Quote of The Week "Telling people who are really far behind on retirement accumulation to save more is like giving someone trying to empty the ocean with a spoon a ladle. The spoon will probably work better... But it still won't actually get the job done."
-- The Trader
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| | | Traders:
Good weekend to all. Last week was volatile to say the least, but ended within shouting distance of where it started... or at least the S&P 500 electronic mini contract that I trade did.
Below you'll find a recap to ponder as we head into next week. |
| Last Week Summary Despite all the geopolitical headlines and tit-for-tat behavior between the U.S. and China, the markets managed to close with only modest declines on the week S&P 500 -0.5% Nasdaq -0.6% Dow -0.8%. 45’s announcement that he was imposing 10% tariff’s on $300B of Chinese goods the week prior, led China to retaliate on Monday by announcing that it would cut purchases of soybeans and and by pushing down the value of its currency the yuan relative to the dollar. That led the US Treasury Secretary - for the first time since 1994 - to declare China a currency manipulator later that afternoon. Traders and analysts are now speculating that China may start avoiding U.S. crude oil imports, as tensions continue to ratchet up. You might think that insignificant until you remember that the U.S. surpassed Saudi Arabia and Russia last year to become the largest energy producer and China is the world’s largest oil buyer. A steep decline in U.S. bond yields also caught data traders' attention and raised concerns on whether the U.S. is in a new paradigm and could potentially end up with negative yields. We are still a ways away, the 10 year Treasury benchmark closed on Friday at 1.73%, despite falling as low as 1.6% on the week - and it's still above the record low we experienced during the financial crisis of 1.3%. However, with more than $15 trillion in government debt around the world with negative yields, what once was viewed as an aberration - savers paying the government to store their money - has become somewhat commonplace in developed markets outside the U.S. Are we next? This is important for many reasons, but especially to retirees and those approaching retirement given the bond yield assumptions in most retirement calculations. Speaking of interest rates, on the back of last week’s Federal reserve rate cut, India’s central bank cut its key lending rate, this week, to its lowest in nine years; the Reserve Bank of New Zealand surprised the market with a 50 basis point cut; and the Bank of Thailand unexpectedly lowered its benchmark rate. Importance: The US can't maintain higher interest rates than the rest of the world... It dampens our competitiveness on world markets. However, given how tight the US labor market is, loose monetary policy could lead directly to high and accelerating inflation.
Finally, for what it’s worth, a WSJ survey showed that private sector economic forecasters now predict a 63.9% probability for a rate cut at the Fed’s September 17-18 meeting (some are even speculating an inter-meeting cut) up from 49.8% in the prior month’s survey. Forecasters also see a 33.6% probability of a recession in the next 12 months, up from 30.1% in July and the highest level since the survey's inception in 2011. Importance: The higher recession expectations get, the more likely a recession becomes as businesses and consumers tighten their collective grasps on funds leading to lower demand across the board. |
| | | Macro News: - As of June 30, the U.S. government has collected $63 billion in tariffs over the preceding 12 months. What’s more, the tariff bounty is on the rise. The U.S. is now on a pace to generate $72 billion in tariffs annually, and could well hit the $100 billion if new 10% tariffs on $300 billion in untaxed imports take effect on Sept. 1. While that may sound great, the tariffs collected only partially offset the reduced trade volume... and the $100 billion number is a cap on the tariffs that's likely to fall as producers seek/develop other markets for their products.
- Iranian Revolutionary Guards seized another oil tanker last Sunday, the latest in a series of seizures that have contributed to mounting tensions, particularly in the narrow Strait of Hormuz. The vessel was Iraqi, according to reports, and Iranian media said it was smuggling fuel.
- The world is facing a food supply crisis as a result of climate change, the UN said on Thursday. A report warned that land and water resources are being exploited at an "unprecedented rate," and the window of time to address the crisis is closing. More than 100 experts in 52 countries participated in the report, which also laid out solutions that involve a massive re-evaluation of land use and agriculture.
- Japan's national sales tax will rise to 10% from 8% on Oct. 1. Prime Minister Shinzo Abe's government is trying to make the fiscal medicine go down easier with sweeteners such as one-time bargains and tax breaks that partially cancel out the increase. The experiment is worthy of the world’s attention because many other countries, including the U.S., are also grappling with large budget deficits.
- A cashflow problem at many of China's private businesses is adding up to a growing glut of IOUs—or commercial acceptance bills—largely due to banks' reluctance to lend to smaller, private companies. Those IOUs now total an estimated $200 billion. Past experience suggests this will go badly: 20 years ago, those notes added up to $86 billion, or a fifth of the Chinese economy, spurring a debt crisis that eventually spiraled and required government intervention. And recall that that crisis developed into a contagion that impacted Asia and the rest of the world.
- Chinese exports rebounded in July, though economists expect the turnaround to be short-lived as Beijing and Washington escalate their trade battle. China’s exports climbed 3.3% from a year earlier last month, reversing a 1.3% decline in June. Part of the reason: Many Chinese exporters have worked to diversify their overseas markets. Exports to the Association of Southeast Asian Nations bloc and European Union rose in July while exports to the U.S. fell.
- The global economy is probably already in recession. "Policymakers around the world have taken growth for granted, piling on a plethora of tariffs, anti-dumping duties, sanctions and investment restrictions that have finally put the expansion in jeopardy. If a global recession is confirmed, it will be because policymakers were more concerned about other objectives and forgot the need to provide a stable and predictable climate for business," John Kemp writes at Reuters.
- The four living former Federal Reserve chairs have banded together to emphasize the importance of a Fed chair who's "permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion," in an Op-Ed piece in the WSJ.
- Public pension plans fell short of their projected returns this year, adding to the burden on governments struggling to fund promised benefits. Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016. Public pension plans project a median long-term return of 7.25%. Unfortunately, this is still just the tip of the iceberg.
- China has worked hard to become a leading AI powerhouse. However, a new analysis from MacroPolo, a Chicago-based think tank focused on China’s economic growth, shows that despite the country’s success in cultivating domestic talent, it has struggled with retention. The report analyzed papers accepted to NeurIPS, one of the most prestigious international AI conferences, and found a nearly tenfold increase in the number of authors who did their undergraduate studies in China since 2009. However, roughly three-quarters of the Chinese authors in the study currently work outside China, and 85% of those work in the US, either at tech giants or universities. Al true, but as the young age, they often "return home."
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Micro News: - UBER is expanding its food-delivery arm into groceries, after that side of the business marked a bright spot in an otherwise disappointing set of earnings. The Uber Eats revenue rose 72% year-on-year, compared to 14% for the business overall, which is losing more money than ever. Uber had a record quarterly loss of $5.23 billion, largely due to costs associated with its IPO earlier this year.
- Barneys New York filed for bankruptcy protection with plans to close most of its stores and a $75 million financing package that would give the luxury retailer time to find a buyer. One day after filing for bankruptcy protection, Barneys New York received a last-minute lifeline. Brigade Capital Management and B. Riley Financial offered the retailer $218 million to help cover its costs and determine a direction as it looks for a buyer
- GOOG has pledged to use recycled material in all its products by 2022 and to develop a carbon-neutral shipping program by 2020.
- Dating app Tinder just keeps on growing. On Tuesday, the company said the app—the most popular product from dating conglomerate Match Group—gained 1.5 million subscribers in the quarter for a total of 5.2 million. It's not alone: downloads on Hinge, another of its apps, more than tripled in the quarter. But there are signs of trouble, too: a former executive has filed suit against the company's former CEO and others, alleging sexual assault.
- As part of a wide-ranging cost management program it undertook late last year, Walgreens plans to close 200 U.S. stores and record $1.9B-$2.4B in related pre-tax charges. No longer 1 on every corner I guess...
- FedEx said it would end its contract to deliver Amazon packages through its ground network, essentially severing ties with one of the world’s biggest shippers. The company’s contract with Amazon expires at the end of this month. In June, FedEx said it was ending its air-shipping contract with Amazon in the U.S. The company would still handle international shipments. The decisions are evidence of escalating tensions between the longtime partners as Amazon builds its own delivery network. FedEx is gambling that it is better off filling its trucks with other customers’ goods. Sounds like a bad bet to me. Amazon can develop its own delivery network... FedEx can't develop its own Amazon...
- Jeffrey Epstein, the disgraced financier indicted on sex trafficking charges committed suicide at a Manhattan jail. Mr. Epstein hanged himself at the Metropolitan Correctional Center, and his body was found Saturday morning.
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The Week Ahead
Monday Earnings: Barrick Gold, Sysco, Tencent Music, Bloom Energy
2 p.m. Federal budget
Tuesday
Earnings: Advance Auto Parts, Adaptive Biotech, Change Healthcare, RealReal, Tilray, Elanco Animal Health, Best Inc, JD.com
6 a.m. NFIB survey
8:30 a.m. CPI
Wednesday
Earnings: Cisco, Macy’s, Embraer, Canopy Growth, Tencent, Agilent, Luckin Coffee, Performance Food, NetApp
8:30 a.m. Import prices
Thursday
Earnings: Walmart, Nvidia, Applied Materials, Alibaba, Tapestry, J.C. Penney, Canadian Solar, ZTO Express
8:30 a.m. Jobless claims
8:30 a.m. Retail sales
8:30 a.m. Productivity and costs
8:30 a .m. Empire state manufacturing
8:30 a.m. Philadelphia Fed Survey
9:15 a.m. Industrial production
10 a.m. Business inventories
10 a.m. NAHB survey
Friday
Earnings: Deere
8:30 a.m. Housing starts
8:30 a.m. Business Leaders’ survey
10 a.m. Consumer sentiment
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| | | | As always, make up your own mind and, more important, minimize your risk no matter what you do.
KIS,
The Trader
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