In testimony yesterday on Capitol Hill before the Senate Banking Committee, Federal Reserve Chairman Bernanke remarked:
“Gold is an unusual asset. It's an asset that people hold as disaster insurance. A lot of people hold gold as an inflation hedge. But movements of gold prices don't predict inflation very well, actually. But anyway, the perception is that by holding gold you have a hard asset that will protect you in case of some kind of major problem.
Markit has released its global business confidence survey, and it makes for sobering reading. Due to sharp declines in business confidence in both the US and China, a new post crisis low has been reached in June. Only the UK was a notable exception, as business confidence there jumped. We would submit that this is no coincidence, as the pace of money supply growth is increasing sharply in the UK, while it it slowing down in both the US and China. The culprit for the slowdown in money supply growth in the US is lending by commercial banks, which is decelerating sharply even as monetary pumping by the central bank continues at full blast.
- Detroit ‘Gut Kick’ Poses New Test for Long Suffering City (BBG)
- Florida lawmakers urge overhaul of 'Stand Your Ground' law (Reuters)
- Investors pour huge sums into US equity funds (FT)
- Snowden Standoff Threatens Obama-Putin Moscow Summit (BBG)
- China, U.S. companies' great hope, now a drag (Reuters)
- Morgan Stanley stock traders rebuild burned bridges (Reuters)
- Huawei spied for China, claims ex-CIA head Michael Hayden (FT)
- Gorilla Flipping Homes as Rebound Revives Rapid Trades (BBG)
- BRICS joint action at G20 summit may be wishful thinking (Reuters)
The PBOC just announced that China will scrap its bank lending rate floor and controls on bill discount rate. It will also allow banks to set lending rate based on commercial preinciples with a goal of promoting economic restructuring. China will continue differentiated lending policies for housing sector and will leave unchanged lending floating rates for home buyers.
With little going on today besides the just reported GE earnings, which beat consensus EPS expectations of $0.35 by the smallest possible increment but, as expected, missed consensus revenue of $35.56 printing at $35.12, and both the Japanese (which experienced a 500 point drop in minutes overnight) and Chinese (which closed below 2000 again) markets sliding, it is perhaps better to summarize the day that just was: Detroit City files for bankruptcy (send in Detroika!), Moody's take the US off negative outlook, Google and Microsoft miss on earnings and the S&P 500 hits a new record high. As DB says, the above certainly made for an eventful close to the US session after what was a fairly dull second day of testimony and Q&A for Bernanke. He has said all that can be said for now and we're left waiting for the data. And the earnings data so far has been abysmal if mostly on the top line, with corporate revenues now assured to double dip and decline for the second quarter in a row. And if the tech bellwethers all of which have been major disappointments to date and have guided down, are an indication of what is coming, Q3 may and will be even worse.
The "coming economic collapse" has already been happening. You see, the truth is that the economic collapse is not a single event. It has already started, it is happening right now, and it will accelerate during the years ahead. The statistics in this article show very clearly that the U.S. economy has fallen dramatically over the past ten years or so. The mainstream media will continue to scoff knowingly, "An economic collapse is never going to happen. We can consume far more wealth than we produce forever. We can pile up gigantic mountains of debt forever. There is no way that the party is over. In fact, the party is just getting started. Woo-hoo!"Anyone with half a brain should be able to see what is coming. Just open your eyes and look at the facts...
Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight. The recent sell-off was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.
Global conditions in early 1928 were oddly similar to today (Benjamin Strong puzzling over a strange brew of rising stock prices, uneven economic recovery, suspect banking practices and unusual strains in Europe’s monetary system), but skewed in a direction that would cause our current policymakers to apply even stronger stimulus than we’ve seen in 2013. The analogy suggests to us that today’s Fed is threatening mistakes that aren’t unlike those of the 1920s Fed. But what about the stock market? Unfortunately, a few market characteristics fit the late 1920s timeline pretty well... There can be little doubt that today’s Fed-fueled asset price rallies merely bring future price appreciation forward to the present. Asset prices eventually return to fundamental values, and as they do the Fed’s cherished wealth effects work in reverse. This is another risk that should be considered when you decide whether to take Bernanke’s bait and “reach for yield” in stocks and other risky assets.
CEOs have a primary job: manipulating up the stock of their company. But why they now wallowing worldwide in 2009-like gloom about the economy’s future?
Despite the actions and protestations of the central-planners, Chinese home prices have now risen year-over-year for the sixth month in a row and June (at +6.8%) is the fastest rate since January 2011. As Reuters reports, the incessant rise in property prices across 70 major cities hides the real bubbles in Beijing (+12.9% year-over-year) and Shanghai (+11.9%) which, as we noted in detail previously, reflects the apparently unstoppable exogenous hot money (credit) flows that the rest-of-the-world's-central-bankers are pumping into the markets. China's near four-year-old campaign to temper home prices has also been partly undone by strong demand and short supply, and by a rush of efforts by local Chinese governments to sell land to raise revenues but things could escalate as one analyst notes, "faced with the dilemma of how to lower housing prices without exacerbating the economic slowdown, the Chinese government may assess second-quarter results before introducing tougher measures."
A few hours ago, in a somewhat ironic development, Russia's most prominent opposition campaigner - whom some have likened to the US' own Edward Snowden in terms of his whistleblowing aspirations - was found guilty of embezzlement and sentenced to five years in prison, some 19 months after leading the biggest protests to challenge the Kremlin's rule since the Soviet Union's collapse. This immediately hit none other than the local "wealth effect" with RIA reporting that "Russia's stock market fell sharply on Thursday according to Moscow Exchange data, after investors took in the news that opposition blogger Alexei Navalny had been found guilty in a controversial fraud trial and sentenced to five years in jail."
- MSM always "ahead" of the curve: Fed’s Messages Raise Volatility in Threat to Profits (BBG)
- Bernanke Plays Down Link Between Jobless Rate, Fed Moves (WSJ)
- Draghi to Carney Face Test Backing Guidance on Rates (BBG)
- House Republicans Vote to Delay Obamcare Mandates (Reuters)
- China media accuses Japan PM of dangerous politics (Reuters)
- China will replace America as the leading superpower, global attitudes survey finds (SCMP)
- Nonqualified mortgages make up as much as $1.5 trillion of the $10 trillion home-loan market (BBG)
- Dell $24.4 Billion Buyout Plan Is a Nail-Biter as Vote Looms (BBG)
- Republicans could see more bruising Senate primaries (Reuters)
- GM delays Chevy Cruze debut by a year (Reuters)
- Peltz needs support for PepsiCo restructuring dealsa (FT)
- Sweaty Wall Streeters Skip Booze for Spin-Class Meetings (BBG)
Stocks in Europe recovered from a cautious start to the trading session and gradually edged back into positive territory, though the DAX index in Germany under performed following less than impressive earnings by SAP. Company’s shares fell around 3% after the company trimmed its outlook for 2013 software revenue, blaming slowing economic growth in China. Elsewhere, Akzo Nobel shares fell 5% in early trade after the company said that its Q2 net profit almost doubled from the same period last year thanks to the sale of its North American paints division and a tax gain. Going forward, market participants will get to digest the release of the weekly jobs report, Philadelphia Fed survey for the month of July and earnings report releases from Morgan Stanley, Verizon, BlackRock and Google. Finally, today is the second day of Bernanke's semi-annual testimony.
At first, it was just GlaxoSmithKline, which “confessed” to having paid bribes in China, including “sexual bribes.” Now more drugmakers are on the hot seat.