U.S. stocks closed down with the DOW off almost one percentage point. The whole session was all about Wal-Mart's poor forecast and the Fed's Beige Book. The main thrust of the declining session was Mal-mart warning earnings per share would decline as much as 12 percent next fiscal year due to investment in technology, higher wages and lower prices. U.S. stocks were little changed after Fed's beige book, but offered few clues in a rate hike decision adding to investors worries.
(Reuters) - Wal-Mart Stores Inc said earnings per share would decline as much as 12 percent next fiscal year due to investment in technology, higher wages and lower prices, sending its shares down more than 8 percent.
Not a pretty day. The first column is what was reported this morning. The second column is what was forecast and the third is the last report.
WASHINGTON (Reuters) - U.S. retail sales barely rose in September and producer prices recorded their biggest decline in eight months, raising further doubts about whether the Federal Reserve will raise interest rates this year.
NEW YORK (Reuters) - Investors piled into BlackRock Inc bond ETFs and paid more in hedge fund fees in the third quarter, helping the world's largest asset manager beat Wall Street's earnings forecasts and offsetting a higher tax hit that cut profits 8 percent from a year earlier.
(Reuters) - Bank of America Corp reported a profit for the third quarter, compared with a year-earlier loss, as Chief Executive Brian Moynihan's cost-cutting efforts helped the bank mitigate the impact of weak revenue in three of its four main businesses.
In the early 2000s, Alan Greenspan was worried about deflation. So he hired Ben Bernanke, the self-proclaimed expert on the Great Depression from Princeton. The idea was that with Bernanke as his right hand man, Greenspan could put off deflation from hitting the US. Indeed, one of Bernanke's first speeches was titled "Deflation: Making Sure It Doesn't Happen Here"
The US did briefly experience a bout of deflation from late 2007 to early 2009. To combat this, Fed Chairman Ben Bernanke unleashed an unprecedented amount of Fed money. Remember, Bernanke claims to be an expert on the Great Depression, and his entire focus was to insure that the US didn't repeat the era of the '30s again.
Current Fed Chair Janet Yellen is cut of the same cloth as Bernanke. And her efforts (along with Bernanke's) aided and abetted by the most fiscally irresponsible Congress in history, have recreated an environment almost identical to that of the 1920s.
Let's take a quick walk down history lane.
In the 1920s, most of Europe was bankrupt due to after effects of WWI. Germany in particular was completely insolvent due to the war and due to the war reparations foisted upon it by the Treaty of Versailles. Remember, at this time Germany was the second largest economy in the world (the US was the largest, then Germany, then the UK).
Germany attempted to deal with the economic implosion created by WWI by increasing social spending: social spending per resident grew from 20.5 Deutsche Marks in 1913 to 65 Deutsche Marks in 1929.
Since the country was broke, incomes and taxes remained low, forcing Germany to run massive deficits. As its debt loads swelled, the county cut interest rates and began to print ...
Submitted by Byrce Coward via Gavekal Capital blog,
Given the cyclical leadership dynamics since the 8/24 low in stocks, one would have guessed that bonds would have sold off in lockstep with stocks rising. One would have been wrong.
Since 8/24 it's been energy, tech, materials discretionary and industrial leading the way with health care, telecom and utilities bringing up the rear. That is pretty strong cyclical leadership, as the chart below shows, and the type of sector rotation that would be expected in an environment of rising growth or inflation expectations.
As chart below shows, the S&P 500 is up about 5.5% since 8/24. Yet, the US 10-year bond is back trading at exactly the same level as it was when stocks were shunned in late August and "safety" was bid - about 2%. Bonds are if anything saying that growth and inflation expectations remain weak.
This tells us something about the rally in stocks and at the very least calls into question the sustainability of the recent rotation to the most cyclical groups.
In the past several months, it has been virtually impossible to make any sense of the conflicting trends involving US and global trade. On one hand, there is global trade, which as we have covered since the spring, has been in a state of consistent decline. Some example of this:
World Trade Slumps By Most Since Financial Crisis
Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week
Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks
South Korea Exports Crash Most Since 2009
And of course China's terrible trade data for the past 5 months, which has seen the longest stretch of import declines since the financial crisis.
In short: only an economist, either a tenured one or one employed by CNBC, is unable to see that the world is sinking into a global trade recession, with a economic one soon to follow.
Where things get more complicated, however, is when looking at the US. Here, macro data throughout the summer had suggested more or less smooth sailing in the trade space, and it was only a week ago that the facade started to crack, following the ugly advance trade report, when as we reported there was a "16% Surge In August Trade Deficit; Imports Jump As Exports Drop."
U.S. stocksâ€™ losses deepened Wednesday after Wal-Mart issued a gloomy earnings forecast, sending its stock tumbling. The companyâ€™s announcement came after data showed weaker-than-expected U.S. retail sales growth of 0.1% in September.
The yield on the 10-year U.S. government debt fell below the 2% mark again and settled at a five-month low on Wednesday as fresh signs of tepid consumer spending and low inflation boosted demand for haven assets.
The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) "point to continued modest expansion in economic activity during the reporting period from mid-August through early October". The previous report said "economic activity continued expanding across most regions and sectors during the reporting period from July to mid-August". My interpretation is that the Fed is saying economic expansion marginally slowed.
Interest in timing the stock market, rather than just investing for the long term, has picked up along with the recent rise in volatility, but that is a risky proposition as missing the marketâ€™s best days when trying to avoid the worst days could be costly.
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