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JPM | U S existing home sales rise trend weak | By Lucia Mutikani WASHINGTON Reuters U S home sales unexpectedly rose in November but recorded their biggest annual decline in 7 1 2 years as the housing market remained mired in weakness There are concerns that the persistent housing market weakness could spill over to the broader economy which continues to be bolstered by robust consumer spending The softening housing market is not expected to discourage the Federal Reserve from raising interest rates when officials wrap up a two day policy meeting on Wednesday The U S central bank has increased borrowing costs three times this year The trend in housing is clearly slowing as affordability takes a bite said Jennifer Lee a senior economist at BMO Capital Markets in Toronto The National Association of Realtors said existing home sales increased 1 9 percent to a seasonally adjusted annual rate of 5 32 million units last month October s sales pace was unrevised at 5 22 million units Sales have now increased for two straight months Economists polled by Reuters had forecast existing home sales falling 0 6 percent to a rate of 5 20 million units in November But in November existing home sales which make up about 90 percent of U S home sales tumbled 7 0 percent from a year ago the largest annual drop since May 2011 Sales are down 2 3 percent in the first 11 months of 2018 compared to the same period last year The housing market is being constrained by higher mortgage rates as well as land and labor shortages which have led to tight inventory Though house price inflation has slowed significantly it continues to outpace wage growth sidelining some first time homebuyers A survey on Monday showed confidence among single family homebuilders dropped to more than a 3 1 2 year low in December Single family homebuilding dropped to a 1 1 2 year trough in November government data showed on Tuesday The PHLX housing index HGX was trading higher in line with a broadly firmer U S stock market amid optimism that the Fed will signal fewer interest rate increases for 2019 The dollar fell against a basket of currencies while U S Treasury prices were mixed SUPPLY IMPROVING A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans for purchase a home tumbled almost 7 percent last week from the previous week The decrease in applications came despite the 30 year fixed mortgage rate falling to a three month low But at 4 63 percent the 30 year fixed mortgage rate is more than 60 basis points higher than it was at the end of 2017 We think the drag from rates will persist into 2019 said Daniel Silver an economist at JPMorgan NYSE JPM in New York Last month existing home sales rose in the Northeast Midwest and populous South They fell in the West which the NAR said was experiencing a marked shift from very fast sales and exorbitant prices to slowing demand and price growth There were 1 74 million previously owned homes on the market in November up from 1 67 million a year ago The inventory crunch is easing as demand moderates especially in the West which had seen intense bidding wars At November s sales pace it would take 3 9 months to exhaust the current inventory down from 4 3 months in October and up from 3 5 months a year ago A six to seven month supply is viewed as a healthy balance between supply and demand The median existing house price increased 4 2 percent from a year ago to 257 700 in November Houses for sale typically stayed on the market for 42 days in November up from 36 days in October and 40 days a year ago Forty three percent of homes sold in November were on the market for less than a month There were still some hot housing markets last month in some metro areas in Texas Ohio Indiana and Massachusetts The share of first time buyers increased to 33 percent last month from 31 percent in October and 29 percent a year earlier Economists and realtors say a 40 percent share of first time buyers is needed for a robust housing market
According to the NAR sales were slowing in the upper end of the market It said inventory remained tight on the lower end which accounts for a large portion of the housing market |
MS | Gold s Week Of Consolidation | Precious metals continued their consolidation this week with gold drifting off 10 to 1195 as of last night and silver by 0 42 to 15 85 Intra day trading ranges are relatively tight with buyers of physical metal on the dips and sellers of paper contracts capping rises
There is little doubt that the global economic outlook with China s economy slowing and earlier expectations for US growth trimmed back is affecting sentiment An analyst s note from Morgan Stanley NYSE MS forecast lower gold prices for the next two years on the basis that negative bond rates elsewhere will continue to drive flows into US credit continuing USD strength There is an underlying argument that quantitative easing is not working and zero interest rates are not preventing deflation That being the case there are many fund managers who are not only bullish on the US dollar in currency markets but they believe its purchasing power in terms of goods and services is likely to increase If this analysis is correct then it follows that gold priced in dollars will continue to fall Whether or not this undermines the gold price in the short term remains to be seen but empirical evidence tells a very different story The situation in Germany and Austria in 1919 was similar in that massive monetary stimulation failed to improve the economic outlook and the overwhelming public opinion was that prices would fall In other words the purchasing power of the mark and crown respectively was expected to rise As we know the reverse was true with both currencies collapsing entirely a few years later The fact that Germany and Austria were dealing with a post war slump and the conditions today are inherently financial does not invalidate the comparison When inflating the money supply fails to stimulate an economy people will logically believe deflationary forces are greater than inflationary forces when the likelihood of a currency collapse has actually increased We appear to be at this point in time The result is that on Comex the hedge funds have maintained above average short positions in gold allowing the bullion banks to reduce theirs In silver Open Interest has rocketed up to all time highs as shown in the chart below
It appears from Commitment of Traders data that most of the increase in Open Interest this year has been in spread positions by both swaps and managed money categories This indicates that poor underlying liquidity is contributing to price differentials across different contract maturities Last week the Shanghai Gold Exchange delivered 49 95 tonnes of gold into public hands an increase of 44 7 on the previous week |
MS | Euro Rally Fueled By Rising Yields As Economic Momentum Cools | Fundamental Forecast for Euro Neutral
The euro run against the US dollar has benefited from the bearish technical nature of the US dollar Index
Exogenous influences particularly the unwinding of the ECB s QE driven trade positions are driving FX markets
It was a rather uninspired week for the Euro as traders focused on events outside of the Euro Zone more so than Greece or the continued unwind of trade positions based on the European Central Bank s quantitative easing program EUR USD was unchanged on the week thanks to a late week greenback rebound capped by a decent April US jobs report EUR GBP slipped by 2 03 thanks to a surprising electoral outcome in the UK and EUR AUD dropped by 1 03 as the Reserve Bank of Australia cut rates but failed to give guidance on future dovish action
In weeks past and even at the start of the week the euro was largely driven by rising inflation expectations and in turn rising core sovereign yields The 5 year 5 year inflation swaps closed the week at 1 785 above the four week average of 1 714 capturing the recent elevation in energy prices In a sense this is a reversal of the initial effects of the ECB s QE program in which the portfolio rebalancing channel effect has faded The Germany 10 Year yield jumped to 0 57 by close on Friday from an all time low of 0 075 on April 20 Concurrently the German DAX has fallen and EUR USD has rushed higher
Rising yields in the Euro Zone have undoubtedly been the provocation to the EUR USD short covering move which gained steam once again Speculative positions in the futures market eased to 190 1K net short contracts for the week ended May 5 from an all time high of 226 6K contracts for the week ended March 31 During the period of shorts being reduced EUR USD managed to gain 4 36 and is now 7 09 from its low set on March 16
Going forward the prospect of further euro gains will be contingent on the continued elevation of German yields to fuel short covering as economic data momentum has cooled off in recent weeks The Citi Economic Surprise Index finished last week at 14 2 well below the four week average of 32 1 That being said data in the coming days could further the rise in yields if they prove to feed into the narrative that the ECB s loose policies have translated into realized economic growth rather than just appreciation in financial assets like bonds and equities
On Wednesday the Q1 15 Euro Zone GDP report will be released due to show growth of 0 4 q q from 0 3 in Q4 14 and 1 0 y y from 0 9 in Q4 14 Likewise the Q1 15 German GDP report will be released the same day with gains of 0 5 q q and 1 2 y y forecast from 0 7 q q and 1 4 y y respectively in Q4 14 Any signs that growth has improved and is gaining momentum could further the notion that German yields are still too low in turn offering new fuel to the Euro covering rally
Without the continued rise in yields however the prospect of euro short covering is limited as markets have already effectively priced in interest rate expectations for the ECB and the Federal Reserve Markets are now pricing in the first Fed rate hike to come in January 2015 per the fed funds futures contract implied probability while Morgan Stanley NYSE MS s months to first rate hike index MSM1KEU now forecasts the ECB to end its loose policy regime starting in December 2017 from a previous forecast of January 2020 as recently as April 17 |
C | Deutsche Bank held talks with Citi BNP on shedding chunk of equities business Wall Street Journal | Reuters Deutsche Bank DE DBKGn has held talks with Citigroup Inc N C BNP Paribas SA PA BNPP and others that could involve transferring parts of its equities business including operations that serve hedge funds and other big trading customers the Wall Street Journal reported on Tuesday
Sources told Reuters last month that the bank plans to cut the size of its U S equities business leaving only a skeleton operation in place to service corporate and high net worth clients
The ongoing discussions could involve the investment bank s employees moving to one or more other banks alongside client balances systems and derivative positions some held by Deutsche Bank to offset bets taken by its clients the WSJ reported citing people familiar with the matter
No agreements have been reached in the talks involving multiple parties the report said
Any deal is being weighed against the costs Deutsche Bank would face to shut businesses including expenses related to severance and costs to hold on to long dated derivative positions according to the newspaper report
Deutsche Bank Citigroup and BNP Paribas declined to comment on the report |
MS | Dollar edges up as Fed tax reform news awaited | By Saikat Chatterjee LONDON Reuters The dollar edged higher on Wednesday as markets awaited further news on the possible appointment of a hawk as Fed chair and progress on U S tax reforms The dollar index DXY rose 0 1 percent to 93 58 extending a rebound from Friday s 2 1 2 week low of 92 749 It rose as high as 93 729 on Tuesday The overnight news of progress in negotiations over the new U S tax plan seems to be dollar positive but we have to see some strong economic data before the dollar breaks higher said Jane Foley senior FX strategist at Rabobank U S Senate Republicans on Monday gained crucial support for a vote on a budget resolution that is vital to President Donald Trump s hopes of signing tax reform legislation into law before January Morgan Stanley NYSE MS strategists noted the reforms may come at a time when the U S has used up all its spare capacity Investors will also focus on U S Beige Book data later in the day with some likely to be wary of buying dollars aggressively after disappointing U S inflation data With the Federal Reserve expected to raise interest rates for the third time this year in December markets are looking to who will replace Janet Yellen as chair when her term expires in February Trump has a pool of five candidates to choose from and is likely to announce his choice before going to Asia in early November a source familiar with the situation said on Tuesday The euro held in a tiny range and was flat against the dollar at 1 1757
For Reuters Live Markets blog on European and UK stock markets see reuters realtime verb Open url |
MS | Dividend 15 Split Corp declares CAD 0 10 dividend | Dividend 15 Split Corp OTC DVSPF declares CAD 0 10 share monthly dividend in line with previous Forward yield 11 03 Payable Nov 10 for shareholders of record Oct 31 ex div Oct 30 Now read |
JPM | Shell Eni to face 1 1B lawsuit in 2011 Nigerian oil deal | Nigeria s government says it has filed a 1 1B lawsuit against Royal Dutch Shell LON RDSa RDS A RDS B and Eni NYSE E in a commercial court in London in a complaint related to the 2011 OPL 245 oilfield deal OPL 245 also is at the heart of an ongoing corruption trial in Italy where prosecutors allege 1 1B in bribes were paid to win the license to explore the field which because of disputes has never entered into production Nigeria claims funds supposedly paid to the government were in fact immediately paid through to a company controlled by Dan Etete formerly the Nigerian minister of petroleum and used for amongst other things bribes and kickbacks Shell says the 2011 settlement of long standing legal disputes related to OPL 245 was a fully legal transaction with Eni and the Federal Government of Nigeria represented by the most senior officials of the relevant ministries Nigeria already has filed a London case against JPMorgan Chase NYSE JPM for its role in transferring more than 800M of government funds to Etete who has been convicted of money laundering Now read |
MS | Renewed Demand For Dollar Funding In The Eurozone | In 2011 as the sovereign debt crisis engulfed the Eurozone the EUR USD swap basis was deep in the negative territory It was caused to a large extent by US money market funds who refused to roll dollar denominated commercial paper issued by European banks Just as the Lehman commercial paper exposure turned toxic for money market funds in 2008 so was the Eurozone bank exposure in 2011 In late 2011 with limited ability to fund dollar assets on their balance sheets and no access to dollar deposits many Eurozone banks turned to the foreign exchange markets Given their access to euros via deposits or loans from the ECB banks converted euros to dollars and used the basis swap market to hedge their FX exposure That demand for EUR USD swaps pushed the basis into negative territory The ECB s alleviated some of the stress by allowing the ECB to lend dollars directly to the euro area banks Now the EUR USD basis swap has turned negative again and some have suggested that the funding pressure on Eurozone banks is back
But that s not at all the case The culprit this time around is the areas demand for yield Eurozone banks can now access euros at negative rates chart below and are willing to pay up on the basis swap to obtain dollar funding in order to access better yielding dollar assets USD bonds and loans
Moreover higher rated US corporations have been actively issuing euro denominated bonds this year as the demand for quality bonds spikes in response to ECB s QE These US firms then convert the proceeds from the bond sales to dollars in order to fund US operations But since they will need to repay euros in the future they hedge themselves with EUR USD basis swaps That puts further downward pressure on the basis Demand for dollar funding in the Eurozone is likely to remain elevated as the area provides extraordinarily cheap financing while access to quality fixed income product has become increasingly limited |
MS | The China Bull Rages On | The rally in the Shanghai stock market that began last year has seen the index rise nearly 90 percent since July 1 2014 from 2050 to 3860 as of this writing The Shanghai and Shenzhen stock exchanges are the markets most accessible to mainland Chinese investors and until last year were relatively inaccessible to outsiders Recent regulatory developments have started to change that and participation in these markets known as A share markets in distinction from the H share market in Hong Kong has become accessible to investors outside China through a small but growing number of ETFs Shanghai Market Roars
Source Bloomberg
China s A share markets are extremely volatile and driven by domestic Chinese demand When they outperform they do so dramatically But for many years of the past decade real estate has been the outperformer as seen in the chart below
Source Morgan Stanley NYSE MS Research
The A share markets outperformed under two circumstances during the global blow off that preceded the Great Recession and during the massive stimulus that the Chinese government unleashed to deal with that crisis In short they outperformed when there was a stimulus from elevated global demand or when there was a stimulus from a determined Chinese government We believe the current A share rally in spite of its size and speed can continue because although the global demand environment is weak the Chinese government will support it for several deep fundamental reasons We believe the government s support for the rally will dovetail with other fundamental forces as well Some analysts are calling for a further appreciation of 20 to 40 percent in A shares this year and such performance would not be out of line with historical precedent What Is Supporting the Rally First and foremost the Chinese government wants the domestic stock market to appreciate because it wants to draw investors out of the troubled assets that the government would like to deleverage Articles in official media have emphasized that an active and healthy equity market is critical to the government s structural reform efforts China is in the midst of a transition that several of its Asian neighbors have made from early and mid stage development led by heavy industry to a more mature phase led by the domestic consumer In China the period of rapid industry led growth has led to excesses particularly in the property market but also with various wealth management products WMPs where savers sought better returns than those offered by mainstream banks The Chinese government is slowly unwinding those excesses as it navigates the shift to more moderate consumer led growth So as it reins in property speculation and moves to bring WMPs under control it is setting policies in place to encourage mainland investors to buy stocks reducing restrictions and fees on trading accounts for example In January the government caused a mini shock by increasing margin trading requirements but the market quickly recovered as it historically has when such a move occurs in the context of bullish fundamentals The government is also boosting demand for mainland stocks by making it easier for outsiders to buy them and A shares may soon be included in several MSCI indices for the world for China and for Asia Pacific ex Japan Second Chinese investors themselves are seeing stocks as the best way to invest their savings and that s creating a positive feedback loop With returns fading from real estate bonds and WMPs that just creates more demand for stocks which continues to drive the bull Historically mainland stock market performance has closely tracked the rate at which new trading accounts are being opened and between Shanghai and Shenzhen new accounts are being opened at the fastest pace on record
Source Morgan Stanley Research
Third the Shanghai market is cheap in comparison to both its own history and to other major global markets We at GIM tend to be GARP investors by orientation looking for growth at a reasonable price With the U S market fairly valued and overvalued in some sectors we find it difficult to locate the reasonably priced growth we d like to buy Our bullishness on Europe and Japan is based primarily in the accommodative monetary stance of their central banks in terms of price they could correct modestly at any time but remain very positive in the intermediate and long term In China however we do see real value Even the relatively expensive Shanghai index trades at 13 8 times forward earnings a significant discount to the U S the Dow is trading at 16 times the S P at 17 times and the NASDAQ at 19 times It is also a significant discount to Shanghai s history not much higher than market troughs in 2005 and 2008
Shanghai A shares Historical Trailing 12 month P E History
Source Morgan Stanley Research
Earnings growth has been very strong with a CAGR of 14 percent over the past decade Shanghai A shares Trailing 12 month EPS in Yuan
Source Morgan Stanley Research
Fourth more easing measures are on the way from the People s Bank of China PBOC so the Shanghai markets fall under our don t fight the central banks rubric Analysts expect further rate cuts and reductions in reserve requirements this year even after easing in November and February Zhou Xiaochuan the PBOC s governor warned a week ago that the country s growth rate had slipped a bit too much and said that the central bank has plenty of room to support its 3 percent inflation target What About the Risks There are risks of course Primarily those risks derive from the very deleveraging that s pushing funds into mainland stocks We do not believe that China will face a financial meltdown the banking system is too insulated and too robust for that to occur even under severe scenarios as we have often written However a crisis is possible within the next few years and although it will not bring down the banking system it will surely usher in a severe bear market for equities Investment implications We have often said that Chinese stocks are a short term investment not long term We will be extremely vigilant for indicators that a financial crisis is developing and use those indicators as our signal to exit China For now with the government and the central bank behind the rally valuations attractive earnings strong and local investors still coming in we believe the trade is still on To buy use a 10 to 15 percent correction on that correction consider the Market Vectors China ETF PEK As foreign investors seek to join the China party we believe Hong Kong stocks can rise as well |
JPM | JPMorgan JPM Beats On Q4 Earnings Excluding Tax Impact | Have you been eager to see how JPMorgan Chase Co NYSE JPM performed in Q4 in comparison with the market expectations Let s quickly scan through the key facts from this New York based major global bank s earnings release this morning An Earnings BeatJPMorgan came out with earnings of 1 76 per share which beat the Zacks Consensus Estimate of 1 69 Earnings in the reported quarter exclude 2 4 billion or 69 cents per share charge related to the impact of the tax act Improved revenues primarily drove earnings beat How Was the Estimate Revision Trend You should note that the earnings estimate revisions for JPMorgan depicted pessimistic stance prior to the earnings release The Zacks Consensus Estimate fell by penny over the last seven days Nonetheless JPMorgan have an impressive earnings surprise history Before posting the earnings beat in Q4 the company delivered positive surprises in all prior four quarters as shown in the chart below J P Morgan Chase Co Price and EPS Surprise
Overall the company has a positive earnings surprise of 12 8 in the trailing four quarters Revenue Higher Than ExpectedJPMorgan recorded revenues of 25 5 billion which surpassed the Zacks Consensus Estimate of 25 billion Also it compared favorably with the year ago number of 24 3 billion Key Q4 Statistics Investment banking fees grew 10 year over yearFixed Income Markets revenue plunged 27 year over yearProvisions for credit losses jumped 51 year over yearAverage Core loans up 6 year over yearReturned nearly 6 7 billion to shareholders through dividends and share buybacksBasel III common equity Tier 1 ratio of 12 1 as of Dec 31 2017What Zacks Rank SaysThe estimate revisions that we discussed earlier have driven a Zacks Rank 3 Hold for JPMorgan However since the latest earnings performance is yet to be reflected in the estimate revisions the rank is subject to change While things apparently look favorable it all depends on what sense the just released report makes to the analysts You can see Check back later for our full write up on this JPMorgan earnings report Zacks Editor in Chief Goes All In on This StockFull disclosure Kevin Matras now has more of his own money in one particular stock than in any other He believes in its short term profit potential and also in its prospects to more than double by 2019 Today he reveals and explains his surprising move in a new Special Report |
MS | Morgan Stanley Reports Beat on Earnings Revenue | Investing com Morgan Stanley reported third quarter earnings and revenue that beat analysts expectations on Tuesday
The firm reported second quarter earnings per share of 0 93 on revenue of 9 91 billion
Analysts had expected EPS of 0 81 on revenue of 9 01 billion
The bank said wealth management revenue came in at 4 22 billion against forecasts of 4 15 billion while investment banking revenues were 1 3 billion compared to expectations of 1 1 billion
Overall sales and trading revenue fell to 2 9 billion from 3 2 billion in the same quarter a year ago Equities trading revenue was little changed but fixed income trading revenues fell to 1 2 billion from 1 5 billion which the bank attributed subdued activity
Morgan Stanley shares gained 1 74 in pre market trade |
MS | MORGAN STANLEY A stock market correction is looking more likely | Earnings season can be a euphoric time for stocks
It s a time when companies have the opportunity to show off growth that matches their valuations and it can give traders looking to put money to work the rationale they need to invest
However that may not be the case this time around Morgan Stanley NYSE MS warns
A big part of that has to do with how investors approach earnings season When they anticipate strong results stocks tend to rally heading into the season only to fade as results are actually reported the firm says
This scenario has played out in a relatively benign way twice already this year with the maximum loss reaching just 3 But it s different this time around with the benchmark S P 500 holding roughly just half of its previous upside according to Morgan Stanley forecasts
If stocks follow the pattern they have been all year actual earnings season will be a sell the news event and we could have a decent pull back or consolidation a group of equity strategists led by Michael J Wilson wrote in a client note Near term a correction is looking more likely
So what could cause this decline which the firm says could stretch further than 5 Wilson Co lay out five possible negative catalysts
The unwinding of the Fed s massive balance sheet
Tax cut legislation proves to be more difficult than simply making promises
The announcement of a new Fed chief could disrupt financial conditions
The US dollar fresh off multi year lows looks to be reversing to the upside
Leading economic indicators are hitting extremes suggesting peaks are more likely than not
With all that said Morgan Stanley is far from calling the end of the 8 1 2 year bull market The firm is simply warning about the possibility of a relatively mild pullback from what have been record high valuations
In fact the firm is the most bullish on Wall Street with a 2 700 target on the S P 500 by the end of first quarter 2018 That s 5 6 above the index s closing price on Monday
As such Wilson recommends that investors use whatever weakness results from a potential correction as an opportunity to load back up on equity exposure In other words buy the dip the unofficial slogan of the unstoppable bull market |
JPM | Finablr s UAE Exchange Ripple to begin blockchain payments by first quarter | By Tom Arnold DUBAI Reuters United Arab Emirates based UAE Exchange and U S startup Ripple plan to launch cross border remittances to Asia via blockchain by the first quarter of 2019 UAE Exchange s group CEO said in an interview Asia was one of the biggest recipients of the roughly 613 billion in remittances sent globally last year with a large swathe coming from expatriate workers in the Middle East where UAE Exchange part of payments and foreign exchange company Finablr is one of the main players Most funds are currently sent through foreign exchange branches but a growing chunk is being transferred via websites and apps with the use of blockchain technology expected to ramp up in the next few years a transition that UAE Exchange and San Francisco based Ripple are aiming to capture Blockchain holds tremendous promise for the industry but there is progress to be made before we see it go fully mainstream said Promoth Manghat also executive director and chief executive at Finablr We expect to go live with Ripple by Q1 2019 with one or two Asian banks This is for remittances to start with from across the globe into Asia In February UAE Exchange and Ripple announced a partnership to process cross border payments making the UAE based company the largest payments firm in the Middle East to use Ripple s blockchain technology for processing payments RippleNet which includes more than 100 member banks and financial institutions enables messaging clearing and settlement of transactions Middle East lenders National Bank of Ras Al Khaimah RAKBANK AD RAKB and Kuwait Finance House KW KFH have also joined RippleNet alongside global banks such as Standard Chartered L STAN We are also looking at how Ripple can enhance our business to business solutions at Finablr Manghat said Finablr which houses Travelex Holdings Xpress Money and other businesses has hired JPMorgan NYSE JPM and Barclays LON BARC as global coordinators for its listing in the first half of 2019 on the London Stock Exchange Reuters reported last month UAE Exchange set a target in 2016 to spend between 250 million and 300 million on acquisitions to build its global market share The company had consumed a large portion of that amount and had a strong pipeline of further acquisition opportunities Manghat said Blockchain is one aspect we are looking at We want to become the partner of choice for banks and technology companies and are looking at potential bolt ons he said
UAE Exchange aims to increase its share in the global remittance industry to more than 10 percent by 2020 Manghat had told Reuters last year |
JPM | Weekly Comic Is a Santa Claus Rally Coming to Wall Street | Investing com After getting hammered at the start of the month Wall Street s major indexes attempted to bounce back this week with the market enjoying a three day win streak heading into Thursday
The tentative rebound fueled hopes among market participants that Santa Claus will deliver on his traditional end of year rally
Since 1950 no month has a stronger average return or has finished higher more often than December
Markets are slowly growing more optimistic about the chances of a U S China trade deal after a flurry of upbeat news this week pointed to easing tensions between the two economic superpowers
Reuters reported on Wednesday that Chinese state owned companies have bought more than 1 5 million tonnes of U S soybeans in the first major U S soybean purchases in more than six months
The purchases are the most concrete evidence yet that China is making good on pledges made when Presidents Donald Trump and Xi Jinping met on Dec 1 and agreed to a 90 day ceasefire to negotiate a trade deal
But markets have been stung by false dawns in the past
Yoshinori Shigemi a global market strategist at JPMorgan NYSE JPM Asset Management cautioned against reading too much into trade headlines
U S China trade negotiations are subject to very high uncertainty So lots of headlines come and go and markets come and go also he said We have to see the evolution of this negotiation
Reuters contributed to this report |
MS | Meet The Worst Forecasters Ever The Fed | I have been tracking the Federal Reserves ever since they begin releasing their forecasts The purpose of tracking these projections was to compare the Fed s forecasts with what eventually became reality The record is now clear they are the worst economic forecasters ever
The most recent release of the Fed s economic projections on the economy inflation and unemployment continue to follow the same previous trends of weaker growth lower inflation and a complete misunderstanding of the underpinnings of the real labor market
Economy
When it comes to the economy the Fed has consistently overstated economic strength This is clearly shown in the chart and table below
Near the end of 2013 the Fed predicted that GDP growth for 2014 would be 3 6 This was down from 2013 s projection of 4 economic growth Actual real GDP inflation adjusted was just 2 36 for the year or roughly a negative 34 difference However as you can see in the chart above the Federal Reserve has been consistently over optimistic about future economic growth
Unfortunately 2015 is not shaping up well either At the beginning of 2014 the estimates for the full year economic growth in 2015 averaged 2 9 down from the 3 35 when first projected in 2012 As of Wednesday the Fed has downgraded that outlook further and is now predicting growth of just 2 6 for the full year
This is the lowest rate of economic growth predicted by the since 2012 With the first quarter of 2015 shaping up to be nearly flat 0 growth it would now require average growth over the next 3 quarters of 3 3 real growth to meet that goal However given the current weakening of economic data domestically the surging dollar impacting exports and global deflationary recessionary pressures abroad it is quite likely that just as in every year past the Federal Reserve will be reducing their goals further into the year
Importantly while Janet Yellen suggested the Fed s economic forecast was not a weak one the reality is that it actually was I have repeatedly stated over the last two years that we are in for a low growth economy due to debt deleveraging deficits and continued fiscal and monetary policies that are retardants for economic prosperity The simple fact is that when the economy requires roughly 5 of debt to provide 1 of economic growth the engine of growth is broken
Economic data continues to show signs of sluggishness despite intermittent pops of activity and with higher taxes increased healthcare costs and regulation the fiscal drag on the economy could be larger than expected
What is very important is the long run outlook of 2 15 economic growth As shown in the chart below real economic growth used to run close to 4 Today the Fed s prediction is down markedly from the 2 7 rate they were predicting in 2011
It is worth noting that it is incredibly difficult to create real economic prosperity when locked into subpar growth rates That rate of growth is not strong enough to achieve the escape velocity required to improve the level of incomes and employment to levels that were enjoyed in previous decades Has there been a recovery in the economy Of course but much of it has only been statistical
Unemployment
The one area that the Federal Reserve has been fairly accurate has been the unemployment rate For 2015 the Fed sees unemployment falling to 5 05 and ultimately returning to a 5 35 full employment rate in the long run
Of course the issue with the full employment prediction becomes the definition of what reality actually is
Today average Americans have begun to question the credibility of the BLS employment reports Even Congress has made an inquiry into the data collection and analysis methods used to determine employment reports Since the end of the last recession employment has improved modestly but that improvement as shown in full time employment to population ratio chart below of 16 54 year olds belies the full employment levels reported suggested by the Fed
More importantly where the Fed is concerned the drop in the unemployment rate has been due to shrinkage of the labor pool rather than an increase in employment The chart below shows the unemployment rate as compared to the percentage of the working age population that are no longer consider part of the workforce
While the unemployment rate is declining it is a very poor measure from which to benchmark the health of the economy Furthermore as discussed previously there is a very high probability that due to the impact of the depth of the last economic recession that the BLS has been overstating employment gains
This is an extremely important point as it suggests that employment as presented by the BLS has been significantly overstated over the past six years If we take the differential as stated by Gallup and compare that to the annual birth death adjustment used by the BLS we find that jobs have been overstated by 3 678 000 or more than 613 000 annually
Lastly it is hard to suggest that employment is rapidly returning to normal when there are still 30 of college graduates living at home with parents the highest number of individuals in history over the age of 65 are still working and roughly 1 in 4 Americans on some form of government assistance
But then again maybe the Fed has it right If you just look at the headline statistical data things look a whole lot better
Inflation
When it comes to inflation the Fed s projections are only marginally better than their economic forecasts
The Fed significantly underestimated official rates of inflation in 2011 However in 2012 and 2013 their projections were more closely aligned However since then the Fed has consistently hoped for higher rates of inflation than what has actually occurred Near the end of 2014 the Fed was predicting inflation for 2015 at nearly 2 currently inflation has fallen to just 0 68 and with the collapse of oil and commodity prices shows little sign of rising anytime soon
The Fed s greatest economic fear is deflation and the stubbornly low levels of inflationary pressures will continue to keep the Fed sidelined longer than most expect
While the Federal Reserve removed their patient status from their meeting notes yesterday the reality is that they are unlikely going to be able to raise interest rates anytime soon This was a view that was reiterated by Morgan Stanley NYSE MS yesterday
We maintain our expectation that the Fed will err on the side of caution and take to heart the asymmetric risks to tightening policy too early when at the zero lower bound We see persistently low core inflation as the main stumbling block for those on the Committee that want to become more confident that this period of lowflation does indeed turn out to be transitory With our expectation that core inflation falls further from goal and the lingering threats to growth and inflation from the rapid appreciation of the US dollar we look for the Fed to forego rate hikes this year
However there is another point to be considered as I stated previously
The real concern for investors and individuals is the actual economy There is clearly something amiss within the economic landscape and the ongoing decline of inflationary pressures longer term is likely telling us just that The big question for the Fed is how to get out of the potential trap they have gotten themselves into without cratering the economy and the financial markets in the process
It is my expectation unless these deflationary trends reverse course in very short order that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy However I also believe that the Fed understands that we are closer to the next economic recession than not For the Federal Reserve the worst case scenario is being caught with rates at the zero bound when that occurs For this reason while raising rates will likely spark a potential recession and market correction from the Fed s perspective this might be the lesser of two evils
You Can t Handle The Truth
However it is important to understand that the Federal Reserve CAN NOT tell the truth In a liquidity driven world where the financial markets parse and hang on every word uttered by the heads of Central Banks worldwide can you imagine what would happen to the financial markets if Janet Yellen stated
Despite many years of supporting the financial markets in hopes of a resurgence of economic growth it is committee s assessment that Keynesian economic theory is flawed While our monetary interventions have inflated asset prices as desired it has only served to widen the wealth gap while having little effect on the real economy It is the conclusion of the committee that our policies have failed to achieve realistic economic objectives and has potentially imperiled the financial markets with a third asset bubble in the last 15 years
The ensuing collapse in the financial markets would immediately create a recessionary environment Financial markets would crumble as credit markets froze as economic activity plunged This is why there is such a great emphasis focused on the Federal Reserve statement and the guidance they provide This is why the FOMC continues to focus on the use of forward guidance as a policy tool
The problem for the Federal Reserve is that they are still looking for that elusive economic recovery to take hold after more than five years Unfortunately for the Fed economic recovery cycles do not last forever and the clock is ticking |
MS | Markets Price In Greek Default | We begin with Greece where the markets are now pricing in a substantial probability of sovereign default and potentially Grexit The Greek banking system is losing deposits while the fiscal situation is deteriorating rapidly Yet a compromise with the Eurogroup remains elusive Both parties are prepared to take this crisis to the brink
The Greek equity markets are under pressure particularly the banks Here is the relative performance of Greece market ETF NYSE GREK vs Western Europe ETF SPDR DJ Euro STOXX 50 NYSE FEZ
But it s the bond markets that are flashing red The Greece 10 Year yield broke through 12 And the 2 Year yield is approaching 25
The yield curve has inverted further and now resembles what we often see in distressed corporate credits
A similar story is developing in the credit default swap market where the 1 year CDS spread has gone vertical
As discussed yesterday while the Eurozone has been able to find some last minute solution for each crisis I don t have a good feeling about this one And neither do the markets I ll have further discussion on the potential consequences of Grexit on the Eurozone s economy at a later date
Investors however continue to ignore the warning signs from Greece as the euro area investment funds share unit count spikes
In spite of a more dovish stance from the Fed and a pause in the US dollar rally the Brazilian real continues to deteriorate
The nation s investment has been declining and consumption growth has stalled
As I discussed before this weakness in the real is spilling over into commodities markets Since we are on the topic of commodities Morgan Stanley NYSE MS is pointing out that commodities have decoupled from inflation expectations
Even with less pressure from the Fed commodities remain depressed often for different reasons We saw the impact Brazil is having on some products We also have US pork prices collapsing as the West Coast port shutdown limits exports to Asia oversupplying domestic markets Combine this bacon deflation with lower sugar coffee and orange juice prices and your breakfast is getting cheaper by the day
Shifting to energy both US crude oil in storage and domestic crude production continue to rise Something s got to give either production slows or we run out of storage projected to happen this summer
This oversupply and the resulting price weakness is the reason for energy credit remaining under pressure US high yield energy names continue to trade at multi decade wides to the rest of the Credit Suisse SIX CSGN HY index
This situation in the oil markets puts more pressure on the Russian economy With inflation on the rise retail sales have deteriorated sharply
Now a couple of notes on the US corporate sector
1 Cash balances at large firms hits a new record Leverage has risen as well
2 US companies are absolutely terrible at timing their stock purchases
Finally are online prices PriceStats forecasting a rebound in inflation Prices posted by online merchants seem to show significant improvements
Now some food for thought
1 New Zealand Tourism hits new highs
2 This has been the warmest winter ever except
3 The employment situation for US veterans remains terrible
And it seems to be the Millennial military veterans who are having the toughest time |
MS | Activist Update | Activist hedge funds can be a positive force Although this isn t always true Keith Meister of Convergex so abused ADT investors that his actions caused us to apply the Corvex Discount to other stocks in his viewfinder it s probably more often than not beneficial to existing investors when a hedge fund shows up
The most recent case involves Tetra Technologies Inc NYSE TTI about which we wrote a few weeks ago as an example of the power of the MLP General Partner Dimitri Balyasny just filed a indicating a passive stake in TTI and a 5 3 investment Acquiring 4 3 million shares of TTI is quite a trick considering their average daily volume of under 1 million shares
Other activist owned stocks of interest to us that were recently in the news include Dow Chemical Company NYSE DOW which last week the sale of its chlorine business DOW shareholders will own 50 5 of the resulting chlorine business with Olin Corp Hedge fund Third Point has been a long time advocate for value enhancing moves Another is Hertz Global Holdings Inc NYSE HTZ which is owned by a virtual who s who of hedge funds including funds run by Carl Icahn Larry Robbins Jeffrey Tannenbaum and Barry Rosenstein HTZ has been recovering from some self inflicted wounds including accounting mistakes poor pricing strategy and the relocation of its headquarters to Naples Florida so as to be close to the now former CEO s golf club The persistent lethargy in HTZ s stock price shows that it takes more than four activist investors to raise the price However moves in recent months to hire new management are positive signs Today Morgan Stanley NYSE MS lifted its sell recommendation
We are invested in TTI DOW and HTZ |
C | Deutsche Bank Weighs Senior Shakeup as CEO Purges Top Ranks | Bloomberg Deutsche Bank AG DE DBKGn Chief Executive Officer Christian Sewing is planning sweeping changes to his top management considering replacing finance chief James von Moltke and investment banking head Garth Ritchie as he purges executives who rose under his predecessor
The bank is expected to decide on the future of several management members within weeks according to people familiar with the matter Sewing may take over control of the investment bank from Ritchie on an interim basis while the bank searches for a permanent successor one person said Karin Dohm head of regulatory affairs is the frontrunner to replace compliance chief Sylvie Matherat they said asking not to be named disclosing internal deliberations
Since taking over a year ago Sewing has moved to replace leaders who rose under predecessor John Cryan with mostly German trusted lieutenants A former Citigroup Inc NYSE C treasurer who joined in 2017 von Moltke has seen his tenure at times marred by poor communication Ritchie and Matherat the subject of longstanding criticism received the lowest shareholder backing of all top management recently Ritchie oversees the troubled securities unit while Matherat struggled to end a long series of misconduct and control failures
Deutsche Bank Dohm and Ritchie declined to comment Matherat didn t answer an email and von Moltke declined to comment through a spokesman
Shares of the lender rose 3 4 at 5 14 p m in Frankfurt paring losses this year to 9 3
Cold Water
Sewing has already replaced the head of the transaction bank the chief operating officer and the head of anti money laundering at Deutsche Bank In October he named Asoka Woehrmann to succeed Nicolas Moreau as head of the asset management business
Like Ritchie Moreau and Matherat von Moltke joined the top ranks of the bank under Cryan He hit a rough patch in March 2018 when less than a week after the bank sounded a bullish tone in its annual report he poured cold water on the outlook for the securities unit rattling investors He also described Deutsche Bank s situation as a vicious circle of declining revenues sticky expenses lowered ratings and rising funding costs
It s not clear who would replace von Moltke Alexander von zur Muehlen another long term veteran of the bank and Sewing confidant has been advising the CEO on strategy for the past year He s a former group treasurer and also worked at the investment bank
Ritchie and Matherat have long been the subject of speculation Sewing didn t mention either of them when he highlighted recent turnaround successes in his speech at the annual general meeting a sign that they may have fallen out of favor
Sewing has vowed to make tough cutbacks to the securities unit saying that he s rigorously focusing on profitable businesses That was a departure from previous comments by Chairman Paul Achleitner seen as a backer of a big investment bank who has said that he doesn t see a need for a radical shift in the unit
Achleitner who has come under increasing criticism for his oversight acknowledged at the bank s annual general meeting last month that he had made some mistakes At the tense meeting where several investors urged the chairman to step down early Achleitner assured Sewing of his full backing for measures to revive the lender
Legacy Scandals
Ritchie has been with Deutsche Bank for more than two decades rising through the ranks in the investment bank before taking it over in a shakeup in late 2015 Multiple cutbacks to the business under his watch have failed to restore sufficient profitability and growth while past misconduct at the unit continues to haunt it
In the latest setback for the South African he was among dozens of current and former Deutsche Bank executives to become a target in a widening German probe of a tax scam involving dividend payments according to people familiar with the matter
Matherat a former deputy director general at the Bank of France joined Deutsche Bank in 2014 and became a management board member the following year But the string of legacy scandals that has plagued the bank for the better part of the decade continued unabated under her watch culminating in video footage of a massive police raid on Deutsche Bank s Frankfurt headquarters late last year
If Dohm replaces Matherat she probably won t join the management board the people said
Sewing has been working on a fresh turnaround plan to restore investor confidence after breaking off merger talks with Commerzbank AG DE CBKG He s zeroing in on another round of deep trading cuts that may result in the shuttering of U S equities trading as well as the creation of a non core unit to wind down as much as 50 billion euros 56 billion in unwanted assets a person familiar with the matter has said
Here s a list of recent replacements made or said to be planned indicates the decision hasn t been made
Adds chairman s previous comments in 10th paragraph |
C | For Japan Inc discretion is the better part of activist valor | By Tomo Uetake TOKYO Reuters As Japan enters the busiest period of its annual general meeting season shareholders will submit a record number of proposals to companies amid signs activist efforts to instigate change among conservative corporates are bearing fruit But while overt and direct activism has stepped up it s the less combative behind the scenes lobbying much of which takes place before the public meetings are held that is having some of the greatest impact on governance changes The most visible example of that change is scandal hit medical equipment maker Olympus Corp which will become Japan s first major firm to give a U S activist fund a seat on its board this month Companies are much more willing to listen to shareholders and take action in response to shareholder engagements said Seth Fischer founder and chief investment officer of Hong Kong based hedge fund Oasis Management You re seeing more independent directors on board more companies getting rid of their poison pills more buybacks and increased dividends It s all happening About two thirds of firms listed on the Tokyo Stock Exchange hold their AGMs this week Mitsubishi UFJ Trust Banking says the number of companies that have received shareholder proposals during this year s peak AGM season is a record 54 That s more than last year s 42 which was also a record although all of those submissions were ultimately rejected Of note this year is the gradual withdrawal of some proposals as activists confer privately with companies to quietly get their demands met Toshiba Corp is a case in point In March New York based King Street Capital Management sent a letter to the CEO to propose a slate of directors to replace the Toshiba board It had previously intended to submit a shareholder proposal for its AGM scheduled for Wednesday But behind the scenes discussions with King Street and other funds resulted in Toshiba announcing last month an overhaul of its own proposal of board members to include more external and even non Japanese directors for the first time in 80 years There is a lot more going on than the number of shareholder proposals implies said Kengo Nishiyama a senior analyst at Nomura Institute of Capital Markets Research I think behind the scenes engagement will become the mainstream of Japan s activism CHANGING ATTITUDES Analysts say softer activism is one factor driving the shift in companies attitudes Also helping are Prime Minister Shinzo Abe s efforts to improve governance and a corporate recognition that investors reward companies that shake up their management Olympus share price has climbed more than 40 year to date making it one of the top three performers in the benchmark Nikkei average That in part follows its decision in early January to grant San Francisco based investment fund ValueAct Capital a seat on its board In contrast firms that outright knock back shareholder demands are punished On Friday Kyushu Railway Co s shares slumped 4 5 after shareholder proposals made by New York based Fir Tree Partners and supported by other firms were rejected That reality has prompted change Sojitz Corp s CEO Masayoshi Fujimoto took part in another first of its kind shareholder forum alongside activist investors and a government representative that the American Chamber of Commerce in Japan held earlier this month We hope to attract more long term shareholders the trading firm said For that we think it s important to reach out to foreign institutional investors The shift away from a zero sum game approach to activism comes as funds see some change as better for shareholders than no change Our aim is not to win the vote at AGMs We are happy as long as our portfolio company s value gets a boost in any way said Tsuyoshi Maruki founder and chief executive of Tokyo based activist fund Strategic Capital Oasis s Fischer said his fund withdrew most of its planned proposals before the AGMs after meaningful behind the scenes engagement with companies Some long only investors also say they feel the activist approach is now more in line with their thinking I noticed several cases where activist funds have made the same demands as us This is something new something that hasn t happened a year ago said Archibald Ciganer co head of Japanese equities at U S asset manager T Rowe Price Another sign of corporate change is an increase in firms share buybacks which are expected to hit a record this year Share buybacks worth 5 57 trillion yen 52 billion have been announced by 519 companies so far much higher than the 2 84 trillion yen by 365 in the same period last year according to the data compiled by Citigroup NYSE C CLSA s Japan strategist Nicholas Smith says while public rows at AGMs benefit few investors confrontational engagement still plays a role in driving change
When having discussions it s important to remind companies that if they fail to be reasonable activists do have other measures they could employ Smith said It is crucial that AGM proposals do not become paper tigers |
C | Draghi Tests Legal Limits Again With Claim of QE Flexibility | Bloomberg Mario Draghi is once again testing the boundaries of the law in his efforts to lift the euro zone out of its economic malaise
When the European Central Bank president promised last week to add monetary stimulus if the outlook doesn t improve he said one option is to resume large scale purchases of government bonds He also said self imposed limits on how much debt the institution can buy could be raised
That raises a potential legal hurdle as those limits were designed to ensure the ECB doesn t fall foul of European Union law that forbids printing money to fund governments While the EU s top court has said quantitative easing is legal judges in Germany which is critical for the success of QE as the biggest buyer of debt under the program haven t yet issued a final ruling on a challenge there
The German court said on Tuesday that it ll hold fresh hearings on July 30 31 to review the EU Court of Justice s guidance before making its own decision
If the ECB resumes bond purchases under weakened conditions our chances of success at the Federal Constitutional Court will rise Bernd Lucke a German economist and one of the plaintiffs in that case said via a spokesman I hope and expect that the court will immediately stop them
German businessman Juergen Heraeus another of the plaintiffs said he d wait for the court s ruling before deciding whether to launch another challenge
The ECB has so far agreed to buy up to 33 of a nation s public debt under QE and won t buy directly from governments There is a 50 limit on debt from supranational agencies such as the European Investment Bank The idea is to leave investors room to operate so that the market rather than the central bank sets the price of bonds
According to Draghi those limits depend on the economic risks facing the euro zone
The Treaty requires that our actions are both necessary and proportionate to fulfill our mandate and achieve our objective which implies that the limits we establish on our tools are specific to the contingencies we face ECB President Draghi in Sintra Portugal on June 18
The ECB chief is no stranger to legal challenges to his policies An earlier bond buying program to tackle financial stress in individual nations created after he pledged to do whatever it takes to save the euro and known as Outright Monetary Transactions went to Germany s constitutional court where Bundesbank President Jens Weidmann testified against it The judges ruled that OMT is legal if purchases are limited The program has never been used
When the same court heard the challenge to QE it cited grave reasons to suspect that the program infringes the law before sending the case to the EU court The EU judges said QE does not exceed the ECB s mandate and does not contravene the prohibition of monetary financing
The ECB is in a bind The euro zone s economic revival is under threat from trade tensions and inflation remains far short of the goal of just under 2 Yields on sovereign bonds across the euro area have slumped to record lows in recent weeks as investors bet that the central bank will have to restart QE sooner rather than later
The problem is that after 2 6 trillion euros 3 trillion of bond purchases from 2015 to the end of 2018 it s getting close to its limits While Draghi said there is considerable headroom to buy more analysts aren t so sure Citigroup NYSE C sees scope for additional purchases of only around 150 billion euros
Some economists have run simulations based on an increase in the purchase limit to 50 If the ECB bought federal regional and municipal debt to that extent it would create space for 60 billion euros a month for two years according to TS Lombard s Shweta Singh and Davide Oneglia
The next policy meeting is on July 25 and Draghi will convene two more after that before he leaves at the end of October Economists expect interest rates to be cut again before QE is restarted and money markets are pricing a 10 basis point cut to the deposit rate in September
Should a resumption of QE with higher purchase limits become a policy proposal at some point though Governing Council members will have to consider whether they re confident enough to handle yet another legal battle
It s difficult to say whether the ECB s self imposed rules are the limits allowed by the EU s treaties said Christoph Ohler a law professor at Jena University The ban on monetary financing of states doesn t set any outright caps for government bond purchases but that doesn t mean there are no restrictions |
JPM | Opening Bell Dollar Extends Rally Oil Pushes Past 62 Gold Slips | Key Events
US stocks moved higher for a fifth consecutive day yesterday with 3 of the 4 major indices hitting fresh records
The S P 500 gained 4 56 points or 0 17 percent moving to 2727 71 The NASDAQ Composite climbed on the strength of semiconductors The tech heavy NASDAQ moved higher by 20 83 points 0 29 percent to 7 157 39 Even the Russell 2000 which has been lagging its sister indices advanced gaining 1 8 points up 0 12 percent to 1 561 81
Ironically yesterday it was the Dow Jones Industrial Average which assumed the laggard role After posting an intraday record of 25 311 99 it closed down 12 85 points or 0 05 percent at 25 283 forming a hanging man and ending a four day record setting winning streak
Just a few days ago Trump boasted about Dow strength on Twitter
Politifact a website that specializes in fact checking charting each instance the Dow crossed a 1 000 level threshold since 1896 Turns out the President wasn t tweeting fake news
Global Financial Affairs
US equities are currently in their longest winning streak since early November as investors continue to price in the benefits of tax cuts to corporations via the reforms passed late last year
Signs of financial market stress continue to ease as 2018 trading gets underway with volatility sinking to the lowest levels since 2014 Investors seem to feel that optimism in the US on lower taxes and a burgeoning worldwide economic recovery justify record high prices for global equities
On the other hand despite the record highs notched on Monday the major averages traded within tight ranges The Dow and S P 500 oscillated in a range of 0 3 percent and 0 4 percent respectively the NASDAQ traded in 0 5 percent range
Traders in Japan just back from a national holiday this morning extended their markets best start to a year since 2006 following a perfect 5 records in 5 days at the end of 2017
The yen bounced off a retreat after the BoJ announced trimming bond purchases dated 10 25 years by 10 billion yen 89 million That s harsher than it sounds compared with its previous policy it s a relatively minor tweak
Still that didn t stop traders from selling dollars and buying yen even after Governor Haruhiko Kuroda said last January in response to speculation about the significance of similar tweaks that they are not intended as signals on policy intentions Even as recently as during the past two weeks he emphasized that the country s inflation remains far from policy makers two percent target Consumer prices in Japan rose 0 6 percent YoY in November while the 2017 average was 0 4 percent Clearly Japan s deflationary mindset isn t going away anytime soon Why then the big move Apparently it s driven by sentiment
Market moves dominated by sentiment don t mean traders can t win big on some of those bets On June 27 traders as well as our own analysis interpreted comments from ECB President Mario Draghi to mean the ECB was about to begin tapering The euro jumped 1 4 percent that day
Once the euro provided a technical upside breakout even ECB Vice President Vitor Contanccio s attempt to clarify that Draghi wasn t in fact signaling tapering couldn t dissuade the bulls The single currency has extended its advance since then despite repeated attempts by the ECB to temper sentiment Still the euro gained another 6 5 percent till the September 8 peak near 1 2100 and almost 5 5 percent to date
The prospect of similar appreciation in the yen could reduce chances of the BoJ fine tuning its policy which would keep 10 year government bond yields around zero Moves such as the one today help explain why Kuroda hasn t been willing to drop the annual 80 trillion yen bond buying target from policy statements even though the actual purchases are now far below that pace
The rising yen weighed on Japanese stocks since more expensive local exports will affect global competitiveness The TOPIX pared a 0 74 percent advance sliding to 0 49 while the Nikkei 225 shaved an earlier 1 1 percent jump ending the day up 0 56 percent
Global shares from Sydney to Hong Kong were modestly higher on the heels of the S P 500 s fresh closing high yesterday In the wake of its disappointing this morning Samsung Electronics KS 005930 shares weighed on South Korea s KOSPI Earnings in the US Asia and Europe will continue to be a focus as the week proceeds with US financial giants including JPMorgan Chase NYSE JPM and Wells Fargo NYSE WFC on tap Friday Last year s dollar softness may reverberate for some international companies as it did negatively this morning for Samsung
European stocks joined the global equity rally adding to last week s biggest weekly advance since April as investors hope earnings season will sync with the growing economy and exceptionally bullish market sentiment The Stoxx Europe 600 rose to its highest level since August 2015
Economic data out of Europe has bolstered euro area confidence and fueled the continued equity advance since the end of 2017 However Germany s to form a government restrained the euro
The pound fell and UK stocks were flat after weak housing and consumer spending data showed the UK s economy was slowing As well reports that Prime Minister Theresa May is considering creating a position for a minister in charge of contingency planning for a no deal Brexit weighed on UK markets along with May s attempt to give her government a reboot which was marred by a chaotic cabinet reshuffle
The dollar extended a third day of gains wiping out last week s declines and then some after a three week long slide
China s yuan dropped as much as 0 4 percent against the dollar after Bloomberg News reported that the country s central bank has effectively removed an adjustment mechanism used for the currency s official daily fixing That device had been interpreted as a way to limit fluctuations
Oil extended gains moving above 62 a barrel
Up Ahead
US inflation data released Friday is forecast to show price pressures remain muted giving hawks little reason to argue for faster tightening
China producer and consumer price data comes out late today in the US Wednesday morning in Asia while a reading on the country s money supply is expected in the coming days
Market Moves
Stocks
The Stoxx Europe 600 Index gained 0 3 percent as of 8 51 a m London time with its fifth consecutive advance
The MSCI All Country World Equity Index advanced less than 0 05 percent reaching the highest on record
The MSCI Emerging Markets Index decreased 0 2 percent to 1 204 29 the first retreat in more than a week
S P 500 Futures climbed less than 0 05 percent
Currencies
The euro dipped 0 2 percent to 1 1941 the lowest in more than a week
The Bloomberg Dollar Spot Index advanced 0 2 percent
The British pound dipped 0 3 percent to 1 3525
Bonds
The yield on 10 year Treasuries climbed two basis points to 2 50 percent the highest in about 10 months
Germany s 10 year yield advanced one basis point to 0 44 percent
Commodities
Gold sank 0 4 percent to 1 314 72 an ounce the biggest dip in four weeks
West Texas Intermediate crude climbed 0 6 percent to 62 10 a barrel the highest in more than two years
Copper gained 0 6 percent to 3 24 a pound the biggest climb in more than a week |
JPM | 5 Reasons To Buy JPMorgan Chase JPM Ahead Of Earnings | On Friday January 12th JPMorgan Chase JPM will release its fourth quarter earnings results after the bell The company is a Zacks Rank 3 Hold and have a Value Growth and Momentum score of F
Dave will look at JPMorgan Chase s past earnings take a look at what is currently going on with the company and give us his thoughts on their upcoming earnings announcement
Furthermore Dave will uncover some potential options trades for investors looking to make a play on JPMorgan Chase ahead of earnings
JPMorgan Chase in Focus
JPMorgan Chase Co NYSE JPM is a financial services firm The Company is engaged in investment banking financial services for consumers and small businesses commercial banking financial transaction processing asset management and private equity It offers various investment banking products and services including advising on corporate strategy and structure capital raising in equity and debt markets risk management market making in cash securities and derivative instruments prime brokerage It also offers consumer and business and mortgage banking products and services that include checking and savings accounts mortgages home equity and business loans and investments JPMorgan Chase Co is headquartered in New York
JPMorgan Chase is expected to per share according to the Zacks Consensus Estimate Last quarter they beat earnings expectations by 5 39 They reported earnings at 1 76 per share beating their estimate of 1 67 They have an average earnings surprise of 12 75 over the last 4 quarters J P Morgan Chase Co Price Consensus and EPS Surprise
Bottom LineHow should investors play JPMorgan Chase ahead of their earnings report For insights on the best options trades then tune in at 1 00pm CST today to see David s thoughts The Best Worst of ZacksToday you are invited to download the full up to the minute list of 220 Zacks Rank 1 Strong Buys free of charge From 1988 through 2015 this list has averaged a stellar gain of 26 per year Plus you may download 220 Zacks Rank 5 Strong Sells Even though this list holds many stocks that seem to be solid it has historically performed 11X worse than the market |
MS | Washington noise a buying opportunity for Centene Morgan Stanley | The selloff in Centene CNC 4 5 from the Trump administration s plan to terminate health insurance subsidies to insurers is exaggerated according to Morgan Stanley NYSE MS Shares were down almost 11 before before bargain hunters jumped in In note analyst Gary Taylor says investors misunderstood the potential impact from the Washington driven noise citing expected legal challenges that will keep the money flowing and the fact that Centene has submitted two bids in most markets one assuming cost sharing reduction CSR subsidies and one without with the ability to change mid year if CSR funding changes Centene s exchange exposure is only 8 with only 60 of those receiving CSRs He also reiterates that most states already asked insurers to load CSR costs into their 2018 bids or submit backup bids if the funding was discontinued Source BloombergPreviously Centene down 7 premarket on Trump order to end ACA subsidies Oct 13 Now read |
MS | Morgan Stanley clips PT on Buffalo Wild Wings | Morgan Stanley NYSE MS cuts its price target on Buffalo Wild Wings NASDAQ BWLD to 112 from 123 on concerns over revenue visibility wing costs headwinds and a lack of clarity on management changes Shares of Buffalo Wild Wings closed at 102 35 on Friday vs a 52 week trading range of 95 00 to 175 10 Now read |
MS | Analyst coverage launches on Despegar com | Analyst coverage starts on Despegar com NYSE DESP following the IPO of the online travel site Morgan Stanley NYSE MS starts off Despegar at Equal weight with a price target of 31 UBS initiates at Neutral with a price target of 36 Bullish Keybanc charges out with an Overweight rating and price target of 40 Despegar closed at 33 94 on Friday up 31 from where the IPO priced Now read |
MS | PG E shares have overreacted to California fire risk Morgan Stanley says | PG E PCG 8 2 remains mired in steep losses even as the stock is defended at Morgan Stanley NYSE MS in light of recent weakness related to the California wildfires Morgan Stanley analyst Stephen Byrd believes PG E shares likely have overreacted noting that the stock reflects 5 6B in fire related damage a total Byrd thinks is greater than likely would be incurred by its shareholders The firm maintains its Overweight rating on PCG but also believes fire related liability worries will continue to be a significant overhang as it will take many months for an investigation to be completed Schaeffer s notes that a number of strikes are seeing heavy trading topped by the October 60 call and buy to open activity looks likely meaning a number of bulls expect the stock to rebound back to the round 60 level before Friday s close when the front month contracts expire Now read |
JPM | JPMorgan sees latest sell off overpricing recession risk | JPMorgan Chase NYSE JPM sees the pessimism in equity and high yield bond markets as overdone as it sees only a 20 to 30 chance of a recession in 2019 with an increased probability in 2020 Bloomberg reports The bank s strategists led by John Normand analyzed equity valuations and credit spreads for high yield bonds in the period leading up to past economic recessions The team continues to favor stocks over corporate bonds in developed markets and takes a neutral view on emerging markets It is right to anchor portfolio strategy in a late cycle framework that anticipates below average returns into and through the next recession but we note it is also excessively pessimistic to price so much downside now as equity and HG credit markets are doing the analysts wrote Previously Stock end near lows for the day and week amid broad based selloff Dec 7 ETFs HYG JNK CRF DHY USA HIX EAD PHT HYT HYLD JQC SCHX ZF ACP ANGL CIK MCI VV DSU SJB KIO NHS CIF ARDC IVH GGM AIF MPV FHY PHF JSD VLT HYLS DHG FEX PCF JKDNow read |
JPM | U S job openings data points to growing worker shortage | By Lucia Mutikani WASHINGTON Reuters U S job openings rebounded in October but hiring continued to lag suggesting a recent slowdown in job growth was most likely because employers could not find qualified workers The monthly Job Openings and Labor Turnover Survey or JOLTS released by the Labor Department on Monday underscored tightening labor market conditions which economists say will encourage the Federal Reserve to raise interest rates next week despite volatility in financial markets This report continues to paint a picture of an increasingly tight labor market said John Ryding chief economist at RDQ Economics in New York It continues to signal that the Fed has fully met its employment objective Job openings a measure of labor demand increased by 119 000 to a seasonally adjusted 7 1 million That lifted the job openings rate to 4 5 percent from 4 4 percent in September There were 6 1 million people unemployed in October Hiring rose by 196 000 to 5 9 million matching August s record high The hiring rate increased to 3 9 percent from 3 8 percent in September The government reported last Friday a slowdown in job growth in November with nonfarm payrolls increasing by 155 000 jobs The economy created 237 000 jobs in October With job openings outpacing the number of unemployed people economists expect employment growth to continue slowing through 2019 The bad thing about 7 million job openings and only 6 million unemployed is that the country is running out of workers and this will eventually slow economic growth within the next few years said Chris Rupkey chief economist at MUFG in New York The labor market is strong at the moment and companies are begging for help to produce and sell their goods and services out there TIGHT LABOR MARKET There were 45 000 job openings in the information industry in October The real estate and rental and leasing industry had 38 000 vacancies and there were 20 000 unfilled positions in educational services State and local government education had 17 000 vacancies Hiring in October was driven by the transportation warehousing and utilities industry which added 90 000 jobs The manufacturing industry hired 43 000 workers The worker shortage appeared to be more prevalent in the Midwest and the Northeast Labor market tightness is marked by a 3 7 percent unemployment rate which is the lowest in nearly 49 years and well below current Fed estimates of full employment at 4 5 percent The U S central bank has raised interest rates three times this year The outlook for further rate hikes after the anticipated increase in borrowing costs at the Fed s Dec 18 19 policy meeting is uncertain amid investor worries that economic growth might be slowing Economists expect the jobless rate to drop to 3 4 percent in 2019 The labor market expansion will continue through 2019 but it will become increasingly more attenuated said Sophia Koropeckyj a senior economist at Moody s Analytics in West Chester Pennsylvania Not only will the tight labor market constrain net hiring but such factors as higher interest rates and the waning impact of fiscal stimulus will bear down on demand conditions The number of workers voluntarily quitting their jobs fell for a second straight month in October The quits rate which policymakers and economists view as a measure of job market confidence dipped one tenth of a percentage point to 2 3 percent in October Layoffs were little changed at 1 7 million in October holding the layoffs rate at 1 1 percent But recent data including applications for unemployment benefits have suggested a rise in layoffs in November
The JOLTS data lag many other labor market indicators and some of the more recent changes particularly in initial claims have pointed to more noticeable weakening in the job market said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
JPM | Foreign investors spurn U S Treasuries as curve threatens to invert | By Tomo Uetake and Saikat Chatterjee TOKYO LONDON Reuters A worrying sign of inversion in the U S Treasury bond curve is dulling the appeal of the developed world s highest yielding bond market for foreign investors Overseas investors are reviewing their investments or shunning Treasuries as rates at the short end rise above those at the longer end and make it unprofitable for holders of these bonds to hedge their currency risks The difference between short and long term bond rates or the yield curve has contracted in recent weeks as rising U S interest rates meet growing doubts the world s biggest economy may be slowing down weighing on longer dated yields And as short term yields move higher than longer term yields the cost of hedging exposure to the U S dollar has gone up There is the whole issue of hedging costs That is the one thing that was inconsequential at the start of the year but now it is sizeable said Paul O Connor head of multi asset at Janus Henderson in London whose firm manages 378 1 billion in assets You are knocking off a substantial part of U S yields when you buy from the UK perspective and hedge back that exposure When we buy government debt we always hedge it You don t want to take the FX risk he said The U S Federal Reserve has raised rates eight times since late 2015 and looks set to hike them again next week even as other global central banks stay shy of normalizing policy causing a significant gap to open up in short dated interest rates The European Central Bank and the Bank of Japan have both kept interest rates below zero percent while the Bank of England has raised rates only twice from its record low near zero percent set in 2016 after the shock Brexit vote As U S short term rates climb currency forward markets which are closely linked to the differences in interest rates between currencies have moved to price in the higher cost of holding dollars For yen based investors they must pay around 3 3 percent of their principal investment to hedge the risk of holding dollars The picture is similar for euro based investors We won t buy U S Treasuries with currency hedge The return would be negative after hedging said Kazuyuki Shigemoto general manager of investment planning at Dai ichi Life Insurance which oversees assets of 35 6 trillion yen 316 billion Currency hedge costs Hedging costs erode rate advantage for U S debt Higher hedging costs would not have discouraged investors if longer term bond yields had risen as much as short term yields The yield on 10 year U S Treasuries however has only risen to 2 8 percent compared with 2 1 2 3 percent before the start of the Fed s tightening in late 2015 Two year yields have meanwhile risen 160 basis points to 2 7 percent Last week a section of the curve inverted when the five year bond yield dropped below two year and three year yields Dai ichi Life s Shigemoto believes it is only a matter of time before the two and 10 year yield spread turns negative U S Yield Curve Japanese and European investors hunting for yield among top rated government bonds are starting to look elsewhere We have seen a real decline in flows especially from Japan in particular and a lot of them have been directed to European and even Asian assets said Bob Michele head of global fixed income at JPMorgan NYSE JPM Asset Management whose firm manages 491 billion in asset in New York Even emerging markets are offering some value after a violent sell off earlier this year on trade war concerns A JPMorgan global emerging market bond index denominated in U S dollars now offers a yield of over 7 percent versus around 5 5 percent at the start of the year Refinitiv data shows TO HEDGE OR NOT One option is to give up currency hedging Still increasing the holding of dollars just when the Fed may be about to slow its pace of monetary tightening could be risky We want to buy dollars on dips But an inverted yield curve may portend a future recession and there are many other uncertain factors So we need to carefully look at economic fundamentals said Toshinori Kurisu deputy general manager of investment planning at Nippon Life which has total assets of 66 7 trillion yen 592 billion Institutional investors are reluctant to take on too much currency risk for regulatory reasons The U S China trade war and possible U S slowdown are also reasons for investors to lower rather than raise their risk exposure In that case the ultimate choice appears to be going back to their home markets The attraction of U S Treasuries investment with a full currency hedge has declined So we have been buying investment grade corporate bonds in the hedged U S debt space said Ryosuke Fukushima general manager of investment planning at Japan Post Insurance or Kampo which has 76 8 trillion yen 681 3 billion of assets under management Fukushima said Kampo does not plan to radically change its stance because the firm is on course to meet its internal investment income target for the current financial year ending in March But in the plan for next year which we have just started contemplating we will consider whether to flip back to JGBs from hedged foreign bonds which we see as substitute for JGBs he said U S bond purchases by non U S investors |
MS | The Week Ahead Will Housing Finally Help The Economy | The economic calendar includes much more housing data than we normally see in a single week With Fed Chair Yellen s Congressional testimony and the GDP revisions also on tap I expect many observers to be linking these topics They will ask
Is it finally time for a housing rebound
Prior Theme Recap
In last week s WTWA I predicted that the punditry would focus on the new record in stocks and especially on whether energy stocks would support the breakout Those were indeed two major themes all week and they were frequently linked so the question was accurate Mostly the answer was rather negative The stock rally continued but without help from most of the energy sector
Feel free to join in my exercise in thinking about the upcoming theme We would all like to know the direction of the market in advance Good luck with that Second best is planning what to look for and how to react That is the purpose of considering possible themes for the week ahead
This Week s Theme
The quirks of the calendar include some of the major economic reports on housing new sales existing sales and pending sales along with Case Shiller and FHFA pricing and the mortgage index There is a lot of fresh information
We will see the second estimate of Q4 GDP with many wondering about the role of a possible housing rebound Janet Yellen will testify before two Congressional committees elaborating on current Fed thinking And finally the remaining earnings reports feature some of the major companies associated with home construction
The confluence of these factors will spark the question Can Housing Finally Contribute to the Economic Rebound
The Viewpoints
There is a wide range of opinion on housing
Fundamental weakness Some major opinion leaders including Jeff Gundlach Laurence Fink and Sam Zell note the changing demographics and issues in supporting the mortgage market is from last year but lays out the reasoning effectively
Miscellaneous bearish factors CNBC s Diana Olick covers the housing beat and always seems to find a threat to the rebound A look at her blog s shows stories about the trickle down of high rents to small cities expected weakness in Houston from falling oil prices lack of impact from more jobs higher mortgage rates negative effects of a strong dollar and similar stories
The long bottom Calculated Risk has been the leading exponent of this view The data show that some of the new construction represents owner built starts and homes intended for rent of this chart
Positive developments of UBS notes that household formation is booming
As always I have some additional ideas in today s conclusion But first let us do our regular update of the last week s news and data Readers especially those new to this series will benefit from reading the
Last Week s Data
Each week I break down events into good and bad Often there is ugly and on rare occasion something really good My working definition of good has two components
The news is market friendly Our personal policy preferences are not relevant for this test And especially no politics
It is better than expectations
The Good
There was some good news last week
Progress in Greece After a slow start to the week including a German spokesman calling the Greek proposal a Trojan Horse there was finally a firm agreement to delay for four months As I noted last week this type of negotiated solution is actually quite typical Each side does as little as possible There is an opportunity for face saving The worst crisis outcome is averted Markets seemed less worried about Greece than three years ago and celebrated the Friday agreement
Weekly jobless claims dipped Back below 300K Calculated Risk and charts the significance
Port deal reached This news broke on Saturday so it is not reflected in Friday s closing prices As I have noted in recent weeks the Longshoreman slowdown and the accompanying lockout were threatening a major economic disruption It will still take weeks to resume normal shipping but this is very good news
The Bad
There was only a little bad news
Ukraine cease fire breaks down This is a continuing human tragedy and a major drag on the world economy
Earnings reports have weakened a bit There are still 75 of reporting S P companies beating on earnings and 58 on sales The blended growth rate is 3 5 as calculated there or about 7 if you take out energy that Apple contributed half of the ex energy earnings growth and warns against arbitrarily excluding stocks and sectors You need a good reason
Housing starts and building permits disappointed slightly
The Ugly
The Fed is worried about a rush for the exit in bond funds Bloomberg s Matt Boesler tweeted about a passage in the Fed minutes Full story from of BI
because investors are using mutual funds to invest in bonds instead of owning the bonds there could be a problem if investors all want to leave at the same time
When you own a bond mutual fund you don t actually own a bond which will continue to pay a coupon so long as the issuer isn t in default you just own a share of the fund which is comprised of lots of bonds and sometimes other things
Also a bond fund is only going to have so much cash on hand so if the investors in a certain fund all want to redeem their shares of the fund at the same time it will pose problems for the fund manager trying to meet redemption requests Most likely the manager will be forced to sell some bonds potentially at a discount as the fund needs to simply raise cash to meet redemptions
And ace Fed watcher Tim Duy the determination to raise rates
The Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause doing the real work to demonstrate the facts Think of The Lone Ranger No award this week but nominations are welcome I am seeing plenty of bad charts but little refutation
On a related theme could someone explain why PBS continues to feature before 20K instead of Do they have an interest in the investment success of their viewers Can anyone find any such items
Quant Corner
Whether a trader or an investor you need to understand risk I monitor many quantitative reports and highlight the best methods in this weekly update For more information on each source
Recent Expert Commentary on Recession Odds and Market Trends
Bob Dieli does a subscription required after the employment report and also a monthly overview analysis He follows many concurrent indicators to supplement our featured C Score
A variety of strong quantitative indicators for both economic and market analysis While we feature the recession analysis Dwaine also has a number of interesting market indicators This week he notes an although the levels are still not yet worrisome
An update of the regular ECRI analysis with a good history commentary detailed analysis and charts If you are still listening to the ECRI three years after their recession call you should be reading this carefully Doug has the latest interviews as well as discussion Also see Doug s summary of key indicators
has developed an array of interesting systems Check out his site for the full story We especially like his confirming that there is no recession signal Georg continues to develop new tools for market analysis and timing Some investors will be interested in his recommendations for and He has added a method for I am following his results and methods with great interest You should too
The Week Ahead
It is a normal week for economic data
The A List includes the following
Initial jobless claims Th The best concurrent news on employment trends with emphasis on job losses
New home sales W Time for a rebound
Consumer confidence T Conference Board version correlates with economic spending and employment
Michigan sentiment F Same concepts as Conference Board but using a panel design
The B List includes the following
Existing home sales M Less important for the economy than new construction but still significant
Durable goods Th Continuing weakness in volatile series
CPI Th Inflation is still not important in these ranges but always watched closely
GDP F The second estimate Backward looking but still noteworthy
Chicago PMI F Gets extra attention when occurring right before a weekend Best regional report for predicting the ISM index
Crude oil inventories W Maintains recent interest and importance
There is plenty of FedSpeak featuring Chair Yellen s Humphrey Hawkins testimony before a Senate Committee on Tuesday The House gets a chance to question her on Wednesday There are at least four other appearances by Fed Presidents on Thursday and Friday
How to Use the Weekly Data Updates
In the WTWA series I try to share what I am thinking as I prepare for the coming week I write each post as if I were speaking directly to one of my clients Each client is different so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs It is not a one size fits all approach
To get the maximum benefit from my updates you need to have a self assessment of your objectives Are you most interested in preserving wealth Or like most of us do you still need to create wealth How much risk is right for your temperament and circumstances
My weekly insights often suggest a different course of action depending upon your objectives and time frames They also accurately describe what I am doing in the programs I manage
Insight for Traders
Felix has continued a bullish posture for the three week market forecast The data have improved a bit but are only slight better than the recent neutral readings There is still plenty of uncertainty reflected by the high percentage of sectors in the penalty box Our current position is still fully invested in three leading sectors and we have gotten more aggressive For more information I have posted a further description You can sign up for Felix s weekly ratings updates via email to etf at newarc dot com
As I have noted for six weeks Felix continues to feature selected energy holdings Felix is not just a momentum trader
Insight for Investors
I review the themes here each week and refresh when needed For investors as we would expect the key ideas may stay on the list longer than the updates for traders Major market declines occur after business cycle peaks sparked by severely declining earnings Our methods are focused on limiting this risk Start with our and follow the links
We also have a new page summarizing many of the If you read something scary this is a good place to do some fact checking
My bold and contrarian prediction for 2015 that the leading sectors would lose and the laggards would win looked a lot better over the last two weeks If I am correct there is a very very long way to run for the cheapest market sectors energy technology cyclicals and financials
Other Advice
Here is our collection of great investor advice for this week
Personal Finance
Abnormal Returns continues to focus on personal finance in the Read them all but I especially like on risk and on why investors underperform stock averages
Stock and Sector Ideas
Warren Buffett cuts back on big oil Others debate his wisdom
Five reasons not to expect a big rebound in oil prices
The place for bonds even when rates are rising how intermediate bonds can show gains even when rates are rising sharply The basic idea is to keep the maturity short and reinvest as rates move higher This is the concept we follow in our bond ladder Bonds are also essential for those who need to reduce the volatility of a pure stock portfolio
that it might be time to buy Greece His article was published the day before the announcement but is well worth reading especially for those who like some technical support for fundamental ideas
A longer term chart of the Athens General Index and the US Greek ETF GREK also tells a similar story Greek stocks look washed out especially when they don t react negatively to bad news
Health insurance companies that support Medicare Advantage are benefiting from the influx of younger seniors via Barrons I enjoyed some of these names last year but sold on a valuation basis as new highs were reached Time to revisit the price targets
Market Outlook
may be reducing his holdings of US stocks Media questioners always try to get him to predict an imminent crash Market bears use his CAPE ratio as the foundation for demonstrating an over valued market Most people would be surprised to learn that he continues to hold over 50 stocks an aggressive allocation given his age He has also recently been noting risks in bonds
sees another 1000 points in the S P 500 as foreign investors join the party
Final ThoughtMost economic recoveries have help from the housing sector Part of the reason for below trend growth has been the continuing missing elements We have had drags from government spending especially local business investment weather and housing takes note of this as follows
The U S economy is in the benign grip of a virtuous circle with key positive factors reinforcing one another all of them lubricated by low energy prices Employment gains are driving up wages and salaries which are driving consumer spending which is encouraging capital investment which is in turn motivating business to hire
So far however the housing market has been barely participating in that virtuous circle Monthly housing starts have been running at an annual rate of only a little over a million nothing like the 1 5 million that could be seen if household formation begins catching up with the increase in the population
Household formation could heat up by 2016 as labor markets become tighter Then growth of 4 could finally become a reality
He has a good point I expect a final surge in economic growth during this business cycle and it might take two or more years to play out |
MS | Analysts Weigh in on Shake Shack in Reaction to High Valuation | Popular upscale hamburger chain Shake Shack Inc NYSE SHAK announced its highly coveted IPO on January 30th pricing shares at 21 to start Investors were eager to get their hands on Shake Shack shares more than doubling the stock s price on its first day of trading and closing at 45 90 The company currently operates just 63 restaurants in nine different countries with 16 of them located in the metropolitan New York City area The company said it plans to expand slowly with a goal to open 10 new locations in the United States every year as well as adding more international locations The Shake Shack excitement has started to wear off as the stock dropped roughly 9 in mid February Since this dip Shake Shack s stock has slightly rebounded closing at 43 47 on February 24th Investors have begun to question the stock s valuation with the measured growth strategy presented by CEO Randy Garutti and Chairman Danny Meyer Garutti said in a statement I love the growth pace we ve outlined if we were trying to open 50 new restaurants this year I d be worried A handful of analysts weighed in on Shake Shack on February 24th in reaction to the company s current high valuation Stifel Nicholaus analyst assigned a Buy rating on Shake Shack with a price target of 50 highlighting the company s enlightened hospitality approach to the restaurant business as its most valuable asset He added From an investor s perspective Shake Shack s virtuous cycle of success helps significantly de risk an inherently high risk proposition which is investing in a small restaurant concept with global growth ambitions Overall Paul Westra has a 77 success rate recommending stocks and a 8 9 average return per recommendation Separately Morgan Stanley NYSE MS analyst initiated an Equal Weight rating on Shake Shack with a price target of 38 stating that the dynamics of a small float are at work and we expect Shake Shack s large open ended market opportunity to sustain valuation versus many other recent restaurant IPO s John Glass currently has an overall success rate of 68 recommending stocks and a 15 4 average return per recommendation Similarly a Jefferies analyst initiated a Hold rating on Shake Shack and a 40 price target stating We think SHAK will grow EBITDA 20 as it accelerates unit growth and establishes itself as the premier fine casual brand in better burgers However with just 31 units today and a domestic runway of at least 450 there is execution risk SHAK currently trades at the highest valuation in the group and we d prefer to let it grow into its multiple over time Overall Andy Barish has a 60 success rate recommending stocks and a 9 8 average return per recommendation On average the top analyst consensus for Shake Shack on is Hold |
C | Russia May Be Testing U S Gas Nerve With Europe Push Citi Says | Bloomberg Russia s strong natural gas shipments to Europe may be an attempt to test the resilience of U S exporters according to Citigroup Inc NYSE C
Shipments this year from Russia have helped boost European gas storage to near full capacity and exacerbated the region s oversupply the bank s analysts including Ed Morse wrote in a June 9 report One motivation for not cutting that supply which would help prices recover could be that Moscow is testing the response of the global gas market in a low price environment especially U S LNG export elasticity
Given the current storage levels in Europe restricting U S LNG exports for two months may make sense according to Citigroup That could trim about 400 billion cubic feet of supply in late summer and early fall roughly equivalent to the inventory overhang in Europe Otherwise Russian pipeline exports to Europe may have to fall by as much as 15 year on year to balance the market it estimates
Pain for U S gas exporters caused by Russian supply has the potential to further politicize competition in the European gas market While American LNG sales to Europe are a fraction of what the region gets by pipeline from Russia the U S has framed its energy supplies as an alternative to reliance on Moscow The Department of Energy has even tried highlighting the foreign policy implications of the nation s exports by labeling it freedom gas
Cutting Forecasts
If Russia is seeking to test the global market then low LNG prices could last through fall and possibly into next winter the bank said Besides the U S lower supply from Malaysia Indonesia and eastern Australia could also be possible though the volume is questionable Citigroup said The bank highlighted a press conference by Russia s Gazprom MCX GAZP PJSC coming up on June 18 as providing potential insight into its export strategy to Europe
Given the oversupply Citigroup cut its gas price forecasts for this year by as much as 18 U S Henry Hub is seen at 2 50 per million British thermal units European Title Transfer Facility at 5 and Asia s Japan Korea Marker benchmark at 5 80 |
C | How China Overpowered the U S to Win the Battle for Rare Earths | Bloomberg It was Beijing s decision almost 30 years ago to make rare earths a strategic material and ban foreigners from mining them that helped pave the way for China to elbow aside the U S as the world s leading producer
In the intervening period as China tightened control of domestic output of rare earths a broad group of 17 elements used in everything from electric vehicles to military hardware the U S all but surrendered to China s dominance of the sector
With China now accounting for 70 percent of global production and only one U S mine in operation American industries outside of defense have no immediate avenues to break their reliance on China for supply of rare earth elements according to Citigroup Inc NYSE C
It s why Washington is now facing a new front in its burgeoning trade war with the world s second biggest economy after Beijing signaled its intent to restrict exports of the critical materials Here s a look at the country s reserves export regime dominant players and illegal activities
1 Six Dominant Producers
China consolidated its mining and separation companies into six licensed groups in 2016 Beijing granted the groups annual production quotas to better manage its strategic mineral resources and ensure the sustainability of the industry
They were granted mining quotas totaling 120 000 tons of rare earths oxide in 2018 compared with 105 000 tons in 2017
The country plans to cap domestic mining output below 140 000 tons by 2020 to preserve resources and will cut smelting and separation capacity by a third from 2015 levels to 200 000 tons according to the industry s five year plan issued in 2016 It s part of a drive to more than double the industry s profit margin to 12
The following are the six major producers with 2018 quotas according to the Ministry of Information and Technology
2 Where Are the Mines
Baiyun Obo in northern China s Inner Mongolia run by China Northern Rare Earth is the world s largest mine It holds 83 of the country s total reserves mainly light elements Mines in Shandong province have 8 Sichuan has 3 and rest of the reserves are in southern provinces mainly in medium to heavy forms according to 2017 data on the China Rare Earth Industry Association website
3 Exports Imports
China has a surplus in light rare earths which dominate its exports but needs to import medium to heavy types to meet a domestic shortfall according to SMM On exports the government doesn t have any control on quantity or qualification as companies are only required to present sales contracts to receive licenses
The country s outbound shipments rose 3 6 to about 53 000 tons in 2018 according to Chinese customs data Exports have been rising every year since 2013 The U S is one of the main destinations for permanent magnets and the country relies on China for 80 of its purchases
China s imports doubled to around 70 000 tons last year making it a major importer for the first time according to the country s industry group
4 Illegal Mining
While there s no official data the country is dogged by illegal exploration and production A government crackdown has seen illicit production volumes fall significantly from almost being equal to sanctioned output of around 100 000 tons of oxide in the middle of the decade according to Wu Xiaofeng an analyst with SMM Information Technology Co without giving a specific estimates
China was estimated to have produced 180 000 tons last year compared with an official quota of 120 000 tons according to a U S Geological Survey report that cited Chinese government data
5 Consumption Areas
Permanent magnet materials account for 44 of China s consumption with polishing making up 10 oil and petrochemical 9 and the rest used in metallurgical machinery glasses catalysts and lighting according to SMM
6 Looming Domestic Shortfall
A growing need for permanent magnets in new energy vehicles is driving demand growth increasing China s dependence on imports as domestic production is capped
Earlier this year the government issued a first round quota for mined output of 60 000 tons down from 73 500 tons a year earlier and compared with 2018 s full year limit of 120 000 tons
The market will be waiting eagerly for the next round of production quotas which are due to be released later this month This year s first round quota was relatively low given China s total demand is expected to rise to 180 000 tons and companies may have to source supplies from overseas Chen Zhanheng vice secretary general at the rare earth association said in March |
C | Underlying U S producer inflation boosted by services | By Lucia Mutikani WASHINGTON Reuters Underlying U S producer prices increased solidly for a second straight month in May boosted by a surge in the cost of hotel accommodation and gains in portfolio management service fees The report from the Labor Department on Tuesday likely will support the Federal Reserve s view that recent weak price readings are probably transitory and that inflation will gradually move toward the U S central bank s 2 percent target There is no evidence of falling inflation in this report said John Ryding chief economist at RDQ Economics in New York Producer prices excluding food energy and trade services rose 0 4 last month matching April s gain the government said The so called core PPI increased 2 3 in the 12 months through May after rising 2 2 in April Weaker energy and food prices however partially offset the increase in prices of services last month That led the producer price index for final demand to edge up 0 1 in May after gaining 0 2 in April In the 12 months through May the PPI climbed 1 8 slowing from April s 2 2 advance Economists polled by Reuters had forecast the PPI would nudge up 0 1 in May and rise 2 0 on a year on year basis Fed policymakers are scheduled to meet on June 18 19 against the backdrop of rising trade tensions slowing growth and a sharp step down in hiring in May that has led financial markets to price in at least two interest rate cuts by the end of 2019 President Donald Trump in early May slapped additional tariffs of up to 25 on 200 billion of Chinese goods prompting retaliation by Beijing Trump on Monday threatened further duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit later this month in Japan A tariff on all goods from Mexico to force authorities in that country to curb migrants mostly from Central America from crossing the border into the United States was narrowly averted after the two nations struck an agreement late on Friday Fed Chairman Jerome Powell said last week that the U S central bank was closely monitoring the implications of the trade tensions on the economy and would act as appropriate to sustain the expansion A rate cut is not expected next Wednesday Trump on Tuesday renewed his attack on the Fed and described low inflation as a beautiful thing The Fed s preferred inflation measure the core personal consumption expenditures PCE price index increased 1 6 percent in the year to April after gaining 1 5 in March Data for May will be released later this month The dollar was flat against a basket of currencies while U S Treasury prices fell Stocks on Wall Street were trading higher STRONG HOTEL PORTFOLIO FEES The services led increase in the core PPI last month is likely to translate into a slightly higher reading for other underlying inflation measures in May According to a Reuters survey of economists core consumer prices probably increased 0 2 last month after nudging up 0 1 in April The consumer price data will be published on Wednesday Prices for hotel accommodation surged 10 1 in May the most since April 2009 That accounted for nearly 80 percent of the rise in services prices in May Services prices rose 0 3 after gaining 0 1 in April The cost of healthcare services increased 0 2 last month after increasing 0 3 in April There were increases in the prices for both inpatient and outpatient care last month Those healthcare costs feed into the core PCE price index Portfolio management service fees identified by the Fed s Powell as one of the transitory factors restraining inflation rose 1 8 in May after surging 5 3 in April These prices which are being supported by a rebound in the stock market are likely to lift the core PCE price index in May The cost of passenger transportation services also increased last month We continue to expect that core PCE inflation will not fall too much further from here and should return closer towards the 2 target later in the year and into 2020 said Veronica Clark an economist at Citigroup NYSE C in New York Last month wholesale energy prices fell 1 0 after rising 1 8 in the prior month Goods prices slipped 0 2 last month after gaining 0 3 in April Wholesale food prices fell 0 3 in May led by a 32 1 tumble in the cost of eggs
Core goods prices were unchanged for a second straight month Upcoming data will be closely watched for the effects of the latest tariff on Chinese goods Previous duties impacted prices for machinery equipment and some household furniture goods |
C | Bank of Russia Resumes Easing Cycle With First Cut in a Year | Bloomberg Go inside the global economy with Stephanie Flanders in her new podcast Stephanomics Subscribe via Pocket Cast or iTunes
Russia cut interest rates for the first time since March 2018 and signaled more monetary easing at one of its upcoming meetings as growth slowed and inflation retreated closer to the central bank s target
The key rate was cut to 7 50 from 7 75 according to a statement on Friday That matched 33 forecasts in a Bloomberg survey while two economists expected no change Bank of Russia Governor Elvira Nabiullina will hold a news conference at 3pm in Moscow
If the situation develops in line with the baseline forecast the Bank of Russia sees the possibility of a further key rate reduction at one of the upcoming Board of Directors meetings and a transition to neutral monetary policy by mid 2020 the central bank said in its statement
Read our live blog for more on the Russian rate decision
The move makes Russia the latest emerging market to tilt toward more dovish policy as escalating trade woes weigh on growth Chile and India also lowered their benchmark rates recently and other central banks will likely follow if the Federal Reserve signals a shift to easing
The change in trajectory of interest rates in developed economies reduces the risk of persistent outflows from emerging markets the statement said
The ruble extended gains and 10 year government bond yields retreated 4 basis points to 7 66 as investors cheered the prospect of more rate cuts and slower inflation Ruble bonds known as OFZs have already handed carry traders some of the best returns in emerging markets this year
The central bank definitely wanted to signal that it is joining the global monetary easing trend said Vladimir Miklashevsky a strategist at Danske Bank A S in Helsinki We see more flows into OFZs given the current rate and inflation outlook
Annual inflation decelerated for a third month in June reaching 5 as of June 10 the central bank said Price growth will slow to 4 2 4 7 by the end of the year the statement said citing weak consumer demand and ruble strength
Inflation could rise if the Finance Ministry goes ahead with an idea to invest money accumulated in Russia s wealth fund the statement warned
Dovish Undertones
The central bank also cut its growth forecast for 2019 to 1 0 1 5 from 1 2 1 7 A worsening of international trade tensions may lead to a slowdown in global growth the statement warned
Most economists are forecasting a second rate cut from Russia in September and some see another one by the end of the year Nabiullina warned last week that there s no rush to undo two surprise rate hikes imposed last year as inflation jumped
The overall dovish undertones of the statement strongly suggest that the central bank will make another 25 basis points cut in 2019 said Ivan Tchakarov a Moscow based economist at Citigroup Inc NYSE C Given that the neutral policy rate is seen by the central bank in the range of 6 7 there will be scope for further cuts next year |
C | UBS to Lose China Bond Deal After Economist s Pig Remark | Bloomberg One of China s biggest state owned infrastructure companies excluded UBS Group AG from a bond deal after the bank s global chief economist sparked a furor with his use of the phrase Chinese pig
China Railway Construction Corp decided against hiring UBS as a joint global coordinator on a dollar bond sale a CRCC spokesman said The decision was prompted by last week s pig remark people familiar with the matter said earlier UBS declined to comment
CRCC is the first known corporate issuer to distance itself from UBS over a drama that has captivated financial professionals around the world and threatened to complicate the Swiss bank s push into Asia s largest economy While lost fees from the deal will have a negligible impact on the bank s bottom line the signaling effect from a major state owned company is potentially more concerning as UBS tries to prevent the uproar from damaging its investment banking and wealth management businesses
The stakes are high for UBS which has had a presence in China longer than most Wall Street firms and was the first foreign business to win approval for a majority shareholding in a local securities venture after the country relaxed ownership rules Most wealth managers still serve China s rich from offshore centers such as Hong Kong and Singapore but the nation s massive pool of onshore money estimated at around 20 trillion is a huge prize for the industry
CRCC hired Citigroup Inc NYSE C HSBC Holdings Plc LON HSBA and ICBC International as joint global coordinators for its bond sale people familiar with the matter said last week
UBS economist Paul Donovan made the Chinese pig comment on Wednesday in an analysis of the country s swine flu epidemic He was attempting to explain why the outbreak shouldn t concern investors eyeing the international inflation outlook
Does this matter It matters if you are a Chinese pig the economist said It matters if you like eating pork in China It does not really matter to the rest of the world China does not export a lot of food The only global relevance would be if Chinese inflation influenced politics and other policies
Even as many English speakers viewed the phrasing as innocuous it set off a firestorm on Chinese social media The comment was condemned by two Communist Party publications and by trade groups representing Chinese brokerages Haitong International Securities Group which competes against UBS for China related business said on Friday that it had suspended its activities with the bank
Donovan apologized saying in an interview with Bloomberg Television that he unwittingly used culturally insensitive language UBS later placed the 47 year old economist on leave and said it was evaluating whether more steps needed to be taken
We apologize unreservedly for any misunderstanding caused by these innocently intended comments UBS said in an emailed statement We have removed the audio comment from circulation To be clear this comment was about inflation and Chinese consumer prices rising which was driven by higher prices for pork
UBS shares fell almost 1 last week outpacing losses among European peers and extending declines over the past year to 24
Updates with CRCC confirmation that it excluded UBS from its bond sale |
C | Citi combines rates and currencies businesses | By Imani Moise Reuters Citigroup Inc NYSE C said on Monday it is combining its Foreign Exchange Local Markets and G10 currencies businesses into one unit We believe this more streamlined operating model will drive better client service risk management and profitability the co heads of the markets division Carey Lathrop and Andy Morton said in an internal email The groups already have similar product sets and share sales and technology resources the email said The G10 Rates Finance Team will be separate from the new combined Rates and Currencies business The restructuring is the first major change under new Institutional Clients Group head Paco Ybarra He took over the unit which includes Citi s investment bank markets division corporate bank and wealth management arm after Jamie Forese announced his retirement earlier this year |
C | Banks to include CO2 emission measures in shipping loan decisions | By Jonathan Saul LONDON Reuters A group of leading banks will for the first time include efforts to cut carbon dioxide emissions in their decision making when providing shipping company loans executives said on Tuesday International shipping accounts for 2 2 of global carbon dioxide CO2 emissions and the U N s International Maritime Organization IMO has a long term goal to cut greenhouse gas emissions by 50 from 2008 levels by 2050 Working with non profit organisations the Global Maritime Forum the Rocky Mountain Institute and London University s UCL Energy Institute 11 banks have established a framework to measure the carbon intensity of shipping finance portfolios The banks involved in the Poseidon Principles initiative which will set a common baseline to assess whether lending portfolios are in line or behind the adopted climate goals set by the IMO represent around a fifth or 100 billion of the total global shipping finance portfolio The results will be published annually in individual sustainability reports and the data will be obtained by banks from borrowers under existing loan agreements Although the IMO agreed stricter energy efficiency targets last month for certain types of ships environmental campaigners are calling for tougher goals We are helping the shipping industry emerge into the 21st century in a responsible way Michael Parker global head of shipping at Citigroup NYSE C told Reuters HUGE ROLE Those involved so far are Citigroup Societe Generale PA SOGN DNB ABN Amro Amsterdam Trade Bank Credit Agricole PA CAGR CIB Danish Ship Finance Danske Bank DVB ING and Nordea Banks have a huge role to play here because there is about 450 billion of senior debt that the world s shipping banks and Chinese lessors grant to the sector and about 70 000 commercial vessels Paul Taylor global head of shipping offshore with Societe Generale CIB said Banks will in the longer term be more selective about which ships they include in their lending portfolios bankers said Will there be companies that will find it difficult to get finance as they have less efficient ships yes it will be a consequence of it but it s not going to be used to look for those companies and somehow find a way of getting them out Citigroup s Parker said Oivind Haraldsen Danske Bank s global head of shipping said more institutions would join the efforts to cut the carbon footprint of the sector
All of us have to push we as banks probably have more power than we are aware he said |
JPM | Looking Ahead To Q4 Earnings | Monday January 8 2018We are seeing pre market trading slightly in the red to start a new week of trading but this is to be expected it s not often we see the Dow climb 577 points like we did last week not even in this exuberant bull market rally that began more than a year ago Not even a disappointing headline on non farm payrolls last Friday could quell the animal spirits drilling down into the numbers uncovered continued labor market strength This is the best yearly start to the stock market since 2006 well ahead of the market bubble that cratered into the Great Recession That said we are only one week in with obviously plenty yet to unpack But most of what we know is to come for the markets tax cuts deregulation possible infrastructure spending is expected to be very good for stocks The good news did not stop there Quoting stronger than expected holiday sales at lululemon NASDAQ LULU the company upped its guidance forecast As a result shares of the specialty retailer have pushed up another 3 in early trading to an all time high of 81 80 per share Later this week we will begin to see Q4 earnings results from the big banks now the official start of earnings season although we have already seen some companies of consequence bring forward their quarterly totals in late December such as JPMorgan NYSE JPM and Wells Fargo NYSE WFC Longer term we expect the banks to be among the biggest beneficiaries of interest rate hikes by the Fed But in the near term articulated by Zacks Director of Research Sheraz Mian we foresee choppiness on the horizon Once Q4 earnings season really gets going next week and through most of January we ll have a better idea of how strong our economy is shaping up Expect tax cuts to bring positive adjustments to many companies bottom lines The question will be to what extent are these gains currently priced in Mark VickerySenior EditorZacks Best Private Investment Ideas
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JPM | It s The Earnings Season Again | We are seeing pre market trading slightly in the red to start a new week of trading but this is to be expected it s not often we see the Dow climb 577 points like we did last week not even in this exuberant bull market rally that began more than a year ago Not even a disappointing headline on non farm payrolls last Friday could quell the animal spirits drilling down into the numbers uncovered continued labor market strength This is the best yearly start to the stock market since 2006 well ahead of the market bubble that cratered into the Great Recession That said we are only one week in with obviously plenty yet to unpack But most of what we know is to come for the markets tax cuts deregulation possible infrastructure spending is expected to be very good for stocks The good news did not stop there Quoting stronger than expected holiday sales at lululemon NASDAQ LULU the company upped its guidance forecast As a result shares of the specialty retailer have pushed up another 3 in early trading to an all time high of 81 80 per share Later this week we will begin to see Q4 earnings results from the big banks now the official start of earnings season although we have already seen some companies of consequence bring forward their quarterly totals in late December such as JPMorgan NYSE JPM and Wells Fargo NYSE WFC Longer term we expect the banks to be among the biggest beneficiaries of interest rate hikes by the Fed But in the near term articulated by Zacks Director of Research Sheraz Mian we foresee choppiness on the horizon Once Q4 earnings season really gets going next week and through most of January we ll have a better idea of how strong our economy is shaping up Expect tax cuts to bring positive adjustments to many companies bottom lines The question will be to what extent are these gains currently priced in |
MS | Pricey property leaves Hong Kong families struggling to buy own home | By Venus Wu HONG KONG Reuters When Hong Kong Chief Executive Carrie Lam officially announced a new Starter Homes scheme on Wednesday to help middle class families own their first home 27 year old bank employee Jeffrey Chan was left unmoved The combined income of Chan and his fiancee is about HK 7 000 897 01 short of what they need to qualify to buy a subsidized apartment under the new scheme They will have to continue renting for now In a research note Morgan Stanley NYSE MS estimates only about 170 000 households can benefit from the plan which lets in those whose monthly income fall within a narrow band of HK 26 000 to HK 34 000 per person or HK 52 000 to 68 000 per household It s still very difficult to buy a flat It made no difference after she spoke Chan a middle office associate at an American investment bank told Reuters Property is ridiculously expensive now Chan hadn t expected a lucky break so he wasn t disappointed when he didn t get one For a graphic on Hong Kong home prices click Like most people in Hong Kong owning his own home is a life goal for Chan and with a monthly salary of about HK 40 000 he already earns more than 85 percent of Hong Kong s workforce where the median income is HK 17 000 But buying a flat is out of Chan s reach as home prices surged to a historic high in August with apartments across the territory now costing an average of roughly HK 12 000 per square foot HK 130 000 per square meter according to property agency Midland Realty A recent UBS report reckoned Hong Kong was the world s most expensive city for apartments where the average living space is just 150 square feet 14 square meters per person Lam also said the scheme would stipulate in certain land leases that developers would need to build a number of starter homes units on top of private units but gave few other details in her maiden policy address other than launching the first 1 000 units by the end of next year So far the quantity is not much so it won t have an impact on the price of small units but if it regularly introduces some 2 000 or 3 000 units per year then it will have an impact said Thomas Lam a senior director at global property consultancy Knight Frank in Hong Kong While Hong Kong s private home prices surged over 160 percent over the last decade the price hike was especially steep with apartments smaller than 40 square meters 430 square feet the kind that Chan would aim to buy skyrocketing roughly 200 percent over a decade A skilled service worker in Hong Kong would need to work 20 years the longest period of time in a list of 20 cities in the world before being able to afford a 650 square feet 60 square meters flat near the city center the UBS report said The authorities have tried a raft of measures to cool property prices but Hong Kong s chief executive Lam conceded that the government had no magic wands
Ultimately we can t expect the government to do everything for us and we have to rely on ourselves Chan said If I keep working hard it should be okay |
MS | Sterling long bets under pressure as Brexit noises grow | By Fanny Potkin LONDON Reuters Britain s pound steadied on Wednesday holding just above a one month low hit as investors grew concerned on whether entrenched expectations of higher UK interest rates were reasonable given a backdrop of uncertain Brexit negotiations Noises around Brexit negotiations grew louder after finance minister Philip Hammond declared the government was planning for all possibilities including Britain s leaving with no agreement on the terms of its departure However that had little impact on sterling with the currency hemmed in tight trading ranges as investors worried that a sharp turnaround in sterling in the currency markets to net long positions may come under pressure David Cheetham the chief market analyst for XTB trading warned that the high levels of speculative positioning risked weakening the pound Recent events are unlikely to cause major downside for sterling on their own but they are weighing on the pound and the alarming frequency with which they are occurring only increases the chances of another major political blow for the market he said Sterling was broadly flat at 1 3195 after two sessions of gains It briefly hit a day s low of 1 3176 after Hammond s comments Strategists said the speech had only minimal impact with markets more focused on the strong data this week and broad expectations of interest rate hikes baked into the currency markets I don t think Hammond s speech about a no deal is a major factor Actions speak louder than words to the market There has been virtually no practical preparation of a no deal scenario said Alvin Tan an FX strategist at Societe Generale PA SOGN Despite falling projections for British economic growth futures markets are pricing in 50 basis points of Bank of England rate increases over the next year the most in the developed world apart from Canada But the outlook appeared fragile with some market watchers including such as Morgan Stanley NYSE MS preferring to sell sterling on rallies on Brexit worries
Should the start of the UK EU post Brexit trade deal be postponed UK inward investment may suffer analysts at the investment bank said in a note |
MS | Cautious Fed pins dollar to two week lows euro rises | By Saikat Chatterjee LONDON Reuters The dollar struggled near a two week low on Thursday as minutes of the last U S Federal Reserve meeting raised expectations that future interest rate increases would be limited after policymakers revealed a more cautious outlook toward inflation It is no longer about the timing of the next rate hike or about the subsequent ones but about what the terminal rate for the U S Federal Reserve would be and that expectation is becoming lower by the day said Edward Hardy a corporate market analyst at Worldfirst an FX consultancy in London Against a broad basket of currencies the dollar DXY was broadly flat at 93 053 its lowest since Sept 26 It has declined more than 1 5 percent this week The Fed minutes on Wednesday showed many policymakers still felt that another rate increase this year was likely to be warranted but several noted that additional tightening was dependent on upcoming inflation data The dollar s renewed weakness pushed the euro to a two week high after some strong data supported a growing view that the European Central Bank will announce a plan to wind down its huge stimulus plan at a policy meeting later this month Given the Fed the backing off of the concerns from Catalonia and the upcoming ECB meeting the euro should already be higher today said John Marley head of FX strategy at Infinity international a currency risk management firm Political concerns have also ebbed for now after Catalonia stopped short of formally declaring independence from Spain putting a floor under the euro The euro touched its highest in more than two weeks at 1 1878 and was last up 0 1 percent on the day at 1 1860 It has risen for five consecutive sessions Industry data from Italy beat forecasts after Germany reported robust trade data earlier this week indicating a broad based economic recovery in the euro zone despite the single s currency double digit gains this year Morgan Stanley NYSE MS strategists say the euro is set to move higher on increasing signs of robust economic activity and as global large money managers remain underweight the single currency in an environment of strong global liquidity Large option expiries around current levels on the euro exchange rate kept the currency in a tight range U S producer price data on Thursday and consumer price numbers on Friday will be the next focus after U S jobs figures last week showed a rise in wages that boosted expectations that inflation is picking up
For Reuters Live Markets blog on European and UK stock markets see reuters realtime verb Open url |
MS | Airbnb targets business travelers to France | By Dominique Vidalon and Pascale Denis PARIS Reuters Business travelers to France are in the sights of online rental marketplace Airbnb according to a senior official on Thursday at the company best known for hosting holidaymakers Airbnb For Business was launched in 2015 for companies looking for new and cheaper ways to accommodate staff on business trips and for Airbnb to keep up its rapid expansion Business travel is growing faster than leisure travel and corporate customers now account for some 15 percent of rental nights booked on Airbnb The goal is to lift that ratio to 30 percent by 2020 We think there are very good prospects for Airbnb in business travel and France is definitely a market we are looking at Jon Liebtag Airbnb s head of business travel for EMEA told Reuters mentioning Germany and Britain too In France last year the number of stays booked on Airbnb by business travelers grew four fold With over 400 000 listings France is Airbnb s second largest market after the United States and Paris the most visited city in the world is its biggest single market with 65 000 homes listed AMBITIONS UNCHECKED Founded in San Francisco in 2008 Airbnb which matches people wishing to rent out all or part of their homes to temporary guests has become a mainstay for holidaymakers Liebtag who moved from San Francisco to London in April to spearhead the European push was in Paris on Thursday to meet potential corporate clients Right now we focus mostly on Paris but we will expand elsewhere in France he said Initial corporate clients include tech focused groups like BlablaCar Europe s biggest ride sharing start up but Airbnb is seeing larger more established firms joining such as Morgan Stanley NYSE MS and Ernst Young Worldwide business travel spending reached 1 3 trillion in 2016 and is estimated to grow by 6 1 percent in 2018 and 7 percent in 2019 and 2020 according to the Global Business Travel Association In France business travel spending was 38 6 billion in 2016 and is expected to reach 56 2 billion in 2021 Airbnb has launched Business Travel Ready through which users can select accommodation which fulfill requirements such as Wi Fi 24 hour check in and a laptop ready workspace NOT ALL PLAIN SAILING The firm has clashed with hoteliers and authorities in cities from New York to Amsterdam Berlin and Paris which in some cases are limiting short term rentals Critics accuse it of exacerbating housing shortages and driving out lower income residents Its push into business travel may attract further ire from traditional hotel groups which see Airbnb as unfair competition Some 48 percent of bookings at hotels in France are for business travel in France That ratio is as high as 60 percent for AccorHotel Europe s largest hotelier Liebtag played down those concerns I do not look at hotels as a competition for this type of travel We are not going after the road warriors who are traveling 100 days a year he said An estimated 60 percent of Airbnb customers are tech savvy millennials Business travel is the loneliest type of travel away from your family and friends You want to feel at home and the ability to live like a local Liebtag said
Privately held Airbnb raised 1 billion in its latest round of funding in March valuing the company at 31 billion The company which operates in more than 65 000 cities worldwide turned profitable in the second quarter of 2016 |
MS | Hawaiian Holdings falls back as analysts take shots | Cowen lowers its price target on Hawaiian Holdings HA 2 5 to 43 from 47 to adjust for the expected announcement of Southwest flying in and out of Hawaii Morgan Stanley NYSE MS takes its price target all the way down to 30 as it backs an Underweight stance Hawaiian Holdings has been an underperformer this year with shares down 33 YTD vs the 12 performance for the U S Global Jets ETF Previously Hawaiian Holdings drops after Southwest says aloha Oct 12 Now read |
JPM | JP Morgan targets mid sized firms in challenge to European banks | By Inti Landauro and David Henry PARIS NEW YORK Reuters Thumbing through a thick binder detailing European mid sized and family owned firms JP Morgan s N JPM Doug Petno has his sights set on a business Europe s banks have kept to themselves This list is heavily curated handpicked Petno the New York based CEO of JP Morgan s commercial banking segment told Reuters of the 1 500 companies it wants to become clients The owners of these firms are often already wealth management customers and JP Morgan s Petno is now looking to offer their businesses loans cash management payment processing and other banking services JP Morgan s challenge to the European banks in their traditional stronghold is another example of the U S bank using its clout to try to take business from competitors after holding up much better than many during the financial crisis JP Morgan is now targeting companies in France Germany Italy the Netherlands Spain and Britain with roughly 500 million to 2 billion in annual revenue from recognized brands and long established business plus international aspirations Some already have businesses in the United States and use JP Morgan there while many are known by its European investment bankers while out on the hunt for deals The move comes as JP Morgan shifts dozens of bankers to Paris to adapt to Brexit Petno s prospect list was two years in the making and built by those responsible for JP Morgan s affairs in each country While it will take time to win clients and recruit staff Petno is convinced that JP Morgan can build a sustainable business in Europe similar to its commercial bank in the United States which last year produced 8 6 billion of revenue MARKET SHARE Petno declined to reveal his goals but JP Morgan s expansion comes as corporate lending is a rare bright spot for Europe s banks amid rock bottom interest rates and weak growth In the first half of this year the four top investment banks in continental Europe ranked by the size of the deals they have advised on are U S banks data from Refinitiv shows A combination of price cuts product range and additional marketing have won JP Morgan market share in European capital markets U S credit cards commercial lending asset management and securities services in recent years But Francois Xavier Deucher Fitch Ratings director for Financial Institutions in Paris said it won t be easy for a bank without a dense branch network to make headway in Europe The profitable part of the business lies in services like cash management rates or forex hedging advisory insurance or employee savings plans Deucher said On export financing and on support on international markets JP Morgan could have a competitive advantage he said With 2 6 trillion in assets about a quarter of which are outside North America JPMorgan s balance sheet is much larger than Europe s biggest banks Its 24 billion net profit dwarfed BNP Paribas PA BNPP 7 8 billion euro net profit in 2017
Profit last year at Credit Agricole PA CAGR and Banco Santander MC SAN continental Europe s second and fourth largest banks by assets were 6 5 billion euros and 6 6 billion euros while Deutsche Bank s DE DBKGn was 1 3 billion euros |
JPM | Trading Trump Wall Street stresses over White House comments | By Lawrence Delevingne and Trevor Hunnicutt NEW YORK Reuters JPMorgan Chase Co s N JPM trading desk was not buying what U S President Donald Trump was selling this week On Tuesday major stock indexes plummeted more than 3 percent on renewed fears of a trade war with China just days after Trump tweeted following a steak dinner with Chinese President Xi Jinping that Relations with China have taken a BIG leap forward It doesn t seem like anything was actually agreed to at the dinner JPMorgan wrote in a note to clients later that day adding that Trump s tweets seem if not completely fabricated then grossly exaggerated The mistrust from the bank s trading desk highlights a broader dilemma for Wall Street investors how seriously to take comments from the White House On one hand traders have long known that President Trump s bold pronouncements do not always hold ultimately muting their effect on securities On the other hand market volatility has picked up in 2018 in part because of confusion over comments by Washington officials making them harder to ignore It s a judgment call about which announcements should be taken seriously said Maria Vassalou portfolio manager for Perella Weinberg Partners 685 million global macro strategy This situation certainly creates unnecessary volatility and complications to the investment process Trump says relations with China took BIG leap forward Trump says he is a Tariff Man It is not just Trump Unexpected comments from White House officials such as Treasury Secretary Steven Mnuchin and economic adviser Larry Kudlow have caused a stir with traders Each man was cited by Reuters as a driver of market moves more than two dozen times Mnuchin sent the U S dollar to a three year low in late January after comments at the World Economic Forum in Davos suggesting that a weaker currency was good for us Within hours Trump appeared to contradict him saying he ultimately wanted a strong dollar lifting the greenback Graphic Steve Mnuchin awaits stock market reaction GRAPHIC Trump and Mnuchin comments whipsaw U S dollar As for Kudlow on April 4 he told reporters that it was possible the U S tariffs on Chinese industrial products might never go into effect and may be simply a negotiating tactic Stocks rose after the remarks which an unnamed White House official later told Reuters were meant to reassure markets Yet equity futures fell the next day after Trump said in a statement that he had instructed U S trade officials to consider tariffs on an additional 100 billion worth of imports from China to punish them for retaliating against earlier announced tariffs GRAPHIC S P 500 moves as Kudlow Bannon and Trump weigh in on trade wars HEDGING TRUMP Some investors have taken protection from White House fueled volatility into their own hands Juan Gomez head of hedge fund firm Black Swan Quantitative Advisors which manages 75 million in assets said he has adjusted his options focused models over the last two years to incorporate more protection against market volatility partially in response to Trump administration comments At this point you are expecting controversial headlines Gomez said At the beginning it drove me crazy but now it s just part of what to expect Katina Stefanova head of Marto Capital LP which manages approximately 300 million said her hedge fund firm had created a Trumponomics index of securities to help hedge the broader portfolio Stefanova said her fund s profit this year up about 7 percent in 2018 through November would be around two percentage points lower without the index which has recently focused on impacts of U S trade wars such as Chinese technology stocks U S industrial companies and Asian currencies You still have to take the White House very seriously Stefanova said Inconsistency itself swings markets and affects sentiment Other investors simply try to look past White House headlines Daniel Lowen chairman of Quantedge Capital USA Inc said his approximately 1 5 billion hedge fund firm s algorithms do not try to anticipate market movements from Trump administration pronouncements We make no attempt to interpret what we read in the news as input to our investment decisions Lowen said The head of equities at a multi billion dollar hedge fund manager who requested anonymity in order to speak with the media said Trump s comments are impossible to ignore but the firm avoids reactive trading even if it can hurt in the short term We try and actually isolate our returns from market risk the person said Whatever the reaction professional investors said the White House s effect on markets is hard to avoid Securities are virtually certain to continue moving on statements related to U S trade policy interest rate changes and other economic issues The CBOE Volatility Index or VIX VIX a common measure of perceived fear in the markets is up nearly 90 percent this year
Maybe some people are good at parsing their words and figuring out what s what but that s very difficult said Fritz Folts chief investment strategist 3EDGE Asset Management LP which oversees approximately 800 million You have to look at what they do and not what they say |
JPM | Lyft officially files paperwork for an IPO | said Thursday that it has filed a confidential draft registration statement with regulators to go public It s the first major ride hailing company to officially launch its IPO beating its much larger competitor Uber Lyft s offering is widely expected to come in early 2019 has officially filed paperwork with the top US stock market regulator to go public the ride hailing giant The confidential draft registration statement submitted to the Securities and Exchange Commission is the first step to an initial public offering or IPO for Lyft It s a big step in what s largely considered to be a race to go public between Lyft and its much larger rival Uber The latter is also considering an IPO next year but has been coy about the timing of its float Lyft did not elaborate on pricing number of shares or targeted valuation Those specifics will come after the SEC completes its review The actual offering will likely come in early 2019 The company was most recently valued at 15 billion and a public offering could boost that number A Lyft spokesperson did not immediately respond to a request for comment from Business Insider The company with Credit Suisse SIX CSGN assisting with the deal Other firms reported to be involved are JPMorgan NYSE JPM and Jefferies Not content with its roughly 35 market share in the US Lyft has also been branching beyond traditional ride hailing as it seeks further growth Last week it s officially closed The purchase adds bikes and scooters in most major cities to its arsenal still far and away the largest ride hailing company in the world is also working towards an IPO next year It s potential valuation could easily overshadow Lyft s offering Unlike Lyft Uber has self reported quarterly financials Most recently those numbers showed slowing growth and widening losses for the company This story is developing |
JPM | Sleeping bags and mini golf as traders brace for Brexit all nighter | By Lawrence White and Ben Martin LONDON Reuters As lawmakers gather in Britain s parliament on Tuesday to vote on the future of the country s relationship with Europe traders in London s financial hub will be bracing for a potential burst of market turmoil that could affect the Brexit process itself Sterling plunged more than 10 percent in the immediate aftermath of Britain s shock vote to leave the European Union in June 2016 while 2 trillion was wiped off global stock markets This time traders expect a more muted response Prime Minister Theresa May is widely expected to fail in her attempt to win support for her Brexit plan meaning the immediate market reaction could be limited unless there is a surprise But as her failure would usher in yet more uncertainty over the Brexit process big market swings may follow and some commentators have suggested heavy market losses could even convince lawmakers to back May if she tried for a second vote On the morning after the 2016 referendum result the London Stock Exchange kind of broke because there were such wide spreads on stocks market makers weren t finding prices said Laith Khalaf senior analyst at Britain s biggest direct investment service Hargreaves Lansdown LON HRGV We are less likely to see turmoil like that as people are ready for a range of outcomes this time but we could see some big swings he said Either way banks and brokerages will be prepared Barclays L BARC Investec J INLJ JPMorgan N JPM and Nomura T 8604 are among banks in London planning to draft in traders and analysts outside of normal business hours on Tuesday sources familiar with the matter said as they prepare for an influx of calls from investors keen to understand or make bets on the implications of the vote With the result not expected to become clear until around 1900 GMT London s stock exchange will be closed meaning it will be sterling traded 24 hours a day around the world that will react first We re preparing for the big day and night by bringing sleeping bags into the office and have mini golf and pinball in our break out area so we can keep the traders busy during any quieter hours said Samuel Leach CEO of Samuel Co Trading Nomura has booked hotel rooms in the city a bank spokesman said for bleary eyed traders to use if necessary after a night that could set the future for the 2 8 trillion pound 3 6 trillion British economy for generations We are going to be glued to our trading screens or television wherever we are said Neil Jones head of hedge fund foreign exchange sales at Mizuho T 8411 another Japanese bank in London WORLD WATCHING It is not just in London where traders will be gripped by the Brexit vote with less than four months to go before Britain is due to leave the EU on March 29 In foreign exchange hubs like New York Hong Kong and Tokyo traders will watch for signs of May s deal being voted through seen as indicating an orderly Brexit and therefore positive for sterling or rejected signaling more uncertainty If we see it becomes a true volatility event then the ability to step away from the desk will be challenged Of course arrangements will be made to feed the troops and no doubt there will be a few ales after to unwind said Chris Weston head of research at currency broker Pepperstone in Melbourne Traders will be focused on helping investor and corporate clients with what each development in the vote means for them This is an exciting market event and it s intriguing to see what will happen but it s important to remember for our clients that it s the opposite of that some of the scenarios could be very painful for businesses said Jonathan Pryor head of foreign exchange sales at Investec in London May s compromise Brexit deal has dismayed both supporters of a more decisive break with the EU and those who want ties to remain as close as possible Her reliance for a majority in parliament on a Northern Irish party that opposes the deal has made her position even more precarious Should she defy the odds analysts say shares in sectors most directly exposed to the British economy such as banks insurers homebuilders and retailers could surge Such an outcome could also boost sterling which could hurt FTSE 100 FTSE companies that primarily earn revenues in dollars such as HSBC L HSBA and BP L BP If May fails however it could send shockwaves through a financial industry that has been hoping Britain would move into a transitional deal with the EU until the end of 2020 This vote is a lightning rod realization for some clients that two years of ministerial resignations chit chat and speculation comes down to this in three months we could be crashing out of Europe said Matthew Hudson CEO of MJ Hudson which advises more than 600 institutional and retail investment firms Defeat for May could see asset managers immediately move to open offices in Europe to ensure continued access to EU markets in the absence of a deal with the bloc Hudson said
I ve got clients who are ready to push the button the minute she loses he said |
MS | Copper Boosted On Chinese Lending | Copper rebounded from the lowest price in more than five years after a surge in credit growth eased concern that demand will slow in China the world s top user
The faster than estimated estimated gains for financing spurred a rally for Chinese equities amid speculation that authorities are taking steps to support economic expansion Copper slumped in the previous six sessions on concern that slowing growth would crimp metals consumption in the Asian country
While shadow lending rose to the highest in monthly records that began in 2012 new yuan loans missed economists forecasts China accounts for 45 percent of global copper demand compared with 8 percent for the U S Morgan Stanley NYSE MS estimates
The stock market bounce in China had something to do with the gains in copper Edward Meir an analyst at INTL FCStone in New York said in a telephone interview The weaker data for new loans is leading to talk that the government must come out with more aggressive economic stimulus than the piecemeal program it s been rolling out
Copper for delivery in three months rose 1 5 percent to 5 630 a metric ton 2 56 a pound at 5 10 p m on the London Metal Exchange The metal fell as much as 8 6 percent yesterday to 5 353 25 the lowest since July 2009
via Bloomberg |
MS | 361 Capital Weekly Research Briefing SNB Decision Good For CHF Longterm | Should a 5 standard deviation move in the Swiss franc be named a Black Swan or Black Cygnet The big story this week was outside of U S stocks as the Swiss National Bank shocked the markets by announcing the removal of the EUR CHF 1 20 floor It also cut the rate on sight deposit account balances by 50 bp to 0 75 The SNB highlighted the decreased overvaluation of the Swiss franc and noted that the cap had served its purpose by helping to protect the economy and giving exporters sufficient time to adjust their business models It also pointed to international developments and the fact that maintaining the floor was not sustainable or sensible in the long run These comments played into already elevated expectations for a sovereign QE announcement from the ECB next week The Swiss franc rallied 30 vs the euro in the wake of the news while EUR CHF ended the week just below parity down 17 Swiss stocks sold off finishing down 13 3 for the week with exporters leading the move lower The dislocations drove a flurry of contagion concerns with reports of tens to hundreds of millions of dollars in trading losses at big banks pain in the macro hedge fund community a 225M capital hole at FXCM the largest retail FX brokerage in the U S and Asia and insolvency at UK retail broker Alpari
It will be good in the long run that the SNB decided to no longer fight the ECB The Good The SNB cries mercy and comes to terms with the fact that it can t win a currency battle with the ECB The Swiss people have just dramatically improved the purchasing power of their savings Also while highly disruptive to economies and markets in the short term maybe the cult of central banking is seeing its end of days which would ultimately be a huge positive for free markets and price discovery
The Bad The SNB created an earthquake for its exporters contribute about half of GDP and tourism industry that were planning on a 1 20 peg to the euro and now have to scramble Over time they should adjust both from a cost structure perspective and an FX hedging one Until then a sharp economic slowdown is likely Negative bond yields in Switzerland now go out 10 years as the SNB makes it poison and hugely expensive to hold Swiss francs I refer to this now as impounding instead of compounding ones capital
Swiss based multinationals will see their earnings hit but expect them to go on acquisition sprees with their more expensive currency
finansakrobat Morgan Stanley A 10 strengthening of the CHF vs Nestle s total currency basket would imply around 10 downside to EPS we estimate
Expect to see many spilled biers in the hedge fund world from the SNB move
Marko Dimitrijevic the hedge fund manager who survived at least five emerging market debt crises is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro according to a person familiar with the firm Everest Capital s Global Fund had about 830 million in assets as of the end of December according to a client report The Miami based firm which specializes in emerging markets still manages seven funds with about 2 2 billion in assets The global fund the firm s oldest was betting the Swiss franc would decline said the person who asked not to be named because the information is private
There will be many other hedge fund closings and rough January reports as so many Funds were borrowing shorting the Swiss franc
ReutersJamie Ouch Hedge fund spec short Swissie position on CFTC last Tuesday was biggest since June 2013 Two days later
Meanwhile Swiss stocks took it on the chin as their foreign earnings get deflated and the local economy is likely to slow
JLyonsFundMgmt An All Time 1st Swiss Market Index Goes From 52 Week High To 52 Week Low In Same Week
Another casualty of the SNB move is now negative short rates across Europe Several European countries are now experiencing negative nominal yields on their government debt Germany Switzerland Austria Finland and the Netherlands all have 5 year bonds yielding negative interest rates The sharp drop in the Swiss 5 year rate in January is due in large part to the SNB s decision to eliminate the peg to the euro but Swiss 5 year rates were already trading at roughly 0 0 before the peg was removed
And as rates go negative investors looked to move their assets elsewhere such as into euro equities
As a result the German DAX looks like one of the most interesting markets in the world again Even outperforming the S P 500
From the Swiss franc cygnet to the Crude Oil cygnet American s are saving wads on gasoline Compared to the first week of 2014 Americans are spending 2 4 billion less each week on gasoline That s about 7 50 per week for every person in America
And of course the savings multiply as you move beyond gasoline and into the residences in cold weather climates Just last week the federal Energy Information Administration estimated that the typical American household would save 750 because of lower gasoline prices this year 200 more than government experts predicted a month ago People who depend on home heating oil and propane to warm their homes as millions do in the Northeast and Midwest should enjoy an additional savings of about 750 this winter It may not have a huge effect on the top 10 percent of households but if you re earning 30 000 or 40 000 a year and drive to work this is a big deal said Guy Berger United States economist at RBS Conceptually this is the opposite of the stock market boom which was concentrated at the top
Few places are more sensitive to shifts in oil prices than Maine especially in winter The state is dotted with struggling blue collar towns like this one where the economy is still reeling from the hangover from the recession which only added to the woes created by sky high energy prices and disappearing factory jobs People here spend a significant proportion of their incomes on heating and transportation fuel said Patrick C Woodcock who directs the governor s energy office He estimates the typical family will save 3 000 this year if the cost of oil remains low
THE BEST ENERGY ECONOMICS READ OF THE WEEK Why oil will now trade between 20 and 50 a barrel Until last summer oil operated under a monopoly price regime because Saudi Arabia became a swing producer restricting supply whenever it exceeded demand But this regime created powerful incentives for other oil producers especially in the U S and Canada to expand output sharply Despite facing much higher production costs North American producers of shale oil and gas could make big profits thanks to the Saudi price guarantee
The Saudis however could maintain high prices only by reducing their own output to make room in the global market for ever increasing U S production By last autumn Saudi leaders apparently decided that this was a losing strategy and they were right Its logical conclusion would have been America s emergence as the world s top oil producer while Saudi Arabia faded into insignificance not only as an oil exporter but also perhaps as a country that the U S felt obliged to defend
The Middle East s oil potentates are now determined to reverse this loss of status as their recent behavior in OPEC makes clear But the only way for OPEC to restore or even preserve its market share is by pushing prices down to the point that U S producers drastically reduce their output to balance global supply and demand In short the Saudis must stop being a swing producer and instead force U S frackers into this role
If oil pins below 50 the U S economy will need to shift to absorb unemployed energy industry jobs fed speak Since the peak in NFP in Jan 2008 energy related employment has accounted for 12 4 of total job gains 1 of total employment
The largest oil field company started to move on jobs in the Q4 of 2014 The world s largest oil field service company Schlumberger Ltd said Thursday that it laid off 9 000 workers late last year reducing global head count 7 As the first major energy company to report financial results Schlumberger is expected to set the tone for a sector hard hit by plunging crude oil prices The company said it anticipates a drop in spending for new oil and gas exploration this year Schlumberger helps energy producers drill and frack wells so they can pump more fuel from the ground So far those energy companies have indicated they will spend 30 to 35 less in the U S and Canada this year said James Wicklund an energy analyst at Credit Suisse
Energy regions such as Texas will also need to adjust their local economies
KB Home mentioned on their conference call that they have already moved to slow their oil patch exposures We re sensitive with the Houston situation we are very watchful right now in fact we actually pulled out of a couple of land transactions in the fourth quarter because of our sensitivity there
But for non energy employed consumers booyah as those extra energy savings hit wallets
For the market earnings season is just starting So far more companies have beat but the misses by the big banks are dragging down the data
With 7 of the companies in the S P 500 reporting actual results for Q4 to date more companies are reporting both actual EPS above estimates 84 and actual sales above estimates 60 compared to recent historical averages However in aggregate companies are reporting earnings and revenue below expectations to date The aggregate dollar level earnings reported by these 37 companies is 0 4 below the aggregate dollar level earnings estimated for these 37 companies
and the pressure is on the Q1 2015 estimates EarningsScout 40 SPDR S P 500 ARCA SPY co s have now reported 4Q14 earnings 62 of them had their 1Q15 EPS estimates lowered afterwards Average estimate cut 2 05
Earnings estimates have been revised significantly lower into the next 3 week s big earnings dump Will it be enough to hold stocks if they miss ReformedBroker S P 500 earnings growth estimates get slashed before every quarter but not like this Chart via BAML Quant Strategy
KB Home fired a nail gun at their investors as they talked higher incentives and more difficult margins KB Home on call spoke to softening demand pressuring pricing and higher costs Q4 gross margin fell 30 bps QoQ to 18 7 vs guidance for sequential improvement Lower than expected deliveries hurt leverage led to higher incentives and lower prices company also cited higher construction and material costs
As a result comany does not expect to hit its 20 long term gross margin target in 2015 KBH also warned about Q1 results sees Q1 gross margin down significantly YoY setting a low point for the year then improving sequentially through FY15 Briefing
And while they transport a lot of energy the CSX railroad moved to talk up the rest of the U S economy if oil prices keep falling
There s been some studies that come out that essentially only 10 states have employment that s directly impacted by the oil boom It s less than 2 of the U S population For us the crude by rail is less than 2 of our business For the average U S person it s like getting a tax break of almost 2 000 a year so it puts a lot of dollars into the economy From any indication that we see it s a positive experience for the American taxpayer for the American economy so I think lower crude oil prices is very positive for our economy and very positive for CSX
No one closer to a gas station customer than Monster Beverage and they are seeing a pickup There has been a pick up as you ve seen of late Whether that s consistent w lower oil prices I don t know but we are seeing a much healthier direction at the moment and hope that will continue next year Monster analyst meeting last week
On to Europe Morgan Stanley shows that while falling oil prices are rough for the energy companies 80 of the market will see a big benefit
For the week Utilities led the U S sectors as they followed Bonds higher and energy prices lower Financials led lower as big bank earnings disappointed the yield curve flattened and the White House unveiled new initiatives to charge banks
More broadly gold led assets on the SNB moves Europe moves higher on hopes that the ECB will take action this week Housing and Financials led on the downside
Expect a call from your banker or mortgage broker One benefit to global yields moving negative is a cheaper mortgage rate is coming your way
The moribund mortgage market suddenly sprang back to life last week after a drop in interest rates to levels not seen in almost two years sent borrowers rushing to lock in cheaper loans Mortgage applications rose a seasonally adjusted 49 in the week ended Jan 9 from the previous week and 30 from a year ago according to data from the Mortgage Bankers Association Application volume touched its highest level since August 2013 with most of the increase driven by borrowers seeking to refinance
Disclaimer The information presented here is for informational purposes only and this document is not to be construed as an offer to sell or the solicitation of an offer to buy securities Some investments are not suitable for all investors and there can be no assurance that any investment strategy will be successful The hyperlinks included in this message provide direct access to other Internet resources including Web sites While we believe this information to be from reliable sources 361 Capital is not responsible for the accuracy or content of information contained in these sites Although we make every effort to ensure these links are accurate up to date and relevant we cannot take responsibility for pages maintained by external providers The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital |
MS | Gold s New Friend The Swiss Franc | While I predicted a huge rally in gold would usher in the new year of 2015 in a spectacular way the top bank economists have failed again
Most of them predicted No rally for gold Their dire predictions in 2014 all failed to materialize and this year they are off to an even worse start
The bank economists quite frankly look ridiculous They clearly need to reset their thinking about the powerful demand coming from billions of Chinese and Indian citizens or they risk turning themselves into clownish figurines
The daily chart for gold looks spectacular Note all the buy side support lines that I ve highlighted on this chart
Here is another look at the daily gold chart Note the green trend line The breakout above that line will attract a large number of technicians and momentum oriented hedge funds
The commercial traders are shorting gold into this strength but I suspect they may end up booking heavy losses on this trade They don t lose often but they appear to be in some serious trouble here
Chinese hedge funds have emerged as a new potential threat to the Western bank dominance of the world s metals markets
It s impossible to know if these giant Chinese funds are running long gold short copper trades of size If they are the Western banks may decide to fold on their short gold positions rather than risk even bigger losses
Gold is up again this morning as Indian wedding season has fuelled what the media is rightfully calling frantic buying
Chinese New Year buying is also extremely strong I was a buyer of fine 24 carat jewellery yesterday from my favourite Chinese jeweller The mood in the store was jubilant
A third force that is bullish for gold has unexpectedly appeared which is the Swiss franc s mauling of the U S dollar The franc has a stellar track record of being a hard currency and a key lead indicator for the price of gold
That s the monthly chart of the dollar versus the franc The dollar has essentially imploded
Entire brokerages and funds have been destroyed as the dollar has gone into meltdown mode against the franc As painful as it s been for these dollar bugs I think there s much more pain to come Here s why
There s a massive sell signal on the 14 3 3 Stochastics series on that monthly chart The dollar has already tested its 2011 lows against the franc and I think it s going to break them
Mainstream media continues to boast of a dollar bull market but against the gold related currencies the dollar is collapsing That s the weekly chart of the Indian rupee against the dollar
There s a massive inverse head and shoulders bottom pattern in play and most indicators and oscillators are flashing beautiful buy signals I m predicting the rupee will become the most powerful fiat currency in the history of the world The dollar might be able to put a whuppin on a reincarnated Greek drachma but against the franc and the rupee it looks ready to incinerate
Most of the emails I m getting from the global gold community are generally bearish That tells me that the rally in gold can become much stronger than it already is
My suggestion to the struggling bears is to throw in the towel and book a plane ride to India Most Western gold bears probably need to experience Indian gold demand firsthand to understand its titanic power
How can anyone be gold bearish now against the background of Indian wedding season Chinese New Year and the franc s mauling of the dollar
Over the past few months truly enormous volume has appeared in many key gold stocks That s the Market Vectors Gold Miners ARCA GDX daily chart I love the price action It s solid Also the ascent is made for Goldilocks not too slow and not too fast
In 2014 the early rally in gold stocks was led by junior stocks This one is led by the seniors which suggests much bigger and stronger players are the buyers The world gold community should feel amped this morning as they turn on their quote machines
I ve suggested that a changing of the guard is taking place in the gold stocks sector with large institutions buying stock from disappointed retail resource investors There is record setting volume in play on the GDX chart
The push into gold stocks by big value oriented players is likely forcing bearish hedge funds to exit their naked short positions On that note please click here now Institutional heavyweight Morgan Stanley is clearly very positive about Australian mining stocks I think their enthusiasm and their buy orders will quickly spread to most of the world s major gold stocks
That s the daily silver chart Just as junior gold stocks are lagging the seniors which is bullish for the sector silver is bullish but not racing ahead of gold That s because this is not a Western fiat collapse oriented bull market It s a gold jewellery bull era and investors need to roll with the golden changes Silver will do very well following gold steadily higher with gains that are not a flash in the pan but here to stay Have a spectacular week and thanks for your time
Written between 4am 7am 5 6 issues per week Emailed at aprox 9am daily
Stewart Thomson is a retired Merrill Lynch broker Stewart writes the Graceland Updates daily between 4am 7am They are sent out around 8am 9am The newsletter is attractively priced and the format is a unique numbered point form Giving clarity of each point and saving valuable reading time
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Stewart Thomson is no longer an investment advisor The information provided by Stewart and Graceland Updates is for general information purposes only Before taking any action on any investment it is imperative that you consult with multiple properly licensed experienced and qualified investment advisors and get numerous opinions before taking any action Your minimum risk on any investment in the world is 100 loss of all your money You may be taking or preparing to take leveraged positions in investments and not know it exposing yourself to unlimited risks This is highly concerning if you are an investor in any derivatives products There is an approx 700 trillion OTC Derivatives Iceberg with a tiny portion written off officially The bottom line
Are You Prepared |
MS | Palladium When Markets Disagree With Fundamentals | There is an interesting piece on palladium on Bloomberg entitled The article makes some logical points regarding global auto demand and the global palladium supply demand dynamic The article even includes quotes such as the following
U S auto demand is incredibly strong and might even surpass previous peaks that we saw before the financial crisis Scott Winship Fund Manager at Investec Asset Managements
There s a very bullish story there that s going to play out in the long term There is a good argument that palladium should outperform other precious metals Jeremy Baker Senior Commodity Strategist at Harcourt Investment Consulting AG
All of this sounds very exciting and makes it appear to be a no brainer that palladium must be a great investment However there is a big problem when we pull up the weekly chart of palladium
After a multi year rally which saw palladium prices reach nearly 1 000 oz the market has corrected in recent months and price is once again breaking lower from a bearish flag pattern The downside price target from this pattern is 685 oz which happens to coincide with previous support from 2013 look to the left in the chart
The fact that sell side analysts from Deutsche Bank NYSE DB and Morgan Stanley NYSE MS are so bullish on the white metal Morgan Stanley forecasts over 1 000 oz for palladium in 2016 should only add further caution to investors view of palladium
Who will be right The fundamental analysts or the technicals Of course both could be right on different time frames however in the near term it looks like palladium is heading below 700 oz before it will find sufficient support |
MS | Radical Leftists Win Election In Greece Future Of Eurozone In Crisis | Radical leftists have been catapulted to power in Greece and that means that the European financial crisis has just entered a dangerous new phase Syriza which is actually an acronym for Coalition of the Radical Left in Greek has 36 percent of the total vote with approximately 80 percent of the polling stations reporting The current governing party New Democracy only has 28 percent of the vote Syriza leader Alexis Tsipras is promising to roll back a whole host of austerity measures that were imposed on Greece by the EU and his primary campaign slogan was hope is on the way Hmmm that sounds a bit familiar Clearly the Greek population is fed up with the EU after years of austerity and depression like conditions At this point the unemployment rate in Greece is sitting at and the Greek economy is approximately 25 percent smaller than it was just six years ago The people of Greece are desperate for things to get better and so they have turned to the radical leftists Unfortunately things may be about to get a whole lot worse
Once they formally have control of the government Syriza plans to call for a European debt conference during which they plan to demand that the repayment terms of their debts be renegotiated But the rest of Europe appears to be highly resistant to any renegotiation especially Germany
Syriza says that it does not plan to unilaterally pull Greece out of the eurozone and that it also intends for Greece to continue to use the euro
But what happens if Germany will not budge
Syriza s entire campaign was based on promises to end austerity If international creditors refuse to negotiate and continue to insist that Greece abide by the austerity measures that were previously put in place what will Syriza do
Will Syriza back down and lose all future credibility with Greek voters
Since 2010 the Greek people have endured a seemingly endless parade of wage reductions pension cuts tax increases and government budget cutbacks
The Greek people just want things to go back to the way that they used to be and they are counting on Syriza to deliver
Unfortunately for Syriza delivering on those promises is not going to be easy They may be faced with a choice of either submitting to the demands of their international creditors or choosing to leave the eurozone altogether
And if Greece does leave the eurozone the consequences for all of Europe could be catastrophic
Syriza risks overplaying its hand said International Capital Strategies Rediker Given that the ECB controls the liquidity of the Greek banking system and also serves as its regulator through the SSM Single Supervisory Mechanism going toe to toe with the ECB is one battle that could end very badly for the Greek government
If the ECB were to stop funding the liquidity of the Greek banks the banks could collapse an event that could lead to Greece abandoning the euro and printing its own money once more
Milios didn t believe it would come to that saying No one wants a collapse of banks in the euro zone This is going to be Lehman squared or to the tenth No one wants to jeopardize the future of the euro zone
Hopefully cooler heads will prevail because one bad move could set off a meltdown of the entire European financial system
Even before the Greek election the euro was already falling like a rock and economic conditions all over Europe were already getting worse
So why would the Greeks risk pushing Europe to the brink of utter disaster
Well it is because economic conditions in Greece have been absolutely hellish for years and they are sick and tired of it
For example the BBC is reporting that many married women have become so desperate to find work in Greece that they are literally begging to work in brothels
Some who have children and are struggling to support them have turned to sex work to put food on the table
Further north in Larissa Soula Alevridou who owns a legal brothel says the number of married women coming to her looking for work has doubled in the last five years
They plead and plead but as a legal brothel we cannot employ married women she says It s illegal So eventually they end up as prostitutes on the streets
When people get this desperate they do desperate things like voting radical leftists into power
But Greece might just be the beginning Surveys show that the popularity of the EU is plummeting all over Europe Just check out the following excerpt from a recent
Europe is being swept by a wave of popular disenchantment and revolt against mainstream political parties and the European Union
In 2007 a majority of Europeans 52 per cent trusted the EU That level of trust has now fallen to a third
Once Britain s Euroscepticism was the exception and was seen as the biggest threat to the future of the EU
Now other countries pose a far bigger danger thanks to the political discontents unleashed by the euro
At this point the future of the eurozone is in serious jeopardy
I have a feeling that major changes in Europe are on the way which are going to shock the planet
Meanwhile the rest of the globe continues to slide toward another major financial crisis as well
So many of the things that preceded the last financial crisis are happening once again This includes a massive crash in the price of oil Most people have absolutely no idea how critical the price of oil is to global financial markets I like how Gerald Celente put it during an interview the other day
I began getting recognition as a trend forecaster in 1987 The Wall Street Journal covered my forecast I said 1987 would be the year it all collapses I said There will be a stock market crash One of the fundamentals I was looking at were the crashing oil prices in 1986
Well we see crashing oil prices today and the banks are much more concentrated and levered up in the oil patch than they were in 1987 From Goldman Sachs to Morgan Stanley banks have been involved in major debt financing derivatives and energy transactions But much of this debt has not been sold to investors and now we are going to start seeing some big defaults
By itself the Greek election would be a significant crisis
But combined with all of the other economic and geopolitical problems that are erupting all over the planet it looks like the conditions for a perfect storm are rapidly coming together
Unfortunately the overall global economy is in far worse shape today than it was just prior to the last major financial crisis
This time around the consequences might just be far more dramatic than most people would ever dare to imagine |
MS | DAILY FX WRAP USD JPY Trends Down EUR CHF Touches 1 0382 | USD JPY USD JPY has trended downward throughout the European session breaking below 118 00 in the process aided by the safe haven flows into the JPY given the risk off sentiment in the market The poor US Durable Goods Orders Dec M M 3 4 vs Exp 0 3 further dampened sentiment in the US coupled with the slew off poor earnings from notable large cap companies including Caterpillar 7 5 Procter Gamble 3 and Microsoft 10 attributed to the strength of the USD as the USD index trades around multi year highs T notes have been bid with unattractive yields sending investors to flock to the JPY to take advantage of interest differentials also partially weakening the USD Furthermore Morgan Stanley pushed back their Fed rate hike forecast to March 2016 from Jan 2016 EUR CHF The biggest move of the first half of European trade was seen in EUR CHF as it touched the session highs of 1 0382 with SNB intervention the suspected catalyst for the move This comes after comments from SNB s Danthine stating that the SNB will continue to intervene in the FX market However the move was very short lived as the market continues to test the might of the central bank EUR CHF remained in positive territory albeit off best levels as the weaker USD has strengthened the EUR which is helping to prop up EUR CHF Interestingly analysts at IFR suggest that the SNB may prefer to focus their attention on USD CHF rather than EUR CHF due to the risks attached to holding EUR reserves amid the uncertainty that has developed as a result of the Greek election and the announcement of QE by the ECB GBP USD GBP USD has continued its upside this week following hawkish comments over the weekend from Carney and Forbes indicating that a rate hike is likely to occur earlier than what the market currently forecasts Despite the slight miss on UK GDP Q4 A Q Q 0 5 vs Exp 0 6 and the ONS saying that it is too early to conclude that the UK economy is in a general slowdown GBP USD remains higher with helped by the broadly weaker USD in the session |
MS | The Danger of Indices | We re surrounded by investment products that track indices S P 500 index funds seek to replicate the performance of the S P 500 index easily accomplished by simply buying the constituent stocks in designated weights Other indices are more difficult to track for example when the product invests in futures to approximate spot market returns GSCI or acquires only a subsample of index constituents Barclays Ag
A new generation of indices promises to emulate more complicated investment strategies such as currency carry volatility and roll trades Investment banks now offer institutional investors an array of derivative products tied to such indices and asset managers are packaging them into ETFs and other fund products
One problem however is that newly created indices tend to overstate historical hypothetical performance From a commercial perspective there s little point in launching a new index if the pro forma returns are unattractive consequently there s a strong incentive to adjust the calculation methodology until the results look favorable
Further unlike mutual funds indices can be created and published with minimal disclosure of key information such as when the index went live and what assumptions are made about trading and other costs The combination can mislead investors who may expect actual net of fee fund returns to match hypothetical gross of fee index returns
A case study is the PowerShares Multi Strategy Alternative Portfolio fund LALT an active ETF launched at the end of May 2014 This Fund seeks to match or outperform the Morgan Stanley Multi Strategy Alternative Index Bloomberg ticker MSUSLALT comprised of a combination of risk premia strategies designed to deliver absolute returns
Unrealistic historical index returns
On Bloomberg the Index data begins on 1 1 2003 Given the start date it is possible that the Index was launched sometime in 2013 with roughly ten years of backfilled data Unfortunately there is no requirement to differentiate between backfilled and live results and neither the LALT prospectus nor Bloomberg sheds any light on when the Index went live
The backfill thesis is supported by historical performance The following chart shows the Index returns for the ten years preceding the launch of LALT against the S P 500 and HFRIFOF index
Over the decade the Index returned 6 83 per annum with an annualized standard deviation of 2 93 and a Sharpe ratio of 1 64 The maximum drawdown during a period that covers the Great Financial Crisis was only 2 33 The Index delivered almost 90 of the return of the S P 500 with one fifth the volatility Annual performance was almost 350 bps higher than that of the HFRI Fund of Funds index which has limited data bias and generally represents live performance The following table provides some summary statistics
If the Index represented actual performance it would rank among the best performing hedge funds over the past decade In fact the risk adjusted return Sharpe ratio was better than 97 of all hedge funds in the HFR database over the same period Only three live hedge funds had smaller drawdowns Plus unlike investing in illiquid and expensive hedge funds the performance in theory was achievable at low cost and with daily liquidity
Disconnect between hypothetical and live returns
Since launch however both the Index and Fund have failed to meet these high expectations to say the least Each is down approximately 8 since May 2014 underperformance of 600 bps versus the HFRXGL daily investable hedge fund index which itself tends to underperform the HFRIFOF index by 100 200 bps per annum due to adverse selection bias The drawdown over the first seven and a half months is more than triple the hypothetical drawdown over the ten preceding years during a time when the S P has risen 8
Looking at the live returns it appears that the Fund and Index were hurt when the Swiss Franc decoupled from the Euro on January 15 2015 This underscores the backfill issue while the Index sidestepped any major adverse market events over the past decade both the Index and Fund walked into a proverbial propeller seven months after launch
This issue is particularly timely given the plethora of complicated risk premia products introduced by investment banks over the past two years Most indices created recently will be subject to the same backfill bias highlighted above A live index the Merrill Lynch Foreign Exchange Arbitrage Index is down over 6 in January but will currency carry indices launched in the future show better pro forma results And will investors appreciate this distinction
In order to better align investor expectations with likely performance indices should be subject to the same rigorous disclosure requirements as funds investors should know when the index went live which performance is hypothetical and what assumptions are made about costs and expenses Otherwise the tendency to publish only successful indices will persist |
C | Citigroup names Ida Liu head of North America private bank memo | Reuters Citigroup Inc NYSE C has named Ida Liu to head its private bank in North America according to an internal memo seen by Reuters
Liu replaces Tracey Warson who the bank announced in April would take on a more advisory role in the business as chairman |
C | Forget the Trade War Citi Sees Brent at 78 Within Three Months | Bloomberg Forget the trade war and global growth pessimism Citigroup Inc NYSE C is sticking to its target of Brent oil rising to 78 a barrel in three months
Supply risks rising demand over the northern summer light fund positioning and a tight physical market are some of the reasons cited by the bank for its optimism in a note by analysts including Ed Morse global head of commodities research Citi s forecast implies a 28 increase from current levels
Underpinned by rising trade tensions the global economic picture has clearly deteriorated since May Morse wrote in the note released Tuesday Yet this macro pessimism masks tangible bullish oil market fundamentals
With the oil price rout of late 2018 still vivid in the minds of producers and with Saudi Arabia committed to drawing down oil inventories there s unlikely to be a rapid increase in production over the summer months according to Citi Also with the forward curve for Brent in particularly steep backwardation consumers will probably continue to buy to lock in volumes below spot prices on a deferred basis the lender said
A range of technical indicators also support Citi s bullishness Brent s 14 day relative strength index has fallen to 23 well below the 30 threshold that suggests it s been oversold The global crude benchmark has also breached its lower Bollinger band an indicator that a rebound is coming
Global refinery run rates should increase by up to 4 million barrels a day in the third quarter from the previous three month amid higher consumer demand Citi said in the note Meanwhile central banks are already reacting to counter the slowdown in growth the analysts said
Markets are said to have a short term memory they wrote But it is hard to forget that over the last few months most of the developments in the oil markets have actually led to a tighter market |
C | Wells Fargo to donate 1 billion toward affordable housing by 2025 | By Imani Moise Reuters Wells Fargo NYSE WFC Co said on Wednesday it will narrow the focus of its philanthropy toward three causes including affordable housing and will donate 1 billion to housing over the next few years The San Francisco based bank named Brandee McHale to be the new head of the Wells Fargo Foundation which will be focused on addressing housing affordability improving financial literacy and growing small businesses McHale joins the bank from Citigroup Inc NYSE C and replaces Jon Campbell whose retirement was previously announced Wells Fargo the fourth largest U S bank has ramped up its charitable giving following a profit boost from tax reform and in the wake of a wide ranging sales scandal which has badly tarnished its reputation and weighed down its financial performance Wells Fargo gave away 444 million to charitable causes last year potentially positioning it as the top corporate cash giver in the country The bank has pledged to donate 2 of its after tax profit annually As part of its renewed focus on promoting home ownership Wells Fargo said it will donate 1 billion to organizations that support affordable housing through 2025 and launch a 20 million grant to encourage organizations to find new solutions for the lack of lack of low to moderate income housing options Wells Fargo has already donated over 460 million in down payment assistance grants since 2012 By focusing on housing financial literacy and small businesses the bank will be donating more money toward causes that align closely with its business expertise spokeswoman Jennifer Dunn said
Wells Fargo will still support causes like arts education and disaster relief through local projects but broader initiatives will be focused on the three primary areas |
C | World Trade Seen Having Worst Year Since 2009 as Spat Worsens | Bloomberg ING joined the ranks of banks warning about an escalating U S China standoff saying global trade is likely to suffer its worst year since the financial crisis
The Dutch bank sees world trade growing just 0 2 this year under its central scenario that includes U S tariffs on all Chinese goods as well as on auto imports from Europe and Japan Should the parties come to an agreement there ll be a compensatory rally and trade growth will accelerate to about 2 in 2020 according to authors Raoul Leering and Timme Spakman
Already manufacturing figures in Asia and Europe have signaled economic momentum is dropping and Wall Street s biggest banks have issued warnings to investors of growing risks
Economists at Citigroup Inc NYSE C say a full scale global trade war could push annual global economic expansion down to about 2 a year from now the weakest since the aftermath of the financial crisis as the imposition of tariffs would harm financial markets and business confidence
Under a better scenario where the U S strikes deals without the imposition of additional tariffs ING sees a slightly better outcome with 0 5 trade growth Its least optimistic scenario escalation with no deal at the end would mean little better than stagnation in 2019 with 0 1 growth The pickup in 2020 would be modest just 0 6 |
C | Philippines Central Bank Governor Survives Rocky Start as Peso Rebounds | Bloomberg Philippine central bank Governor Benjamin Diokno survived a rocky market introduction but is in for some more tough times as analysts bet on a weaker peso amid rising headwinds for emerging markets
After a surprise appointment almost three months ago Diokno s pro growth stance and perceived comfort with a weaker peso when he was the budget secretary prompted the currency to fall the most in nine months in March He s since moved to restore stability pledging to uphold the central bank s independence and maintain a data driven approach to monetary policy
The BSP governor has been transparent in his policy agenda making sure to broadcast his intentions which is reassuring as there are no surprises said Coco Martin treasurer at BDO Unibank Inc in Manila He is open to a dialogue with the market and this goes a long way in building trust
Mindful of market concerns Diokno didn t rush to cut interest rates in his first policy meeting on March 21 waiting instead for inflation to be firmly within the target range before easing in May The move was expected by most economists at the time a measured approach that helped underpin the currency and bond performances among the best in emerging markets this quarter
Tough Environment
The peso isn t out of the woods yet with the months ahead likely to remain tough for emerging markets amid an escalating trade war and weaker global growth MUFG Bank Ltd and Australia New Zealand Banking Group Ltd are forecasting the currency will weaken
The currency which closed at 51 78 per dollar on Tuesday will probably end the year at 53 5 MUFG Bank Ltd said this week citing fragile global sentiment and a widening trade deficit The start of the import season in the Philippines and more easing by the central bank will weigh on the currency ANZ said in a note on Tuesday
The peso is up more than 1 this quarter while Philippine local currency bonds handed investors more than 3 in the same period Financial markets were closed on Wednesday for a holiday
Philippine stocks were also among the best performers this quarter in Asia rising 0 3 compared with declines in South Korea and Indonesia
Diokno said there is growing confidence that the Philippines is potentially one of the most resilient in the face of the ongoing trade conflicts between the U S and China The value of the peso is market determined by the interplay of supply and demand for the peso he also said in a mobile phone message
Investors have taken comfort from the fact that there have been no abrupt changes in the way the central bank manages inflation and regulates lenders said Paul Raymond Favila head of markets and securities services at Citigroup Inc NYSE C in Manila
The market reaction to whatever the BSP is doing or saying has generally been good Favila said As with any change in regime or leadership the market was obviously watching the governor very closely |
C | Mexico Peso Drops on Double Whammy From Ratings Trade Talks | Bloomberg The Mexican peso fell more than 1 as the currency reeled from a one two punch the first from ratings agencies and the second from inconclusive trade talks with the U S
Moody s Investors Service came first cutting the country s outlook to negative from stable followed by Fitch which lowered the sovereign rating to BBB from BBB Minutes later the first reports of a failure in the trade talks appeared
In their decision to downgrade Fitch cited the increased risk to Mexico s public finances from state oil company Pemex s deteriorating credit profile along with ongoing weakness in the country s economy At the same time the failure of trade talks means that Mexican goods could be hit with 5 tariffs starting Monday tariffs that would increase monthly up to a maximum of 25
Investors need to price the first 5 tariff set to start June 10 and gradually the risks for that to increase in July and beyond said Alejandro Cuadrado a senior strategist at BBVA MC BBVA in New York We still need details on the negotiations and any measures that the U S specifically pursues since the measure is very broad
The peso was 0 9 lower at 19 7553 per dollar as of 11 40 a m in Singapore Thursday paring earlier losses after President Donald Trump said talks would resume on Thursday
Participants of a Citigroup Inc NYSE C survey lowered their forecast for the peso for a second consecutive fortnight They now expect the peso to be at 20 25 per dollar by the end of the year and 20 50 at the end of 2020 from 20 and 20 25 previously analysts led by Sergio Luna said in a note on Wednesday
In a press conference after the meeting Mexican Foreign Minister Marcelo Ebrard said that he was optimistic about Thursday s talks and that negotiators wanted to prevent tariffs for both economies
Trump s comments offer some hope and relief said Cuadrado adding that specifics of any potential agreement are unclear He still said the higher the tariffs the more companies will return to the U S so the threat remains with some opening to reverse it
Trade fears have weighed on Mexican assets since Trump tweeted about his intentions to apply tariffs last Thursday Many investors worry that the stress may continue as tariffs imperil a trade deal known as the USMCA between the U S Mexico and Canada that still needs to be ratified
Updates peso s price in fifth paragraph Citibank forecasts in sixth |
JPM | 3 Strong Buy JP Morgan Mutual Funds For Great Returns | JPMorgan NYSE JPM is a well known financial management company in the world The company pioneered innovative inflation protected municipal products Its primary principle is to understand the needs of its clients and advice the best investment solutions for surplus returns It has a legacy of investment management since 1865 Also JPMorgan is one of the major mutual fund managers in the United States and prides itself as the nation s leader in equity fund flows JPMorgan offers managed accounts and retirement products Below we share with you three top ranked JPMorgan mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can JPMorgan Small Cap Core R5 invests a bulk of its assets including borrowings in equity securities of small cap companies whose market cap is within the range of the Russell 2000 Index VSSCX seeks capital appreciation for the long run JPMorgan Small Cap Core R5 has three year annualized returns of 9 4 VSSCX has an expense ratio of 0 79 compared with the category average of 1 23 JPMorgan Large Cap Value A seeks capital growth OLVAX invests a major portion of its assets in securities of large cap companies that include common stocks debt and preferred stocks that can be converted to common stocks Large cap companies are those that have market capitalization similar to those listed on the Russell 1000 Value Index at the time of purchase JPMorgan Large Cap Value A has three year annualized returns of 11 8 Scott Blasdell is the fund manager of OLVAX since 2013 JPMorgan Mid Cap Growth R5 invests heavily in equity securities including common and preferred stocks and debt securities of mid cap companies The fund focuses on investing in those mid cap companies that are expected to achieve growth sustainably JMGFX seeks appreciation of capital JPMorgan Mid Cap Growth R5 has three year annualized returns of 10 As of October 2017 JMGFX held 100 issues with 2 85 of its assets invested in Waste Connections Inc To view the Zacks Rank and past performance of all JPMorgan mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
JPM | Best Stock Sector To Watch For In 2018 | As 2018 begins investors try to decide what the best investments are to get into Last year it was marijuana stocks and technology companies Will 2018 repeat the same trend Probably not When the economy grows faster the chair of the Federal Reserve tends to raise interest rates Given how the GDP growth in the United States was over 3 for the two most recent quarters it is most likely that further rate hikes are in the cards for this year
The best stock sector to benefit from rising rates is the financial industry Companies such as JPMorgan Chase NYSE JPM and Citigroup Inc NYSE C have P E ratios around 15 times which is a big discount compared to broad market indexes such as the Dow Jones Industrial Average or the S P 500 index which has a P E ratio in the Citigroup suffered a beating during the financial crisis of 2008 but has nearly doubled since early 2016 due to cutbacks and refocusing on its core business For the last few years the stock has been increasing its dividends from 1 cent per share per quarter in 2014 to 5 cents in 2015 16 cents in 2016 and 32 cents in 2017
But higher interest rates can also be risky for Americans who have a lot of investment and consumer debt Some people think leverage is risky because if interest rates go up then investors will feel the pain But if we believe the following premises to be true then we can see it s not as doom and gloom as the critics make it out to be
Debt used for financial leveraged usually gets paid down over time even if the debtor makes just the minimum installed payments As more time goes by the risk of financial insolvency decreases I used to have 530 000 of debt in 2015 but now it s down to 460 000 This means I can service higher interest rates today than in 2015
Investors likely will earn more money over time due to increasing human capital and more investment earnings from dividends and interest assuming they invest in dividend growth stocks and other relatively safe and proven investment strategies and do not speculate or take money out of their portfolio
Interest rates tend to go up gradually The Fed s mandate depends on labor inflation currency value and other economic data which doesn t change drastically overnight This means rate hikes will be done gradually over time at small increments of 0 25 or so
Give the above information I think it s reasonable to borrow money if it s appropriate to invest in assets that will likely produce higher returns than the cost of borrowing without fearing an imminent disaster that will lead to a negative financial outcome
If the Federal Reserve hikes rate again by 0 25 today then my average interest rate will be 3 3 which is still relatively low But it will increase my cost of borrowing to 1 316 per month If this happens then instead of investing 25 of my monthly savings and using the remaining 75 to pay down debt which is what I m doing now I will devote 50 of my savings to pay down debt and invest the remaining 50 until my interest expense is lowered to a more affordable level such as 1 250 month I would consider 1 500 month of interest payment to be too much for me So before it ever gets to that level I will sell some of my investments and use the money to pay down my highest interest debt The strategy here is to balance debt with investments If the cost of borrowing is high then more savings should go towards reducing debt But if the cost of borrowing is low then more savings can be allocated to new investments One advantage of buying financial stocks such as JPM or C is that if interest rate rises then historical data shows that will also be going up So if investors need to sell assets to pay down debt because the cost of borrowing is high at least they are likely to sell their stocks at a profit |
JPM | Will Metal ETFs Continue To Fuel Commodities In 2018 | After lagging in the first half of 2017 commodities staged a nice comeback in the second half amid continued bullishness in the stock market and an increased appetite for riskier assets In fact commodities ended 2017 on a high note registering the longest rally since 1991 with the Bloomberg Commodity Index which measures returns on 22 raw materials capping the 11 day winning streak While agricultural commodities were the major losers industrial and precious metals like palladium aluminum zinc gold and copper gained on a pick up in global growth tight supply conditions and rising global demand Energy commodities also gave a strong performance in the back end of the year on easing global supply glut read A weak dollar added to the strength The ICE dollar index which measures the dollar against a basket of six other currencies recorded an annual decline for the first time in five years falling in double digits Given this we have highlighted the best performing ETFs that delivered double digit returns in 2017 and are expected to continue their strong trend in 2018 as well ETFS Physical Palladium NYSE PALL Shares Up 60 2 Pallidum was the biggest winner of 2017 owing to the increased usage of gasoline fueled and hybrid vehicles which have propelled demand for the precious metal higher Notably more than three fourths of palladium demand came from the auto market Additionally persistent supply shortfall over the past five years coupled with strong global demand particularly in Asia is adding to the strength The trend is likely to continue this year PALL seeks to match the price of palladium With AUM of 235 2 million the ETF owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase NYSE JPM Bank It has an expense ratio of 0 60 and sees lower volume of about 27 000 shares a day The product has a Zacks ETF Rank 3 Hold with a High risk outlook read iPath Bloomberg Aluminum Subindex Total Return ETN Up 31 4 Aluminum which is used in a wide range of industries including aerospace construction and packaging benefited from output curbs in the world s largest producer of the metal China This has led to excess demand resulting in improving utilization rates and higher aluminum prices JJU follows the Bloomberg Aluminum Subindex Total Return which delivers returns through an unleveraged investment in the futures contracts on aluminum The ETN has been able to manage 3 2 million in AUM and trades in paltry volume of 1 000 shares per day Expense ratio comes in at 0 75 JJU has a Zacks ETF Rank 3 with a High risk outlook iPath Bloomberg Copper Subindex Total Return ETN Up 30 2 Copper is enjoying its best run in almost three decades on supply concerns out of China stronger demand from a growing global economy and a weaker U S dollar In particular abating fears of a hard landing and renewed optimism about the health of the Chinese economy are providing a huge boost to the price This is because China accounts for 40 of global demand for the red metal read The ETN tracks the Bloomberg Copper Subindex Total Return Index which seeks to deliver returns through an unleveraged investment in the futures contracts on copper The index currently consists of one futures contract on the commodity of copper currently the Copper High Grade futures contracts traded on the COMEX The product charges investors 75 bps a year in fees and has AUM of 70 5 million It trades in a paltry volume of about 52 000 shares a day on average However the ETN has an unfavorable Zacks ETF Rank 4 Sell with a High risk outlook Want key ETF info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
JPM | Wisdomtree Launches Balanced Income ETF | Wisdomtree launched a new fund in late December focused on providing exposure to income generating equity and fixed income ETFs
WisdomTree Balanced Income Fund seeks to track the yield and performance before fees and expenses of the WisdomTree Balanced Income Index The index is designed to provide exposure to global equities and bonds through ETFs with approximately 60 equity and 40 fixed income The index is reconstituted and rebalanced annually However if there is more than 2 deviation from the target the index might be rebalanced quarterly
Fund Characteristics
This fund seeks to provide global exposure through a 60 40 split between equities and fixed income Within a few days of trades the fund has generated an asset base of 2 5 million The fund is a moderately cheap bet as it charges a fee of 35 basis points a year and is thus an attractive way to gain exposure to a balanced portfolio strategy
From an individual holding perspective WisdomTree High Dividend Fund WisdomTree Barclays LON BARC Yield Enhanced US Aggregate Bond Fund and WisdomTree International High Dividend Fund are the top three allocations of the fund with 20 0 19 8 and 12 8 exposure respectively as of Jan 2 2018
How Does it Fit in a Portfolio
This ETF is a unique offering as it gives investors a broad global exposure to markets using both equity and fixed income ETFs Moreover it also tries to focus on income producing assets to assure a consistent return for the portfolio
As a result this ETF is a good way to diversify investors portfolio by giving a broad exposure to global markets across asset classes However investors should note that this fund is also exposed to emerging market investments A steady appetite for risk is required to invest in emerging market investments
Competition
It faces immense competition from other funds focused on providing exposure to the same space Below we discuss a few ETFs that seek to provide exposure to this corner see
PowerShares CEF Income Composite Portfolio
This ETF is another such multi asset option to play the balanced income space
It has AUM of 781 8 million and charges a fee of 202 basis points a year From an asset class perspective Bonds Option Income and High Yield Bonds are the three allocations of the fund with 36 7 32 9 and 30 4 exposure respectively as of Dec 29 2017 From an individual holding perspective Eaton Vance Tax Managed Global Diversified Equity Income Fund NYSE EXG BlackRock Enhanced Equity Dividend Trust NYSE BDJ and Eaton Vance Limited Duration Income Fund NYSE EVV are the top three allocations of the fund with 3 0 2 6 and 2 4 exposure respectively as of Dec 29 2017 The fund has returned 14 9 in a year and has a dividend yield of 7 0
iShares Morningstar Multi Asset Income Index ETF
This fund is another investment vehicle designed as an ETF of ETFs which provides multi asset class exposure to high yield securities
It has AUM of 341 5 million and is a relatively expensive bet as it charges a fee of 59 basis points a year From a sector look Diversified Financials Banks and Energy are the top three allocations of the fund with 21 6 10 5 and 7 2 exposure respectively as of Dec 29 2017 From an individual holding perspective IShares Iboxx High Yield Corporate Bond ETF TO HYG IShares JPMorgan NYSE JPM USD Emerging Market Bond ETF AX EMB and IShares MBS ETF HM MBB are the top three allocations of the fund with 19 7 14 9 and 14 9 exposure respectively as of Dec 29 2017 The fund has returned 10 8 in a year and has a dividend yield of 4 5
YieldShares High Income ETF
This fund seeks to provide multi asset class exposure to high yield securities delivering a balanced portfolio strategy capable of generating a high income for investors
This fund has AUM of 221 7 million and charges a fee of 172 basis points a year From an asset class perspective Bonds and Equity are the top allocations of the fund with 74 0 and 26 exposure respectively as of Jan 2 2018 From an individual holding perspective Alpine Total Dynamic Dividend Fund NYSE AOD Eaton Vance Tax Advantaged Global Dividend Income Fund NYSE ETG and Liberty All Star Equity Fund NYSE USA are the top three allocations of the fund with 4 9 4 8 and 4 8 exposure respectively as of Jan 2 2017 The fund has returned 13 7 in a year and has a dividend yield of 7 9
Want key ETF info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
MS | Britain s May to consult business leaders on Brexit | LONDON Reuters Britain s Prime Minister Theresa May will meet GlaxoSmithKline L GSK Vodafone L VOD and HSBC L HSBA and other major companies on Monday to hear what they want from talks on Britain s relationship with the EU after Brexit Businesses have become increasingly alarmed by the slow progress of negotiations and the prospect that the country could crash out of the trading bloc without a deal in 2019 They have also complained that their voice has been drowned out by disagreement and division in the government and they have not heard anything to give them the certainty they need to plan and invest in their businesses The government sought to reset its relationship with employers by setting up a business advisory council in June shortly after May lost her majority in a bungled election She will meet the leaders on Monday with her authority further diminished by a disastrous party conference and an attempt to topple her by a group of her lawmakers However she will set out a confident pitch based on her goal to achieve a transitional period so that companies could benefit from a smooth orderly exit Last month in Florence I set out my vision for a bold and unique new economic partnership with the EU she said ahead of Monday s meeting We are working hard to achieve this and are optimistic about our future as a global free trading nation May will be joined by finance minister Philip Hammond business minister Greg Clark minister for exiting the EU David Davis and trade minister Liam Fox at the council Companies attending will also include Balfour Beatty L BALF WPP L WPP Morgan Stanley N MS and AB Foods L ABF the government said |
MS | Top 5 Things to Know in the Market on Monday | Investing com Here are the top five things you need to know in financial markets on Monday October 9
1 Turkish Lira Stocks Plunge Amid Visa Stand Off with U S
Investors dumped the Turkish lira while the country s main stock market fell the most in more than a year amid an escalating political standoff between Istanbul and Washington
The U S mission in Turkey and subsequently the Turkish mission in Washington mutually scaled back visa services after a U S consulate employee was arrested in Istanbul last week in the latest sign of fraying diplomatic relations between the NATO allies
The lira tumbled 5 at one point against the dollar to 3 8060 the lowest in seven months before clawing back some losses to 3 7104 down about 2 5
The BIST 100 Turkey s equity benchmark fell nearly 5 in the opening minutes of dealing to trade at the lowest levels since early July It was last down 3 6
Shares of Turkish Airlines IS THYAO were one of the benchmark s biggest losers falling around 9
2 Spain Catalonia Crisis Fears Ease
Spanish stocks rebounded and government bond yields fell as worries about the situation in Catalonia eased off after Sunday s demonstration against independence
A crowd estimated by local police to number 350 000 took to the streets of Catalonia s capital Barcelona on Sunday to express their opposition to declaring independence from Spain
Meanwhile a senior member of the Catalan administration called for dialogue with Spain while Spanish Prime Minister Mariano Rajoy pledged that national unity will be maintained by using all instruments available to him
Spain s IBEX index of the country s 35 biggest stocks rose by as much as 1 2 in the opening hour of trading in Madrid
3 War of Words Between U S and North Korea Continues
Investors continued to fret over simmering tensions between the U S and North Korea as a war of words between the two countries escalated over the weekend
North Korea s leader Kim Jong Un said his nuclear weapons were a powerful deterrent that guaranteed its sovereignty state media reported on Sunday hours after U S President Donald Trump said only one thing will work in dealing with the isolated country
Trump did not make clear to what he was referring but his comments seemed to be a further suggestion that military action was on his mind
Meanwhile Republican U S Senator Bob Corker warned on Sunday that President Trump risks setting the nation on the path to World War Three in an interview with The New York Times
4 Embattled May to Meet with Business Leaders to Discuss Brexit
Britain s embattled Prime Minister Theresa May will meet with executives from GlaxoSmithKline LON GSK Vodafone LON VOD HSBC LON HSBA and other major companies to hear what they want from talks on Britain s relationship with the European Union after Brexit
Companies attending will also include Balfour Beatty LON BALF WPP LON WPP Morgan Stanley NYSE MS and AB Foods LON ABF the government said
May will be joined by finance minister Philip Hammond business minister Greg Clark minister for exiting the EU David Davis and trade minister Liam Fox at the council
The pound was a shade higher against the dollar and the euro on reports May could sack Foreign Secretary Boris Johnson as she tries to reassert her authority after a series of political disasters
Sterling has recently been on the back foot amid speculation that May herself could be ousted ahead of crucial Brexit talks between Britain and the EU
5 Global Stock Markets Continue Higher
World shares hit their latest in a run of record highs supported by optimism about global growth
Asian Pacific equities closed mostly higher with China s blue chip CSI300 index climbing to heights not seen since late 2015 though several major markets in the region such as Japan and South Korea were shut for holidays
Meanwhile European shares were slightly higher in mid morning trade with Germany s DAX touching a fresh new all time high
On Wall Street U S stocks pointed to a modestly higher open with the major benchmarks up around 0 2 Trading volumes were expected to remain thin with most banks and federal institutions closed for the Columbus Day holiday That also means no major data releases are on tap for Monday |
MS | UK PM May tells business chiefs two year Brexit transition is assured source | By Costas Pitas LONDON Reuters Prime Minister Theresa May told business leaders that they should treat a two year transition period after Brexit as assured as she tries to ease company concerns that Britain could crash out of the EU without a deal a source told Reuters May met business chiefs from GlaxoSmithKline L GSK Vodafone L VOD and HSBC L HSBA and other major companies on Monday to hear what they want from talks on Britain s relationship with the EU after Brexit Businesses have become increasingly alarmed by the slow progress of negotiations and the prospect that the country could leave the trading bloc without a new trading arrangement in place in 2019 From her point of view the transitional agreement is non negotiable business should think of the two year period as assured It will happen the source said when asked what May had said during discussions on Monday A spokeswoman from May s office said she restated her position that the government s goal is for a smooth orderly exit in which there is only one set of changes for businesses and people Almost all business leaders expressed concern about access to talent after Brexit and several told May that the investment cycle means there are decisions coming at the end of 2017 and the start of 2018 the source said Last week two sources told Reuters that Japanese carmaker Toyota T 7203 intended to build the next version of its Auris car at its British car plant on the assumption that the government secures a transitional Brexit deal in a decision due by the end of the year Both May and her finance minister Philip Hammond acknowledged during Monday s meeting that businesses needed a better sense of Britain s post Brexit relationship with the European Union May said business needs clarity the source said The chancellor finance minister said clarity is more important than perfection Business chiefs have previously complained that their voice has been drowned out by disagreement and division in the government and they have not heard anything to give them the certainty they need to plan and invest in their businesses May s office said she stressed the importance of engaging with the business community to design the proposed implementation arrangements and promised to have continued meetings with a wide variety of business voices May was joined by Hammond business minister Greg Clark minister for exiting the EU David Davis and trade minister Liam Fox at the council Companies attending also included Balfour Beatty L BALF WPP L WPP Morgan Stanley N MS Aston Martin and AB Foods L ABF the government said The meeting came after May s authority was further undermined last week
She had to fend off a challenge from up to 30 of her lawmakers who had been pushing for her to quit following a disastrous snap election in June which saw the ruling Conservatives lose their parliamentary majority |
MS | Pfizer mulling potential sale of consumer healthcare unit shares up 1 premarket | Citing its continuing efforts to allocate its resources and capital to best serve patients and shareholders Pfizer NYSE PFE is exploring strategic alternatives for its Consumer Healthcare business which generated 3 4B in sales in 2016 The unit boasts ten brands that produce greater than 100M in annual sales including Centrum and Advil Major product categories include dietary supplements pain medications gastrointestinal respiratory and personal care The company it is considering a full or partial separation through a spinoff sale or other transaction Centerview Partners LLC Guggenheim Securities LLC and Morgan Stanley Co NYSE MS LLC are advising Shares are up 1 premarket on light volume Now read |
MS | Morgan Stanley downgrades Qualys | Morgan Stanley NYSE MS downgrades Qualys NASDAQ QLYS from Equal Weight to Overweight with a 51 price target Latest analyst ratings for Qualys 2 Buy 3 Outperform and 11 Hold Median price target 46 Qualys shares are down 1 22 premarket Now read |
JPM | JPMorgan pushes Apptio to Underweight | JPMorgan NYSE JPM downgrades Apptio NASDAQ APTI from Neutral to Underweight with a 38 price target
The firm cites the string of recent strong earnings reports from the software space and expects Apptio to underperform as a result
Apptio s acquisition by Vista Equity Partners is pending
Source StreetAccount
Previously WSJ Apptio to be taken private by Vista Equity Partners for 38 share Nov 11
Now read |
JPM | SAIC receives 900M Defense Agency contract | Science Applications International Corp NYSE SAIC receives a 900M firm fixed price requirements contract to remain the lead supply chain manager and integrator for a Defense Logistics Agency tire delivery program
The five year base contract has two two year option periods plus four two month option periods
With all options exercised the contract could have a value of up to 1 7B
Now read |
JPM | JPMorgan Private Bank expands operations in Benelux Nordic region | JPMorgan NYSE JPM Private Bank hires three bankers to expand its reach to ultra high net worth clients in Belgium the Netherlands Luxembourg and Nordic countries markets of growing importance to the firm
David Agie de Selsaeten joins as managing director and senior banker in the Benelux countries from HSBC where he was market head of single family office
Achim Unger joins as executive director and investment advisor from Deutsche Bank DE DBKGn and will also serve clients in the Benelux region
Akif S derstr m joins from Danske Bank International as vice president and investments advisors he ll be working with clients in the Nordics
JPM 0 9 in premarket trading
Previously Reports JPMorgan private bank chief resigns Oct 23
Now read |
JPM | Trump says if no China trade deal possible I am a Tariff Man | By Doina Chiacu WASHINGTON Reuters U S President Donald Trump on Tuesday held out the possibility of an extension of the 90 day trade truce with China but warned he would revert to tariffs if the two sides could not resolve their differences Trump said his team of trade advisers led by China trade hawk U S Trade Representative Robert Lighthizer would determine whether a REAL deal with Beijing was possible If it is we will get it done Trump wrote in a Twitter post But if not remember I am a Tariff Man The threat of an escalating trade war between the world s two largest economies has loomed large over financial markets and the global economy for much of the year and investors initially greeted the ceasefire agreed by Trump and Chinese President Xi Jinping over the weekend with relief However following Monday s rally markets on Tuesday sold off as doubts over what could realistically get accomplished in the tight negotiating window added to concerns about fading global growth The Dow Jones Industrial Average DJI fell more than 3 percent the S P 500 SPX lost 3 2 percent and the Nasdaq Composite IXIC tumbled 3 8 percent The Republican president appeared to address one of the concerns by indicating he would not be opposed to extending the 90 day truce The negotiations with China have already started Unless extended they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina Trump tweeted Treasure Secretary Steven Mnuchin acknowledged investors doubts over the talks outcome The market is trying to figure out Is there going to be a real deal at the end of 90 days or not Mnuchin told the Wall Street Journal CEO Council Still the meeting in Buenos Aires marked significant progress he said describing the upcoming negotiations as historically significant because both leaders had agreed to delve into several specific issues Trump and Xi said they would hold off on imposing additional tariffs for 90 days starting on Dec 1 while they sought to resolve their trade disputes that have seen the flow of hundreds of billions of dollars worth of goods disrupted by tariffs Trump has said China is supposed to start buying agricultural products immediately and cut its 40 percent tariffs on U S car imports While Trump hailed the agreement with Xi an incredible deal a lack of detail from the Chinese side has left investors and analysts wondering if Trump s exuberance is warranted It doesn t seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump s tweets which seem if not completely fabricated then grossly exaggerated with reality JPMorgan Chase NYSE JPM said in a trading note White House economic adviser Larry Kudlow said on Tuesday that a reduction in Chinese tariffs on U S cars and agricultural and energy commodities would be a litmus test for whether U S China trade talks were on track Washington also expects China to promptly address structural issues including intellectual property theft and forced technology transfers U S officials have said White House National Security Adviser John Bolton told the Wall Street Journal event on Tuesday that Chinese theft of U S intellectual property was among the administration s top concerns He said the United States should look into a rule that would bar imports of Chinese products that used stolen U S intellectual property U S Representative Steve King an Iowa Republican in February 2017 introduced a bill that would have allowed the U S government to punish Chinese intellectual property theft by imposing duties on the country s imports The legislation which was not put to a vote envisaged using revenue raised by the duties to compensate those harmed by China s actions Trump has long accused China of unfair trade practices that hurt Americans and the U S economy When people or countries come in to raid the great wealth of our Nation I want them to pay for the privilege of doing so It will always be the best way to max out our economic power he said on Tuesday
His appointment of Lighthizer to lead the talks instead of Treasury Secretary Mnuchin puts one of the administration s toughest China critics in charge Trump said on Tuesday that Lighthizer would work closely with Mnuchin Kudlow and trade adviser Peter Navarro |
JPM | Australia s economy slows debt laden consumers a deadweight | By Wayne Cole and Swati Pandey SYDNEY Reuters Australia s economy slowed more than expected last quarter as consumers reacted to tepid wage growth by shutting their wallets a disappointing outcome that sent the local dollar sliding as investors pushed out the chance of any rate hike The news came as fears of a possible slowdown in the U S economy and the Sino U S tariff slugged world shares and threatened future business investment The gloomy report provides another blow to Australia s center right government which is already lagging in polls ahead of a likely election in May Wednesday s report on gross domestic product GDP showed the economy expanded 0 3 percent in the third quarter half of what economists had expected Second quarter growth was unrevised at 0 9 percent Annual GDP rose by a still respectable 2 8 percent to A 1 8 trillion 1 32 trillion but confounded expectations in a Reuters poll for a 3 3 percent increase The figures also imply growth in the year to June was 3 percent rather than the originally report 3 4 percent The data will not be welcomed by the Reserve Bank of Australia RBA which predicts growth of around 3 1 2 percent this year and next The RBA forecasts are now looking pretty optimistic said Tom Kennedy senior economist at JPMorgan NYSE JPM You are seeing consumer spending pull back a little bit There s not that much cash out there for consumers to spend to their discretion he added Wage growth is low and the household savings rate is also pretty low You overlay that with the fact that housing is slowing means the wealth effect is no longer supporting consumption The disappointing set of numbers sent the Australian dollar on a dive to 0 7295 from a high of 0 7355 touched earlier in the day It was last down 0 4 percent at 0 7310 MISERLY CONSUMERS Australia s economy has generally outperformed its rich world peers in recent years and is in its 28th year of growth without a recession The performance owed much to Australia s ability to attract a surfeit of skilled migrants which kept population growth at a rapid 1 6 percent a year Without that GDP per capita rose a modest 1 2 percent in the third quarter A major drag in Wednesday s report came from private consumption which added a mere 0 2 percent to growth after 0 7 percent in the June quarter An accelerating decline in Sydney and Melbourne home prices has eaten into consumer wealth at a time when they hold record levels of mortgage debt A long stretch of unusually slow wages growth has also throttled household incomes and shows little sign of changing anytime soon Indeed the GDP report showed that while employers were taking on a lot of new workers they weren t paying them much more so average wages rose by just 0 2 percent in the quarter This soft underbelly of the economy has become a concern for the Reserve Bank of Australia RBA and is one reason it kept interest rates at record lows of 1 5 percent this week Adding to the case for caution is the ongoing U S trade dispute with China Australia s single most lucrative export market Thus while the RBA is still tipping economic growth of 3 5 percent this year and next it shows no inclination to tighten anytime soon Futures markets 0 FF are now pricing in only a 20 percent probability of a hike by Christmas next year down from 30 percent before the 0030 GMT GDP data release |
JPM | British pound rises as chances for Brexit reversal rise | The British pounds strengthens against the U S dollar and the euro after a string of parliamentary defeats for UK Prime Minister Theresa May increases the chances that Brexit will eventually be called off The odds are still below 50 though JPMorgan NYSE JPM raised the probability of Britain ultimately staying in the EU to 40 from 20 Recently published legal advice by UK Attorney General Geoffrey Cox warns that May s Brexit plan to avoid a hard Irish border will endure indefinitely until the UK and EU put in place a new long term trading pact Even though the backstop isn t intended to be permanent Cox says that without a right of termination there is a legal risk that the United Kingdom might become subject to protracted and repeating rounds of negotiations and that the backstop would remain even if negotiations break down The pound rises 0 5 against the dollar and 0 3 against the euro ETFs FXB EWU GBB DBUK FKU DXPS HEWU QGBR DGBP FLGB UGBPNow read |
MS | Oil Falls Below 50 For First Time Since 2009 | On Monday the price of oil fell below 50 for the first time since April 2009 and the Dow dropped 331 points Meanwhile the stock market declines over in Europe were even larger on a percentage basis and the euro sank to a fresh nine year low on concerns that the anti austerity Syriza party will be victorious in the upcoming election in Greece These are precisely the kinds of things that we would expect to see happen if a global financial crash was coming in 2015 Just prior to the financial crisis of 2008 the price of oil collapsed prices for industrial commodities got crushed and the U S dollar soared relative to other currencies All of those things are happening again And yet somehow many analysts are still convinced that things will be different this time And I agree that things will indeed be different this time When this crisis fully erupts it will make 2008 look like a Sunday picnic
Another thing that usually happens when financial markets begin to unravel is that they get really choppy There are big ups and big downs and that is exactly what we have witnessed since October
So don t expect the markets just to go in one direction In fact it would not be a surprise if the Dow went up by 300 or 400 points tomorrow During the initial stages of a financial crash there are always certain days when the markets absolutely soar
For example did you know that the three largest single day stock market advances in history were right in the middle of the financial crash of 2008 Here are the dates and the amount the Dow rose each of those days
October 13th 2008 936 points
October 28th 2008 889 points
November 13th 2008 552 points
Just looking at those three days you would assume that the fall of 2008 was the greatest time ever for stocks But instead it was the worst financial crash that we have seen since the days of the Great Depression
So don t get fooled by the volatility Choppy markets are almost always a sign of big trouble ahead Calm waters usually mean that the markets are going up
In order to avoid a major financial crisis in the near future we desperately need the price of oil to rebound in a substantial way
Unfortunately it does not look like that is going to happen any time soon There is just way too much oil being produced right now The following is an excerpt from a recent
The Morgan Stanley strategists say there are new reports of unsold West and North African cargoes with much of the oil moving into storage They also note that new supply has entered the global market with additional exports coming from Russia and Iraq which is reportedly seeing production rising to new highs
Since June the price of oil has plummeted close to 55 percent If the price of oil stays where it is right now we are going to see large numbers of small producers go out of business the U S economy will lose millions of jobs billions of dollars of junk bonds will go bad and trillions of dollars of derivatives will be in jeopardy
And the lower the price of oil goes the worse our problems are going to get That is why it is so alarming that some analysts are now predicting that the price of oil could hit 40 later this month
Some traders appeared certain that U S crude will hit the 40 region later in the week if weekly oil inventory numbers for the United States on Wednesday show another supply build
We re headed for a four handle said Tariq Zahir managing member at Tyche Capital Advisors in Laurel Hollow in New York Maybe not today but I m sure when you get the inventory numbers that come out this week we definitely will
Open interest for 40 50 strike puts in U S crude have risen several fold since the start of December while 20 30 puts for June 2015 have traded said Stephen Schork editor of Pennsylvania based The Schork Report
The only way that the price of oil has a chance to move back up significantly is if global production slows down But instead production just continues to increase in the short term thanks to projects that were already in the works As a result analysts from Morgan Stanley say that the oil glut is only going to intensify
Morgan Stanley analysts said new production will continue to ramp up at a number of fields in Brazil West Africa Canada and in the U S Gulf of Mexico as well as U S shale production Also the potential framework agreement with Iran could mean more Iranian oil on the market
Yes lower oil prices mean that we get to pay less for gasoline when we fill up our vehicles
But as I have written about previously anyone that believes that lower oil prices are good for the U S economy or for the global economy as a whole is crazy And these sentiments were echoed recently by Jeff Gundlach
Oil is incredibly important right now If oil falls to around 40 a barrel then I think the yield on ten year treasury note is going to 1 I hope it does not go to 40 because then something is very very wrong with the world not just the economy The geopolitical consequences could be to put it bluntly terrifying
If the price of oil does not recover we are going to see massive financial problems all over the planet and the geopolitical stress that this will create will be unbelievable
To expand on this point I want to share an excerpt from a recent Zero Hedge article As you can see a rapid rise or fall in the price of oil almost always correlates with a major global crisis of some sort
Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe Whether driven by problems for oil exporters or oil importers the difference this time is that thanks to central bank largesse money flows faster than ever and everything is more tightly coupled with that flow
So is the 45 YoY drop in oil prices about to cause contagion risk concerns for the world
And without a doubt we are overdue for another stock market crisis
Between December 31st 1996 and March 24th 2000 the S P 500 rose 106 percent
Then the dotcom bubble burst and it fell by 49 percent
Between October 9th 2002 and October 9th 2007 the S P 500 rose 101 percent
But then that bubble burst and it fell by 57 percent
Between March 9th 2009 and December 31st 2014 the S P 500 rose an astounding 204 percent
When this bubble bursts how far will it fall this time |
MS | IForex Daily January 06 2014 | Equity markets worldwide tumbled on Monday led by commodity linked shares as Oil prices fell below 50 per barrel to 5 1 2 year lows The Euro stayed near 9 year low against the Dollar as a possible Greece exit persists and as a soft German inflation adds pressure on ECB to do more Investors fled to the safety of Gold Yen and government bonds Today the market is delivering PMI Composite data from various countries as traders await European inflationary data and the FOMC minutes released both tomorrow and Friday the US Employment situation
EUR USD
The Euro traded near a nine year channel early on Tuesday keeping up an unstable start to 2015 as the prospect of more policy easing from the European Central Bank grew ever stronger
EURUSD closed at 1 19386 down 0 06 in our platform yesterday
Constant chatter of a Greek exit from the Euro zone further weaken confidence in the currency
Today expect markets to move with France Germany and EU PMI composite and to pay extra attention to the US factory orders and the ISM non manufacturing orders
Pivot
1 1975
Support
1 191
1 187
1 1835
Resistance
1 1975
1 2035
1 209
Scenario 1 Short positions below 1 1975 with targets 1 191 1 187 in extension Scenario 2 Above 1 1975 look for further upside with 1 2035 1 209 as targets
Comment The pair is posting a rebound but stands below its resistance
USD JPY
The Yen gained yesterday as the flight to safety drove investors into the arms of the Japanese currency
USDJPY finished at Y119 436 down 0 79 in our platform yesterday
Today expect markets to pay extra attention to the US factory orders and the ISM non manufacturing orders
Pivot
119 5
Support
118 35
118
117 45
Resistance
119 5
119 95
120 25
Scenario 1 Short positions below 119 5 with targets 118 35 118 in extension
Scenario 2 Above 119 5 look for further upside with 119 95 120 25 as targets Comment The pair has broken below its support and remains under pressure
XAU USD
Gold gained yesterday as political turmoil in Greece and government actions in Asia helped send prices to their biggest monthly advance since June
Spot Gold closed at 1 203 14 up 1 58 or 18 73 in our platform yesterday
Flows run to Gold because it s the last haven after the Dollar
Today expect markets to pay extra attention to the US factory orders and the ISM non manufacturing orders
Pivot
1 197
Support
1 197
1 186
1 177
Resistance
1 223
1 232
1 240
Scenario 1 Long positions above 1 197 with targets 1 223 1 232 in extension Scenario 2 Below 1 197 look for further downside with 1 186 1 177 as targets Comment The RSI advocates for further advance
OIL USD
WTI Crude Oil extended losses below 50 a barrel amid speculation that U S crude inventories will expand increasing a global oversupply that has driven prices to the lowest level since April 2009
WTI futures closed at 50 12 down 3 97 or 2 07 in our platform yesterday
The Dollar highs are diminishing the investment appeal of commodities and according to Morgan Stanley the crude market faces more problems this year with surging exports from countries including Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day
Today expect markets to move with the API Weekly crude stocks
Pivot
52
Support
48 8
47
45
Resistance
52
54
55 1
Scenario 1 Short positions below 52 with targets 48 8 47 in extension
Scenario 2 Above 52 look for further upside with 54 55 1 as targets
Comment The RSI is below its neutrality area at 50
DOW USD
U S stocks were hit hard Monday in an indiscriminate sell off triggered by a renewed plunge in crude Oil prices and surging Dollar which left the Dow and the S P with their worst losses since October
The Dow Future closed at 17 490 5 down 1 07 in our platform yesterday
The Dow Jones Industrial Average had 28 of its 30 components closing with losses The blue chip index dropped 331 34 points
Today expect markets to pay extra attention to the US factory orders and the ISM non manufacturing orders and the API weekly crude stocks
Pivot
17 650
Support
17 370
17 265
17 130
Resistance
17 650
17 800
17 885
Scenario 1 Short positions below 17650 with targets 17 370 17 265 in extension Scenario 2 Above 17 650 look for further upside with 17 800 17 885 as targets Comment The RSI is capped by a bearish trend line |
MS | Forecast 2015 Life In The Breakdown Lane | Note from Tim about a week ago everyone s favorite Sloper BDI encouraged me to read an entry on his blog which I did The article by James Howard Kunstler was so indecently rich I felt like a starving man who had just been handed five superbly crafted cheesecakes There is so much rich goodness in it it s almost impossible to believe I m leaving this post up all day Please read it It is superb and I thank BDI for getting permission from Mr Kunstler to republish it here on Slope
Submitted by James Howard Kunstler
Don t look back something might be gaining on you Satchel Paige famously warned For connoisseurs of civilizational collapse 2014 was merely annoying a continued pile up of over investments in complexity with mounting diminishing returns metastasizing fragility and no satisfying resolution So we enter 2015 with greater tensions than ever before and therefore the likelihood that the inevitable breakdown will release more destructive energy and be that much harder to recover from
I don t know how anyone can trust the statistical stuff emanating from our government reporting agencies or the legacy news organizations that report them Yet the meme has remained firmly fixed in the popular imagination the US economy has recovered GDP grows 5 percent in Q3 Manufacturing renaissance Energy independence Cleanest shirt in the laundry basket Best looking house in a bad neighborhood
No hay problema
This is simply the power of wishful thinking on display No one with the exception of a few doomer cranks wants to believe that industrial civilization is in trouble deep The staggering credulity this represents would be a fascinating case study in itself if there were not so many other things that demand our attention right now Let s just write this phenomenon off as the diminishing returns of career log rolling in politics finance media and academia All the professional thought leaders pitch in to support the hologram of eternal progress that issues their paychecks and bonuses This culture of pervasive racketeering that we ve engineered has made us obtuse The particular brand of stupidity on display also points to another signal vanity of our time the conviction that if you measure things enough you can control them
I m of the view that the measurers only pretend to measure and can only pretend to control things especially in the most fragile of the systems that we depend on for running all the other systems of techno industrial economic life finance The pretense has endured a lot longer than many of us had expected The legerdemain employed by banking officials and their handmaidens was greatly augmented by the sheer wish that fragility i e risk had been successfully and permanently banished from the universe That magic at least sustained a universal faith in currencies until the middle of last year when so many monies went south except the dollar levitating on blowback of the deflationary wind flattening everything else
All this unreality in money and markets should be expected in the conditions just preceding systemic collapse of an entire trans national industrial civilization just as one should expect societies to construct their most grandiose monuments to themselves shortly before collapse The Mayans R us One year they were cavorting bloodthirstily atop their garish painted pyramids and a generation later the jungle was stealing back over the temple steps and the population was a tenth of its former size The same thing is going to happen to us except there will be a hell of a lot more worthless toxic debris left on the landscape
Of course even that is a more long term projection than the exercise at hand calls for viz the forecast for measly little 2015 So without further throat clearing permit me to break it down for you
Finance and Banking
As 2014 closed out that kit bag of frauds swindles Ponzis grifts bait and switches and three card monte scams is looking at least as wobbly as it did in 2007 when Wall Street was busy manufacturing booby trapped MBSs and CDOs Except we know the true aggregate risk at stake has only grown larger and more hazardous due to all the strenuous efforts by authorities since the panic of 2008 to evade any natural process for clearing mal investment and debt gone bad A lot of that stank was simply shoveled into the Federal Reserve s basement where it sits to this day composting steamily As to be expected and averred to in my previous books and blogs financial repression market intervention and statistical distortion will produce ever more financial perversity That is the hazard in decoupling truth from reality Imposed dishonesty will always express itself in unexpected ways Who expected the price of oil to fall by nearly half in a few months More on that below
These days perversity expresses itself in a morbidly obese dollar gorging on junk while bulimic currencies elsewhere projectile vomit their value away as the economies attached to them die of malnutrition Perhaps this comes as a surprise to central bankers standing at their control panels like recording engineers at the soundboard tweaking all the dials and slides expecting to achieve a perfect repressive inflation rate of 2 plus percent so they can melt away the onerous debt of sovereign balance sheets and Too Big To Fail banks incidentally squeezing the citizenry of purchasing power in small annual increments that add up after a while to worthless money They did manage to extend the inflation of stock market indexes another year which the public is supposed to interpret as prosperity Half a trillion dollars in stock buybacks of S P companies were executed in 2014 much of it done with money i e leverage borrowed at zero interest Stock buybacks boost share prices of course but they don t represent any real increased value in a given company They re just snakes eating their own tails
The belief that the world s reserve currency is an implacable force and that central bankers are omnipotent has made this trade appear to be an irresistible trend Don t fight the Fed Since it s a matrix of fraud based on thin air money detached from real productive activity it is certain to blow up And since 2015 is seven years past the last blowup it can happen any time All it requires is some small slippage somewhere that one equivalent extra grain of sand or snowflake to bring the accumulate mass of false value down in a financial earthquake or avalanche That obese dollar has been gorging on the equivalent of cheez kurls and Little Debbie Snack cakes so it only grows more diseased as it gains weight Sentient observers cannot fail to notice the advancing sickness
Meanwhile the US is stupidly waging currency war against other nations that can only blow back by incurring the animosity of every trading partner we have on the only planet available to live on In 2015 I expect Russia to enlist China s aid in undermining the dollar s reserve status Both countries have weaponry in the form of cash reserves and gold in their vaults They also have the computer hacking expertise to start seriously messing with US markets as much Fed technicians and TBTF bank algos do bringing on mysterious flash crashes derivatives accidents and other abnormal events that will leave even the Goldman Sachs MIT graduates scratching their heads Such hacking may accomplish what years of arrant market interventions by US technicians failed to produce a deadly loss of faith on all the institutions that govern money and markets Then the US will be the cleanest shirt in a laundry basket that is on fire
The dollar these days represents two kinds of capital The first is the stuff that the US has built and invested in since say the end of World War Two a wasteland of aging and decrepitating suburban sprawl that is the infrastructure of a living arrangement with no future the greatest entropic sink in human history It extends to whole cities and their subsystems e g the hell hole of Las Vegas with Hoover dam and the dwindling reservoir of Lake Mead Before mid century Las Vegas will be as desolate as Egypt s Valley of the Kings Try to imagine the money that went into building all that stupid shit in the desert In another decade across America the housing subdivisions and commercial highway strips filled with tilt up box stores muffler shops and burger dispensaries will retain less value than the pyramids of Palenque had for the Mayans after their society rolled over and died The so called real economy is a New Age serfdom of burger fryers and janitors indentured to that entropic sink Below them is a widening slough of methedrine child abuse and tattoo art on its way to becoming Soylent Green To put it bluntly the dollar is entropy s algo bitch
The second kind of capital the dollar represents is the imaginary value based on sheer lying making shit up and borrowing from a future that has no chance of being paid back This is the capital ginned up on American exceptionalism and energy independence fairy tale memes functioning as collateral for the aforementioned malinvestments that add up to The American way of life This capital has no substance since it is just made up of intellectual and emotional dishonesty This is the kind of constructed narrative that addicts and other functional cripples resort to to justify their behavior and the fragility of it will sooner or later lead to the well known condition of hitting bottom That is the event horizon where the remnants of America enter what I call the World Made By Hand It will be the greatest socio economic shift since the fall of Rome only much swifter
Oil
It really deserves a sub category of its own because it is the primary resource of our techno industrial society and its troubles lie behind much of the present disturbances of our times Despite the triumphal agitprop of the past few years peak oil is for real It just manifests more strangely than most people thought namely the simpleminded idea that it would only show up as ever rising prices No I made point in The Long Emergency 2005 and other commentators did too that peak oil would manifest as volatility And so since the actual moment of peak conventional crude around 2005 we ve seen pretty wild oscillations in the price of oil This is due to the harsh reality that the price people and enterprises can afford to pay for increasingly harder to get oil is less than the price that makes it possible to get it This sets up a yo yo ing instability in economic performance that exacerbates even normal wave patterns in the business cycle which are in turn aggravated by banks and governments interventions such as ZIRP to suppress those cycles
Below 70 a barrel the producers go broke above 70 a barrel the customers go broke So the price wobbles up and down as financial Ponzis like shale oil are introduced onto the scene in the hope that debt finagling and mineral rights leasing scams can substitute for physics and geological reality One trouble with this is that each violent oscillation generates more economic and financial destruction Activities like motoring aviation manufacturing and retail are badly affected and the entire financial system is made more fragile by worsening increments Most importantly the cost structure of the oil industry itself gets battered to a degree that fewer companies can survive to produce the remaining oil
The big story for 2014 was the crash of oil prices It is yet being celebrated in other blogger s 2015 forecasts as a boon to America Wait until they find out that almost all of the good jobs added in recent years were associated with the shale drilling industry that is now being put out of business by low oil prices Wait until they find out how the failure of junk bond financing thunders through the bond markets and the savage wilderness of derivatives and ultimately into their ruined pension funds Wait until they discover that it was but a symptom of the compressive deflationary depression now gripping the entire techno industrialized world
Here are my financial forecast particulars for 2015
Early in 2015 the ECB proposes a lame QE program and is laughed out of the room European markets tank
Greek elections in January produce a government that stands up to the EU and ECB and causes a fatal slippage of faith in the ability of that project to continue
Second half of 2015 the rest of the world gangs up and counter attacks the US dollar
Bond markets in Europe implode in first half and the contagion spreads to the US as fear and distrust rises about viability of US safe haven status
Derivatives associated with currencies interest rates and junk bonds trigger a bloodbath in credit default swaps CDS and the appearance of countless black holes through which debt and wealth disappear forever
US stock markets continue to bid upward in the first half of 2015 crater in Q3 as faith in paper and pixels erodes DJA and S P fall 30 to 40 percent in the initial crash then further into 2016
Gold and silver slide in the first half then take off as debt and equity markets craters faith in abstract instruments evaporates faith in central bank omnipotence dissolves and citizens all over the world desperately seek safety from currency war
Goldman Sachs Citicorp Morgan Stanley Bank of America DeutscheBank SocGen all succumb to insolvency American government and Federal Reserve officials don t dare attempt to rescue them again
By the end of 2015 central banks everywhere stand in general discredit In the US the Federal Reserve s mandate is publically debated and revised back to its original mission as lender of last resort It is forbidden to engage in further interventions and a new less secretive mechanism is drawn up for regulating basic interest rates
Oil prices creep back into the 65 70 range by May 2015 It is not enough to halt the destruction in the shale tar sand and deepwater sectors As contraction in the failing global economy accelerates oil sinks back to the 40 range in October
unless mischief in the Middle East in particular the Islamic State messing with Saudi Arabia leads to gross and perhaps fatally permanent disruption in world oil markets and then all bets are off for both the continuity of advanced economies and for peace between nations
Geopolitics
The signal event of 2015 will be the disintegration of Tom Friedman s global economy the trade and banking relations we have known for about a quarter century especially the frictionless flow of goods and capital between East and West The tactical blunders of the USA and its Euro partners drive the so called emerging markets led by China s Shanghai Cooperation Organization into a skein of work arounds to undermine and avoid the US dollar trade
They don t exactly replace the dollar as the world s reserve currency but the workarounds lead to a period of worldwide currency turmoil that can only be resolved by monies being at least partially backed by gold Both China and Russia will continue to work to convert their dollar reserves into Gold whenever possible Meanwhile America and Great Britain s campaign to discredit and devalue gold will only permit their rivals to acquire more at a cheaper price
The rest of the world is sick of America s interventionist shenanigans and its moronic exported culture of burgers Grand Theft Auto and twerking Jezebels They are aided by America s own obdurate foolishness and poor strategic choices for instance the blowback from the Ukraine misadventure of 2014 Who in the White House Pentagon or State Department thought it was a great idea to undermine the fragile stability of Ukraine Is there any question that Ukraine was ever not in Russia s sphere of influence Or that Russia would allow it to be dragooned into NATO and used as a forward base for American firepower for all this is the most cogent on the web
What the Anglo imperialists were paying for in corrupting Ukraine s politics was a ring side seat at a fight between Ukraine and Russia And what they got instead is a two legged stool at a bar room brawl between Eastern and Western Ukraine
Read the whole darn thing it s not long
We succeeded in turning a marginally bankrupt marginally independent nation into a complete basketcase that is going Dark Age as I write no money no work no fuel no heat no food no prospects Having completely botched the operation and misplayed the game against Russia s Putin and Russia s legitimate interest in a stable next door neighbor the US will now abandon Ukraine It will be forgotten as surely as the US sponsored Ukrainian air force s role in the crash of Malaysian Airlines Flight 17 the incriminating details of which were buried by the Dutch investigating officials Eventually the Russians will have to care for the dying Ukraine They will not be enthusiastic about it They will do little and do it slowly
Likewise our economic sanctions campaign against Russia including the attack on the ruble is now blowing back on the eurozone s export economy Russia has survived much worse than Western sanctions in recent history Russia will survive by turning east to Asia
This is already happening and is well publicized What it means for Europe sooner than later is the loss of their access to imported oil and gas from Russia Meanwhile the North Sea fields and the Dutch Groningen gas field are dying Good luck staying warm Europe
The blowback of Europe s foolish partnership with the US campaign to punish Russia can only discredit the ruling parties and boost new right wing parties such as France s National Front and Britain s UK Independence Party both deeply nationalistic anti Euro Union and anti endless immigration
The Islamic State was another legacy of blowback from American foreign adventurism It was spawned out of the remnants of Al Qaeda in poor broken Iraq and its conquests in 2014 ranged clear across northern Syria to several major cities in Iraq Faluja Tikrit Mosul right up to the suburbs of Baghdad They made a lot of money off of captured oil wells and ransoming western hostages and they shocked Western decency with their YouTube decapitations of hostages that the US and UK refused to ransom The US s response now is to bomb their installations and bivouacs
That can only drive them literally underground IS will thrive on Western punishment It has vast potential to recruit the population of idle under employed young men all across North Africa and the Middle East and beyond to Europe and the band of Islamic society that stretches below Russia across mid Asia The catch is if and when they come to actually rule most of these territories they will be running economies reduced to Dark Age levels
As I write King Abdullah of Saudi Arabia has just entered the hospital At 91 he is closer to the end of his story than the middle Meanwhile the tanking of crude oil prices has critically impaired an Arabian economy that depends on oil sales for more than 80 percent of its operating revenue Much of that revenue goes to a national welfare system that pays just about everybody to not work There will be a lot less money to go around now and a lot of grievance over it The population of the Arabian Peninsula is so far beyond critical overshoot that the situation can only get ugly especially since a large part of that excessive population consists of testosterone jacked young men under 30 with nothing to occupy their hours but chitchat over tea and religious mummery
Consider also that when King Abdullah goes there is liable to be a deeply destabilizing fight for the throne among the hordes of princes and competing clans despite whomever Abdullah has named as his successor You may be sure the Islamic State will be standing by to add fuel to those fires That in and of itself could bring on a fast end of the oil age Bear in mind too that the eastern side of Saudi Arabia where most of the oil infrastructure is contains a majority Shi ite population In a conflict between Sunni IS and Iran backed Arabian Shia a lot of stuff could just get blown up At the least it could badly interrupt 30 percent of the world s oil supply
China is obviously struggling to prevent a financial freefall brought on by 20 plus years of extravagant debt creation and a lot mal investment in the service of a very late entry into the techno industrial frolic It can t be denied that they made a good show of it in a very short time but they got in at the blow off stage Now conditions are changing unfavorably The global economy that made China the world s workshop is unwinding in a vortex of currency war trade friction territorial dispute ethnic ill will and the disturbances that attend the great background problem of peak cheap oil
The Chinese will work sedulously to try for a soft landing in the great economic contraction that looms Chinese banking being non transparent overly subject to blundering central control and deeply corrupt may not bode well for that project However China has many cushions to fall back on short term in the form of foreign money reserves and stockpiles of raw materials But sooner or later they have to reckon with their dependence on continued oil imports That is clearly the basis of China s current flirtation with Russia but with Russia arguably past its own oil production peak that s not a long term strategy China has cranked up the world s mightiest production line of photovoltaic hardware but solar won t replace oil the way things currently run and whatever they rig up may not last more than one generation if there s no supporting platform of an oil economy for the manufacture of solar replacement parts
Japan s suicidal experiment with hyper turbo ZIRP and QE is not accomplishing much except exacerbating global currency carry trades and driving down the nation s standard of living It may succeed in destroying the Yen and what remains of its economy in 2015 Fukushima remains unresolved and Japan s energy future looks plain dismal They have no energy resources of their own whatsoever Any serious mischief in the Middle East oil fields will finish them off The nation has been on the fast track to become the first post industrial neo medieval society They could be fortunate to land back there and set up their shop while there are still residual riches in the world to work with They might also go cuckoo and start a war with China for control over the oil fields of the South China sea It is hard to see any other outcome from such a conflict other than China kicking Japan s ass
Geopolitical forecast particulars for 2015
Russia toughs out sanctions imposed by the USA European partners drop their sanctions as self evidently counter productive Russia threatens to post pone debt repayments to Western banks The ruble stabilizes
Russia endures Islamic terrorist attacks and responds very harshly embarrassing the wimpy West
Baghdad Falls to Islamic State forces Years of American endeavor are lost just like that The IS attempts to use Iraqi oil reserves to fund its operations It has a hard time keeping the infrastructure in repair The USA refrains from bombing Iraqi oil installations a decision viewed as weakness by IS
The Islamic State makes inroads across North Africa Libya Egypt Algeria Tunisia Morocco are all susceptible
Formerly marginal political parties win big across Europe forcing nations to rethink wide open immigration policies Neo liberalism sinks into deep Weimar style discredit Open ethnic warfare breaks out in France Britain the Netherlands Sweden
European economies continue to sink for the simple reason that the growth era of techno industrialism is over along with affordable oil and no amount of debt production will bring it back All the machinations of the EU and the ECB are dedicated to overcoming this implacable reality and thus will only lead to deeper and more intractable problems
Beginning with the late January elections which Alexis Tsipras s Syriza party wins Greece plays hardball with the EU for debt restructuring that amounts really to forgiveness of utterly unpayable 322 billion 398 billion If the EU calls Greece s bluff and kicks them out a European banking meltdown is almost certain If Greece stays then other hopelessly indebted nations of the EU declare they want the same deal Pretty much a rock and hard place Impossible to call except to say the situation promises mucho turmoil in 2015 Hay problema
Ebola contagion persists and rips across sub Saharan Africa Other nations are forced to pass severe travel restrictions to and from Africa
Nigeria descends into bloody political turmoil as its oil industry falls apart in response to low prices UN intervention accomplishes nothing In wartime conditions Ebola gains a foothold in Lagos one of the world s most overpopulated slum cities
Pakistan and Afghanistan both continue to melt down into ungovernability India is forced to take over administration of Pakistan and remove nukes America continues to pretend that its mission in Afghanistan has some purpose but it only remains a black hole of military expenditure and becomes a rancorous issue in the run up to the 2016 Presidential election
The USA Homefront 2015
For one who has been a close observer of the US socio political economic scene since the Kennedy era the nation has gotten itself into a pretty sorry state The pervasive racketeering that poisons American life from the money in politics farce to the shameless chiseling medical pharma cabal to the SNAP card and disability rights empire of grift to the college loan swindle to the disgusting security state apparatus to the corporate tyranny of local life and economies to the delusional techno narcissism of the media to the despotic and puerile gender preoccupations of academia all of it adds up to a society that cares as little for the present as it does for the future And that s aside from the pathetic digital device addiction of the generation coming up and the sheer sordid behavior of the tattooed drug saturated pornified masses of adults now forever foreclosed from a purposeful existence or a decent standard of living
Even physically America is a sorry ass spectacle between our decrepitating cities abandoned Main Streets gruesome strip mall highways repellent and monotonous suburbs dreary industrial ruins profaned countryside and desecrated coastline there is little left to actually love about This land is Your Land We ve made so many collective bad choices about how we live that one can t help feeling we are simply a wicked people who deserve to be punished
Whole classes already are of course What used to be a working class with aspirations has devolved to the forlorn savagery averred to above Our thought leaders are devoid of thought Our hopes and dreams are absurd sci fi fantasies prompting us toward robot assisted suicide Our political stratagems of recent years accomplish nothing except making more trouble for ourselves while inciting the enmity of people elsewhere
Barack Obama s signal failure aside from letting the banks get away with murder and omitting to counter the Supreme Court s Citizens United decision has been his total evasion of measures that would prepare the nation for the vast changes in social and economic imperative that will attend the transition out of the techno industrial era when he is out of office These include supporting local small scale agriculture rather than giant corporate agri biz promoting and supporting the reconstruction of local economic networks Main Street business eliminating multitudinous federal regulations that prevent individuals and small enterprises from operating closing the hundreds of superfluous US military bases around the world giving federal support to rebuild the US passenger rail system promoting walkable communities especially the re activation of existing small towns and cities instead of mindless obeisance to the suburban home building industry and its step child in the commercial highway strip development racket and truly reforming medical care without the connivance of the insurance racketeers
Obama and his party can be faulted for fostering the myth that every young person needs a college degree leading a whole generation into debt penury for no good purpose while depriving society of a long list of vocational roles and livelihoods based on providing genuine service or value We will be a nation of unemployed gender studies graduates instead of plumbers electricians organic farmers arborists carpenters machinists nurses and paramedics small business owners et cetera
This enormous bundles of myths and misplaced expectations for yesterday s tomorrow prevents the collective national imagination from summoning a revised American Dream based on repairing the massive destruction of recent decades
The political mood has not been murkier in my longish lifetime Both major parties edge toward extinction as the Whigs did in the mid 1850s The citizenry not sunk in drugs and depravity that is people who still read the news in some form and would like to care about their country deserve a new faction or party that can at least express their discontent with the current situation They will surely not get this in the generally supposed coming contest between Hillary Clinton and Jeb Bush I hope they will be so insulted by this dynastic grab that more than one new party will form and make a big stank about it The Tea Party was a good start in that spirit but it tripped on its internal contradictions and its association with Dixieland style religious fundamentalist idiocy and cracker war mongering
All that redounds on the current state of the Republican Party a gang of venal ignoramuses pimping for lost causes Despite having won the 2014 midterms and capturing both houses of congress and governorships they seem increasingly out of touch with the realities of economic contraction peak oil and climate irregularities The old magic of stirring up the animals on social issues of abortion bedroom activities and allegiance to Jesus fail to move the old base which is becoming economically quite desperate That base also becomes conscious of how they have been hornswoggled into voting against their own interests for years in the sense that author Thomas Frank so aptly described in What s the Matter With Kansas
Race relations turned very sour in 2014 with more highly publicized killings of young black men in ambiguous circumstances The chief martyr of the year Michael Brown of Ferguson Mo was a poor candidate for sainthood and did not help advance the credibility of claims that police brutality rather than the misbehavior of young men is behind a lot of strife abroad in the land One gets the feeling that black race hustlers are in the driver s seat recklessly pushing African Americans toward open warfare with everybody else My view of the situation is not popular with Progressives viz that black separatism and its offshoots in diversity politics and multi culturalism tragically promote an antagonistic alienated oppositional black politics at the expense of a common culture for blacks and whites with common values and common standards of behavior It has gotten so bad that reasonable people can sadly conclude that the long civil rights project has ended in failure We are treading on dangerous ground here with foolishly outmoded ideas about what to expect from each other and of course all this begs the questions What now What next
Domestic Forecast Particulars for 2015
Markets tanking in Q3 destroy the illusion of recovery It becomes obvious that the story was a lie and the public mood grows much more surly
2014 proves to be the year of peak shale oil After the shakeout of 2015 due to low oil prices production never returns to previous levels The fairy tales of energy independence and Saudi America fall apart deeply demoralizing a gulled public and adding yet another layer of discredit to the people in charge of things
Different kinds of political revolt break out around the country among varied groups left right and center Some of it revolves around life and death struggles for the souls of the floundering major parties Some of it is organized violence against the government and especially against the US security state apparatus including overly militarized local police forces
Low grade racial warfare erupts across the US Flash mobs knock out games lootings and hammer attack type outrages generate counter attacks By summertime the conflict heats up Firefights become routine and casualties mount President Obama proves to be tragically ineffectual in restoring peace
Anti immigration sentiment in Europe spreads to the US as falling oil prices produce political disorder in Mexico prompting tens of thousands to try to flee north
Bank of America is the first of the Too Big To Fails to enter the event horizon of failure Obama can t get congress to go along with a bailout By Thanksgiving there is turmoil among the banks as they scramble to cover losses A public furor over using taxpayer money to cover derivatives losses leads to an unprecedented concerted action by states to attempt nullification campaigns
Citibank applies for a bail in of account holders Dithering frightened federal authorities are too slow to respond permitting a run on deposits
Hillary is loudly booed and hectored at campaign stops as a tool of Wall Street Her coffers overflow with TBTF bank contributions She bows out of the presidential contest as the public mood toward her sours But not before she generates a lot of resentful opposition and alienates many Democratic Party voters who are also furious over the eight years of Obama s hope and change hand jive Elizabeth Warren is dragooned to replace her dubbed the Un Hillary rescuing the party from a near death experience She openly feuds with party bosses who plot against her and undermine her campaign
Senator Rand Paul agitates to abolish the Federal Reserve His senate colleagues are shamed into considering legislative reform of the Fed s mandate Debate on the issue is the only thing the Republican dominated congress and senate accomplish in 2015 Paul decides to challenge Jeb Bush for the 2016 nomination This blows the Republican party apart
At Christmas 2015 the DJA sits at 13 500 the S P is at 1200 Gold is at 1750 silver at 42
Good luck everybody Gird your loins and fasten your seat belts |
C | Head of Mexico s Central Bank Operations Is Leaving for BIS | Bloomberg Banco de Mexico s top markets official is leaving for the Bank for International Settlements after more than two decades at the central bank according to people familiar with the plans
Jaime Cortina director general of operations and payment systems plans to leave in the coming weeks according to five people who asked not to be named because the decision hasn t been made public Cortina is responsible for managing the bank s international reserves and monetary operations a job that made him one of the most important figures in its day to day functioning
Cortina plans to join the BIS office in Mexico City according to three of the people In doing so he would reunite with general manager Agustin Carstens with whom he worked closely during his eight years as governor Carstens left for the Basel Switzerland based BIS in 2017 Cortina was among the most visible members of the bank outside the five member board during Carstens time at the helm
Cortina also has been involved in building CoDi a digital payment system expected to go live in September Besides Banco de Mexico he also worked at the federal mortgage institute and at Citigroup Inc NYSE C s Banamex unit
Cortina becomes the latest departure from the bank in recent months that included Roberto del Cueto a deputy governor Juan Pablo Graf who was responsible for financial stability and Alfonso Guerra who was in charge of international affairs
The press office of the central bank declined to comment and the press office of the BIS didn t immediately return a request for comment Cortina didn t respond to phone and e mail requests for comment |
C | Traders Worry as Hopeful Bank of Canada Officials Meet This Week | Bloomberg As the Bank of Canada meets this week amid trade war chaos a big unanswered question will loom over the gathering Who s right about the nation s economic prospects gloomy traders or optimistic policy makers
Markets are worried that Canada is deeply exposed to the U S China trade spat The Canadian yield curve is inverted with three month government debt yielding more than 10 year notes suggesting fear the dispute will weigh on global growth The rates market is pricing in 17 basis points of central bank easing through the next 12 months according to trading of forward contracts
But the Bank of Canada has been resolute Governor Stephen Poloz said May 17 that there s much evidence the economy is strong calling signs to the contrary just a detour and saying interest rates will rise once the headwinds dissipate The central bank will reveal its latest policy decision Wednesday morning
The pesky trade dispute seems to be the wild card here And it s little wonder why The U S and China are Canada s biggest trading partners
The BoC is caught between big global uncertainties that are negative and recent data surprises erring on the positive side said Alan Ruskin strategist at Deutsche Bank AG DE DBKGn There s a tendency in the U S and Canada for the market to take a more dovish view of expected policy than policy makers The curve will be another element encouraging caution
Around the world traders have pushed bond yields lower as appetite for risk assets wanes and central banks around the globe cut forecasts for growth The trade war has taken a toll on sentiment weighing on global stocks and sapping demand for most commodities
The foreign exchange market isn t pricing in a dovish central bank policy stance in Canada just yet As of Friday the loonie was still the best performer among currencies from Group of 10 nations in 2019 supported by crude oil which had gained 30 this year despite recent losses The loonie was up 1 5 this year versus the U S dollar
Still the outlook is cloudy For Canada 17 of its economic growth is exposed to the fight between the U S and China according to a May 24 report from Bloomberg Intelligence economists That means the Canadian dollar is 10 overvalued they argued
Recent economic data indicating strong Canadian employment and retail sales strengthen Poloz s optimistic position even after the central bank last month abandoned its bias toward rate hikes and dropped a reference to future increases Citigroup Inc NYSE C s Canada economic surprise index which measures data surprises relative to market expectations is at the highest level since April 2017
That outperformance alone tilts the balance of risks towards a constructive assessment of prospects in the next BoC policy statement Shaun Osborne strategist at Scotiabank wrote in a May 24 note to clients It provides the basis for a mildly hawkish hold decision from the policy makers He sees the Canadian dollar strengthening to end the year at C 1 28 against the greenback It finished Friday at C 1 34
Others aren t so bullish The loonie will weaken toward C 1 352 after Wednesday s decision strategists Andrew Kelvin and Mark McCormick at TD Securities wrote in a note May 24 They expect the yield differences between 5 year and 10 year as well as 10 year and 30 year Canadian government debt to narrow
The balance of risk around the BoC also supports continued flattening they said The narrative remains biased towards lackluster performance in the currency as better Canadian data reflects very weak expectations rather than strength in the economy |
C | HSBC plans retail wealth headcount boost eyes Singapore expansion | By Sumeet Chatterjee HONG KONG Reuters HSBC Holdings LON HSBA PLC plans to boost its Asia retail wealth management staff by about 300 by end of this year with Europe s biggest lender by assets sharpening its focus on Singapore to add to its presence in core markets of Hong Kong and China London headquartered HSBC which makes more than 80 of its profit in Asia will boost its wealth staff in Singapore by 50 and launch new digital offerings this year said Kevin Martin Asia Pacific head of retail banking and wealth management While HSBC did not disclose its wealth management headcount in Singapore at present the bank s business of offering advice and investment products to affluent clients in the city state is smaller compared to its presence in China and Hong Kong It s fair to say that our entire business in Singapore underperformed and we haven t hidden from that fact Martin told Reuters in a recent interview referring to the bank s retail banking and wealth management unit As we build Asia wealth there is a really significant opportunity in Singapore not just onshore Singapore but offshore Singapore he said adding the bank expects the country to be a growth engine over the next few years HSBC s retail banking and wealth management division serves clients with less than 5 million of investable assets while those with more than that threshold are taken up by the bank s private banking unit Chief Executive John Flint last year said building a leading wealth management business mainly in Greater China and Southeast Asia was key for accelerated revenue growth in Asia where individual wealth is growing at the fastest pace globally Singapore s high net worth population those with investable assets of 1 million or more rose 11 5 in 2017 as per consultant Capgemini s latest wealth report ahead of China s 11 2 Japan s 9 4 and Australia s 9 2 Of respondents in a survey conducted by trade publication Asian Private Banker in July last year 58 ranked Singapore as the most preferred offshore wealth management hub followed by Hong Kong Switzerland and London HSBC is looking to target both onshore as well as offshore clients with a large number of rich individuals in China India and other Southeast Asian nations looking for wealth management services in Singapore Martin said In Singapore HSBC will compete with global rivals such as Citigroup Inc NYSE C and Standard Chartered LON STAN PLC as well as Southeast Asia s biggest lender DBS Group Holdings Ltd which has a strong presence in the mass affluent wealth management business As part of its plans to grow its Asia wealth business HSBC also intends to ramp up its insurance distribution and product offerings in Hong Kong China and Singapore this year Martin said HSBC s life insurance business within the wealth management unit posted 66 growth in revenue to 793 million in the first quarter of this year compared to the year earlier period
We are not even partly done in terms of the upside for insurance And as we have increased distribution provided all products and put digital capabilities in place and promoted the brand the growth you see will continue |
C | Citigroup May Be Poised to Win in 2020 Goldman Says in Upgrade | Bloomberg Citigroup Inc NYSE C can beat consensus expectations in 2020 regardless of higher interest rates or stronger global growth and is well positioned for potential supply chain shifts in Asia Goldman said in a note upgrading the stock to buy from neutral
Analyst Richard Ramsden in a note sees a realistic path to a 13 return on tangible common equity or Rotce in 2020 which would top market expectations by 100 basis points The market is overly pessimistic on Citigroup s revenue growth inflection targeted expense savings and outlook for credit costs given the improvement in the risk profile of their international loan book he said
Citigroup s ability to keep getting better in 2020 will likely become key for stock valuation in the coming months he said He added that Citigroup has the lowest sensitivity in Goldman s coverage to both short end rate movements and to the long end of the curve suggesting their return improvements are the least dependent on fluctuations in the yield curve And he noted that Citigroup s valuation discount versus its peers is the widest since the financial crisis factoring in an improvement in Rotce
Those aren t the only things prompting the upgrade The bank s global footprint and on shore presence in Asia positions them relatively well to benefit from a potential shift in trade flows should trade tensions escalate further causing companies to diversify supply chains Ramsden said
Citigroup s shares gained 1 4 in pre market trading on Thursday U S equity futures were climbing with European stocks while bonds were steady with 10 year Treasury yields unchanged at 2 26 Citigroup has outperformed so far this year rising 22 compared with an 11 gain for the S P 500 and a 10 increase for the KBW Bank Index and it s the best performer in the bank index |
C | Fed unlikely to respond to bond market calls for rate cuts yet | By Karen Brettell Reuters The U S Treasury market has diverged from the Federal Reserve in painting a bleak picture of future U S economic growth and inflation but the central bank looks unlikely to bend to the market s will anytime soon barring a notable turn for the worse Concerns about the impact of the U S China trade war on global growth tensions between Italy and the European Union and the lack of agreement over how Britain will exit the European Union helped send benchmark U S Treasury yields to their lowest levels since September 2017 this week The yield curve between three month bills and 10 year notes also moved further into negative territory The inversion when the yield on short term maturities tops the yields on longer dated ones if it persists is seen as a reliable indicator that a recession is likely in one to two years Other markets including stocks and corporate bonds however are not painting as negative a picture as are Treasuries despite a recent uptick in volatility Corporate bond yields have in fact fallen this month even as credit spreads widened If both rates and credit were pointing the same way they would be much more prone to have the market driving Fed action but this discrepancy means I don t think the Fed will get bullied into anything said Michael Cloherty head of U S rates strategy at RBC Capital Markets in New York With the drop in yields interest rate futures traders increased their expectations of a rate cut to a better than 50 50 chance at the Fed s September meeting and they see more than an 80 chance of at least one cut by December according to the CME Group s FedWatch Tool But this also is not as reliable an indicator of Fed action as shorter dated expectations which show the Fed which will also hold policy meetings in June and July remaining on hold in the near term We ve fully priced that first ease not until late this year and that far out the market is not a great predictor to what the Fed will do Cloherty said While the Fed monitors the bond markets for signals on the economy some analysts see the U S central bank as unlikely to cut rates without new economic concerns They don t have to cut because bond yields fall They are going to cut because inflation underperforms they are going to cut because we see something else on the global risk horizon that the Fed decides it s time to respond to said Ian Lyngen head of U S rates strategy at BMO Capital Markets in New York So far senior policymakers at the Fed have shown few signs that they ready to cut rates The Fed Board of Governors vice chair Richard Clarida said on Thursday that the U S economy is in a very good place and is as close to the Fed s goals of maximum employment and stable prices as it has been in 20 years The bond market move may prove to be prescient however if it is followed by further drops in inflation worsening trade relations or other factors that could slow the economy as some expect The bond market is conveying a message that there is some event that could occur or is going to occur that the other markets aren t necessarily looking at said Tom di Galoma a managing director at Seaport Global Holdings in New York GRAPHIC One signal to watch for a Fed rate cut With two year yields at 2 08 and now 30 basis points below the fed funds rate the notes are approaching ratios that in the past have been followed by a rate reduction On average the U S central bank has cut rates when two year yields fall to 78 of the fed funds rate Citigroup NYSE C analysts said in a recent report In 2007 for instance the ratio dropped below that threshold in late August about three weeks before the Fed delivered the first of a barrage of rate cuts aimed at combating the then unfolding financial crisis The current ratio is around 87 and by this measure a drop in two year yields to the 1 95 area could prompt action by the Fed Given the historically low level of rates that ratio is likely a better indicator than the absolute difference in basis points between the two rates Citigroup said
GRAPHIC How close is the Fed to a rate cut |
JPM | Why Twitter s Jack Dorsey Is The Best CEO Of 2017 | Step aside Mark Zuckerberg Jeff Bezos and Marc Benioff it is time to make room for another remarkable leader in the already packed club of great tech industry executives Indeed after the incredible 2017 that both yes both of his companies just had Jack Dorsey is officially a top tier CEO
Not many internet entrepreneurs can say that they founded multiple billion dollar companies in their lifetime and even fewer can boast that accomplishment at the ripe age of 41 years old Only Dorsey can say that he has done all of that in the face of unwavering criticism and a never ending stream of challenges
Dorsey was re named the full time CEO of Twitter NYSE TWTR in October 2015 almost exactly seven years after he left the position to become chairman of the micro blogging platform Upon taking over he had several pressing questions to answer namely how he would juggle his time between Twitter and his payments company Square Inc NYSE SQ where he also served as CEO
At the time Twitter was struggling The stock had lost more than 60 since its post IPO highs more than a year and a half earlier and the company s months long search for a new outside chief executive proved fruitless Meanwhile Square was gearing up for an IPO and dealing with the unique pressures that face young tech firms
The Dorsey experiment almost proved to be a failure Square dipped below its offering price in the months following its market debut and Twitter s 2016 was marred by an executive exodus that witnessed the departure of more than half of its leadership team
Almost exactly a year ago I questioned whether Dorsey was the right man for the turnaround effort that Twitter desperately needed Shares were down nearly 30 over the past 12 months and the resignations of the company s CTO and V P of product seemed to indicate a complete lack of faith in its leader read more
It is with great pleasure that I can now say my calls for Dorsey s firing were premature Just as criticism of the young executive reached its peak the dual CEO helped his companies become two of the year s hottest tech stocks Shares of Square have gained over 150 while Twitter has moved about 50 higher
Twitter still needs to prove that it can monetize its user base more efficiently but the social media company has inspired optimism thanks to a variety of new initiatives Despite the failure of its Thursday Night Football streaming last year Twitter doubled down on live video and through new efforts like its partnership with Bloomberg seems poised to become a legitimate original content contender
At the same time Square locked up consistent profitability The payments company also boosted its top line by expanding internationally and delving further into traditional financial operations including small business lending
Square also proved that it is willing to test the waters with technology that could stand to revolutionize the financial industry In November Square began testing support for bitcoin through its mobile application Cash App A company spokesperson told CNBC that the firm believes cryptocurrency can greatly impact the ability of individuals to participate in the global financial system and we re excited to learn more here
Nevertheless 2017 has also included its fair share of challenges for Dorsey s companies Most notably Twitter found itself at the center of a national debate surrounding Russia s propaganda campaign during our most recent election cycle and management did not necessarily resolve all the concerns about abuse on its platform
But there is a reason we are seeing a level of optimism about Twitter that has not be felt since early 2014 and Dorsey deserves a lot of the credit for getting his companies pointed in the right direction
Last week Twitter shares surged to a new 52 week high after JPMorgan NYSE JPM analysts published a bullish note on the once struggling stock The firm upgraded Twitter from Hold to Overweight and raised its price target to 27 from 20
We believe both the TWTR story and financial results will strengthen over the next year as the company continues to build on its differentiated value proposition for users returns to revenue growth JPMorgan s Doug Anmuth wrote
Last year there were calls for Dorsey s resignation One year later one of Wall Street s top research institution declared the stock one of its top small to mid cap picks for 2018 That is the type of recovery that deserves to be recognized
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Zacks Editor in Chief Goes All In on This Stock
Full disclosure Kevin Matras now has more of his own money in one particular stock than in any other He believes in its short term profit potential and also in its prospects to more than double by 2019 Today he reveals and explains his surprising move in a new Special Report |
JPM | Fiat Flameout Hi Ho Silver | While many gold market technicians have been neutral to slightly negative about gold in the short term I ve been extremely positive
As of today I ve become outrageously more positive This is the spectacular daily gold chart
I ll dare to suggest that gold investors have behaved very well this year
As a result of that behavior Santa has put a beautiful bull wedge breakout into everybody s Christmas stocking
The near immediate price target is 1310 but 1360 should also be hit during what looks to be a very positive Chinese New Year season
Do the festivities extend to gold stocks as well
Absolutely This is the VanEck Vectors Gold Miners NYSE GDX chart
GDX is sporting a great looking inverse head and shoulders bottom and the rally from the head of the pattern has a bull pennant formation breakout in it
This is quite exciting For gold stock investors around the world it is really ushering in the new year in a great way
I ve suggested that the 25 26 target zone is likely to turn out to be little more than a pitstop on the road to the 35 area
I ve argued that the biggest bubble of all time is the bubble of government fiat money and that bubble has started to burst The initial bursting of the bubble has seen all global fiat collapse against blockchain currencies like bitcoin
That s a lot like how the stock market crashes when it becomes a bubble The initial collapse happens in the most speculative stocks From there the collapse spreads to the big Dow Jones Industrial Average component stocks
In the case of the fiat bubble I ve predicted that the collapse of fiat against bitcoin is only the very beginning of a horrific collapse that will ultimately see fiat fall hard against gold silver and mining stocks
This is the exciting bitcoin chart Technically the double bottom pattern is arguably the most difficult one for investors to handle emotionally
A great double bottom appears to be in play now on this short term bitcoin chart Note the immense panic volume on the first low and the much lighter volume on the second one
That s classic technical action There s also a potential flag like pattern in play which is quite positive A breakout above 15 000 is likely and it would serve as a lead indicator for an imminent and powerful rally in the precious metal markets
The bottom line gold investors don t need to be invested in bitcoin but it s important to follow the price action as a lead indicator for the spread of the global fiat wildfire
Some heavyweight institutional analysts are concerned that a fall in bitcoin against fiat could trigger a stock market crash
Governments and central banks are becoming pushed into a corner They need to quickly regulate bitcoin markets so that a rogue bank or other nefarious entity doesn t try to cause a global markets crash by crashing bitcoin
Tom Lee was head of equities for JPMorgan NYSE JPM He turned bullish on the US stock market at almost the exact low in 2009 and stayed bullish until 2016 when be saw the market as fully valued
He s started his own firm now He s moved his focus to bitcoin and was an eager buyer on Friday as I was With heavyweights like Tom in the blockchain house the global fiat fire is likely to intensify
This is the key money velocity chart I think most mainstream analysts are underestimating the commitment of Trump and new Fed chair Powell to small bank deregulation
That deregulation can end the twenty year money velocity bear market and usher in an era of inflation
Hi ho silver When inflation becomes widely accepted by institutional investors they will flock to silver more than gold This is particularly true if global growth continues Watch for a trendline breakout fueled by bank deregulation to send silver soaring to my initial 26 target and on to higher prices after a brief rest there
Stewart Thomson is a retired Merrill Lynch broker Stewart writes the Graceland Updates daily between 4am 7am They are sent out around 8am 9am The newsletter is attractively priced and the format is a unique numbered point form Giving clarity of each point and saving valuable reading time
Risks Disclaimers Legal
Stewart Thomson is no longer an investment advisor The information provided by Stewart and Graceland Updates is for general information purposes only Before taking any action on any investment it is imperative that you consult with multiple properly licensed experienced and qualified investment advisors and get numerous opinions before taking any action Your minimum risk on any investment in the world is 100 loss of all your money You may be taking or preparing to take leveraged positions in investments and not know it exposing yourself to unlimited risks This is highly concerning if you are an investor in any derivatives products There is an approx 700 trillion OTC Derivatives Iceberg with a tiny portion written off officially The bottom line
Are You Prepared |
JPM | JPM Reaching Maximum Extension | JPMorgan Chase Co NYSE JPM has been climbing aggressively in the last six months
Its sudden blast higher last month has been drifting sideways in that past few weeks producing a price pattern that is typical of a blow off top It s likely JPM will have to retest the 100 level about the time the lower red channel line passes through that 100 level |
MS | China September data to show steady growth ahead of key Communist Party congress | By Yawen Chen and Ryan Woo BEIJING Reuters Chinese data in coming weeks is expected to deliver exactly what its leaders want to hear ahead of a highly sensitive Communist Party Congress the country s economic growth remains robust and resilient even as they work to get debt risks under control The twice a decade party congress that kicks off on Oct 18 is expected to see President Xi Jinping strengthen his grip in a leadership reshuffle and will set the political and economic policy tone for China for the next five years So far this year the world s second biggest economy has held up better than expected despite views that a clampdown on riskier types of financing and a flurry of measures to cool heated housing prices will drag on activity But many economists still contend growth will fade in coming months under the weight of higher borrowing costs property curbs and the government mandated shutdown of some highly polluting factories to reduce winter air pollution The boost from heavy government stimulus Beijing s infrastructure spending spree has helped fuel a year long construction boom will also begin to ebb skeptics argue Still economists polled by Reuters expect China s economy is heading into the fourth quarter with plenty of momentum Growth in industrial output is expected to accelerate to 6 2 percent from a year earlier from August s 6 percent according to a Reuters poll of 24 economists Steel mills are believed to be running at full steam to cash in on strong demand and prices and to build up inventories in case they are ordered to reduce output over winter Fixed asset investment is predicted to have increased 7 7 percent in the first three quarters on year only slightly softer than a 7 8 percent rise in January August Retail sales growth is seen edging up to 10 2 percent China s trade performance is also expected to improve after softer than expected readings in August raised questions about the sustainability of its domestic and export demand Exports are expected to have risen 8 8 percent on year while imports may have jumped 13 5 percent producing a trade surplus of 39 5 billion A pullback in the strong yuan currency in recent weeks may be giving exporters some relief GROWTH VERSUS DEBT While there is little worry of an economic hard landing debt risks appear to be back on the radar as Beijing continues to pump out more credit to keep activity humming S P Global Ratings downgraded the country s credit rating last month saying China s attempts to reduce risks from its rapid build up in debt are not working as quickly as expected and credit growth is still too fast China in July set up a new financial stability committee under the State Council to coordinate financial oversight with the central bank taking on a bigger role The People s Bank of China early this year included off balance sheet wealth management products in its Macro Prudential LON PRU Assessment MPA for the first time to give authorities a better sense of potential risks to the financial system September s loan data will be closely watched for signs of where policy may be going next as banks have shifted more credit back onto their books in response to the clampdown on shadow financing Chinese banks are seen extending 1 1 trillion yuan 165 33 billion in new loans in September up from 1 09 trillion yuan in August Credit growth could get an extra boost in coming months after the PBOC on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February 2016 The move is linked with a policy to encourage more lending to struggling smaller firms and the private sector It could trigger a flurry of lending as banks look to qualify for lower reserve requirement ratios RRR which go into effect in 2018 though some analysts believe the impact on the economy may be tempered if Beijing continues its campaign to rein in debt risks at the same time We believe the RRR cut may not lead to a quick pickup in total credit growth if policy makers continue to strictly enforce the macroprudential assessment MPA framework and the new rules related to the financial system cleanup Morgan Stanley NYSE MS wrote in a note to clients Inflation data may also offer clues on firms debt servicing capability The producer price index PPI is tipped to have risen 6 3 percent in September on year steady from August Profits at industrial companies rose the most in four years in August as commodities prices surged though a Reuters analysis showed few listed firms have used the windfall this year to retire their debt Again analysts predict producer prices will start to soften in the fourth quarter due to a high base of comparison last year and as overall demand moderates along with economic growth The consumer price index CPI meanwhile is seen up 1 6 percent on year in September versus 1 8 percent in August and well within Beijing s 2017 target of 3 percent Besides the campaign to reduce high levels of debt across the economy authorities have also been trying to reduce the risk from capital flight by stabilizing the yuan currency China s foreign exchange reserves are expected to have risen for an eighth month to 3 1 trillion in September as capital curbs and a weakening dollar helped staunch fund outflows China is due to announce foreign exchange reserves data on Oct 7 followed by trade and inflation data on Oct 13 and Oct 16 respectively while loan and money data is expected anytime from Oct 10 to Oct 15
The data will lead up to third quarter gross domestic product GDP on Oct 19 China s economy grew 6 9 percent in the first half and is expected to easily meet or beat the government s full year target of around 6 5 percent |
MS | Alibaba backed lender sets IPO terms | Alibaba backed NYSE BABA online lender Qudian Pending QD sets its IPO terms to 37 5M ADS offered between 19 and 22 each The IPO could raise up to 825M or up to 948 8M if underwriters exercise all additional share options Qudian plans to trade as QD on the NYSE and Morgan Stanley NYSE MS and Credit Suisse SIX CSGN lead the underwriters Previously Alibaba leads investment round in cloud database server company Sept 29 Now read |
MS | Splunk creates new role for CRO | Splunk NASDAQ SPLK promotes Susan St Ledger to President of Worldwide Field Operations a newly created role St Ledger will also continue on as Splunk s CRO Previously Morgan Stanley NYSE MS downgrades Splunk Oct 2 Now read |
MS | New York area hedge fund manager charged with Ponzi fraud | By Jonathan Stempel NEW YORK Reuters A suburban New York hedge fund manager accused of losing or spending all but about 27 000 of the 21 8 million he told investors he had was criminally charged on Thursday with running a Ponzi scheme Prosecutors said Michael Scronic who once worked at Morgan Stanley N MS and has degrees from Stanford University and the University of Chicago stole more than 19 million from 45 investors he had lured to his Scronic Macro Fund by lying about his track record Scronic 46 of Pound Ridge New York allegedly lost money in 28 of 29 calendar quarters since April 2010 even as he reported largely positive returns on bogus account statements Prosecutors said he also spent 2 9 million on himself over 5 1 2 years including 180 000 annually on credit cards fees for beach and country club memberships and mortgage payments for a vacation home near Stratton Mountain in Vermont Scronic was criminally charged with one count each of securities fraud and wire fraud He was released on 500 000 bond after a brief appearance in the federal court in White Plains New York and is forbidden from trading other people s money or raising new funds The U S Securities and Exchange Commission filed related civil charges Robert Anello a lawyer for Scronic declined to comment The defendant had worked for Morgan Stanley from 1998 to 2005 including on an equities trading desk court papers show Morgan Stanley was not accused of wrongdoing Authorities said Scronic used some new money to repay earlier investors but as cash became tight this summer refused to honor some investors redemption requests According to court papers Scronic had emailed one of those investors in November 2015 that what s cool about my fund is that i m only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless Authorities said it proved otherwise They said Scronic blamed a vacation a relative s medical condition email issues and a new quarterly redemption policy for refusing the investor s Aug 8 redemption request As of Monday that investor was still waiting for his money court papers showed |
MS | British PM May says to meet business leaders on Monday in Downing Street | LONDON Reuters British Prime Minister Theresa May will meet business leaders next week to discuss Britain s departure from the European Union her office said on Friday after a former party chairman said there was a plot to topple her A quarterly meeting with businesses including HSBC L HSBA Morgan Stanley N MS Vodafone L VOD and WPP L WPP to discuss Brexit will go ahead on Monday as usual a spokeswoman for May s office said
The Business Advisory Council is an important part of our preparations for leaving the EU allowing us to seek the views of experienced business leaders and to share with them the government s vision for a successful Brexit May said in an emailed statement |
JPM | Xi s Not for Turning Don t Be So Sure | Bloomberg Opinion As president for life Xi Jinping is neither bound by rules nor limited by rivals He has upended a careful political balance by concentrating power in his own hands and overturned a cautious approach to foreign policy while throwing in jail anyone he views as a threat China s most dominant leader since Mao Zedong now has 90 days to head off an all out trade war with the U S provoked in part by his own mercantilist policies Can anybody convince him to make a U turn
Strong willed politicians in democracies let alone authoritarians in one party states like China have trouble executing this maneuver Former U K Prime Minister Margaret Thatcher famously proclaimed the lady s not for turning when pressed to shift course on her harsh economic policies Unlike Thatcher Xi doesn t have an electorate or a free press to question his judgment He s the object of a rising personality cult Recently the People s Daily mentioned his name 103 times in one edition 45 times on the front page
But while an about face may be too much to expect from the Chinese strongman there are three reasons to think he might be persuaded to tack in a different direction
First China has come out worse than the U S from their tariff spat the opposite of what many economists predicted at the outset and it is exacerbating grave economic problems for which Xi has no easy answers slowing growth sinking private investment rising debt and real estate bubbles Analysts at JPMorgan Chase Co NYSE JPM reckon China could lose 5 5 million jobs in an all out trade war
Having said that Xi has no rivals that doesn t mean he faces no opposition He has made enemies galore enough to prompt him to make a personal call for unconditional loyalty from party members earlier this year and they are waiting to pounce on his mistakes There are clear signs that the elites are uneasy about his imperial style In a leaked speech widely interpreted as a swipe at Xi Deng Xiaoping s eldest son Deng Pufang cautioned against overestimating oneself and behaving recklessly None of this suggests that Xi s position is under threat but it raises the political risks to him if the trade war gets out of hand and triggers an economic crisis
If the question Who lost America ever comes up Xi will find himself very much on the defensive His administration misread Trump and misjudged the American mood In sum domestic politics could give him a second incentive to compromise
The third is more obvious Nobody loses more than China if the global trading system blows up unraveling supply chains and splitting the world into competing economic spheres Whatever happens in the next 90 days the U S will try to ring fence certain advanced technologies to keep them out of Chinese hands on security grounds If a full on trade war turns into an unrestricted tech Cold War China will again suffer more although of course everybody gets hurt While its innovation ecosystems are flourishing and money is pouring into AI startups China can t yet do without U S technology as it upgrades its industrial base to avoid the dreaded middle income trap
Let s be realistic China won t remake its state planned economy or give up its high tech leadership ambitions to suit Trump For Xi that would be tantamount to abandoning the right to development and dreams of a wealthier society But there is scope for a deal albeit a limited one if indeed that s what Trump actually wants rather than Cold War containment in which case Xi has little reason to cede ground at all The fact that Trump s negotiating team is split between ideologically driven hawks and economic pragmatists makes it hard for Xi to read his intentions
Much of what the U S is pushing for greater market access a level playing field with state enterprises an end to theft and forced transfers of technology more respect for intellectual property is in line with China s own reform needs Xi himself called for a decisive role for markets before doubling down on state enterprises and top down party control
One indication that Xi doesn t want an escalation is that state media are playing down the trade war Another is that China hasn t retaliated against U S companies The reason isn t just that Xi is worried about whipping up anti U S nationalism in a way that could box him in he is surely anxious too about public confidence The older generation might be ready to tighten their belts or to use a Chinese phrase eat bitterness if that s what an all out trade war entails but millennials are a softer bunch and they have never experienced an economic setback Many investors are gripped by an ominous sense that this trade dispute could lead China off a cliff the benchmark Shanghai Composite Index of stocks is down about 20 percent this year and the currency has fallen more than 5 percent against the dollar
Set against all this however is the notorious reluctance of strongmen to admit mistakes and self correct The American political scientist Francis Fukuyama argues that China having discarded presidential term limits faces a recurrence of its age old Bad Emperor problem that places the country at the mercy of a single individual fine when an enlightened ruler comes along disastrous when a despot appears It s too early to say where Xi sits on that spectrum His readiness to reignite domestic reform and seek an off ramp in the trade dispute will be a strong clue |
MS | Xinyuan Real Estate 3Q Results Not Good News But | Introduction
Xinyuan Xinyuan Real Estate Co Ltd NYSE XIN announced its third quarter results last week and they were not good Following the announcement continue to support the company while do not To get a balanced and current view of the company I read with care the earnings call transcript of its as well as Below I present the bad news some perspective and the good news
Bad News
There were two Bad News stories from the third quarter
Sales continued their decline from the second quarter down another 16 and down 31 from last year s third quarter The company conceded that sales were lower than they had anticipated
XIN agreed to allow TPG Asia to redeem in full at the end of December its 5 senior secured convertible notes due in 2018 Overall this will cost the company 86 million And while the company has the money to pay this 319 million in cash at the end of the third quarter it did come as a surprise and the company it will consider other options to finance the redemption
This redemption creates two immediate problems for shareholders XIN will have 86 million less for dividends and share buybacks
XIN was quick to point out TPG remains a strategic investor of Xinyuan with 7 6 ownership of our outstanding shares and will continue to maintain its seat on our Board But were the reasons for the redemption XIN claims that both sides wanted it XIN stated the redemption was mainly due to the restrictions of those covenants on the ability of financing for the company for a company at the size of Xinyuan it is critical to grow to certain level of operation so that we will be able to survive over the long term the restrictions the covenants from TPGs convertible notes have put a tremendous pressure on the company in terms of financing for our growth
Maybe so but I doubt this was really the driving force I worked on real estate development in Shanghai a decade back with the large Western financial houses Carlyle Merrill Lynch Lehman CS First Boston Goldman Sachs Morgan Stanley JP Morgan Fidelity Investments and GE Capital They all had Asia real estate branches and they all wanted to be first out of all their investments They would rarely touch anything that did not have a 70 return They would then say once we have our money back and an additional 40 we will give other investors our remaining share of the profit if you let us get out early
My guess is that TPG was targeting on some high return deal with XIN Once they saw it was going to take more time than they anticipated they wanted to get out They could immediately redeem its convertible notes with a small profit so they did They have held off redeeming their stock because of the capital losses involved they bought in on August 26 2013 when XIN s price was 5 54 Unfortunately this all too likely further liquidation will overhang the market until it occurs So much for the bad news
Perspective
Real estate development companies worldwide operate in the same way they raise money buy land build and sell They do it over and over Most of them ignore the reality that there are real estate cycles Once they are good at raising money they buy land build and try to sell This inevitably means overbuilding when supply has caught up with demand And in nearly all real estate downturns development companies go belly up This pattern holds everywhere and means investing in real estate companies involves risk
In China government actions to taken nearly a year back to reduce the dangers of a real estate bubble have slowed down real estate purchases all over the country The government now recognizes it has overdone it so during the last quarter it took steps to increase real estate demand I quote from the XIN transcript The Chinese government has initiated some rejuvenation activities at the end of September and early October that will ease the mortgage and purchasing restrictions imposed earlier The results on the market have shown up pretty good But the policies decided by Central Government have not been detailed by the local banks In effect Xinyuan is saying there has been some delay in implementing the central government policies through the banks but this should happen in the near future
So here we have a classic case of a real estate slowdown having a negative impact on XIN Let s look a little closer at the numbers
The Good News
In China we are not seeing a country wide real estate bubble bursting Instead we have just observed a cutback in real estate demand resulting from restrictive government policies that have just been eased The demand for more building remains Evidence for this can be seen in Table 1 where the population and GDP growth of cities where XIN is investing is presented Population and GDP growth are the drivers of real estate demand and there is nothing in the West that is comparable to what is happening in China
Table 1 Growth in XIN s Cities
Table 2 indicates that for the company s existing inventory of developed properties sales of 2 2 billion have covered 68 7 project costs Ceteris paribus that means it will take 3 2 billion to cover all project costs The table also gives an estimate of the total sales value of the total inventory 4 8 billion If these prices hold up that would leave a profit of 1 6 billion for the company
Table 2 XIN Properties Gross Floor Area and Sales
Source XIN s latest SEC filing op cit
How significant would 1 6 billion be to XIN Very At the end of September XIN had long term debt of 861 million A 1 6 billion profit could wipe out that debt and leave 739 million for the company
But will real estate prices hold up Table 3 gives gross floor area GFA and average selling price per m2 ASP for XIN s active properties Government real estate restrictions started in the 2nd quarter It is notable that for a number of XIN s properties shown in bold selling prices actually increased And the ASP for all properties increased from 8 2RMB to 10 2RMB
Table 3 XIN s Active Properties and Sales
One might ask whether XIN has enough in the pipeline to be ready for a real estate rebound The answer is yes In addition to the 1 5 million square meters of GFA currently available it has an additional 1 million square meters of GFA coming available in the next few months
Repurchase of Shares
At the last two open discussions of quarterly earnings a number of financial analysts argued that the best investment the company could make would be to buy back its shares XIN said it has an ongoing buyback program At the last meeting it announced it bought back 630 000 shares at a cost of 2 3 million 3 65 per share in the third quarter of 2014 That buyback is hardly significant given that there are 89 million shares outstanding And with the 86 million payment to TPG coming at the end of the year there will be little free cash available for share repurchases
Conclusions
XIN has a good real estate investment strategy And once it gets beyond the temporary real estate slowdown in over by the end of 2014 profits should grow rapidly But in the interim problems abound In addition to insisting on the 86 million payment at the end of 2014 one wonders when TPG will start liquidating its 7 6 share of XIN common stock 6 7 million shares The immediate future is murky and unless you are a real risk taker this is hardly the time to buy
For current holders of the stock XIN is paying a 20 cent annual dividend that works out to a yield of 8 5 When asked whether the dividend will be changed XIN said it was a once a year decision and will not be taken up again until 2015 So a 8 5 yield at the current price for existing stockholders versus selling the stock Better times are coming Maybe not the best time to liquidate |
MS | Will Falling Income Inequality Lead To A Bear Market | Gavyn Davies wrote a fascinating article this weekend about the long term outlook for stock prices In essence he attributes much of the current secular bull run to rising inequality in the developed economies
has shown that a rising wealth income trend is not a natural state of affairs in the very long run He argues that in many economic growth models the wealth income ratio is broadly stable in equilibrium and his data suggest that this has been the case in the UK and France for several centuries The opposite has been true in recent decades Two factors are primarily responsible the long term decline in the global real rate of interest and the continuous rise in the share of profits in national income This combination has led to rising expectations of future profits discounted at ever lower real interest rates a recipe for surging equity prices Lower inflation has also reduced the inflation risk premium which has further exaggerated the gains in both bond and equities
Davies explains that as long as the holders of capital have the upper hand against the suppliers of labor equity returns will continue to be elevated
at Morgan Stanley suggest that these factors are directly linked All of them are basically caused by a long term decline in the ability of labour to maintain the growth of real wages in line with productivity Until this is reversed the very long run trends in asset prices may survive intact It is obvious that the inability of workers to maintain their previous trend growth in real wages would tend to increase the share of profits in GDP and therefore be beneficial for equities but why has this also led to a decline in real interest rates The reason given in the Goodhart Erfurth paper will be familiar to readers of recent work by and on secular stagnation
Fiscal and monetary policy are then caught in a bind and their response has had the unintended effect of further raising returns to capital emphasis added
Essentially the argument is that lower real wages have increased inequality in the western economies and this has depressed aggregate demand by redistributing real income and wealth away from the relatively poor towards the rich Since the poor have a higher propensity to consume than the rich this redistribution reduces consumer demand The decline in demand is then addressed by policy makers either by fiscal expansion reducing taxes and increasing subsidies on the poor or by reducing interest rates set by the central banks Since the fiscal response results in bigger budget deficits and higher public debt GDP ratios more and more of the burden of policy adjustment eventually falls on the monetary authorities It is likely that this feedback loop will tend to increase both asset prices and inequality from one cycle to the next A pernicious additional consequence of this loop is that private sector debt GDP ratios are also likely to rise through time Falling real interest rates increase the incentive to borrow while rising asset prices especially in the housing market increase credit worthiness and therefore the ability to borrow Debt ratios rise until they cause a crash which of course is what occurred in 2008 This causes even greater and more permanent declines in real interest rates which adds another twist to the cycle
Davies warned investors that this trend cannot continue forever
In the very long run investors should also be looking at the fundamental driving force for the entire long term process of rising wealth i e the drop in the labour share in national income If this were to reverse demand would rise more rapidly and real interest rates could be allowed to increase bringing down the rate of growth in private debt Although this would be healthy from many points of view it would also deliver a double blow to equities by reducing expected profits growth and raising discount rates
Global vs local inequality
By way of illustration here is a fascinating gif chart of the evolution of American inequality which depicts the share of wealth of the top 0 1 red line compared to the bottom 90 blue line via with data from The top 0 1 share of the pie is roughly equivalent to their share roughly 100 years ago before the emergence of the affluent middle class that began about the time of the Second World War As well here is a chart of inequality by country as measured by Gini coefficients via The highest levels of inequality exists in EM countries in Africa and Latin America Of the developed economies northern Europe had the lowest level of inequality while American inequality is roughly equivalent to the levels found in China and Turkey If the investment thesis outlined by Davies is correct it brings up a number of interesting questions
What would it take for the suppliers of labor to regain more bargaining power
If labor compensation were to rise which would result in falling inequality does that mean necessarily mean that the returns to capital would have to fall
The best of both worlds I would contend that 1 Inequality is being lessened now and 2 Falling inequality does not necessarily mean lower returns to capital In a recent post see How inequality may evolve over the next decade I outlined research by showing the winners and losers of the globalization drive of the past few decades The chart below shows how global inequality has progressed The winners were the rising middle class of the EM economies and the suppliers of capital rightmost group in chart as they were the main beneficiaries of globalization The losers were the people in subsistence economies who were too poor to benefit from globalization leftmost group in chart and the middle class in the developed economies Fast forward to today China is and the low hanging fruit from globalization is gone There are no Chinas in the world with a similar population size that could cause the same kind of disruptive change to the global economy
As I pointed out in my previous post the decision to offshore is no longer a no brainer for multi national companies In fact China is no longer the low cost supplier of labor and onshoring is becoming a viable possibility for many companies
Now consider the following scenario for the coming decade Onshoring becomes a trend as the economics of offshoring jobs to low cost countries becomes less attractive The suppliers of labor in the developed economies then gain more bargaining power because of increased demand Developed market economic growth improves because of higher propensity of the DM middle class to spend
In a Piketty framework the owners of capital lose ground I would contend however that the Piketty framework is overly narrow in that it only analyzes local within country inequality without paying attention to how global inequality evolves Under the scenario that I outlined the relative winners of the onshoring drive would be the DM middle class the relative losers the EM middle class But since the owners of capital directed the re allocation of capital from one region to another it is hard to believe that they would lose ground on a relative basis
In effect I would expect an American and developed market Renaissance over the next decade where middle class incomes grow again but without significant impairment of returns to capital
Disclosure Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
MS | 2 Contrarian Plays That Will Make You Queasy | In a recent post I wrote that being a contrarian investor can be a lonely task and can involve considerable career risk see Do you have what it takes to be a contrarian investor The point being that contrarian investments are non consensus investments that make you queasy With that in mind here are a couple of contrarian plays guaranteed to make you queasy Worried about deflation Consider for example that the latest indicated a high degree of concern over deflation
The world economy is in its worst shape in two years with the euro area and emerging markets deteriorating and the danger of deflation rising according to a Bloomberg Global Poll of international investors A plurality of 38 percent of those surveyed this week described the global economy as worsening more than double the number who said that in the last poll in July and the most since September 2012 when Europe was mired in a recession Much of the concern is again focused on the euro area Almost two thirds of those polled said its economy was weakening while 89 percent saw disinflation or deflation as a greater threat there than inflation over the next year Respondents said the European Central Bank and the region s governments are making the situation worse by pursuing too tight policies and fewer expressed confidence in ECB President Mario Draghi and German Chancellor Angela Merkel
Even the Fed is worried about deflation according to the latest FOMC minutes Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer term inflation expectations according to the minutes Some of them noted that if such an outcome occurred it would be even more worrisome if growth faltered Ambrose Evans Pritchard added fuel to the fire by highlighting deflationary concerns in East Asia causing a debt crisis
Deflation is becoming lodged in all the economic strongholds of East Asia It is happening faster and going deeper than almost anybody expected just months ago and is likely to find its way to Europe through currency warfare in short order Factory gate prices are falling in China Korea Thailand the Philippines Taiwan and Singapore Some 82pc of the items in the producer price basket are deflating in China The figures is 90pc in Thailand and 97pc in Singapore These include machinery telecommunications and electrical equipment as well as commodities Chetan Ahya from Morgan Stanley says deflationary forces are getting entrenched across much of Asia This risks a rapid worsening of the debt dynamic for a string of countries that allowed their debt ratios to reach record highs during the era of Fed largesse Debt levels for the region as a whole ex Japan have jumped from 147pc to 207pc of GDP in six years
Indeed Thomson Reuters reported that Chinese disinflationary forces taking hold
Evans Prichard warned about how deflation is threatening the Chinese economy which if forced into a hard landing could send shock waves throughout the global financial system
China itself is now one shock away from a deflation trap Chinese PPI has been negative for 32 months as the economy grapples with overcapacity in everything from steel cement glass chemicals and shipbuilding to solar panels It dropped to minus 2 2pc in October The sheer scale of over investment is epic The country funnelled 5 trillion into new plant and fixed capital last year as much as Europe and the US combined even after the Communist Party vowed to clear away excess capacity in its Third Plenum reforms Old habits die hard Consumer prices are starting to track factory prices with a long delay Headline inflation dropped to 1 6pc in October This is so far below the 3 5pc target of the People s Bank of China that it looks increasingly like a policy mistake Core inflation is down to 1 4pc
With widespread concerns over deflation and falling inflation I sense a disconnect in the emphasis added
When asked which asset they would short if they had the opportunity to choose just one 20 percent of participants in a poll of 510 Bloomberg customers picked government debt making it the most popular choice while 17 percent said junk bonds
Moreover the outlook for the 10 year Treasury yield remains bearish which is confirmed by other institutional sentiment surveys see What do the pros REALLY think about the market
Wall Street prognosticators were just as bearish on bonds at the start of the year bolstered by signs U S demand would allow the Fed to end its unprecedented stimulus and lead the central bank to raise interest rates from close to zero Based on a Bloomberg survey of economists and strategists in January they foresaw yields on the 10 year Treasury note the benchmark for trillions of dollars of securities rising to 3 44 percent by year end from 3 03 percent at the end of 2013
So let me get this straight The market is worried about deflation but bearish on Treasury bond prices presumably because few could bring themselves to buy bonds with yields this low Isn t that the classic definition of Treasuries climbing a wall of worry Aren t those good enough reasons to be a contrarian buyer of Treasuries here I told you that being contrarian would make you queasy How low can Europe go How low can Europe go Here is the relative returns of US and eurozone equities relative to the MSCI All Country World Index ACWI All returns are shown in USD so that currency effects are neutralized
There have been lots of hand wringing over Europe via the Washington Post emphasis added
In the Guardian Cameron described the euro zone as teetering on the brink of a possible third recession with high unemployment falling growth and the real risk of falling prices too Add in stalled trade talks conflict in the Middle East fighting in eastern Ukraine and the alarming spread of the Ebola virus Cameron warned and the world is functioning against a dangerous backdrop of instability and uncertainty Cameron s bleak prognosis came at the end of the Group of 20 summit in Brisbane Australia where leaders of the world s biggest economies struggled with strategies for kick starting growth Similarly negative pronouncements have echoed from other sources in recent days particularly in relation to Europe Mark Carney the governor of the Bank of England told reporters in London last week that a specter is now haunting Europe the specter of economic stagnation International Monetary Fund chief Christine Lagarde has warned of the risk of a new mediocre in Europe with low growth low inflation high unemployment and high debt
While we saw a ray of hope for the eurozone the latest round of weakness has not been helped by German intransigence on monetary and fiscal stimulus To put some perspective on the German problem in Europe here is Wolfgang M nchau s latest column in the FT The opening sentence is hilarious
German economists roughly fall into two groups those that have not read Keynes and those that have not understood Keynes To describe the economic mainstream in Germany as conservative misses the point There are some overlaps with the various neoclassical or neoconservative schools in the US and elsewhere But as compelling as a comparison between the German mainstream and the Tea Party may appear it does not survive scrutiny German orthodoxy straddles the centre left and the centre right The only party with some Keynesian leanings are the former communists
M nchau concluded emphasis added
The ordoliberal doctrine may even have worked well for Germany though I suspect that the country s economic success is due mostly to technology high skills and the presence of some excellent companies rather than to economic policy Through its dominance of the euro system Germany is exporting ordoliberal ideology to the rest of the single currency bloc It is hard to think of a doctrine that is more ill suited to a monetary union with such diverse legal traditions political system and economic conditions than this one And it is equally hard to see Germany ever giving up on this As a result the economic costs of crisis resolution will be extremely large
In all seriousness it seems that even as the eurozone slides into deflation German intransigence and continued opposition to fiscal stimulus is the only thing that stands between growth and another recession Antonio Fatas commented on German stubborness this way
Here is my guess from what I have learned from many heated discussions over the last years about economic policy in Europe the resilience stubbornness of this view on economic policy comes from a combination of faith and the inability of the economic profession to apply enough real world filters to models Faith in a certain economic model comes from many years of being trained about the beauty of markets and all the inefficiencies that governments generate But faith also comes from the belief that only through individual hard work and sacrifice saving one can achieve any economic progress In this world what Wolfgang Munchau refers to as Germany s parallel universe there is no room for an economic crisis caused by lack of demand Recessions only take place as a result of misbehavior debt and lack of willingness to work hard and reform The only way to get out is to behave
Are European equities contrarian enough for you Are European equities hated enough for you Despite the high levels of investor skittishness I am seeing enough upside potential in Europe to believe that it warrants a second look for a number of reasons First despite the very much publicized problems in the eurozone periphery some peripheral countries have made tremendous strides in making adjustments through the process of internal devaluation Data from the site of show that unit labor costs adjusted for productivity in Ireland Greece yes that Greece and Spain have fallen considerably and now competitive with German costs It may not be that long before Bay Motoren Werke AG ST XETRA BMWG locates that next plant in Valencia or Thessalonika
To be sure not all countries have sufficiently adjusted to the new reality which will give the Germans the will to continue to lecture their European partners
In addition I discovered and started playing with a neat country valuation screen from StarCapital When I screen on cheap valuations CAPE under 14 PB less than 2 and positive price momentum most of the countries that appear are European These readings confirm my Trend Model readings of a region that has dipped into deep value territory that is exhibiting positive momentum see Why I am not just a technician
Credit Suisse Group N NYSE CS confirmed the positive momentum seen in Europe with a series of tweets on European equities They the extraordinarily high of positive earnings surprise shown by in the latest quarter
In addition CS also pointed out their forecast for robust eurozone equity earnings growth
In Europe we have a beaten down region with attractive valuations and emerging positive momentum which is often an indication that a value investment is starting to turn up Value investors can t ask for too much more than that
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
MS | Central Bank Policy When Abnormal Is Normal | Consider the chart below It illustrates cumulative growth for the G7 nations Canada France Germany Italy Japan the United Kingdom and the United States for the five years before and after the 2007 2008 financial crisis One can see that Italy is the only G7 economy that has contracted over the past five years and in contrast Germany is also an exception as growth over the past five years has been stronger than the five year period through to the end 2007
The others nations bar Canada have seen a reduction in growth Canada s economy has expanded by the exact same degree Time lags The financial crisis may have been felt during 2007 2008 However even if policy were adjusted immediately a corrective recovery does not occur in the same or even following period Firstly policy is rarely adjusted immediately as there is a recognition lag the time that lapses before the authorities determine that there is a need to make a change in economic policy Why is this Data collection is often well behind the actual event and it can be tricky to separate random fluctuations and fundamental shifts in economic trends The time until the next election will be influential however as governments tend to adopt a wait and see approach The other reason for a delay is down to the decision lag the period between when the need for action is recognized and when it is taken This tends to be equal in duration for both monetary and fiscal policies however practice has shown that in all areas except the Eurozone the decision lag is usually considerably shorter for monetary policy Because of these lags if one look at G7 GDP growth one can see that there was a lag of 18 to 24 months from the financial crisis to the severe decline in G7 GDP growth and then the subsequent slow recovery What is normal Canada actually makes for an interesting case at this point in the discussion If the cumulative GDP growth in Canada for the five years either side of the financial crisis is the same would it not be fair to expect ceteris paribus that the benchmark rate set by the Bank of Canada would be set at the same level now as it was before
If we can agree that the crisis was beginning in 2007 then in January 2007 the benchmark rate deployed by the Bank of Canada was 4 25 now in December 2014 it is just 1 00 after having been cut as low as 0 25 from May 2009 to May 2010 after GDP growth was booked at 8 99 in Q1 2009
Benchmark rates before the lowest economic ebb in Canada were 400 basis points above the minimum However now they are just 75 basis points above Clearly we are far from conditions where everything else is equal after all 43 4 of Canadian exports come from basic resources and energy More than six years after the financial crisis plunged the world into recession monetary policy not just in Canada but everywhere else looks nothing like it did before those events Nation region Pre crisis Rates Post crisis Rates Difference bp
Percent Percent Japan 0 50 0 00 50 Canada 4 25 1 00 325 Eurozone 4 25 0 05 420 USA 5 25 0 25 500 UK 5 75 0 50 525 Rates to rise in 2015
It is forecast that the Federal Reserve in the US and the Bank of England in Britain will look to alter their benchmark rates higher next year However don t expect that they will even consider for a moment moving borrowing costs anywhere near pre crisis inflation fighting levels
These two central banks will not only be considering the timing of a rate rise but they will also be mindful of when they can begin reducing their balance sheets by unloading a proportion of the financial assets they have acquired in their respective domestic markets In contrast we know the Bank of Japan will be an aggressive acquirer of more Japanese government bonds given that conventional monetary policy is exhausted Rates have been at zero since October 2010
As for the ECB well that situation is up in the air however maybe Mario Draghi will shed more light on its balance sheet expansion plans this coming Thursday afternoon That is if Bundesbank president Jens Weidemann lets him
The economic recovery across the G7 is proving to be slow and far from certain especially in areas where structural economic reform is not being delivered by national governments So much so that there is a concern that even in the UK and US GDP growth will only continue to be felt so long as monetary accommodation is held the current ultra accommodative levels
Indeed Federal Open Markets Committee chair Janet Yellen said on November 7 at a central bank conference in Paris Given the slow and unsteady nature of the recovery supportive policy remains necessary monetary officials should keep trying extraordinary measures especially because fiscal policy today remains somewhat contractionary
Balance the books or stimulate growth In the Eurozone there is a hot and ongoing debate between those member nations led by France and Italy that support the ECB engaging in sovereign bond asset purchases and more state spending to boost growth and employment They are confronted by Germany and other hard line northern states Austria Finland and the Netherlands that fear that sovereign debt asset purchases will open the door to bond mutualisation and moral hazard at a time when France will not reform and Italy is dragging its feet The recent mid term elections in the US saw the Republicans gain control of Congress and the Senate It is unimaginable that they would be willing to allow the Obama administration to write blank cheques on pork barrel spending and bridges to nowhere for its final two years So in the two largest economic blocs of the world let alone the G7 much of the economic heavy lifting will have to be done by central banks creating a base for low rates to be set on commercial lending programmes
In Japan Prime Minister Shinzo Abe s fiscal stimulus plan has been blunted by a consumption tax increase that went into effect in April An unexpected slip into recession dealt his flagship economic policies a blow as the majority of the electorate have said that the economy and jobs were the main issues for them Now with an eye on securing a new long term mandate to see the policy of Abenomics through the Prime Minister has called a snap general election for December 14th He hopes he can bolster support for the sweeping economic reforms he has introduced since taking power in 2012
The UK will have a general election on May 7 next year and it looks as if from what has been announced ahead of the Autumn Statement this afternoon it will most likely be the final major collaboration of the Conservative Liberal Democrat coalition partners ahead of the election campaign The deficit has not been reduced in one term as was promised in the 2010 Conservative campaign and so we now see the coalition parties keen to talk about the spending plans they have which are targeted as election sweeteners
Toward the end of next year on October 19 Canada will go to the polls and the Conservatives are lagging behind the Liberal Party As a result the usual fiscal conservatism of Prime Minister Stephen Harper has been replaced by news that there will be a 5 8 billion boost to mainly renew infrastructure across the country with more than half to be spent the next three years It appears that regardless of what the respective central banks in each nation try to do the real key to the nature of any economy recovery is coloured by the politics of the day and the timing of the next general election
The International Monetary Fund in its October forecast said that the global economy will expand 3 8 in 2015 up from an estimated 3 3 for 2014 but below the great growth years of 2004 to 2007 In that four year period growth was 4 9 or higher Monetary policy scramble
The evidence is that the US economy is accelerating the Eurozone is slowing with growth there vanishing in the third quarter as deflation looms ever larger Japan is in recession again and so one begins to question if G7 central banks face an impossible challenge
Often it is said that central banks do not have an interest or a responsibility for the level of their respective nations exchange rate However I think that is disingenuous as indirectly intervening on the foreign exchange markets has been a well tried and tested tool for controlling currencies and preventing importing inflation In these times of low inflation it is clear that even though Mario Draghi will deny it his action regarding the refinancing rate deposit rate and the programme of asset acquisition has softened the euro
Next year may well see the G7 central banks as central agents in a currency war of sorts as the euro and yen are deliberately weakened in an actively managed attempt to avoid a slide into deflation However a potential problem in the view of a firmer dollar is that leading banks such as Morgan Stanley say price increases are running below central bank targets in virtually all developed markets They predict the Fed won t raise its benchmark in 2015 and in the UK the Bank of England will wait for the final quarter to do so
That should bode well for equities as stock markets have become accustomed if not dependent on the support of accommodative monetary policy If it is the case that the G7 indexes are only high because of the drip feed of 200 billion globally being pumped into the system every quarter can the central banks even consider raising rates One only has to recall the October retreat that was sparked by a fear of reduced central bank support The recent rebound was driven by the cynics would say expectations that the Bank of Japan and ECB would do more It remains to be seen how badly Eurozone assets both debt and equity will react if Draghi disappoints come Thursday
Macro prudential surveillance squad The Fed is actively monitoring markets to identify early signs of asset bubbles that may have been inflated by the looseness of rate policy Fed chair Janet Yellen has already warned Congress that lower rated corporate debt and leveraged loans valuations have appeared At the Bank of England the governor Mark Carney chairs a committee that makes regular assessments of hazards that are building within the financial system One current ongoing operation is to pacify the pressure of property values by limiting the use of highly geared mortgages that pave the way for too high a level of consumer debt
Bank of Canada governor Stephen Poloz recently said that central banks will now and forever be putting weight on financial stability issues or risks when making their decisions central banks were first invented for what we d now call financial stability reasons We ve come full circle We re back to our roots
The risk is that if rates are left too low for too long for fear of destabilising the financial asset markets and hence economic growth that the current leaders of the G7 central banks will be judged as having left monetary policy too loose That could fuel more than a single bubble
However it would be a brave central banker who would stare down his finance minister by acting proactively to drain liquidity out of the system The macro fundamentals of the modern pro business economy are becoming more complex each day as each system is not hermetically sealed Exogenous effects are equally as deterministic as the endogenous So if my trading partner has a problem I have a problem too and any definition of what is normal is increasingly theoretical as against empirical
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MS | Gold Prices set to climb in the New Year | After climbing the most in a week as a retreat in the dollar and S P 500 revived demand for the yellow metal the spot price of Gold has weakened marginally this week
The price of gold jumped more than 1 on Monday on a brief surge of late day technical buying as it breached the 1 200 per ounce level
Interestingly while softer oil prices have tended to have had a negative impact on gold prices as it hurt gold s appeal as a hedge against oil led inflation the price of gold has remained firm even though the price of crude oil has slumped to fresh five year lows
Gold prices have been on an incredible roller coaster ride over the past couple months whipsawing like crazy And contrary to popular main stream propaganda the price volatility has had had absolutely nothing to do with fundamentals Prices have been driven down by speculators on Comex who have been able to use huge short positions to short gold futures
While the downside of their action is creating a distorted and unrealistic price for gold the lower price is creating a wonderful opportunity to buy
The prices of Brent crude and West Texas Intermediate have plummeted over the last few months
Both Brent and WTI tumbled 18 in November as the Organization of Petroleum Exporting Countries decided to maintain its 30 million barrel a day output target Crude has traded in a bear market since October amid the fastest pace of U S production in three decades rising output from OPEC and signs of weakening global demand Banks including Morgan Stanley NYSE MS BNP Paribas PARIS BNPP and Barclays LONDON BARC have cut price forecasts
OPEC responsible for about 40 of the world s oil supply pumped 30 6 million barrels a day in November above the 30 million target for a sixth month according to data compiled by Bloomberg
The results of the gold referendum showed that 77 3 of the Swiss people voted against the gold initiative As a reminder the Swiss Gold Initiative was proposing that the Swiss National Bank SNB increase its gold reserves to at least 20 of its assets ban all future gold sales from the bank and repatriate all of its gold stored abroad
A yes vote that was vehemently opposed by Swiss government officials as well as the SNB president would have brought about a complete turnaround of the lax monetary policies of Switzerland Europe ECB the United States and Japan
The result of the referendum shows that individuals really don t have a clue about monetary matters and are prepared to put their faith in our current fiat currency system which is continually manipulated by central bankers and their governments
Last Thursday the price of gold came under some selling pressure once again when the European Central Bank ECB said it wouldn t consider adding to bullion purchases However the price of the yellow metal pared earlier losses as the euro rebounded against the dollar after the ECB chief Mario Draghi said the bank would re evaluate the case for more monetary stimulus next year
The ECB announced that it will maintain interest rates at current levels The central bank cut its 2014 growth forecast for the Eurozone to 0 8 from the 0 9 it was predicting three months ago The downgrades were sharper for 2015 and 2016 Growth next year is expected to be 1 down from the earlier forecast of 1 6 while the 2016 forecast was cut to 1 5 from 1 9
The ECB also lowered its inflation target following steep falls in the oil price with the annual rate expected to be just 1 6 even in 2016 still below its target of close to but below 2 Eurozone inflation is currently just 0 3
In the press conference after the announcement Draghi confirmed that the central bank will not buy gold as part of its asset backed purchase program When asked what types of assets the governing council would buy as part of its quantitative easing program he said that the central bank will consider a package of broad based asset purchases including sovereign debt but not gold We discussed all assets but gold he said
Draghi also emphasized that more time is needed to gauge the effect of prior stimulus and the need for additional easing He noted that ECB will reassess the policies early next year and it doesn t mean at the next meeting
In simple terms this means that the ECB will willingly buy toxic assets including Greek bank CDOs Italian bonds despite the fact that the EU s fourth largest economy was downgraded to just a single notch above junk by S P on Friday Spanish condo HELOCs and Portuguese Used Car ABS but absolutely not gold This is in sharp contrast to what the Chinese and Russians are doing which is buying massive amounts of physical gold
Since 2013 the People s Bank of China has not changed their data that showed the nation s official gold reserves stood at 1 054 tons as of the end of 2013 However gold transactions at the Shanghai Gold Exchange have been in the vicinity of 1 100 tons a quarter now and the monthly delivery volume of gold has risen to 212 tons from the respective amounts of 362 tons and 44 tons in January 2008 reported National Business News The newspaper also added that the transaction volume has picked up rapidly since April 2013 when international gold prices began to plunge
According to analyst Alasdair Macleod gold demand in China doubled to 4 843 tons in 2013 which didn t include gold purchased by the Chinese government for deposit overseas
In an article publicized on his blog industry analyst Koos Jansen said that based on gold withdrawal at Shanghai Gold Exchange China s gold reserves has been increasing at an annual clip of 1 761 1 746 tons in recent years adding that the official amount of 1 054 1 tons for the nation s gold reserves is a gross understatement Jansen believed that China has become a major buyer on the global gold market with its gold reserves having surpassed that of Russia Jansen also said that China has imported 8 000 9 000 tons of gold since 1995 which should they be put under the custody of the People s Bank of China entirely would have boosted the nation s official gold reserves to a level on a par with that of the US However it is most unlikely that the U S holds the amount of gold that they claim to have Meanwhile latest figures released by the U S Treasury Department show that the government s official debt balance has just surpassed the 18 trillion mark with additional unfunded liabilities estimated at more than 100 trillion
The Daily Treasury statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U S Treasury has been forced to issue 1 040 965 000 000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government
This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme A Ponzi scheme says the Securities and Exchange Commission is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors says the Securities and Exchange Commission
With little or no legitimate earnings the schemes require a consistent flow of money from new investors to continue explains the SEC Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out
On Friday US non farm payroll increased to 321 000 in November versus expectation of 225 000 which was the highest number since January 2012 And the unemployment figure was unchanged at 5 80 as widely expected
Despite the very positive payrolls report and the rejection of Sunday s Swiss gold referendum gold prices have held reasonably well The price of the yellow metal has also held while the price of crude oil has dropped sharply
While many individuals maintain that gold is simply a barbarous relic I believe that it will soon have a more important role to play in the global monetary system But more importantly it is an insurance against the ludicrous policies of our current financial leaders who will push us into a major global currency crisis
In the meantime the on going currency war look set to intensify The greenback soared to a seven year high against the yen and a two year peak against the euro while the ruble has dropped by more than 25 in the past two months
In other currencies the Mexican pseo lost 3 0 last week the Colombian peso was hit for 4 3 the Peruvian new sol 1 1 the Brazilian real 0 9 and the Chilean peso 0 6 The South African rand lost around 4 5 as the country slowly retrogresses into another African disaster story with on going power cuts happening nationally thanks to the total mismanagement of the country s electricity provider Eskom It has been well documented that since the ANC became the ruling party they have failed miserably at providing any real form of democratic society and instead have used their power to loot the nation s wealth practically crippling the economy When it comes to electricity they have managed to turn what used to be one of the world s cheapest electricity providers into an organisation filled of corruption and theft as it struggles from one crisis to the next In the latest crisis traffic light failures have created a gridlock in the major cities and continual power outages are costing business millions It seems that the currency there is set to fall further in the coming months
The dollar s strength is helping to push commodity prices down as many commodities are priced in dollars including gold and oil which in turn doesn t help the efforts of the European Central Bank and the Bank of Japan to boost inflation in their countries
As more people become aware of what is really going on they will accumulate physical gold and silver and the prices will have to adjust to the real fundamentals and will no longer be determined by a handful of speculators So I expect to see prices trend higher in the New Year |
MS | 3 Downstream Energy Companies Doing Just Fine | For over six months now investors have been dealing with plummeting crude prices The question in everyone s mind is whether this is the right time to pour money into the industry After all most oil weighted players are touching 52 week lows due to collapsing commodity prices
However there is a ray of hope even in this weak crude pricing environment for the downstream energy companies As their earnings are negatively correlated to oil prices the more the prices fall the better their profits will be upcoming financial releases promise better bottom lines
The 2014 Crude Selloff
The West Texas Intermediate WTI crude price lost momentum in June and has since then been showing weakness This is primarily owing to plentiful North American shale supplies in the face of lackluster demand expectations sluggish growth in China and the prevailing softness in the European economy Strengthening of the U S dollar also impacted the demand for the greenback priced crude as it is now expensive for importers to buy oil
Amid the soft oil pricing scenario the international cartel of oil producers Organization of the Petroleum Exporting Countries OPEC stand against an oil output cut on Thanksgiving Day added to supply concerns
We believe that the decision reflects the strategic move by Saudi Arabia which holds the top spot in terms of total production among the 12 OPEC members to get an advantage over U S shale producers This is because shale oil which has been witnessing large scale production in the U S over the last few years is relatively expensive Hence in the environment of tumbling oil price it will be difficult for U S shale producers to garner sufficient earnings to stay afloat in the industry
Last week OPEC also cut its 2015 forecast consumption by 280 000 barrels per day from its previous expectation walking in the same track as U S Energy Information Administration EIA which trimmed its demand outlook for next year by 240 000 barrels per day
Moreover U S investment bank Morgan Stanley recently gave a weak crude pricing projection as it does not expect prices to recover next year
All these acted as dampeners which dragged down the oil price more than 46 since June WTI crude is now trading at 57 81 per barrel the lowest level since May 2009
The chart below indicates the price of WTI crude per barrel during the entire calendar year of 2014 |
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