Michelangelo's iconic image of God giving life to Adam is reimagined for the robotic age. Here, God gives life to a robot, a new kind of futuristic Adam.

This Time Is Different (Duh)

Secular stagnation largely rests on two different stories: First, that we will be making fewer babies forever.  Second, that those babies will be crazy un-productive and never raise a cybernetic finger: “Output per worker grew last year at its slowest rate since the millennium, with a slowdown evident in all regions, underscoring how the problem of lower productivity growth is now taking on global proportions…Globally, the rate of growth decelerated to 2.1 per cent in 2014, compared with an annual average of 2.6 per cent between 1996 and 2006…The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers around the world.”  Also, you should know that number 2 on the Financial Times’ list of five drags on productivity is “The big innovations have already happened.”  Which, of course, is always true at all times…the big innovations have already happened.  But this will change — will it?!  We have just summarized the “debate” on secular stagnation.  Meanwhile, George Magnus is connecting the speculative euphoria exhibited by German bunds and Chinese equities: “Rationalised in macroeconomics, this is essentially about ‘secular stagnation’…We should beware this narrative, even if the secular stagnation hypothesis turns out to be right…Any euphoric returns today will be counterbalanced as night follows day…Institutions are still buying European debt on negative yields.  Investors who have missed the doubling of the Chinese stock market since mid-2014 wonder if they can afford to stay out.  Emerging market currencies are down but asset returns have barely moved despite a steady deterioration in currency reserves, capital flows and growth.”  Meanwhile, cheap is like, so 2013: “investors are being dragged kicking and screaming into the stock market because, while valuations are not cheap, there really aren’t any better options,” says money manager.  “Higher P/E stocks don’t frighten me…this tends to be the most exciting and rewarding stage of the market anyway,” says fund manager.  Meanwhile, Bond Traders Uncover Secret To Rates That Fed Doesn’t Get.

 

Speaking Of Rewarding Stages Of The Market

How Can I Invest In China? is probably the question you’ll be getting this week (if not already).  “A year ago, analysts who cover the 50 largest companies trading in Shanghai and Shenzhen said equities were set to rally 28 percent.  Turns out they weren’t anywhere near optimistic enough, as monetary easing and a buying frenzy among Chinese retail investors sent shares surging 111 percent through last week…While regulators have taken steps to weed out speculators, they’ve also sought to expand the role of equity markets in helping companies raise funds as the government reins in credit expansion.  Beijing has accelerated reviewing companies’ applications for initial public offerings since April.”  Meanwhile, as “the dollar has soared against the currencies of most of its biggest trading partners in the last year, Beijing has largely refused to let the renminbi depreciate against it.  At 6.20 to the dollar, it’s less than 1.5% off the record high it posted at the start of last year.  As you might expect, tying the renminbi to the dollar has led China’s exporters to lose competitiveness on regional and world markets, particularly against local rivals Korea and Japan.”

 

EU: This Time Greece Is Down To The Wire For Real You Guys

GDPNow 05132015

Looking Pretty Calm Up Here You Guys

“Even though the S&P 500 has closed at an all-time high three times in the last week, investors are still waiting for breadth (i.e. more than just Carl Icahn Apple shares moving the market)…the current stretch of 61 trading days without a new high is the fourth longest drought of new highs in breadth for the entire bull market and the longest in nearly three years (December 2013).  At 61 days, though, the current drought of new highs in breadth has a ways to go before getting anywhere near the length of the three prior streaks.”  Meanwhile, “little conviction may actually be a good thing for stocks going forward…According to AAII, periods of unusually high neutral sentiment are typically followed by outsized returns in the equity market over the next six and 12 months…From 1987 until near the end of 2014, there were 71 instances of unusually high neutral sentiment.  Following such periods, the S&P 500 rose 86% of the time and averaged a 7.1% gain.”  Meanwhile, David Rosenberg says the current inflation and growth numbers are virtually perfect for stock investors: “In periods where real GDP growth is running between 2% and 3% at the same time that core inflation is between 1% and 2%, the average annual advance in the S&P 500 is 14.4%…Of course, the first-quarter GDP rate was atrocious, and the second quarter is looking weak as well, putting into doubt whether or not the U.S. economy can [produce] even 2% growth for the entire year  But don’t fret, according to Mr. Rosenberg’s table, the average S&P 500 advance when GDP falls to the 1% to 2% range slips only to about 13.7%.”

 

Under The Surface

“There’s a whiff of inflation in the air, thanks to Friday morning’s release of April’s Consumer Price Index (CPI).  The core CPI rose 0.3% in April, surprising economists and sending bond yields higher Friday morning…Core CPI is now up 2.6% annualized over the past three months…Is it strong enough to convince the Fed it can safely raise interest rates despite other weak recent economic reports?  Probably not, but it does provide some data in that direction.  However, the report also shows a 0% gain in real wages, which doesn’t bolster a case for inflation pressure.  Also, the year-over-year headline number posted a 0.2% decline.”  Meanwhile, “the debt millennials have incurred is a paradox for policymakers: A better educated workforce leads to a more powerful economy, but the rising costs of post-secondary education and inevitable interest rate hikes have created a looming debt trap for borrowers and a potential risk for the taxpayer.”  Meanwhile, next Friday we’ll find out if the Atlanta Fed’s GDPNow forecast is worth its salt.

 

WM: Josh Brown Gets Apocalyptic

 

Global: Academics Argue About War And Peace

Also, Zero Hedge got to use their three favorite words in this headline.

 

USA: BEA Is Looking Into “Residual Seasonality” In Their Data

bill murray

What If There Is No Tomorrow?

There’s been an abundance — nay, “cesspool of rotations” ever since the Fed announced the beginning of the end the tapering.  “Many were positioned this Jan for US macro liftoff.  Once weaker-than-expected Q1 data caused the Fed to ‘blink’ in March, an immediate painful US$ peak, biotech selloff and trough in oil prices ensued.”  Remember that?  About 6 months ago no one felt like chewing Mario Draghi’s grass?  Well: “investor appetite for U.S. stocks has slumped to its lowest level in more than seven years.  Though the S&P 500 has hit three new highs in May, the region has suffered its biggest drop in equity allocation since September 2008, with the number of investors overweight U.S. equities declining to a net 19% in May, according to [Merrill Lynch’s] monthly fund manager survey…Only 7% of those questioned cited the U.S. as the region with the most favorable earnings outlook.  The vast majority prefer Europe and Japan, where central banks are still committed to quantitative easing programs.”  “Not unlike the 1993 comedy ‘Groundhog Day,’…investors are doomed to relive a perpetual daisy chain of mediocre U.S. economic reports and lackluster returns from risky assets…Until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause a market or macro shock (as it infamously did in 1937-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes.”  And Icahnic tweets: “Amidst this light trading volume environment, it does not take much to get markets moving.”  For example: the “market-moving impact of Carl Icahn, who tweeted on Monday that Apple is worth $240 a share.  That kick-started a rally in [Apple] and, it seems, the entire U.S. stock market…It is surprising to hear so many investors deny the bubbly nature of this market when such moves are now commonplace.”  Meanwhile, Tobin’s Q is getting a lot of attention suddenly: “Valuation tools are being dusted off around Wall Street…If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over.  That (literally) is the math behind a bear case on equities that says prices have outrun reality.”  Meanwhile, here are some better questions to be asking yourself.  Also, what if everything started to go right in the world economy?

 

USA: Nah Just Kidding, There’s A Recession Coming

 

What: It’s Up To Us To Understand How The Leap Second Will Impact Our World

 

pigs diving

Just Some Pre-Slaughter Fun

“In the land of negative yields, even the most conservative firms…are planning to invest in sub-investment grade debt for the first time.  One of the bond market’s brightest luminaries, Jeffrey Gundlach, says you’re better off in front of one steamroller than another in junk because the only money to be made on German bunds is from betting against them.”  Speaking of which, the Gross short appears to be working: “European government bond yields, which have been on a steady downward trend for years, are suddenly trading at their highest levels in more than two months…The yield on Germany’s 10-year Bund, the benchmark in Europe, was trading at 0.43 percent on Monday (currently 0.53%).  It has soared from a record low of 0.05 percent just last month, as investors reassess bullish bets on government bonds in Europe and the U.S., where debt yields have also risen sharply.”  Indeed, “one key reason for the recent increase in US long term interest rates has been surging German rates — basically unwinding a big source of downward pressure on US yields…Unfortunately, a lot of people may soon find out the harsh truth about overpaying for the perceived safety of US Treasurys and German Bunds.”  Meanwhile, something I’ve been curious about recently has been the bond market’s idiosyncratic pricing of Greek debt vs the rest of the piggies.  Greek 10 year debt is currently yielding roughly 900bps more than Italian 10 year debt, and over 800bps above Portuguese debt.  Here’s why that may be the case: “First of all, it’s a lot smaller.  Around €34 billion of Greek government bonds trade on the open market…the Italian government bond market is around 54 times bigger, clocking in at over €1.8 trillion..Traders reckon Greek bonds change hands 20 to 30 times a day across the whole market versus thousands of trades per day in Italian debt.”  Fair enough; but if Greek yields are higher because the market believes the risk of default is higher, than what is the probability of a nice, neat implosion along the Mediterranean with little impact rippling through the debt markets of other highly indebted suinae?  Meanwhile, “a proliferation of images on the Internet and reports in newspapers suggests that creating a leaping, amphibious pig is another realm where China can claim global preeminence.”  

 

USA: The Curious Incident Of Current Account Deficits And Weaker Net Investment Position

“The U.S. net international investment position — the difference between US assets abroad and foreign claims on the US — has moved substantially deeper into the red in recent years.  But why?  You might be tempted to say that it’s obvious: we’ve been running big budget deficits, borrowing the money from foreigners…But that story implicitly requires a surge in the trade deficit (or more precisely the current account deficit, which includes investment income), which hasn’t happened…The answer, I believe, is that we’re looking at the differential performance of stock markets…The value of foreign holdings of US equities…has surged along with the Obama stock market, while US holdings abroad have seen no comparable boost.”  Meanwhile, here’s the investment thesis behind European equities that no one really wants to admit (it isn’t, y’know, fundamental).

 

Oil: The Cap Is Now $70, And That Is FINAL

 

ICYMI: Rapid Communication Is Changing The World: Short Tweets Edition

 

What: Cryptocurrency Backed By Gold

zeppelin logo

Confusion Trending

The Wall Street Journal proclaims that “the trades that had proven winners in recent months backfired [in April] (alt)…The euro strengthened 4.5% against the dollar in April after tumbling 11% in the first quarter.  The U.S. benchmark crude-oil price soared 25% after declining 11% in the first three months of the year.  The Nasdaq Biotechnology Index fell 2.8% in April after jumping 13% in the first quarter.  Yields on German government bonds bounced higher after nearing zero last week.”  Furthermore, “the turnaround month ended with an exclamation point,” read: selloff in “suddenly vulnerable technology stocks.”  Twitter, Yelp and LinkedIn are the culprits.  “It is spring cleaning,” says one.  “It’s a short-term unwind,” says another.  “I’m convinced medium-term trends will re-establish themselves.”  Nice.  As you can probably tell, everyone is a bit “um, what?” about recent economic data.  ICYMI, 1Q GDP came in at 0.2%, and people were all like “probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.”  Then, the impossible happened:  “private sector pay rose 2.8 per cent in the first quarter (alt)…the quickest upward pace since 2008;” “personal spending rose 0.4% in March from February (alt)…the biggest gain since August;” “new claims for jobless benefits tumbled to a 15-year low” etc.  “This is precisely why we told you to ignore the weak first-quarter GDP data produced yesterday.  It’s old news.  And the economy is showing”–cue Institute for Supply Management: “the pace of U.S. manufacturing growth held at its slowest in almost two years in April, as a rebound in new orders was offset by employment shrinking to its lowest level in more than five years.”  Also, “U.S. construction spending fell in March to a six-month low…Economists polled by Reuters had expected construction spending to rise 0.5 percent.”  Of course, the best head-scratcher of all is still with us: “consumer confidence increased in April to the second-highest level in more than eight years as Americans grew more upbeat about their financial prospects.”  Meanwhile, 10 year Treasury prices have fallen nearly 8% since Wednesday.

 

China: Chinese Equities Are A Stairway To Heaven (Alt)

Orientalism aside, this is pretty suspect: “After jumping by the maximum-allowed 44 per cent from the offer price when it floated in Shenzhen just a month ago, the stock has risen by the daily maximum of 10 per cent every day since…Every one of the 29 IPOs in Shanghai and Shenzhen this month have risen by the daily limit each day since.  The worst performing IPO from earlier in the year has doubled in price.”

 

USA: P2P Derivatives

“LendingClub chief executive officer Renaud Laplanche said he’s aware of the interest to bet against the market.  Derivatives that give investors the ability to protect against losses on the loans the company arranges is just smart risk-management, he said.”

 

Musk: “The Goal Is Complete Transformation Of The Entire Energy Infrastructure Of The World”

 

What: Eyeglass Retailer Gets $1.2 Billion Valuation With No Profits

 

WaitWhat: Guy Thinks VCs Are Gonna Need A Dark Pool

uber driverÜber Wages Lag The Über Economy

“Today’s great paradox is that we feel the impact of technology everywhere — in our cars, our phones, the supermarket, the doctor’s office — but not in our paychecks…since the beginning of the personal computer revolution three decades ago, the median wage has remained stagnant…Too often, when people think about technology, they only think about the initial invention…Yet most major technologies develop over decades, as large numbers of people learn how to apply, adapt, and improve the initial invention…The problem isn’t that technology has eliminated the need for mid-skill workers overall.  New opportunities are there, but grasping them is difficult…If we meet that challenge, then large numbers of ordinary people will benefit substantially from new technology, just as they have for the past two hundred years.”  Meanwhile, “working for Uber might come with its perks, but it also comes without the benefits and protections many businesses provide for their employees.  That’s unfair and illegal, a Boston labor lawyer is now arguing in court, potentially threatening the business models of the dozens and dozens of popular apps that make up the so-called ‘on-demand economy’…her suit, and others like it, might fundamentally change the calculus used by the venture-capital firms pumping money into these businesses.”  Then again, “states could create new worker designations to fit this burgeoning industry,” both ensuring that “businesses would benefit from an easily scaled labor force,” and workers would benefit from “protections against earning less than the minimum wage.”  Meanwhile, “the U.S. stock market has been a compounding machine since the early-1900s.  As long as people continue to innovate and set out to improve their lives I see no reason why stocks can’t give investors a decent return above the rate of inflation in the future.”

 

Speaking Of Inflation

Eurostat is reporting “no inflation in the 19-member region (alt) in the year from April 2014, up from minus 0.1 per cent in March…The price of Brent Crude has risen over 20 per cent from April 1 to today…helping to lift consumer prices.  Core consumer inflation, which strips out more volatile prices such as those for food and energy goods, remained at a record low of 0.6 per cent.”  Furthermore, the ECB thinks that “longer-term inflation expectations had started to recover after hitting low levels in January.  ‘The decline observed over the previous two years has come to a halt.  These movements — with some differences — were also observed in the United States and the United Kingdom.’”  Meanwhile, Goldman connects the dots between inflation expectations and the equity risk premium: “we find it more challenging to rationalize high PE multiples.  A fundamentally-based argument would need to argue that relative to past rate-hike cycles, some combination of the following three factors would presumably need to hold true: that expected growth is higher, equity risk premia are lower, and/or risk-free discount rates are lower…the latter is the easiest [argument] to make…That said, if term premia are low due to low and falling inflation risk, and if equities hedge inflation risk better than fixed-coupon bonds, then the drop in term premia doesn’t necessarily imply higher equity PE multiples.  The links between bond premia and equity premia are subtle; one needn’t imply the other.”  Meanwhile, “given the amazing strength in the US dollar over the last six months, the lack of momentum in US (or Chinese) economic data and the effects of the oil crash still lingering, one thing virtually no one is predicting is any kind of comeback for the commodities market.”

 

USA: The Country’s Economic Gravity Is Moving West

 

USA: Of Bubbles, Synapses & Slime Molds


Global:
The Belief That We Are Going To Make Fewer Babies Indefinitely Is Behind Secular Stagnation

oliver twistEat Up

“The performance of the US stock market is quite impressive considering that there isn’t much of a spring in the latest batch of economic indicators.  The winter’s ice patch is looking more and more like the spring’s soft patch.”  “It is one of the market’s paradoxes that soft economic growth can be a fine climate for stocks.  As long as the economy is advancing, corporations can increase sales and profits.  But in a soft advance, interest rates stay low, keeping costs down.  The uncertain economy keeps Federal Reserve monetary policy easy, one of the main bulwarks of a bull market…Severe bear markets usually occur when the Fed is raising interest rates sharply to cool off inflation…low inflation and low rates increase the present value of future corporate earnings.”  Meanwhile, the Wall Street Journal says “core inflation readings would be even weaker but for the pace of gains in the BEA’s measure of housing costs, which counts toward about one-fifth of its core price index.  This was up 2.9% from a year earlier in February.  Absent that, core inflation would have been running at just 1%.  Housing counts for an even bigger chunk of the Labor Department’s consumer-price index, which is a big reason why its core measure has been running ahead of the BEA’s…The rental vacancy rate fell to 7% in the fourth quarter from 8.2% a year earlier…the lowest level since 1993.”  Meanwhile, “Japanese life insurers — some of the world’s largest institutional investors — plan to keep pouring money into U.S. debt this year as the list of countries able to meet their thirst for yield shrinks…Even though the roughly 2% current yield on 10-year U.S. Treasurys is a far cry from yields of 5% or better before the global financial crisis, it is still light-years better than the current 0.16% yield for German bunds with the same maturity or the 0.29% yield for 10-year Japanese government bonds…’Considering current yield levels, liquidity, hedging of currency exposure, the U.S. is likely the primary destination.’”  So inflation and rates are low, which means there’s a lot of “stocks are expensive, BUT” going on at the moment: “stocks are expensive but while rates stay low, and earnings avoid a serious collapse, money flows into them.  A strong catalyst — really bad earnings, a bad geopolitical event, or a surprise from the Fed — is needed before the market can jolt out of its steady ascent.”  Speaking of surprises, the “Make my day, Janet Yellen” crowd is eating their last free lunch: “what the market never worried about was whether the statement would include the most dreaded news: a rate hike, and because of that, every meeting was something of a free lunch for the market.  That is the case this week, too.  The Fed’s signals have been very clear: there won’t be a rate hike at the April meeting.  However, this is the last meeting at which that certainly presides.  After this, higher rates are firmly on the table.”

 

China

“There are two main routes through which the slowdown could develop into something much worse…investment could slow sharply…[and] there could be a rise in household savings in response to concerns about falling household wealth, which is what happened during the US housing crash.  Given the bubble-like surge in equity prices, this may seem improbable, but it would become more likely if the equity surge ends in a crash.  The second route, also reminiscent of events in the US in the last decade, would be a financial crash led by stressed loans to the real estate or manufacturing sectors.”  Meanwhile, “Chinese companies are increasingly tapping the equity market for funds to pay down liabilities and invest in growth.  They’ve announced $82 billion of secondary stock offerings in 2015, a figure UBS Group AG predicts will increase to a record $161 billion by December.”  Also, “authorities have pledged to move toward a so-called ‘registration system’ where markets, rather than regulators, determine most aspects of an offering, including pricing and timing.”

 

WM: Consensus Expectations

Also, Why International Diversification Matters.

 

Greece: He Who Shall Not Be Named Shall Not Be In Negotiations

 

What: Socialist Muslim Slash Deflationary Force

facebook-likeClick Farms And Facebook’s TV-Like Audience

Facebook announced earnings yesterday and they were kinda meh; revenues fell a little short of estimates, Zuck blamed it on the euro etc.  Mark was cheerful about one thing though: “the social media giant announced strong user growth that showed its monthly user base was now larger than the population of China.”  Not only that, but mobile advertising revenue is taking over (“this thing is a rocket ship, it’s almost at 70 percent mobile!” said Shark Tank shark Kevin O’Leary).  And even though “the mobile monthly growth rate slipped a bit from 6.1% last quarter, the more important daily mobile user growth rate grew from 5.97% last quarter.  That means Facebook might not be signing up casual users quite as quickly, but its turning more people into non-stop social networkers.”  Non-stop social networkers means non-stop advertising revenues: “more than $16 billion was spent worldwide on social media advertising in 2014.”  Furthermore, “in 2014, more than 90 percent of Facebook’s $12.5 billion in revenue and about 90 percent of Twitter’s $1.4 billion in revenue came from advertising.”  Which makes this kind of a problem: “Google ‘buy Facebook likes’ and you’ll see how easy it is to purchase black-market influence on the Internet…click farms employ manual labor, a dozen or so people who manipulate Facebook accounts individually to create the likes that they sell…researchers ran ten Facebook advertising campaigns, and when they analyzed the likes resulting from those campaigns, they found that 1,867 of the 2,767 likes — or about 67 percent — appeared to be illegitimate…If researchers are correct that advertising on social media leads to a high percentage of fake likes and fans and followers, the entire business model could be called into question by advertisers.  What incentive do companies have to buy ads that target digital ghosts?”  Meanwhile, “video views on Facebook are growing exponentially.  Some 4 billion videos are watched on the platform every day, up from 3 billion in January.”  Which is more great news for Facebook, considering the fact that more than half of Americans prefer digital streaming over their television set.  “Moreover, younger viewers now more commonly watch TV shows on mobile devices or PCs — rather than on a TV set.”  So Facebook is all like ”pretty cool, huh?  Advertisers that can’t afford TV can create TV-like ads, for a fraction of the price, and still reach a huge TV-like audience…Facebook has made it clear that it is building out the tools for businesses not only to buy more advertising on its platform versus TV, but also to measure Facebook ads’ effectiveness versus TV.”  

 

Antitrust Shmantitrust

“Google is already an Internet Service Provider and a pay-TV operator.  Now it’s expanding to become a wireless carrier as well…Google’s service will switch between different highspeed wireless networks operated by Sprint and T-Mobile…phones on Project Fi will switch to Wi-Fi networks when available to place calls and access the Internet.”

 

EU: The Bond Market Isn’t Pricing A Fallout From Grexit

 

USA: Kinda Feels Like We’ve Been Here For Awhile, Doesn’t It?

ski patrol

Shreddin’ The Gnar

What the Fed has begun to worry about is financial stability…the longer rates stay very low, the greater the risk they become built into the current financial architecture…It is useful to think of the Fed’s mindset here as being like that of the avalanche patrol at a ski resort.  You detonate your tools in order to see if there are any avalanches out there to be triggered.  You don’t know if there are any out there, but you know the longer you wait, the larger the risks grow in probability and magnitude…the policy rate can be used to signal, to keep us on our toes, and to help clear the slopes now so as to lower the risk of triggering a larger and potentially destabilizing avalanche later.”  Meanwhile, John Williams is soooooo stoked bro : “As we go through time, that probability of saying ‘well, the shocks are going to push us back,’ seems to be [decreasing]…More importantly, we are really thinking about a path, we are talking about moving interest rates from zero to a normal level over several years.”  “To get that message across Williams has begun giving away T-shirts, printed at his own expense, showing an arrow busting upwards out of a computer and declaring: ‘Monetary policy — it’s data dependent.’”  Meanwhile, the powder abroad is DEEP dude: “investors speculating the dollar rally is fizzling out may be overlooking trillions of reasons why it will keep on going…Sovereign and corporate borrowers outside America owe a record $9 trillion in the U.S. currency…’There’ll be huge demand for the dollar that is much more than what’s consistent with growth or interest-rate differentials’…in addition, central banks that had reduced their holdings of the greenback are starting to reverse course, creating more demand…’Central banks are re-accumulating their dollar reserves and low, or negative, bond yields in the euro zone will probably speed up that trend.’”  Also, whether you are on snowboard Team Summers or skis Team Bernanke, the gnar is the same: “There’s too much money and not a lot to do with it.  And that’s why we’re seeing investors make some interesting, seemingly non-economic decisions with their piles of cash.”  Speaking of piles of cash, “General Electric’s deal to sell off real estate and get out of most of the finance business contains a little sweetener for the U.S. government, in the form of up to $4 billion worth of taxes on repatriated earnings…Right now, U.S.-based multinationals are not taxed by the U.S. government on what they earn overseas — until they bring that money back to the U.S….and there’s at least $690 billion in overseas cash…Companies can use it to make acquisitions abroad, or do what’s called ‘synthetic repatriation,’ which means borrowing against the overseas cash and giving it to shareholders in the form of buybacks and dividends.”  “Shareholders in the biggest US companies stand to receive a record $1tn in cash this year, as blue chips’ concerns over the global economic outlook have diverted cash away from investment and is driving a boom in buybacks and dividends.

 

USA: Financial Stability And Captive Reinsurance

 

China: Equity Rally Creates New Corporate Giants

Meanwhile, the “impossible” trade is working.

potato

Global Prices And Political Boundaries

The “dollar-related drop in import prices is one of the things weighing on U.S. consumer prices, and one of the reasons inflation is running well below the Fed’s 2% target.”  This has led some to believe that the Fed will wait to see a turnaround in the dollar or, perhaps, stable import prices before raising rates.  “That won’t happen right away.  This is because purchases overseas are often contracted in dollars months ahead of time, so much of the dollar’s rally this year has yet to register in import prices.  The dollar’s effect on the prices consumers pay takes longer to show up, as much as a year….So even if recent signs that the dollar is leveling off hold, the pressure that its recent strength is exerting on prices will still very much be in evidence at the start of the summer.”  Meanwhile, “U.S. import prices fell in March as rising petroleum costs were offset by declining prices for other goods…Import prices dropped 0.3 percent last month after a downwardly revised 0.2 percent gain in February.”  Also, “China’s consumer price index maintained a sluggish year-on-year pace of 1.4 per cent in March, the same rate as in February, according to the government’s official figures…The producer price index, often regarded as a leading indicator for consumer prices, has been mired in deflation thanks to sliding domestic demand and chronic overcapacity…Producer prices deflated for a 37th consecutive month in March, falling 4.6 per cent, versus a 4.8 per cent fall in February…’The current bout of goods deflation in China and South Korea is the longest in postwar East Asia outside of Japan in the 1990s.”  Meanwhile, the Treasury Department says “South Korean authorities appear to have intervened in December and January to keep their currency from appreciating…South Korea’s trade surplus with the U.S. totaled $14 billion in the second half of 2014, larger than the $9.6 billion surplus from the same period a year ago.”

 

Great Hope News For All Economies

“When it comes to stocks, America is the big loser this year.  The S&P 500 is up just 1.6 percent through Thursday’s close, making it the worst among major market indexes for 2015…In Europe, the U.K.’s FTSE 100 is up 6 percent, France’s CAC 40 has climbed 22 percent, Germany’s DAX is up 24 percent and Russia’s RTS is up 27 percent.”  James Mackintosh says “these are weird indices which mix companies from across borders traded in different currencies…four of the five biggest contributors to the Stoxx 600’s rise this year have been from outside the eurozone, in Switzerland or Denmark.  Another two of the top 10 contributors are British, Glaxo and BP.  All have been helped by the plunging euro, as they are not traded in euros.”  Meanwhile, “Hong Kong is set to overtake Japan as the world’s third-largest stock market…Japan is poised to drop to No. 4 even as the nation’s shares almost double under Prime Minister Shinzo Abe…’the Japanese market is actually rising on hopes that monetary easing will help us escape deflation.  And if Chinese stocks are rallying on expectations the government will prop up the economy, that’s great news for all economies.’”

 

Hot Potatoes

Goldman Sachs says “passive ETFs aren’t being used passively by buy-and-hold investors.”  “One lingering knock against ETFs is that — in spite of their potential benefits of low cost, tax efficiency and diversification — their widespread use is turning ordinary long-term investors [into] fast-trading, global-macro focused buy-and-sell junkies.”  Furthermore, “the prevalence of ETFs seems to be influencing price moves…Correlations between stocks and sectors [have] been increasing since the 2008 financial crisis.”  Meanwhile, annualized turnover on the New York Stock Exchange “is down to 63% from a high of 110% in 2010;” however, “including trades on all marketplaces, the annual turnover rate in U.S. stocks is running at 307%…And that figure doesn’t include [ETFs], which get flung around like hot potatoes.  According to John Bogle, founder of the Vanguard Group, the 20 largest ETFs were traded last year at an average turnover rate of 1,244%.”

 

WM: 8-10% Average Return Is A Decent Goal That You Won’t Ever Actually See

 

What: Scott Stringer Thinks Scott Stringer May Have Misled Some Folks