Monday, 24 July 2017

High Noon At The Fed? The Curse of Year 7.

Baltic Dry Index. 977 +13     Brent Crude 48.11

Economics is extremely useful as a form of employment for economists. 
John Kenneth Galbraith

We open today with the world largely waiting on this week’s Federal Reserve meeting. To a lesser extent, partisan politics in Washington, where some lively testimony is due from close advisors to President Trump. Will the Fedster’s signal another rate hike and when? Will they let on how they intend to shrink their balance sheet before the next recession hits? But since it’s high summer, will they just do nothing at all? 
Below, how Asia opened the new trading week. Fretting over emerging-market ETFs. The latest from the IMF.

July 24, 2017 / 1:31 AM / 2 hours ago

Asian shares slip as risk appetite ebbs, dollar sulks

SINGAPORE (Reuters) - Asian stocks slipped on Monday as demand for riskier assets ebbed after their recent strong gains, while the European Central Bank's apparent equanimity at the euro's two-year highs left the dollar languishing.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent.
Japan's Nikkei .N225 dropped 0.9 percent, pressured by a stronger yen. 

Chinese shares bucked the trend, with bluechips .CSI300 up 0.3 percent and the Shanghai Composite .SSEC advancing 0.2 percent. Hong Kong's Hang Seng .HSI added 0.4 percent.

Australian shares retreated 1 percent and South Korea's KOSPI .KS11 edged down 0.1 percent.

----Wall Street indexes .SPX .IXIX .DJI ended Friday flat to about 0.15 percent lower, as disappointing earnings from General Electric and energy shares weighed.

European shares also closed lower, with Germany's DAX .GDAXI slumping 1.7 percent, dragged lower by the euro's strength.

----Markets are awaiting the Federal Reserve's meeting on Tuesday and Wednesday for an update on its plan to start normalising its balance sheet.

"All eyes will be on the Fed this week, with market participants eager to see if the Fed formally announces the start of its balance sheet normalisation plan or opts to wait until September," Michala Marcussen, global head of economics at Societe Generale, wrote in a note.

"We are in the September camp, but we acknowledge that it is a coin toss between this week's meeting and the next one."

Traders Fear Hard Landing in Emerging Markets

By Natasha Doff
The rapid growth of a BlackRock Inc. exchange-traded fund that tracks emerging-market debt is causing jitters among investors.

The iShares JP Morgan EM Local Government Bond ETF, ticker IEML, has doubled in size this year, mopping up more than $3 billion of inflows as investors reach for average yields as high as 4.7 percent in developing economies. The risk is that if the carry trade unwinds, as tends to happen eventually, investors could race for the exit all at once and send the fund tumbling.

“That’s something that keeps me awake at night,” said Remi Olu-Pitan, an investor in Schroder Investment Management’s 96.2 billion pound ($125 billion) multi-asset division in London. “If there is any tantrum or any crisis, that money will flow out. The problem is that the door through which everyone tries to get out is quite small.”

ETFs, which passively track indexes for a fraction of the cost of mutual funds allowing investors to gain easy and cheap exposure to a market, have been criticized for creating bubble-like conditions in less liquid markets. Combine that with an asset class that is prone to mass outflows amid sudden sea changes in sentiment and you could get a potentially toxic situation, according to David Hauner, a strategist at Bank of America Merrill Lynch in London.

Unlike emerging-market mutual funds, ETFs don’t have the option of holding cash, so if they get outflows, they have to sell the underlying bonds in the index they track. And when they sell, they don’t pick the riskiest or most liquid markets first, but a slice of the entire underlying index. Since the index has a cap for the biggest markets, smaller, less liquid markets are over-represented, which can exacerbate losses, according to Hauner.

“If and when there will be a major selloff, which I’m not predicting for the time being, then the fact that the share of this ETF is bigger will be an issue,” Hauner said. “It hasn’t been tested. The share that ETFs hold of the total local-currency bond market is significantly higher now than it was during the taper tantrum.”

----Both BofA and Deutsche Bank AG have warned in recent research notes that emerging-market carry trades are starting to look overcrowded. An indicator of sentiment created by BofA earlier this year has for been hovering in the past month close to a level that has historically preceded a correction within four weeks.

IMF Sees World Relying Less on U.S. and U.K. for Global Growth

By Andrew Mayeda
The world is leaning less on its biggest economy to sustain the global recovery, according to the International Monetary Fund.

The fund left its forecast for global growth unchanged in the latest quarterly update to its World Economic Outlook, released Monday in Kuala Lumpur. The world economy will expand 3.5 percent this year, up from 3.2 percent in 2016, and by 3.6 percent next year, the IMF said. The forecasts for this year and next are unchanged from the fund’s projections in April.

Beneath the headline figures, though, the drivers of the recovery are shifting, with the world relying less than expected on the U.S. and U.K. and more on China, Japan, the euro zone and Canada, according to the Washington-based IMF.

The dollar fell to its lowest in 14 months last week as investors discounted the ability of President Donald Trump’s administration to deliver on its economic agenda after efforts by the Republican Senate to overhaul health care collapsed.

The IMF estimated U.S. growth at 2.1 percent this year and again in 2018, consistent with what the fund said June 27 in its annual assessment of the U.S. economy. In the April world economic outlook, it had forecast U.S. growth of 2.3 percent and 2.5 percent, respectively, in 2017 and 2018. The economy expanded by 1.6 percent in 2016.

 “U.S. growth projections are lower than in April, primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated,” the IMF said in the latest report.

In European news, the great southern European drought just rolls on and on.

July 22, 2017 / 3:07 PM / 2 days ago

Rome risks water rationing as drought-hit lake set to go offline

ROME (Reuters) - Authorities have ordered a halt to pumping water out of a lake near Rome following a prolonged drought, a decision that could force city officials to impose water rationing in the Italian capital.

The head of the local Lazio region, which is centered on Rome, said on Saturday the ban on withdrawing water from Lake Bracciano would come into force on July 28.
"Sadly, it is a tragedy," Nicola Zingaretti told Tgcom24 TV station. "The truth is Lake Bracciano has fallen too much and we risk an environmental disaster."

Acea, the utility firm which runs Rome's water system, has said that two years of lower-than-average rainfall have dramatically reduced water levels in reservoirs feeding the city, with a prolonged, ongoing heat wave making matters worse.

But Acea attacked the order to turn off the taps at Bracciano, which is some 30 km (20 miles) north of Rome, saying the region had taken a "unilateral and illegitimate" decision.

"The drastic reduction of the flow of water into the capital's water network will force us to introduce a rigid rotation of supplies that will impact 1.5 million Romans," an Acea spokesman told the national Ansa news agency.

Zingaretti said only 8 percent of Rome's water came from Bracciano, adding Acea had the time to find a solution.

Earlier this month, Acea started to close the drinking fountains that dot the city in an effort to safeguard supplies.

Since then there has been no let up in above-average temperatures, with 2017 likely to be one of the hottest years on record in Italy.

Finally today, economics. The dismal science.

The only function of economic forecasting is to make astrology look respectable.

John Kenneth Galbraith

The new astrology

By fetishising mathematical models, economists turned economics into a highly paid pseudoscience

Since the 2008 financial crisis, colleges and universities have faced increased pressure to identify essential disciplines, and cut the rest. In 2009, Washington State University announced it would eliminate the department of theatre and dance, the department of community and rural sociology, and the German major – the same year that the University of Louisiana at Lafayette ended its philosophy major. In 2012, Emory University in Atlanta did away with the visual arts department and its journalism programme. The cutbacks aren’t restricted to the humanities: in 2011, the state of Texas announced it would eliminate nearly half of its public undergraduate physics programmes. Even when there’s no downsizing, faculty salaries have been frozen and departmental budgets have shrunk.

But despite the funding crunch, it’s a bull market for academic economists. According to a 2015 sociological study in the Journal of Economic Perspectives, the median salary of economics teachers in 2012 increased to $103,000 – nearly $30,000 more than sociologists. For the top 10 per cent of economists, that figure jumps to $160,000, higher than the next most lucrative academic discipline – engineering. These figures, stress the study’s authors, do not include other sources of income such as consulting fees for banks and hedge funds, which, as many learned from the documentary Inside Job (2010), are often substantial. (Ben Bernanke, a former academic economist and ex-chairman of the Federal Reserve, earns $200,000-$400,000 for a single appearance.)

Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories. Hedge funds employ cutting-edge economists who command princely fees, but routinely underperform index funds. Eight years ago, Warren Buffet made a 10-year, $1 million bet that a portfolio of hedge funds would lose to the S&P 500, and it looks like he’s going to collect. In 1998, a fund that boasted two Nobel Laureates as advisors collapsed, nearly causing a global financial crisis.

The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.

Wealth, in even the most improbable cases, manages to convey the aspect of intelligence.

John Kenneth Galbraith

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Below, coincidence and superstition or something more?

Beware of the curse of the number 7 in the stock market

Published: July 21, 2017 5:03 p.m. ET

July-December returns for years ending in 7 have been dismal

Trading in stocks is a numbers game. Buy low, sell high. Are valuations too extreme? How many more years can this bull market run? But the one number that investors may have to start paying attention to is 7, a numeral that according to one investment adviser has some relevance to the market in a wholly unexpected way.

Seven is normally a number associated with good fortune but when it comes to equities, it appears to be more of a curse.

Dana Lyons, a partner J. Lyons Fund Management Inc., recently noted that the performance of the stock market in the second half of years ending in 7s has been among the most dismal.

Lyons summarized the track record of the latter half of “7” years as follows:
Dana Lyons/J. Lyons Fund Management Inc.

With the exception of 1927, it has literally been all downhill.

In fact, “7” years have the worst July-December returns, reporting a median return of negative 9.29%.
More inc table.
It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought.

John Kenneth Galbraith
Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Solar power farm on Sunshine Coast ready to be connected to the grid

The Courier-Mail July 22, 2017 3:00pm
AN Australian-first solar farm that sets a shining example for other regions will go live tomorrow in the most fitting of locations – the Sunshine Coast.

The pioneering project will make Sunshine Coast Council the first local government in the nation to offset 100 per cent of its electricity consumption with energy from a renewable source.

The council developed the $50.4m facility at Valdora, west of Coolum, from scratch to deliver massive savings for ratepayers and send a clear message about the area’s commitment to clean energy.

It will sell power harvested using 57,960 solar panels to the grid for the best price it can achieve and buy it back at the cheapest.

Mayor Mark Jamieson said the forward-thinking Sunshine Coast Solar farm would begin feeding electricity into the power grid tomorrow in an exciting day for the region and its residents.

He said it would allow council to take control of its own electricity supply, combating rising power bills and achieving an important sustainability milestone.

“All power consumed at all of council’s facilities, including administration buildings, aquatic centres, community and performance venues, as well as holiday parks, libraries, art galleries and sporting facilities, will be offset with energy from a renewable source thanks to this nation-leading project,” Cr Jamison said.

“We are the first council in Australia to build and operate a 15MW utility scale solar farm which will deliver $22 million in savings, after all costs, for our ratepayers over the next 30 years,’’ he said.

“Our solar farm is the first, and will be the largest, to connect to the electricity grid in southeast Queensland. It is also the first in Australia to operate at 1500 volts DC which enables it to operate more efficiently.’’

The project has attracted considerable attention with 15 councils around the country already inquiring about how they can follow in the Sunshine Coast’s footsteps.

Cr Jamieson said the project had been developed and delivered solely by council, without any assistance from the Federal or State governments, unlike many other solar farms being developed in Australia.

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.

John Kenneth Galbraith

The monthly Coppock Indicators finished June

DJIA: 21,350 +196 Up. NASDAQ:  6,140 +235 Up. SP500: 2,423 +166 Up.

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