Federal Reserve Bank of New York

Global Stocks, US Futures Modestly Higher As Debate Digested, Draghi Eyed

Global stocks were modestly higher, before the European Central Bank gives its policy update, while investors weigh mixed earnings results. Asian stocks rise, U.S. equity-index futures are little changed.  The euro touched its weakest level since July and stocks in the region fell after their first back-to-back gains in two weeks.

Key Events In The Coming Week

The key economic releases this week include industrial production on Monday, CPI on Tuesday, and housing starts on Wednesday. There are several scheduled speeches from Fed officials this week. The Beige Book for the November FOMC period will be released on Wednesday.

Brace Yourself For The Quadrillion-Dollar Reckoning

"...debt is simply everywhere, at least to the extent we can see and measure it. Corporate and sovereign debt, of both the developed world and emerging market varieties, are at record levels. China’s debts certainly add to that record but who really knows to what extent? It’s the ultimate black box of leverage on Planet Earth... You cannot NOT worry about the Fed in this world...The simple truth is ending reinvestment would bring the bond market to its knees.

"Investment Returns Will Be Very Low Going Forward" Ray Dalio Says Gold Could Prove Preferable

With bond-stock correlations reaching record highs (and broad risk parity fund performance deteriorating rapidly), Ray Dalio’s $150 billion Bridgewater Associates managed modest gains across its main strategies last month - even as macro funds have suffered amid policy and political uncertainty. However, the manager of the world's largest hedge fund warns “Investment returns will be very low going forward,” in his latest investor remarks, suggesting that betting on gold could prove preferable.

Key Events In The Coming Week

In the US focus will be on the market's reaction to the second presidential debate, FOMC Minutes but also retail sales, import and producer prices and Michigan sentiment. We also hear from various Fed speakers throughout the week, and Chair Yellen gives a keynote speech on Friday.

What Bridgewater's Ray Dalio Told The New York Fed

  • this isn’t a normal business cycle and we are likely in an environment of abnormally slow growth
  • the current tools of monetary policy will be a lot less effective going forward
  • the risks are asymmetric to the downside
  • the impatience with economic stagnation, especially among middle and lower income earners, is leading to dangerous populism and nationalism.

Goldman "Explains" Why Yellen Lost Credibility: "In Our View, The Fed Has Been Unlucky"

"The May 18 minutes surprised virtually everyone by guiding strongly toward a rate hike in June or July, and Chair Yellen reinforced this message in her remarks at Harvard University on May 27. But the weak May employment report released on June 3 and increased concern about the UK referendum again triggered a sharp pivot, putting on hold the notion of further hikes. These dramatic shifts have frustrated many market participants. In our view, the Fed has been unlucky."

Overwhelmed By Debt, Nearly 1 In 5 Young Adults Live With Their Parents Or Grandparents

In America today, more than 60 million people live in multi-generational households.  That number is so large that it may seem difficult to believe, but the truth is that vast numbers of young adults have had to move back in with their parents and grandparents in recent years due to the deteriorating economy.  Millions of our young people cannot find decent jobs once they leave school, and millions of them are absolutely overwhelmed by debt.

Key Events In The Peak Vacation Season Week

With Wall Street hitting peak vacation season, it is a quiet week for news. The key economic release this week is CPI inflation on Tuesday. There are several scheduled speaking engagements from Fed officials this week. Many will be looking for signs of hawkishness Minutes from the July FOMC meeting will be released on Wednesday.

Frontrunning: August 1

  • Global stocks hit highest in a year but banks take shine off Europe (Reuters)
  • Fed’s Dudley Warns It Is Premature to Rule Out an Interest-Rate Increase This Year (WSJ)
  • Fed’s Kaplan Says September ‘On the Table’ If Data Support (BBG)
  • Europe's stress tests fail to ease investors' bank sector worries (Reuters)
  • Trump’s Attacks on Khan Family Roil Race But May Not Alter It (BBG)

Lessons From The Worst Banking Crisis In History

A very reliable rule of thumb to keep in mind during (and before) a banking crisis: don’t trust anyone in the establishment, especially a politician. It’s good advice these days.. Europe’s banks and its governments are caught like two drunken sailors holding each other up.