Monday, July 11, 2016

Today's links

1--The Great Rally in Safe Assets May End Badly, But Not Today

Traders and investors around the world have looked at the rally this year in safe assets like U.S. Treasurys and the Japanese yen and thought: This won’t end well.

Such an outcome may eventually come to pass, but it doesn’t appear to be happening today.

Historically, strong economic data has led investors to ditch safe assets and add risk, though that relationship has become far more muddled since the financial crisis.

Labor Department data showed employers added a surprisingly robust 287,000 jobs in June, topping economists’ forecasts by the most since 2009. After a particularly weak number for May, that helped increase the outlook on U.S. growth and raise the specter of a rate increase in September.

But that wasn’t enough to deter the safe-haven buyers

2--Black Hole of Negative Rates Is Dragging Down Yields Everywhere

Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to nearly a record, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds. Yields move in the opposite direction of price.

As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt.

...There is now $13 trillion of global negative-yielding debt, according to Bank of America Merrill Lynch. That compares with $11 trillion before the ...

Another avenue is corporate debt. About €250 billion ($276 billion) of euro-denominated corporate bonds now trade at a negative yield, according to Bank of America Merrill Lynch.

On Thursday, investment-grade-rated Walt Disney Co. DIS 0.36 % locked in the lowest long-term borrowing costs of any U.S. company in history when it issued a 10-year bond with a 1.85% coupon and a 30-year bond with a 3% interest rate, according to LCD, a unit of S&P Global Market Intelligence....

Today’s yield grab could be setting up tomorrow’s problems.

Even as yields fall in emerging-market debt, for instance, the credit quality of some of these countries is falling, analysts say.

Low yields, analysts say, are also distorting the signals for which bond markets are typically relied upon.

The recent collapse in the 10-year Treasury yield to record lows has produced signals usually associated with a slowing economy, for instance. That is despite little sign the U.S. is heading for a recession.

3---Six years of low interest rates in search of some growth (archive)

4--Savage Selloff Hits Japan Stock ETFs as Americans Shun Abenomics

American investors in Japanese stocks just want out, even if they’re getting currency gains from a soaring yen.
Outflows this year from the two biggest U.S.-listed exchange-traded funds tracking the Tokyo market swelled to almost $10 billion as the Topix index tumbles to one of the world’s largest losses. The BlackRock Inc. and WisdomTree Investments Inc. funds are both in the top five of more than 1,300 American ETFs in terms of money pulled, data compiled by Bloomberg show....

The Japanese stock market has been the worst-performing major stock market in the world, and that’s the No. 1 driver of these outflows,” said Jim McDonald, chief investment strategist at the Chicago-based money manager, which oversees $845 billion. “It’s been a change in sentiment over Japan in the last six months since they went to negative interest rates in January. That was a wake-up call to investors that Japanese policy makers were starting to run low on ideas.”...

The Topix index surged 51 percent in 2013, its best year since 1999, as the yen slid 18 percent against the dollar amid unprecedented stimulus by BOJ Governor Haruhiko Kuroda.

5--Former FDIC Chair Sheila Bair expects more pain ahead for US banks

Fiscal stimulus needed

Bair isn't a big believer in the Fed's monetary policy to stimulate real economic demand. Instead she'd like to see some type of fiscal stimulus like smart infrastructure spending programs.

"The Fed has given the government all this ability to issue really cheap debt, and I don't think it's been used very well," she said.

"I think it's been ill-advised to rely on monetary policy, but that still appears to be the only game in town."   

6--S&P to try to hold highs in lull ahead of earnings season

After the S&P's record close, macroeconomic and geopolitical news will likely dominate U.S. market action Tuesday ahead of the bank earnings reports due later in the week. ...

The S&P 500 rose 7.26 points to close at a record high of 2,137.16 on Monday after setting an intraday all-time high of 2,143.16. The last time the S&P hit fresh highs was in May 2015.

The Dow Jones industrial average and Nasdaq composite both posted their highest close of the year so far. The Dow set a fresh 52-week intraday high and is a little over half a percent below its all-time intraday high of 18,351.36 touched May 19, 2015

7--Asian shares mixed; Nikkei jumps as Abe promises "bold" stimulus

On Monday Abe, fresh from a big win in Japan's Upper House elections at the weekend, said that he planned to make "bold investment into seeds of future growth," Reuters reported. He did not set out the size of any fiscal stimulus spending, but analysts expected a "big bazooka" might be in the works. The market was also expecting the Bank of Japan would soon step up with further monetary stimulus.

"It was post-elections political will to swiftly, boldly and comprehensively boost fiscal stimulus (despite budget constraints) that motivated yen drop," Mizuho said in a note Tuesday, citing expectations for more Japanese government bond issuance to finance that stimulus.

"Abe's rousing victory is far more important in reviving 'Abenomics' as a dynamo for economic recovery," Mizuho said, calling it "Abenomics Go," in reference to the wild success of the launch of Nintendo's Pokemon Go game.

8--Japanese Savers Flood Into Gold Fearing The Endgame Is Close

"For investors, buying gold is similar to casting a no-confidence vote," saidItsuo Toshima, 68, an investment adviser and former regional manager for the World Gold Council in Tokyo. "Gold is the unprintable currency, unlike the yen. The yen’s appreciation in spite of the adoption of the negative-rate policy has kindled skepticism about the policy’s benefits. It’s also led to investors seeking to protect their assets in case Abenomics fails

9--"Something Big" Indeed Came - Bernanke's Japan Visit Unveils "Helicopter Money", Sparks Monster Rally

10--Gundlach on Trump and the bleak future

Which finally brings Gundlach to the topic of Trump, and why he thinks The Donald will be America's next president.
One of the reasons I believe Trump might win is that Brexit won. The parallels are far too great to be coincidental. They are identical in time. They are identical in mood, in the attitude of “I’m not doing what you say anymore.” People don’t want to admit that they support Trump. They hide it. A lot of people in Britain didn’t want to admit that they were voting to leave. My suspicion is that if Trump is even within the margin of error come November, he’ll win by a few percentage points.

11--Hundreds arrested in US protests against police killings

The shooting of the five police officers in Dallas is being manipulated by the media and political authorities in an effort to further criminalize dissent. US flags have been ordered flown at half-staff, and President Obama has cut short a trip to Europe and plans to attend a memorial service in Dallas on Tuesday. There has been almost nonstop, sensationalized coverage of the investigation into the shooting on the major networks while reports of the repression directed against protests over killings by police are being buried.

12--Prison spending rises three times faster than education funding in US

13--A Quarter Century of War: The US Drive for Global Hegemony 1990–2016

“In the period of crisis the hegemony of the United States will operate more completely, more openly, and more ruthlessly than in the period of boom.”
— Leon Trotsky, 1928

“U.S. capitalism is up against the same problems that pushed Germany in 1914 on the path of war. The world is divided? It must be redivided. For Germany it was a question of ‘organizing Europe.’ The United States must ‘organize’ the world. History is bringing mankind face to face with the volcanic eruption of American imperialism.”

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