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In His Last Comment As Fed Vice Chair, Clarida Echoes Brainard, Says Rate Hikes Coming

In His Last Comment As Fed Vice Chair, Clarida Echoes Brainard, Says Rate Hikes Coming

In his last speech as Fed Vice Chairman Richard Clarida,…

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This article was originally published by Zero Hedge

In His Last Comment As Fed Vice Chair, Clarida Echoes Brainard, Says Rate Hikes Coming

In his last speech as Fed Vice Chairman Richard Clarida, who departs the Fed on Friday, two weeks before his term was scheduled to end after revelations of controversial personal trading activity, wrote that the central bank’s plans to raise interest rates in 2022 is justified within its new policy framework.

In the paper released by the Fed, Clarida wrote that a measure of inflation that smooths out base effects from a sharp decline then rise in prices during the pandemic is running at 3% in the months from February 2020 through October 2021 — a level “well above what I would consider to be a moderate overshoot of our 2% longer-run goal for inflation.”

He also said he thinks the economy will achieve full employment if the jobless rate, currently 3.9%, drops to 3.5 percent by the end of 2022.

“Commencing policy normalization in 2022 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework” he wrote adding that he continues to believe the underlying rate of inflation was hovering close to 2%, and that once price adjustments related to demand shifts and supply bottlenecks ease, the current inflation bout will prove “largely transitory under appropriate monetary policy.” Right.

Unfortunately, Clarida failed to disclose which stocks he is short to celebrate the coming rate shock, or whether he is simply buying puts.

But one thing that is clear is that today’s hawkish parade by Fed speakers has once again spooked stocks, which hit session lows following not just the paper by Clarida but also hawkish speeches by such prominent former doves as Lael Brainard and Charles Evans.

During her confirmation hearing, Fed Governor Lael Brainard said the U.S. central bank could raise interest rates as early as March to ensure that generation-high price pressures are brought under control.

“The committee has projected several hikes over the course of the year,” Brainard said Thursday in response to a question during her confirmation hearing before the Senate Banking Committee. “We will be in a position to do that, I think, as soon as asset purchases are terminated. And we will simply have to see what the data requires over the course of the year,” she added. The Fed is set to conclude its bond-buying campaign in mid-March.

As Bloomberg notes, Brainard’s intent to fight higher prices marks an important shift by one of the central bank’s influential doves, who in July argued that the risk from inflation was that it would revert to its years-long pattern. Of course, as we noted earlier, the risk – no, reality – now is that the Fed is hiking into a slowdown if not recession, and we expect this too will become obvious only in retrospect about a year from today.

Rounding out today’s hawkish procession was Chicago Fed’s (former dove) Charles Evans who said three hikes is a good opening bid for 2022, but it could be four if inflation does not improve quickly enough. And while he is reluctant to declare maximum employment, but inflation is too high.

He also said that the balance sheet is very large, fed will likely start shrinking it sooner rather than later following rate hikes; he also echoed Brainard and said that officials likely to think seriously about a March hike.

And speaking of the Fed’s shrinking balance sheet, at 3pm ET, the Fed disclosed its latest monthly POMO schedule which showed that the Fed will purchase only $40BN in Treasuries in the period Jan 14-Feb 11, down from $60 billion last month, and a number which will shrink by another $20bn next month before the taper is over in mid-March at which point the rate hikes will begin.

Tyler Durden
Thu, 01/13/2022 – 15:23






Author: Tyler Durden

Economics

MSTR Stock Sees Setbacks From the Bitcoin Crash and the SEC

Cryptocurrencies themselves aren’t the only assets suffering at the hands of the market crash. Relevant crypto stocks are also bearing the punishment,…

Cryptocurrencies themselves aren’t the only assets suffering at the hands of the market crash. Relevant crypto stocks are also bearing the punishment, from crypto-mining stocks to the exchange-traded funds (ETFs) that have launched in the last year around crypto. MicroStrategy (NASDAQ:MSTR) is one such company suffering from the market’s rampant volatility. Combine this with the U.S. Securities and Exchange Commission’s (SEC’s) recent blow to the company’s accounting, and the MSTR stock losses make sense.

Source: Shutterstock

MicroStrategy doesn’t necessarily seem tied to crypto in any way at first glance. After all, the company deals mainly in business software and cloud-based computing. But, if one knows the company’s CEO, Michael Saylor, they’d immediately understand the connection. Saylor is a massive Bitcoin (CCC:BTC-USD) bull, using his Twitter profile to constantly promote the currency.

With Saylor at its helm, MicroStrategy has become increasingly entrenched in crypto. In fact, Bitcoin holdings account for a significant portion of the company’s capital allocation strategy. As of late December, the company is in possession of over 124,000 BTC, worth over $4 billion at its current value of around $34,000.

MSTR Stock Hits Rough Patch After SEC Ruling, Crypto Crash

Of course, with the massive BTC holdings that MicroStrategy possesses, the recent crash in Bitcoin prices is also affecting MSTR stock prices. As Bitcoin dipped below $33,000 early this afternoon, MSTR stock was down nearly 9%. But there’s another reason for MSTR’s downturn, and it’s thanks to the SEC.

Late on Thursday, the SEC responded to MicroStrategy’s unorthodox method of accounting for its Bitcoin holdings. Indeed, MicroStrategy has been using non-Generally Accepted Accounting Principles (GAAP) methods of reporting information related to its stock of Bitcoin. Previously, the company had been tweaking its data in order to exclude what it calls “cumulative impairment losses.” The company says that it is doing this in order to present investors with a consistent performance across reporting periods.

GAAP practices were not created with cryptocurrency in mind. Still, the SEC is not accepting MicroStrategy’s methods of reporting this data. The governing body is objecting to MicroStrategy’s practices and ordering the company to refrain from reporting its data in these ways going forward.

As the afternoon continues onward, Bitcoin is showing signs of life, trading up by about 3%. MSTR stock, meanwhile, continues to lose. The stock is currently down about 5%. Over 1.2 million shares of the stock are trading hands, against a daily average of just 487,000.

On the date of publication, Brenden Rearick 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.

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Economics

5 Important Investing Lessons From Allakos’ Price Collapse

Allakos (NASDAQ:ALLK) is a clinical-stage biopharmaceutical company that recently saw a pretty dramatic price collapse at the end of December. I believe…

Allakos (NASDAQ:ALLK) is a clinical-stage biopharmaceutical company that recently saw a pretty dramatic price collapse at the end of December. I believe that ALLK stock, and its subsequent collapse, is a learning opportunity for the investing community.

Source: Pavel Kapysh/ Shutterstock.com

In mid-December 2021, shares of Allakos were trading near $83 per share and they tanked to a stock price of $7.43 at close on Jan. 19, 2022. At some point last year, ALLK stock reached a 52-week high of $157.98. Now the 52-week low stands at $6.38 which is around where ALLK stock currently sits.

So is that a good reason to invest in Allakos now?

I argue that it is a naïve and very dangerous investment decision. Luckily for the investment community, Allakos has given us plenty of food for thought regarding the all too many common mistakes novice or uneducated investors make when they decide to invest in stocks.

There are at least five stock market investing lessons that Allakos has reminded me of. Here are my thoughts on all these.

1. Investment Markets Are Not Casinos

When you go to a casino the expectations to win playing various games are slim to none. People just want to have fun, enjoy, have a cosmopolitan lifestyle for a bit, and wish to get lucky and make a profit. They generally have no plan at all. Wishful thinking is the reason for gambling.

Stocks should not be anything like this. There is a business plan behind each company: good, bad; successful, or terrible. ALLK stock has been alluring investors to gamble on a business plan that is too risky and without delivering any results yet. It’s a clinical-stage biopharmaceutical company with no revenue yet.

Is it any wonder the stock crashed off its 52-week high?

2. Invest in What You Know

Biopharmaceutical companies are inherently very risky, and clinical-stage biopharmaceuticals are multiple times riskier as they do not generate revenue.

I argue that investors in these cases of biotech stocks do not dig deep enough into the pipeline products and ignore the underlying fundamentals. Investing in a stock without knowing inside out the real product or services of the company, the latest news and key catalysts is like going sailing without checking the weather or even knowing how to swim. The investment markets can be like a very stormy sea that, at times, will make you feel uncomfortable, scared, and anxious.

It is not wise to sail without checking the weather first, then why buy stock in a company you know nothing about?

3. Volatility Is Your Best Friend and Your Worst Nightmare

Highly volatile stocks can quickly stir emotions. Just remember the hot meme stocks back in 2021. Biotech stocks are in general very volatile and can either deliver stunning profits too quickly that tend to deflate also very fast or deliver massive losses over time.

The good news is that investors can educate themselves to recognize patterns of abnormal returns. It is like gambling again, investors bet on clinical trial news.

The problem is that these clinical trials have a very asymmetrical path of delivering stock price movements. It is a zero-sum game. Toss a coin and invest in the outcome. The chances seem to be 50/50 to win or lose. Not bad.

However, this is not a recommended investment strategy at all. The reason is that investors cannot apply stop-loss limits effectively when things go bad. A 10%-15% stop-limit when buying a stock seems reasonable. With ALLK stock, the stock tanked from a closing price of $84.39 on Dec. 21, 201 to an open price of $10.58 on Dec. 22, 2021.

Any reasonable stop-loss would not have been triggered and investors would be left wondering why they lost approximately 90% overnight.

4. Realistic Expectations Often Seem Boring

I also argue that in most cases investors supporting biotech stocks have unrealistic expectations.

We know that inflation is too high and that the Federal Reserve will increase interest rates in 2022. This is a big reason why why the stock market is having a rough first month in 2022 as expectations have changed.

Biotech stocks are not all the same. There are reputable companies with solid fundamentals. There are questionable firms. And then there are companies like Allakos, with dreadful fundamentals.

Why would a company with zero revenue be expected to perform well?

What drives value for the investors?

The answer is the fifth reason below: strong fundamentals and attractive valuation.

5. Ignoring the Fundamentals Can Be Disastrous

At first glance, investors can discover two red flags for Allakos.

The company is unprofitable, has zero revenue and shareholders have been diluted in the past year, with total shares outstanding growing by 3.4%.

Analyzing the fundamentals of each public traded company puts the odds in your favor to make wise investment decisions. Not all your investment decisions will be a success, this is impossible, and there are no guarantees of outperforming the broader stock market. There is however a method, called due diligence that allows sorting great stocks from junk stocks. Finding a stock with great fundamentals is a start. Valuation is another story.

Allakos has a cash burn problem but has no debt yet on its balance sheet. Does this make it a company to invest in because it has a strong balance sheet? How does the company pay its operating and research and development expenses when it generates zero revenue?

Fundamental analysis may seem a tedious task at first to novice investors. The truth is that it is far easier than most think. The key concepts of analyzing financial ratios to evaluate stocks can be learned easily without any excuses. Valuation, however, is another story, but at least relative valuation can also be taught easily.

Bottom Line on ALLK Stock

Biotech stocks are a special category of investments that can easily turn from hot to cold in the blink of an eye.

If you study more of the fundamentals of stocks and stock trading then you can be more aware of the warning signs. And Allakos stock had severe warning signs foretelling of its collapse.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

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Will Crypto Rebound or Should You Sell Cryptos Like BTC, ETH, SOL Right Now?

The crypto market is causing investors far and wide to sweat bullets. A market-wide crash is affecting nearly every asset of note. And crypto prices aren’t…

The crypto market is causing investors far and wide to sweat bullets. A market-wide crash is affecting nearly every asset of note. And crypto prices aren’t just being dragged downward, they are plummeting — fast. Some plays are down 25%, while others are down nearly 50%. As this massive volatility continues to siege the asset class, investors are wondering whether this is a time to buy, hold or sell. So, will crypto rebound soon? Or is it time to cut losses ahead of more red candles?

Source: Shutterstock

Crypto is seeing a downturn in the wake of some major global powers looking to crack down on the asset class. After China’s ban last year, the U.S. is looking to regulate crypto assets. India is looking to follow as well, with the government voicing an interest in banning digital currencies. And this week, a massive driving force behind the downturn is the Russian central bank’s scathing report on cryptocurrencies. The report is fueling calls for the nation to ban mining and trading of digital currencies within its borders.

These countries alone account for over 3 billion of the world’s population. Of course, bans in any combination of the four nations would be devastating to global crypto adoption. The fear of these blows to adoption are certainly helping along the market crash. Now, investors are witnessing Bitcoin (CCC:BTC-USD) tumbling 20% in just seven days. Ethereum (CCC:ETH-USD), meanwhile, has lost over 30% in the same span, as has layer-1 competitor Solana (CCC:SOL-USD). Tokens are being spared no mercy, either, with Shiba Inu (CCC:SHIB-USD) tumbling 30%.

Will Crypto Rebound, or Is it Time to Sell?

With the market so drastically falling, investors are wondering whether a crypto rebound is becoming less likely. Indeed, one of the hallmarks of a crypto correction is in “buying the dip;” but if a rebound is not going to happen, investors will want to get out as fast as they can to prevent further loss.

Fear not, for only the most bearish on crypto are those expecting crypto to fall into the oblivion with this one crash. Even Peter Brandt, the well-known crypto trader who predicted 2017’s crash, is not warning of doom to the industry. Brandt says Bitcoin will bottom out at around $25,000 before regaining its footing, about $8,000 lower than current values. It’s certainly not as pretty as its $60,000 values of late autumn. However, that’s still a higher price than any other crypto in history has been able to reach.

InvestorPlace analyst Luke Lango is one of the majority who believe crypto will be righted once again after all of this is said and done. But, he compares the current market woes to those suffered in the late 1990s, where only the strongest survived. Like the dot-com bubble, crypto projects will be spared only if they are fundamentally strong:

“The crypto market will rebound, of course, because the decentralized architecture underlying blockchain technology represents the future of application development. However, not all cryptos will rebound.

We’re seeing a re-run of the bursting of the Dot Com Bubble. Throughout the 90s, the internet was the hottest emerging technology, but not everyone fully understood it, so investors blindly gave huge valuations to anyone that bought a domain. Bubble burst. Internet went on to change the world. But most internet stocks went to zero.

Same thing here. Crypto crash 2022 represents Nasdaq crash 2001. The Nasdaq rebounded from that crash, but lots of internet stocks didn’t join the rebound — and few (like Amazon) soared thousands of percent.”

The vast majority don’t see this as an “end of days” moment for crypto. However, there are plenty of traders who are not looking at holding their crypto for the long term. Should those traders start selling, so as not to lose more money?

Holding Crypto and Knowing Your Tolerance for Volatility

As the Liquid crypto exchange covered in its blog last autumn, crashes demonstrate the importance of setting limits, both for gains but also for tolerable losses. It’s important for investors to know when to sell and walk away with profit. But, it’s almost more important for one to know how much volatility they can tolerate before getting out.

In an already volatile industry, users need to have set prices for themselves when it comes to selling off their assets. Those who can’t tolerate losses like those recently demonstrated by SOL or BTC or ETH should consider cycling those investments into other areas. However, it’s worth noting that if Brandt’s prediction holds true, we are almost at the bottom of the Bitcoin correction. If one has held this far along, they can likely see the light at the end of the tunnel.

There’s also virtue in being selective with one’s investments. There’s no sense in buying a coin or a token whose only claim to value is in being a meme or a deflationary currency. As Lango puts it, the crash will be a major test for those less practical currencies:

“So what’s the game plan here? Don’t buy the dip in crashing coins that you don’t fully understand or whose value prop is questionable. Be selective. Only buy the dip in top tokens with great projects, great teams, great value props, and preferably great usage statistics and tokenomics. Those tokens will rebound big — many others may not.”

On the date of publication, Brenden Rearick 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.

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