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Goldman Pins Odds of Tapering To Begin In November at 70%

It’s Official: Tapering To Begin In November, End In July

It’s official: Goldman – the bank that effectively runs the New York Fed – is now…

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This article was originally published by Zero Hedge

It's Official: Tapering To Begin In November, End In July

It's official: Goldman - the bank that effectively runs the New York Fed - is now virtually convinced (70% odds as this moment vs 45% previously) that not only is tapering a done deal, but that we know when it is coming.

As the bank's chief economist Jan Hatzius writes following Friday's Wall Street Journal article authored by official Fed mouthpiece Nick Timiraos and which cites Federal Reserve officials preparing for a “November reduction,” Goldman is increasing its subjective odds of a November taper announcement:

We now see 70% odds of a November announcement (vs. 45% previously) and 10% odds of a December announcement (vs. 35% previously); we continue to see a 20% chance that growth risks related to the Delta variant delay the tapering announcement into 2022.

Furthermore, contrary to expectations that the Fed may bring forward an official announcement to September, the article notes that a September taper announcement is “unlikely.” The article also referenced “plans taking shape” that involve a taper that could end in mid-2022. Accordingly, Goldman now expects that a $15bn monthly pace of tapering that concludes next July is the most likely alternative to the bank's standing forecast of a $15bn per meeting pace that concludes next September, or visually:

From Goldman's late Friday note:

  1. Earlier today, the Wall Street Journal published an article titled “Fed Officials Prepare for November Reduction in Bond Buying.” The article went on to state that officials “will seek to forge agreement” on November as the beginning of “scaling back” accommodation, and it subsequently cited several public remarks about tapering from Chairman Powell and other members of the leadership. Reflecting this, we are increasing our subjective odds of a November taper announcement. We now see 70% odds of a November announcement (vs. 45% previously) and 10% odds of a December announcement (vs. 35% previously); we continue to see a 20% chance that growth risks related to the Delta variant delay the tapering announcement into 2022. The article also confirmed that a September taper announcement is “unlikely.”
  2. The article also referenced “plans taking shape” that involve a tapering pace that would conclude “by the middle of next year,” and it suggested one possible path involving a $15bn monthly pace of reduction—as compared to our standing forecast of $15bn per meeting ($10bn UST/ $5bn MBS). Coupled with public endorsements of a similar or “fast” taper timeline from FOMC members Bostic, Rosengren, Mester, Kaplan, Harker, George, Waller, and Bullard, we believe a $15bn monthly pace of tapering that concludes next July is the most likely alternative to our standing forecast. We view this as a close call, and the article notes that “officials still have to iron out the exact pace.”

Just two things to add here: with the Fed now set to taper in November and then shrink the balance sheet by $15BN per month, and it really has no choice with hyperinflation now taking hold in some sectors of the economy, it will have to make sure that covid delta, mu or whatever is not a factor in the immediate vicinity of the decision. Which means that in the coming month expect a dramatic reduction in the overblown media frenzy over the delta variant, lockdowns and so on, as continued covid panic will only lead to questions why the Fed is tapering at a time when the pandemic is still raging. Of course, that doesn't mean that we won't have a new resurgence in the future, which brings us to the second point namely that...

As Bank of America so impolitely put it back in June, everyone knows that the Fed will stop tapering as soon the S&P drops 10%. The only question is how long after the Fed tapering begins will the market tumble and force the Fed to reverse and/or start buying single stocks and ETFs.

Tyler Durden Sat, 09/11/2021 - 11:59

Economics

Top Shipper Warns Commodity Freight Rates About “To Go Parabolic”

Top Shipper Warns Commodity Freight Rates About "To Go Parabolic"

Similar to container rates, dry bulk shipping rates are poised to move…

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Top Shipper Warns Commodity Freight Rates About "To Go Parabolic"

Similar to container rates, dry bulk shipping rates are poised to move higher on limited vessel capacity and robust demand, according to Genco Shipping President and CEO John Wobensmith, who spoke with Bloomberg

"I think rates can go higher from here," Wobensmith said. "You do get to a point, and you've seen this in containers, where you hit a certain utilization rate, and you start to go parabolic on rates. I think we're getting close to that period."

He said, "fundamentally, you've got demand outstripping supply growth," adding that freight agreements are above $20,000 for 1Q, a level not seen seasonally in a decade. 

More than 5 billion tons of commodities, such as coal, steel, and grain, are shipped worldwide in bulk carriers in a given year. A move higher in the Baltic Dry Index (BDI) indicates increasing commodity demand on top shipping lanes. 

Lending credit to Wobensmith's argument is BDI on a seasonal basis that shows demand is currently outpacing vessel supply and pressuring rates higher. 

He doesn't expect bulk carrier rates to experience a significant reversal until early next year as demand troughs seasonally. "You need very little demand growth to just continue to build off what we've seen this year," he said. "It's more about higher highs and higher lows than anything else."

China's credit impulse needs to turn higher for the commodity boom and bulk carrier rates to stay elevated. 

Besides China, passage of a US infrastructure bill could be the fiscal injection that could also spark higher commodity prices, thus continue driving bulk carrier rates higher. 

All of this is feeding into inflation that the Federal Reserve convinces everyone it's only "transitory." 

 

 

Tyler Durden Thu, 09/16/2021 - 16:50
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Economics

Ethereum 2.0 Has What It Takes to Knock Bitcoin off Its Perch

Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized…

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Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized application network, with more use cases than other digital assets.

Source: shutterstock

As it moves to a proof-of-stake model, the network’s capacity will increase substantially and significantly reduce its energy requirements. Therefore, ETH-USD represents the cream of the crop as far as crypto investing is concerned.

The ETH token has shot up more than 380% in value since the beginning of the year. At the same time, industry stalwart Bitcoin (CCC:BTC-USD) is only up about 60% in the same period.

The Ethereum platform is undergoing major changes to increase its scalability, transaction throughput and efficiency while reducing its gas fees. The platform has already shown significantly more real-world utility than its peers, and future upgrades will create more divergence between them.

The London and Shanghai Hard Fork

The whole crypto sector has been buzzing since the release of Ethereum’s London hard fork. This is a major step towards Ethereum 2.0 and introduced some critical changes to the network.

Most notably, it updated the fee structure to an algorithmically determined model. It involves a base fee, which is usually 25% to 75% transaction value, and a priority fee that incentivizes miners to put a particular user’s transaction first.

In contrast to the first-price auction model the platform ran on previously, the new model was said to significantly boost efficiency. However, the base fee is burned after each transaction is complete, making ETH a deflationary asset. The currency’s supply is likely to reduce overtime, pushing its price higher.

The Shanghai hard fork is the next and perhaps final upgrade that will wrap up the Ethereum 2.0 update. It will go live anytime between the end of this year and early to mid-2022. The update is likely to merge Ethereum’s mainnet and Beacon Chain to implement proof-of-stake protocol.

Ethereum Has an Abundance of Use Cases

Bitcoin, the undisputed leader in the crypto space, is more of a safe haven asset for investors against fiat currencies. However, Ethereum is an ecosystem that is powering the digital economy.

Aside from the typical staking involved with most cryptos, it is the foundation for decentralized finance (DeFi) protocols. These are based on smart contracts, which execute when a predetermined criterion is met. Crypto investors have at least 7.7 million ETH tokens in DeFi protocols at this time.

Moreover, Ethereum is a dominant force in the nonfungible tokens, or NFT, space. NFTs are unique tokens that can represent avatars, art, music and other related items.

The NFT market has been booming this year, and Ethereum has been powering those transactions. Virtually every NFT exchange uses ETH to conduct these transactions on their respective platforms.

Ethereum is also a base layer for stable coins such as Tether (CCC:USDT-USD), pegged to the US dollar. More than 50% of transactions in Tether are based on Ethereum.

2.0 Can Help Ethereum Outpace Bitcoin

Ethereum has been on quite a roll in the past year. Since the pandemic began, major institutional investors have loaded up on the crypto, which propelled its price up more than 2,700% since January 2020.

With Ethereum 2.0 around the corner, its value is expected to rise even further. The platform will become more robust than ever before, offering even more utility for its user base. Hence, ETH-USD is perhaps the hottest crypto to invest in these days.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. 

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Economics

It May Take Time for General Electric to Surge Again

General Electric (NYSE:GE) stock is up about 90% in the past year, but it has been treading water around a split-adjusted $100 per share since the spring….

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General Electric (NYSE:GE) stock is up about 90% in the past year, but it has been treading water around a split-adjusted $100 per share since the spring. After fully pricing in expected earnings growth in 2022, investors have been hesitant to bid up the industrial giant’s shares much higher.

Source: Sundry Photography / Shutterstock.com

Last month, I said investors should wait for lower prices before buying due to the risk of earnings falling short of expectations. But after giving the situation another look, two other catalysts could help prevent GE stock from falling below $100 per share.

The first is GE’s pending sale of its aircraft leasing unit, a move that could help unlock shareholder value. Second, a possible ramp-up in spending by the federal government could give GE stock an indirect boost as well.

Now, don’t take this to mean I think shares will pop in the coming months. Instead, it’s a situation where strengths and weaknesses cancel each other out. There’s enough to keep GE stock steady around $100 to $105 per share. Just not enough to send it higher in the near term.

GE Stock Already Trades on Next Year’s Results

The key issue with General Electric today is that upcoming earnings growth is already accounted for in its valuation. The consensus estimate projects the company will generate around $4.33 per share in earnings in 2022.

At today’s prices, that gives GE stock a forward price-to-earnings (P/E) ratio of around 24.5. That’s in line with the valuation of a similar name, Honeywell (NASDAQ:HON), which trades at 23.9 forward earnings. But other diversified industrial companies trade at even lower valuations, such as 3M (NYSE:MMM), which has a forward P/E ratio of 16.9.

It goes without saying that General Electric needs its earnings to meet or beat these estimates. If the company disappoints, GE stock could take a big hit.

In the past, I have questioned whether General Electric’s earnings will come in above $4 per share next year, mostly due to the risk of inflationary pressures. Inflation that ends up being more than just “transitory” could affect performance across all its business units.

A repeat of last year’s Covid-19 lockdowns, due to the Delta variant, is a big risk as well. This would be a major setback for the recovery of the company’s flagship aviation unit.

That said, there are a few positives to counter these negatives. They may not be enough to send shares higher soon, but they could help prevent GE stock from falling below $100 per share.

Plenty in Play to Keep GE Stock Steady

As I mentioned above, there are two positive catalysts on the horizon for General Electric.

The first catalyst is the pending sale of its aircraft leasing unit. As Barron’s reported on Aug. 27, Barclays analyst Julian Mitchell sees this as something that could result in “valuation upside.”  According to Mitchell, once GE sells this unit, investors may be more willing to value the company at a higher multiple in line with its peers in the aviation, healthcare and renewable energy sectors.

Admittedly, it’s questionable whether this happens. Given Wall Street’s preference for pure plays, a diversified company like General Electric will likely have a hard time getting to a price on par with its sum-of-the-parts valuation.

Fortunately, the second catalyst seems more likely to play out.

As fellow InvestorPlace contributor Larry Ramer wrote on Sept. 3, both the infrastructure bill and the proposed federal budget could provide an indirect boost to GE’s power and renewable energy segments. Additionally, the desire of the Biden administration and Congressional Democrats to expand government healthcare spending may benefit the company’s healthcare unit.

Strength in these areas could counter any further headwinds with the company’s aviation unit. This, in turn, may ensure that General Electric’s turnaround carries on, its earnings soar above $4 per share next year, and the company’s current valuation stays intact.

The Bottom Line on GE Stock

Despite my prior pessimism, there may be enough in play to ensure GE stock stays at its current price levels. But with regards to its next move higher, that may take time.

Shares are fully priced based on 2022 projections. Earnings will need to come in at or above the high end of analyst estimates, currently at $4.88 a share, in order for the stock to see another immediate boost.

In the long run, GE stock could continue to rise. But in the short term, expect shares to hold steady at or around today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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