Baltic Dry Index. 1146 +29 Brent Crude 65.01
“I will
tell you the secret to getting rich on Wall Street. You try to be greedy when
others are fearful. And you try to be fearful when others are greedy.”
Warren Buffett
Did the Fed minutes just confirm that January was the high
for US stocks in 2018? It’s far to early to say, but there’s a high probability
it was. With interest rates “normalising, and inflation statistically built in
to the numbers ahead, unless crude oil drops back towards $50, stocks just
might have run out of “greater fool” buyers.
That doesn’t necessarily result in a market crash. Far more
common, is a market that just sags, and sags, for weeks and months. The market, as a “forward looking” stock
indicator, future higher interest rates have nearly always been bad for stocks. Think 1968-1970 rather than 2008-2009.
Unfortunately these days, the algo computer traders all run
as a herd and turn on a dime, front run by the high frequency algo traders
stealing from everyone else. 2018-2020 might turn out to be more like 1973-1974.
Dow futures drop as Fed minutes rattle investors
Published: Feb 22, 2018 1:01 a.m. ET
U.S.
stock futures hinted at a weaker start for Wall Street on Thursday, as the
market continued to digest the minutes of the January Federal Reserve meeting.
Dow futures YMH8, -0.46%
fell 114 points, or 0.5%, to 24,667, while S&P 500 futures ESH8, -0.28%
dropped 7.7 points, or 0.3%, to 2,691. Nasdaq-100 futures NQH8, -0.47%
slid 31.25 points, or 0.5%, to 6,728.50.
The
Dow Jones Industrial Average DJIA, -0.67%
surrendered a 300-point gain on Wednesday to finish down 166.97 points, or
0.7%, to 24,797.78. The S&P 500 SPX, -0.55%
fell 0.6% and the Nasdaq Composite COMP, -0.22%
dropped 0.2%.
Losses
came as the Fed minutes pointing to the "increased likelihood" of
more interest-rate hikes to come triggered fresh volatility, with the yield on
the 10-year Treasury note TMUBMUSD10Y, -0.46% hitting a fresh four-year
high of 2.95%. The yield was hovering at 2.94% on Thursday. Dollar gains also
weighed on stocks, though the ICE Dollar Index DXY, -0.02%
greenback gave up some of those gains on Thursday, up 0.1% to 90.114.
Dow gives up 300-point gain to end lower as bond yields rise after Fed minutes
Published: Feb 21, 2018 5:07 p.m. ET
----U.S. equity gauges retreated as
investors struggled to digest minutes from the Federal Open Market Committee,
which pointed to a strong economy, but also the “increased likelihood” of more
rate hikes ahead. The news pushed the U.S. dollar higher and sent the yield for
the 10-year Treasury note TMUBMUSD10Y, -0.43% to a fresh four-year peak
of 2.95%. Wall Street has been driven by the prospect of inflation returning to the economy, and the Fed having to become more aggressive in raising rates to combat it.
What did the Fed minutes say?
Minutes of the Jan. 30-31 Federal Open Market Committee meeting showed that officials saw a stronger economy than at the end of 2017 and that more rate increases were in the offing.The strengthening “increased the likelihood that a gradual upward trajectory of the federal-funds rate would be appropriate.” The FOMC altered its message to point to “further gradual increases,” emphasizing its desire to resume rates increases in 2018, according to the minutes.
What are strategists saying?
“Rising rates, if the rates go up far enough, could be a problem not just for the stock market but for the economy,” said Bruce Bittles, chief investment strategist at Baird. That said, Bittles was doubtful that real inflation was picking up.“Demographics are such that we have 10,000 people retiring every day and being replaced by younger employees with lower salaries,” he said. He also said lower wages outside of the U.S. would keep pressure on inflation in the U.S.
“I think for the most part everything in the minutes was fairly benign,” said Bruce McCain, chief investment strategist at Key Private Bank. “The problem is we haven’t resolved if there’s real inflation working its way through the system. We have no predisposition that we’ve cleared that hurdle,” he said.
What data and speakers are driving trading?
An index that tracks U.S. manufacturers rose to a nearly 3½-year high in February and a gauge for service-oriented companies hit a six-month peak, according to IHS Markit’s flash PMI.Separately, existing-home sales fell 3.2% in January.
In an interview on Bloomberg Television, Minneapolis Fed President Neel Kashkari said he has “hope” that inflation is picking up, and that the U.S. central bank “can’t make policy based on market blips, up and down.”
More
Fed's Quarles Says U.S. Economy in ‘Best Shape’ Since Crisis
By Christopher Condon“The U.S. economy appears to be performing very well and, certainly, is in the best shape that it has been in since the crisis and, by many metrics, since well before the crisis,” Quarles said in prepared remarks Thursday in Tokyo.
“With a strong labor market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized,” he said. The views appear to align Quarles on monetary policy with Fed Chairman Jerome Powell, who testifies next week before Congress for the first time as central bank chief.
His comments follow the release of minutes from the Fed’s Jan. 30-31 policy meeting that showed confidence growing among policy makers that growth in 2018 may exceed their December forecasts and justify additional rate hikes this year. Officials have penciled in three hikes in 2018, according to their median projection released in December.
Quarles, who was named to the central bank’s board by President Donald Trump, said recently enacted tax changes and bipartisan budget deals could help sustain the economy’s expansion by increasing demand and spurring business investment. He also drew attention to capital investment data that had already improved in 2017.
More
Finally, Asian stocks wobble, will the new Trump Fed start
to play catch up? 2018 or 2019?
“Those
who know don't tell, and those who tell don't know.”
Michael Lewis
Five Fed Rate Hikes in 2018 Isn't A Crazy Idea
Economic conditions are
ripe -- even overripe -- for inflation to accelerate.
by Charles Lieberman
21 February 2018, 10:00 GMT
I focus on the U.S. employment data most of the time, since it is among the
broadest and most accurate of the economic indicators on the health of the
economy. But it has been eclipsed in importance at this stage of the business
cycle by every available measure of inflation pressures.Interest rates can remain low only if inflation data remain benign, but that’s no longer likely.
Economic conditions are ripe -- even overripe -- for inflation to accelerate. It’s becoming clearer that the Federal Reserve needs to increase interest rates more quickly now to avoid being forced to play catch-up later and risk a surge in rates that threatens to push the economy over the edge and into recession. Four rate hikes seem likely this year, but more are possible and probably desirable.
At 4.1 percent, the unemployment rate indicates that labor has become scarce. This conclusion is reinforced by every other labor market measure ranging from job openings, quit rates, weekly unemployment insurance filings, and surveys that indicate that workers now believe jobs are easy to find. If labor is scarce, there is every reason to expect rising wage inflation. And since labor represents the lion’s share of the cost of supplying goods and services, any material rise in wage inflation is likely to be transmitted to price inflation. Only the timing of this process is uncertain at this point.
The modest rise in price inflation seen so far, which is still below the Fed’s 2 percent target for the Personal Consumption Expenditure deflator, only implies the transmission process is taking a bit longer than some expect. Although economic theory is incapable of informing us on the timing of the transmission process, it is wishful thinking to believe inflation will not worsen because it hasn’t worsened yet. Unless the laws of supply and demand have been repealed, the tightening labor market will inevitably produce faster inflation.
Despite recent increases, yields on U.S. Treasury securities provide a negative return after adjusting for taxes and inflation. Buyers of Treasuries are not investing, but rather making annual donations to the U.S. government. Historically, 10-year Treasuries have averaged about 250 basis points above inflation, which implies a 4.5 percent yield given the Fed’s inflation target. So even after the sizable declines in recent weeks that pushed yields up to about 2.90 percent, bond prices are likely to drop significantly further.
More
February 22, 2018 / 4:27 AM
SE Asia Stocks-Most lower; U.S. rate hike worries weigh
Feb 22
(Reuters) - Most Southeast Asian stock markets fell
on Thursday,
as the possibility that the U.S. Federal Reserve
will move to
raise interest rates as early as next month weighed
on investor
sentiment.
The Fed's rate-setting committee showed
more confidence in
the need to
keep raising interest rates at its Jan. 30-31
meeting,
minutes released on Wednesday showed, with most
believing
that inflation would perk up.
U.S. benchmark 10-year note yields, which
move
inversely to
prices, touched a more than four-year high after
the Fed
minutes.
Most Asian share markets followed the
S&P 500 futures
lower on
Thursday as speculation of faster hikes in U.S interest
rates soured
risk appetite globally.
In Southeast Asia, the Philippine index
fell 1.2
percent to
hit a one-week low as industrials, financials and
real estate
stocks lost ground.
SM Investments Corp fell as much as 2.8
percent to
its lowest
in nearly two weeks, while SM Prime Holdings Inc
slipped over 3 percent.
Ayala Corp lost 4.6 percent, its biggest
intraday
drop since
late October.
Singapore shares shed as much as 1 percent,
with top
lender DBS
Group Holdings Ltd retreating from a record
high hit in
the previous session and conglomerate Jardine
Matheson Holdings
Ltd down as much as 1.1 percent.
Indonesia slipped 0.4 percent, falling for
a third
day, led by
financials.
Bank Negara Indonesia was down 3.4 percent.
More
“The
market is weird. Every time one guy sells, another one buys, and they both
think they're smart.”
Anon.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, how not to run an Indian bank. Looks like there’s enough blame to
spread around widely. But are any other Indian banks sitting on scandals?
“Anyone
who lives within their means suffers from a lack of imagination.”
Oscar
Wilde
How a $1.8 Billion Indian Bank Fraud Lasted Seven Years
By Jeanette Rodrigues and Bhuma Shrivastava
21 February 2018, 08:11 GMT Updated
on 21 February 2018, 09:47 GMT
The story of how India’s biggest bank fraud went undetected for seven years
includes an $81 million cyber-heist in neighboring Bangladesh, penny-pinching
lenders and a series of missed opportunities.In 2016, after revelations that hackers had infiltrated the Bangladeshi central bank’s computer systems to siphon off money, its counterpart in India sensed a danger to its own banking system. The Reserve Bank of India reminded all the country’s lenders to ensure their computer networks were properly integrated with Swift, the global system used to transmit payment instructions in the Bangladesh theft.
Unknown to the RBI at the time, a rogue employee at state-owned Punjab National Bank had allegedly been taking advantage of precisely that flaw in the Indian lender’s computer systems for five years, perpetuating a fraud that would eventually balloon to $1.8 billion, according to PNB’s account.
“The biggest thing that didn’t happen was the linkage between Swift and the bank’s back-end software -- they didn’t talk,” said Abizer Diwanji, a financial services partner in India at the accountancy firm EY. “The ball was first dropped” when PNB missed a chance to reconcile the two systems, he said.
As the fallout from the incident spreads and various government agencies move to investigate, one thing stands clear: the financial damage was exacerbated by a combination of inferior technology, weak risk management and insufficient regulatory oversight. Had the fraud been discovered a year earlier, the total amount would have been about $800 million lower.
Fingerpointing
PNB alleges its former employee Gokulnath Shetty provided billionaire jeweler Nirav Modi and his associates with guarantees to obtain loans from abroad. Between 2011 and early 2017, guarantees worth 65 billion rupees ($1 billion) were issued without any collateral, followed by another 49 billion rupees over March to May last year, when Shetty retired, according PNB’s complaint that has been made public.To read about the modus operandi behind the fraud, click here
Because the computer systems of many Indian banks weren’t compatible
with Swift, the RBI didn’t make it a requirement to integrate the
two, according to R. Gandhi, a former RBI deputy governor who oversaw the
central bank’s risk operations at the time of the Bangladesh hack. However,
banks like PNB that hadn’t integrated their systems were required instead to
perform daily manual checks to reconcile the Swift messages with internal
records, Gandhi added.
Given the prevalence of fraud involving global trade finance
transactions, it’s critical for banks to ensure automated or manual
reconciliation with Swift, said Tim Phillipps, an Asia-Pacific financial crime
specialist at Deloitte. It isn’t hard to build an interface between Swift and
the bank’s own software, he said.
----
Cost may have been a factor in preventing Indian banks from upgrading their
systems, according to Saswata Guha, a director in the financial institutions
group at Fitch Ratings. Indian lenders have been grappling with rising bad
loans and insufficient capital for years, a situation that may worsen after new
regulations take effect in coming months.
More
A large Bank is exactly the place where a vain and shallow person
in authority, if he be a man of gravity and method, as such men often are, may
do infinite evil in no long time, and before he is detected. If he is lucky
enough to begin at a time of expansion in trade, he is nearly sure not to be
found out till the time of contraction has arrived, and then very large figures
will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873
Walter Bagehot. Lombard Street. 1873
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?
Small-scale solar power is changing lives and disrupting traditional models
Published 2:57 AM ET Tue, 20 Feb 2018
Solar power is becoming an increasingly important part of the planet's
energy mix. In 2016, solar photovoltaic grew faster than any other fuel, with
China responsible for nearly half of worldwide expansion, according to the
International Energy Agency (IEA).
While solar power projects can be grand in scale there are some that,
while smaller, are no less important. Repowering London, a not-for-profit based
in the U.K. capital, helps facilitate community-owned renewable energy projects
there.
In October 2015, Banister House in Hackney, east London, became home to
the borough's first community-owned solar power project. The project was
developed by Repowering London, residents of Banister House and Hackney Energy.
Banister House Solar, as the scheme is known, produces community-owned
renewable electricity for the building and its residents. According to
Repowering London, 679 tons of carbon dioxide will be prevented from entering
the atmosphere during the project's 20-year lifetime.
A small community generating its own energy is not restricted to large
urban conurbations. In Scotland, for example, the Findhorn Ecovillage is home
to four community-owned wind turbines with a total capacity of 750 kilowatts.
These turbines help make the village a net exporter of electricity. According to those behind the project, around half of the electricity generated is used on-site through a private grid, with the rest sent to the main grid.
These turbines help make the village a net exporter of electricity. According to those behind the project, around half of the electricity generated is used on-site through a private grid, with the rest sent to the main grid.
Back in the capital, Agamemnon Otero, CEO of Repowering London, said
that smart meters had also been installed for residents so that they can see
what they are generating. The cost of the project, around £150,000 ($209,148),
was raised by members of the public, with investors getting a share of the
profit when energy is sold back to the grid.
"While it might not seem a large amount, £150,000… all of it was
raised from the local community within eight weeks," Otero said.
"There's a 4 percent return on their investment, there (are)…
savings to the building owner so that the actual council is making savings as
well. The financial benefits stream out both for members and the partners
involved."
“No one
ever went broke by taking a profit.”
Jesse
Livermore
The monthly Coppock Indicators finished January
DJIA: 26,149 +282 Up. NASDAQ: 7,411 +310 Up. SP500: 2,824 +212 Up.
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