Author: therawinformant

(Bloomberg) — One of the world’s major credit-rating companies fired a warning shot regarding the U.S.’s worsening public finances on Friday, just as lawmakers in Washington contemplate spending more to combat the economic fallout from the coronavirus pandemic.Fitch Ratings revised its outlook on the country’s credit score to negative from stable, citing a “deterioration in the U.S. public finances and the absence of a credible fiscal consolidation plan.” The country’s ranking remains AAA.“High fiscal deficits and debt were already on a rising medium-term path even before the onset of the huge economic shock precipitated by the coronavirus,” Fitch said. “They have started to erode the traditional credit strengths of the U.S.”Unemployment has skyrocketed and the U.S. economy just notched up its worst quarter on record, with pandemic-related shutdowns helping drive an annualized gross domestic product contraction of 32.9% in the three-month period through June. And with infections still spreading rapidly in many states, the virus’s damaging impact on output looks set to continue.Support from Congress has buoyed the economy in recent months, but further action will be critical in determining the path toward recovery. Crucial lifelines for jobless workers, like an extra $600 in weekly unemployment benefits, are expiring, and lawmakers have made little progress on agreeing to another stimulus package.But while further measures — if settled on — could help support the economy, they would also likely add to the nation’s debt pile and worsen the fiscal deficits that caused Fitch additional concern. There is, however, no sign yet of a deal as upcoming elections for the presidency and Congress help sharpen partisan divisions.Stimulus BurdenGeneral government debt is expected to exceed 130% of GDP by 2021, Fitch said, noting that the U.S. had the highest government debt of any AAA rated sovereign heading into the current crisis.“Financing flexibility, assisted by Federal Reserve intervention to restore liquidity to financial markets, does not entirely dispel risks to medium-term debt sustainability, and there is a growing risk that U.S. policy makers will not consolidate public finances sufficiently to stabilize public debt after the pandemic shock has passed,” Fitch said.The U.S. central bank this week reiterated its promise to use all its tools to support the recovery, keeping interest rates near zero and noting that the economy’s path is “extraordinarily uncertain” in the face of virus risks.Fitch is not the first major ratings company to take a less-than-stellar view of America’s public finances. S&P Global Ratings has already gone further, taking an ax to the country’s AAA score back in 2011 and downgrading it to AA+. Moody’s Investors Service, meanwhile, continues to rank the U.S. as Aaa — its top grade.Fitch’s warning, just as the U.S. Treasury is preparing to release its quarterly financing plans next week, comes even as borrowing costs fall to unprecedented levels. Nominal yields on Treasuries are close to historic lows, while the real rate on 10-year debt — which factors in the impact of inflation — fell to around minus 1% on Friday.Yet even with an assumption that real rates will remain negative and support public debt, and the credit assessor’s view that America’s debt tolerance is higher than other AAA sovereigns, Fitch has become less optimistic about the U.S. outlook.(Updates throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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The Japanese conglomerate is currently negotiating terms with Nvidia after receiving an approach last month, the report said, citing an unidentified source familiar with the matter, adding that it is possible that SoftBank would take stake in Nvidia after it bought Arm. The report did not mention how much stake the company will retain in Arm.

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It’s a mixed start to the day for the majors. A fall through the daily pivot levels would bring support levels into play.

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Eastman Kodak (KODK) stock has tripled today alone after the company said it received a loan from the government to produce ingredients for drugs used to battle the coronavirus. This week, Kodak stock has climbed than 2,000%, carrying its valuation to almost $2 billion following the news about the government loan. However, after today's initial […]

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Spree Capital Advisers recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -12.41% in the first half of 2020, underperforming its benchmark, the S&P 500 which returned -3.1% in the same period. You should check out Spree Capital's top 5 stock picks for […]

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Billionaire Philanthropist Bill Gates told Yahoo Finance what he would do differently if put in charge of the U.S. fight against the coronavirus, proposing a testing plan directed by the federal government, a bipartisan push for mask-wearing, and a “complex discussion” about reopening.

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Square is in a bullish setup with earnings due next week.

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(Bloomberg) — Nvidia Corp. is in advanced talks to acquire Arm Ltd., the chip designer that SoftBank Group Corp. bought for $32 billion four years ago, according to people familiar with the matter.The two parties aim to reach a deal in the next few weeks, the people said, asking not to be identified because the information is private. Nvidia is the only suitor in concrete discussions with SoftBank, according to the people.A deal for Arm could be the largest ever in the semiconductor industry, which has been consolidating in recent years as companies seek to diversify and add scale. But any deal with Nvidia, which is a customer of Arm, would likely trigger regulatory scrutiny as well as a wave of opposition from other users.Cambridge, England-based Arm’s technology underpins chips that are crucial to most modern electronics, including those that dominate the smartphone market, an area in which Nvidia has failed to gain a foothold. Customers including Apple Inc., Qualcomm Inc., Advanced Micro Devices Inc. and Intel Corp., could demand assurances that a new owner would continue providing equal access to Arm’s instruction set. Such concerns resulted in SoftBank, a neutral company, buying Arm the last time it was for sale.No final decisions have been made, and the negotiations could drag on longer or fall apart, the people said. SoftBank may gauge interest from other suitors if it can’t reach an agreement with Nvidia, the people said. Representatives for Nvidia, SoftBank and Arm declined to comment.Divestment Drive“With Nvidia’s low-cost fabless model enabling it to focus on R&D, engineering and programming, the fit with Arm would be perfect,” said Neil Campling, an analyst at Mirabaud Securities.Nvidia is the largest maker of graphics processors and it’s spreading the use of the gaming component into new areas such as artificial intelligence processing in data centers and self-driving cars. Marrying its own capabilities with central processor units designed by Arm may enable it to take on Intel and Advanced Micro Devices in a more comprehensive way, according to Rosenblatt Securities analyst Hans Mosesmann. He estimates Nvidia would have to pay about $55 billion for Arm.“You need control of BOTH CPU and GPU roadmaps and this, of course, includes data centers,” he wrote in a note Friday, referring to central processing units and graphic processing units. “Strategically, Nvidia needs a scalable CPU that can be integrated into its GPU roadmap, as is the case with AMD and Intel.”Billionaire Masayoshi Son has been selling some of SoftBank’s trophy assets as the company seeks to pay down debt at the Japanese conglomerate. SoftBank has offloaded part of its stake in Chinese internet giant Alibaba Group Holding Ltd. and a chunk of its holdings in wireless carrier T-Mobile US Inc.SoftBank has been exploring options to exit part or all of its stake in Arm through a sale or public stock listing, Bloomberg News has reported. The chip-design company could go public as soon as next year if SoftBank decides to proceed with that option, people with knowledge of the matter have said.Arm has become more valuable as it pushes its architecture into smart cars, data centers and networking gear. The company could be worth $44 billion if it pursues an initial public offering next year, a valuation that may rise to $68 billion by 2025, according to New Street Research LLP.Nvidia, based in Santa Clara, California, is the world’s largest graphics chipmaker. The stock has surged more than twenty-fold in the past five years, giving the company more firepower to do large deals. Nvidia’s market value has increased to more than $260 billion in that time, surpassing Intel. The stock was little changed Friday in New York.(Updates with analyst comment in eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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In his latest letter to investors, Mohnish Pabrai warned about the perils of buying stocks at high prices. He explained that it’s possible to overpay for even the market’s most promising companies. Giving Microsoft as an example, Pabrai noted: "MICROSOFT HAD A VERY STRONG ENTRENCHED MONOPOLY POSITION IN MOST OF ITS MARKETS. IT CONTINUED TO DO WELL […]

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(Bloomberg) — Gold is rallying, a time-honored sign of gloom. But speculative companies in the stock market are also surging, signaling faith in an economic turnaround. Then there’s the dollar, which just had its worst month in a decade.Moves across asset classes right now seem especially chaotic, lacking a unifying theme. Until you look at interest rates.Specifically, real rates — jargon for yields after accounting for inflation. They’re a concept long familiar in emerging markets, where prices have always bounced around more, often feeding through to their currencies. America is seeing something of the same thing: because increasing consumer costs are expected to outstrip the return on bonds, it’s the dollar that’s depreciating. And it’s doing so against everything from precious metals to the Australian dollar while arguably boosting swaths of the U.S. stock market.One reason real rates have become a focus is that, by one measure at least, they’ve hit a record low, at about -1%. In simple terms, it shows the damage to an investor’s purchasing power from holding 10-year government bonds. Yields in turn have been held down by the Federal Reserve’s pledge to avoid raising policy rates for some time to come.“Historically real rates never really caught much of people’s attention,” but that changed when they climbed in late 2018 and contributed to a sharp stocks selloff, said Nathan Thooft, Manulife Investment Management’s head of global asset allocation in Boston. Now, “the perception is that really low rates is a really good tailwind for equities. Exactly the same for precious metals. All these trades are interrelated.”It helps explain why stocks have held up despite the worst American economic contraction on record. The S&P 500 Index is barely changed for the year. That makes more sense when you consider that lower borrowing costs make rising equity valuations easier to justify. Hence the expansion in technology price-earnings ratios, which at 35 in the Nasdaq 100 are higher than any time since the internet bubble.Conversely, lower yields can depress lending margins, and the S&P 500 Financial Index on Friday capped its worst week in five. That was after Fed Chair Jerome Powell on Wednesday underscored that the U.S. central bank is “not even thinking about thinking about raising rates.”Powell also said the Fed will present results from its strategic review in the “near future,” bolstering economists’ expectations for stronger guidance about the path of interest rates to be unveiled in September. The assumption is a prolonged horizon for near-zero overnight rates.That presumption can already be seen in 10-year Treasury yields, which have averaged 0.66% the past four months and were at 0.53% Friday. Discount that with the 10-year inflation expectation embedded in Treasury inflation-protected securities, and the real yield is about -1.03%.Powell’s take is that “for quite some time we’re going to be struggling against disinflationary pressures rather than inflationary pressures,” so policy can stay easy for an extended period.Some market players aren’t so sure about that, and use strident language about the Fed — and the government, with its record budget deficits — “debasing” the dollar. Goldman Sachs Group Inc. commodity strategists reiterated their call to buy gold, which they termed “the currency of last resort,” in a July 28 note to clients.Charles Gave, who dates his market experience back to 1973, wrote two days later that “Treasuries are as overvalued as they were in 1973, 1978 or 2007.” Colleagues of his at Gavekal Research pointed to a basket of inflation expectations taken from surveys and market data, spanning the short to long term, having rebounded to 1.9%, not far from the Fed’s 2% target. Gave predicted gold will keep outperforming, the dollar will decline and U.S. stocks will underperform other regions.Persistent negative real rates haven’t happened for long periods in the U.S., Evercore ISI strategists highlighted during the week. Their take was that the environment will prove good for value stocks, which had a relatively poorer record during the epic bull run in equities that ended with Covid-19.Real rates aren’t the only dynamic in play. John Zaller, chief investment officer at Mai Capital Management, detects a whiff of speculation in gold and silver. Gold has soared about 25% over four months, reaching a record high around $1,975 an ounce Friday. Silver has surged 74%, to highs unseen since 2013.And some of the dollar’s decline — the Bloomberg Dollar Spot Index has slumped more than 9% from its high in March — has come thanks to a euro boosted by a historic European Union joint economic-stimulus package.The greenback hasn’t been helped by a surge in American coronavirus cases over the past several weeks that left the U.S. comparing unfavorably with other developed nations. The specter of renewed shutdowns has cast a shadow over what had been an improvement in a job market throttled by Covid-19. Economists warn the pace of recovery in payrolls is set to slow markedly in July; the data are due Aug. 7.Yet the S&P 500 was able to grunt out a 1.7% advance the past week, despite data showing a mammoth 32.9% annualized contraction in gross domestic product in the second quarter. The week also saw sharp divisions between Republicans and Democrats in Congress over a fiscal package to sustain support for the economy after the expiration of previously enacted aid.The analgesic for all those headaches has been the Fed, which not only recommitted to its near-zero rate policy the past week but added months onto the timeline of a welter of extraordinary credit and liquidity programs.“That’s the number-one catalyst” in markets, accounting for probably 90% of recent moves, Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut, said of the Fed. “That’s going to drive the weak dollar. That’s going to push up anything that’s priced in dollars. So obviously that’s fed into commodities, that’s helped equities.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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