Weekly Highlights

Weekly Highlights 13 Oct: How US brokers survive with 0 commission

#1 Idle cash saves US brokers

For the past month or so, it has been an absolute bloodbath for major US brokerages. From Charles Schwab to Interactive Brokers, major US brokerages are offering commission-free trading.

Apparently, the key to survival in the new world is the idle cash, i.e. the cash sitting in your brokerage accounts. One source of revenue for brokerages is to loan out clients’ cash to the market.

As of August 2019, the idle cash sitting in Schwab clients’ account total to about $3.7 trillion. And as of 2018, Schwab makes around $10.1 billion in net revenue from loaning out clients’ cash.  No small change.

Should you worry about brokerages loaning out your monies?

IMO, I don’t think so. In fact, you should be worried if they are not loaning out your monies. At the end of the day, brokerages are businesses and they got to report to their shareholders. If businesses are offering you a product for free, they got to make up the lost revenue by either jacking up the prices from their other products or increase their revenue through new offerings. Corporations will not absorb losses on their books.

Furthermore, I’m almost pretty sure these brokerages have a comprehensive risk assessment policy when it comes to loaning out clients’ monies.

https://www.bloomberg.com/news/articles/2019-10-10/brokers-profit-from-you-even-if-they-don-t-charge-for-trading

https://www.cnbc.com/2019/10/02/e-trade-drops-commissions-on-trades-joining-schwab-td-ameritrade-in-brokerage-fee-war.html

 

#2 Facebook’s crypto unloved by Visa, Mastercard and etc

I guess when your innovation has the potential to upend their business models for good, naturally, there is a going to be resistance coming from the legacy creators.

https://www.reuters.com/article/us-facebook-cryptocurrency-ebay/facebooks-libra-currency-abandoned-by-major-financial-companies-idUSKBN1WQ2KL

 

#3 Trump takes a break from slamming China 

Has the pressure of getting reelected in the upcoming 2020 US election causes Trump to succumb and strike a deal with China? Or is this just part of his grand scheme?

TBH, I have no bloody idea.

Trump needs the economy to keep humming along to get the voters’ support. If the economy is in the gutter, voters may doubt his ability and question his narrative that he can strike a better deal with China, something he has been preaching all along.

https://www.reuters.com/article/us-usa-trade-china/u-s-outlines-phase-1-trade-deal-with-china-suspends-october-tariff-hike-idUSKBN1WQ10X

https://www.reuters.com/article/us-usa-trade-china-agriculture/u-s-farmers-cheered-by-apparent-trade-truce-hope-shipments-to-follow-idUSKBN1WQ2SJ?il=0

 

#4 Japan’s BOJ monetary stimulus continues to ‘innovate’

The typical monetary stimulus would bring both short-term and long-term rate/yield down. However, in recent weeks, BOJ has been trying to lift the yields on super long-dated government bonds while depressing short-term and medium-term rates.

This is achieved by BOJ halting its purchase on super long-dated bonds to boost the yields. For the uninitiated, demand drys up, the price goes down, and the yield goes up. There is an inverse relationship between price and yield.

If you have been pulling out all the stops since 2001 and it has not been working, what does it say about the solution?

https://www.bloomberg.com/news/articles/2019-10-09/this-is-japan-s-latest-bold-desperate-monetary-policy-experiment?srnd=businessweek-v2

 

#5 Dyson closes automotive division in Singapore

Bring in Tesla. End of story.

https://www.channelnewsasia.com/news/business/dyson-hits-brakes-electric-car-what-the-shift-means-singapore-11992980

 

Have a good week ahead.

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