Eight Points on the Investment Climate and the Dollar

1.  The swing in the pendulum of expectations back toward a mid-year Fed rate hike is one of the key developments that will shape the investment climate.  The data in the week ahead, including the broader measures of the labor market, like the Fed’s new index (Labor Market Activity Index) and JOLTS (Job Opening and Labor Turnover Survey), and core retail sales will strengthen the view.   The rise in US interest rates will lend the dollar support and allow the appreciating trend to continue after a consolidating over the last few weeks.   Equity investors need to adjust to the rise in interest rates.  High dividend payers and utilities are vulnerable.  US companies have expanded overseas more by direct investment than exporting.  That means that while they earn revenues in foreign currencies they also incur local costs.  In addition, many producers price and invoice in dollars.  In any […] Read More

Dollar is Stretched, but will it Correct?

The US dollar had a good week, gaining against all the major currencies.  Strong economic data underpinned it, and what we suspect is a mistaken belief that the debate about an earlier rate hike by the Fed has truly intensified. Ironically, the strong data failed to instill any traction in US bond yields.  The 10-year yield was flat on the week, unable to sustain upticks above 2.40%. The 2-year yield rose about six bp, though still below 50 bp.  It is in the middle of the August range.  Moreover, despite the fears expressed by some hawks at the Fed about the risk to prices, few have noted the 8.5% decline in the CRB index over the past two months and the five-week slide in the price of West Texas crude oil. Broadly speaking, the dollar is stretched from a technical perspective.  Yet, the fundamentals, including the upcoming ECB meeting, […] Read More

Starting Monday, Billions In ETNs Are No Longer Marginable Collateral

When is marginable collateral not marginable collateral? When it is an ETN, or Exchange Trade Note: the cousin of the Exchange Traded Fund (ETF). The very mutated, and unabashedly evil cousin of the ETF that is. At least such is the view of US brokerage Interactive Brokers (and certainly not of the ECB where as is widely known blocks of feta cheese and olive oil are perfectly acceptable forms of collateral). First, what exactly is an ETN? Here is the IB definition: ETNs are not equity shares but rather a form of unsecured debt whereby the issuing institution promises to pay a return linked to a market index or other benchmark. As ETNs generally do not buy or hold assets like an Exchange Traded Fund (ETF), their returns are realized through holdings of derivative contracts such as options, futures and swaps. While ETNs trade on exchanges in a manner […] Read More