Ed’s Daily Notes for June 5th   7 comments

Bloomberg: Draghi’s Rate Tonic Seen Piquing Taste for Stronger Stuff

The big news today will be the European Central Bank’s rate decision. Specifically:

Mario Draghi’s experiment with negative interest rates is unlikely to stop investors from seeking something stronger.

The European Central Bank president will herald a new era today by taking the deposit rate below zero, according to economists in a Bloomberg News survey. That probably won’t quell calls for more radical measures such as quantitative easing to stop the euro area from sliding into deflation.

I like the idea of negative interest rates over quantitative easing. QE is nothing more than a “prop up the banks” measure. With negative interest rates, there is at least the potential for encouraging bank lending.

That said, I will be surprised if Draghi does go for negative rates. So far, he’s ignored a lot of economic signs by keeping rates steady for years (or does it just seem that way?). Draghi doesn’t strike me as an “outside the box” thinker. He seems more like a political animal, not wanting to take any risks that might be viewed negatively. For Europe’s sake, I hope I’m wrong.

Bloomberg: Amazon Planning to Unveil Smartphone to Vie With Apple’s

Amazon.com Inc. (AMZN) is planning to introduce a smartphone later this month, according to a person with knowledge of the matter, plunging the world’s largest online retailer deeper into the competitive mobile-device market.

Amazon tweeted yesterday that it was holding an event in Seattle on June 18 hosted by Chief Executive Officer Jeff Bezos for a product unveiling. The post included a picture of a black, thin device with Amazon’s name in silver emblazoned on it. Mary Osako, a spokeswoman for Amazon, didn’t return a call for comment.

A smartphone from Amazon would ramp up its rivalry with Apple, which makes the iPhone. The companies are increasingly going head-to-head in devices such as tablets and in Web services including online entertainment, as they strive to be digital gateways to consumers. Mobile is central to that effort as more people carry gadgets and do their computing on the go.

“This is a play by Amazon to get a stake in the most ubiquitous device category there is,” said Jan Dawson, a technology-industry analyst who runs research and advisory firm Jackdaw.

I don’t know that Amazon is going to set the world on fire with this, but it could work out for them. The funny thing is that even if Amazon sold smartphones like heaters in Alaska, it still wouldn’t make the stock look attractive to me. With a trailing PE of 478, and a PEG ratio of 6, Amazon is as overpriced as an iPhone…

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Posted June 5, 2014 by edmcgon in Economy, News, Stocks, Technology

7 responses to “Ed’s Daily Notes for June 5th

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  1. Does Draghi really believes it’s gonna work? Just to give you an example how much trust Belgians have in the politics and economics: end of april there was a whooping 252,321 biljon euro parked on the saving accounts in Belgium. That is 22 500 euro on average for every citizen in Belgium. This number keeps on growing although we are really complaining the interest is below inflation. Consumer-organisations are complaining, savers are complaining, everybody is complaining for years and it is growing louder, but the number keeps on climbing higher.
    For people to have faith in politics and economics something big has got to change, people need to see some direction, some guidance, now there is nothing in Europe, only chatter, noise and fear (everyone here knows how fast in can go down, we’ve all seen Greece, Spain and Cyprus, most of us at least one of those with our own eyes)

    • Have to add some thing:
      – that amount is on average, including children, elderly etc
      – this amount is on saving-accounts only
      – that is after numerous stimuli the politicians tried (“social bonds with higher rates for projects benficiery for the society) to get that money into the economy. It’s not working

      And yes, I know. If all you have is a hamer, everything looks like a nail. But as long as there changes nothing political, the people won’t change their mind.

    • sorry for spamming my own topic 🙂
      I actually do see something that can change: banksters will become even more speculative, it can psychologicaly do something. But there also has to be something interesting to invest the money in – you had your crisis in 2008, our may come. Nothing good will come of this. “We are doooooomed, doomed I say”

      • plas,
        Don’t get me wrong. I am not saying this will fix all of Europe’s problems. I’m only saying that negative interest rates have a better chance than any of the silly ideas they’ve tried so far.

      • Ed, the only “good” thing I see doing this thing is fuelling antoher bubble. Look at the interst rates of Spain, Italy and Greece. Is it a justified rate? Or only investors seeking yield? The last time countries like Spain had this, it fueled a housing bubble there. I’ve seen the results with my own eyes. It’s a disaster. Cheap money is a disaster. Without a decent project to fund, forcing the money out is madness.
        There are way to many obstacles for a good investment in Europe. Too many rules (to start a company is like a Via Dolorosa), too many taxes (in total as much as 75-80% goes to the goverment), too much unions (the even defend theft and abuse). Ofcourse the money can flow to other countries – like South-America, or China. We’ve all seen what hot money does there.
        If an economy is overheated, it must cool down, one way or the other. No need for it to keep it running too hot or it will blow up even harder. The world must deleverage, not even more leveraging. The central bankers are destroying what we still got. Let it crash, so we can rebuild. Look at Iceland, and countries that did alike. The started with an even deeper mess, but doing much better now.
        It’s true that the other thing were silly things, but I still see this playing with money as madness. There must be some political changes, not only rates. The whole EU-project is being silly (I do favor a European Union, but not this way. Different balance sheets with one currency has never worked en never will) Sorry Ed, but then you and I must disagree on that point 🙂

      • Ed, just a simple question: what is THE problem in Europe? If you ask me, it’s the high goverment (and financial) debt. Many of the countries are above 100%, almost non is below 60% of GDP. If debt is the problem, can even more debt then be a possible solution?

      • plas,
        I agree with you 100%. On it’s best day, Europe might get 3% growth, and that wouldn’t last. I’m only talking about the central bank. The problems of socialism are unresolvable.

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