Market Talk – December 14, 2015
A mixed session in Asia in what was very much an overhang from Friday’s session but also very weary of the Fed in two days time. It is interesting that European equities continue to trade heavy (DAX, CAC, FTSE -1.75%) into the Fed, despite Mario Draghi’s comment earlier this morning.
There are rising concerns about high-yielding bond funds. Last Thursday, the junk-bond fund managed by the investment firm Third Avenue Management moved to block investors from withdrawing their money. There is talk of other high-yielding bond funds who will also go into trouble with a Fed hike. This is part of the plea to the Fed not to hike rates, but they cannot hold back forever.
Oil was down (TWI around $34.25) earlier in the session but has recovered and made headway (currently +1.5% at $36.5) into the close of the U.S. trading. Nat-Gas remains heavy trading late in the day -5% at 1.89.
As we approach the Fed meeting tomorrow the market trades heavy in expectation of finally ending the ZIRP (Zero Interest Rate Environment), well in the USA anyway. Despite the sell-off in rates, the curve saw almost a parallel shift with 5’s through to 30’s all losing 8bp. Two-year notes were the exception with only a 6bp decline in price. 30yrs closed this evening still under the 3% mark closing at 2.965%. Europe fared a little better closing the day at (GDR/Bund) at 0.59%; closing the spread at +162bp.
Not too much to talk about in the FX market but GBP lost a little of the ground it made at the end of last week, closing 1.515 (-0.5%) today with the basket of currencies (DXY) closing at 97.65 (+0.23%). Gold traded heavy throughout the day eventually losing $12 and was last seen around $1062 per once.
The First Christmas Tree in NYC, 1931
The first Christmas tree in NYC was erected in 1931 during the worst year of the Great Depression. During this time, almost all of the foreign sovereign bonds defaulted on Americans and caused massive bank failures. The first tree was put up in hopes of raising the spirits of the people in their dark hour of need. It was not the stock market crash that devastated the finances of the people, it was the bond collapse. Andrew Mellon had first commented when bonds rallied and stocks fell in 1929, that this was why “Gentlemen prefer Bonds.” By 1931, those words demonstrated that even conservative men lost their shirts.
Are Negative Rates Fueling Deflation?
Those in power never understand markets. They are very myopic in their view of the world. The assumption that lowering interest rates will “stimulate” the economy has NEVER worked, not even once. Nevertheless, they assume they can manipulate society in the Marxist-Keynesian ideal world, but what if they are wrong?
By lowering interest rates, they ASSUME they will encourage people to borrow and thus expand the economy. They fail to comprehend that people will borrow only when they BELIEVE there is an opportunity to make money. Additionally, they told people to save for their retirement. Now they want to punish them for doing so by imposing negative interest rates (tax on money) to savings. They do not understand that lowering interest rates, when there is no confidence in the future anyhow, will not encourage people to start businesses and expand the economy. It wipes out the income of savers and then the only way to make and preserve money becomes ASSET investment, as in the stock market — not creating business startups.
So lowering interest rates is DEFLATIONARY, not inflationary, for it reduces disposable income. This is particularly true for the elderly who are forced back to work to compete for jobs, which increases youth unemployment.
Since the only way to make money has become ASSET INFLATION, they must withdraw money from banks and buy stocks. Now, they are in the hated class of the “rich” who are seen as the 1% because they are making money when the wage earner loses money as taxation rises and the economy declines. As taxes rise, machines are replacing workers and shrinking the job market, which only fuels more deflation. Then you have people like Hillary who say they will DOUBLE the minimum wage, which will cause companies to replace even more jobs with machines.
Democrats, in particular, are really Marxists. They ignore Keynes who also pointed out that lowering taxes would stimulate the economy. Keynes, in all fairness, did not advocate deficit spending year after year nor never paying off the national debt. Keynes wrote regarding taxes:
“Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the budget.”
Keynes obviously wanted to make it clear that the tax policy should be guided to the right level as to not discourage income. Keynes believed that government should strive to maximize income and therefore revenues. Nevertheless, Democrats demonized that as “trickle-down economics.”
Keynes explained further:
“For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.
This is the logic employed by those in power. They are raising taxes and destroying the economy; when revenues decline, they raise taxes further. The evidence that politicians are incompetent of managing the economy is simply illustrated here. Now, we have Hillary claiming that she will raise taxes on corporations, but that will reduce jobs for she will only attack small businesses and never the big entities and banks who fund her campaign.
So when it comes to sanity on interest rates or taxes, we really need to throw out of office anyone who is a professional career politician before they wipe out everything. The balance sheet is, as Keynes said, “ZERO on both sides.”
Is Trump’s Ban on Islam a Normal Reaction?
Armstrong Economics/PEI has always been a very diverse company with clients and staff from all around the world. We have every race, religion, and social status among our ranks servicing clients of equal diversification. So, a ban on anyone from the Islamic faith entering the USA is not something I would support, obviously, and it would cause us problems to say the least. I would not worry about it because it could not be implemented and right now, it is popular so Trump gains in the polls to the bewilderment of career politicians and the press.
Yet, the media is anti-Trump because they want the status-quo and will only mouth whatever their boss has to say because “mainstream” media is the product of big corporations with agendas (e.g. FOX vs. MSNBC). The truth is that this reaction is entirely normal. It is also a product of the media itself for it constantly ties Islam & terrorism together. So why should it be such a shock when Trump says the obvious?
Of course, there was the arrest of all Japanese civilians during World War II. That was done under the same assumption that just because they were Japanese, even three generations born in the USA, it did not matter.
During the Iran Hostage Crisis of the late 1970s, President Jimmy Carter, who was one of the most passive of all presidents in modern times, banned ALL Iranians from entering the country. Nobody said he was wrong and the press did not make a peep.
Naturally, the press is desperately trying to dethrone Trump on this issue since their claim that he hated all women didn’t work. They ignore history, and instead of trying to pretend this is outrageous, they deny their own role in creating that image.
Trump is speaking to the masses who are, unfortunately, not well educated on the Middle East or Islam. They have no idea that there are branches in Islam as there are in Judaism and Christianity. We have everything from Asiatic Jews to those who cannot even turn a light switch on during the Sabbath so they hire the Shabbos goy to perform tasks they cannot. Then there are Sephardic Jews or simply Sephardim (“The Jews of Spain”) who regard themselves as different from other Jews and they should not marry another type of Jew.
Then we have Christianity and the battle between Protestants and Catholics, which has killed countless of millions throughout the ages. There is the extreme of the Pennsylvania Dutch who do not use electricity or modern transportation. There are plenty of varieties within each religion, yet not a single one represents the whole exclusively of any religion. This battle in Islam between Sunnis and Shia is very old and ISIS is the extreme of the Sunni who do not regard the Shia as even Muslim.
So when it comes to religion, there are plenty of varieties within each major division of Christianity, Judaism , and Islam. You cannot lump everyone within one group. Nevertheless, stereotypes take place largely because of the media’s constant focus reporting the same issue over and over again. When the meteor struck Russia, there were people suddenly frightened that something could kill them from the sky. Back on June 16th, 2003, David Letterman told what happened in Atlantic City that a woman carrying a bucket full of her winnings from slot machines in the Casino up to her room when two black men got into the elevator and she feared they were going to rob her. They turned out to be Eddie Murphy and Michael Jordan. The media plays a huge role in creating these stereotypes and then blame others when they become frightened.
Academics to Get $100 Billion a Year to Investigate Global Warming
The Paris Agreement committed to fund the academics, who created this fictional theory that ignores the fundamental laws of physics, with $100 BILLION ANNUALLY. Guess who pays for that — YOU — with more taxes coming.
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