Tag: finance

After a sharp drop in the dollar in the overnight session, which had set the greenback for its worst week since February, the BBG dollar index has surged, and was trading near session highs following today’s mixed economic data.

Some have attributed the rebound to the strong revision in retail sales despite the latest miss; the strong Industrial Production data and the near record consumer confidence are probably also helping.

The dollar strength has led to some equity weakness, with both the S&P and the DJIA now trading just barely in the red, as the Nasdaq remains the only index to have gains for the day.

Meanwhile, as the dollar rises, emerging markets currencies are once again getting hit.

Finally, the other notable move in the morning session has been 10Y Yields, which peeked above 3.00% briefly, before dipping just under the key level which many have been keeping a close eye on to determine future trends in the very much rangebound 10Y Treasury.

 

 

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Led by a jump in both current conditions and consumer expectations, University of Michigan’s Sentiment Survey jumped from 96.2 to 100.8, handily beating expectations of a 96.6 print, and the second highest level since 2004-only behind the March 2018 reading of 101.4. A snapshot of the report:

• Sentiment index increased to 100.8 (est. 96.6) from prior month’s 96.2, the highest since March and the second highest going back for years.
• Current conditions, which measures Americans’ perceptions of their finances, rose to 116.1 from 110.3 in July; the biggest jump since March

Reflecting optimism about the economy, the Expectations Index reached its highest level since July 2004, largely due to more favorable prospects for jobs and incomes.

The gains were widespread across all major socioeconomic subgroups according to the report.

Despite a lessening of expected gains in nominal incomes in September, inflation expectations also declined, acting to offset concerns about declining living standards, with the 1 year inflation expectation dropping from 3.0% to 2.8%.

According to UMich chief economist Richard Curtin, consumers anticipated continued growth in the economy that would produce more jobs and an even lower unemployment rate during the year ahead.

Of note: buying conditions for both houses and vehicles posted a sharp rebound after declining inexplicably in recent months, and defying reports of near record optimism.

And yet, while consumers were somewhat more likely to anticipate that the economic expansion would continue uninterrupted over the next five years, nearly as many expected another downturn sometime in the next five years.

As one would expect, the largest problem cited on the economic horizon involved the anticipated negative impact from tariffs. Concerns about the negative impact of tariffs on the domestic economy were spontaneously mentioned by nearly one-third of all consumers in the past three months, up from one-in-five in the prior four months.

 

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Submitted by Gary Evans of Macromon

The Tragic Consequences Of Jack Asset Monetary Policy

You have to own assets to make it in the New Economy. Pity the younger generations.

Check out the growing wealth disparity in the below chart, which is clearly the result of monetary policy.

The Fed’s increasing reliance  on the asset price channel of the monetary transmission mechanism over the past decade has been to “jack up” or inflate assets, hoping the “wealth effect” stimulates aggregate demand.   Household net worth is now at a record level and the economy is purring.

The asset price channel of monetary policy relative importance has increased as households have been deleveraging after the GFC, rendering the credit channel of monetary policy almost completely ineffective, at least, until recently.

The result is asset bubbles everywhere.

Political Backlash

The political consequences are also far from benign.

Conservative savers who have kept their money in bank CDs, witnessed their interest income go to zero, while the highly levered and risk takers were bailed out.   Many, who have done all the right things —  worked hard, saved, paid their bills on time — feel they have been screwed in a big way.

We know of one person, who owned three houses on our street, and didn’t pay his mortgages for over four years, yet still collected rent from his tenants.   The banks didn’t foreclose because they worried that flooding the neighborhood market with homes would drive down the price of their collateral.   Not the case anymore, however.

He was only one of several hundred thousand deadbeat borrowers, who gamed the system, did all the wrong things and was rewarded.  The stand up borrower and citizen got screwed.

Once an asset has doubled or tripled in price, many people feel stupid and are envious of those who’ve profited. My favorite quote on this subject is from Charles Kindleberger, “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich.” –HM

— Howard Marks (@HowardMarksBook) September 10, 2018

Do you wonder why populism is on the rise —  The Tea Party and Donald Trump?

We understand and feel the anger, but do hope and pray the backslide toward tribalism will be reversed sometime soon.

People’s QE Is Coming

Because the wealth disparity is so vast, as it has become in the past seven years, the efficacy of asset inflating or, what we call “jack asset” monetary policy diminishes, and more and more Fed stimulus is needed;  as are higher, and higher asset prices.

That is why we believe that during the next recession, the Fed will be forced to roll out some sort of “people’s QE.”  That is, the direct financing of consumption, possibly in the form of financing a universal basic income, the direct bailout of public pensions, and the funding a massive jobs facility, for example.

Ray Dalio seems to agree that such policies are only a few years away.

Of course,  the new QE will likely be executed through the direct purchase of Treasury securities earmarked for such programs.

Smells Like Argentina

Wow, this smells a lot like late 1980’s Argentina.   I was there and witnessed very similar policies.   The major difference is the Argentine austral was not a reserve currency.

A “people’s QE” will supposedly ensure the new liquidity is injected directly into the hands of those who will spend it, generating the demand to lift the economy out of its morass.

Sticking with the old QE policy,  or just augmenting it with the Fed’s direct purchase of equities and corporate bonds, will prove ineffective due to the growing wealth disparity.  The marginal propensities to consume of high net worth groups approach zero as wealth increases.

End Game

The result will most likely be a disaster.  The dollar will tank and its role as the world’s reserve currency will be over. Yes, there will be another deflation scare but it will sow the seeds of inflation as the policies mentioned above are ushered in.   Are you listening, deflationistas?

Maybe the Fed should have never have ventured down this road, transforming the economy into the asset driven beast that it now is, but we are way beyond the Rubicon Crossing, folks.

Until then, let’s focus on making money.  Everything is awesome.

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Former Trump campaign chief Paul Manafort has reached a deal with special counsel Robert Mueller on Friday ahead of his second trial, according to CNBC. 

Manafort, who was set to begin jury selection for a second federal criminal trial next Monday, was charged in a superseding criminal information in U.S. District Court in Washington, D.C.

That charging document alleges Manafort engaged in a conspiracy involving money laundering, tax fraud, failing to report foreign bank accounts, violating rules requiring registration of foreign agents, lying and witness tampering. –CNBC

The deal comes after a 76-page “Superseding Criminal Information” document was filed against Manafort, charging him with money laundering and obstruction. Jury selection in Manafort’s second trial in US District Court in Washington was scheduled to begin on Monday. 

A deal between Manafort and Mueller would bring to an end the long running charges involving one of President Donald Trump’s top advisors during the 2016 campaign. It was not clear Friday morning whether any deal would involve cooperation in any potential case against the president. –CNBC

BREAKING: NBC News Special Report: Paul Manafort has agreed with federal prosecutors to plead guilty in Mueller investigation. https://t.co/BMFRd4yMp9https://t.co/GUeqjgnhhA

— NBC News (@NBCNews) September 14, 2018

BREAKING: Special Counsel’s Office files superseding information against Paul Manafort, meaning a plea is expected. More to come. pic.twitter.com/7Wrprl5zQQ

— Chris Geidner (@chrisgeidner) September 14, 2018

As a reminder, Trump’s former right hand mand and 69-year-old GOP operative was charged in Washington, D.C., with several counts of fraud and failing to register as a foreign agent by the special counsel. A second case was opened in Virginia earlier this year on related charges that ended with a jury finding Manafort guilty on eight counts out of an 18-count indictment, which threatens Manafort with a maximum of 80 years behind the bars, although under sentencing guidelines the term is likely to be closer to seven years. He has not been sentenced in that case.

Developing…

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Today’s data deluge continues with the latest Industrial Production data from the Fed, which rose 0.4% MoM in August, beating expectations of a 0.3% print, after July’s 0.1% print was revised higher to 0.4%.

Mining output rose 0.7% in August, the same as the prior month; it has advanced more than 14% in the past 12 months, supported by substantial increases in the oil and gas sector.

The biggest contributor to the August increase was the index for utilities, which moved up 1.2% in August, as a rebound for electric utilities – i.e., soaring use of HVACs to offset the sweltering August heat – outweighed a small decline for gas utilities.

However the key group inside the report, manufacturing production i.e. factory output, disappointed, increasing 0.2% in August, below the 0.3% expected, and was 3.1% higher than its year-earlier level. The index for durables rose 1.0% while the indexes for nondurables and for other manufacturing (publishing and logging) declined 0.5% and 0.9%, respectively.

Within durables, the largest increases were recorded by motor vehicles and parts, primary metals, and machinery, while the only sizable decrease was registered by furniture and related products. By contrast, within nondurables, only textile and product mills posted a gain.

Some more details:

• Aug. consumer energy products posted a rise of 0.6% m/m after rising 0.2% in July, the Fed said
• Aug. commercial energy products posted a rise of 0.9% m/m after falling 1.1% in July, the Fed said
• The capacity utilization rate for petroleum and coal products fell to 78.9% from 79.2%

In any case, the overall data was quite solid, and YoY Industrial Production rose at the fastest pace since December 2010.

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It seems like only yesterday that Robert Shiller, a Nobel-Prize winning economist (and esteemed member of the Yale School of Management’s faculty), was telling anybody who would listen that the US equity market was headed for a vertigo-inducing correction.

But with stocks once again hovering near record highs, it seems that Shiller – the co-creator of the Shiller P/E ratio – has become the latest CNBC stalwart to throw in the towel. While sell-side banks (most recently SocGen) are increasingly focusing on the fallout from the Trump trade war, Shiller has pivoted to an analysis of other Trump economic policies like the Trump tax cuts and his rollbacks of regulation, which, taken together, have provided an unprecedented level of support to corporate America, per Bloomberg.

While he once lambasted President Trump as “totally unbecoming and unfit”, Shiller demonstrated a newfound reverence for Trump and his policies during his latest interview (we can only imagine why).

Shiller’s focus instead is on President Donald Trump’s support for corporate America, which he says is driving sentiment and market strength. The S&P 500 Index has climbed almost 9 percent this year, with the total return to investors running at an annual rate of more than 14 percent. It closed Thursday less than 0.5 percent from its August record high.

“It has something to do with our president, who is an exceptionally business-oriented president and who wants to deregulate and favors lower taxes,” he said. “That has an effect on the market but it goes beyond the rational, logical effect – it has something to do with our animal spirits. The U.S. is just doing great right now in terms of the strength of the economy and the stock market. That seems to be built around the Trump story at this point in history.”

And while the economist raised a stink last year as his vaunted Shiller P/E index surpassed its pre-crisis levels, the Yale professor is now using the tech boom (when companies’ near-$0 earnings caused the ratio to blow out to unprecedented levels) as his preferred reference point.

“The stock market could get a lot higher before it comes down. It’s highly priced, but it could get much more highly priced. It’s a risky market now,” Shiller told Bloomberg Television on Thursday.

While valuations may be stretched by historical standards, but by the standards of the tech boom, today’s valuations appear far less precarious.

Valuations may be among the most extreme in long-term history, but Shiller highlighted that they’re still well below the heady days of the technology boom at the turn of the century. The cyclically adjusted price-to-earnings ratio, which Shiller popularized to smooth out the effect of earnings over the longer run, currently sits at 33 times earnings. It reached as high as 44 in 2000, just before the dot-com crash.

However, a historical analysis of today’s valuations compared with equity valuations in 1929 paints a dimmer picture…

Readers should take all of the above with a grain of salt: last year, Shiller famously declared that he had trimmed his allocation to US equities and instead added to positions in foreign equities. Of course, anybody who has been keeping track of this year’s astonishing upside divergence, knows how well that worked out.

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Submitted by OilPrice

The United States welcomes competition from Russia on the global energy markets, but Russia can no longer use energy as an economic weapon, U.S. Secretary of Energy Rick Perry said on Thursday during his meeting with Russia’s Energy Minister Alexander Novak in Moscow.

At the meeting, “Secretary Perry also expressed his disappointment and concern about Russia’s continued attempts to infiltrate the American electric grid,” a statement from the U.S. Department of Energy on the meeting says.

“Secretary Perry made clear that while the United States welcomes competition with Russia in energy markets across Europe, Asia and elsewhere, Moscow can no longer use energy as an economic weapon. The United States is now in a position to offer these nations an alternative source of supply,” the DOE said.

Russian gas giant Gazprom, which holds a third of European natural gas market, has in the past cut supply to Europe via Ukraine due to disputes over pricing, and has prevented customers from reselling natural gas, dominating most of the markets in central and southeastern Europe.

Referring to the controversial Gazprom-led Nord Stream 2 gas pipeline project to Germany, “President Trump has made clear that the United States staunchly opposes the Nordstream 2 Pipeline, which would expand a single-source gas artery deep into Europe,” the DOE said.

“The U.S. supports the desire of European nations to minimize their dependence on Russia as a single energy supplier, and look forward to increasing LNG exports to the region, as announced by President Trump and EU President Juncker in June.”

During his visit to Moscow, when asked if the U.S. could impose sanctions on Nord Stream 2 and if more energy sanctions were being planned, Secretary Perry told reporters “Yes to your first question and yes to your second.” However, sanctions are not where the U.S. and Russia want to go, the AP quoted Secretary Perry as saying.

Novak, for his part, said that Russia agrees that “energy cannot be a tool to exercise pressure and that consumers should be able to choose the suppliers.”

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The summer spending spree is officially over.

With retail sales revised higher in July, from 0.5% to 0.7%, in August, the US consumer hit the breaks on spending as retail sales tumbled from 0.7% to just 0.1%, well below the 0.5% expected, driven by a decline in auto sales, following an upward revision to July retail sales.

Core retail sales, ex. auto also missed, rising just 0.3%, below the 0.5% expected, while sales ex autos and gas barely rose by 0.2% in August, down “bigly” from the 0.9% in July.

The report also showed that the so-called retail control-group sales – which is used to calculate GDP and excludes food services, auto dealers, building-materials stores and gasoline stations — rose a paltry 0.1%, far below the 0.5% consensus and down from 0.8% revised July print.

While Tax cuts had put more money in Americans’ pockets this year, and consumer sentiment remained elevated, it appears that the sugar high from the tax boon is now over despite the recent sharp upward revision in personal savings rates.

Curiously, looking at the detailed sales breakdown, only 4 of 13 major retail categories showed decreases.

Under the covers: motor vehicle, furniture, clothing and general merchandise store sales slumped, offset by solid sales for electronics, health and personal products, gasoline, online and miscellaneous store sales.

 

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Submitted by Llewellyn King of Inside Sources

Francis Fukuyama earned his place in philosophical history by declaring “the end of history” on the fall of the Berlin Wall and the collapse of communism.

Nowadays Fukuyama, an engaging traveler through the world of ideas, poses this great question: Where are we going?

In New York on Sept. 11, Fukuyama seemed to answer that question by telling an audience: Nowhere very good.

The global crisis laid out in Fukuyama’s latest book “Identity: The Demand for Dignity and the Politics of Resentment” is that identity politics — advanced tribalism, if you will — is eroding democracy.

Fukuyama writes that the United States invaded the Middle East, during the Iraq War, to Americanize the Middle East, but the Middle East has Middle-Easternized the United States. Not only is there no national identity in Iraq now, he argues, but we are also losing our Americanism to identity politics, with its baggage of racism and division.

He points to two decidedly democratic events as harbingers of a less democratic future: Britain’s vote in June 2016 to leave the European Union and the election that same year of President Donald Trump, disaster following on disaster, identity triumphing over political union.

In the case of Brexit, English nationalism upstaging the larger values of a unified Europe; and in the Trump election, the white working class voting against the other constituent parts of the nation.

Listening to Fukuyama answering questions at the New York event, organized by Philip Howard and his Common Good organization, one could be plunged into feeling that the famous American mixing bowl had become unmixed, breaking down, as Fukuyama gently suggested, into competing groups, supporting just those who belong to their group — all of this set off by white fear of the end of their hegemon in America. Hence, the hysteria over immigration.

The difference between the immigration alarm in Europe and in the United States, he said, is that Europe sees not just an invasion of different people with different customs, religions and languages, but also an assault on the cradle-to-grave welfare systems. Fukuyama said Europeans do not mind paying 60 percent of their incomes in tax because they believe they get a lot for it. That, he said, is what they see coming from immigration: People coming to live off the generous social structure for which they have not paid.

Immigrants from Africa going to Sweden — in the news because of its electoral swing to the right — must think they have entered nirvana: total freedom from want. Not quite the same as people coming across our Southern border, seeking safety and work.

Fukuyama sees the United States in danger from identity grouping overwhelming our commonality as a nation.

I wonder about that. When I landed on these shores as a young (legal) immigrant in 1963, I wrote to a friend in England — and I remember this clearly — saying: “This is no melting pot. This is a fruit salad.”

Well, that is still so, and it works until it is perverted by minority manipulators. For example, there has always been a racist element. It is just that Trump and his allies have blown on these embers and brought forth flame. Race dividers feel emboldened under Trump, just as they seethed under President Barack Obama.

It is worth pondering that before Trump, we twice elected an African-American president and that said something about us — something quite different from what Fukuyama is saying about us in today’s race-heavy, fact-short political debate.

Some at the New York meeting suggested that the pendulum will swing back. Yes, it will but not to the status quo ante. It will be to a new place.

Personally, I believe the Trump success was fueled not so much by resentment as by a pervasive sense of irrelevance. It expresses itself politically, but its root may be with the isolation felt by those who have to deal with monopoly businesses from the cable company to the online retailer. Think the politicians ignore you, try those who have market dominance: banks, health insurers, online vendors and telecoms among others.

Fukuyama calls for dignity as a kind of antidote to identity politics. He might want to extend that excellent thought beyond just the political arena.

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Just as we anticipated, the massive $150 billion money laundering scandal unfolding in the Estonian branch of Danske bank has finally attracted the scrutiny of international regulators, who have seized on the opportunity to tighten the noose around the neck of criminals and corrupt oligarchs operating in the Commonwealth of Independent States.

According to the Wall Street Journal, the Justice Department, Treasury Department and Securities and Exchange Commission are each examining Danske Bank following a whistleblower complaint. The complaint also named Deutsche Bank and Citigroup as potentially complicit in the fraud, with DB acting as a correspondent bank on some of the transactions while some of the funds were run through Citigroup’s Moscow branch.

Shares are plunging on the news that a heavy-hitting international regulator is looking into the scandal, which has already spurred investigations in Denmark (where Danske is based) and Estonia. They were down 3% in recent trading as fears of a potential “death blow sanction” – where a bank is excluded from handling dollars – intensified.

 

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