Not Just the Fed’s Balance Sheet That’s Changing

(Excerpt's from AAII’s Charles Rotblut journal Sept. 21 2017 on the results of the September Fed meeting.)

Federal Open Market Committee (FOMC) announced its plan to unwind its balance sheet. Starting next month, the Federal Reserve will stop reinvesting $6 billion of proceeds from maturing Treasury securities and $4 billion proceeds from maturing agency debt and agency mortgage-backed securities. The dollar amounts will be gradually rising each month, subject to adjustments as warranted. By not reinvesting the proceeds of maturing bonds, the central bank is effectively reducing demand for those bonds. The effect of this on the credit market will be the subject of economic studies and textbooks for decades to come. Fed officials are going to have to be sensitive to any ripples in the credit markets and adjust accordingly. To predict how things will turn out is to make a big guess. It’s an uncertainty, but it’s a well-telegraphed uncertainty and so far the bond markets have not shown signs of fear about it.

The FOMC also updated its forecasts for economic growth, keeping the annual long-term projection for GDP expansion at 1.8%. Interest rates were left unchanged and expectations for how rates will be raised next year trended downward. 

All of this is occurring as Fed Chair Janet Yellen’s term will expire in February. President Trump will have four Federal Reserve Board vacancies to fill once vice chair Stanley Fischer steps down in October. The sheer number of personnel changes could alter future monetary policy from what it would have been. Yellen’s approach has been dovish.  Whether the president’s appointees to the Federal Reserve will be comparatively more hawkish or dovish remains to be seen. 

Trump has relied heavily on borrowing. This would suggest a preference to keeping interest rates low. As long as inflation remains at tame levels, the economic data would make it hard to justify a shift to a significantly more hawkish monetary stance.

A Couple of Worthy News Sites

 

In addition to the obvious business news sites that investors seek out for stock information like Google Finance, Yahoo Finance, Reuter’s and Bloomberg, there are also smaller less known sites that offer very good insight into stocks.  Here are two that I like. 

The Wellesleys News

http://thewellesleysnews.com/ 

Screen shot above shows the home page.  They update frequently during the day and categorize their stories according to the menu you see in black across the top of the page for Business, Consensus &  Forecast, Sector Snapshot, Trending Equities, and Top Yields.  Each section gives you a list of articles related to that topic.  This is a good place to check on watch list stocks as well as keeping current on the companies in your active portfolio.

The Cerbat Gem

Market News and Analysis

hhttps://www.thecerbatgem.com/category/headlines

Screen shot above shows the home screen.  Note the menu across the top just underneath the logo.  That separates articles by category much like Wellesley site.  I especially like the M&A section and Analysts’ Updates.  Both of these sites are worthy of bookmark space.  Another thing these sites are useful for is discovering good companies that may not turn up on other screens that you run to select stocks to research.

3/25/17 Barron’s Picks and Pans

(BZ Newswire) --

This weekend's Barron's takes a look at a long-suffering media company poised for a turnaround.

Other featured articles offer the prospects for a solar power outfit with a strong balance sheet and a lender in a sweet spot of high growth.

The outlooks for a chip maker riding a tailwind and a consumer electronics giant with a respectable dividend yield are also examined.

"Viacom Flips the Script: Stock Has 40% Upside" by Robin Goldwyn Blumenthal makes the case that long-suffering media company Viacom, Inc. (NASDAQ: VIAB) is tracking a new course toward a turnaround. See how a new CEO is shaking things up, shifting priorities and reinvesting in the company. The stock has risen since he took up the reins but still looks cheap, according to Barron's.

In "Dark Clouds May Be Lifting for SolarEdge," Andrew Bary suggests that shares of Solaredge Technologies Inc (NASDAQ: SEDG), which makes optimizers and inverters, could rise by 40 percent or more in the next year. See why Barron's thinks that, with its strong balance sheet, the solar power outfit offers staying power until the industry comes back in vogue.

Jack Willoughby's "Why Silicon Valley Bank's Stock Could Rise 25%" takes a look at whether this lender to venture capitalists and startups is headed into a sweet spot of high growth. Discover why Barron's believes SVB Financial Group (NYSE: SIVB) is poised for several years of rapid earnings growth that dwarfs expectations for most other banks.  

While the growth cycle at Micron Technology, Inc. (NASDAQ: MU) could be extended, it won't last forever, according to "Micron, Up 170%, Could Move Higher. But Be Wary" by Tiernan Ray. The current market conditions for Micron are proving extraordinarily favorable, though the CEO announced his retirement last month and the company has yet to name a successor.

In Johanna Bennett's "Apple iPhone, Dividend Buzz Can Keep Stock Hot," see why one key analysts says that even with Apple Inc. (NASDAQ: AAPL) shares near an all-time high, investors should expect another 20 percent gain. While Apple is trading near its highest price-to-earnings multiple in five years, there is much to like, including a respectable dividend yield.

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