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- Three Good Investments From Negative Interest Rates
- Jeff Gundlach: 75 Percent Chance Recession Hits in the Next Year
- Unusual Options Activity: New York Community Bancorp (NYCB)
- Insider Activity: Cars.com Inc (CARS)
- ECB Launches Stimulus Package
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| Jeff Gundlach: 75 Percent Chance Recession Hits in the Next Year Posted: 13 Sep 2019 03:00 AM PDT
Billionaire money manager sees economy stalling before 2020 election. Speaking at an investment conference in London this week, billionaire money manager Jeff Gundlach of DoubleLine sees a 75 percent chance of a recession within the next year. That would put the economy in a recession right before the 2020 election, vastly increasing the odds of an uncertain outcome. Regarding the recent inversions on the yield curve, Gundlach, a fixed-income investor, stated that the watched metric is not the best indicator of a recession. Rather, the bigger fear is one seen in the markets lately, where the curve inverts before flipping back the other way. Gundlach's latest prediction comes off a June prediction where he stated he saw a 40 percent chance of a recession by the end of the year. Gundlach closed his comments by focusing on the high prices and low yields in the corporate bond market, which looks like a place with trouble waiting to happen for investors. Action to take: We take the advice of anyone who has created billions in wealth in the market seriously, and see similar dangers in the corporate bond market. The logical follow up for this increased danger is to scale back risk by taking heavily leveraged positions off the table, raising cash, and avoiding relatively-low yield corporate debt right now.  |
| Unusual Options Activity: New York Community Bancorp (NYCB) Posted: 13 Sep 2019 03:00 AM PDT
October put buying suggests shares will remain weak. The October 18th $12 put options on New York Community Bancorp (NYCB) saw an unusual amount of trading volume with over 8,700 contracts trade against a prior open interest of 268, a 32-fold rise in volume. With shares around $13.30, the $12 put option will close in-the-money if shares fall more than 10 percent in the next few weeks, making a sizeable percentage decline. New York Community Bancorp is a regional bank headquartered in New York state, offering traditional banking services such as checking and savings accounts, mortgage and business loans, and other similar services. Action to take: Most analysts are souring on the banks thanks to threatened declines in interest rates, and smaller banks without an investment services branch could be susceptible to continued declines in the coming months. We like the idea of buying puts on the bank, but would prefer to give the trade more time to play out—such as March 2020 $12 puts instead. That will allow time for the market to sort out how interest rate changes will impact bank stocks. Investors could consider buying shares here, given the moderately high dividend yield of 5.2 percent, but may want to wait until prices of the bank get down to around $9 or under, near the 52-week low, to get shares at the best possible price.  |
| Insider Activity: Cars.com Inc (CARS) Posted: 13 Sep 2019 03:00 AM PDT
CEO makes six-figure buy. Thomas Vetter, president and CEO at Cars.com (CARS), picked up 11,000 shares recently, increasing his total share stake to just under 270,000 shares, making for a 4.5 percent increase in his total holdings at the company. At a price of around $9.60 per share, the buy came out to just over $105,000, a sizeable amount considering the company's $650 million market cap. Cars.com operates a digital marketplace bringing together buyers and sellers of cars. The company has over 5 million listings and serves over 20,000 dealer customers. Shares are down over 64 percent in the past year. Action to take: With shares trading at five times forward earnings, the company looks like an attractive buy right now, even if the overall business fails to grow. Given the growth of the space, however, and the likely future prospects for future growth, there could be some nice upside here. Shares look attractive up to $10.00 per share, and are certainly a bargain around $9. Speculators may want to consider the March 2020 $10 call options, which look like a cheap bet at $0.35 per option right now, or just $35 per contract. Should shares start to recover from their steep loss, that option could end up worth $1 or $2 by March, for a significant, quadruple-digit return or more.  |
| Posted: 13 Sep 2019 03:00 AM PDT
European Central Bank unveils latest push to move economy higher. The European Central Bank (ECB) unveiled a new round of quantitative easing (QE), starting at 20 billion pounds per month. The program, coming about after ECB head Mario Draghi stated that governments must also boost spending, gave markets a kick higher for the day. A key feature of the restarted program is even deeper negative interest rates for banks, a stick designed to get the banks lending more capital out to businesses in an effort to fuel the Eurozone's economy. While the ECB left its key borrowing rate at zero, and the bank pledged to leave that rate alone indefinitely, inflation has been on the rise in the Eurozone. As a result, bank deposits at the ECB will face a -0.5 percent interest rate to encourage lending. Action to take: The rise of negative interest rates is another danger for the economy. The biggest danger is that this is an experiment that hasn't fully played out in markets before and may have unexpected results. While short-term stimulus announcements tend to move markets higher, they also tend to push the economy into making poor investments that eventually go bust, leading to a recession. This latest move is another warning sign in markets that investors should step back on their risk and raise cash—which yields 0 percent, a higher rate than ECB deposits.  |
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