SNB Warns of “Temporary Deflation”, Promises Further “Unconventional Measures” Including Forex Interventions to Achieve “Stability”
by ilene - March 27th, 2015 3:30 am
Courtesy of Mish.
Swiss Bonds are negative out to 10 years. They briefly went negative out to 15 years in the wake of the sudden removal of the Swiss National Bank peg to the euro back on January 13 as shown in the following chart.
Swiss 15-Year Bond Yield
Yield on 20-year Swiss bonds plunged to 0.10% on January 13 as well. Today, you can get 0.19% for 15 years or 0.31% for 20 years. That’s how crazy things are.
SNB Warns of “Temporary Deflation”
Please consider SNB Warns of ‘Difficult Times’ as Currency Move Hits Home
Switzerland is facing “difficult times” and a short period of deflation following January’s abrupt unwinding of a currency peg, one of the Swiss National Bank’s most senior policy makers said on Thursday night.
The comments from Fritz Zurbrugg, one of three permanent members of the SNB’s governing board, show the impact of the January 15 currency move on an economy often regarded as a safe harbour during the eurozone crisis.
The Swiss franc has shot up in value since the removal of the peg that capped it at SFr1.20 per euro, making Swiss exports and Swiss holidays more expensive. A euro is now worth SFr1.05.
Mr Zurbrugg said that the fall in prices that Switzerland faces is “temporary” and would not threaten price stability in the medium term. “A damaging deflationary spiral is not expected.”
Swiss inflation is already in negative territory, with prices falling 0.8 per cent in February — worse than the 0.3 per cent fall in prices across the eurozone in the month….
by ilene - March 26th, 2015 5:15 pm
Courtesy of Lance Roberts via STA Wealth Management
Much of the commentary from the more liberal leaning media has continued to tout that the rise in asset markets over the last few years are clear evidence of economic prosperity in this country. However, is that really the case?
In order for rising asset prices to be reflective of overall economic prosperity, the "wealth" generated by those rising asset prices should impact a broad swath of the American populous. Let's take a look to see if that is the case.
"Mo Money" Or No Money
In September of last year, I discussed the Federal Reserve's 2013 Survey of household finances which showed a shocking decline in the median value of net worth of families across all age brackets.
While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall.
However, Shane Ferro from Business Insider posted a stunning piece on what has happened to American families as asset prices have surged higher. To wit:
"Nearly half of American households don't save any of their money.
If it isn't obvious, this has a broad range of implications. People who don't save won't have any buffer should the economy turn, and they lose their jobs. Longer term, people who don't save won't have the capacity to retire. It's not good."
What is clear is that rising asset prices, which have been induced by the Federal Reserve's monetary policy and suppression of interest rates, has indeed benefitted those that have assets to invest.
The findings are strikingly similar to the U.S. Federal Reserve survey from last year.
"'Savings are depleted for many households after the recession,' it found. Among those who had savings prior to 2008, 57% said they'd used up some or all of their savings in the Great Recession and its aftermath. What's more, only 39% of respondents reported having a 'rainy day' fund adequate to cover three months of expenses and only 48% of respondents said that they could not completely cover a hypothetical emergency expense costing $400 without selling
by ilene - March 26th, 2015 4:12 pm
Picture from Amazon Picking Challange
Courtesy of Mish.
Amazon is sponsoring a robot warehouse automation contest to see to who can pack the most boxes in the least amount of time without dropping any packages or crushing anything delicate such as cookies.
In the contest, in which human workers are not eligible to apply, the robots will have to work without any remote guidance from their creators.
Please consider the MIT Technology Review, Amazon Robot Contest May Accelerate Warehouse Automation.
Packets of Oreos, boxes of crayons, and squeaky dog toys will test the limits of robot vision and manipulation in a competition this May. Amazon is organizing the event to spur the development of more nimble-fingered product-packing machines.
Participating robots will earn points by locating products sitting somewhere on a stack of shelves, retrieving them safely, and then packing them into cardboard shipping boxes. Robots that accidentally crush a cookie or drop a toy will have points deducted. The people whose robots earn the most points will win $25,000.
Amazon has already automated some of the work done in its vast fulfillment centers. Robots in a few locations send shelves laden with products over to human workers who then grab and package them. These mobile robots, made by Kiva Systems, a company that Amazon bought in 2012 for $678 million, reduce the distance human workers have to walk in order to find products. However, no robot can yet pick and pack products with the speed and reliability of a human. Industrial robots that are already widespread in several industries are limited to extremely precise, repetitive work in highly controlled environments.
Pete Wurman, chief technology officer of Kiva Systems, says that about 30 teams from academic departments around the world will take part in the challenge, which will be held at the International Conference on Robotics and Automation in Seattle. In each round, robots will be told to pick and pack one of 25 different items from a stack of shelves resembling those found in Amazon’s warehouses. Some teams are developing their own robots, while others are adapting commercially available systems with their own grippers and software.
by ilene - March 26th, 2015 2:58 pm
Courtesy of Mish.
Here's one for the I'll believe it when I see it category: Fed Officials say Rate Hike Plan Intact Despite Weak U.S. Data.
In separate events in Frankfurt and Detroit, St. Louis Fed President James Bullard and Atlanta Fed President Dennis Lockhart said U.S. monetary policy might need to be adjusted in light of the economy's steady improvement since the 2007-2009 financial crisis.
"Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years," Bullard said at a conference in the German financial hub.
The challenge now, Lockhart said, is to sort out whether recent weakness in exports, manufacturing and capital investment indicate the start of an economic slowdown or other temporary factors such as the soaring value of the U.S. dollar.
Lockhart said he is confident for now that the weakness is "transitory," and still regards it as highly likely that the Fed will raise rates at either its June, July or September meetings.
"We're still on a solid track … The economy is throwing off some mixed signals at the moment and I think that is going to be passing or transitory," Lockhart said in an interview with CNBC from a Detroit investment conference.
"In the beginning when the dollar declined I was prepared to, to some extent, dismiss the influence of the dollar as being not great because our economy is not so export-dependent, but I'm upgrading it as a factor to watch," he said.
In simple terms, Lockhart may as well have said that he is "totally clueless."
We are going on 7 years of economic expansion.
The San Francisco Fed has an interesting report on the Duration and Timing of Recessions.
NBER records show that, over the period from the mid-1940s until 2007, the average recession lasted 10 months, while the average expansion lasted 57 months, giving us an average business cycle of 67 months or about 5 years and seven months. However, there has been considerable variation in the length of business cycle expansions and contractions in the past.
The shortest recession between the mid-1940s and 2007 lasted only six
by ilene - March 26th, 2015 1:25 pm
If you liked it at $83, you'll love it at $66… is apparently the message from Goldman Sachs as last week's transition of Sandisk to the company's "Conviction Buy" list has left clients with a Cramer-esque muppet-hole of around 17% (and rising). One wonders if it is still a conviction buy… or if Goldman should be convicted for selling it to clients…
Goldman on March 17th…
We add SanDisk to the CL given our increased confidence in 2015 S/D and attractive valuation (7% FCF yield) post the pull-back (-18% YTD vs. the SOX +2%).
We see a 34% total return (vs. the semi median of -3%) to our 12-month, $106 price target on:
1) Tight 2015 NAND S/D. Supply: 2H14 NAND SPE orders were very low, implying reasonable near-term supply. Demand: Our checks at MWC suggest the iPhone 6 has helped drive higher NAND per phone at other OEMs.
2) We expect gross margins to expand 400 bps by 4Q15 from the weaker yen, mix, and cost reductions.
3) There could be longer-term upside from SanDisk’s new hyper-scale all flash array product.
We remove SanDisk from the Conviction List post the negative preannouncement this morning.
Our positive call has clearly been wrong and the timing was particularly poor.
SanDisk negatively revised guidance for the second straight quarter, again due in part to company specific issues. We believe execution will need to improve for several quarters in order for the multiple to re-expand. In addition, the catalysts we identified (such as the May analyst day) no longer hold.
Since added to the Conviction List on 3/10/15, using the intraday price, SNDK is -17% (vs. the S&P +1%).
* * *
by ilene - March 26th, 2015 10:27 am
Courtesy of Charles Kennedy of OilPrice.com
Oil prices bounced back on March 24 on a sliding U.S. Dollar, and then again overnight on Middle East turmoil, but the pain may not be over yet.
Oil storage capacity continues to deplete. Storage levels at Cushing, Oklahoma, home to the crucial WTI benchmark, are at record levels. As of March 13, Cushing oil inventories hit 54.4 million barrels, the highest ever, according to the Energy Information Administration. That means that Cushing’s storage is now 77 percent full, up from just 27 percent in October 2014. The glut of oil has led to a flood of crude being diverted into storage tanks. As storage nears capacity, it becomes more likely that prices could drop significantly below current levels. That, of course, depends on if drillers cut back production enough to slow the storage build.
Yet another reason to suggest that oil prices could fall over the next two to three months is the annual planned maintenance that takes place at many U.S. refineries. Spring maintenance often leads to a significant volume of refining capacity temporarily closed down for several months. As that occurs, demand for domestic crude in the United States will decline, potentially pushing down prices. That also would force more output into storage, again exacerbating the shrinking ability for U.S. storage to handle more oil.
WTI could drop to $35 per barrel in the coming months, and Brent may fall to just $51.30 per barrel, according to projections from Facts Global Energy and Societe General.
The predictions echo those made by Goldman Sachs earlier this month, which forecasted oil prices declining to $40 per barrel. Goldman cited weak demand coming from Japan and Korea, which could rely more and more on LNG to offset oil in the electric power sector. Cutting even deeper into oil demand is the possibility that Japan will restart two nuclear reactors, easing the island-nation’s dependence on imported oil to meet power demands.
A renewed bout of weakness in the oil markets, notwithstanding this week’s price gains, was further backed up by comments from the Saudi Arabia’s OPEC governor Mohammed al-Madi, who said on March 22 that a return to $100 per barrel would be hard to reach. Saudi Arabia’s Oil Minister Ali al-Naimi…
by ilene - March 26th, 2015 9:22 am
Courtesy of Pam Martens.
Yesterday, economists at the Atlanta Fed’s Center for Quantitative Economic Research notched down their forecast for real GDP growth – the seasonally adjusted annual rate – to a tepid 0.2 percent for the first quarter of 2015. The revision from the earlier forecast of 0.3 percent followed yesterday’s durable goods report that showed a dramatic decline of 1.4 percent in February on a seasonally adjusted basis. Durable goods are products like refrigerators, washing machines or computers, items expected to last for at least three years. Because durable goods carry higher price tags than most other consumer outlays, a weakening in durable goods can be a warning of a tapped out or retrenching consumer.
This first quarter forecast stands at odds with the Federal Reserve Board’s FOMC statement of March 18, 2015 which singled out “strong job gains” and rising household spending.
One notable area of Federal Reserve myopia appears to be the credit tightening impact of a rising U.S. Dollar. As of mid March, the greenback has risen by more than 22 percent on a trade-weighted basis. This creates serious headwinds in a number of areas. First, U.S. goods priced in dollars become more expensive and thereby less competitive in foreign markets. That hurts the earnings of the big U.S. based multi nationals and leads to job cuts. It can also hurt smaller businesses that rely on exports for a significant part of their earnings.
The rising dollar also raises the very real danger that the U.S. begins to import deflation. As foreign goods reach our shores priced in the cheaper currency, consumers are likely to opt for the best price, thus bringing down further the already subpar rate of inflation. At the end of last year, ten of our trading partners were in the throes of outright deflation while another seven registered inflation of less than one-half of one percent.
The “strong job gains” assessment announced by the Federal Reserve in its FOMC statement on March 18 came against a torrent of job cut announcements in the thousands since mid-December of last year. Those included: American Express, 4000; Coca Cola, 1600 to 1800; IBM, at least 2000 with rumors suggesting the number is far higher; Schlumberger, 9000; Baker Hughes 7000; U.S. Steel 750; Halliburton 6400.
by ilene - March 26th, 2015 8:48 am
Courtesy of Charles Hugh-Smith of OfTwoMinds
I see #1 and #4 as the most likely triggers of a rise in Treasury yields.
Correspondent Mark G. recently asked a question that is on many minds: what might finally produce an end to the 34-year US Treasury Bond bull market? Here is Mark's commentary on the question:
10 Year T-Bond interest rates are falling again after a minor rally. This leaves me pondering a nearly 20-year old question: what might finally produce an end to the 34-year US Treasury Bond bull market? Neither the beginning or end of three different US QE programs, plus Japanese and ECB QE programs, have served to do this. Nor did oil price booms to $140/bbl, or price crashes to $42/bbl WTI with threats of further decline. Or any other commodity or possible index of commodities. Various FOREX levels so far have also been only correlated over the very shortest of terms. Stock market bull bubbles and bear crashes have also come and gone without lasting effect. War, peace, Cold War, Cold Peace ditto.
My background education and experience says that before this T-Bond bull market can end the US T-Bond sellers will have to routinely overwhelm the buyers.
by ilene - March 26th, 2015 8:40 am
In the News 3-26-15
Bespoke plots the continued accumulation of crude oil inventories in Crude Oil Inventories – You Guessed It – Surge Again:
There’s still no letup in the massive gusher of oil flowing into US storage. In today’s weekly inventory report from the Department of Energy (DoE), crude oil inventories rose by 8.17 million barrels, which was once again significantly higher than expected. The top chart below compares weekly crude oil inventories so far in 2015 to average levels over the last ten years and since 1983. (Full article here.)
Bloomberg reports that wheat has been another casualty of the strong US Dollar in U.S. Wheat Sales at 25-Year Low Add to Dollar’s Victim List:
Sales of U.S. wheat fell to the lowest for this time in the season since data collection began in 1990, according to a report from the U.S. Department of Agriculture. (More here.)
California Just Had a Stunning Increase in Solar. Bloomberg notes:
California is now the first U.S. state to get 5 percent of its annual utility-scale electricity from the sun. But that's really understating what just happened.
The chart above, released this week by the U.S. Energy Information Administration, shows that in just one year, big solar jumped from 1.9 percent to 5 percent of the state's total power generation. California isn't just producing the most utility-scale solar electricity of any state; it's producing more than all the other states combined. (Continue here.)
Also in the news:
Illinois Plugs Deficit as Next Year’s $6 Billion Hole Looms — Illinois’s legislature plugged a $1.6 billion hole in the state’s budget, leaving lawmakers to tackle a deficit three times that size for the year ahead.
Draghi Sees Case for Consolidation in Italy’s Banking Industry — European Central Bank president Mario Draghi said he favors mergers among Italy’s banks to overcome excessive fragmentation in the industry.
ECB Said to Query Banks About Austria Risks After Heta — The European Central Bank asked lenders in Europe to detail their exposure to Austrian debtors after a state-owned institution was told to halt payments on borrowings, two people with knowledge of the matter said.
by ilene - March 26th, 2015 3:17 am
Courtesy of Mish.
Watching the Wrong Things
Many market watchers have their eye on jobs and the unemployment rate as the determinant of when the Fed will hike.
Let's investigate the wisdom of that approach with actual data.
I downloaded seasonally adjusted employment and jobs data for the last five recessions from the BLS. Because the recessions start in different months, use of seasonally adjusted data is mandatory for this exercise.
My focus is on jobs and employment in the period three months prior to the recession to three months after the recession.
I used the National Bureau of Economic Research (NBER) report on US Business Cycle Expansions and Contractions as the official arbiter as to when recessions begin.
Jobs are from the Establishment Survey. Employment is from the Household Survey. Results are similar.