‘Super’ Mario, The ECB, and Great Expectations; Russia’s Coming Implosion; Flight To Safety In Gold; Two Potential Blockbuster Bio-Pharma Plays

Super’ Mario, The ECB, and Great Expectations; Russia’s Coming Implosion; Flight To Safety In Gold; Two Potential Blockbuster Bio-Pharma Plays


So far, 2015 has been the year of volatility, a virtual roller-coaster of ups and downs — mostly downs, with 1,000 point swings in a matter of days. Last week saw the Swiss decision on the franc verses the Euro, a rally in oil, strong dollar, and a flight to safety in high-yield corporate bonds and gold. As Vito Ricanelli notes in this weekend’s Barron’s, “the broad market is down less than four-percent from all time-highs, an unremarkable drop in the last two years; but, the anxiety appears more palpable since investors are looking down from a higher valuation altitude.”

“One driver of the swoon was the surprise move on Thursday by the Swiss National Bank, which ended it’s policy cap of 1.2 francs to the Euro,” Mr. Ricanelli wrote. “The Swiss franc promptly rose to parity against the Eurozone currency, as investors speculated that the European Central Bank will announce some kind of significant quantitative easing on Thursday.” Indeed, the stakes are very high for Mario Draghi and the ECB on Thursday. Europe’s economy is near the flat line — with some points of light in the U.K. and Germany — and more than just a whiff of deflation. Mr. Draghi needs to deliver in a big way on Thursday; or, risk becoming the most irrelevant central banker in the West. The Euro is now sitting near and all-time, 11yr. low, and job growth and economic activity remains anemic at best. Even if Super Mario does deliver, don’t expect his decision to work miracles. European economies need structural reform to become competitive again and create jobs for the vastly unemployed, and under-employed youth on the continent.

Last week, the DOW lost 226pts., or -1.3 percent, to 17,511; while the S and P 500 fell 25pts., or -1.3 percent, to 2019; and the tech-heavy NASDAQ led the retreat of the major indices — down 70pts., or -1.5 percent, to 4,634. For the year, the DOW is down -1.75 percent, the S and P -1.92; and, the NASDAQ -2.15 percent.

Russia May Resort To Currency Restrictions — If Outflows Continue To Mount

Bloomberg News has an article this weekend, with the title above, by Andre Tartar and Anna Andrianova. The authors write that “Russian capital outflows more than doubled to a record last year; and, the government may resort to currency restrictions if the pace doesn’t ease in 2015,” according to a survey of leading economists by Bloomberg. “Net outflows soared almost 10-fold, to an estimated $72.9B in the fourth quarter of 2014 — from the previous three months, pushing last year’s total to $151.5B,” Russia’s central bank said. That easily dwarfs 2013 outflows, which totaled just $61B. “Capital controls are likely if private money leaves at a $240B annualized rate in 2015, or, $60B in the first quarter of 2015,” according to the median estimate of 14 leading economists surveyed by Bloomberg. “With investors heading to the exists, [capital] outflows are blunting Russia’s efforts to reverse Russia’s biggest currency crisis since 1998, undermining business confidence and driving up borrowing costs.”

The head of Russia’s largest bank, German Gref, “offered a bleak picture of the fate awaiting the country’s banking sector in 2015 during the set-piece Gaidar economic forum in Moscow this week,” according to an article today in The Moscow Times. It’s obvious that the banking crisis will be massive,” the Sberbank chief told reporters.

“The state will capitalize the banks and increase its stake in them, and the banks will buy industrial enterprises and become financial-industrial groups,” Gref said Wednesday. “All our economy will be state-run.”

“Amid a deepening recession and the collapse of one of Russia’s top-30 banks late last year, many analysts are urging banking executives and government regulators to prepare for a crisis that could be as bad, or worse, than that which engulfed Russia in 2008 and 2009,” The Moscow Times wrote.. “We are already in a crisis,” said Oleg Solntsev, the head of banking and monetary policy research at the Center of Macroeconomic Analysis and Short-term Forecasting in Moscow. “The speed of the crisis will depend on two key factors: the situation on the oil market … and the behavior of the Central Bank,” said Solntsev, who predicted a stabilization might only take place in mid-2016.

Gold Settles At Highest Level Since August 2014

Well, with the Swiss shocking the currency markets, oil’s collapse, a weakening global economic picture, uncertainty in Russia, and the increased terrorist threat — is isn’t a surprise to see a flight to safety in gold. The yellow metal had its best week since August 2014, up 4.5 percent, to close at $1,278.60 per ounce, and is up 6 percent year-to-date. “The Swiss National Bank announcement has added a bit of extra juice to the gold story; but, from an interest rate and equity perspective, it looks like there is a more solid foundation to its strength,” said Deutsche Bank analyst Michael Lewis.

In an interview with CNBC’s Futures Now, Sterne Agee’s Precious Metals and Mining Analyst, Michael Dudas, said that “gold should continue to benefit from central banks’ efforts to devalue their currencies.” With global uncertainty not expected to let up anytime soon, Dudas thinks gold could rally another 11 percent by year’s end,” CNBC reported.

Two Potential Bio-Pharma Blockbusters

The bio-pharma sector is very exciting; but, also notoriously volatile and risky — so, do your homework. Having said that, Jim Cramer highlighted two bio-pharma companies on his Friday evening show — noting both could be potential blockbuster homeruns. The two companies were: Relypsa (RLYP), and PTCT Theraputics. I may get an investment footprint in both on Tuesday morning; and, I also invested in RCPT on Friday. All for now. V/R, RCP

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