Will this Beach Stay in the Eurozone?

Will This Beach Stay in the Eurozone

Will This Beach Stay in the Eurozone

How to trade the most recent Greek financial crisis

The country with some of the greatest beaches and islands, combined with history galore, is again front and centre in the collective dialogue about the euro and the continent’s political union. With talk of war reparations, a right-left (you read it right) government in power and unsustainable debt going around, there is probably too much emotion and noise for some traders to decide how to take advantage of the situation.

In order to untangle this we need to start with a bit of historical background (thankfully not back to the ancient Greeks). First off – why does Greece want compensation from Germany for the WWII occupation, and why does it want it now?

The short answer is populism that plays to the tune of confrontation with Germany. The collective psyche in the country remembers the suffering inflicted over 70 years ago (between 250-300,000 dead from killings and famine in the four short years of occupation). But is this a reasonable request, in the context of a unified Europe, more so with a collective agreement signed and paid for in 1960. Markets don’t seem to be giving too much thought to this one.

The second historical reference is more of a period – the one leading to and overlapping with the accession of Greece in the EU. Many still question the wisdom of that decision and claim that the country was never ready for the monetary union in the first place. For them, this is the root of all the current woes and the inherent weaker position that the country finds itself in, compared to the stronger economies using the euro.

Structurally the Greek economy can be classified as one in stagnation over the last several decades. Occasional growth spurts, mainly due to the stable and growing tourism industry, have been overshadowed by an overall decline in labour participation and a crucial lack of innovation and reforms.

What needs reforming here? By many accounts the pension and social security systems are overextended and not only provide unreasonably high sums (including a 13th and 14th pension ), but they also demotivate workers still in their active years. In a country which until recently had a growing population, but at the same time an aging one, this is definitely a problem, despite the money that comes back from large communities of emigrants in the U.S., U.K., Australia and South Africa. Tax-evasion and corruption are also fundamental problems that need to be addressed by whoever is in power.

Greek revenue vs expenditure
Greek revenue vs expenditure

Opponents that claim Greece was given a bad deal with their EU membership, entrance in the eurozone and subsequent bailouts from the so-called Troika, claim that this was all by design. This is the line that the new government in Greece and its prime minister Alexis Tsipras are following – they want their debt shaved (or cut in half) as it was unsustainable in the first place. They demand a new agreement that postpones payments and changes their structure. But it’s just kicking the can down the road for the likes of the EU, ECB and IMF.

How to trade all of this. First thing’s first – don’t forget the current context. Greece is not the biggest problem of the EU. The EU is still its own biggest problem. Although the country has an issue with not having enough money to pay state workers, hospitals and for other vital public services, the focus of markets is on the longer term.

The approaches to the trade begin with splitting it into two timeframes – short and long term. The short term is for the the coming weeks and possibly months and it will see some days where the EUR/USD and possibly all other heavily traded euro crosses react to news and statements from the two sides. These will most likely be in both directions provoked by uncertainty and fear on the one hand and reassurance and calls for calm on the other. This will give more room for shorter trades lasting between minutes and hours, but will not provide a trend. There will be many false dawns before a certain agreement is reached.

But a trend will emerge, either further south from what is already a multi-year low in the EUR/USD, or upwards. For long-term traders this is the time for making a prediction on fundamental reasoning. They choose between three options.

The first one is that Greece leaves the eurozone, returns to the drachma and probably receives assistance from Russia or China, decoupling it to some extent from the European economy. Fears are that this might have a domino effect and more countries will leave the pact and probably the EU (although Italy, which has a far greater debt than Greece, say their debt is sustainable). Euro crumbles and is possibly abandoned.

Second option – Greece stays in the EU, this crisis is resolved “peacefully” with more money thrown at it and with limited reform – both in the country and in the union. This is the continuation of the status quo and if the last months are any indication – more euro weakness.

Door number three – Greece stays in the EU and they both reform. Structural reforms ensue in the land of Aristotle and Alexander the Great, the EU decentralises and finds its competitive edge again. The euro climbs and maybe even Great Britain sees something good about the whole “we’re one continent” thing.

Options two and three will of course be influenced by larger issues, but Greece will remain a part of them. Choose wisely because in the end markets don’t care who is right or wrong, they don’t have a moral compass. Where they go is determined by where they see efficiency and inefficiency, as well as indications of what comes next.

The Internet of Things – Which Companies are at the Forefront?

The Internet of Things - Which Companies are at the Forefront

The Internet of Things - Which Companies are at the Forefront

 

Taking a look at trading opportunities based on a future billion dollar industry

Looking for the next big thing that will change the world? Autonomous cars? 3D printing of everything? The Internet of Things (IoT)?

All of these will soon change our world, if they haven’t already. But while cars that will be driven by software are being spearheaded by several companies, Google chief among them, the implications of 3D printing and IoT will have the largest effect on industries and businesses.

While 3D printing will definitely have a massive impact, changing who and how they produce components, whole structures or art, it’s cost will make it a mass phenomenon, something that a large number of individuals and businesses will have access to.

This is why IoT stands out as the potentially largest game changer for how we live and it will most likely come from the companies that are spearheading the development of the technology and business structure behind it. Experts have already called it a productivity movement that will drive the entire economy.

Estimates of how much it will be worth vary widely, which is quite normal given all the unknowns surrounding something completely new.

Let’s just throw in a clear definition of IoT, as there are many ways to describe it – it is the way machine-generated information is collected and analysed to improve a machine’s performance, and consequently our lives and work.

Some of the largest companies have started developing different niches of IoT. Apple has begun selling their HomeKit platform for a fully connected home. Google acquired Nest, a company making connected thermostats and smoke detectors for $3.2 billion last year. Samsung has vowed that all their devices will be connected by 2020. We personally look forward to the array of possibilities number 7 on this list will offer.

But these are only the tip of the iceberg. Global players like General Electric (GE), Cisco and IBM have had IoT or equivalent divisions and product lines for the last several years (GE have more than 800 “connected” devices for industrial and individual use and Cisco are not far behind).

And who forms the largest part of the iceberg? The chipmakers who actually produce the processors, radio chips and memory chips. They are the ones building the market itself and preparing to gobble up anyone who dares to challenge their supremacy. Intel and Qualcomm are shaping up to be the front runners here. At the moment their revenue from IoT is somewhere between 5% and 10% of their overall revenue, but with projections of a 13% average growth for the industry, these proportions might change quickly. Estimates for the value of the industry vary between $1.9 trillion to $19 trillion by 2030, not only because the demand for many of the current consumer products hasn’t been proven before a wide audience, but because the overall effect and influence of IoT can’t be defined precisely (hence the wide estimates).

This is because its possibilities range far from the individual and cross over into business. Almost all industries have hardware that is currently non-smart – unconnected, working by itself, breaking by itself and staying that way until a whole system shuts down. Imagine pipes being able to alert when there is a leakage, tyres that provide information about the road or connected oil rigs and factory lines that can anticipate problems.

There will probably be many winners in this “things race”, but if you spot one who manages to bind the technologies of construction, performance, communications and security then you’ll have a champion. It’s a long-term trade. But the future can come around really fast.

Cisco, Google, Intel,, Qualcomm and GE, as well as other companies in the IoT area like Bosch, IBM, Microsoft and SAP, are all available for trading in the Trading 212 PRO platform.

Our next article will be online tomorrow at 4:00pm – “Book of the Month – “The Big Short: Inside the Doomsday Machine” by Michael Lewis”.

Does the “Santa Claus rally” really exist for stock markets?

Does the Santa Claus rally really exist for stock markets

Does the Santa Claus rally really exist for stock markets

History suggests it’s real, most of the time

There are several things that inevitably find their way in stock market news come December. Annual performance, outperformers, stand-out companies are all mentioned and repeated ad nauseum. But one of the more curious ones is the so-called Santa Claus rally (it comes from the U.S. so no Father Christmas).

This curious description is used to describe the frequent rise in indexes and stocks, that comes at the end of the month, between Christmas and New Year. It’s one of the peculiarities of the market, as over longer periods of time many trends based solely on psychology and trader sentiment tend to even out. But statistics do show that it’s quite frequent (stats are for the U.S. index S&P, from 1930 to 2010, broken down per month and per week for December. You can easily fill them out to 2014 in the Trading 212 PRO platform).

Explanations for why this happens can be quite different. The most well-documented one is the anticipation of the January effect (we’ll get into more detail about it next week) – the practice of offloading stocks at the end of the year, so that no taxes are paid.. and then buying again into the market at the start of January.

Other reasons that fuel the rally are related to the traders and brokers that perform the trading itself. Bonuses on Wall Street are received before Christmas and are usually invested right away. Add that to the propping up of investment portfolios by fund managers, so that they look good at year end, and you have a strong foundation for an upturn.

Does the Santa Claus rally really exist for stock markets

The more unmeasurable explanation is that of increased optimism among traders. In a time for spending more time with family in sharing and giving (we know it doesn’t always happen like that, but let’s go along with it), some argue that it rubs off on market participants. This translates into a more bullish sentiment and actual stockholders prefer to keep it that way.

The phenomenon has also been observed in international stock markets, regardless of the popular religion of the country, or if they even have holidays at the end of December. Most analysts accept that U.S. indexes are the pacesetters most of the time and this pulls other countries upward.

There are still several things to remember about the rally:

  • It doesn’t happen every year and it can be quite small sometimes.

  • Some specific stocks can register serious losses while the wider markets are in the rally.

  • Indexes in different countries can perform differently due to economic and global events, and the last week of December isn’t devoid of geopolitical news and developments.

Still, the lone fact that this notion exists can be seen as an indicator of what market participants are expecting. Circumstances such as these can fuel a self-fulfilling prophecy, overriding fundamentals, news and technical indicators. In this case the power of the sentiment outweighs that of the usual predictors. It’s just like guessing what your Christmas stockings hold by weighing what’s inside.

Why Stocks Still Go Down After Positive News and Earnings

Why Stocks Still Go Down After Positive News and Earnings

Why Stocks Still Go Down After Positive News and Earnings

Facebook and Twitter had good quarters, but their stocks lost around 10%

Two days ago Facebook reported quarterly results that managed to beat the expectations of analysts and investors, but their stock actually lost quite a large percentage after that. It was similar for Twitter. Shouldn’t they be gaining after good results?

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