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Contents Click on the links below to get to the stuff you really really want. USA – Low trading volumes; Same problems; Not much happening (#USA) UK – House builders among biggest fallers; Bank of England adds £100bn to bond buying programme (#UK) Continental Europe – Wirecard livens things up (#Europe) Elsewhere – Chinese stocks up (#Elsewhere) WTF – Options (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
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USA
It was all a bit lacklustre yesterday. Trading volumes were relatively low and folk were still grappling with the same problems: will there be a resurgence in virus cases that knocks the recovery off course? Meanwhile, Trump made a point of reminding his followers that nothing is his fault; rather, we must blame “thugs” and the Chinese. For the former, Trump warned against accusing “decent Americans” (his voters) of being racist (also his voters). For the latter, he talked about a “complete decoupling from China” but didn’t specify why, in election year, when his ratings have fallen.
Today is set to be a day of volatile trading because a bunch of options (see WTF) are due to expire today. As for yesterday, stock price movements were muted. The S&P 500 just about limped up by 0.1% largely thanks to oil prices rising a touch and pulling the oil & gas sector up by 1.2% on the day. Tech stocks also managed to inch upwards. But it was really a very forgettable day’s trading.
Bonds mooched about in much the same fashion. Bond investors have been less quick to jump back on the happy-clappy band wagon. They’re still biding their time, waiting to see what transpires while trigger-happy stock investors bounce around in response to whatever piece of news hits their desks from minute to minute.
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UK
Dull.
Miners, healthcare and telecoms were down by 1.1% or more with house builders among the biggest losers after Taylor Wimpey made use of super-low borrowing costs to raise £515 million to spend on land when things pick up again. Investors didn’t like the fact that the company they owned now had a bigger debt burden the maintenance of which would eat into profits.
The moderately interesting news came from the Bank of England which announced a further £100 billion in its bond-buying programme. This is quantitative easing, the method it uses to inject new cash into the financial system to try to make borrowing cheap and easily available. The message from the Bank of England was one of caution though. They’ll keep piling money in if needed but they’ve also got an eye on the potential for all this new money to send inflation up over the medium term (1-3 years).
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Continental Europe
Also dull.
Same movements as the UK, with one obvious exception…
Wirecard! Up or down? Whaddaya reckon? If you thought up, you were wrong. Wirecard was down yesterday. And how. The financially dodgy finance company bombed by 61.8% yesterday after auditors identified a teeny weeny discrepancy in the company’s accounting books. They’ve got €1.9 billion less on their balance sheet than they claimed. Oops.
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Elsewhere
Chinese stocks have had a pretty positive day so far. The benchmark CSI 300 and the Hong Kong Hang Seng are both up by at least 1.0%. Industrial stocks have led gains despite the latest threats from the Yellow Peril who resides in Washington DC. Aside from that, it’s all rather dull.
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WTF (What’s The Fact?)
Options
An option gives you the right to buy or sell something within a fixed period of time. You don’t have to exercise the right.
So you might have bought an option a few months ago to buy, say, 1,000 shares in Wirecard at €100. If you thought that its stock price was set to rise, then this would have made sense. You pay to own the options and then, if the share price moves up as you hope, you can buy the stocks at €100 and then sell them at the full market price (approaching $140 in April), paid for the options and, hopefully made a profit.
But Wirecard stocks slumped to €37 yesterday, so you would have wasted a bunch of money owning the options and would have just let the options expire.
However, if you’d bought options to sell Wirecard shares at €100 then you’d be laughing. You could exercise that option, and make a healthy profit.
If you’re not familiar with options, then this is largely academic because they’re risky little buggers and are perhaps best used as a hedge against, say, a share price tanking as Wirecard did. In which case, why did you buy it in the first place?
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Links
Investopedia (www.investopedia.com/dictionary/) – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point Guffipedia (ig.ft.com/sites/guffipedia/) – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies Guardian (www.theguardian.com) – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott) Times of India (timesofindia.indiatimes.com) – Why use five words when 37 will do? Daily Mail (www.theatlantic.com/magazine/archive/2016/07/the-war-on-stupid-people/485618) – Click it. I dare you.
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———————————————————— IMPORTANT This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you are too stupid to recognise the devil’s ear wax when you see it, then you’re on your own.
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