Baltic Dry Index. 1740
+40 Brent
Crude 64.28
Never ending Brexit
now October 31st, maybe.
Nuclear Trump
China Tariffs Now In Effect.
USA v EU trade war
postponed to November, maybe.
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
The big story this
morning is two major global banks pulling out of global equities though for
very different reasons. Morgan Stanley is pulling back due to “expensive
valuations and pressure on earnings.” Deutsche Bank, in yet another desperate
attempt to salvage Deutsche Bank from past errors.
But what will this do
to global stocks already flying on a wing and a prayer, relying on the Fed and all
the other central banks cutting interest rates to generate greater fool buyers?
Below, Asia’s relief
rally/exit rally, stumbles.
Asian shares fall as bets off on sharp U.S. rate cuts
July 8, 2019 /
1:46 AM
SYDNEY (Reuters) - Asian shares fell on Monday after strong U.S. jobs
data tempered expectations for a Fed rate cut, while the Turkish lira hovered
near two-week lows on worries about central bank independence.
Asian shares were broadly weaker on Monday, tracking Wall Street which fell from record highs last week.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost more than 1%, with every market in the red.
Japan's Nikkei .N225 faltered 0.9%. Chinese shares started lower with the blue-chip index .CSI300 off 1.7% and Hong Kong's Hang Seng index .HSI down 1.5%.
South Korea's KOSPI .KS11 was off 1.8% and Australian shares slipped about 1% to a five-week low.
“We are lowering our exposure to global equities to the range we consider ‘underweight’,” Morgan Stanley’s London-based strategist Andrew Sheets said in a note. The previous range was ‘neutral’.
Expensive valuations and pressure on earnings were among the reasons for the downgrade, Sheets said, while the bank increased its exposure to emerging markets sovereign credit and safe haven Japanese Government Bonds.
Global equities have generally been bolstered by expectations that
central banks will keep interest rates at or near record lows to boost economic
growth.
Those expectations were tempered by a U.S. labour report that showed
nonfarm payrolls jumped 224,000 in June, beating forecasts for 160,000, in a
sign the world’s largest economy still had fire.
Given the strength shown in that data, investors now expect U.S. Federal
Reserve chair Jerome Powell to go slow on rate cuts this year.
More
Deutsche Bank axes whole teams in Asia-Pacific as 18,000 job cuts begin
July 8, 2019 /
4:48 AM
SYDNEY/HONG KONG
(Reuters) - Whole teams in Deutsche Bank’s (DBKGn.DE) Asian operations were told their
positions were gone on Monday, as the lender began axing 18,000 jobs globally
in one of the biggest overhauls to an investment bank since the aftermath of
the financial crisis.
The German bank launched the restructuring on Sunday in Europe,
outlining a plan that will ultimately cost 7.4 billion euros (£6.6 billion) and
see it dramatically scale back its investment bank - a major retreat after
years of working to compete as a major force on Wall Street.
As part of the overhaul, the bank will scrap its global equities
business and also cut some of its fixed income operations - an area
traditionally regarded as one of its strengths.
While the bulk of the 18,000 job losses are widely expected to fall in
Europe and the United States, on Monday the cuts also hit offices from Sydney
to Hong Kong.
Deutsche Bank gave no geographic breakdown for the job cuts when it
announced the plan on Sunday.
Bankers in Sydney seen leaving the lender’s offices on Monday confirmed
they worked for Deutsche Bank and were being laid off, but declined to give
their names as they were due to return later to sign redundancy packages.
---- Deutsche had some 4,700 staff in Sydney, Tokyo, Hong Kong and Singapore, showed factsheets on its website.
Its investment banking team for the Asia-Pacific region numbered about
300 people before the cuts, and 10% to 15% will be laid off - almost all in its
equity capital markets division, according to a senior Asia banker with direct
knowledge of the plans.
----- Chief Executive Officer Christian Sewing, who now aims to focus on the bank’s more stable revenue streams, said on Sunday that it was the most fundamental transformation of the bank in decades. “This is a restart,” he said.
“We are creating a bank that will be more profitable, leaner, more
innovative and more resilient,” he wrote to staff.
The bank will set up a so-called bad bank to wind-down unwanted assets,
with a value of 74 billion euros of risk-weighted assets.
More
Breakingviews - Deutsche Bank retreat depends on uber optimism
July 7, 2019 /
7:36 PM
LONDON (Reuters
Breakingviews) - Any cocksure child knows that owning up to mistakes is part of
growing up. By that metric, Deutsche Bank is just beginning to mature. Boss
Christian Sewing on Sunday effectively called time on the lender’s multi-decade
attempt to create a global investment bank with a swingeing plan to shrink its
trading unit and put 288 billion euros of assets into runoff.
But the retreat
depends on friendly markets and an absence of blunders.
Germany’s biggest
bank by assets is admitting what investors had long guessed: its target for a
return on tangible equity of 4% in 2019 was a mirage and its profit-munching
investment bank needs deeper restructuring. To effect the latter, Sewing plans
to shut down equities trading entirely and downsize Deutsche’s rates and fixed
income businesses. The slimmer bank would have total adjusted expenses of 17
billion euros by 2022 - down from 23.5 billion euros last year - and a 70%
cost-to-income ratio. That implies revenue of more than 24 billion euros, or
just 1 billion euros less than in 2018.
Such relative self-assurance was breezily backed up with reference to
the “high quality and low risk nature” of the assets Deutsche is shedding. That
begs the question of why those assets are surplus to requirements. Regulators
are easing the transition to what should be a less risky institution: Deutsche
is lowering its minimum common equity Tier 1 capital ratio to 12.5%, 50 basis
points lower than before.
Even so, the plan depends on some rosy assumptions. Equities sales and
trading brought in nearly 2 billion euros of revenue last year. Fixed income trading
accounted for 5.3 billion euros. Deutsche believes resurgent corporate,
advisory and asset management divisions will help partly make up for a
projected 2.5 billion euros in lost income. But the fact that
annual revenue in those businesses actually shrunk year-on-year in 2018
does not bode well. The bank is also projecting minimal charges on the assets
it wants to exit. An economic downturn, or another round of regulatory fines,
could similarly knock it off course.
More
Elsewhere, President Trump renewed his attack on America’s
central bank. It’s all about boosting stocks for President Trump’s re-election
campaign now. Will President Trump force the Powell Fed into matching Europe’s
negative interest rates? Where will the price of gold top out if he does?
What if the Powell Fed doesn’t deliver, how far will stocks
pull back?
Trump: Fed 'doesn't have a clue' and is 'our most difficult problem'
Updated July 6,
2019 at 2:38 PM
July 6 (UPI) -- President Donald Trump criticized the Federal
Reserve Saturday for raising interest rates, saying the U.S. economy would
be "like a rocket ship" if we didn't have to pay unnecessary
interest.The Federal Reserve raised interest rates four times in 2018, the latest being Dec. 20 when it was raised between 2.24 percent and 2.5 percent. The Fed has kept interest rates steady so far in 2019. The Federal Reserve's next policy meeting is set for July 30 and the decisions made there could determine the health of the economy, which is critical to Trump's reelection bid.
Trump was touting the "unexpectedly good" June jobs report where the U.S. economy added 224,000 jobs, exceeding expectations after a dismal May.
"Strong jobs report, low inflation and other countries around the world doing anything possible to take advantage of the United States, knowing that our Federal Reserve doesn't have a clue!" Trump tweeted late early Saturday morning. "As well as we are doing from the day after the great Election, when the market shot right up, it could have been better -- massive additional wealth would have been created & used very well. Our most difficult problem is not our competitors, it is the Federal Reserve!"
Trump has said previously that Fed Chairman Jerome Powell has stunted economic growth through his policies.
Trump appointed Powell to lead the Fed and his term ends in 2022. In his defense, Powell has said the Fed is an independent bank "insulated from short-term political pressures."
Trump has said he could remove Powell "if I wanted to, but I have no plans to do anything." The Federal Reserve Act requires a president to have cause before removing a Fed chair.
More
https://www.upi.com/Top_News/US/2019/07/06/Trump-Fed-doesnt-have-a-clue-and-is-our-most-difficult-problem/6361562432915/?mph=1
“The boom can last only as long
as the credit expansion progresses at an ever-accelerated pace. The boom comes
to an end as soon as additional quantities of fiduciary media are no longer
thrown upon the loan market.”
Ludwig
von Mises.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled
over.
Today, can the service sector alone stop the next recession? My guess is no.
Commentary: Global economy heading for trouble as manufacturing and construction shrink
July 4, 2019 /
11:51 AM
LONDON (Reuters) - Global manufacturing and construction
sectors have already entered a downturn; the service sector is all that now
stands between the economy and a full-blown recession. Global manufacturers reported new export orders fell for a 10th month running in June, with the most widespread decline for six years, according to the JPMorgan global purchasing managers survey.
Even in the United States, which has escaped relatively mildly so far from the downturn hitting Europe and Asia, there are now clear signs growth has stalled across the manufacturing and construction industries.
U.S. manufacturers reported only a small increase in activity in June, with the net positive balance the lowest for almost three years, according to the Institute for Supply Management (tmsnrt.rs/2FRkIhj).
U.S. manufacturers’ new orders have been decelerating for more than a
year and were flat for the first time since the end of 2015, which suggests
activity is likely to slow further in the short term.
Durable goods orders for non-defence capital equipment excluding
aircraft were up by just 2.1% in the three months from March to May compared
with a year earlier, less than a third of the growth rate a year ago.
Private sector construction activity is falling, with the value of new
buildings and structures put in place down by 4.1% in the three months from
March to May compared with the same period a year earlier.
Residential construction activity was down by more than 8% year-on-year
in the three months from March to May, according to the U.S. Census Bureau.
Private non-residential construction was still up by 1.5% year-on-year
between March and May, but the growth rate has slumped from more than 5%
between August and October.
---- In the oil market, prices have fallen reflecting worries about the global economy and slowing oil consumption growth, despite a decision by OPEC and its allies to extend production restraint for a further nine months.
Oil consumption and especially the use of middle distillates such as
diesel is geared more towards manufacturing, construction and mining than the
service sector, so is being hit hard by the industrial slowdown.
Oil’s exposure to the troubled manufacturing sector explains why prices
have remained under pressure despite U.S. sanctions on Venezuela and Iran, the
threat to tanker traffic in the Gulf, and OPEC output cuts.
---- It is not clear if the services sector can continue to keep the economy out of recession if manufacturing and construction continue to contract.
Interest rate and bond traders are betting central banks will not take
the risk and will cut rates instead to forestall any further slowdown.
Again, it is not clear whether early and aggressive rate cuts will be
enough to avoid a recession. Rate cuts successfully extended the economic
expansion in 1995/96 and 1998 but not in 2001 and 2007.
Policymakers’ concerns about the worsening manufacturing slowdown and
its potential to spill over into the rest of the economy explain why the United
States reached out to China last month to restart trade talks.
More
“But it [the boom] could not
last forever even if inflation and credit expansion were to go on endlessly. It
would then encounter the barriers which prevent the boundless expansion of
circulation credit. It would lead to the crack-up boom and the breakdown of the
whole monetary system.”
Ludwig
von Mises.
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?
The Business Value of Augmented Reality
AR may be a key interface as the world’s digital and physical infrastructures converge
Irving Wladawsky-Berger Jul 5, 2019 10:11 am ET
But here's the
rub, according to Michael Porter, a Harvard University professor, and James
Heppelmann, chief executive of PTC Inc., an industrial consulting company:
Thanks to the Internet of Things, the constraint of dealing with complex
products is no longer a lack of data and insights. Instead, the bottleneck lies
in how humans best assimilate and act on them.
“There is a fundamental disconnect between the wealth of digital data available to us and the physical world in which we apply it," they wrote in "A Manager’s Guide to Augmented Reality" in Harvard Business Review. "While reality is three-dimensional, the rich data we now have to inform our decisions and actions remains trapped on two-dimensional pages and screens.”
A possible solution: augmented reality. It is the key interface between humans and machines that will help bridge the gap between the digital and physical worlds, they write.
AR comprises a set of technologies that superimposes computer-generated digital data, images and animation on real-world objects. The technology is in its early stages. Today, most AR applications are focused on entertainment and delivered through smartphone and tablet apps, but the technology is increasingly being used in commercial and industrial applications. And, in addition to smartphones and tablets, it is delivered through hands-free devices such as AR smart glasses, head-mounted displays and displays in cars.
“By superimposing digital information directly on real objects or environments, AR allows people to process the physical and digital simultaneously, eliminating the need to mentally bridge the two," Messrs. Porter and Heppelmann write. "That improves our ability to rapidly and accurately absorb information, make decisions, and execute required tasks quickly and efficiently.”
The article discusses three key AR capabilities: to visualize, to instruct and guide, and to interact. Here is a brief explanation of each capability:
More
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig
von Mises.
The monthly Coppock Indicators finished June
DJIA: 26,600 +51 Up. NASDAQ: 8,006 +70 Down.
SP500: 2,942 +50 Up.
The S&P has reversed again to up after only one month. The Dow has
reversed to up, while the NASDAQ remains down. On to next
month’s numbers for clarification.
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