Market Talk October 21, 2015
Although the trade numbers from Japan were below forecasters projections the street weas abuzz with speculation of further BOJ intervention and so we saw the Nikkei close up 2% today. The same could not be said for Shanghai (closed down 3.5%) whilst the HSI was closed for a public holiday. European Indices really could not decide on direction but after a shaky start the DAX did mange to close up almost 1%. Both FTSE and CAC were in and out of positive ground all day both eventually closing better but only marginally. This is big earnings season and so far results have not been that great. The Dealers we spoke with today are all of the opinion cash is king at the moment and not time to be a hero. The street is running scared of a big move as market positions are being wound-down.
Oil had yet another weak trading session with continued concerns over additional supplies and rising stockpiles. The TWI flirted with $45 (-2.4%) in most of the days trading whilst Brent fell 1.8% to close $47.85. Gold and Silver were also weak today losing 0.9% and 1.5% respectively.
The main performers today were the Bond markets. The US Treasury market saw buyers of long dated paper and so saw the curve flatten. 2’s trod water around 0.63% whilst 10’s and 30’s were both better by 4 and 5bp respectively. 10’s remain just above the psychological 2% level still (closing at 2.02%) which put the TY/RX spread at +144bp.
On the FX side of business the US Dollar has started its march yet again. The talk in the America was of the CAD breaking back above the 1.30 level again (last seen at 1.3132 (-1.2%)) and fears that the previous high of Sept 21st will be breached! The A$, Rouble, Zloty, Brazilian Real and HUF all lost ground to the US Dollar again. The DXY closed +0.2% at 95.10.
Biden Bows to Hillary & Bankers
Joe Biden will not run. Sources say that Hillary has the banks locked-in for they owe the Clinton’s big time for (1) repealing Glass-Steagall, and (2) handing them student loans as non-dischargeable in bankruptcy. Those two factors mean that Biden would find it very difficult to match the money Hillary has coming from the bankers. This means we have Hillary as a Democratic candidate.
China Capital Outflows Reach $500 Billion
The capital outflows from China have reached record levels of $500 billion in the first eight months of the current year. Following the devaluation of the yuan in August, this is putting more flesh on the bones of the reality of the Chinese devaluation. The Chinese intensified their capital outflows post-devaluation. So while some only want to focus on China selling U.S. long-term debt, they ignore the fact that the outflows far exceed the sales of dollar debt.
How to Create A Fairer System
QUESTION: Mr Armstrong,
I am an avid fan of your site and thoroughly enjoy your posts.
As much as I am against tax, would you not agree it’s rather sick that a company the size of Facebook paid out less tax than I did last year?
http://www.bbc.co.uk/news/business-34504474
I know you advocate a tax on sales, but in the UK we already pay VAT on goods.
Any suggestions on a fair system?
Many thanks for all your work.
Regards,
G
ANSWER: This is the problem with taxation. Major public corporations can move their tax domicile offshore to avoid taxes legally. The average person cannot move his labor offshore to lower his taxes, which is a disadvantage we must address with tax reform. VAT is far worse than a sales tax. Every person in the chain must collect and file paperwork. It must require three times the number of people to administer such a system compared to a point of sales tax collection.
But that issue aside, there should be ABSOLUTELY NO income taxes whatsoever. That not only eliminates government having to track everything, but it also eliminates the whole movement of capital solely for tax purposes. This is unfair, for the average person cannot send their labor offshore to avoid taxation without moving. Even then, that would only get an American the first $100,000 tax-free; after that, it would be subjected to U.S. income tax.
The Founding Fathers of the United States revolted over taxation without representation. We are back to that now, for we are being taxed to pay interest to service debts from the last two generations. We had no right to vote on that spending, which took place before we were born. This is not a democratic process.
There should be ONLY a retail sales tax EXCLUSIVELY for local government. Federal government should be prohibited from imposing ANY tax and it should be barred from borrowing money. The local tax will naturally be checked by the free market, for if they keep raising taxes, businesses will move to the next town and there goes the jobs. This will help to restrain government on a more practical level.
Moreover, there should be NO PUBLIC SCHOOLS. All schools should be private for then there will be no mismanagement, crazy pension failures, or tax hikes to line their pockets. Schools should be by voucher and run by private industry just like Catholic schools, which were always known for having better education in the States.
It is the teachers and their unions who have ruined society, as taxes are imposed on property and people cannot afford to retire in their home where they raised a family. They are forced to sell because they cannot afford taxes that never stop and only rise. PROPERTY TAXES must also be abolished.
Our problem is the total mismanagement of government. They promise and award themselves all sorts of perks, which reduces the quality of life for everyone else. We must look at the cause and that is the seriously flawed design of the financial-economic-governmental system.
Time to Sell Hedge/Vulture Funds?
Hedge funds or vulture funds are destroying society, tearing it limb from limb. They should be making money without getting involved in social destruction. Puerto Rican officials are in a confrontation with hedge funds who want to extract money from the poor because they see it as an opportunity. It’s all about screwing the people so they can make a profit.
I strongly advise withdrawing funds from any hedge fund that is engaged as a vulture fund. This is not going to end nicely and Puerto Rico is just the beginning. These hedge/vulture funds will lose big time in the end – so get out while you can. There will be a lot more defaults and they are trying to use the law to make a profit in court. They should learn how to trade. That’s what a hedge fund was supposed to be; not some legal entity buying distressed debt for pennies on the dollar and then using lawyers to demand 100%.
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