by ilene - October 11th, 2015 4:03 pm
Despite a full slate of data, continuing international events, Washington maneuvering, and a possible record in Fed speeches, a new subject will command attention this week:
Will there be an earnings recession, and should we worry?
Prior Theme Recap
In my last WTWA I predicted that attention would focus on reasons behind the recent stock market volatility. That was a good guess. CNBC stayed with that theme late in the week as volatility dwindled. Steve Liesman even asked NY Fed President Dudley about the Fed role. His answer? Volatility was caused by world circumstances and the nature of the decision, not Fed policy or messaging. Most of the trading community was blaming the Fed anyway. To get the full weekly story, let us look at Doug Short’s weekly chart. This one saves more than a thousand words! (With the ever-increasing effects from foreign markets, you should also add Doug’s World Markets Weekend Update to your reading list).
While I naturally take a week-by-week approach, Doug’s update provides multi-year context. See his full post for more excellent charts and analysis.
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.
This Week’s Theme
Despite the economic data and non-stop Fed chatter, the coming week will focus on earnings. In particular, there is the chance that year-over-year S&P 500 earnings will decline for the second consecutive quarter. Because of the two-quarter angle, some cite this as an earnings recession. I expect the pundits to be asking:
Will there be an earnings recession? And does it matter for stocks?
As always, the viewpoints are varied. I will emphasize the main ideas in this list, but there are plenty of gradations.
by ilene - October 11th, 2015 3:33 pm
Courtesy of John Rubino.
The UK’s Guardian newspaper, of Edward Snowden leaks fame, just published a good overview of the world’s recent financial missteps titled The world economic order is collapsing and this time there seems no way out.
The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level.
The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.
The false boom that follows seems to justify the lending. Property prices rise. Companies and households grow overconfident about their prospects and borrow freely. Economies surge well above their trend growth rates and all seems well until something – a collapse in property or commodity prices – unravels the whole process. The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.
The result, says the Guardian, is a crisis in three acts. Act one was the 2008 bursting of the housing/derivatives bubble that nearly wiped out the global banking system. Act two was the 2011 euro crisis in which the idea that Greek, Italian and Spanish bonds were equivalent to German paper was abruptly discredited, again nearly wiping out the big banks.
Act three, now in progress, is the bursting of the emerging markets bubble, led by China (great stat: “China manufactured more cement from 2010-13 than the US had produced over the entire 20th century.”)
China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.
by ilene - October 11th, 2015 1:57 pm
Courtesy of Mish.
As I have commented before alleged "free trade" agreements are anything but. We now have confirmation from Canada as to what it took for other signatories to agree to to the monstrosity of TPP.
Reader TB passed along Alan Guebert's Free Trade’s Cheap Talk is Big Money.
These easy-to-find challenges to NCBA’s silly Trans-Pacific cheerleading point to several underlying myths at the heart of Big Ag’s rock-ribbed belief that free trade is the past, current, and future salvation of American farms and ranches.
One myth is that all U.S. farm and ranch profits are tied directly to free trade. The Obama White House made that connection again Oct. 5 when it noted “roughly 20 percent of all farm income in the United States,” is “provided” by “exports.”
True, but farm income is not farm profit. If it were, U.S. net farm income would have risen when ag exports rose from $141 billion in 2013 to $152 billion in 2014. Instead, U.S. net farm income fell from $135 billion to $126 billion in that period.
Another myth about free trade is that trade agreements are about freedom to export. In truth, most trade deals “specify who will be protected from international competition and who will not,” explains the Economic Policy Institute in its overview of the TPP.
Clear evidence comes from America’s giant neighbor, Canada, whose ag minister announced his dairy and poultry farmers will be compensated for “any losses” caused by TPP before the deal was even signed. It confirms Nobel Prize-winning economist Joseph Stiglitz’s long-held belief that free trade deals are “managed trade agreements, tailored for corporate interests…”
American farmers and ranchers know this in their bones but not their hearts. They are farmers and ranchers, not exporters. Big Agbiz — Cargill, JBS, Smithfield, ADM and the like — are global buyers and sellers who, when able to play both sides of any trade-leveled playing field the world over, rarely lose.
Maybe that’s why the Big Boys aren’t saying squat about the TPP; they got everything they demanded during negotiations. Now they want you to pressure Congress to pass it for them and their shareholders.
In fact, they’re betting on it and, already, their bets are paying off.
by ilene - October 11th, 2015 10:06 am
Courtesy of Marc To Market
There is a sense that the markets are at crossroads. Many suspect there has been a trend change. The reason for many to buy the dollar was the Fed was going to raise interest rates. Lift-off may not be simply postponed until December, as was the decision to begin tapering, but a growing number of participants do not see it until March.
Meanwhile, the OPEC and some non-OPEC countries will meet just as the US Department of Energy warns that US oil output is likely to trend lower through the middle of next year. This sent oil prices back above $50 for the first time in two and a half months. Since late-August the CRB Index is up 10%.
Some argue the emerging markets have discounted too much bad information. With the ECB and BOJ still engaged in unorthodox easing of monetary policy, and likely to do more rather than less, China is gradually easing and providing more fiscal support, the global economy remains awash with liquidity. Over the past three years, the MSCI World Index (DM) is up almost 28% while the MSCI Emerging market equity index is down nearly 14%. However, since September 29, this has changed. Emerging market equities are up 12.5% while the World Index is up 8.5%.
The euro bottomed in March near $1.0450. It spiked to almost $1.1715 on August 24 and has been carving out a new range. The $1.1100 area looks to be the bottom of the range. It is the top side that is being fished for presently. As it is, three-month implied volatility has fallen seven-month lows (9.4%). There is scope for additional declines in the implied volatility, but such a decline often precedes strong moves.
The same broad narrative applies to the yen as well. The dollar recorded its highs against the yen four months ago near JPY125.40. On the August 24 it crashed to around JPY116.20 and has been in a new range since between JPY118.60 and JPY121.60. The implied volatility (three-month) fell below 9.2% before the weekend, the lowest level in two months. This is also reflected in the narrowness of the Bollinger Bands (analysis here). While we suspect…
by ilene - October 10th, 2015 11:01 pm
Courtesy of Wade of Investing Caffeine
Since the end of 2010, the emerging markets (E.M.) have gotten absolutely obliterated (MSCI Emerging Markets index –25%) compared to a meteoric rise in U.S. stocks (S&P 500 index +60%) over the same period.
Slowing global growth, especially with resource-hungry China going on a crash diet, has caused commodity-exporting emerging markets like Brazil to suffer economic starvation. Rising inflation, expanding debt, decelerating Chinese growth, collapsing commodity prices, and political corruption allegations are all factors pressuring the Brazilian economy. Weak emerging market economies like Brazil are contributing to global GDP forecast reductions. As you can see from the chart below, global GDP growth rates have been steadily declining since 2010, and the IMF recently lowered their 2015 forecast from +3.5% down to 3.1%.
Beginning in late 2008, when Ben Bernanke first announced his QE 1 (Quantitative Easing) money printing binge, the U.S. dollar remained relatively weak against other global currencies for years. The weak dollar provided a nice tailwind to U.S. exporters (i.e., American manufactured goods were more cost competitive for foreign buyers).
Multinationals loved the export lift, but emerging international politicians and investors cried foul. They complained the U.S. was starting a “currency war” by artificially deflating the value of the U.S. dollar, thereby making international markets less competitive. At the time, the thought process was the emerging markets (e.g., China, Russia, Brazil et.al.) would be disproportionately impacted because their economies are export-driven. In a 2010 article from the Guardian (World Gripped by International Currency War) Brazilian finance minister Guido Mantega explicitly stated, “We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.”
This “currency war” griping stayed in place until the end of 2013 when the Fed announced its plans to begin “tapering” bond buying (i.e., pull away the financial punch bowl). We all know what has happened since then…the U.S. dollar has spiked by about +20% and the Brazilian real has depreciated…
by ilene - October 10th, 2015 8:45 pm
Courtesy of Mish.
Financial Repression Insanity
Purportedly the Fed is ready willing and able to go to next step of financial repression insanity: Negative Interest Rates.
Federal Reserve officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010.
“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.
Bernanke told Bloomberg Radio last week he didn’t deploy negative rates because he was “afraid” zero interest rates would have adverse effects on money markets funds — a concern they wouldn’t be able to recover management fees — and the federal-funds market might not work. Staff work told him the benefits were not great.
But events in Europe over the past few years have changed his mind. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree.
“We see now in the past few years that it has been made to work in some European countries,” he said.
In fact, Narayana Kocherlakota, the dovish president of the Minneapolis Fed, projected negative rates in his latest forecast of the path of interest rates released last month.
Kocherlakota said he was willing to push rates down to give a boost to the labor market, which he said has stagnated after a strong 2014.
Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.
But the benefits are tantalizing, especially given the low productivity growth path facing the U.S.
With negative rates, “aggregate demand is no longer scarce,” Kimball said.
by ilene - October 10th, 2015 4:44 pm
Maybe Obama should stop talking and issue a retroactive Executive Order.
After yesterday's not one, not two, but three campus shootings, which come a week after the latest mass killing at Umpqua Community College left 10 people dead, it was only a matter of time before the administration would pick up where it left off shortly after the Sandy Hook shooting of December 2012.
The time has arrived, and according to The Hill after Obama's failed efforts to implement any form of gun control in early 2013 fizzled, the lame duck president is preparing to do what he has been threatening to do for a long time, by issuing a new executive action on gun control.
"Obama is wading back into the divisive issue of gun control as he travels to Roseburg, Ore., Friday to meet privately with survivors and families of victims of the mass shooting at Umpqua Community College."
While not a full ban on gun sales (yet) Obama is considering extending background check requirements to more dealers, according to The Washington Post. A White House official confirmed the plan is under consideration.
As we have noted previously, this proposal is among a number of executive actions that Obama considered after the 2012 shooting at an elementary school in Newtown, Conn. Back then the idea was abandoned, partly due to objections from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
Still, unwilling to ride off into the sunset without imposing at least one executive order on gun control, the White House is giving the plan a second look.
At a press conference last week, a frustrated Obama said he had asked his advisers "to scrub what kinds of authorities do we have to enforce the laws that we have in place more effectively to keep guns out of the hands of criminals."
Under the plan, dealers who sell guns above a certain amount would have to perform background checks and obtain a license from the ATF.
Many of those dealers are exempt from the requirements now under a federal law that states people who make "occasional sales" as a hobby do not have to obtain
by ilene - October 10th, 2015 4:12 pm
[Cross-published on Counterpunch]
In his Orwellian September 28, 2015 speech to the United Nations, President Obama said that if democracy had existed in Syria, there never would have been a revolt against Assad. By that, he meant ISIL. Where there is democracy, he said, there is no violence or revolution.
This was his threat to promote revolution, coups and violence against any country not deemed a “democracy.” In making this hardly-veiled threat, he redefined the word in the vocabulary of international politics. Democracy is the CIA’s overthrow of Mossedegh in Iran to install the Shah. Democracy is the overthrow of Afghanistan’s secular government by the Taliban against Russia. Democracy is the Ukrainian coup behind Yats and Poroshenko. Democracy is Pinochet. It is “our bastards,” as Lyndon Johnson said, with regard to the Latin American dictators installed by U.S. foreign policy.
A century ago the word “democracy” referred to a nation whose policies were formed by elected representatives. Ever since ancient Athens, democracy was contrasted to oligarchy and aristocracy. But since the Cold War and its aftermath, that is not how U.S. politicians have used the term. When an American president uses the word “democracy,” he means a pro-American country following U.S. neoliberal policies, no matter if the country is a military dictatorship or its government was brought in by a coup(euphemized as a Color Revolution) as in Georgia or Ukraine. A “democratic” government has been re-defined simply as one supporting the Washington Consensus, NATO and the IMF. It is a government that shifts policy-making out of the hands of elected representatives to an “independent” central bank, whose policies are dictated by the oligarchy centered in Wall Street, the City of London and Frankfurt.
Given this American re-definition of the political vocabulary, when President Obama says that such countries will not suffer coups, violent revolution or terrorism, he means that countries safely within the U.S. diplomatic orbit will be free of destabilization sponsored by the U.S. State Department, Defense Department and Treasury. Countries whose voters democratically elect a government or regime that acts independently (or even simply seeks the power to act independently of U.S. directives)
US Abandons Scheme to Arm Rebels, Instead Adopts Rand Paul’s Proposal to Arm Kurds; Hillary Flashbacks
by ilene - October 10th, 2015 3:41 pm
Courtesy of Mish.
Russian interference in Syria has had one positive aspect already: US Scraps Scheme to Create Syrian Rebel Force.
The US is halting a controversial $500m programme to create a rebel force in Syria after concluding that it was having practically no impact in the battle against Isis fighters in the war-torn country.
Instead of trying to build up a new force of fighters — training them outside Syria and then sending them back in equipped — the Pentagon will now focus on arming and training a smaller number of leaders of Arab and Kurdish groups in Syria that have had some success fighting the Islamist militant group Isis.
Since arming Syrian al Qaeda “rebel” terrorists was always a bad idea, I would call this bit of news a distinct positive.
Last Year the Guardian reported Hillary Clinton Wanted to Arm Syrian Rebels, Memoir Reveals.
On February 1, 2015, the Washington Times reported Secret Benghazi Report Reveals Hillary’s Libya War Push Armed al Qaeda-Tied Terrorists.
On July 1, in the Washington Times article Hillary’s Secret War Judge Andrew Napolitano listed his conclusion after reviewing documents and emails from a period in which Hillary Clinton was secretary of state.
Napolitano stated “What I saw has persuaded me beyond a reasonable doubt and to a moral certainty that Mrs. Clinton provided material assistance to terrorists and lied to Congress in a venue where the law required her to be truthful.“
Succession of Bad Ideas
Recall that one of the reasons president Bush gave for invading Iraq was that Hussein was harboring al Qaeda. In reality, al Qaeda did not exist in Iraq to any degree until the US invaded and put in a dangerously unstable government. ISIS was the direct result.
In the wake of the Iraq mess, the US armed alleged “moderate rebels” in three places. It backfired in Libya, Iraq, and Syria.
Arming al Qaeda is absurd….
by ilene - October 10th, 2015 1:06 pm
One week ago, when summarizing the current state of play in Syria, we said that for Obama, "this is shaping up to be the most spectacular US foreign policy debacle since Vietnam." Yesterday, in tacit confirmation of this assessment, the Obama administration threw in the towel on one of the most contentious programs it has implemented in "fighting ISIS," when the Defense Department announced it was abandoning the goal of a U.S.-trained Syrian force.
But this partial admission of failure only takes care of one part of Obama's problem. There is still the question of the "other" rebels supported by the US, those who are not part of the officially-disclosed public program with the fake goal of fighting ISIS. We are talking, of course, about the nearly 10,000 CIA-supported "other rebels," or technically mercenaries, whose only task is to take down Assad.
The same "rebels" whose fate the AP profiles today when it writes that the CIA began a covert operation in 2013 to arm, fund and train a moderate opposition to Assad. Over that time, the CIA has trained an estimated 10,000 fighters, although the number still fighting with so-called moderate forces is unclear.
The effort was separate from the one run by the military, which trained militants willing to promise to take on IS exclusively. That program was widely considered a failure, and on Friday, the Defense Department announced it was abandoning the goal of a U.S.-trained Syrian force, instead opting to equip established groups to fight IS.
It is this effort, too, that in the span of just one month Vladimir Putin has managed to render utterly useless, as it is officially "off the books" and thus the US can't formally support these thousands of "rebel-fighters" whose only real task was to repeat the "success" of Ukraine and overthrow Syria's legitimate president--something which runs counter to the US image of a dignified democracy not still resorting to 1960s tactics of government overthrow. That, and coupled with Russia and Iran set to take strategic control of Syria in the coming months, the US simply has no toehold any more in the critical mid-eastern nation.