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Wed, 23rd August 2017

Anirudh Sethi Report

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Archives of “Late-2000s recession” Tag

WSJ: Investors in Asia turned cautious Friday ahead of a G20

Huh, the Wall Street Journal got that right …

A quiet one … I shoulda let them write the Wrap
Meeting of finance chiefs from the Group of 20
Traders are monitoring how China and Japan will react to pressure from Mr. Mnuchin to strengthen their currencies against the U.S. dollar, said Khoon Goh, head of research for Asia at ANZ. “There is a lot of interest if there will be any material changes out of the G-20,” he said.
US Treasury Sec. Mnuchin is expected to urge China, Japan, Germany and other G-20 members to keep their promise to not use their exchange rates for competitive gains
Link to the Journal, may be gated, but you get the gist.

WSJ: America Can’t Escape the Debt Vortex: Total obligations … hit 370% of GDP

The Wall Street Journal on ‘credit bubbles’:

  • Credit bubbles usually pop at some point and the consequences aren’t pretty
  • The stock-market crash of 1929 followed a credit boom, and so did the crash of 2008
  • In both cases, Washington overreacted, producing a 10-year depression in the 1930s and a weak recovery after the 2009 recession
The piece goes on (this is a summary, link to the full piece below), bolding mine:
Lacy Hunt, an economist with Hoisington Investment, estimated at a recent conference held by Grant’s Interest Rate Observer that debt of all kinds in the U.S. now totals more than $69 trillion. That’s more than double the $30 trillion recorded by Fed statisticians as recently as 2000. If the Hunt figure is correct, then total debt is now about 370% of GDP, up from 294% in 2000.
The article concludes:
  • There isn’t much the Fed can do about this except make it worse
  • Nor is there much that Mr. Trump can do except make it worse. But he seems intent on that-threatening trade wars against America’s biggest trading partners. If the president blocks their ability to earn dollars, he diminishes their ability to bail us, and themselves, out of the global debt slough. The past decade of government and Fed profligacy is not his fault, but that still isn’t an argument for recklessness. If this ends in tears, Mr. Trump will get the blame.

The Fed Is Preparing $1 Trillion In QE For The Next Recession: Deutsche

While in recent weeks there has been a material increase in Fed balance sheet normalization chatter, according to a new report from Deutsche Bank analysts, it may all be for nothing for one simple reason: should the US encounter a recession in the next several years, the most likely reaction by the Fed would be another $1 trillion in QE, delaying indefinitely any expectations for a return to a “normal” balance sheet.

As a reminder, as of this month, the duration of the latest expansionary cycle – as defined by the NBER – has reached 93 months, surpassing the 92 months of the 1982-1990 cycle, and is now the third longest in history. Should the cycle persist for another 27 months, or just under two and a half years, it would be the longest period of “economic growth” in history.

Overnight US Market :Dow closed up 107 points.Crosses 20600.S&P 500 -Nasdaq Hitting New High

Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.

The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.

Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.

The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.

Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.

Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.

Jeff Gundlach’s Forecast For 2017

Investors will confront excessive debt, high P/E levels and political uncertainty as they enter the Trump presidential era. In response, according to Jeffrey Gundlach, U.S.-centric portfolios should diversify globally.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital, a leading provider of fixed-income mutual funds and ETFs. He spoke to investors via a conference call on January 10. Slides from that presentation are available here. This webinar was his annual forecast for the global markets and economies for 2017.

Before we look at his 2017 predictions, let’s review his forecasts from a year ago. His two highest conviction forecasts were that the Fed would not raise rates more than once, despite the Fed’s own predictions, and that Trump would win the presidency. Both predictions were accurate.

But he was also downbeat on emerging markets, and singled out Brazil and Shanghai as likely underperformers. Brazil turned out to be the best-performing emerging market last year, gaining 69.1%, but he was correct about Shanghai, which was the worst performing market, losing 16.5%.

Gundlach said he had a “low conviction” prediction that the yield on the 10-year Treasury would break to the upside. It began 2016 at 2.11% and ended at 2.45%. He said the probability was that U.S. equities would decline in 2016, yet the markets gained approximately 13%. Gold, he said, would hit $1,400 at some point in 2016. It began the year at approximately $1,100, hit a high of $1,365 during the summer and closed at approximately $1,150. 

Overnight US Market :DOW Closed + 114 points.S&P 500 Up 15 points

The trek to Dow 20,000 continues.

It’s taken nearly 120 years to get close to this point as the Dow Jones industrial average came within 47 points Tuesday of its biggest milestone yet.

The race to 20,000 for the blue chip stock index, which began way back in 1896, picked up speed after Election Day on hopes that president-elect Donald Trump’s policies will stoke growth.

At its afternoon intraday record peak, the Dow was up more than 155 points, or 0.8%, to a high of 19,953.75, before pulling back slightly to close up 114.78 points, or 0.6%, to close at 19,911.21.

Since Election Day the Dow has surged about 9%, from around 18,300 . The Dow made history back during the Internet stock boom in 1999 when it first crossed the 10,000 mark.

Since then, the Dow has suffered through two brutal bear markets, the first in 2000-2002 following the dot-com stock crash and then 2007-2009 during the Great Recession.

Overnight US Market :Dow closed above 19000 + 67 points

Get out the Dow 19,000 rally caps. The Dow Jones industrial average, arguably the world’s best-known stock market gauge, closed above the 19,000 barrier Tuesday for the first time in its 120-year history.

For the second straight day, all four major U.S. stock indexes touched new record-high territory. The Dow jumped 67.18 points, or 0.4%, to close at a record high of 19,023.87.

In a day of milestones, the benchmark Standard & Poor’s 500 stock index closed above 2200 for the first time ever as it rose 4.76 points, or 0.2%, to 2202.94. The Nasdaq composite rose 0.3%, to an all-time closing high of 5386.35 and the Russell 2000 gained 0.9% to 1334.34, its thirteenth straight session of gains — its longest winning streak in 20 years.

The assault on Dow 19,000 has taken nearly two years, or 700 calendar days, since it took out the 18,000 barrier back on Dec. 23, 2014. It was the slowest climb from one 1,000-point milestone to the next since taking nearly six years to climb from 14,000 in July 2007 to 15,000 in May 2013. (That long drought, of course, coincided with the Great Recession and the worst stock market decline since the Great Depression.)

Dow 19,000 is the latest signal that the rally sparked by Donald Trump’s surprise presidential election win is broadening as investors continue to bet on the prospects for a more investor- and business-friendly White House and Congress.

Whether the bullish hype turns out to be the right trade remains to be seen, as Trump has yet to get the keys to the White House or make one of his campaign promises come true.

Eurozone retail PMI’s fall in October but what happened in Sep?

A poor showing from retail PMI’s in October

The latest retail PMI’s from the Eurozone fell in October.

  • Eurozone 48.6 v s49.6 prior
  • Germany 51.0 vs 53.0
  • France 47.5 vs 49.1 prior
  • Italy 46.5 vs 45.0 prior

Italy was the only one that gained but is still in contraction.

Perhaps more importantly we need to look at the Sep numbers ahead of the main Eurozone retail sales report at the top of the hour.

They we’re much better either.

  • EZ 49.6 vs 51.0
  • Germany 53.0 vs 54.1
  • France 49.1 vs 53.0
  • Italy 45.0 vs 43.2 prior

As US Corporate Debt Soars, Earnings Suggest Dim Outlook on Growth

$10 and the US TreasuryKristian Rouz – Capital expenditures on investment and dividend payments in the US corporate sector have been outpacing the total cash flow, or earnings, since mid-2015, stirring worry regarding the sector’s lack of profitability. Meanwhile, the total volume of expenses has been above cash flow since mid-2011, resulting in the currently mounting concern that this will result in underinvestment, an accelerated slowdown or a recession. The rising amount of corporate debt in one of the main concerns, and the broader demand-side policies’ failure to revive private sector growth has only added to the economic dismay.

The year-on-year pace of economic expansion has slowed to roughly 1pc in the past quarter, and while the figures for 3Q16 are being prepared for release later this month, the New York Fed has lowered its projections for the quarter. Having previously expected an acceleration in growth to above 3pc annualized, the New York Fed is currently expecting growth of 2.22pc year-on-year, with the growth projection for the year of 2016 lowered to just 1.40pc at best. The “Nowcast” model, used by the regional regulator, takes multiple broader economic parameters into account, including business sentiment, manufacturing activity, and consumption, among others. The slowdown in economic activity in October and September’s slump in housing starts have resulted in the lowered forecast.

The deceleration in the economy is mainly attributed to mounting disinvestment pressures, even though base interest rates are ultra-accommodative. The overregulated economy is losing momentum, and the lack of funds readily available for investment and reinvestment in the corporate sector is another concern.

Overnight US Market :Dow closed +39 points

Stocks closed higher Friday but pulled back from earlier highs after three big U.S. banks reported quarterly profits that topped forecasts, boosting hopes on Wall Street that third-quarter earnings will be better than feared and mark the end of the so-called earnings recession.

Powered by upbeat bank earnings, the Dow Jones industrial average rose 39 points, or 0.4%, to 18,138 after being up as much as 160 points earlier. The broad Standard & Poor’s 500 stock index was up less than 0.1% to 2133 and the Nasdaq composite added less than 0.1% to 5214.

Before the opening bell, JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo(WFC), which is embroiled in a crisis over fraudulently opening customer accounts, all posted profit and sales numbers that exceeded analyst expectations. Bank shares were mixed after sharp early gains. Shares of JPMorgan were down 0.3% and Citigroup stock was 0.3% higher. Wells Fargo was flat.

Wall Street is hoping the S&P 500 will break a string of four straight quarters of contracting profit growth when the third-quarter earnings season is complete.