Tag: news

For the 3rd day in a row, Unicredit shares are halted limit down as the "confidence-inspiring" European banking system stress tests have utterly failed… as European banking stocks are reeling once again (now down 10% post-stress-test).

 

 

But it's not just Italy… the entire European banking system's stocks are tumbling once again… down 10% now from the stress-test bounce.

 

A sea of red the last 3 days…

 

Is the market demanding a bail-"out"?

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Following Monday's confusing manufacturing data (PMI up, ISM down), today's Services economy data suggests growth is just as confused and muted as PMI flatlined from June with activity at its weakest in 5 months and new business slowing down. ISM Services missed expectations (dropping modestly to 55.5 from 56.5) with employment dropping from 52.7 to 51.4 (despite a bump in new orders). But, as Markit concludes, "those looking for signs of the US economy moving up a gear in the third quarter will be disappointed by the PMI readings for July."

Flat or down… not what Obama ordered…

 

ISM Breakdown is mixed… buit not reassuring

 

Respondents offer some insight as to where the bounce has come from…

"Seasonally, July is slightly down from June, but sales are up for the year. We are tracking pretty close to [the] sales forecast, which was for strong growth." (Management of Companies & Support Services)

 

"Lower oil and chemical pricing is affecting the overall business for new projects (capital spending is down)." (Construction)

 

"Brexit will pose new challenges to deals in our industry, but a bit early to tell what they may be (new regulations, etc.)." (Finance & Insurance)

 

"Performance against adjusted guidance for 2016 continues to meet objectives. The company saw no impact from recent global events, such as [the] UK vote to leave the EU." (Health Care & Social Assistance)

 

"Stabilization in oil prices has led to a steady increase in field service work and new construction projects." (Mining)

 

"Business is currently down in the renewal energy sector, waiting [for] the uptick this fall." (Professional, Scientific & Technical Services)

 

"Activity [is] ramping-up as the government enters its fourth quarter." (Public Administration)

 

"Business conditions have remained consistent over the past month. New and completed activities are offsetting one another." (Retail Trade)

 

"Hot weather [is] affecting commodity prices as well as store traffic." (Accommodation & Food Services)

 

"Good, stable pricing levels; consumer spend also looks positive. Low fuel prices, summer vacation schedules and warm weather driving a lot of activity." (Wholesale Trade)

Simply put – the weather, and the government!

Commenting on the PMI data, Chris Williamson, Chief Economist at Markit said:

“Those looking for signs of the US economy moving up a gear in the third quarter will be disappointed by the PMI readings for July.

 

“The surveys are indicating that the pace of economic growth has held at around 1% at the start of the third quarter, largely unchanged on the signals sent by PMIs for the first and second quarters.

 

“Once again, there’s better news on hiring, with the overall rate of job creation edging up to the highest since January. The surveys are broadly consistent with non-farm payrolls rising by 160,000 in July.

 

“Hiring is holding up in part because of signs that the soft patch that the economy has gone through may prove temporary. Inflows of new business across the economy rose at the fastest rate seen so far this year in July, and backlogs of work were pushed higher for the first time since last October as a result.

 

“Business confidence about the outlook is also improving, rising in the service sector to the highest since January.

 

“These survey results add to the sense that policy makers will be encouraged by the resilience of the labour market in particular, but will want to see signs of stronger economic growth before hiking interest rates again. Another rate hike by the end of the year therefore still looks a strong possibility, though with odds of the timing of that hike skewed heavily towards December.”

And the Composite Services/Manufacturing PMI data suggests anything but solid growth (just don't tell The Democrats)…

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Submitted by Simon Black via SovereignMan.com,

It was only a matter of time.

In the wake of multiple terror attacks, the European Commission is moving towards creating a mandatory, centralized database of Bitcoin ownership.

Of course, their official reason is that Bitcoin is being used to finance terrorism.

So for everyone’s safety and security they need even more authority to spy on people’s finances.

But the reality is that these governments have hated Bitcoin since the beginning.

They don’t like the idea of a decentralized currency that they can’t control.

In the conventional financial system, governments have the power to regulate the banks and seize any account they want.

They can use their gun-toting police agencies to confiscate citizen’s physical cash… and given the alarming rise of Civil Asset Forfeiture in the Land of the Free, it’s clear they’re not exactly shy about stealing people’s money.

But they can’t do any of that with Bitcoin.

Bitcoin is a decentralized, distributed system. It’s impossible for anyone, or any government, to control it.

So the more people use Bitcoin, the more governments lose control.

History shows us, for example, that bankrupt governments almost invariably resort to capital controls– heinous obstacles that trap people’s savings inside a decaying financial system.

We’re already seeing this across the European continent.

Many banks in Europe have restrictions on how much money you can withdraw from your own savings account.

There’s also been rapid progress towards banning physical cash altogether.

But Bitcoin is a way for people to escape these capital controls… which is why it’s such a nightmare for bankrupt governments.

You’d think that intelligent governments would embrace Bitcoin.

You’d think that, rather than fight an obvious technological trend, they would encourage the banks and monetary policymakers to integrate Bitcoin’s concepts into the financial system in order to become more competitive and innovative.

But that’s not what happens.

Bankrupt governments have a permanent scarcity mentality.

Once they enter desperation mode, their only solution is more government, more regulation, more spying, and more control.

It’s literally the exact opposite of what they should be doing.

Now, in response to all of these terrorist attacks, the bureaucrats finally have an excuse to expand their control.

So rather than getting on board with the technology and joining the 21st century, they’re going to expend resources creating a complicated regulatory framework in an attempt to neutralize the Bitcoin threat.

Here’s the good news: they’re going to fail. The technology available to us is simply too powerful.

Think about it: no matter what governments do, there’s almost always a way to defeat them thanks to modern technology.

If they try to ban the sale of firearms, we now have the ability to 3D print them.

If they engage in illegal surveillance of our emails (which they are), we have FREE, open-source encryption technology available to thwart their efforts.

If they debase their currency into oblivion and impose capital controls (which they are), we can use Bitcoin and move money into the blockchain.

And if they try to eliminate those tools, they’ll fail miserably.

Remember that a government’s power is based exclusively on threats of violence, which exist solely in the physical world.

But Bitcoin exists in the digital world where their threats of violence are useless.

There is no centralized nexus of control for Bitcoin. No individual or organization controls it. Therefore governments have no one to threaten.

That’s why they’ll fail. Our modern technology favors the individual. It favors freedom. It favors those who understand major trends and adapt to change.

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Something odd took place on the website of the research office of China’s National Development and Reform Commission, China’s highest economic central planning agency.

Early in the morning, local time, the statement, which can be found at the following site, said China should implement proactive fiscal policy, properly expand aggregate demand and increase effective investment amid downward pressure in investment. Traditional Chinese boilerplate until one reached further down in the statement, where 13 characters urged China to: “lower benchmark interest rates and banks’ reserve requirement ratio at appropriate times.”

The investing community sprang up at what was the clearest suggestion that more easing is coming. Indeed, the language inclusion immediately prompted Nomura’s chief China economist Zhao Yang to say that NDRC “is right to want interest-rate and RRR cuts to lower local government funding costs as their investment in infrastructure projects is key driver of Chinese economy.”

Which is fine, except… as Dow Jones writes, “control over interest rates isn’t in the NDRC’s bailiwick. Monetary policy is entirely the responsibility of the People’s Bank of China, and it hasn’t touched rates since October. It is highly unusual for any other agency, let alone an entity of the government body charged with running state infrastructure projects, to openly comment on what it thought China’s monetary policy would or should be.”

And, as a result, within hours, it had become clear that the NDRC’s research unit had overreached. By the afternoon, the 13 offending characters had vanished from the statement even though the unredacted version could still be found in China’s internet.  As Dow Jones put it simply “call it Chinese policy-unmaking.“

The National Reform and Development Commission (NDRC) also removed a call for subsidies to help reduce inventories of unsold homes without any explanation for the change.

The “mysterious redaction” amplified attention on the NDRC’s unusual temerity, the WSJ writes, attracting notice from keen-eyed China hands. The omission spoke to the tension between two camps charged with stewarding China’s economy. For months now, those allied with the central bank have warned that an ever-increasing reliance on looser liquidity is failing to juice the economy, arguing that monetary policy has reached its limits and abusing it would only cause consumer- and asset-price inflation.

Holy smoke,NDRC redacted phrase calling 4 RRR & rate cuts, but original still on sina https://t.co/Fmz4Eeh3b2 vs https://t.co/yOjecDVPf4

— Victor Shih (@vshih2) August 3, 2016

This is not the first time China’s policy paralysis has been revealed: two weeks ago, Sheng Songcheng, the PBOC’s head of statistics, went further. China’s monetary policy, he warned, has fallen into a “liquidity trap.” The term refers to an economic scenario where cash injections fail to reduce interest rates or generate more investments. Chinese companies were just hoarding the additional liquidity in the banking system instead of using it to expand investment, Mr. Sheng said.

As we showed at the time, the monetary data  is confirming this concern, when last month China showed, for the first time in two decades that the country’s M1, a definition of money that primarily means current deposits of China’s non-financial institutions, accelerated in divergence from its M2, a broader measure of money in circulation. This meant that companies were taking money out of time deposits and holding it in cash and current deposits.

It also means that just like the west, increasing liquidity in China – and Beijing has been all too generous in this regard – is now ending up stuck in the form of cash, which will put further downward pressure on the velocity of money, and lead to an even greater growth deceleration.

Meanwhile, for the NDRC to call for a rate cut is in effect laying the blame for the slowdown on the central bank. Commission officials have argued that companies just need to find it cheaper to borrow before they would be willing to do so, helping to rev up a slowing economy. The NDRC runs approvals for large infrastructure projects undertaken by state corporations. Not so fast, the PBOC and its allies said. Implicit in the PBOC’s admonitions was a message: Stop leaving the job of producing an economic recovery to the central bank alone, the WSJ adds.

This confirms the message that has been prevalent across developed nation policy circles in recent months, as pressure has been rising to relieve central banks of providing the monetary boost to grow economies and hand over responsibility to fiscal authorities.

Which leads us to the next point: in his widely reported comments to local media at an industry conference, Sheng also said the government can raise its fiscal deficit to 5% of its gross domestic product. This year’s official fiscal deficit rate is set at around 3%. Sheng’s call suggests that it is also up to the Ministry of Finance, which is in charge of tax policy, to take the lead in engineering a recovery. The ministry and the NDRC didn’t immediately respond to calls for comment.

As for today’s “mysterious redaction”, China pretended as if nothing had happened. Shortly after the redaction of the NDRC’s statement, the central bank published a fairly routine recap of a central-bank conference held Tuesday and Wednesday. In it, the PBOC said China would maintain ample liquidity and reasonable growth in lending in the second half this year. Beijing would maintain a prudent monetary policy, keep the yuan basically stable and press on with market-based reform, it said.

In other words, as Dow Jones concludes, it said “as you were.” Whether markets ignore this latest confirmation of the chaos and lack or coordination at China’s top central planning echelons is a question that will be answered in the coming weeks.

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Having rallied back up to Brexit day spike highs at $1370, it appears – despite equity weakness – that a sudden burst of USD buying has sparked a brief slide in precious metals with gold retracing some of yesterday’s gains… Oil prices are also sliding on USD strength (having tagged $40).

 

Modest drop for now as 1370 support is lost…

 

With the USD Index spiking..

 

Oil is falling back after rallying to $40 after last night’s API data…

 

Charts: Bloomberg

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Bill Gross’ latest letter is a curious melange of two distinct parts.

The first one is more of the same traditional stream of consciousness we have grown to expect from the man some call the “former” bond king. Curiously, the topic of discussion is something Gross has never “touched” upon before, namely sex. As Gross says, “Sex is a three-letter word that has rarely appeared in an Investment Outlook until now.” The second part may have been ghost-written by the “new” bond king, as it recaps – in a Q&A format – all the recent points made by Jeff Gundlach, who recently said to “sell everything” except gold and gold stocks. Gross’ spin: “I don’t like bonds, I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories.”

First, here is Gross’ take on Sex:

Sex is a three-letter word that has rarely appeared in an Investment Outlook until now. I may be risque and delve into the forbidden territory of politics and religion, but “SEX”? — Never. But here goes! Actually, my own personal history of sexual edification was probably like many of yours. My mother asked me at age 14 if I knew where little kittens came from and when I answered “the pet store”, I never got an additional query or piece of information on the subject. I suspect she had written me off as hopeless long before.

 

When it came time for me to be a father, I vowed never to repeat anything as stupid as that kitten trick to my kids, and I wound up not saying anything at all about sex to my older ones, Jeff & Jennifer, who are now in their 40s and safely beyond my parental foibles. The Nineties, however, ushered in a new sensitivity and a requirement to come clean with your child at an early age. And so, when Nick was born in 1988, Sue and I knew that we’d have to explain his “conception” at some point before we turned over the car keys and started four-digit checks for insurance. It’s not like Nick was adopted or anything, but he was, in fact, one of California’s first “test tube babies” which made him sort of unique and special — at least to us — and we felt he deserved knowing about it. Actually, it was a godsend as far as the sex education goes. At 8 or 9, when he asked about “babies”, we both sat down and told him how he had been conceived: a doctor took some of Dad&s sperm and a few of Mom’s eggs, mixed em’ up in a test tube and “voila” — you’ve got a baby. He seemed to buy the story pretty well and we got to avoid all of the gushy —male / female — stuff.

 

Our biggest challenge came years later when Nick got his hands on one of those trashy “Victoria’s Secret” advertising mailers. As a service to me, Sue always does her best to dispose of them in the garbage can as quickly as possible, but this time Nick had gotten his hands on it and was intrigued not only by the pictures of those plain and unattractive models, but by the name itself. “Dad”, he asked, “what is Victoria?s Secret?” Well now, I quickly thought, does he mean what is Victoria’s Secret or what is Victoria’s Secret? If it was the former, it could be just an innocent question about the mailer itself. If the latter, well, it was a path down which I wasn’t willing to travel. “I am not sure”, I replied, taking the brochure from his hands and depositing it in the trash, like Sue usually does. As a diversion though, I answered his question with one of my own. “Do you know where kittens come from?” I asked. “The pet store”, he said, and with that I breathed a sigh of relief, content in his normalcy and satisfied I was fulfilling my role as a parent in the sensitive Nineties.

Why the odd premable? Because as Gross then points out, as a transition to the more important – second part – of his letter,  “there are equally important questions in today’s economy and financial markets, so I thought I’d condense a few of them to hopefully explain our current situation, perhaps a little more honestly than my “kittens in a pet store” ruse or what “Victoria’s Secret” really was.”

Here, the most notable segment is the rhetorical answer to a question that asks “When does our credit-based financial system sputter/break down?“

Gross’ answer:

When investable assets pose too much risk for too little return. Not immediately, but at the margin, low/negative yielding credit is exchanged for figurative and sometimes literal gold or cash in a mattress. When it does, the system delevers as cash at the core, or real assets like gold at the risk exterior, become the more desirable assets. Central banks can create bank reserves, but banks are not necessarily obliged to lend it if there is too much risk for too little return. The secular fertilization of credit creation may cease to work its wonders at the zero bound, if such conditions persist.

He follows up with 4 more mini Q&As, as follows:

Can capitalism function efficiently at the zero bound?

 

No. Low interest rates may raise asset prices, but they destroy savings and liability based business models in the process. Banks, insurance companies, pension funds and Mom and Pop on Main Street are stripped of their ability to pay for future debts and retirement benefits. Central banks seem oblivious to this dark side of low interest rates. If maintained for too long, the real economy itself is affected as expected income fails to materialize and investment spending stagnates. 

 

Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on going? How might it end?

 

Yes, it can, although the supply of high quality assets eventually shrinks and causes significant technical problems involving repo, and of course negative interest rates. Remarkably, central banks rebate almost all interest payments to their respective treasuries, creating a situation of money for nothing — issuing debt for free. Central bank “promises” of eventually selling the debt back into the private market are just that — promises/promises that can never be kept. The ultimate end for QE is a maturity extension or perpetual rolling of debt. The Fed is doing that now but the BOJ will be the petri dish example for others to follow, if/ when they extend maturities to perhaps 50 years.

 

When will investors know if current global monetary policies will succeed?

 

Almost all assets are a bet on growth and inflation (hopefully real growth) but in its absence at least nominal growth with some inflation. The reason nominal growth is critical is that it allows a country, company or individual to service their debts with increasing income, allocating a portion to interest expense and another portion to theoretical or practical principal repayment via a sinking fund. Without the latter, a credit-based economy ultimately devolves into Ponzi finance, and at some point implodes. Watch nominal GDP growth. In the U.S. 4-% is necessary, in Euroland 3-4%, in Japan 2-3%.

Finally, the most practically relevant section, and the one that almost verbatim ghosts Gundlach’s own sentiment on what one should do at this time, is Gross’ answer to “What should an investor do?“

In this high risk/low return world, the obvious answer is to reduce risk and accept lower than historical returns. But don’t you have to put your money somewhere? Yes, of course, except markets offer little in the way of double digit returns. Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels. I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories. But those are hard for an individual to buy because wealth has been “financialized”. How about Janus Global Unconstrained strategies? Much of my money is there.

We are confident that the “new” bond king agrees.

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