A link to today's video commentary is posted in the Subscriber;s Area. 

Some of the topics discussed include: US and UK yield curves invert. Wall Street pulls back sharply, gold steady, oil weak, Europe at greatest risk of a recession, corporate profits static, Pound weak

The U.S. economy is slowing as headwinds mount and tailwinds fade

The labor market is tight but is beginning to lose momentum, a clear late-cycle signal

Our research continues to point to a recession beginning in H1 2020

The next recession could be prolonged due to limited policy space at home and overseas

A looming recession means reducing risk, upgrading credit quality and extending duration

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For a recession to begin at the beginning of 2020 growth would have to be negative in this quarter. That’s a big ask in my opinion. The one thing we know about the inversion of the yield curve spread is it has a long lead time. On the last two occasions it offered an 18-month lead indicator of trouble in the economy. That suggests we should probably be looking at after the US Presidential Election rather than before it for a source of strife. However, we will need to be guided by the price action.  

A link to today's video commentary is posted in the Subscriber's Area

Some of the points covered include: Tariffs averted so Wall Street rebounds, gold pauses, oil firm, Yen pauses in the region of the January peak, Continuous Commodity Index continues to trend lower, Renminbi slightly firmer, yield curve spread continue to flatten, high yield spreads beginning to trend higher

While some tariffs will take effect on Sept. 1 as planned, “certain products are being removed from the tariff list based on health, safety, national security and other factors,” the USTR also said.

About $250 billion of Chinese goods have already been hit by 25% duties.

Chinese Vice Premier Liu He talked with USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone on Tuesday, according to a statement posted on the Ministry of Commerce website. Another conference call is planned again in two weeks.

The tariff announcement came shortly after Trump insisted again that his levies were not causing higher prices for American consumers and that China was bearing the cost of them. Economists and businesses have disputed that last point.

The holiday season inventory build is in full swing. Since more than half of all retail sales occur in the last three months of the year it is good to know the Trump administration is sensitive to the needs of retailers. By delaying tariffs on common gifts ideas investors can breathe a sigh of relief and economists will worry less about inflation.

See yield chart middle page 1.  How low (negative) can govt credit yields (-1%) go till the financial system freezes over?  Serious Q……………this negative yield stuff wasn’t taught in Economics 101.

There must be an absolute level of negative rates that destroys money velocity (V) as it means no one puts money in the bank anymore and lending gets restricted.  At -10% I wouldn’t lend to UBS.  What happens at say -5%?  Assuming a real rate of 3%, bank lending -after a margin of say 2%- would essentially be FREE (0%).  But what does that do to banking system integrity (banks make money but less of it as their margins collapse; their deposit base shrinks as they struggle to increase/ attract deposits………….not only do depositors go on strike but existing depos are decreased annually by negative yields!)….and what about regulatory oversight?….would CBs and regulators afraid of imprudent lending caused by needy borrowers at 0% step in to restrict the very process that they are trying to encourage via making money so cheap?  i.e. will they try to stop “BAD” lending.  How will they judge/enforce?

And where does inflation fit into this calculus?...without any inflation the interest rate structure/ yield curve that might restore banking margins is hard to normalize/ become positive again.

Or should governments everywhere borrow vast sums at negative rates for 50 years to finance a massive infrastructure spend (highways, 5G, clean energy, railways etc.) i.e. “GOOD” lending?  Wouldn’t this raise rates and restore normality?  Then what debt / GDP levels are prudent (see Italy)?  I recall Argentina’s 100-year bond issue in 2017 at 7.9%, 3x over-subscribed by famished yield scavengers.

Investment implications

• Negative bond yields unattractive versus investment in high quality equities paying well covered dividends, though it is certainly not a good world for poor quality companies who don’t
• How is any of this bad for gold, whose carry cost is collapsing?

 

Just sharing some thoughts, largely written out of confusion

I think we are all in a state of disbelief at the willingness of investors to pour trillions into bonds with a negative yield. I have long wondered at the absence of any discussion of bond market convexity over the last decade. After all, shouldn’t we all have an interest in the sensitivity of bonds to changes in interest rates?

Any further selloff could also create problems for Chinese property developers and other corporate borrowers who have borrowed heavily overseas, since their earnings are largely in yuan while their international borrowings are mostly in dollars.

Chinese companies had nearly $900 billion of dollar-denominated debt securities outstanding at the end of March, nearly three times the amount five years ago, according to data from the Bank for International Settlements.

Despite Beijing’s strict capital controls, China could experience capital flight if the yuan weakens further, some observers say.

Louis Kuijs, head of Asia economics at Oxford Economics, said policy makers wouldn’t be comfortable with a major weakening of the yuan, given concerns about triggering large outflows.

“People in China tend to take weakening of the currency as a harbinger of more such weakening to come,” he said. “That is a reason for some to shift money abroad.”

Amid the platitudes about having confidence in its ability to deter capital flight, the fact US Dollar denominated debt has continued to trend higher since it was banned more than a year ago should give policy officials pause. China needs a weaker currency and we are unlikely to see it trade stronger than CNY7 any time soon. The bigger question is how long it will take to hit CNY8.

A link to today's video commentary is posted in the Subscriber;s Area. 

Some of the topics discussed include: Argentinean Peso collaposes, commodities currencies retreat, copper and oil remain weak, China steady but it is a manipulated market, India steady, Wall Street eases back but remains a relative strength leader, bonds firm, gold back above $1500, silver playing catch up.

Second, production costs between countries are converging, in part due to all of the globalization that has already happened. Demonstrating this, U.S. wages have managed only limited growth in recent decades at the same time that Chinese wages have surged. The result is greater competitive parity: the savings from producing something in China and selling it to the U.S. have shrunk. A more homogenous world simply doesn’t need to trade as much.

Third, prior trade tailwinds have faded. All of the grand trade achievements of the past several decades – NAFTA, the EU, the opening of ex-Soviet bloc countries and China – have now been mostly absorbed into the global economy. Few major countries remain outside the global economic system, waiting to jolt the world forward with their entry. In turn, there is no reason for trade growth to continue substantially outpacing economic growth. To be sure, there are still a smattering of new free trade agreements being struck, but they are fewer in number, and by definition smaller in achievement given that tariff rates had already been whittled down by prior efforts (Exhibit 3).

Fourth, and finally, there are new trade headwinds now blowing from the spate of populist governments recently installed around the world.

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The magnanimous ideal of giving up antiquated industries in service to building a global economy which could lift millions of people out of poverty is something the whole world got behind.

Denmark introduced negative rates in 2012 as investors seeking refuge from Europe’s debt crisis piled into AAA-rated krone assets, threatening to destabilize the country’s euro peg. Back then, when Nodgaard was head of the Financial Supervisory Authority, he said negative rates were unlikely to hurt banks since lower impairments would offset a decline in interest income.

But no one expected negative rates to last this long. While banks initially benefited from lower impairments and inflated asset prices, their business models are struggling to withstand persistently low rates.

Last year Denmark’s banking and mortgage industry reported its lowest operating profit in at least five years, while return on equity hit a three-year low. Some banks are now looking into passing on the cost of negative rates to retail customers, broaching a subject that was once considered taboo.

The interest rate on current-account deposits at the central bank and the amount that lenders can place there are among a handful of levers that the central bank uses to maintain the krone’s peg to the euro.

The central bank has raised its current-account limit before, most notably back in 2015 when Switzerland’s decision to send its franc into a free float fanned speculation Denmark would be next. Back then, the Danish central bank raised its current account limit to 174 billion kroner.

Ben Bernanke’s fateful words “Deflation, making sure it doesn’t happen here” must be ringing through the halls of central banks the world over as $15 trillion in negative yielding bonds are pricing in a deflationary spiral the like of which the world has seldom seen. What Denmark’s experience with negative rates tells us is that traditional banking is doomed without some form of exaggerated assistance from the government. Perhaps more importantly, once accepted negative rates seem like a hard habit to kick.

"Today most of these European networks are connected to each other via the informal 'Ring of Five' (Ro5) platform for the purpose of rapid exchange of expert information on a laboratory level about airborne radionuclides detected at trace levels," it says. "In October 2017, an unprecedented release of ruthenium-106 into the atmosphere was the subject of numerous detections and exchanges within the Ro5."

State-owned Russian nuclear corporation Rosatom denied the findings of the recent study.

"We maintain that there have been no reportable events at any Rosatom-operated plants or facilities," Rosatom said. "Both the national regulator and experts from an independent international inquiry inspected the Mayak facility back in 2017 and found nothing to suggest that the ruthenium-106 isotope originated from this site, nor found any traces of an alleged accident, nor found any evidence of local staff exposure to elevated levels of radioactivity."

This kind of headline, regardless of whether it originally occurred in 2017 is bad news for uranium miners. We can make the case for the viability of next generation reactors until we are blue in the face, but one headline grabbing accident kills any progress make in rehabilitating perceptions.

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“We see this sell-off as a medium-term buying opportunity,” Kolanovic and his team wrote Thursday in a note to clients. “After a short period of stabilization, markets will likely regain previous highs.”

JPMorgan’s finding on corporate demand echoes that from Goldman Sachs Group Inc. David Kostin, Goldman’s chief U.S. equity strategist, told Bloomberg TV earlier that the firm’s buyback desk saw executions increase “dramatically” Monday when the S&P 500 tumbled 3%.

Stocks started selling off last week after the Federal Reserve played down its easing cycle and the U.S.-China trade war escalated. Some strategists pointed to quants as one of the culprits that may exacerbate the rout. In a note before Monday’s trading, Binky Chadha, chief global strategist at Deutsche Bank AG, said quant traders have raised their equity exposure to one of the highest in the past decade and may dump more than $70 billion of shares in coming weeks should the market turbulence persist.

Stock buybacks have been one of the primary mechanisms through which easy monetary policy has found its way into the equity markets. With the world heading progressively towards combined monetary and fiscal stimulus it is likely that the flow of capital companies are willing to commit to support their own shares will also increase.

The documents, mostly from 2015 to 2017, were disclosed as part of an ongoing court battle on the health hazards of the company’s Roundup weedkiller. They show:

Monsanto planned a series of “actions” to attack a book authored byGillam prior to its release, including writing “talking points” for “third parties” to criticize the book and directing “industry and farmer customers” on how to post negative reviews.

Monsanto paid Google to promote search results for “Monsanto Glyphosate Carey Gillam” that criticized her work. Monsanto PR staff also internally discussed placing sustained pressure on Reuters, saying they “continue to push back on [Gillam’s] editors very strongly every chance we get”, and that they were hoping “she gets reassigned”.

Monsanto “fusion center” officials wrote a lengthy report about singer Neil Young’s anti-Monsanto advocacy, monitoring his impact on social media, and at one point considering “legal action”. The fusion center also monitored US Right to Know (USRTK), a not-for-profit, producing weekly reports on the organization’s online activity.

Monsanto officials were repeatedly worried about the release of documents on their financial relationships with scientists that could support the allegations they were “covering up unflattering research”.

It’s hard to imagine how much more toxic Monsanto’s reputation can get but as the record of the company’s nefarious actions come to light it is understandable why they were so willing to be taken over by Bayer. They are now attempting to settle the Roundup weedkiller class action lawsuits for $6-$8 billion while lawyers are looking for more upwards of $10 billion.

This is by Benny Peiser who is the director of the GWPF. Some bold warnings about Europe's decline fuelled by its high energy prices.

 

Outsized economic growth and the higher standards of living it delivers is the single best way of creating concern for lower emissions, a cleaner environment and creating greater efficiencies. We have plenty of empirical evidence that this is the case and yet it is still a hard sell for many politicians. The concentration of the argument on climate change is probably at the root of this problem. Instead we should be thinking about improving the human condition not as the problem but as the solution.

A link to today's video commentary is posted in the Subscrber's Area. 

Some fo the topics discussed include: Stock markets bounce, bonds pause, gold and silver remains firm, oil steadies, Renminbi stable high yield spreads expand. 

There are two very big questions we have to answer which are fundamental to the construction of a long-term portfolio. The first is does governance really mean anything? The second is how do you value private assets in a portfolio?
 
At this service we have long held that governance is everything. Is that still true? Ray Dalio appears to be agnostic on whether property rights, respect for minority shareholder interests, an independent judiciary and a free press are important. What I personally find particularly interesting is that the performance of China’s stock market, during the decade where it has achieved the heights of its ambition has been dismal.

Australia and New Zealand now find themselves with just 1 percentage point of conventional monetary policy remaining. That’s around the same level the Federal Reserve and Bank of England had when they turned to quantitative easing to support moribund demand following the 2008 financial crisis.

New Zealand’s 50 basis point interest-rate cut Wednesday and Australia’s back-to-back easing in June and July suggest both have joined the global race to the bottom. Policy makers across the world are looking for every bit of stimulus available and currency depreciation is an obvious one.

The kiwi dropped more than a U.S. cent after the RBNZ decision. RBA chief Philip Lowe would have enjoyed the spillover that sent his currency to the lowest level since 2009.

Lowe has noted the trouble with a global easing cycle is that the very nature of exchange rates means not everyone can enjoy the currency benefit usually associated with lower interest rates.

There seems little doubt that Australia and New Zealand’s ascendancy is over and both are now right back in the global policy pack. It’s a far cry from five years ago, when HSBC Plc’s chief economist for Australia Paul Bloxham described New Zealand as a “rock-star economy” and his country’s currency was still near parity with the U.S. dollar.

Lopping 50 basis points off of interest rates is a big move, particularly when it was not especially expected by markets. Considering how much New Zealand’s economy depends on China it probably says more about waning Chinese demand than the internal dynamics of domestic economy. The New Zealand Dollar is back testing the region of the lows for the year and will need bounce in a dynamic manner if demand is return to dominance beyond short-term steadying.

Concho Resources Inc., long considered one of the Permian’s premier operators, was forced to scale back activity after drilling almost two dozen wells too closely together. That move by the Midland, Texas-based producer spooked investors across the industry, with Evercore ISI predicting the “carnage” would have a lasting impact.

Concho’s problem with well spacing highlights the challenges of fracking so-called child wells: Too close to the “parent,” and output is less prolific; too far apart, and companies risk leaving oil in the ground.

Exxon and Chevron say they aren’t as exposed to those problems. Because of their size relative to smaller independent producers, the oil giants are able to lock up acreage, giving them room to be more conservative in their well spacing.

The lower for longer nature of oil pricing over the last few years and probably for the foreseeable future suggests smaller independent oil drillers and producers need to concentrate a lot more on containing costs. That suggests there is scope for consolidation within the Permian where the larger better capitalised companies are likely to have an advantage.

A link to today's video commentary is posted in the Subscriber;s Area. 

Some of the topics discussed include: Treasuries due some consolidation, Renminbi weakens further, gold steady, Wall Street steadies, much of Europe testing the region of the trend mean, 

I note a few points. 

First, China was actually there on the list of top exporters in 1961. Then it disappeared and did not reappear until 35 years later. 

Second, at no time did Japan ever exceed Germany as an exporter but not once was there any paranoia in the US about Germans taking over the US economy?

Third, the UK was falling down the ranks of exporters until the pound sterling collapse in 1992 and the devaluation actually helped them recover along with the Maastricht Treaty in 1993 - giving them the access to EU export market without the monetary shackles of the Euro. And Brexiters still think Britain is better off??? 

Fourth, the gap between Germany and Japan was almost narrowing to zero until 1993, then Germany pulled away resolutely - and today exports twice as much as Japan. 

So, Germany will always stand by the Eurozone - nobody has benefitted like they have.

Thanks to Bernard Tan for the above comments and this video which is one of the most illuminating on export growth and contraction on a relative basis I have seen. (Please note the file it’s 36 megabytes so it may take some time to download on slower internet connections).

Nations added 374.1 tons in the first six months as Russia and China kept building reserves and Poland made a massive purchase. The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months.

Central banks around the world have added to reserves as economic growth slows, trade and geopolitical tensions rise, and authorities seek to diversify away from the dollar. Gold rallied to a six-year high in July, as expectations for lower U.S. interest rates and concerns about the economy boosted bullion’s appeal.

Spot gold edged lower Thursday, falling for a second day after the Federal Reserve signaled it probably won’t embark on a lengthy easing cycle. The metal declined 0.5% to $1,407.04 an ounce, paring this year’s gains to 9.7%.

Energy independence has afforded the USA the ability to be much more assertive on the geopolitical scene. The deployment of trade weapons, tariffs and sanctions etc is all the easier when you are no longer beholden to other countries for supply of a vital commodity. That necessarily results in a corresponding action from other countries which is to try and free themselves from their attachment to the Dollar. Building up gold reserves make sense from that perspective.

Thomas’ statement comes as he was discussing the new Leaf’s vehicle-to-grid/vehicle-to-home (V2G/V2H) system, which will allow the all-electric car to serve as a home battery unit. With the system in place, the Leaf will not only store energy by plugging into a home or business; the vehicle could also serve the energy back when needed. V2H is already in use in countries such as Japan, and a release in Australia is expected within six months. 

The Nissan executive noted that the Leaf’s V2G system has the potential to help homeowners save money, especially if the vehicle charges through a rooftop solar system during the day, and uses its stored energy to power appliances and lights at night. 

“The way we distribute and consume energy is fundamentally inefficient … what we need is flexibility in the system. It’s great that we’ve invested all this money in renewable energy, but fundamentally we’re wasting most of that energy because it’s all being generated in the middle of the day when we don’t really need it,” he said. 

Tim Washington, CEO of charging solutions provider Jetcharge, noted that Nissan V2H technology has a lot of potential, considering that vehicles spend much of their time just parked, or in the case of electric cars, plugged in. 

Tesla has battery manufacturing capacity so it produces batteries. Nissan produces cars so it is pushing a use case for cars to provide base load during periods of peak consumption.

A link to today's video commentary is posted in the Subscribers Area. 

Some of the topics discussed includeL Wall Street steadies, $15 trillion in negaitve yielding debt represents a mania, Dollat steadr, gold extends breakout, Chinese renminbi steady, 

In 55 years of observing markets, we have NEVER seen such a downside capitulation as October 2008; and, we have believed we are in the biggest secular bull market of my lifetime!  This morning Chinese Foreign Ministry spokeswoman Hau Chunving said, “China will not accept any kind of extreme exertion of pressure, intimidation or blackmail. Neither will China give in an inch on major issues of principle.  Now it's time for Washington to show sincerity and demonstrate to the world that the US is still a reliable partner that can carry out negotiations.”  And with that the renminbi is at decade lows versus most currencies.  Such action has the preopening S&P 500 futures off some 40-points . . . Good Grief!

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This was the front page of the China Daily newspaper on the flight from Beijing to Guangzhou yesterday. The drop below CNY was normal currency activity, there is a clear need for peace to spontaneously break out in Hong Kong’s protests and apparently China is not avoiding US agricultural exports. This is just one more example of how the same news can be spun in a number of different ways.
 

Counting all kinds of debt, including mortgages, consumers aren’t nearly as debt-burdened as they once were. In the fourth quarter of 2007, the last year before the financial crisis struck, households devoted 13.2% of their disposable income to debt service. In the first quarter of 2019, that number was 9.9%, largely due to low interest rates.

Partly because of widespread refinancing, mortgage payments since the start of 2017 have claimed the smallest slice of disposable personal income in decades, in the low 4% range, according to Fed data.

Lifestyle creep hits most families. As soon as incomes increase people eat out more, buy more clothes, spoil the kids or indulge in more after school activities, buy a better car and move to a better neighbourhood. That all works out as long as incomes keep up with expectations. It is also why the throwaway remark “a recession is when your neighbour loses his job, a depression is when you lose yours” rings so true. Of course in today’s economy it might be more correct to state it’s a recession when your spouse loses their job and a depression when you both do.

Latest reports have highlighted a distinct slowdown in growth in the housing sector since the start of the year. Despite a clear need for more houses this is not converting to actual sales. In fact, price drops have become commonplace in the second-hand market, and sales of properties over €500,000 have shown a 21 per cent drop since the start of the year.

All of this points to an affordability issue for buyers, and a gradual market realisation that prices need to be adjusted accordingly. Add to this fears over Brexit and Central Bank mortgage lending restrictions and the slow 2 per cent growth in number of mortgage drawdowns in the first quarter begins to make sense. Compare this with growth rates in 2018 of about 20 per cent.

Meanwhile, the throughput of housing stock for sale is strong. “June and July have been unseasonably strong with the flow of stock coming through,” said Angela Keegan, managing director of property website MyHome.ie. “It’s possible people are more confident about the market because, remember, if they are selling they are buying too. We know interest rates are not going up in the near term and there are excellent fixed-rate mortgages available too.”

Declining demand for higher priced homes suggests consumers and investors are trimming their expectations for continued economic strength. There is no country likely to do worse from a hard Brexit than Ireland.

It will be for historians to parse whether the backstop gambit was an historic mistake or a masterful stroke. Meanwhile the stock market is rolling over and the housing market is softening. That occurring against a background where interest rates are close to zero and the ECB is about to restart QE.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: the renminbi''s devaluation, gold and cryptocurrencies bounds, emerging market currencies and stock markets pullback while bonds and the yen firm. Short-term oversold conditions are evident in a number of stock markets as they test their respective trend means. 
 

The yuan declined 0.9% in mainland trading last week, its biggest loss since mid-May, after President Donald Trump abruptly escalated the trade war with new tariffs on Chinese goods. Beijing pledged to respond if the U.S. goes ahead with a plan to impose a 10% tariff on a further $300 billion in Chinese
imports.

“It appears that the tariffs hike suggests the return of tit-for-tat moves and a suspension of trade talks, and the PBOC sees no need to keep the yuan stable in the near term,” said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. The tumble exacerbated losses in Asia’s financial markets.

China devalued its currency when the first round of tariffs was imposed and it is doing so again now that tariffs have been imposed on all of its exports to the USA. The Renminbi broke below CNY 7 today and that represents the reassertion of its bearish trend.

The devaluation of the currency below CNY7 is a major change of policy for China and it greatly increases potential for capital flight. That is the one thing China cannot afford to allow. The entire rationale for supporting the economy, and ensuring the ability to manage systemic risk in the nonperforming loans sector, is based on the trillions in deposits sitting in the banking and post office systems

“We did a review of all the battery input materials -- nickel, cobalt, lithium,” said Eduard Haegel, asset president at the BHP’s Nickel West unit. “We think that in the medium-to-longer term there will be a margin that will be sticky for nickel -- we think it’s an attractive commodity.”

BHP, the biggest miner, this year reversed long-term efforts to seek a buyer for the division, opting to retain Nickel West to benefit from forecast growth in lithium-ion batteries and a scarcity of high-quality nickel supply. From the second quarter of 2020, the unit will begin production of bright-turquoise colored nickel sulphate -- a premium raw material for the battery supply chain -- from a nickel refinery south of Perth, with plans to potentially carry out the industry’s largest expansion.

Every auto manufacturer is going to have electric vehicle offerings in the next 18 months. That is going to create a lot of demand for batteries and the commodities that comprise the anode, cathode, catalysts and electrolyte.

The Japanese Aerospace Exploration Agency (JAXA) has released a video showing the climactic moments of the Hayabusa 2 spacecraft's second descent to the surface of asteroid Ryugu. The goal of the risky operation was to capture newly exposed material from the asteroid's interior, which had been forcefully ejected during the creation of an artificial crater on Ryugu's surface in early April.

The footage of the second dive was captured on July 11, 2019 by Hayabusa 2's publicly-funded onboard small monitor camera (CAM-H). The playback is at 10x actual speed, and shows the spacecraft's final descent to the surface, which occurred between 10:03:54 – 10:11:44 JST.

There has been a lot of speculation over the last twenty years about when asteroid mining might become a reality. This is the first example of the thesis in action. While the program is research-oriented, and only interested in collecting small samples, it is a proof of concept which takes the sector from the fanciful to the possible. Considering the pace of innovation in space technology it is no exaggeration that we may see commercial asteroid mining within the decade.

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The move will add to fears that the region’s economic slowdown is being driven by more structural factors akin to Japan’s “lost decade.” Germany’s bond market is widely perceived as being one of the world’s safest, with investors lured in by the liquidity and credit quality offered. Funds still looking to extract a positive return from European sovereign assets have been forced further out the yield curve or into riskier debt markets such as Italy.

“It underlines that the hunt for yield, or rather hunt to avoid negative yields, is accelerating day by day,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank A/S. “It just makes things more complicated.”

Yields on 30-year bunds fell almost 10 basis points to -0.002%. Those on 10-year securities dropped five basis points to -0.50%, also a record low and below the European Central Bank’s -0.40% deposit rate.

Investors are paying the German and Swiss governments to take their money at every maturity and in Japan out to 15-year maturities. Bond investors have concluded the only possible way to manage the debts and unfunded liabilities that have built up over decades is with money printing. That will be facilitated by central banks buying the newly minted bonds and that contributes to the momentum move. The victims are currencies which is why gold is rallying.

A downside key day reversal is defined by a move to a new intraday high which is subsequently reversed, so that the market closes at a low below that of the previous day. The key characteristic of the key reversal is size. In order for the signal to have an emotional impact on the market it needs to stand out on the chart so anyone looking at it concludes something big happened on that date. Weekly key reversals are often more important to investor psychology but the size rule is equally important. Downside follow through on the signal in the following days of week is a confirmatory sign of a change of direction.

South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.

U.S. Secretary of State Michael Pompeo met his counterparts from both countries Friday, but the dispute, which simmered for months as the Trump administration sat on the sidelines, looks set to worsen amid protests, boycotts and economic warnings. “By bringing economic sanctions, they’ve really escalated it to another level,” said Robert Dujarric, director of the Institute of Contemporary Asian Studies, Temple University, Japan. “This isn’t going to make South Korea cave in. If anything, it heightens South Korean nationalism. It makes it harder to de-escalate and harder to have a ‘united front’
against China.”

Japan and South Korea compete in many of the same export markets and their rivalry had previously been contained by the global trade network but the historical enmity between the two countries is never far from the surface. The advent of trade wars, mercantilist competition and shifting loyalties is introducing a degree of uncertainty in the region that hasn’t been seen in decades.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: President Trump imposes additional tariffs. Treasuries breakout out, gold firms, silver recoups losses, Stocks pull back, copper and oil weak, strong likelihood of additional easing following this development, high yield spread remain contained. 

President Donald Trump abruptly escalated his trade war with China, announcing that he would impose a 10% tariff on $300 billion in Chinese imports that aren’t yet subject to U.S. duties.

The new tariff will be imposed beginning Sept. 1, Trump said in a tweet Thursday that broke a tentative trade cease-fire between the world’s two biggest economies. The 25% tariff already imposed on $250 billion in Chinese goods will remain in place, he said.

A draft list of $300 billion worth of targets published by the Trump administration in May included a raft of consumer and technology goods, including most of Apple Inc.’s major products such the IPhone, along with toys, footwear and clothing. The final list hasn’t yet been released.

“These are the tariffs on many of the consumer goods that were spared in the previous tariff rounds,” said Neil Dutta, head of economics at Renaissance Macro Research in New York, in a note. “This is a small hit to growth but will likely be more obvious to consumers. Keep in mind that margins have come in somewhat already, not sure firms can simply eat the cost.”

Jay Powell’s statement yesterday that the cut to interest rates was more of a mid-cycle insurance cut than a response to the end of the credit cycle led to some unwinding of bets on a 50-basis point but. As the news was digested this morning the majority of markets were in positive territory and at one point has almost completely unwound yesterday’s decline. That was until President Trump announced additional tariffs. That is going to set off a scramble for inventory ahead of the busy fourth quarter retail period.

The fact that foreign money managers are delving into Canadian municipal bonds -- which account for just 1% of trading in the country’s C$2 trillion public sector fixed-income market -- is a testament to how hungry they’ve become for high quality, higher-paying assets in a world where at least $13.8 trillion of debt is now in negative-yield territory. Throw in the fact Canada has given little indication it will follow the global move toward easier monetary policy, and the market is fast becoming a magnet for sophisticated investors seeking to boost returns.

“If you’re sitting in the Middle East, Asia or Europe and you’ve got all this negative yielding debt, it makes a lot of sense to look for the hidden gems such as these excellent quality municipals,” said Avi Hooper, a portfolio manager at Invesco, which has $1.2 trillion under management, including bonds issued by the city of Montreal. “One has always to be careful with the liquidity of course. Big institutional investors are not going to get involved with $50 million deals.”

The paradox of the bond markets is the biggest debtors tend to have the most liquid bonds. Better credits don’t tend to borrow as much and therefore tend to have less liquid issues. Ahead of the credit crisis companies like General Motors and Hypovereinsbank had their own yield curves because they had outstanding debt at every maturity that was highly liquid. At the time no one seemed to pay much attention to the fact that they had so much debt it represented a threat to repayment of principal.

Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.

The sheer scale of China’s manufacturing operations is not going to be easily repeated elsewhere. However, no one ever thought China would achieve the manufacturing might it now possesses either. The history of major manufacturing hubs is they evolve where labour, land, transportation and electricity are cheapest and where the tax and regulations are most lax.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: kneejerk reaction to Fed cut led to a pause in stocks. bonds steady, Dollar firm, precious metals ease. The end of quantitative tightening and commitment to do what is necessary suggest ample liquidity going forward. 

Hope all is well.

 I had a question about the comment you made at the end of your video today. You mentioned that the indicator that we should focus on which will lead to this current cycle unwinding is Private equity and the success of their investments, plus on government debt and the deficits they are building.

Are you able to expand on what we can track (tangibly) for these 2 issues?

Thanks v much

Thank you for this question. I am very conscious of the temptation of generals to always be fighting the last war. In 2005 and 2006 there was some talk of a housing bubble in the USA but few people understood just how massive the liar loans problem was. Consumers had become extraordinarily overleveraged. As interest rates ground higher the first signs of trouble appeared in the underperformance of banks, rising credit card delinquencies and the collapse of leveraged hedge funds at major investment banks. The big question we need to ask is whether it will be these factors which are most relevant in this cycle?

Let’s think about the economy as made up of consumers, corporations and the government. After a decade of extraordinary monetary policy total debt has gone up but the US consumer has been de-levered while corporations and the government have seen their debt loads balloon.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Wall Street quiet ahead of the Fed decision, precious metals steady, Europe weak and led lower by banks, Hong Kong at risk if China intervenes to stamp out the protests. Bond yield continue to compress, Dollar eases.

A link to the full report is posted in the Subscriber's Area.

The global economy has slowed meaningfully, Germany is flirting with a recession and China’s economy is suffering from the trade war. All other factors being equal it would be very hard for the Fed to continue to raise rates against that background. The upward pressure that would put on the Dollar would unwind any relative strength argument that is supporting the USA’s growth differential. Therefore, the Fed is at the top of the interest rate cycle and regardless of whether they cut by 25 or 50 basis points tomorrow, a new trend of cuts rather than hikes is emerging.

You can't make this stuff up!!!

Once per month, I have been purchasing a roll of 20 silver eagles from a major ebay company.

on July 22, I purchased a roll of eagles. When I received NO email saying it was sent (with a tracking #}, I called up the company on 7/27.stating that if I did not hear from them by 7/28, I would file a complaint with PayPal [no one answered; went to voicemail]. On Sunday, I filed the complaint. TODAY, PAYPAL WROTE ME THAT THE COMPANY WILL REFUND MY PAYMENT!!!

One thing is obvious-THEY CANNOT GET SILVER EAGLES!!!!!!

YESTERDAY, I WENT TO A LOCAL COIN SHOW- NO ONE WAS SELLING SILVER EAGLES; IN THE PAST MANY ROLLS OF EAGLES WERE AVAILABLE.

MY CONCLUSION, I AM LOADING UP ON AGQ, THE 2X SILVER ETF,

This is a very compelling argument but I made a couple of calls around the local coin shops and found no evidence of a shortage of rolls of silver eagles. The most common price was $18.20 per coin for a roll of 20 and every shop I called had at least 10 rolls. That does not exactly gel with the story of limited supply above so what is going on?

China has reaffirmed its policy of never being the first in a conflict to use nuclear weapons. Experts refer to this policy as “no first use,” or NFU.

The NFU policy reaffirmation, contained in Beijing’s July 2019 strategic white paper, surprised some observers who expected a more expansive and aggressive nuclear posture from the rising power.

One has to question why this statement was made now? One possible interpretation is China is stating its position in order to lay the groundwork for what it anticipates is going to be a difficult geopolitical environment in the near future.

A link to the full report is posted in the Subscriber's Area. 

Autonomous vehicles represent the marriage of hardware and software but perhaps more importantly the transition of the automotive industry from the industrial to the consumer electronics sector. Electric vehicles have a lot fewer parts, are a lot easier to manufacture and the cosmetic features are mostly about fit and click rather than precision welding. That’s the primary challenge facing legacy automotive companies. Coupled with slowing economic growth the sector remains under pressure.

A link to today's video commentary is posted in the Subscriber's Area. 

The pound fell more than 1% against the dollar to its lowest level since 2017 on fears of a no-deal Brexit. But Johnson insisted a deal was possible.

"We’re very confident, with goodwill on both sides, two mature political entities, the U.K. and EU, can get this done,” Johnson told a TV crew during his trip to Scotland. "It’s responsible for any government to prepare for a no deal if we absolutely have to. That’s the message I’ve been getting across to our European friends. I’m very confident we’ll get there.’’

The key point for the EU to understand is that the backstop is "dead," along with Theresa May’s withdrawal agreement, but there is "scope to do a new deal." Johnson said the U.K. government is talking to Irish government on Monday, to set out "the limits" and aims for a new deal.

And

Conservative Member of Parliament Oliver Letwin, part of a rebel group that includes some Labour MPs seeking to stop a no-deal Brexit, said his colleagues could find a way to amend legislation to prevent the U.K. leaving with no divorce agreement.

“The mechanical problems we can overcome,” Letwin told BBC radio. “The difficult thing is to get a majority in Parliament for some other course of action at the last moment if there isn’t a deal.” Letwin said there is a “natural majority” of parliamentarians against a no-deal Brexit, but whether they would vote to block it would remain unknown “right up until the last moment.”

Investors are pricing in the escalation of brinksmanship between the UK and EU. The UK negotiating team has no choice but to amp up preparations for a hard exit because to do anything else would be to harm the façade they are trying to create of a clear intention to leave. Of course, they might be serious, but if the machinations of parliament tell us anything, it is all well and good to have strong convictions but you still need a majority to push it through the Commons.

Fitch Ratings Ltd. followed on Friday by cutting its outlook for Africa’s most industrialized economy to negative. JPMorgan Chase & Co. said the same day that a rally in the rand since the start of June was more to do with a supportive global environment than improvements in conditions locally.

“We now believe levels are stretched enough to enter outright rand shorts,” JPMorgan analysts including London-based Anezka Christovova and Robert Habib in New York said in a note. “South Africa’s fundamental picture remains very challenging with a ballooning fiscal deficit and structurally low growth.”

Citigroup Inc. recommended to clients on Monday that they short the rand against the Turkish lira. The Wall Street bank’s analysts see the latter strengthening about 7% versus the South African currency over the next three months.

The mismanagement of utilities in emerging markets whether in South Africa or Venezuela is often one of the most apparent signs of low or deteriorating standards of governance. Utilities provide essential services but are mostly state run, they have reliable cashflows and the cost of upkeeping vital pieces of infrastructure can be delayed for years without apparent loss of service. That makes them perfect candidates for political rent seeking or theft.

There are signs that Asia’s export slump is bottoming out. That’s according to Goldman Sachs Group Inc. economists who highlight a substantial pick up in exports to the U.S. from Asian economies including Taiwan, Vietnam and India that’s effectively canceling out the fall in shipments from China.
 
“Initial shocks from the trade war might be behind us, with Asian exports to China recovering and tech exports catching up with stable non-tech exports,” Goldman economists led by Andrew Tilton wrote in a note. “Also, a rebound in the Asian trade cycle seems overdue, with Asian exports undershooting trade partners’ activity growth and the current downturn being sustained longer than past cycles.”

Chinese and American trade negotiators meet again in Shanghai this week for the first round of meetings between both sides since talks broke down in May.

Even if trade tensions escalate, an expected wave of supportive measures from governments and central banks to underpin economic growth will aid the trade recovery, Goldman argues. The Federal Reserve is tipped to cut interest rates this week for the first time in a decade.

For sure, additional U.S. tariffs on Chinese goods would have an impact. “Our view is, however, that the escalation would likely be temporary ahead of an eventual trade agreement, and potential damages could be mitigated by ongoing shifts in supply chains,”

Goldman’s economists wrote. “In the event of further escalation in the trade tensions beyond our baseline, Asian trade may undergo another downturn which, if sustained for the coming year, could make the current downcycle the longest since the 1990s.”

Is global growth troughing? That is one of the biggest questions for investors right now. There is no doubt that slowdown risks have been a major factor in investor sentiment over the last year and that has prompted a massive response from both governments and central banks and is a good part of the reason nearly $14 trillion in bonds are trading with negative yields.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Newmont now expects consolidated production of 165,000 ounces of gold from Penasquito in 2019. Last year, the mine produced 272,000 ounces of gold for Goldcorp. Newmont is forecasting zero production at Musselwhite this year and doesn’t expect the mine to be fully operational until mid-2020. In 2018, it produced 205,000 ounces of gold.

The company said its full-year gold production will be 6.5 million ounces, which compares with a June forecast for 7 million ounces in 2019 and 7.4 million in 2020. The company is “very confident” it can achieve that guidance, Palmer said, noting that guidance for next year will be provided in December.

The lack of clarity about next year could worry investors, Anita Soni, an analyst with CIBC World Markets, said in a research note. “No further 2020 outlook was provided, which will likely be an overhang on the stock given the uncertainty surrounding the production profile for the recently acquired Goldcorp assets,” she said.

From a risk-adjusted perspective buying a producing mine, with well-understood resources is more favourable than committing to building a mine and contributing to proofing up reserves. That is what we are seeing from the gold mining sector at present. Major miners would rather merge than engage in speculative activity. It is that kind of conservative approach to managing mining operations that contributes to value creation. It’s when appetite for borrowing, investment and speculation increase that investors need to be particularly wary.

DEUTSCHE BANK (Robert Grindle, buy, PT 240p)
* Dividend payout, which was one major obstacle to a share price recovery, has now been de-risked
* “An outlook for improving top-line growth, FCF accretion due to M&A and the first monetization of European towers by Vodafone, should augur a material change in share price momentum”

GOLDMAN SACHS (Andrew Lee, no rating)
* 1Q results and announcement of TowerCo spin-out should provide “meaningful reassurance” to key investor concerns
* The beat on 1Q organic service revenue growth suggests 4Q19 was a trough and could encourage hopes for a return to top-line growth
* “While potentially splitting out towers may have the consequence of reducing the remainder of Vodafone Group growth and FCF visibility, management action to resolve its debt position is positive in our view”

Infrastructure plays with reliable cashflows from telecoms companies have been one of the most popular avenues for playing the rollout of 4G in recent years. The success of American Tower has resulted in a significant number of copycat operations divestments springing up all over the world. As 5G is rolled out there is scope for additional infrastructure plays. 5G requires a lot more transmitters, a lot closer together than conventional 4G and will sit on top of the existing structure to ensure constant connection while on the move.

The strong report comes one year after longtime leader Howard Schultz retired from the chairman’s job and left the company, putting decision-making squarely in the hands of Chief Executive Officer Kevin Johnson, who’d been in the post for about a year at that point. Johnson got right to work, bringing life back to an aging brand that had started to lose its cachet among the hipper, smaller chains sprouting up in its shadow.

His playbook included closing underperforming locations in densely penetrated U.S. markets, turning over some foreign regions to licensees and revamping the chain’s loyalty program. He has also expanded food offerings to compete with trendy salad shops and found ways to launch the new drinks that Gen Z and millennial customers want, like Nitro cold brew and high-protein offerings, in as little as 100 days. In the past that may have taken up to 18 months.

The strong performance of Starbucks, McDonalds and Beyond Meat highlight the fact that small changes to menus which gel with consumer demand can have an outsized impact on results as customers re-engage with the brand. Whether that is protein-infuse drinks at Starbucks, better breakfasts at McDonalds or vegetarian offerings at fast food restaurants, these new product offerings have revitalised interest and highlight the strong cashflows of consumer- oriented companies.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: megacap earnings mixed, short=term consolidation likely, highly leveraged companies rolling over but additional rounds of both monetary and fiscal stimulus lining up. Subscription business model continues to outperform. 

and Jill Ward for Bloomberg may be of interest to subscribers. Here is a section:

Despite years of exceptional ECB support, the euro-area economy is in the throes of a slowdown in growth and inflation remains weak. In Germany, typically the region’s stalwart, manufacturing is mired in a slump as trade tensions weigh on exports and auto factories struggle to cope with changes in the industry.

With borrowing costs at historic lows, Draghi has repeatedly stressed the need for structural reforms, and he reiterated that call at a press conference in Frankfurt on Thursday.

“Monetary policy has done a lot to support the euro area and continues to do a lot,” he said. “If there were to be a significant worsening in the euro-zone economy, it’s unquestionable that fiscal policy, a significant fiscal policy, becomes of the essence.”

Just before Draghi spoke, German Finance Minister Olaf Scholz brushed off warning signals for Europe’s largest economy, saying the government has no concrete plans to spur economic growth.

“We are not in a situation that makes it necessary or wise to act as if we were in a crisis, we are not,” he said in an interview with Bloomberg Television.

There was a little “sell the rumour to buy the news” evident in Euro trading this morning. The rally did not hold through the close and looks like little more than some steadying in the region of the previous lows.

“But if demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further,” he said. “Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates. On current projections, it will be some time before inflation is comfortably back within the target range.”

Lowe’s speech, which made the case for maintaining the RBA’s current policy framework despite prolonged low inflation, was his most explicit that further easing remains on the table. The Reserve Bank cut rates in June and July to a record low of 1% and signaled at the time that it would wait to see how the easing filtered through the economy.

Since then, consumer confidence has actually fallen and the currency has risen -- the latter due to an easing bias among major central banks -- in contrast to RBA’s hopes. Indeed, the Federal Reserve is expected to cut as soon as next week. Westpac Banking Corp. Chief Economist Bill Evans on Wednesday predicted Lowe and co. would cut in October and February to push the cash rate to 0.5%.
 

Australia’s administration is attempting to forestall the decline in domestic property prices by cutting interest rates, embarking on an aggressive fiscal stimulus and implementing direct supports for the property market.

Millions of first-time internet consumers from the Ivory Coast to India and Indonesia are connecting to the web on a new breed of device that only costs about $25. The gadgets look like the inexpensive NokiaCorp. phones that were big about two decades ago. But these hybrid phones, fueled by inexpensive mobile data, provide some basic apps and internet access in addition to calling and texting.

Smart feature phones, as they are known, are one of the mobile-phone industry’s fastest-growing and least-known segments, providing a simple way for some of the world’s poorest people to enter the internet economy.

While global smartphone sales began sliding last year as markets became saturated, smart feature phone shipments tripled to around 75 million from 2017, according to research firm Counterpoint. Some 84 million are likely to be shipped this year.

Phones are an example of enabling technology. Delivering internet access to the masses, primarily in frontier and emerging markets, opens up growth potential for the companies delivering services through these devices. Considering the market penetration companies like Google and Facebook already have, reaching the last couple of billion potential users has to be high on their list of priorities.

Both Russia and China are strongly committed to domestic nuclear development, international nuclear power exports, and the development of small modular reactors (SMR) and advanced nuclear reactors. Russia is building seven third–generation VVER–1200 reactors domestically and over twenty internationally. China is building domestically about eleven indigenous units, not including the Russia VVERs, the French EPRs or the recently completed US AP–1000s. They have two reactors of the Hualong One design under construction in Pakistan near Karachi and one planned at Chasma, the site of older, smaller Chinese reactors. They are also pursuing deals in the UK, Romania and Argentina as well as Bulgaria and several other countries. These strong state–financed commitments create the domestic and industrial capabilities needed for future innovation as well as to establish long–term political and economic relationships with countries of strategic interest. US historical influence over international standards and regulatory system development is therefore being challenged as well as US overall foreign policy interests in democracy and open markets. South Korean and Japanese companies are also international competitors but remain long–time US collaborators.

According to the World Nuclear Association about 30 countries are considering, planning or starting nuclear power programs. These range from sophisticated economies to developing nations. Is nuclear a viable option for emerging and frontier economies and how does installation and utilization differ in these locations from developed economies in terms of safety, non–proliferation as well as political stability, environmental and regulatory standards, supporting infrastructure and other factors?

I believe there is a major shift occurring in the global nuclear industry from the industrial countries to the non–OECD countries. Most of future global electricity growth will be in these countries and they want to diversify and develop cleaner energy systems. Despite the huge upfront costs, countries are deciding to accept attractive Russian and Chinese financing for these large, multi–billion dollar units. There is the national pride involved from joining the “nuclear club' as well as possible corruption in certain cases. Russia also offers military equipment as well as full fuel and operating services in its strategy to expand influence. Although both Russia and China have significant training efforts to develop local capacities, overall governance and transparency in a number of these countries is weak and the commitment to competent Nuclear Regulatory Commission (NRC)–like regulatory institutions is questionable. Although most of the countries have signed the Non–Proliferation Treaty (NPT) and the International Atomic Energy Agency (IAEA) Additional Protocol, the introduction of current nuclear power technologies in countries and regions – in which there are significant tensions and political conflicts, e.g. Middle East – raises serious concerns for US foreign policy.

The mining investment cycle of the early part of this century delivered on additional supply capacity. While the building plans for new reactors are impressive, they have been slowed by the Fukushima disaster and competition from other energy sources. That has resulted in quite a bit of volatility for uranium miners.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: the reality of Modern Monetary Theory, competitive currency devaluation, Gold steady, platinum and silver firm, stock markets steady, bonds firm, China governmance deteriorating.

The proposed budget deal would lift spending caps for the next two years by a combined $320 billion, which over the next decade will result in $1.7 trillion of additional projected debt. Negotiators explicitly chose not to extend the Budget Control Act (BCA) caps, which will expire in 2021. The Congressional Budget Office (CBO) will thus assume discretionary spending rises with inflation after 2021 in its baseline, leading to roughly $1.5 trillion more of outlays through 2029. Netting interest and offsets brings the total cost to $1.7 trillion.

2. The Budget Deal Would Cost Nearly As Much As the Tax Cuts

While we and many others have decried the cost of the unpaid-for 2017 tax law, passing this deal would enshrine nearly as much debt as the tax cuts did. According to CBO, the 2017 tax law will cost $1.9 trillion over a decade, including the dynamic effects from economic growth and interest. We project that the proposed budget deal will enshrine $1.7 trillion of debt over a decade, including interest. As a result, lawmakers will have added almost as much to the debt with this round of spending increases as they did with tax cuts.

This is what Modern Monetary Theory looks like. They don’t ring a bell when slipping through trillions of additional spending, but the effect is the same. It is never really that much of a hurdle to get politicians to spend more. The question is only ever over what to spend the money on. Admittedly, they do occasionally adopt a posture of fiscal probity but it never lasts very long and the debt totals just continue to increase. The big point is this deal to increase spending received cross party support and is a foretaste of what the next US administration plans regardless of hue.

The 19-nation currency bloc has been stuck in an economic rut for more than a year amid a number of headwinds, and European Central Bank policy makers are already laying the groundwork for fresh monetary support. Economists expect the institution to signal an interest-rate cut this Thursday, and then follow through with action in September.

“With growth slowing, job creation fading and price pressures having fallen markedly compared to earlier in the year, the survey will give added impetus to calls for more aggressive stimulus from the ECB,” Williamson added.

According to IHS Markit, the region’s more domestically focused services sector remained the main driver of expansion in July, though weaker hiring trends are slowing its rate of growth. Germany, the largest economy in the bloc, has been “especially hard hit by the manufacturing and autos-sector downturns”, and may see total output contracting marginally in the third quarter.

The ECB ended its quantitative easing program at the beginning of the year in a vane attempt to try and begin to normalize policy. The bloc’s economy is nowhere near ready for that kind of change and everyone remembers the deflationary effect the last withdrawal of accommodation had. It appears only a matter of time before the ECB engages in additional quantitative easing.

Since the referendum, he has retreated from public politics, offering only the occasional blog post, often thousands of words long, setting out his views about government, technology and educational systems, but especially on why he believed the government was making a mess of Brexit.

His tone was often contemptuous: Brexit Secretary David Davis was “thick as mince, lazy as a toad and vain as Narcissus.” Pro-Brexit MPs were “useful idiots” who spent their time “spouting gibberish.”

In 2018 he described Theresa May’s approach to Brexit as a “surrender” and said that Article 50 -- the divorce process with the EU -- was triggered too early, akin to “putting a gun in your mouth and pulling the trigger.’’ He said the success of Brexit won’t be known for decades, and tweeted in 2017 that there are “possible branches of the future’’ where leaving will have been an error.

Cummings’s main thesis is that Britain’s system of government is “systematically dysfunctional” and designed to keep the U.K. as closely tied to the EU as possible. He’s called for a radical shake-up of Whitehall, saying Brexit cannot be delivered without it.

As I’ve said on many occasions before, the only way to negotiate is to project a credible argument that you are willing to walk away if you do not get what you want. In a two-way negotiation, where the opposing party believes they have a superior position, it is the only price discovery tactic that has any hope of working. It finally appears the UK administration has got the message.

The US Trade Weighted Broad Dollar Index continues to trade in the region of its all-time peak. A sustained move below 125 will be required to signal more than temporary resistance in this area.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: Pound steadies against the Euro, Dollar firm, stock markets firm, gold eases, Bonds ease, use of the 1000-day moving average as a secular trend smoothing device.

European companies’ equity buybacks have surged to a record $100 billion over the past 12 months, with the strategy of betting on those firms beating returns from U.S. counterparts over the past five years, according to Morgan Stanley. The strategy is also rewarding company stocks more than the payment of high dividends, according to the bank.

“This is the first time we have seen strong buyback performance outside of bear markets or recessions,” strategists led by Graham Secker wrote in a note Tuesday. “More striking, our net buyback factor has shown much greater efficacy in Europe than the U.S. over all time frames.”

One of the reasons European stock repurchasers are faring better is that the practice is less common in the region than among American firms, said the strategists. Buying back equity can provide a much-needed boost to the world’s most-shorted equities, which have been seeing almost non-stop outflows for more than a year amid sluggish economic growth and political uncertainty. Doing so should boost earnings growth, trading liquidity and demand for shares, Morgan Stanley wrote.

European shares are trading at lower valuations than US shares so stock buybacks should have a positive impact simply because of the base effect. However, $100 billion is not all that much in comparison to what US companies are spending. Clear signaling from European corporations that they are willing to step in to support the value of their shares is probably going to be required to change perceptions.

Is 'trend mean' one static measurement tool like 200-day moving average or does it depend on the chart? I often see you use a 200-week moving average when referencing trend mean but often times it is another time frame. Can you clarify?

And

You have been spot on, on the direction of gold bullion. Well done. Have been enjoying the service.

Just one question, if you will: What is the rationale behind the ‘’trend mean’’ which you use on your weekly charts?

There have been a couple of questions relating to the use of a trend mean over the last week so I thought I had better clear up any misunderstanding. We use the 200-day MA as a trend mean because it is a handy average of the prevailing price over the last year.

Rather than think of the trend mean as offering a sacrosanct level of support and resistance we use it more as a way of eyeballing just how overextended a market is. It is reasonable to expect that even in a consistently trending environment there will be occasions when prices have risen a bit quicker than usual. That increases potential for a reversion back towards the mean.

Markets tend to overshoot in both directions so it is quite normal for prices to bob around the trend mean as they find support. That is why we talk about the price find support or encountering resistance in the region of the trend mean.

In the Chart Library we only use days in calculation so a 40-week average in some services will always be a 200-day MA in our service.

The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money. Revenue at eight of Europe’s top lenders is set to decline 2.7% on average from a year earlier, according to filings and analyst estimates. That compares with a 0.5% gain for the top U.S. peers, many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015.

“The focus for European banks is really on revenue,” said Jonathan Tyce, an analyst at Bloomberg Intelligence. “Rates are set to go down, which means lower loan loss provisions, but that doesn’t make up for the loss in revenue. All this keeps bringing you back to costs.”

And here is a section on Deutsche Bank

Deutsche Bank (July 24) unveiled its biggest overhaul in decades this month, including a plan to exit its underperforming stock trading business. The move was partly driven by low interest rates and the company now assumes that European short-term rates will rise to just 0% in 2021. Deutsche Bank also offered insight into second-quarter earnings with a 5.9% slide in revenue. Costs and profit figures fell short of expectations, even before the bank said it expects 3 billion euros of restructuring charges in the period. Deutsche Bank says about 75% of the investment banking businesses it wants to keep will have a top five market position, and the release this week will 

The basic business model of banks, borrowing short-term to lend long-term, doesn’t work if there is no spread. It is complicated by negative deposit rates which see banks pay a fee to sustain Tier 1 capital ratios. The most LTRO program was paltry in comparison to the previous one and therefore represented a tightening of credit conditions for European banks.  This week’s earnings announcements will give us some insight into how they are faring.

Our paper builds on recent empirical work. Focusing exclusively on ageing, Anderson et al (2014), Yoon et al (2014) and Bobeica et al (2017) find significant deflationary effects from an increasing share of older population cohorts. Juselius and Takáts (2015) and Aksoy et al (2015) take the age structure more fully into account and find that an increase in the number of dependants, young and old, is generally inflationary. Juselius and Takáts (2015) also show that the deflationary effects of ageing found in previous studies are driven primarily by the very old (80+ year old) cohort. A common feature of these studies, as noted above, is that they rely exclusively on post-war data, which makes it difficult to separate the age structure effect in inflation from other global secular factors that may be related to trend inflation.

The uncovered link is policy-relevant, because global ageing will substantially increase the share of the old-age population in almost all countries (eg Goodhart et al (2015)). Increased longevity and stagnant or declining birth rates will affect both advanced and emerging economies. While slow, such large-scale demographic shifts have the potential to materially affect trend inflation. For instance, we find that accounting for the age structure leads to substantially lower estimates of endogenous inflation persistence. Hence, past historical periods of high inflation persistence might have reflected, in part, persistent demographic changes. This implies that the role of conventional endogenous drivers, such as inflation expectations, may have been overstated. If so, this could account for the current conundrum with well-anchored long-term inflation expectations and persistently low inflation rates. The stability of the relationship furthermore suggests that this may help us forecast longer-term inflation trends, as previously noted by McMillan and Baesel (1990) and Lindh and Malmberg (2000). Our estimates indicate that inflationary pressures are likely to rise in future due to the increasing share of older population cohorts and a declining share of younger ones, which has not been emphasized in the literature.

I found this a fascinating report not least because it runs contrary to the accepted view, right now, that inflation is not something we need concern ourselves with.  

A link to today's video is posted in the Subscriber's Area. 

Some of the topics discussed incude: India eases on nonperforming loan fears, are we at the trough in global growth? emerging markets outperforming, semiconductors extend rebound, gold steady, silver firm, crude oil quiet on rising geopolitical tensions, Bonds steady

Can you please expand on this statement from Friday's commentary:

"There is potential we are currently at the trough in global growth which could support the stock market in its breakout."

Expectations for global growth has been pegged back on successive occasions over the last 18 months as the trade tensions rose between the USA and Canada, Mexico, the EU, Japan, South Korea and most pointedly with China. More recently, the increasingly taut relationship between Japan and South Korea has been making headlines.

The board is also a testing ground for regulators, who have waived rules on valuations and debut-day price limits for the first time since 2014. The venue is the only one in China to welcome companies that have yet to make a profit, as well as shares with unequal voting rights. The Shanghai stock exchange will create an index tracking the firms about two weeks after the 30th listing starts trading.

Shares on the Star board have no daily price limits for the first five trading days, followed by a 20% cap in either direction. To limit volatility, the venue suspends activity for 10 minutes if a stock moves by 30% and then 60% from the opening price in the first five trading days, a wider band than the rest of the stock market. Only certain qualified foreign investors can buy the stocks directly, as there’s no access through trading links with Hong Kong.

The first batch of listings included China Railway Signal & Communication Corporation Ltd., whose Hong Kong shares sank on huge volume as traders switched into the A shares. Advanced Micro-Fabrication Equipment Inc., which was the most expensive listing of the batch, jumped as much as 331%. Its 171 multiple compared with an average of 53 times for the group, and 33 for similar stocks on other Chinese venues.

Despite the hype, there are questions about whether the excitement will give way to the lukewarm sentiment that’s blanketing the world’s second-largest equity market. On the other hand, a sustained period of ultra-high demand risks draining funds from other exchanges, where volumes are shrinking. The Shanghai Composite Index fell 1.3% on Monday, while the ChiNext Index was down 1.7%.

There is no doubt China can stage manage product launches and a stock market venue is no different. The question of whether the STAR market becomes the next Nasdaq is much thornier. It will be months before we have a clear idea of how much liquidity the venue can attract and perhaps more importantly whether that will simply siphon interest away from other markets or it will create organic growth in demand for speculative shares.

Just as they emerge from the worst bad-loan problem in two decades, India’s banks are staring at another potential surge in soured debt as a result of their exposure to troubled non-bank finance companies. In its latest Financial Stability Report, the Reserve Bank of India warned that any failure among the largest of the NBFCs or housing finance firms could cause losses comparable to a major bank collapse.

The central bank selected the non-banks to monitor based on the size of their balance sheet, the scale of their operations, as well as governance practices and credit behavior, he said.

There have been some instances of governance lapses and “we are dealing with it,” Das said, without naming any company. “But there are a large number of others who have encountered business failures and certain external factors which impacted their business model.”

Das said lenders which haven’t been diligent in their lending practices “will have to pay” the price for it.

Property in India is more expensive than one would expect based on the size of the economy but not compared to the size of the population. Nevertheless, housing finance companies have gotten into a difficult position because the prices they paid for land are out of character with even the loftiest prices they are asking for the houses already built

I am impressed by your bravery in questioning much that appears in the media about 'climate change'. I am sure the climate is changing, as it is still warming from the last ice age, but that is a natural cycle. As a dyed-in-the-wool scientist, trained carefully in my PhD studies in the logic, method and philosophy of science, I have been horrified by the apparent abandonment of scientific method by many in research on our climate. 

I say this for two reasons. The first is that a basic premise of scientific method is that nothing can ever be proven for certain, that all conclusions are subject to change. Adoption of that approach was a key step in development of the scientific method and abandonment of religious-type certainty, yet it appears to have been abandoned as far as climate research in concerned. Second, you may remember that ex-president Obama opined that no grant money should be given to scientists seeking to disprove theories of climate change, yet the whole scientific method IS to generate experiments to disprove a hypothesis. I recommend subscribers read Karl Popper on this matter, as he explains the scientific method very clearly. 

I do not know whether human activity is particularly relevant to climate change, but I do know that much that passes as 'scientific research and comment' is just the opposite. I am more concerned about pollution that carbon dioxide, and that focus would have been much wiser than the approach adopted by the EU that ignored common sense, led to subsidy of diesel engines, and caused tens of thousands of premature deaths. (Was anyone ever held to account?). I never switched to diesel.

Well, despite Obama, there are alternative research views being published and this article refers to one quite contrary to the carbon dioxide hypothesis.

The original research article can be accessed by links in the article and I strongly suggest subscribers do read it to at least loosen their views a little.

It suggests that human influence is negligible and that any changes are mostly due to increased cloud cover generated by cycles in cosmic radiation. However, I fully expect the response to an alternative view will be as you stated: "Confirming evidence is accepted at face value but non-confirming evidence is dismissed. This practice is justified by the urgency of the problem and the need for action, but it is exactly when a vital decision needs to be made that cool heads need to prevail." 

Well done Eoin for stating this. You are impressive in your clear thinking and all subscribers benefit from your wisdom if they learn from you while investing.

Thank you for this email and I also read the article citing Finnish research with interest. Karl Popper was required reading when I was at university.

Cloud formation as a result of cosmic rays is particularly interesting as is cloud formation resulting from airline contrails. There are over 100,000 airline flights per day and that number is growing at an impressive rate as living standards rise. It makes intuitive sense that if there are more clouds the blanket effect of trapped heat is greater. Therefore, one of the most important innovations to monitor for pollution and climate is the drive towards emission free air travel.  

This article also discusses how planes can make rain and snow storms worse.

This link to Comment of the Day on May 21st may also be of interest. 

One point worth considering is if the regulatory authorities were not willing to act against diesel there is no chance a concerted effort will be made to tackle aircraft pollution until a viable alternative is commercially available.

 A link to today's video commentary is posted in the Subscriber's Area.

Hope you are doing well. I just thought you may find interesting this Financial Times story on gold - 

In particular, it has a chart showing that “the correlation between the growing volume of negative-yielding bonds and the rising value of gold is striking.” And, also, “Gold as a zero-yielding asset will look even more attractive versus an asset that is guaranteed to lose money,” said Paul Wong, a former senior portfolio manager at Sprott Asset Management.

Thank you for this link and I am enjoying some warmer weather by playing tennis with my children in the afternoons. It’s a been a long cool spring in Southern California and considerably wetter than any we’ve seen since we moved here. It looks like the long winter of discontent with precious metals is over too.

One of the best ways to think about gold, in an environment where an increasingly large chunk of global sovereign debt is trading with negative yields, is as a zero-coupon perpetual bond. It rises in value as yields decline and most particularly as the risk of competitive currency devaluation becomes more realistic.

To complicate matters, Americans are suffering buyer’s remorse with China. Washington, or at least much of its national security leadership, long believed that China would not buck the US-led global order because they were such beneficiaries of it, either through a liberal trade regime or, for example, through the constraints the United States forced on regional rivals in Asia such as Japan. “The United States has always had an outsize sense of its ability to determine China’s course,” wrote Kurt Campbell and Ely Ratner, who both moulded Asia policy in the Obama administration. “Again and again, its ambitions have come up short.”

Washington’s policy was based on a series of misjudgements, many of them quite reasonable at the time. Sandy Berger, Bill Clinton’s late national security adviser, for example, depicted China in a speech in June 1997, as being a divided country, “with conflicting forces pulling in opposite directions: inward-looking nationalism and outward-looking integration”. In truth, China’s integration with the world has always been tailored to reinforce the nationalist narrative at home. In the words of analyst Tanner Greer, the ‘let’s engage China to make it a responsible stakeholder’ policy was not as stupid as it is now portrayed. “What should have been an opening gambit became a stale dogma,” said Greer. “But it was a good strategy initially, one that terrified the Party leadership, so they took action to defeat it.” 

The Americans overrated their intrinsic attractiveness and strength as a benign, inclusive, unassailable superpower, especially in the post-Cold War glow of victory against the Soviet Union, another rival communist state. More to the point, they underestimated the Party’s equal and opposite sense of its own exceptionalism. “We wanted to believe that we could convince China that they would be better off with us in charge, and that somehow, with more interaction and engagement, the Chinese would come to believe that, ‘I like to be told what to do by the United States’,” said Oriana Skylar Mastro, of Georgetown University. The United States also failed to understand, says Ms Mastro, that China felt compelled to build up its military. China’s leaders never “felt safe surrounded by the US military, and … at some point, if they could, they would reduce US military presence in their periphery”. 

I don’t think voters had any conception of how the big bet on civilizing China was been collateralised. We know the decision was made to allow China into the WTO based on the assumption that if GDP per capita reached the magic $3500 level it would miraculously become a free and open society and a willing partner in the spread of rule of law and good governance. What is never discussed is this bet destroyed several million US jobs and at least an equal number in Europe, Canada and Australia.

Regarding the Allen Brooks piece on Climate change. I have to say I find the benign conclusions of the report totally unconvincing. Over the years I have read widely on the subject and have been especially impressed by the publications and books of one of the most eminent climate scientists whose work goes back more than 50 years. I refer to Professor James Lovelock. In a recent BBC interview, he suggested that global warming may be entering an acceleration phase. As I write this reply a news story has just announced that a high-pressure dome is due to affect the Eastern states of the US with predicted city temperatures likely to exceed 40 deg C. The simple fact is that you cannot expect hydrocarbons that have been trapped in the Earth’s crust over many millions of years, to be exploited by man over a few decades with the bye products going into the atmosphere, without grave consequences.to follow. Globally we have just experienced the hottest June ever and significantly Siberia has been 7 deg C above normal for the time of year. I mention this in respect of the melting permafrost which is now releasing methane in significant amounts. A gas thirty times more significant than CO2.as a greenhouse gas Of course this topic is an extremely emotional one, simply because the decisions made now on how we collectively proceed could not be more important. On balance I think I would go with the IPCC and James Lovelock. His books on Gaia theory, by the way, are worth reading

Thank you for this email which may be of interest to others. Higher median temperatures and more humid conditions in some areas than we are accustomed to are a fact. Coral bleaching and marine calcification are also facts we cannot dispel. Pollution of our rivers, lakes and oceans, desertification following logging and rapid expansion of cities to accommodate billions more people all represent significant challenges that need to be dealt with.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include:Japan weak on global growth, industrials underperform, defensives outperform, nickel, silver, gold break out. Treasuries steady, US Dollar weakens while Pound and Australian Dollar find support. 

You may have seen this but thought it worth sending as it has potentially big impact for us Aussie’s.

Thank you for this article which I’m sure will be of interest to subscribers. Here is a section:

Wilson, however, says that given Australia's funds have accumulated such a large stock of foreign assets, an aggregate decision of super funds to hedge their exposure will result in flows that will be twice as large as a percentage of GDP.

And it is the hedging of those exposures that is becoming a more relevant focus for market participants and policy makers

"A 10 percentage point shift in super fund hedge ratios was equivalent to a flow of 1.5 per cent of GDP in 2013. This is now 3.5 per cent."

It is therefore plausible that strengthening in the Australian dollar could trigger a "scramble to hedge" particularly among performance ranking obsessed super funds.

"A discrete increase in hedge ratios by Australian super funds now has the capacity to overwhelm the underlying outflow."

Australia, Wilson says has actually built up a "significant stock of foreign currency exposure" – well in excess of $1 trillion, or the equivalent of or 60 per cent of GDP.

That is because the banks, which borrow heavily from offshore, hedge the currency risk of virtually every dollar they raise, while super funds are prepared to take on more foreign exchange exposure.

Russian pipeline operator Transneft PJSC, meanwhile, said it resumed full flows from the country’s largest crude producer, Rosneft PJSC, after imposing restrictions amid concerns about contamination.

Oil has fallen all week as the specter of a renewed U.S.-China conflict dented the demand outlook, while American fuel stockpiles jumped. That’s overshadowed worries that Iran may shut down the Strait of Hormuz, a key chokepoint for much of the world’s oil shipments.

This week we have been treated to two examples of how much the energy sector has changed. First a hurricane shut down most gas supply in the Gulf of Mexico and hit the New Orleans area which is where a lot of processing infrastructure is situated. The price of gas fell instead of rising because so the market no longer relies on the Gulf of Mexico as a swing producer.

What is most important about the Institute’s climate model was its near perfect replication of the temperature history of 1861-2013.  Projected into the future, the Institute’s model projects an unalarming temperature increase to 2100 of 1.4C (2.52 F).  Note that the Institute’s projection falls below the 1.5C increase environmentalists say is necessary to keep the planet from selfdestruction.  That target can be met without upending our entire economic system and how it is powered.  

 The Institute’s temperature forecast is well below those produced from the climate models utilized by the IPCC, which in some cases are as much as five times greater.  The criticism of climate models is that they are biased to the warm side.  An interesting chart shows the temperatures from climate models attempting to recreate actual temperatures at various elevations of the atmosphere for 1979-2010.  The chart shows that the models always exceed the actual observations when they rely on CO2 as the forcing mechanism.  Without CO2, the models come much closer to replicating temperature history, demonstrating the warming bias of the carbon emissions thesis.  

Understanding that natural variables are more important in explaining our temperature history is important since such a climate model projects a smaller temperature increase.  This goes against the preconceived basis for founding the IPCC, and weakens the attack on fossil fuels.  The Institute’s climate model results suggest that adaptive steps, more fuel-efficient vehicles, equipment and appliances, as well as increased use of cleaner fossil fuels could be a more palatable and less costly route for the global economy than draconian plans such as the Green New Deal.  

A link to the full report is posted in the Subscriber;s Area.

Guilt is one of the most powerful of human emotions. When we fail it is because we did something wrong and need to atone for our sins. When we succeed it is happenstance and we don’t deserve the rewards we have received. This latter point is particularly relevant for people who become much more successful than they had initially expected, and even more so if there is a wide difference in performance relative to their kin or community.

Nickel has a history of attracting speculative interest on expectations of supply shortfalls, only to see rallies quashed once it became clear there wasn’t a shortage. The metal attracted a lot of interest in late 2017 from investors betting on its future role as a vital ingredient in high-performance batteries for electric vehicles, but that remains a small part of demand for now.

For Nugent, reduced LME inventory is spurring the latest bout of tightness and encouraging the spike in price. For example, it’s pushed LME September futures to a $20 premium over October, after being at an $18 discount on July 2. It’s a backwardation that contrasts with nickel’s more usual contango structure, he said.

“What I think you’re seeing now is that a lot of stock has moved from on-exchange to off-exchange,” he said. “It’s that kind of tightness that will be discouraging people from entering short positions against a rally. It’s something that is happening more often when you’re losing that on-exchange stock.”

That view is bolstered, he said, by the fact that the LME appears to be leading the Shanghai Futures Exchange, rather than the other way around. While open interest and speculative long positions have also risen on the SHFE, the gap between London and Shanghai prices has widened in the past month.

Batteries for electric vehicles are the primary demand growth driver for high purity nickel. While declining global automotive demand has been a drag on automakers the share of electric vehicles in the market continues to increase. That’s positive for the price. Additionally, the run-up in iron-ore prices may be having an effect on nickel because its role in stainless steel production.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Silver playing catch up with gold, the broader currency war argument, emerging markets turning to ourperformance, bonds yields continue to contract, cryptocurrencies stabilse. 

That will happen at the same time that there will be greater internal conflicts (mostly between socialists and capitalists) about how to divide the pie and greater external conflicts (mostly between countries about how to divide both the global economic pie and global influence). In such a world, storing one’s money in cash and bonds will no longer be safe. Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. That’s the easiest and least controversial way to reduce the debt burdens and without raising taxes. My guess is that bonds will provide bad real and nominal returns for those who hold them, but not lead to significant price declines and higher interest rates because I think that it is most likely that central banks will buy more of them to hold interest rates down and keep prices up. In other words, I suspect that the new paradigm will be characterized by large debt monetizations that will be most similar to those that occurred in the 1940s war years.

So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system. 

Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.

Delayed gratification is not exactly popular. The world runs instead on a “what have you done for me lately” mentality. Nobody understands that better than politicians. When it comes to elections, they get very good at making promises and the only ones that ever seem to get fulfilled are commitments to spend more. Sure, there are occasionally efforts to rein in spending, but they never tend to last that long. That has been particularly true of more developed countries where poor demographics highlight the issue of unfunded liabilities in stark terms.

Investors have heard this refrain before, that just a scant few pull the pack. And it’s easy to see their outsize influence: Microsoft, Apple, Amazon.com and Facebook Inc. account for more than 20% of the S&P 500’s returns this year. That number is even starker for the tech-heavy Nasdaq 100, for instance, where those four companies account for about 50% of gains.

But Bessembinder and his team, including two co-authors from Hong Kong Polytechnic University and Goeun Choi of Arizona State, are among the first to look at the phenomenon long-term. The best-performing 306 firms accounted for about three-quarters of global net wealth creation during the 28-year period of the study, they found. Just 811 companies could be framed as accounting for all of it.

Their findings echo Bessembinder’s previous work. In looking at nearly nine decades of U.S. stock and bond performance, he found that out of 26,000 stocks, about 58% underperform Treasury bills in their lifespan.

There are two lessons from this data. The first is it has been hard to outperform bonds during one of the greatest bull markets in history. With forty years of history that is a lot of empirical data to base conclusions on. However, it also assumes the status quo remains intact indefinitely.

Musk has fielded many complaints personally -- and publicly -- on Twitter. Much like Tesla has wavered with its pricing, he’s oscillated from adamant, to apologetic, to apathetic, to argumentative. And for the chief executive officer of a company that’s sought to revolutionize car-buying, he’s offered up a perhaps unlikely excuse: Hey, other automakers are doing this, too.

 

The automotive sector has not been this interesting in a century. There are multiple arguments for which view of the future will prevail. There are competing technologies and perhaps most important there are competing business models. Tesla hasn’t quite figured out what its business model is just yet and that is because autonomous driving, when it finally happens, will change everything.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: the Pound comes back to test the lower side of the range against the Euro, silver steadies, bitcoin closes below $10000, Wall Street steady, Yes Bank steadies
 

A link to the full report is posted in the Subscriber's Area. 

The reliability of cashflows from the consumer staples sector gives them bond proxy characteristics. They become particularly attractive when bond yields are trending downwards.

The bank, which is currently in capital conservation mode, will be able to return to a focus on growth once the fundraising exercise is complete.

This growth, however, may be more modest than what was seen under the previous chief executive Rana Kapoor.

Yes Bank will be looking to grow its loan book at 20-25 percent for some time to come, bringing down its growth rate from the over 40 percent year-on-year growth seen until a few quarters ago.

Yes Bank is also in the process of adjusting its exposure to a few corporate groups, where the lender was in breach of the Reserve Bank of India’s large exposure framework, the person quoted above said.

The private sector bank will move from an asset-led growth strategy to a liabilities-led growth strategy as it aims at bringing in more retail and small business customers. It intends to do this by leveraging its 1,100 branches and mining customer data from its digital offerings such as the Unified Payments Interface (UPI). A liabilities-led growth could help the bank bring down its cost of funding by 100-150 basis points, the person quoted above said.

Yes Bank’s new CEO has stated they have already accounted for most of the bad loans on the balance sheet. With a central bank employee sitting on the board, if that information is factually inaccurate it represents a major problem for the credibility of the RBI. The earnings announcement tomorrow is going to help to at least answer that question.

You are pushing out the door the risk, but part of this risk comes back in through the window,” said Massimo Famularo, a Milan-based adviser on bad-loan deals.

The ill-health of Europe’s banks is a drag on the economy and a factor for why the area has yet to fully bounce back from the crisis. When banks retain exposure to bad loans rather than selling them outright, they have less capital to back fresh lending to the economy.

Lending growth has been weak in countries with the most nonperforming loans, or NPLs, such as Italy, Portugal and Greece.

“The sale of NPLs is good for the balance sheets of the banks, but it doesn’t solve the NPL problem in the system,” says Giovanni Bossi, former chief executive of Italy’s Banca IFIS SpA. He estimates only a small portion of the disposed loans has been worked out by their buyers.

The nonperforming loan problem in Europe is half the size it was at the height of the crisis. There are two ways of looking at this development. The first is the easy to exit loans have been dispensed with, so the second half must be stickier and, therefore, harder to deal with. The other is that real progress is being made but it is not as quick as many would like.

The beleaguered U.K. currency is finding few backers, with both leveraged funds and asset managers increasing their pound short positions, according to the latest data from the Commodity Futures Trading Commission. Deutsche Bank AG’s global head of currency research George Saravelos said the currency is not cheap enough, even after its recent slide, and that there is now close to a 50% chance of a hard Brexit.

The president-designate of the European Commission, Ursula von der Leyen, said she was ready for a further extension of the Brexit deadline “should more time be required for a good reason.” However, a meeting of Brexit negotiators last week was one of the most difficult of the last three years, according to European officials, as they brace for talks to become more hostile under the next British government.

Johnson and Hunt, who have long said they want the Irish backstop renegotiated, appeared to limit their room for compromise in a debate late on Monday.

“This leaves only two options, no-deal Brexit, or no Brexit,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG. “As both Johnson and Hunt have made clear they want Brexit, chances of a no-deal Brexit are rising.”

The members of the Conservative Party who vote on leadership contests demand a hard line on Brexit so that is what the candidates have offered. Showing a willingness to walk away is a basic component of any negotiation so a hard Brexit needs to be an option. The biggest question is what the new leader is going to deliver once the mantle of power comes to rest on his shoulders. The EU has stated they will not reopen negotiations so the question is what sweeteners they will offer and whether that will be enough to get a deal done.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: China growth moderates but market expects assistance, copper steadies, nickel outperforming, oil eases, gold steady, silver and platinum firming, Wall Street steady, bonds firm, Dollar eases particularly against emerging market currencies.

A link to the full report is posted in the Subscriber's Area. 

The charts tell us everything people have already done with their money and they offer the clearest reality check on our personal theories for market action. The simple fact is that if our view of the market is not support by the price action then we need to change it.

A sinkhole of negative-yielding debt in emerging markets has doubled in size over the past week. This time last year it was non-existent.

The amount outstanding soared to $246 billion, driven mostly by the growing pile of corporate debt with sub-zero rates, which almost tripled in seven days, according to data compiled by Bloomberg.

Corporate heavyweights such as China Everbright Bank Co. and Petroleo Brasileiro SA, and sovereigns including Poland and Hungary have seen their rates drop below zero after a dovish turn at Federal Reserve and the European Central Bank sparked a mad dash for yield. Emerging-market bonds handed investors 3.5% over the past two months, more than a percentage point above returns on U.S. Treasuries, according to Bloomberg Barclays indexes.

The amount of negative-yielding corporate bonds almost tripled to $109 billion from a week ago
Sovereign bonds with sub-zero rates climbed about 50% to $136 billion

“This is a global phenomenon, not an EM phenomenon,” said Warren Hyland, who manages emerging-market debt at Muzinich & Co. in London. “Ultimately if less and less of bonds generate a positive yield, that means more and more people are looking for a positive-yielding bond and EM has more of that than elsewhere.”

Negative yields are a problem for investors and represent a massive momentum trade for traders. Moving further out the risk curve is an inevitability for many asset managers and the destination for flows will heavily depend on mandates. Emerging markets are a particularly attractive destination for fixed income investors if they have the currency on their side.

The tumble comes days after U.S. President Donald Trump criticized digital coins on the heels of this year’s stellar rally. Trump wrote on Twitter Thursday that he is “not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” adding that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”

Bitcoin “continues to trade lower as comments from President Trump put downward pressure on the cryptocurrency,” said Alfonso Esparza, senior market analyst at Oanda Corp. in Toronto. Drawing Trump’s ire means “it could fall further to $8,000, giving back all the gains made in June.” Bitcoin initially climbed after Trump’s comments, but has since more than erased the gains.

 

There is a tendency in the opaque crypto market to attach causality to coincidence. I am not at all sure how much credence to give the conclusion that President Trump’s tweets were behind this weekend’s sell off.

“The easing cycle and a potentially stronger demand environment in China will be enough to allow base metals a bit more upside,” JPMorgan analysts Natasha Kaneva and Gregory Shearer say in an emailed report received Monday “We reiterate that this bullish view is more near-term tactical rather than long-term fundamental,” they say “We agree and believe that Chinese metals demand is sufficiently solid to support prices but not strong enough to push them higher,” Carsten Menke, an analyst at Julius Baer, says in an emailed note.

I will be travelling to China and Taiwan between August 5th and 19th this year. The one big take away from last year’s China trip was the sense of unease evident on the street and among vendors. That was in response to the tightening of government oversight on every day life, the attempts to stamp out lending by the shadow banks and the souring sentiment resulting from the first salvos of the trade war. Understandably that has contributed to slowing growth.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Instead of selling futures to suppress the price, our market whale appears to have turned buyer; buying enough to cover China’s annual silver imports, the equivalent of about 43,000 Comex contracts. Clearly, the new strategy is to hedge against rising prices instead of suppressing the silver price. Given this new development, one would have thought that the other seven large traders would have tried to limit their silver shorts and at least keep an even book. There are several reasons why they may not have not felt the need to do so:

There are ample quantities of bullion in the vaults in London and Comex depositories, currently totalling 1.66 years’ worth of mine supply, unlike gold where the underlying bullion stock is very small relative to the paper contracts based upon them.

They appear to be unaware of China’s actions and motives. They may not even be aware of the existence of this long position. If they are aware of it, they may think it is just a technical long, against a short in London’s OTC market.

With global commercial demand declining due to the economic slow-down, they probably feel relaxed about the price outlook for silver, which they will regard as an industrial metal. Base metals show little sign of entering a bull market.

Therefore, with the Swaps category only moderately oversold (net short 12,735 contracts) and the Managed Money category only average overbought (net long 21,923 contracts), the other seven largest traders are likely to feel individually comfortable with their short positions, unaware of the extent to which their fellow traders are also short. What they fail to realise is that they are the shorts against the one largest trader who is long.

Silver is a lot less liquid than gold in the futures market, yet there is a lot more silver in the physical market than gold. That typically creates a volatile trading environment for the metal and is why investors have seen silver as a high beta play on gold historically.

Hoping for a quick refresher, please. The Chart Seminar reinforces that stocks are either trending or ranging. What I am interested in are the indicators which may suggest a stock could breakout of its range (to the upside or downside) in the near term. Thanks for a wonderful service.

Thank you for this question which others may have an interest in. Markets either trend or range so every range is following by a breakout and vice versa. Ranges are explosions waiting to happen because ranges and boring relative to the trending phases. That means expectations for future potential deteriorate at just the same time that energy is being stored up for the next breakout.

One such model was proposed in a 2017 article in the Journal of Portfolio Management by Research Affiliates founder Robert Arnott and several colleagues. They found that P/E ratios tend to be lower when real interest rates, or those adjusted to remove the effects of inflation, are either too high or too low. The “sweet spot,” as far as P/E ratios are concerned, is when real rates are between 3% and 4%. Since real rates currently are below 1%, Mr. Arnott’s research provides no support for the above-average current P/E ratio.

In an email, Mr. Arnott poses a rhetorical question for those who believe that today’s low interest rates should automatically translate into higher P/E ratios. If that were the case, “then why don’t negative real interest rates in Europe and Japan justify even higher valuation levels [than in the U.S.]?! Instead, these markets are priced 20-40% cheaper than the U.S.” as judged by their P/E and CAPE ratios, he writes.

Taking historical comparisons as a basis for a world with trillions in negative yielding bonds does not make sense. Once interest rates go below zero it sets of a stampede for yield among yield-to-worst investors and creates a momentum driven trade in the opposite direction for traders. The big difference between Europe and Japan compared to the USA is urgency.