American consumers are financially strained. One indication? Card defaults rose from 2.81% back in November to 3.53% in May. Meanwhile, the expansion of credit by cards as well as by autos has slowed to the point of contraction. Some would have you believe that low headline unemployment (4.4%) is translating into increased consumption and increased demand for goods or services. Yet tepid GDP data demonstrate otherwise. One explanation is that nominal wage growth would need to grow in the 3.5%-4.0% range to compensate for the loss of purchasing power from inflation. However, wages have struggled to make any progress over the last 18 months. If...
The OCC reports that total gross notional derivatives outstanding jumped by nearly 8% in Q1 2017 over Q4 2016. At $178 trillion, that is even more than the reported total for Q3 last year. The latest estimates largely confirm the idea that bank balance sheets were relatively more accommodative in 2017 than especially later 2016. Among the more buoyant categories of derivatives, forex notionals increased to $36 trillion and a new record high. That was up 14% in Q1 from the prior quarter. It would certainly seem to suggest a basis for the decline in negative currency basis in that period (and thereafter, since swap rates and spreads tend to be ...
After several lackluster quarters, the U.S. IPO market gained momentum in the second quarter of 2017, with 52 companies completing their IPOs raising nearly $11 billion. This marks the most active quarter in two years as per IPO research intelligence Renaissance Capital. The number is well above 25 IPOs in the first quarter and 34 in the year-ago quarter. In terms of deals, healthcare companies topped the list with 14 deals worth $1 billion, closely followed by technology companies with 12 deals worth $1.6 billion. The financial sector was in third position with eight deals valued at $0.9 billion. The upsurge were credited to a surging stock...
Safe-haven demand for physical precious metals came in soft through the first half of the year as a rising stock market reinforced investor optimism toward the economy. U.S. stocks are expensive by just about every valuation measure you can think of – price/earnings, price/sales, dividend yield, total market capitalization as a percentage of GDP, etc. Even Fed Chair Janet Yellen remarked recently that equity valuations appeared “rich.” The inverse of the extreme overvaluation in equities is the extreme relative cheapness of hard assets. Commodity indexes entered the summer at generational lows in real terms. The perception has been that...
I just read an interview with retired fund manager Bob Rodriguez who managed award winning FPA mutual funds in stocks and bonds. Like us, Rodriguez believes in owning cash when there is a storm on the horizon and he held significant amounts of cash (30-40%) in 2000 and 2008 in his actively managed stock mutual fund. He is now retired but he is seeing a perfect storm developing thanks to the huge shift into passive management where there are NO cash holdings. When the next downturn hits, many of those invested strictly in passive instruments will likely be hit extremely hard and their timing will be poor to hit the sell button. Here are his ...
As widely expected the Bank of Canada (BoC) increased the overnight bank rate by 25bps, however the accompanying statement reveals a central bank that is far from overly optimistic that the economy is on a sustained growth path. The BoC has only one mandate: to maintain price stability. So far, it has not been successful in achieving its inflation target of 2% annually; in fact, that target continues to be very elusive. The BoC acknowledges recent softness in inflation “but judges this to be temporary”. A similar phrase has been often used by the Federal Reserve when grappling with the problem of why actual inflation falls so far short of...
Just hours after current President Temer garnered enough votes necessary to block congressional motion that would put him on trial over corruption charges, Reuters reports that former President Lula has been found guilty of on corruption charges and faces 9 years in prison. Earlier today, Bloomberg reported that Brazil President Michel Temer has more than the 172 votes necessary to block congressional motion that would put him on trial over corruption charges, according to Bloomberg tally of voter intentions. Tally based on interviews with party leaders, legislators and presidential aides is larger if divided allied parties such as DEM and...
Millennials make up the largest percentage of our population today, yet have seen some of the lowest labor force participation growth and highest unemployment out of all age groups since the turn of the century. This has larger implications when coupled with slow wage growth, high home prices, and mounting student debt. The general consensus is that Millennials consist of individuals born between the early 1980s to the early 2000s. Here we will focus on the Bureau of Labor Statistics data for those born between 1981 and 2000. Based on this definition, Millennials currently make up about 32 percent of the Civilian NonInstitutional Population,...
The loonie is bid today on the Bank of Canada’s first rate hike in 7 years. Not a surprise, this hike was forecast by 90% of market participants surveyed in advance. Less anticipated by the consensus was US Fed Chair Yellen’s more dovish testimony today that the federal funds rate may “not have to rise all that much further to get to a neutral policy stance.” No kidding! Nine years of recklessly low policy rates and toxic debt increases have continued to weaken financial strength and suppress the velocity of money (movement of money through the real economy), no matter how much central banks dream about ‘stimulating’ demand.At t...
It started out kinda ‘Crazy,’ in 1961 to be exact. A 20-something-year-old bass player by the name of Willie Nelson had written a song which he generously offered up to country singer Billy Walker. Walker, however, perceived the lilting lyrics to be a bit too feminine, so he passed. The late Patsy Cline would be forever grateful to Willie for ‘Crazy,’ which she sultrily sang to stardom, and in doing so, founded a movement. We’re familiar with what followed, from the hobo portrayed as ‘King of the Road’ to the petulant moment, ‘The day my momma socked it to the Harper Valley PTA.” Even the most vacuous pop music acolytes...