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Dow posts first 8-quarter win streak in 20 years

October 1, 2017 Leave a comment

CNBC

The S&P 500 closed at a record Friday, helped by gains in technology stocks on the last trading day of the quarter.

The tech-heavy Nasdaq composite rose more than half a percent to post its 50th record close for this year. The Dow transports and small-cap Russell 2000 also hit record highs.

The Dow Jones industrial average closed up nearly 24 points, within 0.1 percent of its record high. Goldman Sachs contributed to the most to gains in the index.

The index posted quarterly gains of 4.9 percent its eighth straight quarter of gains for the first time since 1997.

The S&P 500 rose nearly 4 percent in the quarter, also its eighth straight quarter of gains. The Nasdaq composite gained almost 5.8 percent for the quarter, its fifth straight positive quarter since 2015.

Information technology was the best performing stock sector in the S&P in the third quarter, up 8.3 percent in a fifth-straight quarter of gains. Consumer staples was the only sector to fall in the third quarter.

The S&P and Dow rose about 2 percent in September, while the Nasdaq gained about 1 percent for the month.

“The SPX has broken out of its consolidation phase, generating a bullish “pop” in the daily stochastics,” BTIG Chief Technical Strategist Katie Stockton said in a Friday morning note. “This supports near-term positive follow-through, and suggests it will take at least a couple of weeks before ‘overly bullish’ sentiment gives way to a pullback.”

“Importantly, the Russell 2000 Index has confirmed a breakout above final resistance at its July high, reflecting the expanding breadth behind the rally,” she said.

Several major biotech stocks fell after the U.S. Food and Drug Administration made it easier for the public to search for drug side effects through a database.

The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, traded lower near 9.5.

Symbol
Name
Price
Change
%Change
DJIA Dow Industrials 22405.09
23.89 0.11%
S&P 500 S&P 500 Index 2519.36
9.30 0.37%
NASDAQ NASDAQ Composite 6495.96
42.51 0.66%

The average daily range for the S&P 500 this month was 0.4 percent, the least volatile September on record, according to Ryan Detrick, senior market strategist, LPL Financial.

Meanwhile, trading volume has fallen. Tabb Group data showed average daily volume in September of 6.3 billion marked an 11 percent decline from the prior year.

October is setting up to be a good month for stocks, according to the Stock Trader’s Almanac.

In years following a presidential election, the Dow Jones industrial average has been up 11 times with an average gain of 0.7 percent, the almanac said, citing 17 years. But the almanac also warned that in the last three such years ending in “7,” October was when the stock market plunged: 2007, 1997 and 1987.

The S&P and small-cap Russell 2000 index closed at a record Thursday after the release of the GOP’s highly anticipated tax reform framework Wednesday.

“The tax framework, I think, it’s a lot of noise. Very few specifics for markets and investors to make decisions on,” said Craig Bishop, lead strategist, U.S. Fixed Income Strategies Group at RBC Wealth Management. The proposal’s release does mark an “opening salvo for discussions to begin,” Bishop said.

However, the Republican party has struggled to repeal and replace the Affordable Care Act this year despite having a majority in Congress. The tax framework released this week also contains some highly debatable proposals such as raising the tax rate for the lowest income earners while reducing the rate on wealthy individuals, contrary to what polls show Americans prefer.

Closing Bell Exchange: Stocks on track for first positive September since 2013

Closing Bell Exchange: Stocks on track for first positive September since 2013  

In economic news, the Federal Reserve’s preferred measure of inflation posted its slowest pace of annual increase since November 2015. The personal consumption expenditures index, excluding food and energy, rose 1.3 percent in the 12 months through August, according to the Department of Commerce.

The Chicago PMI unexpectedly rose to 65.2 in September. The final read on consumer sentiment from the University of Michigan showed a slight decline from to 95.1 in September from 96.8 in August.

Treasury yields rose after the PMI report and after news former Federal Reserve Governor Kevin Warsh met with President Donald Trump and Treasury Secretary Steven Mnuchin Thursday. It’s not yet clear what they discussed, but The Wall Street Journal, citing a White House source, said the meeting was to discuss the job of heading the Federal Reserve. Fed Chair Janet Yellen’s term expires in February.

“Warsh is believed to be on the more hawkish side,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie.

Later Friday afternoon, The Wall Street Journal, citing a White House source, said Trump has also spoken to Governor Jerome “Jay” Powell for the Fed chair position.

“If anyone other than Yellen [gets appointed] he’s probably going to have more of a deregulatory impulse,” said Eric Stein, co-director of global fixed income at Eaton Vance Management.

The 2-year yield traded near 1.48 percent, around nine-year highs hit earlier in the week. The yield climbed amid hopes of tax relief and after encouraging reports on business spending and Fed Chair Janet Yellen’s remarks that indicated the Fed will maintain a gradual pace of monetary policy tightening.

The 10-year Treasury yield traded near 2.33 percent, near its highest since July 13.

The U.S. dollar index traded near 93.06 after hitting Thursday its highest since August 18. The index is still more than 2.5 percent lower for the third quarter, tracking for its third-straight quarterly loss since 2008.

The euro weakened after hitting $1.1803, its highest against the dollar since September 26.

U.S. crude oil futures settled slightly higher at $51.67 a barrel after the weekly oil rig count rose by 6 rigs to 750. Oil rose 12 percent in the third quarter, its best in more than a year.

Gold futures for December delivery fell $3.90 to settle at $1,284.80 an ounce. Gold fell 2.8 percent in September for its worst month since November.

The German DAX gained 4 percent for the quarter for its first five-quarter win streak since 2014.

The iShares MSCI Emerging Markets ETF (EEM) closed up 1.2 percent, its first positive day in eight. EEM gained 8.3 percent for the quarter.

Global stock markets have climbed as underlying economic growth around the world has been solid.

It’s the “synchronized global recovery,” Ben Pace, chief investment officer at HPM Partners, said of stock markets’ run higher. “I don’t think there’s any meaningful economy in the world that’s in recession right now.”

Putin Ends US Dollar Trade At Russian Seaports

September 24, 2017 Leave a comment

(The American Vagabond) Whether in response to rising scorching tensions with the US, or simply to provide support for the ruble, on Tuesday Russian President Vladimir Putin instructed the government to approve legislation making the ruble the main currency of exchange at all Russian seaports by next year, RT reported citing the Kremlin website.

The head of Russian antitrust watchdog FAS Igor Artemyev, many services in Russian seaports are still priced in US dollars, even though such ports are state-owned. So, in order to “protect the interests” of dockworkers and their complyees with foreign currency obligations, the government was instructed to set a transition period before switching to ruble settlements.

The proposal to switch port tariffs to rubles was first proposed by Putin a year and a half ago, but it was mothballed only to pick up speed again in recent days.

Originally, the idea was rejected by large transport companies, which said they prefer to keep revenues in dollars and other foreign currencies due to sharp fluctuations on the volatile ruble. However, the Russian anti-trust watchdog said the decision would force foreigners to buy Russian currency, which would stabilize rates and be good for the ruble.

In 2016, Artemyev’s agency filed several lawsuits against the largest Russian port group NMTP.

”According to FAS, the group of companies set tariffs for transshipment in dollars and raised tariffs from January 2015 “without objective grounds.”

The watchdog ruled that NMTP abused its dominant position in the market and imposed a 9.74 billion rubles fine, or about $165 million at the current exchange rate. The decision was overturned by a court in Moscow in July this year.

While Russia’s stated motive for the unexpected redenomination of trade at some of its largest trading hubs has to do with domestic economic policies, there is speculation that the timing of this decision has been influenced by the recent diplomatic fallout between the US and Russia, the result of which would be an heightened demand for the ruble, especially since it is rather complicated to find alternative sources for Russia’s largest export by a wide margin: crude.

And while it is still early to discuss whether Moscow has launched the “Petrorouble”, Putin’s rejection of the Petrodollar in yet another aspect of economic life will raise quite a few eyebrows around the globe.

Deutsche Bank: “Global Asset Prices Are The Most Elevated In History”

September 20, 2017 Leave a comment

In an extensive report published this morning by Deutsche Bank’s Jim Reid, the credit strategist looks at the “Next Financial Crisis”, and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. While we will have much more to say on this study in upcoming posts, we wanted to bring readers’ attention to one observation made by Reid, namely that “we’re in a period of very elevated global asset prices – possibly the most elevated in aggregate through history.”

Here are the details on what appears to be the biggest asset bubble ever observed, courtesy of Deutsche Bank:

Figure 57 updates our analysis looking at an equal weighted index of 15 DM government bond and 15 DM equity markets back to 1800. For bonds we simply look at where nominal yields are relative to history and arrange the data in percentiles. So a 100% reading would mean a bond market was at its lowest yield ever and 0% the highest it had ever been. For equities valuations are more challenging to calculate, especially back as far as we want to go. In the 2015 study (‘Scaling the Peaks’) we set out our current methodology but in short we create a long-term proxy for P/E ratios by looking at P/Nominal GDP and then look at the results relative to the long-term trend and again order in percentiles. Nominal GDP data extends back much further through history than earnings data. When we have tracked the two series where the data overlaps we have found it to be an excellent proxy. Not all the data in Figure 57 starts at 1800 but we have substantial history for most of the countries (especially for bonds).

 

 

As can be seen, at an aggregate level, an equally weighted bond/equity portfolio has never been more expensive. Figure 58 shows that bonds are much closer to 100% than equities though and Figure 59 then looks at the raw data for bonds showing average G7 yields back to 1800.

 

 

 

It’s easier to be black and white in terms of bonds long-term value. In short there isn’t any relative to history. For equities it’s more difficult to assess partly because they are a real asset and therefore today could be a good time to buy if one felt that despite relatively high valuations, inflation may permanently increase (or better still real GDP growth) and thus lead to eventually permanently higher earnings notwithstanding any short-term negative implications of the inflationary transition. However our technique looks at valuations relative to what we know now and where we are relative to history.

 

For equities, current valuations are certainly stretched relative to nominal GDP through history. We have been more expensive but we are approaching the peaks of 2000 and 2007 and are in line with the most stretched valuations from the 1930s on this metric and higher than the 1929 crash point.

 

Given how weak nominal and real GDP has been post GFC (Figure 60), and how much of a downward trend both have been for several decades now, this shouldn’t be a surprise.

 

Nominal and real GDP growth rates have been trending down and unless equity returns slow relative to the past, then valuations on our measure will go up. Obviously if profits take up a bigger share of GDP for a period of time our method will look more stretched than traditional P/E ratios. However over the longer-term, this should be mean reverting as profits can’t permanently outstrip nominal growth – especially at a global level. Currently there is some evidence that the US is one area where actual earnings have outstripped nominal growth in recent years for various reasons that include their large global players gaining excess overseas earnings (must be a zero sum game globally), a more shareholder friendly and focused culture and perhaps higher inequality and therefore more spoils to capital over labour.

 

However we’d repeat that history suggests all this is mean reverting over the medium to long term. If we look at more detail on the US which has the most developed history of equity data, including the longest series of earnings data through history we can see the longer term issues with equity market valuations.

 

Indeed the US CAPE ratio (Figure 61) has only been higher before the 2000 equity bubble bursting and was only slightly higher ahead of 1929 crash. CAPE analysis cyclically adjusts earnings by using the average of the last 10 years so you would have to believe the higher earnings of the last decade represent a new paradigm to not be concerned by this graph.

 

DB’s conclusion: “While there are no obvious triggers for historically high global asset valuations to correct, while they remain this high there is always a risk of a sudden correction that could be destabilising to a financial system and global economy that seems to require such elevated asset prices.

SIEGNER: Trump Suggests Eliminating the Debt Ceiling – Dollar Falls

September 18, 2017 Leave a comment

(Clint Siegner, Money Metals News Service) Those who paid any attention to the financial press last week saw the following narrative: President Donald Trump betrayed Republicans by cutting a deal with Democrats Nancy Pelosi and Charles Schumer. They agreed to punt on the borrowing cap until December and spend $15 billion for hurricane relief.

Americans are supposed to conclude that Trump is flip-flopping, and that Republicans aren’t responsible. Dig just a little, and you’ll find only one of those things is true.

Debt Ceiling

Trump is flip-flopping, no question about that. The president campaigned on promises to honor the borrowing limit. This tweet from 2013 is what candidate Trump had to say on the matter: “I cannot believe the Republicans are extending the debt ceiling — I am a Republican & I am embarrassed!”

But any implication that Republican leaders in Congress actually oppose more borrowing is patently false. Republicans in Congress overwhelmingly supported the deal. It was passed in the House with a vote of 316 to 90. The Senate voted 80 to 17.

Some who voted in opposition likely only did so for the sake of appearances. Others thought the president and Democrats did not go far enough. GOP leaders Paul Ryan and Mitch McConnell wanted a deal to suspend the borrowing cap for much longer than the 3 months they got.

Make no mistake – lots of Republicans share the commitment to unlimited borrowing with the President and Democrats.

PREVIOUSLY: GLEASON: Debt Ceiling Capitulation Spells Trouble Ahead for the Dollar

At least the currency markets seem to have gotten it right. Last week’s decline in the dollar may be a recognition the debt ceiling – the final pretense of borrowing restraint – will soon be going away. The sooner investors at large arrive at this conclusion, the better it will likely be for owners of hard assets.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group.

Original Source

Venezuela Is About To Ditch The Dollar In Major Blow To US: Here’s Why It Matters

September 14, 2017 2 comments

(Anti Media) Venezuelan President Nicolas Maduro said Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week, Reuters reports. According to the outlet, Maduro will look to use the weakest of two official foreign exchange regimes (essentially the way Venezuela will manage its currency in relation to other currencies and the foreign exchange market), along with a basket of currencies.

According to Reuters, Maduro was referring to Venezuela’s current official exchange rate, known as DICOM, in which the dollar can be exchanged for 3,345 bolivars. At the strongest official rate, one dollar buys only 10 bolivars, which may be one of the reasons why Maduro wants to opt for some of the weaker exchange rates.

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

Venezuela sits on the world’s largest oil reserves but has been undergoing a major crisis, with millions of people going hungry inside the country which has been plagued with rampant, increasing inflation. In that context, the recently established economic blockade by the Trump administration only adds to the suffering of ordinary Venezuelans rather than helping their plight.

According to Reuters, a thousand dollars’ worth of local currency obtained when Maduro came to power in 2013 is now be worth little over one dollar.

A theory advanced in William R. Clark’s book Petrodollar Warfare – and largely ignored by the mainstream media – essentially asserts that Washington-led interventions in the Middle East and beyond are fueled by the direct effect on the U.S. dollar that can result if oil-exporting countries opt to sell oil in alternative currencies. For example, in 2000, Iraq announced it would no longer use U.S. dollars to sell oil on the global market. It adopted the euro, instead.

By February 2003, the Guardian reported that Iraq had netted a “handsome profit” after making this policy change. Despite this, the U.S. invaded not long after and immediately switched the sale of oil back to the U.S. dollar.

In Libya, Muammar Gaddafi was punished for a similar proposal to create a unified African currency backed by gold, which would be used to buy and sell African oil. Though it sounds like a ludicrous reason to overthrow a sovereign government and plunge the country into a humanitarian crisis, Hillary Clinton’s leaked emails confirmed this was the main reason Gaddafi was overthrown. The French were especially concerned by Gaddafi’s proposal and, unsurprisingly, became one of the war’s main contributors. (It was a French Rafaele jet that struck Gaddafi’s motorcade, ultimately leading to his death).

Iran has been using alternative currencies like the yuan for some time now and shares a lucrative gas field with Qatar, which may ultimately be days away from doing the same. Both countries have been vilified on the international stage, particularly under the Trump administration.

Nuclear giants China and Russia have been slowly but surely abandoning the U.S. dollar, as well, and the U.S. establishment has a long history of painting these two countries as hostile adversaries.

Now Venezuela may ultimately join the bandwagon, all the while cozying up to Russia, as well (unsurprisingly, Venezuela and Iran were identified in William R. Clark’s book as attracting particular geostrategic tensions with the United States).

The CIA’s admission that it intends to interfere inside Venezuela to exact a change of government — combined with Trump’s recent threat of military intervention in Venezuela and Vice President Mike Pence’s warning that the U.S. will not “stand by” and watch Venezuela deteriorate — all start to make a lot more sense when viewed through this geopolitical lens.

What initially sounded like a conspiracy theory seems to be a more plausible reality as countries that begin dropping the U.S. dollar and opting for alternative currencies continuously — and without exception — end up targeted for regime change.

If the U.S. steps up its involvement in Venezuela, the reasons why should be clear to those who have been paying attention.

10% of US households could be millionaires by 2021 and other millionaire insights

September 12, 2017 Leave a comment

The number of U.S. households with a net worth of $1 million or more, not including primary residence (NIPR), increased by 400,000 to reach a record 10.8 million in 2016, according to Spectrem Group’s Market Insights Report 2017. In every wealth segment, a sizable increase in number was recorded in 2016.

The USA has 126 million households and the number of households is increasing by 1.2 million each year. By 2020, the US will have about 13 million households.

If there is no recession in the next 3-4 years then it is likely that the U.S. households with a net worth of $1 million or more, not including primary residence could exceed 10% of overall US households.

US Wealth and Ethnicity

African Americans and Hispanics own homes at lower rates than whites do — even when income-level is controlled.
African Americans have more student loan debt.

Families of Asian Americans have seen the most significant increase in wealth in the past two decades, even eclipsing Caucasians in median incomes, according to the most recent study by the Federal Reserve Bank of St. Louis.

One of the factors experts have been looking at is the group’s high rate of college education, Bloomberg reported.

Sixty-five percent of Asian Americans aged 35 to 39 are college degree-holders. In the same age demographic, the figure for Caucasians is only 42%, 26% for African Americans and 16% for the Hispanics.

More Wealth Report Insights

Spectrem Group’s annual report analyzes the number of households in America based on net worth, from the Mass Affluent ($100,000 as the minimum) to the $25 million-plus segment. The report also includes information on the investment habits and behaviors of investors in all of the designated wealth segments.

Key findings include:

· In 2016, there were 30.5 million Mass Affluent households with a net worth between $100,000 and $1 million, NIPR. That reflected an increase of 700,000 households from 2015.

· The number of Millionaires, with a net worth between $1 million and $5 million, climbed by 238,000 households to a record 9.38 million.

· The Ultra High Net Worth market, in which net worth is between $5 million and $25 million, grew to 1,264,000 households, an increase of 54,000 from 2015.

· The number of $25 million-plus households reached 156,000, an increase of 11,000 (7.5 percent).

Globally, almost 18 million households control more than $1 million in wealth, according to a new report from the Boston Consulting Group. These rich folk represent just 1 percent of the world’s population, but they hold 45 percent of the world’s $166.5 trillion in wealth. They will control more than half the world’s wealth by 2021.

63 percent of America’s private wealth in the hands of U.S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70 percent.

The sources are slightly different in the U.S. compared with the rest of the world. Globally, about half of new wealth comes from existing financial assets—rising stock prices or yields on bonds and bank deposits—held predominately by the already well-off. The rest of the world’s new wealth comes from what BCG classifies as “new wealth creation,” from people saving money they’ve earned through labor or entrepreneurship.

In the U.S., the creation of “new” wealth is a minor factor, making up just 28 percent of the nation’s wealth increase last year. It’s even lower in Japan, at 21 percent. In the rest of the Asia Pacific region, meanwhile, two-thirds of the rise is driven by new wealth creation.

BRICS Ready to Challenge US Dollar Says Putin

September 6, 2017 Leave a comment

Russian President Vladimir Putin has said that Russia is ready to join forces with its partners to counter the excessive domination of the limited number of reserve currencies.

Putin made his comments in his article published in the run-up to the BRICS summit.

Russia Insider reports:

“We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies. We will also work towards a more balanced distribution of quotas and voting shares within the IMF and the World Bank,” Putin said in his article, headlined “BRICS: Towards New Horizons of Strategic Partnership,” to be published by the leading media of the BRICS states (Brazil, Russia, India, China and South Africa) ahead of the group’s summit due on September 3-5 in China.

Unfairness of global financial architecture

According to the Russian leader, Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies.

“I am confident that the BRICS countries will continue to act in a consolidated manner against protectionism and new barriers in global trade,” he said. “We value the BRICS countries’ consensus on this issue, which allows us to more consistently advocate the foundations of an open, equal and mutually beneficial multilateral trade system and to strengthen the role of the WTO as the key regulator in international trade.”

The president said that Russia’s initiative on the development of cooperation among the BRICS countries’ antimonopoly agencies is aimed at creating effective mechanisms to encourage healthy competition.

“The goal is to create a package of cooperation measures to work against the restrictive business practices of large multinational corporations and trans-border violations of competition rules,” he said.

Role of New Development Bank

The Russian leader said that a BRICS Strategy for Economic Partnership, which is currently being successfully implemented, was adopted at the summit in the Russian city of Ufa in 2015.

“We hope to be able to discuss new large-scale cooperation tasks in trade and investment and industrial cooperation at the Xiamen Summit,” Putin said.

He added that Russia is interested in promoting economic cooperation within the BRICS format.

“Considerable practical achievements have been recently reported in this area, primarily the launch of the New Development Bank (NDB). It has approved seven investment projects in the BRICS countries worth around $1.5 billion,” Putin said.

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