Another Down Day

Wed, 2017/11/15 - 4:28pm | Your editor
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Today the Frankfurter Allgemeine Zeitung broke a major US story, that Mohammed El-Erian is being considered for the role of deputy chairman of the US Federal Reserve. The former deputy head of the International Monetary Fund, former co-chief of Pimco, and former chief investment officer of the Harvard Endowment is a Brooklyn-born US citizen of Egyptian heritage who currently serves as chief economist at Allianz SE, Pimco's parent, in Germany, which may explain how FAZ got the news. He would replace Stanley Fischer who announced his resignation. Mr Fisher is an American dual national who used to head the Israeli Central Bank.

Given Pres. Trump's frequent nasty anti-Muslim rants, this nomination would greatly improve his and our country's reputation. We need for fair play and recognizing talent among Muslims both in the Middle East and in middle America. And the Fed under its new lawyer chairman needs a top economist. This article was then confirmed by the Wall Street Journal blog which, however, ran a picture of the NY Fed building, not the one where the head Fed works, in Washington DC.

 

Meanwhile several notes from BoA-Merrill Lynch Global Research are forecasting for 2018. The Thundering Herd expects Mexican growth to be higher this year than predicted earlier, a 2.1% rise rather than merely 1.9% this year and, because of statistical carry, a slower growth level next year, to only 1.6%, now the consensus level. I think with a lower peso it can go either way.

On Canada the bank expects forex changes weakening the loony next year, to US$1.33 per by Q2 2018 because it expects flat oil prices and no rate increases by the Bank of Canada (central bank) in Dec. or Jan. That would boost the greenback against the C$. Later next year Merrill thinks that drop may reverse. Also Canada is losing direct investment and also will rus a potential trade deficit equal to “ a shocking 8% of its GDP,” from 4.8% now, Merrill writes. The great unknown is what happens over Nafta negotiations.

Meanwhile Merrill's Global Fund Manager survey discovered that just under a quarter of equity investors, 23%, think that corporate balance sheets are over-leveraged, particularly the “frothy FAANG” stocks which are “no longer creating value for shareholders” by borrowing to fund share buy-backs “at current valuation levels”. FAANG (invented by Jim Cramer) stands for Facebook, Amazon, Apple, Netflix, and Google, now Alphabet, but the acronym was too good. They now account for ~15% of US GDP, and at mid-2017 had all risen by 30% in 2017 except Alphabet whose new name confused investors, up only 25%.

Trump-boosters at JP Morgan Chase are now saying that there will be 4 US interest rate hikes in 2018 which worried Wall Street out of its enthusiasm for a tax reform package.

 

More on Mexico, FAANGs, drug stocks, Islam and reporting companies, plus news from Abu Dhabi and Latvia, both new coverage places for us, and plenty more. Today's blog is heavy because of news and because I will be attending an investment day with one of our Mexican shares tomorrow so the blog then will be late or non-existent. We have a new stock pick today as well.

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