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Chris earned the Chartered Market Technician designation. He is earning the Chartered Financial Analyst designation and graduated with honors in Economics. Also, he has managed money as a professional trader and independently, and continues to do so. Chris utilizes Technical, Financial Analysis... More
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Grosvenor Research & Analysis
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Professional Fundamental & Technical Analysis
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  • How QE3 Will Boost Bank Shares

    Today, the FOMC decided to purchase mortgage-backed securities. The Federal Reserve will purchase $40 billion worth of mortgage-backed securities.

    First, when the FOMC decides to purchase assets it increases bank reserves. Banks then have more money to lend. As banks lend aggregate demand increases. As aggregate demand increases, the multiplier effect kicks in. People that benefited from increased aggregate demand, spend some of the money they made.

    Then, prices rise because of the increased demand. That said, the FOMC is purchasing about $500 billion worth of assets. That is roughly 3 percent of GDP. We could be looking at a roughly 2 to 4 percent increase in GDP over the next year or two.

    The increase in the Federal Reserve's balance sheet will boost equity prices and commodity prices. Notably missing from the statement is the purchasing of U.S. Treasury Securities. Bonds should sell off or increase in yield. Further, the dollar should decline in value.

    Quantitative easing will boost bank reserves and induce banks to lend. Banks will make loans and increase risky loans. Some of the risky loans will pay off and banks will increase revenue. We are taking about home loans, car loans, business loans, etc...

    Further, the increase in the money supply will increase commodity prices. As commodity prices increase commodities firms will look to look to sell debt and/or common shares. Investment banks will bring in fees.

    Also, shares of corporations will trade at higher prices. As share prices increase the cost of equity declines. As the cost of equity declines companies sell shares. When companies sell shares investment banks increase revenue.

    Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS) are well positioned to benefit from the increases in investment banking revenue and investors should consider purchasing shares of these firms.

    Of the four firms mentioned, I prefer Bank of America, Goldman Sachs and JPMorgan. Primarily based on valuation and the financial performance and positions. Bank of America is one of leading investment banking firms. I believe Morgan Stanley is one of the weaker financial firms because of exposure to Europe. Morgan Stanley should benefit from QE, but Europe risks linger.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Sep 13 5:10 PM | Link | Comment!
  • Markets Higher As Risk Sentiment Improves

    The Dow Jones industrial average (NYSEARCA:DIA), S&P 500 (NYSEARCA:SPY) and Nasdaq-100 (NASDAQ:QQQ) are trading higher today as U.K. gross domestic product signaled the country is in a recession. The German Ifo business climate declined to 103.3 from its previous reading of 105.2. Yields on U.S. debt securities are rising as the risk-on trade shows early signs of resuming. Crude oil is traded lower early after inventories unexpectedly rose.

    The equity markets are bouncing off of a support zone and if the support zone holds I'll increase my exposure to the risk-on trade. However, with the advance reading of GDP being released on Friday I remain cautiously optimistic. The Dow Jones industrial average and S&P 500 remain in intermediate up trends while the Dow Jones transportation average is showing signs of heading lower.

    Employment Picture

    The expected rate of inflation is 2.8 percent. The actual rate of inflation 2.2 percent excluding food and energy while the rate including food and energy is 1.7 percent. Unemployment is above its natural rate and growth is stagnant. In recent months we have seen a decline in the rate of inflation, employment growth and economic growth.

    The economic environment favor is mix of stocks and bonds. Bonds should probably be a larger portion of the portfolio since the economy is operating in a recessionary gap and not an inflationary gap.

    With inflation below the expected rate, GDP growth slowing and gains in the employment stagnating, I expect the FOMC to take additional steps to increase the rate of inflation. In other words, increase the quantity of money and continue to provide investment incentive.

    As the same time, companies are reporting shortages of medium and high skilled workers. U.S. companies, unlike their overseas counterparts, don't invest as much in training employees. The result is a less productive workforce and stagnant economic growth.

    Home Sales

    The homebuilders (NYSEARCA:XHB) have been a market leader this year returning 24.4 percent year-to-date while the S&P 500 is up 7.7 percent year-to-date. Data on new home sales released today showed the pace of new home sales slowed to 350,000 from 382,000.

    The median selling price of new homes was $232,600 while the average price was $273,900.

    The data suggests a slowing of the pace of investment in new homes, a consumer favorite, and adds to evidence of slowing economic growth.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 25 2:27 PM | Link | Comment!
  • Android, iPhone, Kindle & BlackBerry 10


    Apple's (NASDAQ:AAPL) share of the tablet market widened to 68 percent in the first quarter. That is up from 55 percent in the previous three months, according to IDC.

    In contrast, Amazon's (NASDAQ:AMZN) share of the tablet market dropped to about 4 percent from 17 percent. Amazon is now the third largest seller of tablets.

    Samsung Electronics Co. is the second largest seller of tablets. Outside of Samsung, no top-tier manufacturer has developed a great tablet product to take on Apple.

    Total worldwide tablet shipments more than doubled to 17.4 million units last quarter, from 7.9 million units a year earlier. That followed a record-breaking 28.2 million units in the fourth quarter, IDC said.

    The tablet market is starting to grow as consumers find uses for the product. As the tablet market grows Apple and Samsung are well positioned to control almost all of the market; together, both firms are dominating the smartphone market and tablets are like a smartphone with a larger screen.

    There isn't much space for Amazon's Kindle; tablet users have the ability to download the e-reader on almost any tablet or smartphone device.


    BlackBerry maker Research in Motion (RIMM) unveiled a prototype of its new BlackBerry10 device yesterday. The smartphone features a touch-screen. According to some media reports the touch-screen phone won't be popular among consumers.

    BlackBerry users prefer a physical keyboard while iPhone and Android touch-screen smartphones are best of breed.

    BlackBerry has a history of making phones for different types of consumers. A touch-screen phone would appeal to BlackBerry users or non-users that want a touch-screen phone.

    RIM, is counting on the BlackBerry 10 lineup to reverse the sales slump. That is unlikely. RIM may have to live in a new-normal as the world's third largest making of smartphone devices. The faster RIM does that the better off their shareholders will be.

    Personally, in terms of every day business usage the BlackBerry Bold fits my needs better than the iPhone or Android. However, I do have an appreciation for the fact that my needs aren't "mainstream" needs.

    RIM should focus on keeping the customers that it has. As the smartphone market grows, they will have a smaller share of the market. Typically, firms in growth industries can thrive without taking market share and that is what RIM needs to do.

    Most apps developers aren't interested in creating apps for the BB10 operating system. That may make it difficult for RIM to attract new customers.

    Although, the BB10 software which evolved from QNX may help RIM attract customers and then developers. QNX is used to run nuclear power plants and U.S. army tanks.

    Phones running BB10 are due to be released before the holiday season. Also being released around the same time is the iPhone 5. RIM may have a tough time getting its phones noticed if they are released at the same time as the iPhone 5.

    Google's Inc.'s (NASDAQ:GOOG) Android operating system powered 51 percent of US smartphones in the three months ended March 31, ComScore Inc. said recently.

    Apple Inc. ranked second, with 31 percent, followed by RIM, with 12 percent. Google's share in the previous three-month period was 47 percent, according to ComScore.

    We remain bullish on Amazon, Google, Apple, Samsung and RIM.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 04 1:53 PM | Link | Comment!
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