Why does T go down when the dollar goes up ? And why does it go up when the dollar goes down ?
I suppose that it is trading like a bond and going down on the threat of higher interest rates.
Oh, if book value and earnings are two separate situations then the company can appear to be profitable when it has really fallen behind.
If book value gain/loss is combined with earnings then the business becomes more difficult.
Forgot to mention the part about less leverage available with rising interest rates and because of the increased expense of the leverage.
The funny thing is the matter-of-fact profitable business based on investing in securities. The size of the business can drop drastically but it's still profitable. Of course that depends on a liquid market. If a company got margin calls (beyond its cash) but was unable to sell the securities then that would bankruptcy.
On second thought, an open-end mutual fund like TLT and a closed-end mutual fund like ACG are not valued at book value. They can have values greater or less than net-asset-value.
To be valued at book value would require a portfolio of bonds but then who is going to leverage those bonds for you ? IB is the only place I know for leverage greater than standard leverage.
How about a mReit that is valued according to the current mortgage rate and nothing else ? Well, take into account the actual mortgage bond values, interest expenses, and the value of hedges and that is being valued at book value.
Well, that's what TLT does except TLT is not leveraged or hedged.
And so take a look at ACG and that is leveraged and hedged. But the interest rate is about half what NLY pays and actually less than half.
Another idea is that AGNC went to a monthly dividend.
Or CMO is floating rate mortgages that should rise with interest rate increases but no sign yet of rising.
There are floating rate loans like BKLN but the interest rate is only about 4%. However, floating rate senior loans in closed-end-funds are often leveraged and pay up to about 7%. Then the idea here is that the floating rate loans will increase in value as interest rates go up. The problem is credit quality which is mostly BB to B and so the value of the loans is unpredictable but mostly good if stock earnings are good.
In general, another thing to know is that interest rate increases for the purpose of reducing inflation sometimes support the values of long term bonds while reducing the value of short term bonds. However, we are hearing about interest rate increases in response to good job numbers with no inflation actually in sight. Well, doesn't matter, if the Fed increases interest rates then they must be giving up on an inflation target.
Run to the stock market ? Well, watch real carefully to see if U.S. multi-national companies are hurt by the strong dollar. Of course there are companies with mostly domestic business like telecommunications companies. International stocks ? Well, Germany, South Korea, and Taiwan stock investments gets exporters and exporters benefit from a strong dollar
Tesla is built from the ground up. They have their own manufacturing plant. There is a little problem with their car in that it is built using traditional construction methods and doesn't reduce weight enough.
Apple is said to have a car built for it by a contract manufacturer. This is going nowhere. They might brand a BYD Chinese car or something like that but their technology will be so far behind the BMW i3 that who would want to call it an Apple-technology ?
The best thing that they could do is a marketing agreement with BMW concerning the i3 and i8. The BMW i3 is the first mass-produced carbon fiber car. It's a lightweight chassis that makes the electric vehicle possible. Everything else will fall on its face
And Apple because they are a software company is going to be a great car company ?
It's Bosch that created the electronic car. And they've been doing it since about 1960.
It is actually Tesla that highly developed a redundant electric vehicle battery pack.
Fuel Cell cars are on the way. They weigh less than electric vehicles, they have more range than electric vehicles, and they re-fuel faster than electric vehicles. Hydrogen goes in a fuel tank at 5000 psi and that runs an electric motor. There's no heavy batteries.
Lotus and Corvette were lightweight cars before the arrival of carbon fiber tubs. (The Tesla Roadster is Lotus chassis technology while the Tesla Sedan is not.)
The first mass-market carbon fiber car ? I would say that it's the BMW i3. Other carbon fiber cars have been low production supercars.
Now where is Apple ?
Well, the software-defined car has already begun having problems.
One example, traction control systems prevent wheelspin and allow powerful cars with normal size tires. However, preventing wheelspin is not getting the power down and if the power can't be put down then what is it for ? The traction control system has just allowed the marketing of more powerful cars rather than a usefulness of powerful cars.
Otherwise, a powerful car with a four-wheel-drive system can put the power down.
Another example, electronic stability control can straighten up a slide but if a slide at mid-curve is immediately straightened up that results in a spin-out. A slide at mid-curve must be carried all the way to the end of the curve.
Electronic control of fuel injection and ignition has worked very well. Electronic brake force distribution has worked well.
And enormous advancement in cars is happening with the chassis. And it's the very strong and very lightweight carbon fiber tub. The so-called tub is the mid-section of the chassis that holds metal structures that reach to the front and rear suspensions.
BMW already built the Apple cars, the i3 and the i8. These cars have the mid chassis section made out of carbon fiber and they are way ahead of anything else.
The retail Forex customers of FXCM are guaranteed that their accounts will not go negative. So they don't owe the negative swing. (Gosh, are they guaranteed against the original margin deposit going negative or are they guaranteed against an overall negative account balance ?)
The 2014 earnings of FXCM are about $16 million. Out of that they have to pay $300 million in principal plus interest and fees and that in two years time.
The question is, is the loan-maker the new owner or can the loan be reasonably paid-off by a buyer ? What was accomplished is that the forex broker continued operations.
The BG bond manager says there's an interest rate increase possible in late 2015.
But that's not deflation. A down year is expected but not deflation
If this is deflation, then the historic economic crisis of subprime mortgages and bank reserves that began in 2008 is likely to continue. In fact, suppose the desperate attempt to fuel with the economy with subprime mortgages was itself a response to impending long term recession and deflation (and due to age demographics). In that case, it does just come back around.
Now just assume that this is not deflation but then the U.S. stock market still has a down year in 2015. Why ? Well, because of the pull-back in fracking activity
See, QE ended, the dollar went up, and commodity prices dropped.
But we don't know if this is deflation or not. We don't know if the lower commodity prices are going to increase demand or if the lower commodity prices are reflecting lack of demand.
Now BG, manager of bond funds, is looking like the only one who knew for sure what was fundamentally going on. In other words and with the end of QE, bonds didn't sell off but went up and apparently in reaction to fundamental deflation. Meanwhile, the BG co-manager begins to look like a silly boy scout that just runs with the crowd and did jump ship.
But what is the true fundamental ? In other words there is always someone whose theory happened to coincide with results or whose theory appears to coincide with results. Well, the answer is at the end of year and more time is needed to understand the fundamental economy.
Buy oil companies at lows and for dividends of 4% to 5% ? Well, the dividends could be reduced and oil companies could have credit ratings reduced because they have bond payments to make from lower revenue. But this brings up another point. OPEC increased oil supply as a means of competing with fracking. (Fracking is so horrible that we should probably thank them for this but fracking did become a significant portion of the U.S. economy.) And so are current commodity prices due to fundamental deflation or are they due to OPEC oil supply ? Are commodity producers in general going to maintain profit margins because of cheaper oil or are the lower commodity prices over-riding ?
Well, is this deflation or not ?