Author Archives: Scalper1

Will Apple Lag Or Leapfrog Samsung With Cell-Capable Watch?

Apple might add cellular connectivity in its next-generation smartwatch, as it races with rival Samsung to make the devices more functional. The Apple Watch has relied on a user’s nearby iPhone for wireless connectivity. Samsung’s Gear S2 users can read and reply to text messages and listen to voice messages but do not yet have Internet access or Web browsing. Apple is revving up new features amid disappointing demand for its initial device, says a Wall Street Journal  report . Apps may run directly on the Apple Watch’s own processor. The new Apple Watch is expected to debut in September, along with the iPhone 7. That same month, Samsung is expected to take off the wraps of the next generation Gear S3 at Europe’s IFA 2016 show, in Berlin. Both Apple and Samsung have been active in an industry standards-setting group called GSMA. The industry group has been developing standards for electronic SIMs embedded in consumer electronics such as phones, as well as for the Internet of Things. The reprogrammable software does the same job as the SIM (subscriber identity module) card, often found under the mobile phone battery. Samsung’s Gear S2 smartwatch features a built-in e-SIM, also called smart SIM. A 9to5Mac report last year speculated that Apple plans to add videoconferencing capability to its smartwatches. Apple’s move into e-SIMs or soft SIMs could be a problem for wireless service providers such as AT&T ( T )  and Verizon Communications ( VZ ). That’s because with e-SIMs consumers could shop for the best wireless data plan and switch service providers much more easily.

Steel Makers Show Their Mettle; Stocks Rise Sharply

Close watchers of the stock market witnessed a rotation out of conservative, dividend-paying utilities and REITs during the past week. The fresh cash seems to be going into steel makers, machinery and related companies. Rotations occur seemingly spontaneously when money managers decide one group has risen enough and sell, redeploying the cash elsewhere. Investors should watch the rise and fall of IBD’s 197 industry groups for clues about rotation. Steel makers are the No. 3 industry group based on six-month performance, up from No. 175 three months ago. A look at the charts of some of the leading steel companies shows a sudden run-up. Several have risen almost uninterrupted this year. Steel is a cyclical industry, so an improvement in earnings and stock price could foresee an improvement in the manufacturing sector. Steel Dynamics ( STLD ), a leading member of the group, is not far from making multi-year highs despite a 47% decline in 2015 earnings per share. Last week, it reported that Q1 earnings rose 53% from a year earlier. Analysts expect EPS to nearly double this year. The stock has gained nearly 60% since a Jan. 20 intraday low but is hitting upside resistance near 25. The stock is just 4% below a September 2014 peak of 25.15. Domestic steel makers have been pinched by falling prices resulting from a supply glut and from cheaper imports resulting from a rising dollar. CEO Mark Millett told analysts that overall demand in the first quarter was unchanged with heavy equipment, agriculture and energy markets weaker and automobiles and construction were stronger. Meanwhile, Steel Dynamics’ scrap recycling business swung from an operating loss to a profit. U.S. Steel ( X ) once produced two-thirds of all U.S. steel. It stock has rebounded 200% since late January. But the profit picture isn’t so rosy. It lost money last year and is expected to lose even more money this year. Shares of Nucor ( NUE ), the nation’s largest steel producer, has risen 45% since late January. After four quarters of declining EPS growth, it posted a 28% increase in Q1 to 23 cents a share. Analysts expect a 33% increase to 48 cents in the current quarter and a 14% rise this year. Steel producers are part of the metals sector, ranked No. 3 out of 33 sectors. The sector has risen 15% year to date through Monday’s IBD. A single stock in the sector makes the cut as stocks with EPS and Relative Strength ratings of 80 or above with an IPO in the last 15 years. That’s  RBC Bearings ( ROLL ), which is part of the No. 5 metal processing and fabrication industry group. The company makes precision ball bearings used in aircraft and industrial applications. In near lock-step with the steel companies, the stock began a sharp recovery in January that has carried it 37% higher since January. The company has experienced moderate but steady growth in recent years. Revenue growth has accelerated from 0% to 26% to 32% to 36% in recent quarters.

Should You Hedge Your Foreign Currency Exposure?

Click to enlarge By Remy Briand, Head of Research, MSCI The volatility of currency has increased in recent years as a combination of quantitative easing and currency wars fuel swings in the foreign-exchange market. CURRENCY RISK TO EQUITY PORTFOLIOS HAS TICKED UP SINCE THE 2008 FINANCIAL CRISIS The chart above shows that the risk to a U.S. dollar-based investor from currencies in international equity exposure has increased significantly since the global financial crisis, according to the latest Barra global equity model . By contrast, the exposure to foreign currencies reduced total risk for a portfolio of developed market equities at times prior to 2004. Many money managers disregard the volatility and leave their exposure to foreign currency unhedged. Or they apply full hedge strategies that can prove costly over time. A more dynamic hedging approach demands a framework to decide which currency to hedge, a mechanism to monitor the indicators and an ability to vary automatically the portion of each currency weight to hedge in a given period (a proportion referred to as a hedge ratio). Which indicators to consider when selecting a hedge ratio There is a long history of research by academics and practitioners who have studied currency hedging strategies. As part of MSCI’s research into risk factors, we have reviewed and modeled those indicators that have proved to be effective in the literature and over time. Our indicators come from four categories: value, momentum, carry, and volatility. The value indicator measures the relative purchasing power of each currency in a pair. Momentum examines currency returns for the previous six months. Carry measures the difference between two-year sovereign yields for both the foreign and home currency. Volatility compares average monthly volatility with the six-month historical average. The ability to hedge foreign exchange risk systematically for any pair of currencies by reference to the four indicators form the foundation of the approach to adaptive hedging that MSCI introduced recently. Though you can view each indicator individually, together they indicate whether or not to hedge and by how much. If the signal points to a possible depreciation of the foreign currency against the home currency, then a hedge may make sense. The chart below illustrates the calculation of the hedge ratio for the Japanese yen from the perspective of a U.S.-dollar based investor. The solid bands of color show periods when an investor should have hedged yen exposure for the respective indicators. INDICATOR SWITCHES AND THE ADAPTIVE HEDGE RATION SINCE MARCH 2012 FOR THE JAPANESE YEN (U.S. DOLLAR-BASED INVESTOR) Click to enlarge Taking the pain out of hedging decisions If you consider each currency represented in the MSCI ACWI Index, calculate the hedge ratios and average them in proportion to the weight of the currency in the index, you get the global average hedge ratio for home-based investors. According to the formula, a U.S.-based institutional investor would need to hedge its global equity allocation by 65% on average, as of March 31. Based on the adaptive hedging methodology, a U.S.-based institutional investor would hedge 75% of their Swiss franc exposure, 50% of their yen exposure, 75% of their euro exposure and 75% of their sterling exposure. Similarly, an investor based in the eurozone would hedge 75% of their Swiss franc exposure, 50% of their yen exposure, 75% of their sterling exposure, and 50% of their U.S.-dollar exposure. HEDGING RATIO FOR KEY CURRENCIES (AS OF MARCH 31) Because the targeted hedging ratios change through time, currency hedges require active monitoring and regular adjustment in portfolios. While long-term investors may decide to leave their allocations to global equities unhedged, investors more sensitive to short-term volatility may prefer a more rules-based form of currency hedging. The adaptive hedging methodology illustrates one approach based on four factors affecting currency behavior. Further reading: The MSCI Adaptive Hedge Indexes: Flexible hedging using a combination of currency indicators Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.