German 10-year sovereign bond yields turn negative for first time
The yield on the 10-year benchmark German bund fell into negative territory for the first time ever on Tuesday morning, amid global growth concerns and jitters over the U.K.'s upcoming referendum on its European Union membership.
At around 8.30 a.m. London time, the yield hit zero and briefly fell into negative territory as investors continued to flock to safe-haven assets. Bond prices and yields move in opposite directions and a negative yield implies that investors are effectively paying the German government for the privilege of parking their cash.
A spokesperson for the German Federal Debt Agency spoke immediately after the milestone was reached, stating that the tradability of federal securities is "still very high."
"The federal debt-management strategy is long-term, therefore, the current absolute yield level plays only a subordinate role. Our target remains a sustainable balance between cost and planning security for the debt portfolio," the agency said in an email to CNBC. The move comes as the European Central Bank has ramped up its bond buying program in recent months as well as investor uncertainty over whether the U.K. will stay in the European Union.
Helicopter money champion says Fed will struggle to lift interest rates
In mid-December, Adair Turner, the former chairman of the U.K. Financial Services Authority, was asked about the outlook for Federal Reserve policy. Yes, he said, the Fed was likely to raise interest rates at its meeting later that month. But the U.S. central bank would likely find it difficult to raise rates much further, he said at an Atlantic Magazine event in Washington to promote his new book.
Flash forward six months and Turner’s prediction has panned out. The U.S. central bank, which had penciled in four rate hikes at the beginning of the year, has since been unable to pull the trigger on a second rate hike.
In an interview with MarketWatch, Turner said he’s now in the camp that sees one more Fed interest rate hike this year. And the global debt overhang and lack of demand will continue to make it difficult for the U.S. central bank to push rates much higher than that.
In face of these conditions, Turner, in his book, “Between Debt and the Devil” argues that central banks need to add so-called helicopter money to their toolkits to fight the lack of demand. The policy, which has been taboo for fifty years, hence the Devil in his book title, calls for a central bank to print money and give it to people, in the form of a tax cut or infrastructure spending. Too much of this policy can lead to hyperinflation but in small doses could turn the tide, he says.
Credit Suisse Identifies Stock Market Valuation Warning Signs
With the stock and bond markets being on hold and looking for direction ahead of this week’s Federal Open Market Committee (FOMC) decision on interest rates, it may be a good time to review and consider how the stock market is currently valued. Last week, Standard & Poor’s sent out a note that the S&P 500 reached a value of 18 times the its projected earnings per share ratio for expected 2016 earnings (S&P’s latest note shows that the index is valued at 17.4 times forward 12-month earnings). Then came a note on Monday, June 13, from Credit Suisse signaling that the stock market’s valuation looks stretched.
Investors need to keep in mind that the S&P 500 is seeing its earnings expectations weighed down heavily due to an overall loss in energy (oil and gas) earnings, and considerably lower earnings for materials (metals and commodities). S&P said that aggregate first-quarter S&P 500 earnings were down 5.4%.
So, what is it that Credit Suisse so worried about? The answer may be that the firm is worried about the numbers more than about overall fundamentals. Credit Suisse even noted that the stock market may still have some room to run higher. Investors should not get too complacent here, as the title of the note was “S&P 500 Valuations Approaching Troublesome Territory.”
Credit Suisse said that it has received client and investor inquiries on where valuations stand, for both the broader market and for individual sectors. Large cap stocks, also measured by the S&P 500, is said to be sitting at 1.49 standard deviations above its 30 year average, or just under and early-2015 high of 1.54.
Tony Blair: Brexit Vote Has 'Seismic Consequences'
Microsoft will buy LinkedIn in $26.2 billion deal. Why?
The Facebook of the business world is getting a new owner. On Monday, Microsoft announced it will acquire LinkedIn, the professional social network, for $26.2 billion, or $196 per share. LinkedIn will remain its own independent brand, but its chief executive, Jeff Weiner, will report to Microsoft CEO Satya Nadella. LinkedIn’s finances will be reported in Microsoft’s Productivity and Business Processes segment going forward.
“Today is a re-founding moment for LinkedIn. I see incredible opportunity for our members and customers and look forward to supporting this new and combined business,” Reid Hoffman, LinkedIn’s board chairman, said in a statement.
LinkedIn has been busy forming corporate partnerships in recent years. In April of 2015, LinkedIn acquired Lynda, an online learning platform, for $1.5 billion. It’s also revamped its mobile app and made tweaks to its newsfeed, with the aim of sharpening its presentation and delivering a better user experience.
According to the company, the partnership with Lynda, and the mobile and web updates, have increased LinkedIn’s membership by 19 percent, to more than 433 million members over the past year. LinkedIn’s mobile user base has also grown. Sixty percent of the site's users now connect through its mobile platform.
$12 trillion of QE and the lowest rates in 5,000 years ... for this?
The numbers are daunting if not shocking: $12.3 trillion of money-printing, nearly $10 trillion in negative-yielding global bonds, 654 interest rate cuts since Lehman Brothers collapsed in 2009.
Those actions have resulted in global growth in advanced economies that likely won't eclipse 2 percent this year, inflation levels that remain well below targets, and a burgeoning global debt problem that remains unresolved, withstood only through the lowest interest rates the world has seen in 5,000 years.
Put together, it all amounts to the "astonishing history investors are living through today," said Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch who compiled the aforementioned statistics.
It's a history of anemic economic growth during the second longest bull market for stocks. While banks have aggressively pushed quantitative easing along with zero and negative interest rate policies, the results have been uneven. "The cocktail of QE, ZIRP and NIRP has been a potent one for Wall Street and the price of financial assets in the past 8 years," Hartnett said in a report for clients, later adding, "And yet the bull market has waned in the past 18 months, there has been no 'normalization' of growth, rates and asset allocation, no 'Great Rotation,' and bonds & stocks have been trapped in a Twilight Zone of volatile trading."
Morgan Stanley: Pretty soon there's going to be too much oil again
It's been quite a year for oil. The commodity's prices have seen a nice rally amid decreasing non-OPEC production and ongoing production outages.
Both WTI crude and Brent crude prices are currently hovering around $48 to $49 per barrel - well above their lows, below $30 per barrel, earlier this year. Notably, in a recent report to clients, a Morgan Stanley team led by Adam Longson wrote that they think oil supply will ramp back up.
"Oversupply is likely to return as outages resolve, and prices could fall back into a $30-50 oversupply pricing regime," the team wrote. Specifically, they argue that many of the causes of the recent outages - such as the Canadian wildfires - will subside, and the reduced production from maintenance projects in the North Sea and Brazil will soon moderate. Moreover, they believe that OPEC members Saudi Arabia, Iran, and Libya could ramp up production (although other analysts have expressed doubt about Libya in particular).
"Returning Canada production alone should be enough to put the market back into oversupply, even if Nigeria remains near current levels," they wrote.
Central Banks and Governments and their gold coin holdings
Within the world of central bank and government gold reserves, there is often an assumption that these gold holdings consist entirely of gold bullion bars. While this is true in some cases, it is not the fully story because many central banks and governments, such as the US, France, Italy, Switzerland, the UK and Venezuela, all hold an element of gold bullion coins as part of their official monetary gold reserves.
These gold coin holdings are a legitimate part of gold reserves since under International Monetary Fund (IMF) definitions, “monetary gold consists of gold coins, ingots, and bars”. In central banking parlance, monetary gold is simply gold that is held by a central bank or government as a reserve asset. Other central bank reserve assets include foreign exchange holdings and holdings of IMF Special Drawing rights.
Elsewhere in IMF definitions, it is stated that “monetary gold is generally construed to be at least 995/1000 pure.” Many government and central bank gold coin holdings consist of previously circulated gold coinage. Since gold coins often had – and still have – a purity of less than 99.5% gold due to the addition of other metals for added durability, this ‘generally construed’ leeway in the IMF definition is undoubtedly a practical consideration that allows gold coins to be classified as monetary gold.
Central banks and governments hold gold for the same reasons that private citizens hold gold. Gold is real money with no counterparty risk, gold is a store of value, and gold is a safe haven asset. In general, central banks and governments are as happy holding bullion in gold bar form as in gold coin form. This is because physical gold is physical gold, and a gold coin and a gold bar will both provide their holders with the same benefits and protections. Only the physical form differs. In practice, the types and quantities of gold coins held by central banks and governments are extensive and varied as a quick tour d’horizon reveals.
American Confidence in Banks Has Plunged
The confidence of average Americans in a wide range of major societal institutions is near an all-time low, a new Gallup poll reports. But Americans are particularly anxious about their banks.
Over the past decade the percentage of Americans who express “a great deal” or “quite a lot” of confidence has dropped or remained flat for 12 out of the 14 institutions listed in the poll. For example, confidence in organized labor, police, the criminal justice system, and the U.S. Supreme Court all inched down between 1% and 4% since June 2006.
But Americans’ confidence in banks has plunged—down 22 percentage points over the past 10 years. In 2006, 49% of those surveyed expressed confidence in banks, compared to only 27% recently. The banks, “took a hit amid the bursting housing bubble in 2007 and 2008, and dropped further after the ensuing financial crisis,” the Gallup report states.
Organized religion also took a big hit, with an 11 percentage point drop in the poll, as did TV and news media and Congress—all down 10 percentage points. The only institutions reporting increased confidence on the behalf of Americans is the presidency (up 3 points) and the medical system (up 1 point).
Donald Trump: U.S. voters want a raise
Donald Trump says a big reason he's getting so many votes is the lousy U.S. economy. "Wages for our workers haven't budged in 20 years," he said Monday. The speech was focused on national security after the shooting in Orlando, Florida where 49 people were killed, but he also hit on the economy. It's a key issue for Trump.
"Take a look at the wages ... we can't afford to keep going like this," he said. Trump is right about pay. A typical American middle class family earns $53,657 a year, according to the U.S. Census Bureau. That's almost exactly the same amount it took home in 1996, after you adjust for inflation.
The question is whether Trump's formula for raising wages would work -- or make things worse. His two big ideas to supercharge the economy are fixing U.S. trade deals and enacting large tax cuts for businesses and individuals. ("We're going to have great trade deals," he said Monday, ad libbing from his prepared remarks.)
Most experts think Trump's proposals on trade and taxes are harmful and could even sink America's economy into a recession.
Dr Pippa Malmgren - Navigate the World’s Turbulent Economy
Gold price: Hedge funds pile back in
On Monday, upward momentum in the gold price continued to build, supported by weakness in the US dollar, a negative interest rate environment and worries over event-risk such as Britain leaving the EU.
In brisk early afternoon trading on Monday gold futures in New York for delivery in August, the most active contract, jumped to a high of $1,290.30 an ounce, up just over 1% from Friday's close and the highest in nearly a month.
After a dismal May, weak US jobs numbers signalling lower rates for longer saw gold bulls fight back in June and the metal is now trading 21.7% or $230 an ounce for the better this year. Higher interest rates raises the opportunity costs of holding gold as the metal provides no yield and any gains for investors is through price appreciation.
Amid the negative turn in sentiment on gold markets in May, large-scale futures and options speculators such as hedge funds sharply reduced record-breaking bullish positions built up since the start of the year. After getting wrong-footed by non-farm payrolls, they're piling back in.
The Federal Government Says 99% of Its Workers Are Doing a Great Job
Just how good are government workers at their jobs? The answer depends on who you ask. Despite all those reports you’ve read of government incompetence, mismanagement or worse, just about all working-level federal government employees get stellar performance ratings, the Government Accountability Office reported this week.
The GAO found that, in 2013, nearly all working-level federal employees — 99.3 percent — get performance ratings of “fully successful” or better. Just 0.1 percent of federal workers had their performance rated as “unacceptable.”
“I’m constantly impressed by the feds I encounter, but it strains credulity to imagine that 99 percent of all federal employees are above average or that more than two-thirds are in the top rank,” said Donald Kettl, a senior fellow at The Brookings Institution and professor of public policy at the University of Maryland. “This is one more sign of the profound breakdown of the federal government’s talent management system.”
The universally high ratings are also in stark contrast to the public’s perception of the federal government. A Pew Research Center report last year on how Americans view the government found — no surprise — high levels of anger and frustration. The resentment went beyond complaints about Congress, the White House or D.C. gridlock. “The public’s overall rating of the government’s performance also has become more negative,” Pew found. “Most Americans now say the federal government is doing either an only fair (44 percent) or poor (33 percent) job running its programs; just 20 percent give it an excellent or good rating on this measure.”
Global Financial Collapse Accelerates - Peter Schiff (6/10/2016)
Why US Coal Production Collapsed to Lowest Level since 1981
It was called “king coal” because it ruled! Coal-fired power plants were the cheapest way to generate electricity, based on capital costs and operating costs. And the US has plenty of coal. In the 1980s, over 55% of electricity generation was coal-fired. By 2000, it was down to 50%. Now it’s down to just over 30%, in second place, for the first time ever, behind natural gas.
In the first quarter of 2016, according to the US Energy Information Administration, coal production plunged 17% from the prior quarter, the largest quarterly drop since Q4 1984. At 173 million short tons (MMst), production was down 42% from its peak in Q3 2008. It was the lowest quarterly production since Q2 1981 when a strike crippled coal mines. But this time, there was no strike.
“Above-normal temperatures during the winter” lowered electricity demand for heating purposes. Coal stockpiles at power plants ballooned, with big consequences. The EIA:
Throughout the fourth quarter of 2015, electric power plants received more coal than they consumed, leading to a net increase of 34 MMst in coal stockpiles, the highest fourth-quarter net increase on record. High coal inventories encouraged electric power plants to consume coal from their stockpiles in the beginning of 2016, resulting in lower new coal orders.
Microsoft could lose AAA rating over LinkedIn deal
Microsoft could lose its pristine credit rating after revealing a deal to acquire professional social-networking site LinkedIn for more than $26 billion.
Just hours after the deal was announced, Moody's Investor Service warned Monday afternoon that it is reviewing Microsoft's credit rating for a potential downgrade from its perfect AAA score.
If Microsoft loses its AAA rating, it would leave health giant Johnson & Johnson as the only remaining company in corporate America with a perfect rating. Oil giant ExxonMobil recently lost its perfect mark from ratings agency Standard & Poor's in April amid deteriorating finances for the energy sector.
The question for the ratings agency is: Does Microsoft's deal for LinkedIn place enough strain on the tech giant's finances to warrant a downgrade, which can lead to greater borrowing costs in the former of higher interest rates. Moody's acknowledged the deal could provide "meaningful benefits" by bolstering Microsoft's cloud computing services and enhancing LinkedIn's reach.
Is a $10 Trillion “Supernova” About to Explode?
Legendary bond guru Bill Gross predicts a disaster of astronomical proportions is coming to the financial markets… He calls it “a supernova that will explode one day.” It’s a massive bubble created by global central banks… The likes of which we haven’t seen in 500 years of recorded history…Is your portfolio prepared for the blowup?
Gross gained the media reputation as the “Bond King” as the then manager of Pacific Investment Management’s $270 billion Total Return Fund. Today, he manages the Janus Global Unconstrained Bond Fund. And here’s his logic about a coming market meltdown…
The flight to safety in global financial markets combined with negative interest rate policy (NIRP) by global central banks have helped create more than $10 trillion of government debt now trading below zero. And with financial uncertainty increasing, more people want to buy “safe” government bonds, pushing prices up.
But since yields have an inverse relationship to price, increased demand pushes yields down. That leaves investors like Gross concerned that once rates finally go up, bondholders will incur massive losses. As yields go up, prices go down. In fact, a recent report by Goldman Sachs indicated that a 1% increase in yield on U.S. Treasuries could cost investors as much as $1 trillion in losses.
Student loan debt is hurting the housing market, survey finds
Nearly three-quarters of people who are repaying student loans say their debt is hindering them from buying a home, according to a survey released Monday. Although a college degree significantly enhances a person’s chances of gaining stable employment and earning enough for a down payment, the survey found that many would-be homeowners are increasingly burdened by student debt.
The National Association of Realtors joined with the nonprofit American Student Assistance to conduct a survey of only those student loan borrowers who are current in their repayments and therefore mostly likely to be financially ready to make a home purchase.
Seventy-one percent of those surveyed said their student loan debt is delaying them from buying a home. More than half said they expect that delay to last longer than five years.
“Americans are concerned about this widening inequality” of wealth, said Lawrence Yun, NAR chief economist. “One of the contributors is that the homeownership rate is at a 50-year low. For most middle-class families, they have always perceived housing equity as their main source of wealth building. But fewer people are participating in home ownership, particularly among the younger generation, and that is tied to student debt, at least according to our survey.”
Will the U.S. gov’t give up control of the internet?
Top court tosses Puerto Rico's debt restructuring law
The Supreme Court on Monday refused to revive a Puerto Rico debt-restructuring law, putting the U.S. territory at risk of a messy default unless Congress this month passes legislation to help the Caribbean island survive its crippling fiscal crisis.
The justices ruled 5-2 that Puerto Rico's 2014 statute, which would have let it cut billions of dollars in debt at public utilities over creditor objections, conflicted with federal bankruptcy law. The justices left in place a 2015 appeals court ruling invalidating the law, called the Recovery Act.
Passage of legislation now advancing in the U.S. Congress is likely the only remaining option to restructure Puerto Rico's debt in a bid to avoid a default in the U.S. territory of about 3.5 million people that is burdened by a $70 billion debt load it has said it cannot pay.
The U.S. House of Representatives last Thursday overwhelmingly passed legislation creating a federal control board to help Puerto Rico cope with its debt, and sent the bill to the Senate for consideration. The White House has urged the Senate to act promptly so President Barack Obama can sign the bill into law ahead of a looming July 1 deadline for Puerto Rico to make a $1.9 billion debt payment. But the Senate's Republican leaders, who control the agenda in that chamber, have not yet revealed their plans for dealing with the legislation.
Now Goldman Sachs Wants To Be Your Everyday Bank
After nearly 150 years of whiz-bang multibillion-dollar Wall Street investment banking, Goldman Sachs is, for the first time, wading into the humdrum world of savings and checking accounts, by (sort of) putting its name on a consumer banking platform.
Two months ago, Goldman quietly purchased GE Capital Bank’s online deposit platform, rebranding it as “GS Bank,” which retains the company’s well-known initials but also puts a bit of marketing distance between the investment and consumer sides of the business. However, the Associated Press reports that GS Bank already has more than $1 billion in deposits through this online-only service.
So far, GS Bank allows customers to open savings accounts and invest in CDs. Goldman’s entrance into consumer banking may seem odd for a company that has been known to work with the ultra-wealthy and large corporations, but it’s the financial institution’s way of establishing a new revenue source.
“We see an opportunity to serve a different customer set than we typically have served,” Stephen Scherr, CEO of GS Bank, tells the AP. “And we do it at a time when there is a lot of change in how banking is done with and for consumers.”