by Market Shadows - September 2nd, 2015 1:19 pm
Financial Markets and Economy
Charting the Markets: Volatility Persists (Bloomberg)
Markets continue their wild swings as investors consider the health of the world's two biggest economies. China set the tone on Tuesday with its official manufacturing gauge slumping to a three-year low. A U.S. factory report expanded at the slowest pace since May 2013, contributing to the third-biggest drop in the S&P 500 Index this year. Asian stocks, as measured by the MSCI Asia Pacific Index, have swung between a gain of 0.4 percent and a loss of 1.1 percent.
Gold now looks riskier than stocks (Market Watch)
Any discussion about gold tends to bring out the emotional side of investors.
For some, gold GCZ5, -0.11% is a store of value that will withstand the test of time — and, in truth, is the only place your money is safe from the government, zombies, or government-bred zombies.
For others, gold is a silly plaything. They see gold investors as delusional or ignorant, or both.
The benchmark Shanghai Composite shed 4.2% at the opening bell, only to recover and close with a 0.2% loss. The smaller Shenzhen Composite followed a similar pattern, opening nearly 5% lower before rebounding to post a 2% decline.
The Shanghai index has now crashed roughly 40% from its June 12 peak, wiping out all gains made this year.
Enough about China, everyone's forgetting about 2 major drags on the economy (Business Insider)
It's been a turbulent few months for the markets, led by China's economic rebalancing.
But with all the talk of Asia's slowing growth, it's easy to forget about two of the other big drags on on the global economic outlook – Brazil and Russia.
Brent back below $50 as oil prices keep sliding (Market Watch)
Oil prices fell on Wednesday, extending losses from the previous session, as financial markets continued to show weakness and U.S. oil stockpiles likely grew further.
The oil market has been extremely volatile over
by ilene - September 2nd, 2015 12:52 pm
Robert Reich discusses the possibility that advances in technology will soon force an abrupt change in how civilization operates, as the labor supply outpaces the demand for labor, as Keyes once predicted.
Courtesy of Robert Reich
In 1928, famed British economist John Maynard Keynes predicted that technology would advance so far in a hundred years – by 2028 – that it will replace all work, and no one will need to worry about making money.
“For the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.”
We still have thirteen years to go before we reach Keynes’ prophetic year, but we’re not exactly on the way to it. Americans are working harder than ever.
Keynes may be proven right about technological progress. We’re on the verge of 3-D printing, driverless cars, delivery drones, and robots that can serve us coffee in the morning and make our beds.
But he overlooked one big question: How to redistribute the profits from these marvelous labor-saving inventions, so we’ll have the money to buy the free time they provide?
Without such a mechanism, most of us are condemned to work ever harder in order to compensate for lost earnings due to the labor-replacing technologies.
Such technologies are even replacing knowledge workers – a big reason why college degrees no longer deliver steadily higher wages and larger shares of the economic pie.
Since 2000, the vast majority of college graduates have seen little or no income gains.
The economic model that predominated through most of the twentieth century was mass production by many, for mass consumption by many.
But the model we’re rushing toward is unlimited production by a handful, for consumption by the few able to afford it.
The ratio of employees to customers is already dropping to mind-boggling lows.
When more and more can be done by
by ilene - September 2nd, 2015 12:15 pm
In case you missed Phil's appearance on BNN last week, be sure to watch this excellent video below!
Phil spoke with Kim Parlee on MoneyTalk on Aug. 26 about his call for a 10% correction, China's stock market collapse, commodities, and technical analysis, including the 5% rule and the difference between a bounce and a rally. Watch Phil on Business News Network's Money Talk.
Phil is a regular guest on MoneyTalk, Canada's premier personal finance show hosted by Kim Parlee.
by ilene - September 2nd, 2015 11:26 am
Courtesy of Michael Hudson
Originally published on Counterpunch
This autumn may see anti-austerity coalitions gain power in Portugal, Spain and Italy, while Marine le Pen’s National Front in France presses for outright withdrawal from the eurozone. These countries face a common problem: how to resist the economic devastation that the European Central Bank (ECB), European Council and IMF “troika” has inflicted on Greece and is now intending to do the same to southern Europe.
To resist the depression and debt deflation that the troika seeks to deepen, one needs to bear in mind the dynamics that make the IMF un-reformable. Its destructive role in Greece provides an object lesson for how southern Europe must shun its horde of ideologues, as Third World countries learned to avoid it by May 2013, the year that Turkey capped the world’s extrication from IMF “advice.” Already in 2008, Turkey’s prime minister Recep Tayyip Erdogan announced: “We cannot darken our future by bowing to the wishes of the IMF.” Greek voters have now said the same thing.
To soften resistance to the IMF’s austerity demands, a public relations drive is being mounted to rehabilitate the myth that the Fund can act as an honest broker mediating between anti-labor finance ministers and the PIIGS – Portugal, Italy, Ireland, Greece and Spain. On Friday, August 28, three Reuters reporters published a long “think piece” trying to show that the IMF is changing and that its head, Christine Lagarde, has seen the light and seeks to promote real debt relief.
The timing of this report seems significant. The IMF got “back in business” in 2010 when its head, Dominique Strauss-Kahn, overrode its staff and many Board members in order to join the troika and shift the country’s bad debt from French and German bankers onto the Greek people. That is the story I tell in Killing the Host, which CounterPunch published in an e-version last week. (The hard-print and Kindle versions are now available on Amazon.)
President Obama and Treasury Secretary Tim Geithner insisted that Angela Merkel and French President Sarkozy pressure the IMF to go against the opposition of its own staff and join the European Central Bank’s hardline demands that Greece impose austerity. Geithner and…
by ilene - September 2nd, 2015 10:46 am
Courtesy of Pam Martens.
The Dow Jones Industrial Average plunged 469.6 points yesterday for a loss of 2.84 percent but Wall Street banks and trading firms took a far heavier bruising. Business media have been placing the blame for global stock market convulsions on China’s slowing economy, devaluation of its currency and seemingly unstoppable selloffs in its wildly inflated stock market. There would seem to be much more to this story than we know so far to explain the outsized fall in Wall Street bank stocks.
Yesterday, with the Dow losing 2.84 percent, the major names on Wall Street fared as follows: Citigroup, down 4.75 percent; Bank of America, down 4.65 percent; Wells Fargo, down 4.39 percent; JPMorgan Chase, down 4.13 percent; Morgan Stanley, down 3.86 percent; and Goldman Sachs, down 3.44 percent. The Blackstone Group, a private equity firm with significant involvement in China, lost 5.26 percent.
These outsized losses versus the Dow’s performance are becoming the norm among the Wall Street banks. In just three trading sessions on Thursday, August 20, Friday, August 21 and Monday, August 24, JPMorgan Chase lost 10.87 percent of its market cap or $27.18 billion. Despite JPMorgan CEO Jamie Dimon’s serial reminders of the bank’s “fortress balance sheet,” the market is unconvinced. One has to ask why.
One explanation making the rounds on Wall Street is that even if some of these Wall Street mega banks don’t have a lot of direct exposure to China, they do have a lot of direct exposure to loans they have made to countries and corporate customers who depend on China for earnings. China is the largest buyer of industrial commodities in the world and its economic slowdown and attendant collapse in commodity prices – from oils to metals to agricultural products – is making repayment of loans to banks look riskier.
The major Wall Street banks also have Prime Brokerage relationships with the major hedge funds, a fancy way of saying they provide margin and loans of securities for risky trading. A growing number of hedge funds have been taking a pounding as trading becomes more erratic.
by ilene - September 2nd, 2015 10:20 am
Brazil’s economy is incredible.
Just when you’re sure – and we mean sure – that it can’t possibly get any worse, or at least not materially worse in the very short-term, something else happens to further underscore the deep, dark economic malaise plaguing one of the world’s most important emerging markets.
So after last Friday’s GDP print which confirmed that the country slid into recession during Q2 – a quarter in which Brazilians suffered through the worst inflation-growth outcome in at least a decade – and after July’s budget data which confirmed that the country’s fiscal situation is, as Citi put it, “a bloody terror film,” we got a look at industrial production today and boy, oh boy, was it bad. So bad in fact, that it missed even the lowest analyst expectations.
Here are some key excerpts from Goldman's breakdown:
Sharp Decline in Industrial Production in July
IP contracted by a much larger than expected -1.5% mom sa (-8.9% yoy) in July (vs. the -0.1% mom sa market consensus). Furthermore, the June print was revised down to -0.9% mom sa from the original -0.3% mom sa. During the last nine months industrial production declined at an average monthly rate of -0.9% mom sa. Of the 24 main industrial segments, 14 recorded a contraction of output in July.
IP declined 8.9% yoy in July, with the largest decline recorded in capital goods -27.8%. Overall, IP declined 6.6% yoy during January-July 2015.
IP has now contracted for eight consecutive quarters and is likely to decline again during 3Q2015.
In July, IP was 14.1% below the peak level registered in June 2013 and was at the same level as March-April 2006.
The industrial sector (which has been reducing headcount) contracted 1.1% in 2014 and we expect it to contract at a much higher rate in 2015 as it continues to face strong headwinds from high levels of inventories, record low confidence indicators, a high and rising tax burden, rising energy costs, and weak external demand (particularly from Argentina for durable goods).
Meanwhile, exports cratered 24% and critically, it wasn't all because of lower commodity prices.
CDS now at six-year wides…
by ilene - September 2nd, 2015 8:35 am
Unit Labor Costs dropped 1.4% in Q2, missing expectations of a 1.2% drop and falling to the lowest since Q2 2014. Despite all the sound and fury and wage growth looming any minute now… it is not! This is the first consecutive drop in unit labor costs since Q4 2008.
by ilene - September 2nd, 2015 2:53 am
Courtesy of Dana Lyons' Tumblr
August 6-month lows have had a tendency to be broken in the coming months, prior to a year-end bounce.
After getting kicked in the teeth in August, the stock market is starting out September by getting stomped on the head. Following the historic rebound to end last week, investors were hoping that the worst was behind them. As we noted regarding such rebounds yesterday, however, perhaps we should not be surprised by renewed weakness. And adding further evidence to support the “retest” scenario versus the “V-bottom” scenario, today’s post looks at 6-month lows in the S&P 500 occurring in August and the resultant performance through the end of the year.
Going back to 1950, this is the 13th year in which the S&P 500 has reached a 6-month low (on an intraday-basis), the most of any month besides July and October. Here are the 13 years:
How did the S&P 500 react to these August lows? Here is a chart showing the performance of the index from September 1 through year-end in each of the years listed above (FYI, the chart indicates performance based on the % above or below the August low).
First of all, apologies for the busy chart. Second of all, are there any patterns consistent enough to take into consideration when navigating the next 4 months? Well, that’s up to you, but there are a few notable tendencies among the sample of 12 prior instances.
- 10 of the 12 years saw the S&P 500 drop below the August at some point before the end of the year.
- Only 1982 and 2004 saw the S&P 500 hold above the August low through year-end.
- The median low-point among the entire sample was -3.7% below the August
by ilene - September 2nd, 2015 1:17 am
Courtesy of Mish.
Bloomberg columnist Barry Ritholtz interviewed Paul McCulley, former chief economist at PIMCO, and often mentioned FOMC candidate on the Fed’s performance.
The Podcast is over two hours long, so let’s just go with Ritholtz’s brief summary: McCulley Demands Apology on Behalf of the Fed.
McCulley noted those who claimed QE and ZIRP were going to cause inflation and the collapse of the dollar were totally wrong, and he demanded these critics of the Federal Reserve owe former Ben Bernanke an apology. Had the Fed Chief listened to them, we would have found ourselves in a modern day depression.
He is leery of those who believe the Government and Federal Reserve should have let the crisis run its course on its own, with zero interventions. He is especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.
The full podcast is available on iTunes, SoundCloud and on Bloomberg.
In a blend of a monetarist and Keynesian thinking, McCulley supports Fed policies of QE and is “especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.”
For starters, I dispute the notion that without QE and intervention that “we would have found ourselves in a modern day depression” as Ritholtz maintains. Ritholtz’s claim is a poorly-formed hypothesis presented as fact.
Yes, it’s true that many in the Austrian camp predicted a dollar crash and high inflation. But I am in the Austrian camp camp and debt deflation has been my model, and still is my model.
As for an apology, what about an apology from the Fed for blowing serial bubble after bubble of increasing amplitude?
It’s inane to demand an apology from those who warned in advance, and correctly so, of the housing bubble and subsequent crash.
In a twist of irony, McCulley gloats over the alleged lack of inflation, but it’s pretty clear he has his blinders on as to what inflation is and ways it can be spotted. In the case of Fed policy, inflation did not manifest itself in the CPI, but rather in asset bubbles, again and again.
Challenge to Keynesians…
by Market Shadows - September 1st, 2015 9:25 pm
Financial Markets and Economy
Americans' confidence in the economy has plunged to an 11-month low (Business Insider)
Americans' confidence in the economy continues to slide.
Who Crashed China's Stock Market? (The Atlantic)
China’s stock markets continue to stumble, despite the massive stimulus that the government has unleashed to prop them up. The Shanghai benchmark index fell by 1.23 percent Tuesday, after closing down slightly Monday. The index has fallen by nearly 40 percent from its mid-June peak.
A sprawling stretch of market quiescence has been replaced by stomach-churning price swings, amounting to a brutal rout for equities. It is a tumultuous environment, sparked by nagging China worries and uncertainty about Federal Reserve policy plans, that has been unkind to average folk.
But as it turns out, it is also no cakewalk for hedge-fund masters of the universe. That even goes for those who managed to deftly navigate the financial crisis and other past periods of extreme market upheaval.
After the European Central Bank decided to initiate an asset purchasing program, President Mario Draghi reportedly elected to unwind with a game of chess on his iPad during the plane ride back to Rome.
According to Morgan Stanley's Marco Spaltro and Jim Caron, Draghi's choice for a game could not have been more fitting. In a new commentary, the two portfolio managers argue that diverging monetary policies and persistently low levels of inflation mean that central banks are now engaged in a global game of chess.
The company has been reaching out to high-level people in the entertainment industry for confidential talks, an executive familiar with Apple's plans told CNNMoney's Brian Stelter.
Apple is assessing whether it should start producing its own original shows and movies. The