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Structural Shift February 10, 2018

Posted by hslu in Congress, 特朗普, 石油, 美國, Debt and deficit, Economics, Election, Energy, Stocks, Taxes, Trump, U.S. dollar, 川普.
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What structural shift are we talking about?

The “structural” part of the shift is the fundamental change of the economy bought to you by none other than Trump and the Republicans. While we are at it, let’s add the inept Democrats to that bunch too because they are equally guilty for acting like a whole bunch of chickens without heads.

In a growing U.S. economy and the synchronized recovery of the world economies, as well as almost full employment of around 4% in the U.S., Trump and the Republicans passed “the biggest tax reforms in American history according to Trump ” without finding a way to pay for the massive tax cut for the riches. It simply is insane because of significant damages it will eventually bring to the masses.

Why did they do it?

Because the mid-term election is coming in 11 months. They congressional Republicans are fearful of losing their congressional seats and the majority of both houses.

The structural change is what the financial market is reacting to this week when the Dow took a fast elevator down to the basement of the correction territory: the dreaded inflation is just around the corner as indicated by the chart below.

Source: Federal Reserve

The tax cut at full employment doesn’t make economic sense because it clearly is inflationary. The bond market knows it because a massive amount of federal government borrowing in the amount of additional $500 billion a year will hit the Bond market soon.

The stock market is equally uncomfortable with the higher rate environment and crumbles under the weight of extended valuation.

The structural shift is important for the financial market at this juncture because a re-pricing of all financial instruments will take place in the months and quarters ahead.

Treasury and corporate bonds will drop. Stock market will correct to bring its valuation to a reasonable level. High yield bonds will tank. Housing prices will drop as mortgage loans demands wane. Commodity prices will decrease as US dollar strengthens. Interest payments on US national debt will rise as deficit grows to ~$1 trillion annually, or about 5% of the US GDP.

In short, the structural shift will shrink personal wealth as inflation bites.

The bears are coming!The bears are coming! January 11, 2018

Posted by hslu in Economics.
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Bond bears, that is. So says Bill Gross.

Bill Gross Investment Outlook: Bonds, Men, It’s About Time

A Monthly Outlook on the Global Financial Markets

By Bill Gross, January 2018

https://en-us.janushenderson.com/retail/bill-gross-investment-outlook-bonds-men-its-about-time/?utm_campaign=Bill_Gross_Investment_Outlook&utm_medium=Email&utm_source=Salesforce&utm_content=Retail

I like Bill and enjoy his monthly commentary on Bonds, life, men, women and everything else.

You might want to read his January comment and be prepared for a long Bond winter. Winter lasts a long time in Game of Thrones. Perma Bond bears tend to stay for a long time too.

MyRA is your money’s graveyard February 9, 2014

Posted by hslu in Congress, Economics, Obama, Retirement.
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Bernanke kept the Fed’s funds rate at near zero level since Great Recession started in 2008-2009. He also bought trillions of long term US Treasury Bonds and mortgage backed securities in order to bring their rates down as well.

He did it because he wanted to force investors to riskier assets: stocks, real estates, commodities, currencies and  derivatives. Bernanke wanted trickle down effects from the riches to kick start the sagging US economy.

S&P 500 made 175+% since 2009. Housing prices in many cities recovered nicely. Many investors and hedge funds also made lots of money in carry trades and they have no one but Benanke to thank for. As expected, the rich got richer while the poor got stuck with food stamps and unemployment benefits. Trickle down from the riches got the economy growing at ~2.2% for years.

Now that the Fed has trillions of Bonds on its balance sheet and Bernanke didn’t know what to do with them. Selling them will raise the interest rates which will increase US government’s interest payments on its $17+ trillion national debt. Hihger rates will slow down the still fragile economy.

Someone came up with the MyRA idea and the do-whatever-I-want Obama said he can do it without the Congress: why not sell the bonds to American citizens? The boomers are retiring in thousands everyday. They can use a steady income. Seniors have been making 0.01% on their CDs from the banks. Let them have those bonds and everyone is happy.

The Fed can unload the Bonds off their balance sheet and the boomers and seniors can keep the bonds.

Sounds like a good idea.

Right?

Yes, a good idea for the government, that is. But it is a lousy deal to people who buy these type of bonds.

Bonds on Fed’s balance sheet have a low coupon rate because Bernanke made it so when he bought them on the open market.

With economic growth expecting to rise, inflation will return once banks start to lend and interest rates will rise.

Long term interest rates have been going up since Bernanke uttered the ‘t’ word in May 2013. If the boomers and seniors exchange their CDs with the bonds, they will see the principles of their bonds shrink as inflation picks up. They might as well bury their money in graves because they won’t see some of them as 10 year rates go up from ~2.7% now to 5 to 6% in a few years.

Here is my advise if you are thinking about MyRA:

DON’T!

Summary of the Economy and Financial Markets October 5, 2013

Posted by hslu in China, Economics, Energy, Euro, Global Affair, Gold, jobs, Oil, stocks.
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I wrote this short report for my friends in Dallas yesterday; October 4, 2013. It helps me to get a grip of what’s going on in the financial market. It is a very simple and brief summary of what’s important over the last month on Bonds, stocks, crude oil and gold. I am learning to spot investment opportunities and I thought understanding the macro economics is essential.

  • The Fed delayed tapering due to deteriorating economy and pending gov. shutdown.

    • Unemployment rate @ 7.3%; Labor participation rate @ 63.2%; lowest since 1970.
    • U6 remains at ~14%; 90,473,000 not in Labor Force – BLS data.
    • Stock market popped due to QE but gave back gains 3 days after- A concern!
    • Treasuries rallied: 10-year Bond yield to decline from ~3% (record low: ~1.40%.) Watch TBT.
    • Government shut down and pending debt ceiling fight (2 weeks) will impede rally
    • Emerging markets had relief rallies.
    • Countries with current account deficits continue to see market/currency decline.
    • India and Indonesia in trouble.
  • Crude oil and metals continue to trade lower;
    • China slow down weighs and Inflation absent.
    • Bull market in gold ran out of steam.
    • Economy needs to pick up steam to see crude oil and gold moving higher.
  • European economic conditions improved but recoveries slow to come.
    • Merkel stayed on for 3rd term. Steady as she goes. No major policy change.
    • Recession may be over.
    • Sovereign debt yields declining: Spain and Italy 10-year Treasury yield. LT buy?
  • Japan
    • Business confidence improves: capital investment up 5.1%
    • GDP up 3.8% in Q2 2013; revised up from 2.6%. 4.1% in Q1 2013.
    • Sales tax increased to 8% (4/2014) from 5%. Up to 10% in 2015.
    • Government: ¥10 trillion (~$100 B) stimulus: lower than expected. GDP = $5.96 trillion.
    • BOJ on target to increase currency float. Deflation may be over.
    • Debt: ¥1,000+ trillion. Deficit: 40+% spending borrowed. Structural reform from Abe not enough.
    • DXJ and YCS are still in play. US government shutdown affected Nikkei’s decline and yen’s strength.
  • Chin Economy expanded at ~7.5%
    • 12-5 is in progress (2011 – 2015): sustainable growth of 7%, industrial upgrading and the promotion of domestic consumption. 11-5 expected 7.5%. Actual 11%.
    • 10 new cities to accommodate 250 million people from farms: urbanization
    • 户口制度to relax?
    • Shanghai Free-Trade Zone: testing for 2-3 years. To expand to other areas.
    • Preparation for a floating 人民币?
    • More countries signed up for direct exchange with人民币: by-pass US dollar.
    • China ADRs could be good investments.

 

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