Economic Iliad & Odyssey

The term “iliad” in Greek mean a series of miseries or disastrous events and “Odyssey” meant a long wandering or voyage usually marked by many changes of fortune. Welcome to the Economic Iliad & Odyssey. What we are facing is truly extraordinary. There is absolutely NO economic theory from Adam Smith to Keynes that ever addressed negative interest rates no less sustaining such a trend. There have been four major players who ventured into the negative interest rates territory but the disasters of this policy in Europe and Japan were implemented in hopes to stimulating the economy. In the case of Switzerland, they were seeking to prevent capital flowing into the Swiss franc as a safe-haven.

We are now on the threshold of the most PROFOUND economic event which has never before in history ever taken place. This is where opinion becomes worthless. All we can do is approach this on a collective basis internationally and without bias.

Police Bust Down Doors with Guns Drawn to Take a Toddler Because of a Fever

In Arizona, a SWAT-style police team broke down the door of a house because a toddler was not vaccinated. The Arizona Department of Child Safety and the Chandler Police Department in Chandler, Arizona, have come under criticism after officers conducted an overnight raid on a family’s home and took the children in a violent confrontation that will no doubt leave mental scars on them for life.  This entire incident was over a toddler who was unvaccinated, who they thought had a fever. They had guns drawn, and as always, they are not afraid to use them if they’re met with any resistance. In the process, they took all three kids into custody and handcuffed the father. Talk about trauma.

The Student Suicide Rate Has Been Rising – the new Lost Generation

There have been studies on the riskiest jobs where stress causes higher rates of suicides. The medical profession seems to be at the top of the list, which now amounts to some 11 million people. However, there is also a growing list of students committing suicides over student loans, which is the number one debt among the youth that is blocking them from buying homes. Students committing suicide over student loans is not limited to the United States. They are also taking place in Britain.

Those with student debt have a higher risk of committing suicide than those who do not. My advice is NOT to borrow for a degree that is usually worthless anyhow. Rare have I ever encountered anyone, even as a CFO of a major corporation, who has a degree in economics or accounting. It is now true that this generation is less likely to be working with a degree. I would prefer to hire someone without a degree who has an interest in the field, simply because what is being taught is wrong. It would require retraining which is too time consuming. The list is growing of top companies that no longer require degrees for employment. The Romans had basic school like high school and then you went to become an apprentice. Then you actually learned real skills. Today, students have to take classes they do not need to simply get a degree. They are forced to buy the book written by the professor which is typically $150+. All of this is combining to create the new Lost Generation.

 

Market Talk – April 24, 2019

ASIA:

The North Korean leader Kim Jong-un visits Russia for the first time near the city of Vladivostok. Talks are due to commence tomorrow between the two nations as Russia wishes to discuss North Korea’s nuclear problem. This, along with continued efforts to engage with China, is a continued effort for North Korea to hedge against the U.S. Earlier this month North Korea accused U.S. Secretary of State Mike Pompeo of “talking nonsense” and asked for him to be removed from nuclear talks, and replaced with someone who “is more careful and mature in communicating.”

Japanese PM Abe apologized and  promised to pay approximately 3.2 million yen (29,000 USD) to each of the victims of the forced government led Eugenics program which was designed to prevent the birth of poor-quality descendants. In what seems to be an unthinkable program, occurred in Japan during the years of 1948 until 1996.

The major Asian stock markets had a mixed day today: ASX 200 increased 62.70 points(0.99%) to 6,382.10; Sensex increased 489.80 points(1.27%) to 39,054.68; Shanghai increased 3.02 points( 0.09%) to 3,201.61; however NIKKEI 225 Hang Seng and KOSPI took the opposite route, NIKKEI 225 decreased 76.84 points(-0.35%) to 22,182.90; Hang Seng decreased 157.41 points(-0.53%) to 29,805.83 and KOSPI decreased 19.48 points(-0.88%) to 2,201.03.

The major Asian currency markets had a mixed day today: The USDJPY increased 0.0650 or 0.06% to 111.9250 and The USDCNY increased 0.0069 or 0.10% to 6.7350; However The AUDUSD and The NZDUSD took the opposite route, The AUDUSD decreased 0.00863 or -1.22% to 0.70147 and The NZDUSD decreased 0.0062 or 0.94% to 0.6594.

Gold increased 4.8USD/t oz. or 0.38% to 1,277.74 and Silver increased 0.146 USD/t. oz or 0.99% to 14.9902.

Some economic news from Asia:

Australia:

  • CPI (YoY) (Q1) decreased from 1.8% to 1.3%
  • CPI (QoQ) (Q1) decreased from 0.5% to 0.0%
  • CPI Index Number (Q1) remain the same at 114.10
  • Trimmed Mean CPI (YoY) (Q1) decreased from 1.8% to 1.6%
  • Trimmed Mean CPI (QoQ) (Q1) decreased from 0.4% to 0.3%
  • Weighted mean CPI (QoQ) (Q1) decreased from 0.4% to 0.1%
  • Weighted mean CPI (QoQ) (Q1) decreased from 1.7% to 1.2%

Japan:

  • Corporate Services Price Index (CSPI) (YoY) remain the same at 1.1%
  • All Industries Activity Index (MoM) decreased from 0.0% to -0.2%
  • Leading Index increased from 96.5 to 97.1

Indian:

  • M3 Money Supply increased from 10.6% to 10.9%

Indonesian:

  • Loans (YoY) (Mar) decreased from 12.13% to 11.55%

EUROPE:

The UK have allowed Huawei to help build the country 5G infrastructure going against US opposition that any country dealing with Huawei will be an increased liability. The CEO of Huawei earlier in the year stated that any investments turned away from the US will be allocated to the UK. Government borrowing in the UK has now hit a 17 year low, the 24.7bn figure for the financial year 2018-19 has nearly been halved since the previous year, 17.2bn GBP less than the previous year. IN 2009-2014 more than 100bn GBP was borrowed each year to tackle the financial crises.

Hospitals in Paris today announced that they acknowledge information about Yellow Jacket protesters was inappropriately released to a government database, while denying law enforcement officials had access to the information.

The major European stock markets had a mixed day today: DAX increased 77.65 points or 0.63% to 12,313.16; however CAC 40 and The FTSE 100 took the opposite route, decreased 15.62 points or -0.28% to 5,576.06 and  51.32 points, or -0.68% to 7,471.75 respectfully.

The major European currency markets had a mixed day today: The USDCHF increased 0.00017 or 0.02% to 1.02017; however The EURUSD and The GBPUSD took the opposite route; decreased 0.0062 or 0.55% to 1.1163 and 0.0012 or 0.09% to 1.2926 respectfully.

Some economic news from Europe:

  • German Business Expectations decreased from 95.6 to 95.2
  • German Current Assessment decreased from 103.9 to 103.3
  • German Ifo Business Climate Index decreased from 99.6 to 99.2
  • French Business Survey (Apr) decreased from 103 to 101
  • Italian Trade Balance Non-EU (Mar) increased from 2.16B to 3.42B
  • Public Sector Net Borrowing (Mar) increased from -0.51B to 0.84B
  • Public Sector Net Cash Requirement (Mar) increased from 0.671B to 8.871B
  • Spanish Trade Balance increased from -4.48B to -2.63B
  • ZEW Expectations (Apr) increased from -26.9 to -7.7

US / AMERICAS:

A bit of a leveling off day after setting some new record highs yesterday. The Nasdaq was off nearly nineteen points today (8,102.02 close, down -0.23%) while the S&P 500 gave back over six points (2,927.25 close, down -0.22%) and the Dow lost a little over fifty nine points (26,597.05 close, down -0.22%). The Russell 2000 was the loan major index in the green again today, closing at 1,588.13 (up +0.19%).

Energy sector was the laggard today (-1.85%) – lead down by Chevron (-3.07%) and Exxon Mobil (-1.94%). Chevron took a hit after Occidental came out with a competing bid for Anadarko Petroleum (whom Chevron had previously announced plans to acquire). While most believe Chevron will end up paying whatever it must, the possible increase in cost to close this deal is not ideal.

As earnings season is full steam ahead, Boeing reported in-line with expectations but announced it is pulling back its 2019 guidance given the ongoing issues with its 737 Max planes. This is not a surprise, and Boeing actually ended the day in the green (+0.39%).

Tomorrow will see market reactions to Microsoft, Tesla, PayPal and others who reported after the bell today. While Tesla is a lightning rod stock, Microsoft and PayPal are real drivers of technology that are helping lead the way to cloud and payments innovation.

Not much on the economic front today. Rather enjoyable to have a relatively quiet day on the political front as well (not counting Twitter banter).

The Canadian markets performed similarly today, with the TSX Composite closing at 16,586.52 (-0.50%) and the TSX 60 closing at 993.71 (-0.63%).

Brazil’s Bovespa was also in the red, closing at 95,045.43 (-0.92%).

ENERGY:

The EU today approved a 385 million Euro renewable energy program for Lithuania in attempt to support renewables in the country. The EU currently gets more than 30% of energy from the EU and has plans to be 50% reliant on the renewable energies by 2030.

The Saudi Oil Minister stated today that they will not be ramping up (and assuming OPEC following the lead) the oil production any time soon, as yesterday we say prices hit recent highs with the issue of Iranian oil wavers being dropped.

The oil markets had a mixed day today: Brent increased 0.13 USD/BBL or 0.17% to 74.5075 and Natural gas increased 0.012 USD/MMBtu or 0.49% to 2.4613; however Crude Oil; Gasoline and Heating oil took the opposite route; Crude Oil decreased 0.33 USD/BBL or -0.50% to 66.0554; Gasoline and Heating oil decreased

0.0036 USD/GAL or -0.17% to 2.1323 and 0.0152 USD/GAL or -0.72% to 2.0987 respectfully.

Top commodity gainers are Palladium (1.87%), Lean Hogs(1.14%) ,Orange Juice(1.04%) and Oat(1.02%),. Biggest losers are Cocoa (-2.99%), Ethanol(-2.55%) ;Feeder Cattle(-2.16%) and Wheat (-1.71%).

The above data was collected around noon 14:20 EST time on Wednesday

BONDS:

Japan -0.03%(+0bp), US 2’s 2.34% (+1bps), US 10’s 2.52%(-7bps), US 30’s 2.99%(+4bps), Bunds -0.01% (-6bp), France 0.35% (-4bp), Italy 2.63% (+4bp), Turkey 17.60% (+11bp), Greece 3.30% (-0bp), Portugal 1.19% (+2bp), Spain 1.07% (+6bp) and UK Gilts 1.18% (-2bp).

German 10-year Bund Auction increased from -0.050% to 0.020%

US 5-year Note Auction increased from 2.172% to 2.315%

German Car Sales Collapse

COMMENT: I am a senior exec here in the German auto industry. I attended your Berlin conference. I just want to say your ECM is remarkable. Our industry has seen a decline in auto sales since the middle of 2018 right on schedule. It looks like it will be a hard landing here. This Brexit issue has been a major factor in calling into question our faith in government. Then the global warming people have injected demands for new emissions rules which the politicians have introduced. I am not sure this will improve at all when the ECM turns. Those in government are incapable of managing anything.

See you in Rome

PvB

REPLY: Yes. Between Brexit and global warming pushing this Worldwide Harmonized Light Vehicle Test, the German auto industry is poised for a bear market. The latest data states sales for German cars have dropped 7.4%. Since the start of September, automakers in the EU markets have only been allowed to sell vehicles that have been certified under the WLTP, with few exceptions. Various brands have had mixed results. Porsche decreased the most, falling 74%, followed by Audi with a 64% drop, while VW brand sales declined by 19%. Since the German auto industry is the backbone of Germany, and Germany is the backbone of the EU, you would think that the politicians might be concerned about what actions they are taking. I suppose this is what being BRAIN DEAD really means.

Nagai of Nomura Confirms Japan Destroyed the Bond Market

In Japan, Nomura’s chief Koji Nagai took over as Nomura’s chief executive back in 2012 and followed that appointment with a $1bn cost-reduction plan that was criticized both externally and internally for failing to target the inefficient divisions of Nomura’s domestic operations in Japan. The latest program will see the company close more than 30 of its 156 domestic retail branches. What is far more interesting is that fact that Mr Nagai has stated that there are macroeconomic “megatrends” that have affected the industry as a whole. He stated that: “There is no liquidity any more so the market is dead because of the central bank’s monetary policy.” Mr Nagai confirmed what I have been stating that “The fixed-income market is dead due to the zero interest rate.”

Both the central bank of Japan and of Europe have destroyed their respective bond markets. Looking forward, we are facing a very dark period when it comes to the ability of governments to continue to function.

The Dawn of the Great Financial Unknown

QUESTION: Mr. Armstrong; I assume you read that Mr. Nagai  has confirmed what you have been saying that the central banks have destroyed the bond markets. I must confess, his comments have finally struck a vein in our senior management. I have been trying to explain your view to them but nobody wanted to think anything would ever happen. I managed to get a seat in Rome. Does your report cover the prospects of what the future will be shaped by? I do not think people understand the seriousness of what you have been saying. They all watched your interview in one day. That was remarkable.

HA

ANSWER: I know. This is a very serious topic. Far beyond what people understand . This is why the capital flows are going crazy pouring out of Europe into US Equities. I do not think people comprehend that we are staring a crisis in the eyes that is so fundamentally changing with regard to how the world monetary system functions, this is why I said bring your thinking caps to Rome. We are stepping into the great financial unknown – we are entering something where no economic theory has ever gone.

Market Talk – April 23, 2019

Asia:

Chinese coffee company Luckin filed papers for an IPO in the U.S. This is a big move for the Starbucks competitor, and follows other China-based companies who have listed in United States (Alibaba, Baidu, etc). The company is only 18 months old and has demonstrated fantastic growth with plans to open 2,500 additional shops by the end of the year. For perspective, there are approximately 14,000 Starbucks stores in the U.S. where there are 327 million citizens. Thus, Luckin views the U.S. tremendous growth opportunity.

A recent report from CNN suggests that China is continuing to purchase oil from Iran. Chinese foreign ministry spokesperson Geng Shanuang stated, “China opposes the unilateral sanctions and so-called ‘long-arm jurisdictions’ imposed by the U.S.” Later adding, “Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected.” China is currently the biggest importer of Iranian oil with India being the second.

The major Asian stock markets had a mixed day today: NIKKEI 225 increased 41.84 points (0.19%) to 22,259.74; KOSPI increased 3.86 points (0.17%) to 2,220.51; and the ASX200 increased 59.60 points (0.95%) to 6,319.40. However, SENSEX, Shanghai, and Hang Seng took the opposite route. SENSEX decreased 80.30 points (-0.21%) to 38,564.88; Shanghai and Hang Seng decreased 16.45 points (-0.51%) to 3,198.59 and 0.02 points (-0.02%) to 29,963.24 respectfully.

Most of the Asian currency markets had a negative day today. The AUDUSD decreased 0.0042 or 0.59% to 0.7094; the NZDUSD decreased 0.0034 or 0.51% to 0.6648; and the USDJPY decreased 0.1350 or 0.12% to 111.7950. The USDCNY increased 0.0156 or 0.23% to 6.7284

Gold decreased 1.97USD/t oz. or -0.15% to 1,273.21 and silver decreased 0.133 USD/t. oz or -0.89% to 14.8482.

Some economic news from Asia:

  • New Zealand Credit Card Spending (YoY) decreased from 6.4% to 5.1%
  • Japan BoJ Core CPI (YoY) increased from 0.4% to 0.5%
  • Singapore CPI (YoY) (Mar) increased from 0.5% to 0.6%
  • Hong Kong CPI (YoY) (Mar) remain the same at 2.10%

Europe:

The U.S. and Europe seem to have some difficulty with regards to implementing a successful trade deal. Trump stated he is looking to reciprocate the tariffs against the EU after Harley Davidson announced Q1 losses due to EU-imposed tariffs. Another major issue between the two is the U.S. is not happy with Huawei’s role in 5G development in the EU. The U.S. administrations said it would be less likely to share intel with the fear that the Chinese company is spying on the network and sending data back to China.

In the UK, the Conservative party has demonstrated that up to three quarters of the MPs want leader Theresa May to go. More cross-party talks between Conservatives and Labour are due to happen this week to resolve much of the issues with Brexit.

The most of the major European stock markets had a green day today: CAC 40 increased 11.31 points or 0.20% to 5,591.69; the FTSE 100 increased 63.19 points or 0.85% to 7,523.07; and the DAX increased 13.12 points or 0.11% to 12,235.51.

The major European currency markets had a mixed day today. The EURUSD decreased 0.0048 or -0.43% to 1.1212 and the GBPUSD decreased 0.00378 or -0.29% to 1.29432. The USDCHF took the opposite route and increased 0.0056 or 0.55% to 1.0210.

Some economic news from Eurozone:

  • Eurozone: Consumer Confidence (Apr) decreased from -7.2 to -7.9

U.S./Americas:

A notable day today on Wall Street, as both the Nasdaq (8,120.82 close, up +1.32%) and S&P 500 (2,933.68 close, up 0.88%) reached record closing highs on the back of strong earnings and optimism. The Dow was also in the green, gaining 145.34 points to close at 26,656.39 (up +0.55%). The Russell 2000 had the strongest day on a percentage basis, closing at 1,585.09 (up +1.61%).

Coca-Cola (+1.75%) and United Technologies (+2.21%) surprised investors with strong earnings. Social media darling Twitter (+15.71%) was the big winner of the day on a percentage basis, while Hasbro (+14.23%) and Kohl’s (+11.91%) were other strong performers. Kohl’s in particular is an interesting case of retail with its plans to now roll out Amazon returns in their store nationwide (previously had been testing in subset of locations).

U.S. auto manufacturing has been an immense concern for the Trump administration. Despite the administration implementing several tax breaks, U.S. auto manufacturers may lessen domestic production due to high tariffs and penalties. Harley Davidson posted a first quarter decline of 26.8%, and as a result they plan to move their headquarters overseas. President Trump announced this morning that the U.S. will retaliate: “Harley Davidson has struggled with tariffs with the EU, currently paying 31%. They’ve had to move production overseas to try and offset some of that tariff that they’ve been hit with which will rise to 66% in June of 2021… So unfair to U.S. We will Reciprocate!”

In other news, a grim report released this week predicts that Social Security funds will be nearly depleted by 2035. Most Americans pay a portion of their income to Social Security with the belief that they will be able to access that money upon retirement. The aging baby boomer population is rapidly drying up the current funds as nearly 10,000 retirees become eligible for Social Security benefits daily. Congress has been reluctant to address this issue as there are no clear solutions.

In seven years, Medicare funds may run dry as well. “Americans pay into these essential programs throughout their working lives, and they expect to receive the benefits they’ve earned,” voiced Richard Neal, the Democratic chairman of the House Ways and Means Committee. At best, Congress can patch up these failing systems to buy time before they implode.

The USD Index increased by 0.30% this Tuesday (last reading 97.57). The USDCAD increased by 0.59% (last reading 1.3421).

The Canadian markets performed well this Tuesday. The TSX Composite closed at 16,669.40 (+0.56%), while the TSX 60 closed just short of the 1,000 mark at 999.97 (+0.69%).

Brazil’s Bovespa had a rather strong day, closing at 95,923.24, a gain of 1,335.18 points (+1.41%).

Energy:

The White House announced the U.S. will not be taking oil from its reserves in order to subside the market as WTI moves higher than 65 USD a barrel – its highest price in 5 months. The Kuwaiti minister of oil stated in a recent interview that the OPEC has yet to discuss the issue of Iranian sanctions and whether OPEC will begin to increase supply.

The oil markets had a mixed day today. Crude Oil increased 0.46 USD/BBL or 0.70% to 66.0279; Brent increased 0.34 USD/BBL or 0.46% to 74.5000; Heating oil increased 0.0091 USD/GAL or 0.43% to 2.1173. Natural gas and Gasoline took the opposite route and decreased 0.063 USD/MMBtu or -2.50% to 2.4611 and 0.0008 USD/GAL or -0.04% to 2.1327 respectfully.

Top commodity gainers were Sugar (1.20%), Coffee(1.04%), Rubber (0.91%), and Crude Oil (0.78%). The biggest losers were Orange Juice (-5.04%), Lumber (-3.24%), Cocoa (-2.90%), and Natural Gas (-2.46%).

The above data was collected around 13:28 EST time on Tuesday.

Bonds:

Sales of Indian junk bonds have reached a five-year high. Indian companies have sold 3.7 billion dollars of high yield/ junk bonds.

Japan -0.03%(+0bp), US 2’s 2.36% (+1bps), US 10’s 2.57%(-2bps), US 30’s 2.99%(+4bps), Bunds 0.04% (+1bp), France 0.39% (+2bp), Italy 2.67% (+8bp), Turkey 17.30% (+11bp), Greece 3.33% (-51bp), Portugal 1.20% (+3bp), Spain 1.12% (+5bp) and UK Gilts 1.22% (+3bp)

  • French 3-Month BTF Auction increased from -0.519% to -0.516%
  • French 6-Month BTF Auction increased from -0.521% to -0.515%
  • French 12-Month BTF Auction decreased from -0.521% to -0.527%
  • US 52-week Bill Auction remain the same at 2.360%
  • US 2-year Note Auction increased from 2.261% to 2.355%