Risk free rate – Freedominst http://freedominst.org/ Thu, 29 Sep 2022 13:08:46 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png Risk free rate – Freedominst http://freedominst.org/ 32 32 Wall Street set to open lower on growing concerns over economic slowdown http://freedominst.org/wall-street-set-to-open-lower-on-growing-concerns-over-economic-slowdown/ Thu, 29 Sep 2022 13:01:00 +0000 http://freedominst.org/wall-street-set-to-open-lower-on-growing-concerns-over-economic-slowdown/
  • Dow and S&P futures down for the seventh time in eight days
  • Airlines and cruises fall on trip cancellations over hurricane warnings
  • Futures down: Dow 1.22%, S&P 1.47%, Nasdaq 1.80%

Sep 29 (Reuters) – U.S. stock indices were expected to open lower on Thursday as fears of a global economic slowdown from aggressive central bank rate hikes and potential contagion risks from a turmoil in British markets made risk averse investors.

Dow and S&P 500 e-minis fell for the seventh time in eight sessions, while megacap growth names such as Amazon.com Inc, Apple Inc (AAPL.O), Microsoft Corp, Meta Platforms Inc and Tesla Inc (TSLA.O) lost between 1.6% and 2.7% in premarket trading.

The calm brought by the Bank of England’s decision on Wednesday to buy long-term government securities to stabilize the market turmoil caused by the government’s new economic plan was short-lived.

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The pound fell and bond prices fell, with the massive sell-off of British assets spreading even to safe-haven US Treasuries and top-rated German bonds. Read more

In the previous session, the S&P 500 recorded its first gain in seven sessions. The benchmark has lost about $9.1 trillion in market value this year and was last valued at $31.2 trillion, according to Datastream.

S&P 500 loses $9 trillion in market rout in 2022

“You need to see the market start to stabilize and that won’t happen until it understands if the Fed is done raising interest rates or if the earnings season is better than expected,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

Yields on many Treasuries, which are considered virtually risk-free if held to maturity, now eclipse the S&P 500 dividend yield, which recently stood at around 1.8%, according to Refinitiv. Data stream. Read more

Meanwhile, comments from Federal Reserve Cleveland Chair Loretta Mester echoed other central bank officials throughout the week, who pledged further interest rate hikes to controlling inflation. read more read more

The latest data showed the US labor market remained resilient, with the number of Americans filing new claims for unemployment benefits dropping unexpectedly last week to 193,000 despite sharp interest rate hikes from the Fed and the slowdown in demand. Read more

As of 8:37 a.m. ET, Dow e-minis were down 364 points, or 1.22%, S&P 500 e-minis were down 55 points, or 1.47%, and Nasdaq 100 e-minis were down 207.75 points, or 1.8%.

American Airlines (AAL.O) fell about 2.2% as carriers canceled nearly 2,000 US flights on Thursday after Hurricane Ian hit Florida’s Gulf Coast with catastrophic force during the one of the most powerful American storms in recent years. Read more

Shares of peers United Airlines Holdings (UAL.O), Southwest Airlines (LUV.N) and Delta Air Lines (DAL.N) fell between 1.6% and 2.0%.

U.S. cruise lines Norwegian Cruise Line Holdings Ltd (NCLH.N) and Carnival Corp (CCL.N) fell 2.1% after delaying or canceling trips ahead of the hurricane.

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Reporting by Susan Mathew, Ankika Biswas and Shreyashi Sanyal in Bengaluru; Additional reporting by Medha Singh Editing by Anil D’Silva and Arun Koyyur

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Best Structured Product Support System: Murex http://freedominst.org/best-structured-product-support-system-murex/ Tue, 27 Sep 2022 02:00:01 +0000 http://freedominst.org/best-structured-product-support-system-murex/

Murex’s MXThe .3 platform won this year’s Best Structured Product Support System award for not only exceeding basic representation and pricing requirements, but also for offering a cutting-edge product catalog and flexibility. structure to serve a wide and diversified range of Asian clients.

A structured product is a market-linked instrument whose performance or value is linked to that of an underlying asset, product or index. Murex’s MXThe .3 platform offers complete front-to-back solutions with versatile business representations and analytical integration flexibilities to address the broad and complex nature of the product.

“Structured products companies can become much more successful if they are empowered by systems to seize market opportunities by rapidly adding products, increasing profitability by storing risk, and increasing volume by automating operations,” explains the society. “It’s here that MX.3 brings unique benefits to its customers.

The company’s ready-to-use catalog is the largest in the market, featuring more than 350 packaged products, including all top-selling regional structures and local market-specific products.

Coupled with a structured trade builder, its clients can quickly create linear payout combinations and present them as new products. The structuring tool is particularly useful for the popular Chinese structured deposit business, allowing customers to continuously deploy variants.

Murex’s knowledge of commodity markets also enables many of its clients to quickly implement structured carbon notes based on the contango shape of the emission trading system’s allowance price curve. European Union – another example in which Murex helps its customers to seize market opportunities. (EU EST allowances are climate credits that allow holders to emit a certain amount of greenhouse gases.)

“The range of possibilities [that] customers have at their disposal to expand their catalog – tailored to their circumstances and needs – is unrivaled in the market,” says Murex.

Financial institutions can leverage the product catalog and create their own new products in two robust and flexible ways: A Python-based user payment language, allowing users to quickly describe and evaluate new features with Murex analytics ; and flexible APIsan application programming interface that integrates a user’s own proprietary quant libraries and creates specific functionality.

In today’s market environment, one of the critical needs of a system that supports structured products is to provide the right analytics – the right combination of price accuracy, actionable coverage indicators, and high performance scale to handle growing volumes.

Murex continues to be the benchmark for state-of-the-art capital markets solutions. Its experience in standard market analysis, consistent philosophy and innovation in earnings gives end users a sense of comfort and confidence

Client at a major South Korean bank

Murex’s MX.3 offers curve calibration, volatility management and GPUs-state-of-the-art dissemination models to help clients evaluate and manage their structured products. Models include the Libor market model for interest rates and local stochastic volatility (LSV) model for foreign exchange derivatives, among other analyses.

Additionally, Murex provides model validation documents that detail the numerical implementation and behavior of the model based on up-to-date market data to minimize model risk and validation cost.

The real-time management of structured product portfolios poses a significant challenge for THIS infrastructure because they are computationally intensive. This is where Murex stepped in to help with real-time portfolio management (RTPM). It gives traders instant access to already calculated results in personalized monitoring dashboards with real-time position updates, live risk matrices and near real-time market data updates.

Clients can also tailor advanced risk metrics to their popular structured products with dedicated screens for deeper analysis of future cash flow projections and early termination probability.

With everything combined in one front-to-back-to-risk platform, MX.3 users receive consistent trade representation and analytics, including pricing and hedging, sales distribution, post-trade processing, risk control, regulatory reporting, settlement and accounting.

Full risk and cost control with easy scaling up and down has also enabled banks to comply with sweeping regulations such as the transition of the Interbank Offered Rate (Ibor), the Fundamental Review of the trading book and the rules on uncompensated margins.

In particular, Murex has undergone significant improvement to help customers deal with Ibor shutdown, which remains a thorny issue on non-linear structures. Murex completed the end-to-end transition for structures referencing Ice swap rates and developed the transition for Asia Effects– implicit benchmarks, which are commonly referenced in structured loans.

It also extended its risk-free rate (RFR) non-linear constant maturity swap structures (CMS), CMS– spread swaps, accrued range and interbank offered rate in Tokyo (Tibor) compared to the average overnight inverted floats in Tokyo (Tona). Its payment script has been enhanced to support RFRs.

Meanwhile, Murex has added new features to store risk to better serve customers using MX.3 for their stock autocallable business – one of the most popular structures in the market.

It implemented a new risk matrix scenarios engine to allow more flexible market data changes, a new user-defined risk measures module to create and calculate Greek and hypothetical scenarios, a “smart-over -hedge” to better manage payment discontinuities, as well as LSV templates for autocallable actions to serve as an alternative to pricing.

“Murex continues to be the benchmark for state-of-the-art capital markets solutions,” said a client of a major South Korean bank. “His background in standard market analysis, consistent philosophy and innovation in earnings gives end users a sense of comfort and confidence.”

Use Fubo Sportsbook promo code XROTO for $1000 risk free bet http://freedominst.org/use-fubo-sportsbook-promo-code-xroto-for-1000-risk-free-bet/ Sat, 24 Sep 2022 17:00:00 +0000 http://freedominst.org/use-fubo-sportsbook-promo-code-xroto-for-1000-risk-free-bet/

This article is part of our Betting Promotions series.

Are you a new user registering with Fubo Sportsbook Promo Code XROTO? Good news if you are, as new users using the aforementioned promo code will receive a $1,000 risk-free bet that can be used on the Bengals vs. the Jets in Week 3, or other picks from the week 3 of the NFL of your choice. In addition to the $1,000 risk-free bet, new users will also get a free month of fuboTV with Fubo Sportsbook XROTO Promo Code.

The Bengals are off to a disappointing 0-2 start after representing the AFC in last year’s Super Bowl, but the Jets have traditionally been a great starting point for struggling opponents. Using Fubo Sportsbook XROTO Promo Codeyou can stream the game on fuboTV while enjoying a $1,000 risk-free bet for Bengals vs Jets Week 3 top picks.

Bet on Bengals vs Jets Week 3 when using Fubo Sportsbook promo code XROTO

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By accessing fuboTV, you will have access to streaming services which include ESPN, FOXSports, NBC and CBS. You will also be able to link your Fubo Sportsbook account to your fuboTV account to place in-game bets while streaming the games.

As long as you are at least 21 years old and located in Arizona or Iowa, where Fubo Sportsbook is licensed to operate, you are eligible for fuboTV’s $1,000 Risk Free Bet and a Free Month with Fubo Sportsbook XROTO Promo Code. This offer makes Fubo Sportsbook one of the best sports betting sites out there, and you can bet on the Bengals vs the Jets in Week 3.

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Once there, you will be responsible for providing your basic credentials so that Fubo Sportsbook can verify your identity. As soon as your identity is successfully verified, you can enter Fubo Sportsbook XROTO Promo Code.

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Use Fubo Sportsbook’s promo code XROTO to watch and bet on the Bengals vs. Jets Week 3 picks

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Yen jumps after authorities intervene for first time since 1998 http://freedominst.org/yen-jumps-after-authorities-intervene-for-first-time-since-1998/ Thu, 22 Sep 2022 08:40:00 +0000 http://freedominst.org/yen-jumps-after-authorities-intervene-for-first-time-since-1998/

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TOKYO/LONDON, Sept 22 (Reuters) – The Japanese yen rose sharply against the dollar on Thursday after authorities intervened in the foreign exchange market for the first time since 1998 to prop up the struggling currency.

The dollar fell more than 1% to 142.3 yen, after trading more than 1% higher against the Japanese currency. It was last down 0.42% at 143.4.

The Japanese government has intervened in the foreign exchange market to sell dollars for yen to stem the Japanese currency’s recent sharp falls, top monetary diplomat Masato Kanda said Thursday. Read more

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“Given that the BOJ just backed very accommodative monetary policy and this came right after the Fed backed a hawkish outlook, I think the fundamentals will push the dollar/yen higher,” said Jane Foley, head of Rabobank’s monetary strategy.

“But what Japan is doing is sending a signal that it’s not a free ride to push the dollar/yen higher.”

Against other major currencies, the dollar hit multi-year highs after the Federal Reserve surprised markets with hawkish interest rate projections, while the Swiss franc fell after the central bank raised rates by 75 basis points.

The dollar and euro both climbed more than 1% against the Swiss franc, with the dollar remaining at 0.9764 and the euro at 0.9628.

The Swiss National Bank raised its key interest rate to 0.5% from the minus 0.25% level it set in June – only the second increase in 15 years.

“I think the overreaction in EUR/CHF was due to the idea that the SNB might make 100 basis points, after the (Swedish) Riksbank earlier this week. I think the market reaction, the rally EUR/CHF, is a bit exaggerated.” said Chris Turner, global head of markets at ING.

The dollar was also stronger against other major currencies and the dollar index – which measures the US unit against a basket of six peers – earlier hit 111.81 for the first time since mid-2002.

The euro weakened to a new 20-year low at $0.9807, and the pound fell to a new 37-year low at $1.1213.

The Bank of England is meeting later today, and the market currently sees around an 85% chance of a 75bp rate hike by the BOE, and 15% of a half-basis rate hike. point. 0#BOWATCH

On Wednesday, the Fed released new projections showing rates peaking at 4.6% next year with no cut until 2024. It raised its target interest rate range by an additional 75 basis points (bps) from the overnight at 3%-3.25%, as was widely expected. Read more

The dollar was already supported by demand for safe-haven assets after Russian President Vladimir Putin announced he would call up reservists to fight in Ukraine and said Moscow would respond with the might of all its vast arsenal if the West continued. what he called his “nuclear program”. blackmail” on the conflict there. Read more

Commodity currencies were also hit hard due to deteriorating risk sentiment.

The Aussie fell as low as $0.6574, its lowest since mid-2020. Currency liquidity can be thin as Australia has a bank holiday.

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Reporting by Kevin Buckland in Tokyo and Alun John in London; Editing by Edwina Gibbs, Ana Nicolaci da Costa, Kim Coghill and Emelia Sithole-Matarise

Our standards: The Thomson Reuters Trust Principles.

Top manager Vanguard bullish on US Treasuries as Fed hikes near top http://freedominst.org/top-manager-vanguard-bullish-on-us-treasuries-as-fed-hikes-near-top/ Mon, 19 Sep 2022 16:37:00 +0000 http://freedominst.org/top-manager-vanguard-bullish-on-us-treasuries-as-fed-hikes-near-top/

Vanguard’s logo is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 1, 2022. REUTERS/Brendan McDermid

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NEW YORK, Sept 19 (Reuters) – Vanguard, the world’s second-largest asset manager, believes U.S. Treasuries are near the end of a painful decline even as prices tumble to new multi-stage lows. years, a senior portfolio manager at the company told Reuters. .

Benchmark 10-year U.S. Treasury yields, which move inversely to prices, hit their highest level since 2011 on Monday, continuing a trend that put bonds in the midst of their worst year as the Federal Reserve rolls out massive rate hikes to fight soaring inflation. Markets broadly expect the central bank to hike rates another 75 basis points on Wednesday after already tightening 225 basis points this year. Read more

Vanguard portfolio managers, however, believe that Treasuries have already seen the worst of their declines and that the Fed is likely to reverse monetary policy tightening if growth begins to fall sharply. The Malvern, Pennsylvania-based company manages approximately $7.3 trillion in assets.

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“The more aggressive the Fed is, the closer we get to a hard landing scenario. And we know what happens in a hard landing: there’s going to be a quick pivot…and then , bonds will clearly start to perform again,” said John Madziyire, senior portfolio manager and head of US Treasuries and TIPS at Vanguard Fixed Income Group.

He said Vanguard had recently reduced its exposure to lower quality credits, amid expectations of a more hawkish Fed.

“If you’re positioning yourself for that, obviously you want to be more defensively inclined…And that by definition means you’re leaning more towards Treasuries.”

Past rate hike cycles have shown yields peaked before the Fed’s last two hikes, three to six months before the end of the cycle, Madziyire said.

“As long as…you have your scenarios of potential tail risks and you’re willing to hold that position in that tail risk, you know you’ll be right at some point,” he said.


Fed Chairman Jerome Powell said price pressure could be eased without a sharp economic downturn. He also stressed, however, that the central bank will be relentless in its fight to stamp out inflation. Read more

Expectations for the so-called terminal rate rose after US consumer price data showed inflation remained robust last month.

Fed funds futures traders expect interest rates to continue to climb to a high of around 4.4% next March, more than 200 basis points higher than the rate day-to-day interest rate. That compared to 3.8% earlier this month.

Madziyire stressed that investors “should be prepared to take a small loss” as it will be difficult to accurately plan the Fed’s pivot.

“It’s almost impossible to time the market…but what you’re trying to do is try to figure out when you’re getting close to the end and then position yourself for that,” he said.

At the same time, income from higher yields can also help cushion losses if bond prices fall more than expected, he said.

“Even if the 10-year yields go up 10 basis points from what you would expect in the worst case scenario, relative to the amount of yield you’re getting, you’re going to get your money back because the yields are so attractive “, did he declare. .

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Reporting by Davide Barbuscia; Editing by Ira Iosebashvili and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

Are investors undervaluing SN Nuclearelectrica SA (BVB:SNN) by 48%? http://freedominst.org/are-investors-undervaluing-sn-nuclearelectrica-sa-bvbsnn-by-48/ Sat, 17 Sep 2022 08:39:49 +0000 http://freedominst.org/are-investors-undervaluing-sn-nuclearelectrica-sa-bvbsnn-by-48/

What is the distance between SN Nuclearelectrica SA (BVB:SNN) and its intrinsic value? Using the most recent financial data, we will examine whether the stock price is fair by taking expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model for this purpose. Don’t be put off by the jargon, the underlying calculations are actually quite simple.

Remember though that there are many ways to estimate the value of a business and a DCF is just one method. For those who are passionate about stock analysis, the Simply Wall St analysis template here may interest you.

See our latest analysis for SN Nuclearelectrica

Is SN Nuclearelectrica fairly valued?

As SN Nuclearelectrica operates in the electric utility business, we have to calculate the embedded value slightly differently. In this approach, dividends per share (DPS) are used, because free cash flow is difficult to estimate and often not reported by analysts. Unless a company pays the majority of its FCF as a dividend, this method will generally underestimate the value of the stock. We use Gordon’s growth model, which assumes that the dividend will grow in perpetuity at a rate that can be sustained. The dividend is expected to grow at an annual growth rate equal to the 5-year average 10-year government bond yield of 1.1%. We then discount this figure to present value at a cost of equity of 6.2%. Compared to the current share price of RON 47.6, the company seems to have a pretty good value with a discount of 48% from the current share price. The assumptions of any calculation have a big impact on the valuation, so it’s best to consider this as a rough estimate, not accurate down to the last penny.

Value per share = Expected dividend per share / (Discount rate – Perpetual growth rate)

= RON4.7 / (6.2% – 1.1%)


BVB: SNN Discounted Cash Flow September 17, 2022

The hypotheses

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. Part of investing is coming up with your own assessment of a company’s future performance, so try the math yourself and check your own assumptions. The DCF also does not take into account the possible cyclicality of an industry, nor the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider SN Nuclearelectrica as a potential shareholder, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 6.2%, which is based on a leveraged beta of 0.800. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Look forward:

Valuation is only one side of the coin in terms of crafting your investment thesis, and ideally it won’t be the only piece of analysis you look at for a company. It is not possible to obtain an infallible valuation with a DCF model. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. Why is the stock price below intrinsic value? For SN Nuclearelectrica, we’ve rounded up three additional things you should explore:

  1. Risks: For example, we discovered 2 warning signs for SN Nuclearelectrica (1 is potentially serious!) which you should be aware of before investing here.
  2. Future earnings: How does SNN’s growth rate compare to its peers and the market in general? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. Simply Wall St updates its DCF calculation for every Romanian stock daily, so if you want to find the intrinsic value of any other stock, just search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Valuation is complex, but we help make it simple.

Find out if SN Nuclearelectrica is potentially overvalued or undervalued by viewing our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

Fed set for another 75 basis point rate hike; unlikely early pivot http://freedominst.org/fed-set-for-another-75-basis-point-rate-hike-unlikely-early-pivot/ Tue, 13 Sep 2022 00:09:00 +0000 http://freedominst.org/fed-set-for-another-75-basis-point-rate-hike-unlikely-early-pivot/

A woman holds US dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration

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BENGALURU, Sept 13 (Reuters) – The Federal Reserve will hike interest rates another 75 basis points next week and is likely to keep its key rate steady for an extended period once it peaks, according to a Reuters poll of economists released on Tuesday. .

Policymakers did little to push market prices back for a third consecutive three-quarters percentage point hike at the US central bank’s September 20-21 meeting, inflation, such than measured by the Fed’s preferred gauge, standing at more than three times its 2% target. Read more

A strong majority of economists, 44 out of 72, predicted the central bank would hike its fed funds rate by 75 basis points next week after two such moves in June and July, compared to just 20% who had it said just a month ago.

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If this materializes, it would bring the policy rate back to the target range of 3.00% to 3.25%, the highest since the start of 2008, before the worst of the global financial crisis. The remaining 39% still expected a 50 basis point hike.

The shift in expectations for a bigger rally pushed the dollar to its highest level in two decades against a basket of currencies. United States. The currency is expected to extend its dominance for the rest of this year and early next year.

“If there has been a change in tone from the Fed in recent months, it has been in the direction of a stronger commitment to reducing inflation, even at the risk of a slowdown,” noted Michael Gapen, Chief US Economist at Bank of America Securities. , who was among those interviewed.

Like many others in the poll, Gapen recently changed its forecast to show the Fed will raise rates by 75 basis points next week instead of half a percentage point.

But rising borrowing costs so rapidly carries its own risks. The poll puts the probability of a recession in the United States in the coming year at 45%, unchanged from previous forecasts, with the probability of a recession occurring in the next two years rising from 50% at 55%.

The world’s largest economy, which has seen its gross domestic product shrink in the past two quarters, is expected to grow below its long-term average trend of 2% through at least 2025, the poll found.

Economists said the interest rate outlook for the September meeting could change if inflation falls. The US Labor Department is due to release consumer price index data on Tuesday, with economists polled by Reuters forecasting the CPI to rise 8.1% in the 12 months to August. The CPI jumped 8.5% in the 12 months to July.

Whether or not the Fed eases its monetary tightening, either by a 50 or 25 basis point hike at its November 1-2 policy meeting, is on the razor’s edge, the poll showed. However, a majority of economists expected the central bank to opt for a 25 basis point hike at its December 13-14 meeting.

There was still no consensus among economists on where and when the Fed would stop raising rates, and similarly there was no consensus on when it would start cutting them.

Among economists who had a view to the end of 2023, 47% expected at least one rate cut, down from 57% in a poll last month.

Once the fed funds rate peaks, the central bank is more likely to leave it unchanged for an extended period rather than cut it quickly, according to more than 80% of respondents who answered an additional question.

Fed Chairman Jerome Powell said he and his fellow policymakers would raise rates as high as needed and hold them “for a while” to bring inflation back to the 2% target. Read more

“We just don’t see the Fed cutting rates next year, that would be too soon. They won’t have enough evidence that inflation is on a sustained downward path towards the target,” Sal Guatieri said. , senior economist at BMO Capital Markets, who was also among those interviewed.


While inflation, as measured by the CPI, is expected to average 8.0% and 3.7% this year and in 2023, respectively, a tight labor market should support price pressures, according to the survey.

The unemployment rate in the United States, which rose to 3.7% in August from 3.5% in July, is expected to average 3.7% this year before climbing to 4.2% in 2023 and 2024. read more

However, the unemployment rate needs to rise significantly to bring inflation down to 2%, according to 16 of 30 respondents to an additional question who gave a median unemployment rate of 5%. The other 14 said he did not need to increase significantly.

“The claim of wage pressures can be reduced … without significantly increasing unemployment is wishful thinking on the part of the Fed,” said Philip Marey, senior US strategist at Rabobank, who was among those interviewed.

(For more stories from the Reuters Global Economic Survey:)

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Reporting by Prerana Bhat and Indradip Ghosh; Poll by Milounee Purohit and Aditi Verma; Editing by Hari Kishan, Ross Finley and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

ECB governors see growing risk of rates hitting 2% to curb inflation – sources http://freedominst.org/ecb-governors-see-growing-risk-of-rates-hitting-2-to-curb-inflation-sources/ Sat, 10 Sep 2022 14:48:00 +0000 http://freedominst.org/ecb-governors-see-growing-risk-of-rates-hitting-2-to-curb-inflation-sources/

The southern facade of the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, December 30, 2021. REUTERS/Wolfgang Rattay/File Photo

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  • Pricing officials brace for ‘restrictive’ policy
  • Need to move if 2025 inflation is still above 2%
  • Growth forecasts for 2023 deemed too rosy
  • The “reverse tiering” proposal hits the wall

PRAGUE, Sept 10 (Reuters) – European Central Bank policymakers see a growing risk of having to raise their benchmark rate to 2% or more to rein in record eurozone inflation despite a likely recession, sources said. at Reuters.

With inflation hitting 9.1% in August and beating the ECB’s 2% target for the next two years, the central bank raised interest rates at record speed and urged governments to help reduce energy bills that have skyrocketed since Russia invaded Ukraine.

The ECB raised its deposit rate from zero to 0.75% on Thursday and Chair Christine Lagarde guided two or three more hikes, saying rates were still a long way from a level that would bring inflation down to 2%. Read more

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Five sources familiar with the matter said many policymakers see a growing likelihood that they will have to bring the rate into “restrictive territory”, lingo for a rate level that causes the economy to slow down, to 2% or more.

The sources, who spoke on condition of anonymity because policy deliberations are private, said it would most likely happen if the ECB’s first inflation projection for 2025, due to be released in December, were ever higher. at 2%.

An ECB spokesman declined to comment.

The ECB currently forecast inflation of 2.3% in 2024, although a source said an internal forecast presented at Thursday’s meeting put it closer to 2% after taking into account the latest gas prices.

Dutch central bank governor Klaas Knot and Belgium’s Pierre Wunsch were the first to speak openly about entering restrictive territory late last month, at a time when most of their colleagues felt that interest rates just had to return between 1% and 2%. Read more

The sources said policymakers were bracing for a recession this winter and weaker economic growth next year than the ECB’s official projection of 0.9%. But some were reassured by the strength of the labor market, which should cushion the impact of higher rates, they added.

At Thursday’s meeting, policymakers also kicked off a discussion about the tens of billions of euros the ECB is likely to pay out to banks from their excess reserves now that the deposit rate is positive again, officials said. sources.

Policymakers felt that current proposals, including that of an “inverted tier system” that caps compensation on certain reserves, needed more work, the sources said. One of them added that a decision could still come before the next ECB policy meeting on October 27.

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Editing by Andrew Heavens

Our standards: The Thomson Reuters Trust Principles.

Bank of Canada raises rates to 14-year high, keeps door open for further tightening http://freedominst.org/bank-of-canada-raises-rates-to-14-year-high-keeps-door-open-for-further-tightening/ Wed, 07 Sep 2022 16:39:00 +0000 http://freedominst.org/bank-of-canada-raises-rates-to-14-year-high-keeps-door-open-for-further-tightening/

Bank of Canada Governor Tiff Macklem walks in front of the Bank of Canada building in Ottawa, Ontario, Canada, June 22, 2020. REUTERS/Blair Gable/File Photo

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OTTAWA, Sept 7 (Reuters) – The Bank of Canada on Wednesday raised interest rates to their highest level in 14 years, as expected, and signaled that its most aggressive tightening campaign in decades had not been waged amidst a battle to keep inflation from balancing out. hotter.

The central bank, in a regular rate decision, raised its key rate from 2.50% to 3.25%, matching analysts’ forecasts and reaching a level not seen since April 2008. Rates are now above from the Bank of Canada’s neutral range, meaning for the first time in about two decades monetary policy is likely to constrain growth.

“Given the outlook for inflation, the Governing Council still believes that the policy interest rate will need to rise further,” the central bank said in a statement after announcing its fourth straight outsized hike.

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“As the effects of tighter monetary policy ripple through the economy, we will assess how much interest rates need to rise to bring inflation back to target.”

The Bank of Canada leads its advanced economy counterparts in policy tightening, having raised its key rate by 300 basis points since March from a record low of 0.25%, and it doesn’t seem yet to be done.

Reuters Charts

“It feels like the bank is preparing the market for the possibility that rates will have to keep rising for more than one or two meetings,” said Andrew Kelvin, chief strategist for Canada at TD Securities.

“I think they try to keep as many options open as possible,” he added.

Headline inflation in Canada fell to an annual rate of 7.6% in July from 8.1% in June, but the central bank noted that the decline was due to lower gasoline prices, measures basis continuing to rise.

“Surveys suggest short-term (inflation) expectations remain elevated. The longer this lasts, the greater the risk of high inflation taking root,” the central bank said.

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Money markets are betting on two more increases of a quarter of a percentage point this year to take the key rate to 3.75% in December.

Economists noted the possibility of a 50 basis point hike in October followed by a standard 25 basis point hike in December, opening the door to a policy rate of 4.00% by the end of the year. year, although much will depend on the trajectory of inflation and employment over the coming months.

“There is a pretty high risk that they will raise rates at each of the next two meetings,” said Doug Porter, chief economist at BMO Capital Markets.

“We’ll have to see if it’s just small increases or more, and I think a lot of that will depend on what happens to headline and core inflation over the next few months.”

The Canadian dollar was trading down 0.1% at 1.3170 per greenback, or 75.93 US cents, as oil prices fell.

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Reporting by Julie Gordon and David Ljunggren in Ottawa, additional reporting by Ismail Shakil in Ottawa and Fergal Smith in Toronto; Editing by Andrea Ricci and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

David Ljunggren

Thomson Reuters

Covers political, economic and general news from Canada as well as breaking news across North America, previously based in London and Moscow and winner of Reuters Treasury Scoop of the Year.

Homebuilders are cyclical businesses, but do you filter them as such? http://freedominst.org/homebuilders-are-cyclical-businesses-but-do-you-filter-them-as-such/ Mon, 05 Sep 2022 15:53:11 +0000 http://freedominst.org/homebuilders-are-cyclical-businesses-but-do-you-filter-them-as-such/


Homebuilders are cyclical businesses. As such, they should be selected based on their performance during the housing starts cycle. But housing starts cycles differ in duration and amplitude from peak to trough.

One way to select these companies is to estimate the expected ROE and margin of safety. This takes into account the probabilities and values ​​of the metrics on the pessimistic and optimistic cycles.

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Q2 2022 Hedge Fund Letters, Talks & More

Hedge funds reconsider their tech holdings after heavy losses

AssessThroughout 2020 and 2021, some of the biggest names in the hedge fund world have reaped huge profits as shares of tech stocks, which have featured heavily in their portfolios, have surged. However, this year the trend has reversed. Stocks that were once among the hottest in the market have fallen out of favor, Read More

At the same time, there is no long-term growth in average annual housing starts. As such, the margin of safety should be based on the value of earnings power over the cycle.

Looking at the top 5 home builders based on the above, I have identified Pulte Group Inc as the best.

Housing starts

US housing starts in July 2022 would be 8.1% lower than the July 2021 rate. The debate then is whether this confirms the current downward trend in housing starts or if it is just volatility. In other words, the upward trend in housing starts that began in 2010/11 is still intact.

You can imagine the impact of investing in home builders. If the uptrend is still intact, you would say that most homebuilders are currently cheap. But if you think this is the start of the downtrend, you may want to think twice about investing in these stocks.

I think the debate misses the point. It doesn’t matter where we are in the housing starts cycle.

This is a cyclical industry and the fortunes of homebuilders are tied to the housing starts cycle. Look at the correlation from 2007 to 2021 between housing starts and revenues for the top 5 homebuilders, as shown in Table 1. The correlations are well over 85%.


Table 1: Correlation

Note: The first 5 were based on the Diving under construction 2021 top 10 article. #5 was Taylor Morrison where I couldn’t get the data going back to 2007. As such, I replaced it with MTH which was ranked #6.

The key to analyzing cyclical companies is not to worry about their position in the cycle, but to look at their performance throughout the cycle.

“…the biggest problem we face in valuing (cyclical) companies…is that earnings and cash flow reported in the most recent year are a function of where we are in the cycle, and extrapolating these numbers into the future can lead to serious errors -valuations…trying to forecast the next cycle is not only futile but dangerous and far better to normalize earnings and cash flows throughout the cycle.

But there are 2 characteristics of US housing starts that should be considered when evaluating home builders. Referring to Chart 1:

  • There doesn’t seem to be any long-term growth.
  • The current cycle low is exceptionally lower compared to previous lows

Housing starts cycle

Chart 1: Housing starts cycle

Source: Tradingeconomics.com

Model without growth

When you compare the pattern in Chart 1 with those in Chart 2, you can see that the pattern for housing starts is more similar to the one shown in blue in Chart 2. This is the cyclical pattern with no growth. The cyclical pattern with long-term growth is shown in green in Chart 2.

Types of Cyclic Patterns

Chart 2: Types of Cyclical Patterns

Source: Author

The implications of the non-growth characteristic are then:

  • The annual average for long-term housing starts is approximately 1.5 million units. In rating homebuilders, we should look at their normalized revenues based on 1.5 million units.
  • If there doesn’t seem to be any growth, it makes more sense to focus on purchasing power value (EPV).

Different depth and cycle time

The duration and range (from peak to trough) of each housing starts cycle are not the same. As shown in Chart 1:

  • The cycle from 2007 to 2021 lasts 14 years and peak to trough is around 1.8 million units.
  • The cycle from 1972 to 1977 lasts 5 years with a peak to trough of approximately 1.6 million units.

The performance of a business over a cycle would vary depending on the duration and values ​​from peak to trough.

  • During the downtrend portion of a cycle, there could be asset depreciation. A longer duration could aggravate the situation.
  • Gross profit margins and SGA margins would likely be different during the downtrend versus the uptrend.

The challenge then is how to normalize performance over the cycle if there is no consistent cycle pattern? One way is to calculate the expected scenario based on the probability and performance of a pessimistic scenario and an optimistic scenario.

  • The conservative view is to take the values ​​over the cycle from 2007 to 2021.
  • The optimistic view is to peg the normalized values ​​to the year when housing starts were at the long-term average of 1.5 million units. These are the 2019 and 2020 performances.

Standard screens

I used two metrics to screen companies – normalized ROE and normalized margin of safety.

For the conservative scenario, I normalized the measures based on the average annual values ​​from 2007 to 2021. For the optimistic scenario, the normalized measures were based on the average of the values ​​from 2019 and 2020.

To illustrate the results of these screens, I compared the performance of the top 5 home builders, as shown in Tables 3 and 4.

Conservative screen

Table 2: conservative screen

Notes: Safety margins were obtained by comparing market prices as of September 2, 2022 with the respective EPV.

Optimistic screen

Table 3: optimistic screen

As can be seen, there is no margin of safety based on the conservative scenario. Based on the optimistic scenario, DHI, PHM and MTH passed the test in terms of positive ROE and margins of safety.

These are extreme views. It is possible to assign probabilities to each scenario and then calculate the expected ROE and safety margins.

One way to estimate probabilities is to look at historical performance according to Chart 1. Of the 8 cycles, there has only been one where the bottom hit 0.5 million units. On such a basis, I estimated the probability of the conservative scenario at 0.125 (ie 1/8) and that of the optimistic scenario at 0.875. Based on this, I got the expected ROE and the expected margin of safety.

I plotted the results as shown in graph 3. In the graph

  • The vertical axis represents ROE
  • The horizontal axis represents the margin of safety. I defined the Margin of Safety = Price / EPV.

Screen based on the expected values ​​on the cycle

Graph 3: Screen based on the expected values ​​on the cycle

The screen results suggest that you should focus your fundamental analysis on Pulte.

If you based the analysis on LTM values, you have all 5 companies with good margins of safety and ROE as shown in Table 4. This is the danger warned by Damodaran.

LTM screen

Table 4: LTM screen


My safety margins depend on how I got the EPV. I evaluated home builders based on the one-step Free Cash Flow to the Firm model where:

Firm value = FCFF / WACC

EPV = Firm Value + Non-Operating Assets – Minority Interests – Debt

FCFF = Free Cash Flow to the Firm = EBIT X (1 – t)

EBIT = Gross profit – SGA

Gross Profit = Revenue X Gross Profit Margin

SGA = revenue X SGA margin

The respective gross profit margins and SGA margins are as shown in Table 5.

Assumptions on GP margins and SGA margins

Table 5: Assumptions for GP margins and SGA margins

t = nominal tax rate assumed to be 21%

Turnover = Respective long-term turnover. This is assumed to be the 2021 Revenue X (1.5 / 1.7) where 1.5 is the long term average for housing starts and 1.7 is the housing starts for 2021.

WACC = derived according to the Damodaran approach. I assumed a risk-free rate of 2.52% based on the average 10-year treasury bill rates from 2007 to 2021. Deleveraged beta = 1.59. Equity risk premium = 4.24%

Non-operating assets, minority interests and debt are assumed to be 2021 values.


Home builders are cyclical businesses. When analyzing them, the advice is that you should look at performance over the cycle. The challenge is that the duration and magnitude of cycles from peaks to troughs are not consistent.

To work around this problem, I estimated the expected ROE and safety margin. The expected values ​​were based on the probabilities and values ​​of the pessimistic and optimistic measures over the cycle.

Looking at the top 5 home builders on such a basis, I identified Pulte Group as the one for further analysis. I hasten to add that this is not an investment thesis. There is still further analysis – financial situation, potential deficiencies and management. Still, the results suggest that it is a good candidate for further analysis.

Do you really want to master value investing

Editor’s Note: The article is by HC Eu who blog at Investing for Value. He is a self-taught value investor and has been investing in Bursa Malaysia and SGX companies for over 15 years. He recently published a value investing book “Do You Really Want to Master Value Investing” on Amazon. This will be available for free download on September 13, 2022, Pacific Date Time.