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USD, American Dollar Discussion
mullokintyre
post Posted: Jun 4 2019, 11:33 AM
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From The Street


QUOTE
U.S. Treasury Secretary Steven Mnuchin on Thursday led a secret meeting of top U.S. financial regulators on the risks to global markets from the recent surge in corporate borrowing -- a growing concern as fears mount that the economy might be headed for a slowdown or a recession.

The Financial Stability Oversight Council, formed in the wake of the 2008 financial crisis to prevent a repeat, met "in executive session," or behind closed doors, according to a statement released by the Treasury Department's public-affairs unit following the meeting.

Members of the group include Federal Reserve Chairman Jerome Powell as well as the heads of the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, Securities and Exchange Commission and Commodity Futures Trading Commission.

No details were provided on the gist of the discussion, though according to the statement the panel heard an "update" from Craig Phillips, a counselor to Mnuchin, on recent market developments involving "corporate credit and leveraged lending."

Leveraged lending is the financial industry's term for the practice of making loans to companies with poor credit ratings, colloquially known as junk. Historically, the market was dominated by banks, but in recent years investment firms and other non-bank lenders joined in; the outstanding amount of the loans has mushroomed over the past decade to about $1.2 trillion, eclipsing the more-established junk-bond market.

There's also been a surge in borrowing by companies with triple-B ratings, which rank just above junk but could face dire downgrades if an economic slowdown shrinks profits for those borrowers. That category of debt has climbed to an unprecedented level of more than $3 trillion, according to Standard & Poor's, sparking warnings from officials including Robert Kaplan, president of the Federal Reserve Bank of Dallas.

The concern is that if the economy falters, loan losses would climb dramatically and other companies would be more likely to default on their outstanding bonds.

Minutes from the Financial Stability Oversight Council's March 6 meeting, released Thursday, show that Ted Berg, a Treasury Department researcher, warned panel members that even the non-junk debt could see $300 million to $1 trillion of credit-rating downgrades during the next downturn.

Since then, President Donald Trump's trade war with China has intensified, casting a pall over global markets. The Federal Reserve Bank of New York estimates that the president's new tariffs could add about $800 to the average household's annual costs while hurting business sales and potentially pushing the U.S. into its first recession in a decade.

"Credit stresses are multiplying," analysts at Bank of America, the second-biggest U.S. lender, wrote last week in a report. "Reduced risk appetite leads to restricted capital access, which in turn has the potential to set the stage for elevated distress and eventual defaults."

In recent days, yields on 10-year U.S. Treasury notes have slipped below those on shorter-term bills and notes -- an unusual phenomenon known as a "yield-curve inversion" since investors usually demand higher returns to compensate for the extra risk that comes with a longer payback period. It's often seen as a classic sign of an impending recession.

The borrowing binge by U.S. companies has garnered so much attention from investors lately that Powell, the Fed chairman, devoted an entire speech to the topic on May 20. He said there's currently a "moderate" risk that business debt triggers a full-blown financial crisis, although "the level of debt certainly could stress borrowers if the economy weakens."

"Once again, we see a category of debt that is growing faster than the income of the borrowers even as lenders loosen underwriting standards," Powell said.

The Office of the Comptroller of the Currency, a branch of the Treasury Department that supervises national banks, wrote in a May 20 report that "years of growth, incremental easing in underwriting, risk layering and building credit concentrations result in accumulated risk."

The corporate-lending surge has been fueled by firms like Blackstone (BX - Get Report) and Apollo Global Management (APO - Get Report) , which rely on junk-grade loans to finance the acquisitions they make through their private-investment funds.

In recent years, the firms have also waded into the corporate-lending business themselves and they now routinely package junk loans into new bonds known as "collateralized loan obligations," or CLOs -- some with pristine triple-A ratings that can be easily sold on to investors with promises of attractive yields.

U.S. Sen. Elizabeth Warren, a Massachusetts Democrat and declared 2020 presidential candidate, has likened the process to Wall Street's assembly-line-style packaging of subprime mortgages into triple-A rated bonds in the years before the 2008 crisis.

Indeed, with U.S. banks facing tighter scrutiny over the past decade, the private-equity industry has had almost free rein to take over a bigger portion of the financial markets. The five biggest private-equity firms, including Powell's former employer, Carlyle Group, now manage some $1.37 trillion of client money overall, based on a tally by TheStreet.

Mnuchin and other Treasury officials have proposed to exempt these "non-bank firms" from getting designated as "systemically important" -- a label that would subject them to much tougher oversight. Instead, regulators would supervise the firms' "activities."

According to Thursday's statement, the oversight council "heard a presentation from Treasury staff" on public comments submitted in response to Mnuchin's proposal.

The presentation wasn't released, but the comments are publicly available on a government website. They include a May 13 letter to Mnuchin from the American Investment Council, the main U.S. trade association for private-equity firms, advocating for the exemption.

Yet there's still powerful opposition -- from the likes of former Treasury secretaries Timothy Geithner and Jacob Lew as well as former Fed chairs Ben Bernanke and Janet Yellen.

"Regulation, of course, carries burdens for individual firms, but these consequences have to be measured against the tragic and indiscriminate costs of a crisis," they wrote to Mnuchin and Powell in a joint letter, also dated May 13.


History repeats as they say.
So how long before it all comes crashing down and US fed bails out its mates again??
Mick





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nipper
post Posted: May 6 2019, 06:49 PM
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In Reply To: mullokintyre's post @ May 6 2019, 07:19 AM

QUOTE
Lots and lots of people are talking about wage inflation because lots and lots of companies are talking about it. I can also assure you that Jerome Powell is thinking about it.

https://www.nytimes.com/2019/05/02/business...th-economy.html

Ultimately it is all about the degree of emphasis. People like me put a lot of emphasis on it and most people say, “yup, we can see its going up, but it’s not a problem.”

Anyway, they argue, it’s all very marginal. If wage inflation goes from 3.2% to 3.5% or 4% what difference does it make so long as consumer price inflation remains subdued. They have a good point and the latest evidence would appear to support their argument. Headline inflation has remained very low for a long time.

We all know why..... Globalisation, technology etc etc. And this is why forecasting is so challenging.

To put it in blatantly obvious terms a forecast is about what the future will look like, not about what has happened. Human beings extrapolate from the past into the future. What has happened is expected to happen again in the future.

And just because The Wizards on Wall Street have fancy degrees from Harvard, Stanford and Oxford doesn’t mean they are any better at forecasting than anyone else. In fact financial history tells us that the Wizards invariably fail to predict each and every major inflection point or dislocation. You can imagine that I could go on and on about this...on and on and on and on!!

The fact is that just as with politics we each retreat into our respective echo chambers to find solace and reaffirmation of what we already believe. Sadly, the rise of the internet and social media appears to have reinforced these human faults. Or should I say it has given us the means and tools to search out someone who agrees with us wherever they may be. This serves to further accentuate and strengthen what we already believe.

This is a long winded way of saying that it will take a sledgehammer to break the narrative that wage inflation is not a problem.
Jonathan Pain



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

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mullokintyre
post Posted: May 6 2019, 07:19 AM
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In Reply To: mullokintyre's post @ May 4 2019, 06:36 AM

Chuck Butler is a little peeved about the quality of the stats quoted by the feds.
From his daily Pfenning email

QUOTE
OK... I can't hold my breath any longer, I've got to let it out... What a bunch of BS! 1st QTR GDP was revised upward, yes, I said upward, to 3.2% from a previous reading of 2.3%... What a bunch of hogwash! Yes, the March numbers are coming in a little better than previously thought, but that’s just one month of the quarter, the first two months were horrendous with data!... And a little better than previously thought March, brings the 2.3% print to 3.2%? I’m not buying it, and you shouldn’t either folks… I’ve come to the realization that whenever we see a negative or weak print one month, that the boys in the back room that count the beans get called on the carpet and told to not let that happen again… And thus, we see immaculate turnarounds in data from month to month… I know there’s nothing I can do about it, so I’m not going to let this get me all ticked off and such… I’ll just say my piece and move along…

Oh, and let us not forget that the U.S. Gov’t was shutdown for a period of time during the 1st QTR… Are the bean counters telling us that it had no effect what-so-ever on economic growth? Or did they forget, that we have long memories and would remember the shutdown? I’m betting that it was the latter of the two! These guys that put together the economic reports have become so brazen, with their reporting, that someone, somewhere with a strong identity, should stand up and be heard that it’s all a bunch of hogwash! Pig slop, road pizza, whatever it’s all getting on my nerves, and it should be getting on yours too!

And don’t just take my word that the GDP print was hogwash… Let’s listen to what one of my fave economists, David Rosenberg, had to say about it… “This was a low-quality GDP report. All one-offs - lower imports, higher inventories & Pentagon spending. Real final private sales a puny 1.3%. Removing more lipstick from this pig shows cyclically-adjusted GDP contracting at a 2% annual rate; deepest decline in nearly a decade .” – David Rosenberg from his Twitter feed.

And did you hear this one? Global Growth has dipped negative in the first quarter of the year on a year on year basis, this is the first time that’s happened in over a decade! And we’re supposed to believe that a negative Global Growth in the first quarter, led to an upward revised GDP of 3.2% here in the U.S.? Come on, what do you guys take us for a bunch of dolts?

I guess using the fact that they printed the number and didn't look back, that they do undoubtedly take us for a bunch of dolts! Well, I'm mad as hell and I'm not going to take it any longer! Or something like that...
But as Neil Young sang... Don't let it get you down, it's only castles burning...

I've been so keyed up about writing this morning regarding the upward revised 1st GDP report, that I've spent the whole letter, just about on just that! But you can see from my talking about it so much that it means something to me, that these things happen for a reason, and the reason is... to keep everyone happy, and from grabbing their shovels and pitchforks and rakes and marching on their respective state house... Oh? What's that you say? People don't do that any longer because they've become so about themselves, that they wouldn't report a crime if it happened in their front lawn? Oh, I don't believe that for one minute! But it sure seems that we, as a people, are heading in that direction, to ignore these types of things, instead of proactively writing or calling one's representatives and giving them a piece of their minds... I'm just saying...


The figures surprised more than a few people.
Maybe the Feds have taken a leaf out of the Chinese playbook and work on the theory that economic stats are what you want them to be.

Mick



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mullokintyre
post Posted: May 4 2019, 06:36 AM
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In Reply To: mullokintyre's post @ Apr 26 2019, 07:48 AM

And that USA market just keeps on surprising.
From Bloombergs

QUOTE
The rally in U.S. stocks picked up pace after the long-awaited jobs report boosted optimism in the world’s largest economy.

The S&P 500 Index rose the most in a month as data showed the labor market can support growth without sparking inflation -- giving cover to the Federal Reserve’s patient stance. The dollar fell and Treasuries were little changed. The Nasdaq-100 Index climbed to a new record as Tesla Inc. raised $2.35 billion through debt and stock offerings, while Warren Buffett told CNBC that Berkshire Hathaway Inc. has been buying Amazon.com Inc. shares.


and a bit more

QUOTE
The U.S. jobs report had something for everyone on Friday, bolstering views that the economy is rebounding from a soft patch but not by enough to revive inflation.

Surprisingly strong payroll gains of 263,000 in April and the lowest unemployment rate since 1969 calmed some fears that a recession could be brewing. Meanwhile, the lack of a surge in wages kept alive speculation on Wall Street that the Federal Reserve will still be forced to cut interest rates.
While some analysts labeled it a “Goldilocks” report for being neither too hot nor too cold, traders maintained bets the Fed will lower rates by mid-2020, and White House economic adviser Larry Kudlow said he thinks the central bank will eventually make a reduction. For now, Fed Chairman Jerome Powell will likely feel validated in having resisted such pressure.

U.S. stocks advanced, trading near a record, while Treasury yields and the dollar retreated, reflecting the cross-currents facing investors.

“It shows an economy that’s still looking to add labor and continue to expand,” said Michelle Meyer, head of U.S. economics at Bank of America Corp. She said there’s no need for the Fed to consider cutting interest rates, though the lack of price pressure suggests “there is a little more slack in the labor market than perhaps people had been giving credit to.”
The gain in payrolls exceeded all estimates in a Bloomberg survey. The jobless rate unexpectedly fell to a fresh 49-year low of 3.6 percent while annual average hourly earnings growth was unchanged at 3.2 percent, below projections.

The lower unemployment reading was due in part to a factor economists don’t always see as a healthy sign: The participation rate, or share of working-age people in the labor force, decreased to 62.8 percent from 63 percent.

AS usual, the economists were wrong on the guesses they made.
Do not understand how these people can keep their jobs.

Be interesting to see what happens here in OZ on Monday.
Commodities up, gold and silver up.
Might be a good Monday.

Mick



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mullokintyre
post Posted: Apr 26 2019, 07:48 AM
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That ole USA market just refuses to die.
The PMI consensus forecast was beaten again.
The actual has now been in positive territory for three years.

New orders were well up , employment in manufacturing was up as well as prices.
The only slow downs were in inventories (good), backlog of orders (good and bad), export orders (bad), and supplier deliveries (bad).

The PMI has come off a bit since the highs of last year, but those figures were the highest in over ten years. Still bubbling along.
10 year graph of the PMI gives a better idea, but sharecafe does not allow insertion of dynamic images.

10 year graph


Source Trading economics

Mick



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NPH
post Posted: Jan 3 2019, 01:50 PM
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In Reply To: mullokintyre's post @ Jan 3 2019, 11:54 AM

Not sure it's either? Who knows.

Pretty annoyed through, lucky I keep a small acc balance with my provider but still puts me back 3 months.

 


mullokintyre
post Posted: Jan 3 2019, 11:54 AM
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In Reply To: NPH's post @ Jan 3 2019, 10:27 AM

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My conditional short order (GBP/AUD) was hit and liquidated within 2 minutes on that move. Wiped out 90% of my total account value. If I had enough margin that position would of been back in the money within another 7 minutes. Within 10 minutes the whole +5% move was over - unheard of?

I haven't seen anything like it, right at the edge of the bell curve.


So NPH, do ya reckon you are the victim of some fat fingers, or was it a deliberate play??
May stretch out the edge of that bell curve, highly suspicious IMHO.

Mick



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myshares
post Posted: Jan 3 2019, 11:36 AM
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Look like a China issue identified from the Apple guidance...

QUOTE
The tremor that rippled through global markets and sank our dollar after the release of data showing China’s manufacturing sector contracted for the first time in more than 18 months will be amplified by the steep revision downwards in Apple’s revenue guidance today.

It isn’t just the magnitude of the revision – two months after Apple was forecast revenue of between $US89 billion to $US93 billion for the December quarter it now says it will be about $US84 billion – but the reason for that downgrade.

Chief executive Tim Cook, in a letter to Apple shareholders, said that Apple had expected some challenges in key emerging markets but had not foreseen the magnitude of the economic deceleration, particularly in Greater China.

‘’In fact, most of our revenue shortfall to our guidance, and over 100 per cent of our year-over-year worldwide revenue decline, occurred in Greater China,’’ he said.


https://www.smh.com.au/business/markets/chi...103-p50pd2.html


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NPH
post Posted: Jan 3 2019, 10:27 AM
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In Reply To: mullokintyre's post @ Jan 3 2019, 09:19 AM

My conditional short order (GBP/AUD) was hit and liquidated within 2 minutes on that move. Wiped out 90% of my total account value. If I had enough margin that position would of been back in the money within another 7 minutes. Within 10 minutes the whole +5% move was over - unheard of?

I haven't seen anything like it, right at the edge of the bell curve.


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mullokintyre
post Posted: Jan 3 2019, 09:19 AM
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In Reply To: nipper's post @ Jan 3 2019, 09:11 AM

Dunno Nip, but I suspect its just thin trading, but as we have seen in the past, these things can snowball.
While everyone stays on the thin trading bandwagon its ok.
If some start to think its more than that, the bandwagon can suddenly lookarather empty.
Mick



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