stupidity.
    31 Jan, 11:18 AM Reply Like
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