Chinese equities have remained volatile this week, with the Shanghai Composite declining 7.4% today. The reason behind the selloff appears to be retail investors exiting positions they bought on margin. The sales are likely due to nervousness that the Chinese government will take measures to reduce margin loans available to investors. And as the market starts to fall, the most leveraged get margin calls, forcing them to sell to repay the loan, further driving down prices. The Shenzhen Composite and the ChiNext Price Index are now in a bear market, which is defined as a pullback of more than 20% from its highs. Continue reading
Monthly Archives: June 2015
The Shanghai Composite finished the day down 6.4%, capping a 13.3% decline on the week. This is the largest weekly drop for the Composite since October of 2008. The decline was due to the same factors that we have been discussing for a few weeks now; namely, fears of further tightening on the use of margin and concerns of high valuations. The markets have been propped up by the expectation of stimulus but there is an increasing concern that the stimulus will not be enough to boost growth. Given Beijing’s commitment to steady, sustainable rises in stock prices, we would expect to see some combination of further monetary loosening and an increase in foreign investment limits. It’s interesting that the government even sees the need to prop up a market that is still up 38% year-to-date, but this would be an effort to contain volatility. Continue reading
Before the vote today on part of the Fast-Track Trade Bill, President Obama made a rare trip to Capitol Hill in an effort to convince fellow Democrats to stand with him on the vote. He had a large number of Republicans on his side, so he was mostly appealing to his own party in the hopes of getting the deal passed. It was ultimately unsuccessful, as the Trade Adjustment Assistance part of the bill was defeated by a vote of 302-126. The opposition was led by long-time ally Nancy Pelosi and ultimately killed the bill. The President may try and rally support over the weekend, and the bill could go back up for a vote as early as Tuesday. If this measure ultimately fails, it will likely signal that President Obama will spend the final 18 months in office as a “lame duck” president, as he has been working on getting this measure passed for some time now. Continue reading
I would like to announce that Brad Combs has achieved another important milestone in his professional career and joins Bob Spindel and me as the third NAPFA Registered Financial Advisor in our firm. The National Association of Personal Financial Advisors (NAPFA) is the country’s leading professional association of FEE-ONLY financial advisors – highly trained professionals who are committed to working in the best interest of those they serve.
Membership standards are the highest in the profession for this national group of premier “fee-only” financial professionals – which includes on-going continuing education requirement @ 60 hours, 3 years comprehensive financial planning “experience” requirement and, adherence to a strict Code of Ethics and Fiduciary Oath. Continue reading
U.S. Gross Domestic Product (GDP), which is the value of the production of all goods and services in the United States, adjusted for price changes, decreased at an annual rate of 0.7% in the first quarter. Previously, it was reported that the first quarter’s GDP increased 0.2%. This revision shows how factors such as a harsh winter, West Coast port issues, and a stronger dollar can affect the reading. The GDP numbers compare with a 2.2% increase in the fourth quarter of 2014. The Federal Reserve stated they believe this decline will only be temporary and they believe the overall economy is showing signs of continued strength going forward. Continue reading
Fed Chair Janet Yellen read some prepared remarks today and said that the Fed is still on track to raise interest rates this year. While speaking about the rate increase, she said, “I anticipate that the pace of normalization is likely to be gradual.” When speaking about the Fed’s “target rate”, Yellen stated it may be several years before it returns to the 3.75% level the Fed considers normal. She repeated the Fed’s criteria for raising rates, saying “I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.” These comments pretty much eliminated the possibility of a June rate increase during the next Federal Open Market Committee (FOMC) meeting on June 16th and 17th. However, it appears the market is now expecting the rate hike to occur sooner than December, based on futures market trading. It is still too early to tell when the Fed will ultimately raise rates. The crazy thing is that, even though we have known this is coming for some time, there will very likely be volatility when it actually occurs. Continue reading