James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan
by ilene - October 21st, 2014 11:15 pm
Courtesy of Mish.
James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan
Here's an interesting video from the recent James Grant Conference. The title of this year's conference is Investing Opportunistically, Separating the Beta from the Alpha.
The first five minutes are introductions and attendee notes you may wish to skip over. The opening speech was by Marc Seidner, CFA at GMO, on inflation expectations.
Note: you may have to click on the play arrow twice to start the video.
Last year at this time a majority thought tightening was inevitable and bonds were attractively priced for those who thought otherwise now, tightening in Europe and Japan is totally priced out and even in the US, inflation expectations are down as noted by forward yield curves.
Seidner commented that 100% of strategists were negative on bonds heading into 2014 but I can name a couple exceptions, notably Lacy Hunt at Van Hoisington.
Tepid Inflation – UK, US, EU, Japan
Historically, when inflation has been this low, talk was of easing further not tightening.
One-Year Inflation Expectations
US Dollar, Euro, Yen, British Pound Forward Curves
"Europe Has Become Japan"
Seidner says that if he was washed up on an island and could periodically see one chart to let him know the state of the global economy the above chart would be the one as it shows interest rates, implied path of monetary policy, and the divergence between the US and the rest of the world.
"From this perspective of the bond market, Europe has become Japan. … There is an inconsistency in my mind between a path of forward interest rates that Europe that reflects such slow economic growth that interest rates never get off zero-bound… that there will be enough growth to enable high-debt countries to delever safely is a complete inconsistency," said
by ilene - October 21st, 2014 9:34 pm
Courtesy of Mish.
A 30% net income decline for McDonald's is quite startling to most. I wonder why such a decline took so long.
In response to that pathetic performance, McDonald’s Vows Fresh Thinking.
McDonald’s Corp. outlined plans for what it called fundamental changes to its business as it reported one of its worst quarterly profit declines in years, driven by problems in nearly every major part of its business.
The 30% decline in net income for the period ended Sept. 30 was the latest in a string of disappointing results for the world’s largest restaurant chain. It is struggling with weak sales in Asia, Europe and, most important, its home market in the U.S.
In the U.S., an increasingly complicated menu has slowed service and McDonald’s once reliable base of younger customers have defected to fast-casual chains boasting customized ordering and fresh ingredients, including Chipotle Mexican Grill Inc., and specialty-burger places such as Five Guys.
McDonald’s has focused so far on efforts including increased staffing at busy times, and has shaken up its management ranks, including replacing the head of its U.S. business for the second time in less than two years. But the changes have yet to boost sales or profit.
The 4.1% decline in McDonald’s September U.S. same-store sales marked the worst monthly U.S. same-store sales performance since February 2003.
In response, McDonald’s Chief Executive Don Thompson on Tuesday said it would simplify its menu starting in January, in part to remove low-selling products, and plans to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant.
By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.
“The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers,” Mr. Thompson said. “Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary, inviting atmosphere. And they
by ilene - October 21st, 2014 9:17 pm
Courtesy of Michael Snyder of The Economic Collapse blog
Barack Obama and the Federal Reserve are lying to you. The "economic recovery" that we all keep hearing about is mostly just a mirage. The percentage of Americans that are employed has barely budged since the depths of the last recession, the labor force participation rate is at a 36 year low, the overall rate of homeownership is the lowest that it has been in nearly 20 years and approximately 49 percent of all Americans are financially dependent on the government at this point.
Recently, I shared 12 charts (e.g. right) that demonstrate the permanent damage that has been done to our economy over the last decade. Many readers were upset to learn that they were not being told the truth by our politicians and by the mainstream media. Sadly, the vast majority of Americans still have no idea what is being done to our economy. For those out there that still believe that we are doing "just fine", here are 19 more facts about the messed up state of the U.S. economy…
#1 After accounting for inflation, median household income in the United States is 8 percent lower than it was when the last recession started in 2007.
#2 The number of part-time workers in America has increased by 54 percent since the last recession began in December 2007. Meanwhile, the number of full-time jobs has dropped by more than a million over that same time period.
#3 More than 7 million Americans that are currently working part-time jobs would actually like to have full-time jobs.
#4 The jobs gained during this "recovery" pay an average of 23 percent less than the jobs that were lost during the last recession.
#5 The number of unemployed workers that have completely given up looking for work is twice as high now as it was when the last…
by ilene - October 21st, 2014 4:10 pm
Courtesy of The Automatic Earth.
I am thinking about the similarities between a financial crisis and a family crisis, or the death of a loved one or close friend, or a divorce, or a personal bankruptcy.
And I wonder why in the case of our recent (aka current) financial crisis, we allow nothing to enter our communications, and our train of thought, but the idea of recovery and a return to growth. Has everyone always reacted that way after earlier financial crises – history is full of them -, or is something else going on?
Why do we insist on returning to something we once had, even if we have no way of knowing whether we can ever return? Why don’t we focus – more – on what lies ahead, instead of what is behind us? Is it because we loved what we had so much? Or is something else going on?
Even if we do love what once was so much, there’s a time to move on after every disaster, every death in the family, every bankruptcy. And deep down we know that very well. Life will never be the same, but it’ll still be life. It seems safe to say that in general, life is about turning, not returning. Life changes, we change, every day, every minute, every millisecond.
This refusal to turn a new leaf and find out what’s on the other side of the hill has enormous consequences. We are actively digging ourselves so deep into debt that it’s preposterous to claim this debt is ours only, because it’s painfully clear, though we would never admit it (too painful perhaps?), that we can never pay it back. We leave that honor to our children, and to the generations after them.
We should undoubtedly have protected us from ourselves, by making it illegal and punishable by law to engage in such behavior (something along the lines of Child Protection Services). We chose instead to be blind to it. We still could – should – write such legislation, but it looks as if present politics and economic ‘thinking’ will only exacerbate a situation…
by ilene - October 21st, 2014 2:13 pm
Courtesy of Wade of Investing Caffeine
Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with the investment advice to “buy when there’s blood in the streets.” Well, with the Russell 2000 correcting about -14% and the S&P 500 -8% from their 2014 highs, you may not be witnessing drenched, bloody streets, but you could say there has been some “scrapes on the sidewalk.”
Although the Volatility Index (VIX – a.k.a., “Fear Gauge”) reached the highest level since 2011 last week (31.06), the S&P 500 index still hasn’t hit the proverbial “correction” level yet. Even with some blood being shed, the clock is still running since the last -10% correction experienced during the summer of 2011 when the Arab Spring sprung and fears of a Greek exit from the EU was blanketing the airwaves. If investors follow the effective 5-year investment playbook, this recent market dip, like previous ones, should be purchased. Following this “buy-the-dip” mentality since the lows experienced in 2011 would have resulted in stock advancing about +75% in three years.
If you have a more pessimistic view of the equity markets and you think Ebola and European economic weakness will lead to a U.S. recession, then history would indicate investors have suffered about 50% of the pain. Your ordinary, garden-variety recession has historically resulted in about a -20% hit to stock prices. However, if you’re in the camp that we’re headed into another debilitating “Great Recession” as we experienced in 2008-2009, then you should brace for more pain and grab some syringes of Novocaine.
If you’re seriously considering some of these downside scenarios, wouldn’t it make sense to analyze objective data to bolster evidence of an impending recession? If the U.S. truly was on the verge of recession, wouldn’t the following dynamics likely be in place?
- Two quarters of consecutive, negative GDP (Gross Domestic Property) data
- Inverted yield curve
- Rising unemployment and mass layoff announcements
- Declining corporate profits
- Hawkish Federal Reserve
The reality of the situation is the U.S. economy continues to expand; the yield curve remains relatively steep and positive; unemployment declined to 5.9% in the most recent month; corporate profits are at record levels…
by ilene - October 21st, 2014 1:53 pm
Courtesy of Charles Hugh-Smith of Of Two Minds
A long-time reader recently chastised me for using too many maybes in my forecasts. The criticism is valid, as "on the other hand" slips all too easily from qualifying a position to rinsing it of meaning.
by ilene - October 21st, 2014 12:15 pm
Courtesy of Lee Adler of the Wall Street Examiner
Mr Hanky, who posts on Capitalstool.com, wondered today whether strength in the Homebuilder Index portended a housing boom.
I responded that I doubt it. With the average wage stagnant and median household income in the toilet, new housing demand will remain weak. In the stock market, the housing ETFs are not really about housing. They’re overweighted with home furnishings and accessories retailers, suppliers, and manufacturers. Actual builders are only about 20-25% of the weighting.
Over the 46 years or so that I’ve been observing markets, I’ve concluded that changing stock price levels aren’t predictive of anything but stock price levels. They measure total liquidity and liquidity preferences. Those preferences could be simply a matter of shorts getting squeezed or bots reacting to support and resistance or following momentum.
Traders and trading algorithms know no more about the future of the economy than you or me. They’re just trying to make a quick buck. The idea that the stock market predicts the future is just another of Wall Street’s many shibboleths designed to suck the public in–including institutional suckers–while the securities dealers who run the show distribute inventory.
Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!
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by ilene - October 21st, 2014 11:31 am
Courtesy of Pam Martens.
In 30 years of observing Wall Street, we can’t remember a headline like the one that appeared yesterday at Reuters: “IBM to Pay GlobalFoundries $1.5 Billion to Take Chip Unit.” When one can’t even give a business away that includes thousands of patents, IBM engineers and two operating factories, times are tough. The market thought so also; by the closing bell yesterday, IBM’s stock was down $12.95, or 7 percent, to $169.10.
The acquirer of the IBM semiconductor business, GlobalFoundries, is headquartered in Silicon Valley. Its parent is Advanced Technology Investment Company (ATIC), which is owned by the Abu Dhabi government’s investment arm, Mubadala Development Company. In May, ATIC announced it was changing its name to Mubadala Technology.
Abu Dhabi likely drove a very hard bargain with IBM in this deal because it has good reason to question promises made by American businessmen. As we reported in 2012, Abu Dhabi’s sovereign wealth fund, ADIA, previously leveled a $4 billion fraud charge against Citigroup for taking it to the cleaners in a stock deal. That deal began with a hand shake from none other than former U.S. Treasury Secretary, Robert Rubin, who was serving as Citigroup’s interim Chairman at the time.
The two manufacturing facilities that come with the IBM deal are located in East Fishkill, New York and Essex Junction, Vermont. The $1.5 billion that IBM will pay GlobalFoundries will be spread over three years and is likely to help defray costs of facility upgrades. IBM has also agreed to a 10-year deal in which GlobalFoundries will be its exclusive provider of certain chipsets.
The trajectory of IBM’s stock price and its writeoffs are starting to bring back memories of the bad hand it dealt investors in the 90s. The stock is down from a price of more than $190 in September. Yesterday, in addition to the curious “pay-to-sell” deal, IBM also announced it was taking a $4.7 billion pre-tax charge in its third quarter and reported a 4 percent drop in revenues.
Over its more than a century of operations, IBM has repeatedly reinvented itself. That reinvention, however, has meant that investors have had long spells of dead money. The worst episode in IBM’s business history came in January 1993. The company announced it had lost $5 billion in 1992…
by ilene - October 21st, 2014 9:43 am
Submitted by Tyler Durden.
Moments ago, McDonalds not only released earnings and revenues, both of which missed – something which was largely expected since the backward looking data had been telegraphed by MCD's recent global selling collapse - blanketed by atrocious commentary, but it disclosed its September global retail sales which were a disaster after reporting global sales which dropped 3.8%, below the 3.2% expected, and the worst global month since at least 2003.
The pain was everywhere, with Europe plunging 4.2% (est -0.9%), Asia down 7.5%, and the US down a whopping 4.1%, far below the 2.8% expected, and also the worst month in over a decade.
In fact, McDonalds sales in the US have have now gone a whopping 11 months without posting a positive sales month, the longest stretch on record!
But while collapsing MCD sales are a combination of both the insolvent US consumer, who can no longer afford to buy either MCD or Coke (as we commented earlier) especially after purchasing the latest and greatest iThing on credit, as well as shifting tastes and eating the "cool food du jour", things are only going to get worse from here.
Because in a world that is allegedly flooded with deflation, the one place where everyone considered safe for "dollar meals", just got more expensive. Bloomberg reports:
Mike Hiner used to take his grandsons to McDonald’s (MCD) when they wanted a treat. With higher wage and food costs pushing up prices at the Golden Arches, he’s increasingly taking them to IHOP, Denny’s and Chili’s instead.
The loss of bargain-seeking customers like Hiner underscores a growing challenge for McDonald’s Corp.: While the company still offers several items for $1, its menu is quietly getting more expensive. McDonald’s said its prices were up about 3 percent through the end of June compared with 12 months earlier. That’s more than the 2.5 percent gain in prices for food Americans purchased away from their homes in the year through August, according to the Bureau of Labor Statistics.
The chain’s diminishing appeal among budget diners — coupled with
by ilene - October 20th, 2014 10:19 pm
Courtesy of John Rubino.
Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?
With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no trouble following. As you’d expect from someone who uses words to amuse as well as educate, Frisby’s prose is informal and fluid and occasionally very funny, with lots of first-person anecdotes.
The message, however, is fairly serious: Bitcon is, just maybe, a new and better form of money, an emerging homo sapiens to the dollar’s Neanderthal. As such it’s potentially transformational.
So let’s start with a little background: Bitcoins are created (or mined) when computers solve certain kinds of mathematical puzzles. The number of bitcoins outstanding is designed to grow at a predetermined rate for a predetermined period, making its supply both limited and predictable (in contrast to fiat currencies that multiply at the whim of central bankers and politicians). And the currency can be transferred online quickly and cheaply, bypassing the traditional banking/credit card nexus.
Frisby spends the first half of his book telling the story of how bitcoin came to be, featuring the author’s attempts to track down the currency’s enigmatic creator, Satoshi Nakamoto (generally believed to be either an individual super-genius polymath or some sort of libertarian programmer collective). Frisby concludes that it’s the former and claims to have found him. You’ll have to read the book for that revelation.
He also profiles some of the early players in the bitcoin ecosystem. Silk Road, for instance, was briefly the Amazon.com of online drug sales until it was shut down by the authorities — and then subsequently reemerged in various forms around the world. Meanwhile, a lot of early adopters made and lost some serious money during bitcoin’s initial price spike:
One student from Norway bought $27 worth in 2010 while studying for his degree. He forgot about them, and then remembered them three years later. That $27 had turned into $670,000.