Financial Markets and Economy
The Importance of RMB Internationalization (Investor Insight)
For the last four years, I have been highlighting the idea that when Beijing floats the renminbi, the currency may go down, not up, which is the exact opposite of what those who accuse China of currency manipulation believe would happen. I had this very argument with Lindsey Graham two weeks ago at a small dinner in New York, where I listened politely to his positions on a variety of topics until he began talking about currency manipulation. Given that the preceding topic had been the Federal Reserve, and considering that the rest of the world considers the quantitative easing that the Fed did to be the epitome of currency manipulation, I found that I couldn’t sit still; and we engaged in a very, let’s call it intense, back and forth. To the Senator’s credit, and my surprise, after dinner he came over and asked if I would visit him in New York, which is now on my short list of things to do.
"Critical" Debt "Domino Chain" Threatens To Destabilize China's Financial System, SocGen Says (Zero Hedge)
Since the beginning of March when we first explained why QE (or at least some manner of “unconventional” monetary policy) may be inevitable in China, we’ve tracked developments around the country’s local government debt refi effort closely. For those in need of a refresher, we've documented the program from inception to implementation and beyond in exhaustive detail in the following posts.
While we won't endeavor to recap the entire series of events here, note that the entire effort comes down to one simple thing: China's local governments have managed to accumulated a debt pile worth 35% of GDP via off-balance sheet, high-cost loans which are now being swapped for low interest muni bonds in an effort to reduce debt servicing costs and extend WAM. This is part of a wider effort on China's part to deleverage an economy laboring under $28 trillion in debt. This deleveraging effort goes far beyond local government debt, as Beijing is now moving to allow for more corporate defaults as the country moves to liberalize its financial markets.
Are Multi-Family Housing Starts near a peak? (Calculated Risk)
I'm wondering if multi-family housing starts are near a peak. The architecture billings index for multi-family residential market was negative for the fourth consecutive month, and that suggests a slowdown for new apartment construction later this year.
That doesn't mean apartment construction will slow sharply, especially since demographics are still favorable for apartments (as discussed below). But multi-family construction might move sideways.
Chinese Stock Market — Full Meltdown Approaching? (Alpha Architect)
Last night, China’s principal benchmark, the Shanghai Composite index, collapsed 7.4%. Ouch! Now that’s what we call a drawdown!
Hundreds of stocks hit their daily 10% drawdown limit (where selling is not allowed below the limit price for the rest of the day). Chinese market news is exploding across the internet and we’re seeing panicky keywords like “freakout,” “nosedive,” etc.
Greece's bailout referendum risks exit from euro (CNN)
After weeks of talks, Prime Minister Alexis Tsipras said he could not accept the terms being offered by Europe and the International Monetary Fund. He said he would recommend that Greeks vote against them in a referendum on July 5.
The move brings to an abrupt end a series of discussions aimed at finding a way for the creditors to release the remaining 7.2 billion euros of Greece's huge bailout, in return for budget savings and economic reforms.
Our Three Biggest Financial Mistakes According To Jim Grant (Value Walk)
“I am going to put discretionary monetary rule by former college professors at the head of the list of errors over which our descendants will roll their eyes. Deflation-phobia and inflation-philia come next, followed by a general willful ignorance of financial history,” said Jim Grant.
What would happen in case of Grexit? (Cleppe)
In order to “help” Greece, since 2010, we’ve seen fiscal transfers and foreign intervention into its domestic economic policies. Greece’s debt to GDP ratio is now around 180% to GDP, while a lot of the bailout cash has merely served to bail out banks, as Open Europe already warned in 2012.
A number of policy makers now wants to try something new: a Greek exit from the Eurozone. One of them is Christian von Stetten, a Member of Germany’s Parliament and of Angela Merkel's CDU. He states what a majority of Germans believe should happen: "The experiment with the Greeks in the eurozone, who are unwilling to implement reforms, has failed and must be ended". He adds that he's in favour of providing "many billions" in support so Greece can make the transition onto its own currency.
Deutsche Bank CEO May Have Lied To Bundesbank About Rate Rigging, BaFin Says (Zero Hedge)
A lot has transpired at Deutsche Bank over the last three months. Let’s recap.
In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee). A month later, the bank paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion. On May 8, the bank’s head of structured finance Elad Shraga — who was instrumental in helping Deutsche become "an award-winning arranger of asset- and mortgage-backed debt — left the firm after 15 years. Then on June 5, US Attorney General Loretta Lynch announced the Justice Department would pursue new settlements with European banks over crisis-era MBS sales.
Which Country's Workers Care About Their Jobs the Most? (The Atlantic)
According to one survey, the average amount of time that some employees spend on personal activities at work is somewhere between 1.5 and three hours a day. With that in mind, it’s no wonder that employers are more concerned than ever about productivity statistics. Nowadays, with technology that allow employers quantify output more closely, it’s no longer the status quo just to show up to work. Managers want employees who are engaged.
Not even one big American company is talking about Greece (Business Insider)
Greece and the Greek financial crisis have persistently made headlines in world business news for years.
S&P Intrinsic Value Update (Value Walk)
Dallas Fed reports 12mo Trimmed Mean PCE (inflation) at 1.6% which has been roughly the same for the past 18mos. Inflation is the only input to the SP500 Intrinsic Value Index which does not trend smoothly. When inflation is trending without volatility, the SP500 ($SPY) Intrinsic Value Index becomes smooth as one can see in the chart below.
US oil rig count falls for 29th straight week, total count climbs (USO, WTI, OIL, VDE) (Business Insider)
The total count of US oil and gas rigs climbed this week, although oil rigs declined for a 29th straight week.
The oil rig count fell by three to 628, the lowest since August 6, 2010.
Trading
Small cap stocks are big winners in 2015, but… (CNN)
If you own small company stocks, give yourself a pat on the back.
After a lousy 2014, small cap stocks are winners again. They are even beating big stocks.
Politics
Think Obamacare Is Bad? SCOTUScare Is Worse. (Forbes)
The Affordable Care Act passed five years ago.
The Supreme Court now has ruled on it five times — and four of them were major decisions.
Have we gained anything from the Court’s big rulings on Obamacare?
“No,” says Timothy Jost. He’s a law professor at Washington & Lee, and an outspoken supporter of the ACA.
Hillary Clinton Calls on Republicans to Abandon Gay-Marriage Fight (Bloomberg)
Hillary Clinton, at the end of what she described as “an emotional roller-coaster of a day,” called on Republicans running for president to stop opposing the expansion of gay rights and move on to other issues.
Technology
It’s Humans vs. Machines in This Week’s Webmonkey Podcast (Wired)
AT APPLE’S WORLDWIDE DEVELOPERS Conference a few weeks ago, Apple-owned Beats Electronics co-founder Jimmy Iovine said humans would play a crucial role as curators—a.k.a. DJs—for its upcoming Apple Music service.
“Algorithms alone can’t do that emotional task,” Iovine said. “You need a human touch.”
Messaging And The Apple Watch (Tech Crunch)
Although the Apple Watch boasts the ability to instantly notify users with important updates — breaking news stories, changes to their bank account or the achievement of a fitness goal — its 42mm screen can be a major constraint for developers and designers.
This is especially true for messaging applications, which must figure out how to create an essentials-only design that enables two-way communication without the luxury of a keyboard. When designing a messaging application for the Apple Watch there are several key considerations that must be kept in mind to ensure developers are creating something people will actually use.
Health and Life Sciences
The grossest health concerns of summer? (CNN)
You are not the only one who thrives in the summer and loves its warm, long days. Bacteria and other microbes that cause food poisoning, diarrhea and just general grossness also flourish, threatening to make it a season to be sick.
Life on the Home Planet
Call for more protection for seagrass meadows (BBC)
Monitoring of seagrass meadows off the North Wales coast found areas damaged by the likes of boat moorings, anchors and vehicles crossing at low tide had reduced value to the ecosystem.
Fewer species of fish were found where seagrass was degraded, according to research published in PeerJ journal.
Poppy gene unlocks new ways to make morphine (Futurity)
Scientists have discovered a long-sought gene in poppies that could pave the way for more effective painkillers.
The gene could be a critical gateway step in the synthesis of the morphinan class of alkaloids, which include the painkiller drugs morphine and codeine.