David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Bond Guru Who Called Last Bear Market 40 Years Ago Says Go Long

    This article by Andrea Wong for Bloomberg may be of interest to subscribers. Here is a section:

    Money velocity isn’t a bullet-proof economic indicator. Financial innovation, and the rise of shadow banking, have made it hard to measure exactly how much money is floating around in the financial system. And some would say that "money" itself is going through an identity crisis these days.

    Hunt isn’t the only one seeing the record-low pace as an ominous sign. The fact that money velocity declined rapidly during years of near-zero interest rates may signal aggressive monetary easing actually led to deflation instead of inflation, economists at the St. Louis Fed wrote back in 2014.

    "In this regard, the unconventional monetary policy has reinforced the recession by stimulating the private sector’s money demand through pursuing an excessively low interest rate policy," economists Yi Wen and Maria A. Arias wrote.

    "I know I’m the minority here,” Hunt said. “I’m just trying to see the world as I think it should be seen.”

     

    This section continues in the Subscriber's Area.

    Email of the day on Canadian cannabis stocks

    Pot luck... If the Canadian government continue to support AND passes legislation favorable to the development of the cannabis industry, some companies may have exponential growth, My pick has been Canopy on the TSX and I will continue to hold it.

    This section continues in the Subscriber's Area.

    Dimon Says Euro Zone May Not Survive Without Change in Direction

    The euro region could break up if political leaders don’t get to grips with the discontent that’s spurring support for populist leaders across the continent, JPMorgan Chase & Co. Chief Executive Dimon said he had hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region “the euro zone may not survive,” Dimon, 60, said in a Bloomberg Television interview with John Micklethwait.

    “What went wrong is going wrong for everybody, not just going wrong for Britain, but in some ways it looks like they’re kind of doubling down,” Dimon said in the interview Wednesday at the annual meeting of the World Economic Forum in Davos, Switzerland. Unless leaders address underlying concerns, “you’re going to have the same political things about immigration, the laws of the country, how much power goes to Brussels.”

    Officer Jamie Dimon said. 

    Dimon’s remarks on Europe were unusually pessimistic, coming in a wide-ranging interview in which he also criticized regulations that he said stunt economic growth. But he reiterated optimism for President-elect Donald Trump. Minutes later, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein also expressed concern about Europe, telling CNBC that leaders are facing a backlash in the midst of a long, complicated process to create an economic bloc.

    This section continues in the Subscriber's Area.

    Just Like In the 1980s, Theresa May Faces Chaos From Militant Unions. And Just Like Margaret Thatcher, She Must Not Flinch

    Philip Hammond has rightly warned the EU that “we will do whatever we have to do”. So, in addition to pursuing trade agreements around the globe, what could we actually do, to convince the world that we have good enough plans for them to start buying pounds?

    Here are five ideas:

    1. Establish Free Ports. My very talented successor as MP for Richmond, Yorkshire, Rishi Sunak, has pointed out how Free Ports could bring a major boost to the economy, manufacturing and the north. This would allow goods to be imported, manufactured and re-exported without any duties or taxes because they would not officially enter the UK. The jobs created could run into tens of thousands, and the merchandise handled into hundreds of billions of pounds.
    2. Give tax incentives to key global industries. Special tax relief for the film industry has been a huge success: major new studios have been built in Britain, over 200 films a year are being made here and we have 260,000 jobs thriving on the back of them. Every £1 of tax relief is meant to bring £12 back into the economy. We could give similar carefully targeted incentives to other creative, scientific and high-technology businesses, helping aerospace, biotechnology and others to see the UK as especially attractive.

    This item continues in the Subscriber's Area.

    This section continues in the Subscriber's Area.

    Email of the day

    On Monday’s Markets Now:

    I just wanted to say how much I agreed with the subscriber email 2 yesterday on the ‘huge difference’ you & Eoin make with your service.

    Give me the Markets Now over Davos any day of the week.

    The financial services industry needs more people with competence & integrity like Iain Little & Bruce Albrecht. David Brown’s laser sharp intellect (& I suspect more ‘right brained’ judgement) knocks spots off so many of the city talkers I come across.  

    I would have really enjoyed the ‘pub’ afterwards but I had to be home early. I find it best not to irritate my wife by getting home too late & the dog is always there waiting for his walk.

    With best regards

    This section continues in the Subscriber's Area.

    Behind China's Bond Selloff, a Risky Twist on the Repo Trade

    This article by Shen for the Wall Street Journal may be of interest to subscribers. Here is a section:

    As much as 12 trillion yuan ($1.73 trillion) in bonds—or 19% of the country’s $9 trillion bond market—could be subject to such repurchase agreements, according to an estimate by Shui Ruqing, president of bond clearing-house China Central Depository & Clearing Co., cited last month in China’s influential Caixin Magazine. Traders say the deals are so opaque that even estimates are hard to make.

    Banks sometimes use the “dai chi” agreements to move risky assets temporarily off their books during earnings periods or audits, the people said. Brokers like Sealand typically use them to borrow quickly and flexibly—leveraging their investments many times over, they said.
    Until last year, Chinese financial regulators had largely ignored the practice, beyond saying they opposed it during a bond-market crackdown in 2013. But the informal nature of dai chi also meant the trades could be difficult to enforce when conditions worsened.

    “Because it’s not really an official business, agreements aren’t legally binding,” said the executive who had bought bonds from Sealand.

    Sealand’s problems became apparent on Dec. 15, when the southern China-based company announced that two of its traders had forged dai chi agreements worth 16.5 billion yuan ($2.4 billion), a move that market participants interpreted as meaning the broker didn’t intend to honor the deals.

    The amount was more than five times what Sealand had declared in its Sept. 30 financials as its financial assets under official repurchase agreements, and more than seven times its disclosed bond-holdings.

     

    This section continues in the Subscriber's Area.

    Goldman, Citi Beat Estimates as Trading Buoys Wall Street

    This article by Dakin Campbell for Bloomberg may be of interest to subscribers. Here is a section: 

    Citigroup Chief Executive Officer Michael Corbat and Goldman Sachs CEO Lloyd Blankfein have been cutting costs and restructuring management to adjust to stricter capital requirements and a revenue downturn since the financial crisis. Goldman Sachs’s 2016 revenue was the lowest in five years, though investors and analysts are speculating the firm’s trading operations could be one of the biggest beneficiaries of Trump’s policies.

    “The benefits from higher interest rates, accelerating capital deployment and historically low credit costs have been evident throughout the large-cap U.S. bank earnings releases,” Marty Mosby, an analyst at Vining-Sparks IBG, said in a note. “The fundamental story remains intact.”

     

    This section continues in the Subscriber's Area.