Posts by Aaron Task

  • Bitcoin just getting started and its potential is "almost unimaginably broad"

    Aaron Task at Yahoo Finance 11 hrs ago

    Bitcoin is an "exciting new technology" but Bill Gates doesn't think it's a proper tool for the world's roughly 2.5 billion 'unbanked' poor. "We don't use bitcoin specifically for two reasons," Gates said Wednesday during a Reddit 'Ask Me Anything' session. "One is that the poor shouldn't have a currency whose value goes up and down a lot compared to their local currency. Second is that if a mistake is made in who you pay then you need to be able to reverse it so anonymity wouldn't work." Those are "valid criticisms," according to Wall Street Journal reporter Paul Vigna, but should not detract from bitcoin's huge potential to fundamentally change the world of finance. Bitcoin is "one of the most powerful innovations in finance in the past 500 years," Vigna and co-author Michael Casey argue in their new book: The Age of Cryptocurrency. (Coincidentaily, the authors did their own Redditt AMA today which can be found here.) In the accompanying video, Vigna compares bitcoin to the "horseless carriage" in the late 19th century. "This thing was just invented," he says of the digital currency. "We are just figuring out what can be done with this.  They are just starting to build it." Indeed, bitcoin has come a long way since its launch in late 2008: More than 82,000 merchants currently accept bitcoin, including Microsoft, and global usage of the currency averaged $50 million a day in 2014, The WSJ reports. Coinbase, the first U.S.-based bitcoin exchange, just launched this month after receiving $75 million in backing from investors including the NYSE and Spain's Banco Bilbao. And the Winkelvoss twins have committed to launch their own exchange, Gemini, which they claim will be 'the Nasdaq of Bitcoin'.  "What most excites these" -- and other investors like tech legends Marc Andreesen and Reid Hoffman -- "is bitcoin's promise as a platform whose future applications are almost unimaginably broad," Casey and Vigna write. "Already, hundreds of specialized apps are being built on top of the digital-currency blockchain software, which is seen in this context as a kind of base operating system." Bitcoin's benefits -- including transaction speed and anonymity -- and its potential to disrupt the current system where banks serve as financial intermediaries, aka middle men -- have been widely discussed and debated. But what about the price? Bitcoin fell over 60% vs. the dollar in 2014, which also saw the bankruptcy of one of its biggest exchanges, Mt. Gox. This year didn't start much better in terms of price; an early drop to start the year left bitcoin, at its recent nadir, more than 80% below its 2013 high. "The market is volatile because it is very thin and it is still being built," Vigna explains. "If [bitcoin] keeps growing, if it keeps building the price will smooth itself out. It will become a more stable currency as more people use it.  And you’ll see that [volatility] go away and then they will build the rest of the products around it. The biggest thing is these are very early days for this. This is a very, in my mind, it’s a very exciting technology." On that, at least, Vigna and Gates are in agreement.

  • 5 reasons the Fed WON'T hike rates in 2015

    Aaron Task at Yahoo Finance 8 days ago

    The Federal Reserve is "on track" to raise interest rates this year, The WSJ reported Tuesday. The story was co-written by Jon Hilsenrath, who's known to have deep sources at the Fed so it took on added heft. “I think it is important to get started and to start normalizing policy,” St. Louis Fed President James Bullard told The Wall Street Journal. “Even once we start to normalize, interest rates would be extraordinarily low.” While that's indisputable, investors would be wise take this story-- like any story -- with a grain of salt...and not just because Hilsenrath's track record of predicting Fed policy is far from flawless and forecasts of Fed tightening have proven premature every year since 2009. Here are five reasons why the Fed won't hike rates this year:

    Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

     

  • "Disaster scenario" comes into focus as stocks, commodities slump

    Aaron Task at Yahoo Finance 15 days ago

    Slumping commodity prices, a disappointing U.S. retail sales number and the World Bank's cut to its 2015 global growth forecast triggered a flight from "risk" assets Wednesday morning. In recent trading, the Dow was down nearly 1% while commodity prices hit a 12-year low as copper suffered its biggest drop in six years. On the flip side, U.S. Treasury yields fell to record levels and gold prices rose as traders searched for "safe havens." The 0.9% drop in December U.S. retail sales was particularly troubling in the context of the World Bank cutting its 2015 global growth forecast to 3% vs. 3.4% previously. The U.S. is shaping up to be the globe's main engine of growth as the year starts, which itself "does not make for a rosy outlook for the world," as the World Bank's chief economist told The WSJ. But the bullish case for the U.S. rests in large part on hopes 2015 will mark a rebound for U.S. consumer spending amid signs of an improving job market, albeit without much wage growth; Wednesday's retail sales figure challenges those assumptions. The 0.9% drop in overall U.S. retail sales was much worse than expected, but not shocking because falling gas prices were expected to hit the headline figure. But a 0.3% drop in retail sales excluding autos and gas was wildly off the consensus for a rise of 0.5%. "What was not expected was broad based weakness spread through nine of the thirteen major retail categories," writes Dan Greenhaus, chief strategist at BTIG. "Importantly, core retail sales – which matter for GDP estimates, declined by 0.4% whereas expectations were looking for an increase of 0.4%. Needless to say, that is a terrible miss." A Terrible Miss Again, combined with slumping commodity prices -- an indication of the global economy's weakness -- that 'terrible miss' makes it much more challenging to make a bullish case for stocks. "The change of direction here [in the global economy] is alarming when combined with the steady fall in commodity prices, deflation pretty much everywhere...combined with everybody has had it with central bank intervention," Henry Blodget tells me in the accompanying video. "There is no political will to do anything. If we are headed for trouble globally it's going to be tough to do anything."

  • ISIS attacks and Europe's "horrible" politics lead Ian Bremmer's 'top risks' for 2015

    Aaron Task at Yahoo Finance 16 days ago

    The Twitter and YouTube sites of U.S. Central Command (CENTCOM) were back online Tuesday after being temporarily shut down Monday following a hack by Islamic State (ISIS) sympathizers. CENTCOM called the hack a "case of cybervandalism" and claims no classified information was posted. A cyberattack on "commercial, non-Defense Department servers" looks fairly innocuous in the wake of multiple deadly attacks by ISIS in Paris last week. Unfortunately, Ian Bremmer, president of Eurasia Group, expects more attacks from radical Islam in Europe this year, particularly in France. "As much as we want to say 'four million people turned out [for the march], France is unified', France is a worryingly and deeply divided society," Bremmer says, describing France's Muslim population as "completely disenfranchised, living in slums [with] massive unemployment among young Muslims." On the other hand, 34% of French citizens support Marine Le Pen's anti-immigration Front National party and "they were not marching in the unity parade," Bremmer says, adding that over a dozen acts of violence against Muslims occurred in France in the two days after the attack on Charlie Hedbo last week. Similarly, anti-immigrant and anti-Muslim sentiment is on the rise in Germany, where at least 25,000 people in Dresden marched Monday in a parade organized by a group called the Patriotic Europeans Against the Islamization of the West. This matters for investors, Bremmer says, because "European politics" is Eurasia Group's top market risk for 2015. "It'd be one thing if the European economy was doing just fine and they had to deal with this," he explains in the accompanying video. "But the politics look horrible on every front and I think that's a great market risk," especially when combined with the ongoing weakness of the European economy and geopolitical tensions with Russia. As for ISIS, their ability to "actually become the 'Islamic State' is really limited," Bremmer says. "Institutionalizing yourself in a big way is a dangerous thing." ISIS is the world's wealthiest terrorist organization, according to Forbes, but Bremmer says "they're not going to govern well and don't have a big enough budget to pay for all their constituents." That's in part because ISIS has to use its funds defending its territory and now faces opposition from U.S. bombers, Kurdish peshmerga forces and an Iraqi Army that Bremmer says "can actually pick up some ground" thanks to support from the U.S. and other allies. "ISIS will weaken somewhat as a state but ISIS's capacity in terms of recruiting, brand building and in terms of attracting more people willing to engage in acts that will support militant Islam not only in the region but also in Europe" will grow in 2015, he warns.

  • Energy slump isn't the bulls' only problem: "Everyone is seeing the cloud vs. the silver lining"

    Aaron Task at Yahoo Finance 17 days ago

    Stocks fell Monday amid rising concern about falling earnings. The S&P 500 and Nasdaq were each down 0.5% in recent trading. Fourth-quarter earnings season kicks off Monday with Alcoa's release, followed by results later in the week from CSX, Intel, Schlumberger and financial giants such as JPMorgan, Citigroup, Goldman Sachs, Bank of America and Wells Fargo. S&P 500 earnings are expected to rise 1.1% for the fourth quarter, which would be the slowest pace since the third quarter of 2012, The WSJ reports, citing data from FactSet. Presuming the market is forward looking, sluggish fourth-quarter earnings were "priced into" during the market's mid-September to mid-October swoon. More troubling for the bulls, estimates for first-quarter profits have fallen 6.4 percentage points in the past three months, Bloomberg reports, the biggest drop since 2009. Excluding energy, where profits are expected to slump 19% in the fourth-quarter, S&P 500 earnings are expected to rise 3.6% in the fourth quarter. "This happened so suddenly, the crash in oil prices, revisions haven't really caught down to what stock prices have done and maybe what the reality is,"  Yahoo Finance senior columnist Michael Santoli says in the accompanying video. "I do think that's going to have an outsized impact here, and now we're talking about the ripple effects of oil." One of those 'ripple effects' is the decline in capital expenditures in the energy sector, which is by far the biggest contributor to U.S. capEx -- as much as 35% according to Deutsche Bank. A revival of capEx spending was one of the lynchpins of the bull case in late 2014 and heading into 2015. But this is not "just" about the energy sector; industrial companies are expected to cut capEx by 15% in 2015, the first drop since 2009, according to Bloomberg. Furthermore, the 3.6% earnings growth "ex-energy" forecast for the fourth quarter is well below the 5.2% average rate for the past eight quarters, The WSJ reports. As Santoli and I discuss in the accompanying video, financial services companies are being hurt by the flattening of the yield curve -- in addition to the decline in energy-related investment banking activity. "Financials have tremendous headwinds in terms of rates, that's not going to be a leadership group to say the least," he says. "Everyone is seeing the cloud vs. the silver lining right now." In addition, U.S. multinationals generally and the tech sector specifically are exposed to the strength in the dollar, which makes them less-competitive vs. international rivals. Take out energy, financials and technology, and that's nearly 45% of the S&P 500. Beyond healthcare (14.2%) and it seems like the whole bull market is hanging on the U.S. consumer. Consumer discretionary stocks (12.1%) have fared well, thanks in large part to falling oil and gas prices. But Friday's jobs report showed that wage growth remains elusive and so it's hard to imagine cash-strapped, debt-laden Americans going on a buying binge anytime soon.   The utility sector remains one bright spot for investors, with no reduction in first-quarter earnings estimates, according to Bloomberg. But utilities have just a 3.2% weighting in the S&P 500 and "I along with everybody else thinks it's way too much to be paying for utility stocks and REITs because they're just yield plays," Santoli says. Beyond earnings and earnings momentum, Santoli says the best thing U.S. large-cap stocks may have going for them is they look good "relative to everything else." But being the "one thing left standing" isn't necessarily a positive if the foundation on which stocks stand, i.e. earnings, starts to get shaky.

  • Remember 'Goldilocks'? Schwab's Sonders sees parallels to 1998, but for the good

    Aaron Task at Yahoo Finance 1 mth ago

    The overnight drama in Russia, against the backdrop of a steep drop in oil prices and unrest in emerging economies, has many traders concerned that history may be repeating itself: Back in 1997-98, what started as the "Asian Flu" morphed into a global credit crises in 1998 after Russia's debt default triggered the unraveling of Long Term Capital Management and a Fed-induced bailout of its Wall Street creditors. Arguably, the 1998 drama and the Fed's response created a "moral hazard" and set the stage for the credit bubble of the early 2000s. Undoubtedly, the 1998 turmoil rattled investor confidence as the Dow fell 20% from its peak in early May to its nadir in early September that year. (For a full account of the 1998 saga, read Roger Lowenstein's seminal account: When Genius Failed).

    Related: Oil & The Black Swan

  • China's "difficult, wrenching change" and Japan's post-election letdown

    Aaron Task at Yahoo Finance 1 mth ago

    Japan's stock market slumped 1.6% overnight Monday despite a rousing victory by Japanese Prime Minister Shinzo Abe's party in parliamentary elections. A reaction to Friday's rout in U.S. market was cited as the catalyst for the decline but the question begs: What would have happened if Abe's party had lost? Japan's Nikkei 225 has risen nearly 75%since Abe gained power in December 2012 (vs. a roughly 40% gain for the S&P 500) as he successfully pressured Japan's central bank to launch a series of aggressive policy actions, which have boosted asset prices and weakened the yen. Monday's election was widely viewed a referendum on Abe's economic policies and his party's victory means Abe doesn't have to stand for election again until 2018, which presumably means a continuation of so-called Abenomics. "For those who want the Japanese economy to reflate I think this is fundamentally good news," Cardiff Garcia of FT's Alphaville says of the election results. "There was really lower voter turnout...[but] at least it reinforces expectations of what [Abe's] going to do next year: Skip the next tax hike and really continue to put pressure on the central bank not to ease up" on its quantitative easing program. As to the market's reaction, "I stopped trying to make sense of the Japanese stock market a long time ago," Garcia quips, before considering the serious challenge Abe continues to face in reforming Japan's economy. "The 'third arrow' of Abenomics, structural reform, hasn't proceeded as quickly as the other two," he notes. "The Japanese can keep pushing on fiscal and monetary policy to generate demand and that's a good idea... but in the absence of structural reforms you're not going to get the long-term breakout growth that is Abe hoping for." In other news from major Asian economies, China's central bank is now forecasting the economy will grow 7.1% in 2015 vs. an expected 7.4% in 2014 and the official target of 7.5%. An economic slowdown is the "new normal" for China, according to Communist Party officials and judging by the market's fairly muted reaction to the news. The Shanghai Composite rose 0.5% Monday after dropping as much as 1.6% intraday. "The Chinese government has been telegraphing for a while this is going to be a difficult, wrenching change as they move away from an investment-led, export-driven model to one based more on consumption," Garcia notes. "They're trying to communicate that the average Chinese citizen is going to benefit from this." Chinese policymakers are trying to manage the socioeconomic fallout from this shift as much as the financial market reaction, Cardiff explains, pointing to the following commentary from GlobalSource Partnerson this "rebalancing" theme:

  • Energy prices collapse: The good, the bad and the ugly

    Aaron Task at Yahoo Finance 1 mth ago

    Oil prices tumbled again Monday, hitting their lowest levels since 2009, while average U.S. gasoline prices are now at the lowest levels in four years, according to the Lundberg survey. The steep fall in energy prices is either great or terrible news, depending on your perspective, i.e. whether you're a bull or a bear. If you're a bull, the positive implications of falling oil prices are obvious: More money in consumers' pockets and relief for troubled global economies, most notably in Europe and Japan. The effect of falling oil prices is "unambiguously positive,” European Central Bank president Mario Draghi declared last week. Similarly, officials at the IMF and Federal Reserve are also "betting plummeting oil prices will lead to an overall boost in the global economy by delivering a windfall to consumers and manufacturers," The WSJ reports. Along with overall economic improvements -- Friday's jobs report was the best since January 2012 -- the steep decline in gasoline prices is a big reason why retail stocks such as Target, Costco and Starbucks have risen so sharply in recent months. On the flip side, energy shares have taken a shellacking and companies like Continental Resources and ConocoPhillips have already announced plans to cut back on capital expenditures in 2015. On Monday, BP announced it will accelerate previously planned job cuts citing the decline in crude prices; the company employs about 20,000 people in America, mostly in Texas. As much as $100 billion in related capital spending is at risk due to falling oil prices, according to The FT. If drilling activity stops (or even just slows) that will come at a cost to the thousands of Americans working in the energy sector, where average pay is 23% higher than the average private sector job, according to BTIG. In addition, less drilling will hurt all the non-energy businesses that have benefited from the fracking revolution. Overall, fracking adds $300 billion to $400 billion annually to U.S. economic activity, according to the Manhattan Institute. The decline in economic activity from less domestic drilling will almost certainly be offset by the boost U.S. consumers will get as a result of falling energy prices. Assuming Brent crude averages $80 per barrel (it's currently at $67.30) the average American household would save $600 annually, according to estimates from Citibank. However, the downside of geopolitical risk could very easily and quickly offset the benefits the global economy will enjoy from lower oil prices, as I wrote last week. In addition, the speed and depths of oil's decline could be harbinger of an "accident" in the financial markets, even a so-called Black Swan event. "While I’m certain over the long run the lower price is a net benefit to the world, the staggering speed with which it has fallen is destroying debt and equity values throughout the energy sector," writes Belpointe chief strategist David Nelson. "My crystal ball isn’t any clearer than yours but if there’s a Black Swan lurking you’ll probably spot it floating near some oil rig." While oil prices and related stocks get most of the attention, Nelson notes energy accounts for about 16% of the high yield bond market and that banks have lent $465 billion to oil and gas companies in 2014, according to Thomson Reuters LPC; that's up 29% from the previous record set in 2007.   2007 was, of course, followed by the financial crisis of 2008. I'm always wary of allusions to 2008 because it hopefully was a "once-in-a-lifetime"-type event that nobody sane wants to revisit. But "historically, sharp drops in oil prices tend to be associated with recessions as energy demand collapses," The WSJ notes in the story cited above. And somewhat alarmingly, the same WSJ story quotes Guy Caruso, a former head of the U.S. Energy Information Administration, who declares "this time is different,"  which are, of course, the four most dangerous words on Wall Street.

  • Jobs report was strong but "we've got to do better": Brusuelas

    Aaron Task at Yahoo Finance 1 mth ago

    There was a lot to cheer about in Friday's jobs report:

    Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

  • Jim Grant is (still) bullish on Russia, gold and private equity

    Aaron Task at Yahoo Finance 1 mth ago

    Jim Grant is best know for his view on interest rates and monetary policy but in recent years he's made some public calls on stocks as well, including a bullish bet on Russian energy giant Gazprom last May at the Ira Sohn conference in NYC.

    Gazprom shares have tumbled since then and Grant concedes the steep fall in energy prices, Russia's currency crises and geopolitics "have all conspired to make this the single worst call in spring 2014."

    Still, the newsletter writer and author is still bullish on Gazprom and other Russian stocks like Lukoil and Sberbank.

    "My point of view on all these Russian stocks is the world hates them, they're the cheapest things in the world and everyone expects them to get worse," he says. "If something goes right these are explosive stocks to the upside it seems to me. It's the intersection of value and contrary opinion [and] to me it's irresistible."

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