2022/12/26 (134) Column

Changes in interest rates take time to take effect
– even if zombie companies
disappear from the market


What many on Wall Street may not have taken into account is the fact that many on US Wall Street believe that the FED (Federal Reserve) appears to be keeping interest rates longer and higher by about 5 percent more or less. Because interest rate increases only take effect with a time lag.

Personally, I`ve been aware of this fact since the summer of 2022. That´s why I had just carefully formulated a long 4XSetUp trading capability for the Dow Jones Future, even CBOT_MINI-YM1!, if you remember. Because the last zombie companies on Wall Street can of course be found in the Dow Jones Industrial Average Index. This is how I explain the outperformance of the Dow in comparison to the S&P500 and/or above all the NASDAQ, in this year 2022. Because, if, for example, a company is highly indebted, it does not have major problems with every interest rate increase in dealing with its debt burden. As a rule, the loans or bonds issued have a longer term. Since only when companies have to refinance themselves do the interest rate hikes have an effect. Therefore, I assume that in 2023 the technology companies, from the NASDAQ, will not lead the next bull market either, if at all! Which? I don’t know that today, here and now either – possibly maybe banks, health care. And or also classic profitable consumer value caompanies, which, thanks to their existing cash flow, can not only finance themselves without any problems but can also at least maintain their sales and profits.

The FED will therefore initially take a break in the course of 2023 and wait and see whether the interest rate hikes that have already been carried out are having an effect. Because since June 2021, the USA has been in de facto stagkflation – i.e. in an economic scenario where inflation is growing faster than the economy as a whole. Incidentally, a logical, consistent manifest left-wing green economic policy under the cloak of a liberal democracy. And the FED knows that too, unspoken. Otherwise, and this is how it currently looks, at the beginning of 2023 it runs the risk of going too far, about raising interest rates. Because, since the financial crisis in 2088 was also triggered by excessive interest rate increases from 1 to 5.25 percent. When the homeowners, who had acquired their property with large amounts of borrowed capital, gradually had to re-close and private families were no longer liquid enough, the financing bubble (with low interest rates) burst. If the central bank had paused at three percent and waited, for example, the real estate market would certainly have come under pressure, but possibly not as crashed as it did. That`s the name of the game for the next year 2023 and/or 2024, if you`re asking me today, what`s next, about FED monetary policy. Think about it! With 3 percent interest rates since 2008 we wouldn’t have a stock market boom on Wall Street because cheap money was just starting to multiply in the stock market. Which also worked well until the corona virus broked out – because many companies, precisely because of the scenario just described, also organized many so-called share buyback programs in order to legally support their share price under company law. But after the closure of entire economies and correspondingly expansive fiscal policy due to the corona virus outbreak, wehave experienced something of a historical exaggeration in the last two years, both in the stock market and in consumer prices. So that Russia’s war of aggression in eastern Ukraine was the famous last straw that caused the expensive stock markets to fall. Because at the same time inflation also shot up, in oir so called west, thanks to the more & less left green economy policies, in the many countries.

However, the basic main reason is not to be found in Russia’s war of aggression. No, rather an overly expansive US monetary policy since 2008 and or even more expansive US fiscal policy are the two wires that caused what is still the largest economy in the world to falter. And where it is necessary to raise the lever again – in both cases to become more restrictive again. And then, if necessary, at the price that so-called zombie companies trigger a new economic crisis. Zombie companies because their profits, let alone cash flow, are not enough to shoulder their own liabilities. And since these already accounted for 15 percent of all companies in the OECD countries, despite the low interest rates in the past, their number may increase rapidly if they have to refinance at the now sharply increased interest rates. Because even companies that still earn investment grade creditworthiness now have to pay six percent interest for new borrowed capital, which is three times what it was two years ago
DEVISE 2 DAY 48h
– My Last Thoughts Abot Market Price Actions

This week looks set to be a relaxed week in terms of new old central bank informations. Only the South American Central Bank of Uruguay, the BCU (Banco Central del Uruguay) will hold its regular monthly meeting again on Friday – and publish its interest rate decision. The major central banks of the most traded currencies will not meet again until next year, 2023. The BOI and also NBP start next week. On Monday, the 2nd the BOI (Bank of Israel) wilö start the yeaor 2023. Following, by the Poland`s NBP (National Bank of Poland) on Wednesday, the 4th. As one of the major central banks.This week looks set to be a relaxed week in terms of new old central bank informations. Only the South American Central Bank of Uruguay, the BCU (Banco Central del Uruguay) will hold its regular monthly meeting again on Friday – and publish its interest rate decision. The major central banks of the most traded currencies will not meet again until next year, 2023. The BOI and also NBP start next week. On Monday, the 2nd the BOI (Bank of Israel) wilö start the yeaor 2023. Following, by the Poland`s NBP (National Bank of Poland) on Wednesday, the 4th. As one of the major central banks. Our long GBPUSD 4XSetUp trading capability closed in profit last week. So that we currently have no open 4XSetUp in the forex market. After we were also able to make a very good profit in DXY in the course of 2022. For a new long 4XSetUp trading capability in GBPUSD i would wait until next days and/or weeks.

However, in the last week of 2022 the focus will shift to stocks as there would be very few important economic releases. Investors are hoping that the stocks will stage the Santa Claus rally, bringing some respite to the markets. In the US, housing data and several regional PMI readings will take center stage. Also, Japan will release retail sales, industrial production, and unemployment rate while in South Korea, Spain, and Russia the focus will be on inflation rates.

In the Financial Markets 4XSetUps I have put once again 5 more stocks from our german DAX40 index, this week. As well as XETR-MRK (Merck) on sunday, XETR-MTX (MTU AERO AUTOTEILE) on monday, XETR-MUV2 (MUENCHENER RÜCKVERSICHERUNG) on tuesday, XETR-PAH3 (PORSCHE) on wednesday, an/or XETR-PUM (PUMA) on thursday, you can get an detail overview of until 18 different pov`s (point of views) about the price action of every single share. As far as the Technical Analysis 4XSetUps are concerned, i will focus us only to the Dow Jones Industrial Average Index, the Dow Future, CBOT_MINI-YM1!, this week. Since we were ripped out of all 4XSetUps, last week. So let us first formulate our basic expectations for 2023, this week.
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– Some Last News About Market Price Actions

SENSEX Snaps Four-Day Decline
Equities in India snapped three days of losses on Monday, with the S&P BSE SENSEX closing above the 60,500 mark, buoyed by some dip-buying strategies in a session marked by thin trading volume. Investors were optimistic that central banks would be less aggressive with inflation peaking. The IMF expected the Indian inflation at 6.9% for the current fiscal year that ends on March 31, 2023, and said price gains would moderate gradually. Recent economic data reinforced that view, with domestic inflation easing to an 11-month low of 5.88% in November 2022. IndusInd Bank and State Bank of India were among the top performers, up 4.2% and 4%, respectively.

China Stocks Gain Despite Covid Woes
The Shanghai Composite rose 0.65% to close at 3,066 while the Shenzhen Component gained 1.19% to 10,979 on Monday, recouping some losses from last week and taking cues from a positive lead on Wall Street after latest data showed that US inflation continued to ease. Mainland stocks also advanced despite lingering concerns about the country’s Covid situation, with authorities saying they would stop releasing daily case numbers amid a new wave of infections. Meanwhile, trading volume was subdued as most other Asia-Pacific markets were closed for holidays. Growth-oriented technology and new energy stocks led the charge, with strong gains from TCL Zhonghuan (7%), Gigadevice Semiconductor (6.9)%, Qtone Education (7.4%), Sungrow Power (10.8%) and Longi Green Energy (3.6%). Other heavyweight firms also gained, incl. China Meheco (10%), Shandong Xinhua (5.1%), Gree Real Estate (6.9%,) People.cn (10%) and BYC Company (4.1%).

Russian Stocks Close Monday Higher
The ruble-based MOEX Russia index closed 0.7% higher at 2,135 on Monday as investors welcomed positive corporate news and monitored dividend announcements for limited opportunities as Russia’s macroeconomic backdrop continues to worsen. Sberbank shares added 2% in the session, triggering a rally for other banks after its chairman signaled that the lender will announce strong profit expectations for 2023 in the coming weeks. In the meantime, Rosneft rose 2% to lead gains for oil companies after its shareholders approved the board’s decision to pay dividends for the first three quarters of 2022 at RUB 20.4 per share. Data by Reuters showed that exports of oil from Russian Baltic ports are expected to decline by 20% month-on-month in December amid the start of the EU’s oil embargo and the G7’s EUR 60 price ceiling.DEVISE 2 DAY 48h
– Where I Was Wrong, Where I Was Right

A super exciting year 2022 is coming to an end! And regardless of our (not) successful 4XSetUps trading capabilities, I would like to thank each and every reader here. Because if you, yes you, didn’t read my DEVISE 2 DAY daily, every day, then financing my newspaper wouldn’t be worth it for me. Let alone for my nine online brokers.

For the last week I will focus on the DJI (Dow Jones Industrial Average Index); even the Dow Future, the CBOT_MINI-YM1!. Nevertheless, I will also want to give us a detailed overview of the GBPUSD pair again. But don’t want to formulate new 4XSetUps trading capability. Because I think it would make more sense to let the last week expire first. And then in January 2023, sooner or later, go long/short again.

Anyway, the DJI (Dow Jones Indistrial Average Index) was the best stock market in the US last year 2022. And that, fundamentally argued, quite rightly so. Because the least vulnerable companies are listed in this  stock market, which many colleagues refer to as zombie companies. So as a company that cannot refinance your liabilities and interest from earnings let alone cash flow. Because that is one of the most crucial fundamental points of every stock valuation in an environment of higher interest rates. And that’s why I generally prefer the DJI (Dow Jones Industrial Average Index) over the NASDAQ for 2023 again. Because I perceive a lower downside risk in the DJI than in the NASDAQ. Precisely because of the refinancing problems that have just been formulated for many technology companies that are listed in the NASDAQ. However, we will observe, analyze and evaluate in every issue, including in 2023, how far the DJI can rise and/or perform better than the NASDAQ in 2023. To formulate new old 4XSetUp trading capabilities regularly…