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10.2% profit on HSBC PLC in our downside view

HSBCexit

 

HSBC Holdings PLC LSE 20210519 18.03

 

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7.8% profit on Barclays PLC in our downside view

BarclaysEXITBarclays PLC 20210521 20.27

 

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Investors Double Down on Stocks, Pushing Margin Debt to Record

Some investors have been tempted to chase bigger gains—and have exposed themselves to potentially devastating losses—through riskier plays, such as concentrated positions, trading options and leveraged exchange-traded funds. Others are borrowing against their investment portfolios, pushing margin balances to the first record in more than two years, to buy even more stock.

A strong indicator of stock-market euphoria flashed red last month. Investors borrowed a record $722.1 billion against their investment portfolios through November, according to the Financial Industry Regulatory Authority, topping the previous high of $668.9 billion from May 2018. The milestone is an ominous one for the stock market—margin debt records tend to precede bouts of volatility, as seen in 2000 and 2008.

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Investors using margin debt pledge their securities in exchange for loans from brokerage firms to make further investments. They can get into trouble if their collateral falls below a certain threshold, triggering a margin call. They then have the option of either putting up more money or selling the securities underlying the loans.

Many investors also use their margin balances to trade options, contracts that give them the right to buy or sell shares at a specific price, later. Options trading exploded this year as individual investors flocked to the stock market. A record number of options contracts have traded this year. An average of 29 million changed hands each day this year, a 48% jump from 2019, according to data from Options Clearing Corp.

 

If You Sell a House These Days, the Buyer Might Be a Pension Fund

 

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The consulting firm found Houston to be a favorite haunt of investors who have lately accounted for 24% of home purchases there. Investors’ slice of the housing market grows—as it does in other boomtowns, such as Miami, Phoenix and Las Vegas—among properties priced below $300,000 and in decent school districts. The bubble has room to grow before it bursts. But it is inflating fast. Expects home prices to climb 12% this year—on top of last year’s 11% rise and increase at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005.

That boom was different, fueled by loose lending that enabled individuals to speculate on home prices by racking up mortgages they could repay only if home prices kept climbing. The money party ended a few years later when home prices stopped rising. The ensuing crash wiped out $11 trillion in U.S. household wealth and brought the global financial system to the brink of collapse. 

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Financiers stepped in starting in 2011 and gobbled up foreclosed homes at steep discounts. They dispatched buyers to courthouse auctions with duffel bags of cash. Smartphones and tablet computers—new then—enabled them to orchestrate the land grab and manage tens of thousands of far-flung properties thereafter. They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for falling prices. There wasn’t much competition. Stung by losses, banks made it harder for regular home buyers to get a mortgage. Millions of Americans were underwater, owing more on their mortgages than their homes were worth, and unable to move.

 

 

11.9% profit on Advanced Micro Devices in our upside view.

Advanced Micro Devices IEXIT

Semiconductor designer Advanced Micro Devices Inc (AMD) has secured unconditional EU antitrust approval for its $35 billion bid for Xilinx Inc . 

Advanced Micro Devices Inc All Sessions 20210615 16.37

 

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Mario Draghi Helps Pave Way for Italian Bank Mergers

When Mario Draghi ran the European Central Bank, he pushed, unsuccessfully, to get the region’s feeble banks to merge and clean themselves up. Now as Italy’s prime minister, he is trying again, hoping to spur a consolidation wave among the country’s beleaguered lenders. Italy’s banking sector, stuffed with soured loans and weighed down by high costs, has long loomed as the weakest link among countries that share the euro currency. Consolidation is seen as a way for banks to reduce costs and slash their way to more profits. Compared with the U.S., Europe’s banking scene is highly fragmented, with each nation hosting its own vast collection of regional banks. And unlike the strong growth in the U.S., Italy’s economy has barely grown for years, creating a difficult backdrop for banks to operate.

Italy’s banks became a flashpoint during the European sovereign debt crisis earlier last decade. Several required state bailouts. After the crisis, Italian banks ignored calls by Mr. Draghi and other regulators to merge. Rome played a role by keeping troubled banks alive instead of pushing for sales or liquidations, which could harm depositors or savers who invested in bank bonds. Share prices of Italian banks have been among the worst performers globally for years, but have bounced back this year as the economy has recovered. Investors sense a change in tone when it comes to the possibility of mergers. 

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UniCredit is likely to emerge as an acquirer. Last year it lost its spot as the largest bank in the country by assets after rival Intesa Sanpaolo SpA took over UBI Banca SpA. Mr. Orcel, who recently became CEO, was previously head of investment banking at UBS Group AG and made a career forging European bank deals.

A target for UniCredit is Banca Monte dei Paschi di Siena BMPS SpA, a perennial trouble spot for the European banking system, according to people familiar with the matter. The Tuscan bank was nationalized in 2017 after years of coming close to failure, weighed down by bad loans and a legal scandal. Rome agreed with European authorities to reprivatize the bank by April of 2022.

UniCredit is also interested in exploring a tie-up with Banco BPM BAMI SpA, Italy’s third-largest bank by assets, according to people familiar with the matter. BPM serves primarily the wealthy Italian region of Lombardy,

Italy is also trying to sell Banca Carige SpA, another troubled lender that in 2019 was rescued by the country’s deposit protection fund. The fund, which is fed with contributions from banks, is currently shortlisting potential candidates. It is unlikely that foreign buyers will play a role in Italian deals. Cross-border mergers to create real European heavyweights are harder to carry out due to resistance from national authorities and because there is no eurozone-wide deposit insurance plan. Cross-border mergers also provide less cost savings for the banks.

 

 

6.2% profit on easyJet PLC in our downside view

easyJet PEXIT

easyJet PLC 20210611 16.40

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