Fed Slams the Gas, Shifts to 6th Gear On Repos
The Federal Reserve just can’t seem to print enough money these days. The Fed will now increase the amount of overnight liquidity it supplies to $120 billion every day. But that’s not all. Term repos, which last 2 weeks typically instead of overnight, will be increased to $45 billion from $35 billion. That doesn’t mean that this amount will be printed every day. It depends on how much of the facility is tapped each day, but the bank is expecting some stress and high demand for reserves as we approach the end of the year. Meanwhile, the lower the Fed pushes rates, the more money it will have to print in order to keep rates within its desired range. The Fed is widely expected to cut rates at its next FOMC meeting next week.
What is the effect of all this? As of the latest data available on October 16th, the Fed’s balance sheet has ballooned by over $200 billion since bottoming out just before the repo rate spike in mid September caused the central bank to start supplying liquidity to buffer overnight repo operations. To put that number in perspective, prior to the financial crisis 11 years ago, the Fed’s balance sheet was about $900 billion. In the space of less than a month, the Fed has already printed about 22% of that total, so this is quite extreme.
Charles Schwab Plan To Introduce Fractional Shares a Boon to Retail Investors?
Chares Schwab (NYSE:SCHW), after just recently offering commission free trades, is now planning to offer the option of buying fractional shares. This could serve to suck up even more money into capital markets from retail traders who can’t afford to buy expensive index funds one share at a time. It’s a bid to get younger investors with less capital into the markets. The broker didn’t give any details or timing as to when this would be implemented though. The innovation would also help people invest a certain dollar amount of savings into whatever fund they want, instead of buying in share multiples. Mutual fund firms are a bit worried about this, in that it could siphon off additional market share from the mutual fund industry which charges higher fees for ownership than ETFs typically do.
Tesla Blows Away Expectations, Stock Rockets
Tesla (NASDAQ:TSLA) cut costs and posted record deliveries, and the stock rocketed over 20% yesterday. The company totally blew away all expectations somehow, posting earnings of $1.86 a share in the face of consensus estimates of a loss of 42 cents a share. Now the question is if Tesla can replicate these results quarter after quarter and actually become a consistently profitable company. Behind the profit was impressive cost cutting of 16%, with operating costs being the lowest they’ve been since production on the Model 3 began. Musk says that Tesla is now in a place for “crazy growth”, which should help raise expectations for next quarter, which could be a dangerous thing for a company as closely watched as this. CEO Elon Musk had previously said that Tesla would pull a profit by the end of 2019, so he’s a quarter early.
SoftBank Shareholders Not Too Happy With WeWork Bailout
SoftBank (OTCMKTS:SFTBY) continue to fall after the $10 billion WeWork bailout. It appears shareholders are not to happy with the decision to let the subleaser continue to operate by giving it even more money. Shares are down in Tokyo this morning indicating a lower opening for shares trading over the counter in the US. By the end of the deal, SoftBank will own about 80% of the company. The stock has been battered since the WeWork debacle but hasn’t collapsed too far considering the embarrassment suffered. Revenues and earnings have grown consistently since 2015 and so has the company’s market cap, though if WeWork completely fails, investors may eventually start second guessing SoftBank’s decisions.
Ford Posts Strong Earnings But Cuts Guidance
Ford (NYSE:F) impressed with earnings yesterday, with the company taking in $1.4 billion in profit, up $182 million from this time last year. This came despite a drop of 2% in revenues, due to the closure if factories in Russia and Europe, which was also a big factor in its cost-cutting that helped push profit up. Restructuring at Ford continues, and is expected to cost about $11 billion by the time it continues. Despite success this quarter though, next quarter isn’t expected to be nearly as good due to falling market share and higher cost of incentives to attract new buyers.
Cryptocurrency Sector Falls, Bitcoin Wobbling Around $7,500
Cryptocurrencies collapsed across the board yesterday. Total market cap for all cryptos and altcoins is floating at just over $200 billion. If it breaks below this level, it would be the first time since May. Long term support though stands at about $100 billion in total market cap, which means if near term support is broken, which looks to be at about $170 billion, then we still have a long way to go down. Bitcoin (USD-BTC) is down about 23% over the past month. One exception to the decline though interestingly is Bitcoin SV, a forked chain off of Bitcoin core backed by Dr. Craig Wright, who claims to be the mysterious Satoshi Nakamoto, the inventor of Bitcoin.