Apple Phones, Failing Loans, Fed, China: What Drives Markets Next?

Monday, September 14, 2015

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Apple Phones, Failing Loans, Fed, China: What Drives Markets Next?

Market Roundup Dow -62.13 to 16,370.96 S&P -8.02 to 1,953.03 NASDAQ -16.58  to 4,805.76 10-YR Yield -0.003 to 2.18% Gold +$4.80 to $1,108.10 Oil -$0.56 to $44.07   By Mike Larson It’s a Super Bowl week in the markets, with so much on the line ahead of the Federal Reserve meeting. But between now and then, we’re seeing an interesting battle shaping up for the markets. On the one hand, you have Apple Inc. (AAPL) claiming it generated strong pre-orders for its new iPhone 6S models. The phones don’t actually ship until Sept. 25. But Apple said it’s on pace to top the 10-million-unit rate of initial weekend sales for its original iPhone 6 and 6 Plus models. The company rolled the 6S models out last week at a San Francisco event, and many analysts (myself included) seemed underwhelmed. An upgraded camera, “3D touch” screen technology, and a few other features didn’t seem to excite many people beyond the devoted faithful. It’s worth noting that Apple always uses breathtaking and over-the-top language to describe its product features and market response, and that it didn’t provide any concrete sales figures this time. So we really won’t know how the new phones performed until Apple’s next quarterly report. Will the uncertainty with Chinese stocks move markets this week? Or will one of the multitude of other events be the catalyst? Meanwhile, Chinese stocks rolled over again last night after we got ugly economic data there. Growth of so-called “fixed asset” investment in things like real estate sank to its lowest level in 15 years, while production growth missed forecasts. We also saw fresh lows in select Asian currencies and Turkey. Most importantly: The Bank for International Settlements (BIS) warned that emerging-market turmoil, a huge increase in global debt loads, rising loan defaults, and an end to the multi-year period of artificially suppressed interest rates could trigger a major financial crisis. The BIS is the “central bank for central banks” so its words carry a significant amount of weight. The organization said China, Brazil and other major emerging markets may soon have banking and bad loan crises to deal with, on top of stock market and currency declines, and sovereign debt downgrades. All of this suggests we still have significant worries about lousy overseas growth, tighter monetary conditions in the currency and bond markets and tumbling foreign stocks, Fed meeting or no Fed meeting. And we still have a few companies that are trying to buck the trend. “We still have significant worries about lousy overseas growth.” Will the bearish forces building overseas win this fight? Or will a handful of bullish companies give investors a reason to stick around? I’ve explained why I’m more worried about downside risk than missing some rip-roaring upside rally. But I’m interested in your take. Share it right away at the Money and Markets website because we don’t have much time before the Fed gathers for its fateful meeting. Our Readers Speak This is an incredibly important week from a policy and market perspective, and many of you weighed in ahead of it with your thoughts on major issues I’ve covered recently. Reader Ted F. had this to say about the possible popping of a new technology stock bubble: “The threat to the tech market may be having an effect on the California real estate market. Houses are suddenly not moving or are staying on the market a lot longer, and nobody seems to be looking.” Reader Fred G. shared this view of the impact of possible banker “perp walks”: “The crooked bankers might finally be going to jail because we have a different Attorney General, and an honest one. I think prosecution and jail may be the only way to save the world from total disaster. When there is corruption at the top, it seeps all the way down through the economy, and that is what was happening in America.” When it comes to the Fed, Reader Tommr said he doubts Fed Chairman Janet Yellen will pull the trigger. His view: “The Fed will NOT raise interest rates any time soon! As I have said in the past, the Fed follows the market and not the other way around. Rates must first rise ‘on their own’ and then the Fed will adjust its targets. They have been trying to talk rates up for a long time without much success.” As for trying to protect against stock market losses with hedging strategies, Reader Dr. Donnie S. said: “Every hedge has a cost, so before you decide to use, or if you already do hedging, you must ask yourself if the benefits received from it justify the expense. You’ve got to keep in mind the goal of hedging isn’t to make money, but to protect from losses.” Thanks for adding your voices to the mix. If you didn’t get a chance to share over the weekend, just head on over to the Money and Markets website and do so now. Other Developments of the Day Germany implemented partial border controls over the weekend, a move followed shortly afterward by Austria. The step is a reversal for the country, which previously promised to let thousands of refugees continue to stream into the country without passport checks and other hassles at its borders. It indicates that financial and political pressures are rising, and that Europe’s open border principals may be under serious threat. While we wait to see IF the Federal Reserve will raise interest rates this week, the other key question is HOW will they do so? It’s not easy anymore because of all the changes to the credit markets over the past several years. This New York Times story shows the hoops the Fed will have to jump through to raise the cost of money if it finally pulls the trigger. A private equity firm called Vista Equity Partners agreed to buy financial technology firm Solera Holdings (SLH) for $6.5 billion, including cash and assumed debt. That represents a premium of about 13% for the Westlake, Texas-based company. What do you think about Europe’s move to clamp down on the flood of refugees heading there? How about the latest private equity deal, or the threat of a major emerging markets bank crisis? Let me know over at the website when you have a chance. Until next time, Mike Larson Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.