Raghuram Rajan raised the Reserve Bank of India’s repurchase rate to 8 percent from 7.75% on Tuesday. Analysts had been expecting no change. “Further tightening isn’t anticipated in the near term if consumer-price inflation slows from about 10 percent now to 8 percent by March 2015.” And yes, good question, Mr. Rajan’s spirit animal is the owl. Meanwhile, Turkey’s central bank “raised interest rates to 12% from 7.75% at the conclusion of an emergency meeting convened late Tuesday night Ankara time to address the pummeled lira…by going so much higher than expected, the central bank clearly was adopting a ‘shock and awe’ maneuver to drive out a market assault…the lira jumped 2.6% against the dollar in a matter of minutes.” But that was yesterday. This is today: “A surge in the Turkish lira following the country’s aggressive interest-rate increase has come apart this morning.” Also, South Africa is getting in on the “raise rates to keep the money” game and so far the reaction is kind of meh so, yeah, emerging markets are still stuck between a rock and a hard place (i.e. a Fed tapering and a current account deficit). Investors don’t seem to be taking this opportunity to buy the cheap, battered emerging markets — and here’s a few reasons why: 1) they’re a value trap and will get even cheaper, 2) outflows and technical pressure will continue working against them, 3) emerging markets were only floated by Fed easing, which is ending, 4) emerging markets as a single investment bloc is an obsolete concept, 5) the real emerging markets now are in peripheral Europe, or 6) it’s all too complicated and difficult to predict. But big business doesn’t seem to agree: big multinational companies are putting their long-term bets on the developing world.
Here’s what I cherry picked from the address: President Obama “called on Congress to increase the federal minimum wage for all workers to $10.10…the Treasury to create a bond called MyRA that can be offered through employers as a ‘starter’ retirement account…cut red tape to help states build factories that use natural gas [and] propose new incentives for trucks that use alternative fuels like natural gas…end tax benefits for the oil industry and use revenues to invest in advanced vehicles that use cleaner fuels…expand the earned-income tax credit…launch more high-tech manufacturing hubs…partner with leading U.S. companies to help long-term unemployed…overhaul U.S. surveillance programs to restore public confidence.” Also he’d really like it if people would sign up for Obamacare.
“A second-hand house in northwest suburban Eastwood sold for as much as A$1 million more than the expected price…95 percent of the more than 100 people at the auction were locally resident Chinese…Behind the growing demand for homes in Australia is a push by Chinese to leave the mainland in search of better education for their children, a clean environment and higher income…about 60 percent of high-net-worth Chinese — those with at least 10 million yuan ($1.7 million) — have left China or are considering it…Chinese demand for luxury properties is also fueled by Australia’s so-called significant investor visa…the visas offer temporary residency for foreigners investing more than A$5 million. While residential real estate doesn’t qualify as an investment, the rules allow [visa] recipients to purchase homes.”
And other thoughts from some ivory tower in Europe…
Apple: Just Good Enough For Carl Icahn
Apple has a uniquely captivating presence in the investment world as one of those stocks people seem to care deeply about; but is the story getting stale? “Analysts and investors went into [Monday’s] release hoping to see an upside surprise just like the Apple of old. What they saw instead was the new Apple, or put another way, the old Microsoft.” Then again, maybe Apple will just never be good enough: “no matter how well [Apple] does, a whole different school of stock market physics seems to apply…in a sense, the problem with Apple is that all the numbers have become so large, they can’t get any larger.” The earnings release was just good enough, however, to convince Carl Icahn to buy $500mn shares and, of course, tweet something about a buyback program. Also, while still very speculative, rumors are floating that Apple may be considering mobile payments as a new opportunity. And this shouldn’t surprise anybody, but the age of the iPod is over.
Here’s a really interesting piece on how “stock performance among retailers that target different income classes has diverged a lot since the recession started.” While luxury and budget retailers are prospering, middle income retailers are suffering. Furthermore, Amazon is taking everyone to school when it comes to relative sales growth.