1--The Yield Curve’s Message for the Fed ---The narrowing gap between short-term and long-term rates may not be the signal it once was, but the Federal Reserve should still pay heed to it
The Treasury market’s message on the U.S. economy may be more noise than signal. But the Federal Reserve still needs to listen to it.
Rarely have investors been so willing to loan money to the U.S. government and get so little in return. With worries about global growth festering, and uncertainty about the coming referendum on the U.K.’s membership in the European Union further clouding the picture, the yield on the 10-year Treasury slipped to around 1.68% on Thursday. The last time it was so low was February, when markets around the world were in panic mode.
Traders aren’t nearly as nerve-wracked now. But this latest drop in the 10-year yield has caused a flattening of the yield curve—the difference between short-term and long-term interest rates—that is disconcerting. With the two-year Treasury note yield at 0.76%, the difference between it and the 10-year yield has slipped to about 0.9 percentage points. That is the smallest gap since just before the recession started in 2007.
Because investors typically demand to get paid more for locking up money for longer periods, the yield curve is usually positive. When the curve gets flatter, it is a sign investors don’t think future investment returns will be all that good. That usually means a slower economy...
(The value trade) overseas influence on the Treasury market has become increasingly pronounced. Most long-term government bonds in the developed world sport significantly lower yields than Treasurys, and that has increased Treasurys’ attraction for global investors.
The yield on the German bund Thursday was just 0.03 percentage point. Ten-year Japanese government bonds, meanwhile, have a yield of minus-0.13 percentage point. That exerts a downward gravitational pull on Treasurys. That is particularly so since central bank bond-buying programs in Europe and Japan are cutting into supply, pushing investors to look elsewhere
2--Hillary's warchest....millions from Wall Street
3--The U.S. (Again) Escalates The War In Afghanistan
The Obama administration seems to be incapable of recognizing that. Instead of reducing troops it is contemplating to again reinforce those. Instead of deescalating the war it intensifies it. This despite years of failure to achieve anything positive with similar moves.
After months of debate, the U.S. is close to a decision to expand the military's authority to conduct airstrikes against the Taliban as the violence in Afghanistan escalates, a senior U.S. defense official said Thursday.
There is a broad desire across the Obama administration to give the military greater ability to help the Afghans fight and win the war. The official said the U.S. is likely to expand the authority of U.S. commanders to strike the Taliban and do whatever else is necessary with the forces they have to support the Afghan operations. ...
The U.S. and the especially the U.S. military have lost in Afghanistan. How many additional decades will it take it to recognize and admit that simple fact?
“U.S. forces will more proactively support Afghan conventional forces,” Earnest said.
The decision came only a few days after a group of retired generals and senior diplomats, including former Afghanistan commanders David Petraeus and Stanley McChrystal, issued an open letter to Obama urging him to delay a planned reduction in the deployment of US forces.
Ongoing discussions between US Commander in Afghanistan, General John Nicholson, Defense Secretary Ashton Carter and the White House are likely to yield further expansions of the Pentagon’s operations in Afghanistan.
In the coming days, the White House is expected to “expand the authority of U.S. commanders to strike the Taliban and do whatever else is necessary” to defend the Kabul government, according to administration insiders cited by the Associated Press.
“There is a broad desire across the Obama administration to give the military greater ability to help the Afghans fight and win the war,” the AP wrote...
Washington is determined to maintain a strategic presence in Afghanistan, including its massive Bagram military base and a network of facilities throughout the country, which straddles crucial commercial routes connecting South Asia and China with the resources of the Caspian Sea Basin and the Persian Gulf
Housing prices have repeatedly set new records over the past year, and several reports, including one from the OECD, have warned of the possibility of a major correction—that is, a sharp fall in housing prices. At the same time, the market in Calgary is plunging due to the troubles facing the energy sector.
The latest figures show that the price of an average home in Toronto rose 15 percent over the past year, while in Vancouver the increase was 30 percent. Statistics show that a relatively small decline in house prices would leave a significant section of homeowners with negative equity (i.e. owing more money than the worth of their homes), a development similar to that which took place in the United States in 2008.
Statistics point to steadily rising household debt. With wages stagnating or declining, Canadians have borrowed ever-larger sums to cope with rising prices for housing and other necessities. By the end of 2015, average household debt was equal to 165 percent of household income, making Canada the country with the highest ratio of household income to debt in the G7. The BoC noted in its review that “economic fundamentals” would not “justify continued strong [house] price increases,” a tacit admission that they are unsustainable.
The BoC’s review also pointed to challenges arising from the economic slowdown in China and other emerging economies, as well as the prospect of persistently low commodity prices.
A further mounting cause of concern for the ruling elite is the disastrous decline in business investment. In the first quarter, gross fixed capital formation, which includes company outlays on machinery, structures and equipment, fell by 1.5 percent. It was the fifth quarter in a row that such investments contracted. Also down were business inventories, shaving 0.3 percent off the annualized growth rate.
“The benefits from ever-looser policy are diminishing while the litany of distortions, perversions and disincentives grows by the day. Savers are punished and speculators rewarded. Bad companies survive while good companies are too scared to invest.”
The report compared the ECB’s mistakes to the German Reichsbank in the 1920s which printed money, leading to hyperinflation and economic collapse. “That was a hundred years ago but mistakes keep happening despite all the supposed improvement in central banking...
The criticism of the ECB goes beyond Deutsche Bank. This week Commerzbank, which is partly government-owned and second only to Deutsche Bank, indicated it was looking at the possibility of hoarding its cash rather than placing its funds with the ECB where it is charged at a negative interest rate of minus 0.4 percent. As one commentator noted, such an action “would be the most flagrant bank protest against central bank policy yet seen.”....
The official rationale for the actions of the ECB and other central banks is that lower interest rates are needed to boost inflation and investment. But the euro zone remains in the grip of deflation and the ECB has lowered its own 2018 forecasts for growth in the region.....
A ritalin monetary policy: “We have what I call a Ritalin based monetary policy.” Now Janet Yellen’s job is to wean it. “It has to do with taking the distortions out of the financial markets and letting the markets down easier.” “These are the lowest interest rates in 239 years of history.”
But as Sagami points out, Fisher’s most telling comment came during the Q&A session when he was asked how his personal portfolio was positioned. Fisher’s response: “In the fetal position.” Moreover, he also said that “all my very rich friends are hoarding cash.”
Not some, not many. All.
In 1999, the dollar’s share was over 70%. In 2015, it fell again, this time by 0.9%, to 64.1%, a new low in the data series. It’s down over 5 percentage points since the beginning of the Financial Crisis in 2007. Central banks have learned a lesson: diversify!
When the euro started out in 2000, it had a share of just under 20%. Policymakers at the time were dreaming of parity with the dollar. The euro’s share peaked in 2003 at 25%, but then lost steam. It has fallen nearly 3 percentage points since the onset of the euro debt crisis in 2009 and is back at 19.9%, the lowest since 2000.....
The chart by the ECB shows the quarterly flows by foreign investors. Over the last three quarters, foreign investors have been fleeing long-term euro bonds (red) and other securities. Overall securities (blue line) hit the zero line in Q2 2015 and then dropped into the negative – hence, net outflows, as foreign investors shed these securities:...
In its June 2016 report, “The international role of the euro,” the ECB admits what’s to blame: the “environment of low – and, in some cases, negative – euro area bond yields.”
The big spike in Q1 2015 came “in the wake of the announcement of the ECB’s asset purchase program.” After the front-running by foreign hot money was completed, the selloff in equities commenced, thus the outflows....
For reasons no one can seem to remember during the inevitable debt crises, countries and companies issue debt in foreign currencies. Nearly $10 trillion in dollar-denominated non-US debt is outstanding. This debt can wreak havoc when the country’s own currency, with which it has to service that debt, dives. Mexico, for example, has had plenty of experiences with this sort of debt crisis....
The dollar also dominates in international loans with a share of 57.7% compared to 21.9% for the euro, and 3.9% for the yen....
And the dollar has gained share as a global payments currency for the past five years, from just under 30% in 2012 to 43.0% in 2016. The reverse happened for the euro: its share dropped from 44% in 2012 to 29.4% in 2016. (the various ways the dollar is used to keep capital poring into wall street and US debt)
9---Bond Market Flight to Safety as Investors Sweat Over Brexit Risk, Wobbly US Economy, Negative Rates
... as Ed Kane pointed out years ago, super low rates hurt economic activity by reducing the income of savers, like retirees....
The succession of record lows across European and Japanese government bond markets this week is stirring concern over the long-term effects on savers and pension plans, as well as the wider threat of financial instability should the rally unwind sharply.
Insurers and asset managers, including Larry Fink, BlackRock chief executive, have warned of the potential damage from the central banks’ monetary policies. Bill Gross, founder of Pimco and now at Janus Capital, dubbed the trend in negative rates a “supernova that will explode one day”.
Jens Weidmann, Bundesbank president, said on Friday that asset managers “might become increasingly nervous” over the record low level of yields and that “policymakers have to take this into account in order to avoid unintended consequences”….
Ten-year Treasuries were among the biggest beneficiaries from deteriorating sentiment, with the yield on the global benchmark tumbling 5 basis points to 1.64 per cent — a level not touched since February’s acute market stress. Gold rose 0.4 per cent to $1,274.2 an ounce in the rush to safe havens. Japanese 10-year bonds touched a new low of a negative yield of 0.17 per cent.
The considerable financial market and political disruption that a Leave vote would usher in would have knock-on effects in the US. Recall that Sanders started surging against Clinton when the US financial markets were roiled in January and February. Upset markets and a weakening economy work against the Clinton presidential campaign. And if Trump looks like a strong contender come the fall, you can expect Mr. Market’s tizzy to only get worse
excellent short video interview( Stocks merely "churning" for last 3 years rangebound
gains in 2017 are going to depend on earnings)
Bonds rally as investors seek safety and Treasury yields that remain higher than those of other government bonds
Indicating the strong demand for Treasurys from foreign investors, indirect bidding—a proxy of foreign demand including both central banks and private sector investors—reached a record 73.6% for a 10-year Treasury note auction on Wednesday, narrowly beating out the previous peak of 73.5% set last month. Thursday’s sale of 30-year Treasury bonds drew the fourth-largest indirect bidding on record for a 30-year bond auction.
12--Foreign Investors Unload Japanese Stocks as Disenchantment Grows---Foreigners sold a net $42 billion of Japanese equities in the first five months of the year
The flight from Japanese equities by foreign investors has helped push the benchmark Nikkei Stock Average down 12% this year, leaving it 20% below its recent peak in June 2015. Abenomics-fueled expectations had sparked a rally that sent the index to an 83% gain over the 3½ years from January 2013.
The rush into Japanese government debt came after investors sent yields on government debt from the U.K to Germany to record closing lows on Thursday. An auction of 30-year U.S. Treasurys saw some the highest ever interest from foreign buyers Thursday, helping bring the yield on offer down to just 2.475%.
the dramatic moves also seem to underline a desperate search for any remaining yield in a world now awash in $10.4 trillion of negative-yielding debt trading in global financial markets, according to Fitch Ratings.Many attribute the drop in government bond yields to continued aggressive buying of such debt by central banks such as the Bank of Japan and European Central Bank, who are trying hard to stoke higher economic activity by injecting cash into their financial systems.