genie

investors Finally Get What They Wished For Are Rubbing Their Lamps Again

Government bonds are continuing to sell off today: “the US 10-year Treasury yield rose to 2.36 per cent in early New York trading, its highest level since November…Euphoria over the [ECB’s] €60bn-a-month monetary stimulus that pulled the German 10-year bond yield down towards zero per cent last month has faded on improving growth prospects and climbing inflation expectations…’[the sell-off] is starting to stretch the boundaries of what you could call a technical correction.  A lot of strategists are getting nervous,’” says a strategist.   John Williams, however, thinks nervous is healthy: “my personal preference is that we don’t have the most telegraphed policy decisions in history, as we did in 2004…In a normal economy there is some volatility in markets, that is just a healthy functioning of markets trying to understand and filter what the data means for policy.”  Meanwhile, German Bund investors may need to up their intake of aspirin: “It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.  It took just 15 days after that to jump back to 68bp again.”  Furthermore, “in the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly.  Higher yields means fewer negative yields…But even €1 trillion down..negative yielding Eurozone government debt remains greater than the size of positive yielding Euro credit.”  Reuters thinks this could be “a shot in the arm” for the ECB:  “this has broadened the pool of bonds the ECB can buy under its quantitative easing (QE) purchase programme, which excludes all paper yielding below the minus 20 basis points that corresponds to the bank’s deposit rate.”  Meanwhile, “if bond yields are going up because investors demand a higher premium for holding risk, then the losses on riskier assets like equities ought to be bigger still.  But that doesn’t appear to be the case.  Government bond yields seem to have ticked higher because inflation expectations have been rising…If bond yields are going up because growth expectations are picking up, this should ultimately be favorable for equity markets, albeit after a round of near-term volatility.”  Also, the main argument for why this is a “technical” correction has been the surprise announcement by Treasury to issue $64 billion in treasuries this week.  However, “demand for the U.S. government securities sold at auction has declined in each of the past three months, after also slumping in the August-through-October 2014 period…the Treasury is also competing with more than $20 billion of debt slated to be sold by companies.”  We should get a preview of the “technical” correction thesis today as $24 billion three-year notes go up for auction.  Stay tuned.

 

Mo’ Money, Mo’ Problems

“While [Apple] may well become the first $1 trillion market cap company (Carl Icahn’s recently top-ticking tweets notwithstanding), did you know that AAPL is now bigger than the entire market cap of all Spanish stocks combined?  Or that Austria’s $99 billion gross market cap is the size of Mastercard.  Or that Finland’s entire stock market is about the size of Verizon?”  Speaking of which, Finland Verizon has no idea what to do with all their money is buying AOL.  Also, mutual funds have no idea what to do with all their money are hunting unicorns.  Also, sovereign wealth funds have no idea what to do with all their money are “[harnessing] the premium associated with more illiquid assets.

 

USA: Retail Sales Indicate Divergence Between East And West Coasts

 

Tech: Google Is Currently Putting 10,000 Miles A Week On Their Self-Driving Cars

 

USA: Why Do You Think Disney’s Rags-To-Riches Love Stories Are So Popular?

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pocket protector

Cautious Conversations

John Williams: “I think the data show that U.S. inflation can be easily modeled in the following way: It runs about 2 percent, and then there is some fluctuation from commodity/import prices and the amount of slack in the labor market…to me it’s not that much of a puzzle that underlying inflation is running about half a percentage point below our 2 percent goal.”  Furthermore, “I don’t think [low inflation abroad] speaks in any way to whether the U.S. can hit its 2 percent goal.  We know from history that we are able to control our own inflation rate through monetary policy despite other countries having rates that are higher or lower than ours is.”  Ben Bernanke: “I don’t see anything magical about targeting two percent inflation.  My advocacy of inflation targets as an academic and Fed governor was based much more on transparency and communication advantages of the approach and not as much on the specific choice of target.”  In regards to the future of monetary policy, Ben likes a big balance sheet: “monetary control might be more, rather than less, effective if the Fed [managed interest rates] by its settings of the interest rate paid on excess reserves and the overnight reverse repo rate.”  Also, a large balance sheet “facilitates the creation of an elastically supplied, safe, short-term asset for the private sector, in a world in which such assets seem to be in short supply.”  John seems to agree: “This is a typical Fed belts-and-suspenders approach.  We’re not exactly sure how interest rates will behave and so we want to make sure that we have the full set of tools and programs…it’s a lot of contingency planning.”

 

Millennials Trust Each Other And Basically No One Else

“Nearly one in three Americans who are now having to pay down their student debt…are at least a month behind on their payments,” says the St Louis Fed.  “Delinquencies on student debt are far higher than those for other forms of consumer credit, including credit cards, mortgages and auto loans…Delinquencies are no longer rising.  But they’re not going down, either.”  Meanwhile, PricewaterhouseCoopers sees a trend in the renting “sharing” economy: “We’re witnessing the rise of companies predicated on trust among strangers at the same time as general trust in society is actually falling…Why are hundreds of thousands of people letting strangers rent their bedrooms or drive their cars if society is growing more cynical?”  The answer: while trust in individuals and institutions is deteriorating, faith in the crowd is growing.  “In other words, I don’t trust you, Random Guy Giving Me A Ride Home, but I do trust the 4.9-star average rating of all the people who’ve been in your car before.”  Meanwhile, “if you think Chris Christie’s Social Security plan is bold, you should see Team 109’s.

 

ECB: Draghi Isn’t Worried About Scarcity Of QE Eligible Bonds

 

USA: As Long As He Keeps Blogging More Power To Him

 

ICYMI: Bonds Beware As Money Catches Fire In The US And Europe

That whole velocity of money thing isn’t really playing out the way some thought…here’s another go at it.

kermit rainbow connection

The Lovers, The Dreamers And Me

Analysts at Citibank and The Economist are coming to Chinese equities’ defense: “The Shanghai index, which includes China’s biggest companies from banks to oil majors, is trading at a forward PE of about 15, in line with its ten-year average.  From this perspective, the rally looks more like a ‘mean-reversion trade’ than something wildly unsustainable.”  “When investors tell us that China is a bubble and expensive all we need to do is highlight…a market which is very certainly an investor favourite, India.  This market is even more expensive relative to all the other markets, and it isn’t as if investor after investor we meet tells us, ‘oh boy that Indian market is hotter than your average Vindaloo.’”  (Side note: valuations suggest that investors are expecting the highest EPS growth rates in India (6.5%), Poland (6.4%), South Africa (6.3%), Indonesia (6.2%) and the Philippines (6%))  “The most striking feature of the Chinese rally in recent weeks has been its crossing of borders…A programme to connect the mainland and Hong Kong stock markets has provided a corridor for channeling excess liquidity out of China.  With A-shares still trading at a 20% premium to H-shares, Chen Li, a strategist at UBS bank, predicts the convergence will continue.”  Meanwhile, “there has been speculation in certain quarters of the markets that a ‘Singapore-China’ stock connect may be in the pipeline.

 

But Wasn’t Distortion Always The Point Of Extraordinary Monetary Policy?

“The European Central Bank has barely started its €1 trillion-plus asset purchase program and already there are mutterings about how it might need to be wound down early.  There are signs of a solid pick-up in the eurozone economy,” as well as “rising bank lending as firms turn more bullish on their growth prospects.”  Yet “on the other side of the equation there are clear market distortions.”  For example: “all over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates…some banks have faced the paradox of paying interest to those who have borrowed money from them…In Spain, Bakinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.”  Meanwhile, Eurostat says the savings rate is moving back up, which may “send minor alarm bells ringing for those who fear that households may respond to falling consumer prices by postponing discretionary prices.”  Then again, Ben Bernanke says higher wages in Germany are good news for everyone: “In a world that is short of aggregate demand, Germany’s trade surplus redirects spending away from other countries, reducing output and incomes abroad.  Higher wages in Germany should promote spending by German households on both domestic goods and imports, reducing the imbalance.”

 

Oil

“One of the most important questions for economists about the past year’s collapse in oil prices is whether it was driven by supply or demand.”  The IMF says “it started out as a bad-news demand story, but turned into the good-news supply story.”  Meanwhile, “China is on an oil-buying spree again.” (alt)

 

USA: Home Services Is One Of The “Few Pots Of Gold Left”

 

USA: Aswath Damodaran Ain’t Buyin The Small Cap Premium

insider tweeting

Thinking Outside Of The Box Border

Russ Koesterich thinks “the good news/bad news dynamics will get worse as the Fed rate hike draws closer.  Watch out for greater amplification of this volatility…markets will probably see more peaks and valleys this year, but for investors with a long time horizon, remaining invested pays off.”  Meanwhile, “the US, the UK and Japan all witnessed sharp equity market rallies when they launched quantitative easing (QE) programs.  The exact same thing has happened in the euro area…equities may no longer be cheap.  But we believe they still look relatively attractive when compared with regional sovereign bonds, which increasingly offer zero or negative yields.”  Also, “the ECB’s elephantine sovereign bond-buying scheme is happening at a time when the big euro area countries have negligible borrowing needs.  But euro area investors that need to own a lot of bonds — banks, insurers, and pension funds, to name a few — have to park their money somewhere.  Nowadays, ‘somewhere’ increasingly means America, in the form of US corporates taking advantage of European desperation for yield…Whether any of this will actually boost investment in the single currency bloc is anyone’s guess, but at least US companies hurting from the stronger dollar can console themselves with the easier financing conditions.”  Meanwhile, Ben Bernanke thinks “the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home.  The foreign exchange value of the dollar is one channel through which this could work: if US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports…Increased exports would raise production and employment at home, helping the economy reach full employment.  In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy.”  Meanwhile, “as developing countries grow more quickly, they will also have to grow more sustainably, [so] leaders in Portland are targeting rapidly expanding cities for exports of sustainable services.  This brought them to Changsha…mayors of the two cities signed a trade partnership that will provide access to ‘green’ services for Changsha, while giving Portland firms a foothold in the challenging Chinese market.”

 

USA: Larry Summers On Ben Bernanke On Larry Summers

Also, John Hussman on eating our seed corn.

Also, Bill Gross on layups and fed funds.

 

USA: Inside Traders Are Using Inside Tweeters As Cover

 

WM: Vanguard’s New DIY Service Targets “Investors Who Don’t Need Or Want” An Adviser

 

USA: Poor Households Spend More On Prom Than Wealthy Households

 

Greece: “Q: Does The Government Have Any Rainy-Day Funds Left?  A: Not A Lot.”

 

What: HFT Firms Are Trading With Themselves To Spoof Markets

Music Director Riccardo Muti and the Chicago Symphony Orchestra 2011 European Tour

Music To Draghi’s Ears

“In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns…even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago.”  Mmm, sweet melody, do continue.  “‘When you are paying some governments to own their bonds, 4 percent actually looks very decent’…European enthusiasm for higher-yielding assets has helped U.S. borrowers sell 3.28 billion euros of junk bonds in 2015, the busiest start to a year since the currency started in 1999.” …this symphony is a little heavy on the brass — “Unlike the Fed’s three waves of quantitative easing, the ECB’s version is coming as European governments are trimming budgets.  That means they issue fewer bonds, and European investors have more reason to look abroad for returns instead of paying dearly for relatively scarce assets at home or having cash in euros that they might need to pay to hold on to.  ‘There are more and more euros being printed, but these are hot-potato euros.’”  Also, “the euro’s turbocharger has been removed”: central banks around the world have slowed their accumulation of dollars and euros and are relaxing their control over their currency (i.e. float the currency).  Meanwhile, “a weak euro and signs of an economic recovery have spurred China to step up its push into Europe.  Analysts at Deloitte say depressed asset prices in the euro zone have created ‘vast opportunities for bargain seekers in China.’”  Well.  

 

Oil: US Still Gushing Oil

“US crude oil stocks rose 22% y/y to a record 458.5 million barrels during the week of March 13…refineries are working overtime to convert crude oil — which the government bans from exporting — into refined products…over the past 12 months through February, global oil supply is up 2.5% y/y, while demand is up 0.7%…North American frackers have flooded the world market with so much oil that the Saudis are aiming to shut them down with lower prices.  It’s not working so far.  The US and Canada produced 13.2mbd during February, up 4.0mbd since August 2012.  That well exceeds the Saudi’s 9.6mbd.”  Also, oil bears can smell a nuclear deal with Iran which might raise sanctions on another 1.0mbd from Iranian oil fields.  Meanwhile, Oil Rigs Shmoil Rigs (The official title of Goldman’s latest memo on oil rigs, I presume).

 

USA: Center For Financial Stability Sees Increase In Short-Term Credit

“The CFS defines market finance as the total stock of money-market funds, commercial paper and security repurchase, or repo, contracts held by financial institutions — credit instruments that are generated and traded outside of the regulated banking system.  The figure totaled $4.124 trillion in February, up from $4.111 trillion in January but 46% below its peak seven years ago.”

 

USA: Economic Surprise Index (Alt)

“The surprise index doesn’t rise or fall with the ebb and flow of the economic cycle…It measures a rolling average of how things turn out relative to forecasts…When the index is deeply negative, as it is today, that is usually a good sign for stocks.  Following the weakest 5% of observations since 2003, the S&P 500 rose by 14.4%, on average, during the following six months.

 

AAPL: Apple Has Roughly 170 Billion Reasons To Scare Their Future Competitors (Alt)

 

ICYMI: There’s A Few People Calling The Fed’s Bluff

Meanwhile, “often wrong but seldom boring” guy is done pretending.

 

What: America’s First Kenyan President Inspires Canadian To Run

Meanwhile, Asset Classes in the Obama Years

dollar vs S&P

 

What Did You Guys Think About European QE?

Assuming the EUR/USD settles at parity, the ECB staff projection for inflation would increase by three tenths this year and next, to 0.3%oya and 1.8% respectively, and by two tenths in 2017 to 2.0%.  And so the question appears to be becoming (and yes, it’s funny/absurd how quickly it has become the question), is there any chance of the currency weakening to such an extent that the ECB starts thinking about an early tapering?”  Meanwhile, “Everyone Hates U.S. Stocks” is the headline at Bloomberg: “The U.S. stock market was an island of opportunity for a number of years…It has lost its status, not because it’s negative, but because other places around the world have started becoming more attractive.”  Meanwhile, the Bank for International Settlements says “deflation has been given a bad name because of the link between falling prices and the Great Depression.  Besides that episode, however, the economists say the links between deflation and economic catastrophe are weak.”  Furthermore, “deflation per se is not necessarily a problem — it’s what causes it that counts.”  Meanwhile, LPL Financial thinks that “although the strength of the dollar has important implications, it is more of a symptom of economic and market forces rather than a cause of them.  Although some sector relationships are interesting, the dollar is not very useful as a predictor of stock market performance and we do not expect it to derail this bull market.”  Meanwhile, “the biggest obstacle I see standing in the way of most new stock market enthusiasts is this immense reluctance to personally accept the fact that their own mind games can kill them as investors…The brain’s natural default mechanism is to run with its intuition — that is precisely why you must understand this tendency, lasso that trading brain of yours, and pull it back to the rational-analysis corral.”  Meanwhile, “the Riksbank is leading the currency war, but the losses in the krona will be short lived.”

 

Fed: Press Conference At 11:30 PST

 

WM: The Median Investor Is Significantly Underperforming A 60/40 Portfolio

 

Oil: The Oil Conversation Has Shifted Its Focus To Storage

 

USA: Some People Think Private Valuations Are Like, Totally Fuzzy And Insane

running of the bulls

The Trick Is To Stay Ahead Of The Bulls

“Entering its seventh year, the ageing US equity bull market looks vulnerable (alt)…Uncertainty over how asset prices will react once borrowing costs rise for the first time since 2006, looms large over Wall Street.”  People are pretty worried about the rising dollar, buybacks fueling the bull, lower energy earnings, etc.  All that being said, a “modest tightening from the Fed [may] sustain the appeal of owning equities even with the S&P trading at 17 times future earnings.”  Meanwhile, it’s been four days since the ECB began purchasing bonds and guess what?  The ECB’s QE Is Working Well!  “The ECB has finally broken the QE taboo and has become a normal central bank…The lack of contagion from the recent Greek turmoil is a good example of this confidence effect.  Euro area bonds have again become risk-free assets, hopefully putting to rest the mistaken view that euro area countries ‘don’t have a central bank’…Quantitative easing has erased most of the near term deflationary risks and has restored the ECB’s long-term price stability credibility…and markets are now moving in the right direction.”  Meanwhile, the grass is greener in currency hedged European equity ETF funds: “These funds have become multibillion-dollar blockbusters because of alpha seekers.  But they could be in for a surprise once the trend ends or even if the movement goes into hibernation for a while as the foreign exchange market consolidates.  The takeaway is this: It’s probably fair to expect parity between the euro and the dollar.  But once parity is reached, it might make sense to think through this currency-hedging decision again and carefully.”  Meanwhile, Ray Dalio explains the power of not knowing: “You can’t make money agreeing with the consensus view, which is already embedded in the price.  Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble…We all make better decisions by maintaining an independent view and the conflicting possibilities in our minds simultaneously, and then trying to resolve the differences.  We’re always in the place of holding an opinion and simultaneously stress-testing the hell out of it.”

 

Homeownership By Age

Michelle Meyer, an economist at Merrill Lynch, has some numbers on homeownership rates by age: “The biggest decline in the past ten years has been among the 30-34 year olds, followed closely by the 35-44 year old cohort….There was a similar story for the 25-29 year olds, but not quite as extreme.  In contrast, the homeownership rate for 65+ has been little changed.”  Meanwhile, “the National Association of Realtors said millennials, or those between 18 and 34 years old, accounted for the largest share of home buyers last year at 32%…The median age of millennial homebuyers was 29, their median income was $76,900 and they typically bought a 1,720-square foot home costing $189,900.”

 

What’s Oil Doing?

UBS economists say that “if oil prices were to remain close to current levels over the remainder of 2015, it would be unusual.  There have only been 8 occasions in the last 150 years, for example, when the cumulative 2-year change in oil prices has been more than 50%, which is what it would be if oil prices remained close to $60/bbl from here.  Putting that another way, there is at present a 25% chance that oil prices climb to $80 or higher by the end of 2015 based on the pure statistical properties of oil price swings in the past as well as relative to what is discounted in the forward curve.”  Meanwhile, some large oil companies may enjoy trading the fruits of production more than others: “In the first quarter of 2009 (the last bear market for oil), BP said it made $500 million above its normal level of profits from trading.  That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income of $2.38 billion that quarter…oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits…Although extra profits from trading won’t offset the much larger loss of revenue from lower oil prices, it could help the three companies to weather the crisis and, perhaps more importantly, beat analysts’ estimates.”

 

AAPL: Apple’s Moat: Mall Rats Edition

 

What: Mountain View Resident Suspects He May Live To See 500

Sand Hill Exchange

Power To The Venture Capitalist People

The Financial Times says there “is a sense among many in the industry that private equity is no longer at the leading edge of investment, with that mantle having moved on to the venture capital world (alt)…Quietly, firms including Blackstone, Carlyle and KKR have looked at acquiring venture capital firms…several of the private equity firms are shifting their pitch to investors.  Rather than emphasising the big (and often disastrous) buyouts of the last cycle, they refer to their interest in providing growth equity to much younger companies.  Being masters of smaller alternative universes has suddenly become the new, new thing.”  Meanwhile, Sand Hill exchange “is offering anyone who wants to deposit money with the firm the chance to buy and sell synthetic derivatives linked to unlisted tech companies…The ‘contracts’ that make this possible are British-style contracts for difference — Cfds.  Rather than owning the asset outright, you enter into a contract with a counterparty to cash settle any subsequent moves in the price of that asset… But Cfds specifically are illegal in the US…What Sand Hill appears to have done is to simply sidestep the entire 40-year old edifice of the CFTC by using the blockchain, that bit of the Bitcoin infrastructure that acts as a distributed public ledger, for transactions.”  Meanwhile, according to the city of Orlando, “nerds love Orlando.

 

Investable Asset Classes

“If U.S. investors have learned one thing since the bull market started six years ago, it is don’t bet against central banks’ easy-money policies…According to Lipper, U.S. stock funds have seen $5 billion in outflows so far this year, while European equity funds have collected $4 billion in assets and those in Japan have gathered a little over $1 billion in 2015.  Returns in 2015 have already paid off for those invested in foreign markets.  Across the pond, Europe is higher by 15%, while Japan has risen 8%.  At home though, the S&P 500 is up only 1% this year even as the U.S. economy improves and jobs growth is the strongest it’s been in over a decade.”  Meanwhile, “euro-denominated corporate bonds have gained 1.4 percent this year,” unless your passport has an eagle on it, in which case euro-denominated corporate bonds have lost 9 percent this year.  “With yields at record lows, that means this trade is as much a bet on the euro as anything else.  And that’s a huge problem given the euro’s 10 percent drop against the greenback this year.  The average yield of less than 1 percent on European investment-grade corporate bonds isn’t enough to offset that currency move.”  “Although ECB QE is expected to boost demand for euro-area assets, that may not buoy the currency…Many of the bonds the ECB buys are likely to come from foreign investors, according to David Woo, a strategist at [Merrill Lynch].  That could lead to as much as €10 billion worth of euro selling against other currencies every month, he said.  QE has already drawn overseas investors to eurozone equity markets.  But most foreign buyers are hedging their currency exposure, negating any upward pressure on the euro.”  Meanwhile, here’s what “don’t bet against central banks’ easy-money policies” looks like.  Also, Europe’s central banks are still playing hot potato with the expected losses from negative yields.

 

USA: CBO Projects Even Lower Deficit

 

Global: Female Managers Are Negatively Correlated With Fraud, Scandal (Alt)

 

What: Apple Watch Won’t Rescue Gold Bugs

 

WaitWhat: Is Cash An Investable Asset Class Or Not?

Also, is art an asset class?

QE supply ECB vs Fed March 2015

Buy It All Back

Dr. Ed says that since 2009, the S&P 500 has been “highly correlated with the sum” of share buybacks and dividends.  “Buyback authorization for February 2015 — of $118.32 billion — were the strongest for [any month ever], in dollar terms.  While analysts expect H1-2015 earnings growth to be negative y/y for the S&P 500, I think buybacks could help to turn S&P 500 earnings growth positive.”  Also, the last time buybacks reached a monthly record (July 2006), “the S&P 500 advanced 23 percent in the next 14 months before hitting an all-time high.”  More: “Repurchases set an annual record of $589 billion in 2007…[Companies] were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed…S&P 500 companies hold $1.75 trillion in cash and marketable securities.”

 

Unprecedented Distortion

“European shares rose close to seven-year highs on Tuesday as better than expected German retail sales further buoyed investors days before the [ECB] kicks off a trillion-euro bond buying programme…German retail sales rose 2.9 percent month-on-month and 5.3 percent year-on-year in January, more than economists had forecast…’Euro zone economic surprises have veered from extremely negative to extremely positive in very short order.’”  A reuters columnist thinks “investors would be wise to prepare for a more optimistic outcome.  Folk wisdom holds that in strong economies stocks do well and bonds do poorly.  But years of ultra-easy monetary policy may have complicated the relationship.  Indeed, if strong growth reduces the need for new government borrowing and even a brief QE programme reduces supply, market prices might keep rising.  So negative yields may last a while longer.”  Meanwhile, a Citi strategist says that “the unprecedented distortion that ECB QE is about to introduce to € fixed income at a time of ultra-low yields has still not quite dawned on European credit.”  Meanwhile, ultra-low yields have dawned on Buffett.

 

AAPL: Notes On Cars

“Many people can find $400 for a better phone or, this year, a smart watch, if they’re persuaded that they really want one, but rather fewer can find an extra $40,000 for a better car, or to replace their car every two years instead of every 4 or 8.  If you’re in the market for a $20,000 car, there is very little that anyone can do to a car that will put you in the market for a $60,000 car.  Cars do not come out of discretionary spending.”  Meanwhile, the Wall Street Journal reports that several insurance companies and an auto parts maker have included warnings about the risks of driverless cars in their official corporate filings.  

 

USA: Does The Fed Have A Currency Problem?

You’ve probably heard the argument that steady core inflation could prevent the Fed from abandoning a rate increase this year.  Tim Duy isn’t buying it: “On a 3-month basis, core inflation is at its lowest since the plunge in 2008.  Year-over-year inflation has been held up by a basis effect from a jump in early 2014.”  And why is core-inflation drifting lower?  “The rising dollar may be causing the Fed more headaches than they like to admit.”

 

USA: Wall Street Has Its Eyes On Millennials’ $30 Trillion Inheritance

 

WM: Royal Bank Of Scotland To Investment Banking Employees: We’re Done Here


EM:
The Raghuram Rajan Effect Is Playing Out Nicely

weasel woodpecker

Teamwork

“After an absence of 15 years, investors briefly watched the Nasdaq Composite trade above the fabled 5,000 threshold on Monday (alt)…with many global equity benchmarks recording all-time and multiyear highs, as central banks continue pumping money into the financial system, the Nasdaq is finally approaching a peak that many investors thought would take decades to reclaim.”  Meanwhile, Gavyn Davies is capitulating to his fear of heights: “The global equity bull market, at least in the advanced economies, has been driven by two key fundamentals — a moderate but continuous recovery in real GDP and corporate earnings, and aggressively easy monetary policy.  Because the US has been at the forefront of both these phenomena, the S&P 500 has vastly out-performed the global market for 6 successive years.  Both of these key fundamental drivers are now less convincing than before.”  Furthermore, “about three-quarters of the rise in US equity prices in the past 12 months has been due to a rise in the market’s price/earnings ratio (ie ‘multiple expansion’).  This has taken market valuations into fairly expensive territory compared to long term history.”  Meanwhile, Draghi’s QE moves to the starting line as the outlook in Europe brightens: “Draghi will have an opportunity in two days to add to details of the 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan…Purchases under the expanded asset-purchase program are set to start as early as this week.”  Which might explain why European debt has gone negative recently.  But people are scared: “the fundamental concern is not the specifics of the small Greek economy or the legalities of leaving the euro or the EU, but rather Europe’s continued inability to resolve its Greek tragedy…’Much of Europe is at risk of difficult economic times, and when you have difficult times and populist parties, politics becomes extremely unpredictable.’”  For example.

 

WM: Riskalyze Report: Advisors Sold Strategic/Tactical Income And Other Bond Proxies Last Week

 

USA: Walmart’s Visible Hand

Krugman says Walmart’s announcement to raise wages for half a million workers is “a very big deal, for two reasons.  First, there will be spillovers: Walmart is so big that its action will probably lead to raises for millions of workers employed by other companies.  Second, and arguably far more important, is what Walmart’s move tells us — namely, that low wages are a political choice, and we can and should choose differently.”

 

USA: Today’s $100M+ Late-State Private Rounds Are Very Different From An IPO

 

What: Uber Just Launched A Quarterly Print Magazine