Connect with us

International

Blain: Forget The ‘Dead Cat Bounce’, It’s All About Inflation & The Dollar

Blain: Forget The ‘Dead Cat Bounce’, It’s All About Inflation & The Dollar

Authored by Bill Blain via MorningPorridge.com,

“It’s…

Published

1 year ago

on

Blain: Forget The 'Dead Cat Bounce', It's All About Inflation & The Dollar

Authored by Bill Blain via MorningPorridge.com,

“It’s either the devil or the deep blue sea?”

There is nothing like a dead cat bounce to cheer up the already doomed, but the real issues are inflation and dollar strength. Both can be addressed, and the treatment will hurt. Smile and get used to it.

So much to unpack about markets this morning – so apologies its late and it’s going to be short as lots of stuff going on!

There is nothing like a good old fashioned dead cat bounce – like yesterday’s green stock market! The shorts were squeezed, and half-a-dozen market talking heads declared – it’s time to buy again! It’s probably not… One swallow less does not an autumn make.

Even the ECB is on the shock and awe interest rate rising path – so the fight against inflation is very real. Unfortunately, there is the law of consequences – higher rates will go down like a kick in the head across struggling European economies, stirring up political unrest, getting populists elected and reopening the prospect of a full-blooded Euro-sovereign crisis – again. (Got some ideas on that – and it could be a great opportunity to be a contrarian!)

Interest rates are rising, yet the market is still – foolishly – taking the perspective global central banks are probably close to done. I would like a quarter of whatever they’ve been smoking – when inflation was last in double digits like today, during the 1970s, the Fed (under Arthur Burns) thought it could address inflation with gradual interest rate hikes – achieving nothing. It wasn’t till Paul Volker applied a dramatic series of big hikes – 1000 basis points in matter of months – that inflation got the message and finally abated.

Yesterday morning I had a cup of coffee with a political chum close to the Mother of Parliaments. She was trying to persuade me to give Liz Truss some slack, time to settle into her new job – and even give her some credit for the coming energy bailout package.  My chum suggested its not sterling weakness, but dollar strength I should be blaming for the apparent unravel going on across all Western Economies. It’s not just sterling that’s crashing. Yen and the Euro are in a similar spot.

The “inflation problem” is this global inflation pandemic has not been triggered by money supply, wages outpacing supply, or any of the other monetarist reasons conventionally unpinning inflation.

It was triggered by an exogenous energy shock and war.

The dollar problem is… different. Its strong on the back of the growing sense of global crisis and uncertainty. At some point the Fed will realise that’s not a good thing. (Dollar strength is contributing to the expectation interest rate rises will be muted, to keep dollar strength down.)

Although inflation was triggered by the war, the fact all the endogenous inflationary firewood to blevy into a price-stability conflagration was lying around ready to spontaneously ignite is important: the money printing done by central banks through the decade of monetary experimentation (via NIRP and QE) didn’t find its way into the real economy because it was immediately invested in financial assets (stocks and bonds.) Inflation is now apparent as more and more of that money in financial assets now seeps into the real economy via real assets like property.

That’s why this inflation pandemic still has damage to do – everyone is talking wages, social unrest and a housing shock in the west, but it’s not happened yet. We are still seeing buyers clambering onto the market, thinking houses are an inflation hedge, and rates wont go much higher. The same is true against depreciating assets like car and boat loans – boat dealers tell me order books are buoyant because folk believe these bad times will be short-lived.

Reality takes time to establish itself. How can we have a consumer cost-of-living crisis, yet consumers taking out more debt – unless they believe rates are set to revert lower? And that wont happen till inflation is licked, and energy prices stabilise. And currencies stabilise – a major source of imported inflation.

The crisis in Europe is made worse because of imported dollar strength driving inflation. It’s even more damaging for the UK as we’re no longer part of the single trading block – and sterling now looks the weakest link. UK Prices are going to remain more volatile – no matter what government tells us about UK energy security. On its own, sterling is vulnerable. Euro is stronger because it’s a pack economy.

The current market is all about inflation. The Fed has given enough clues about how much more its prepared to raise rates. The problem for the Fed is they need to aggressively hike rates to stem inflation, but that will only make the dollar stronger. The ECB and BOE have little choice to follow – if they don’t the currencies weaken further. If they do, their economies weaken further. My political chum accepted that is something of a conundrum.

The ever excellent John Authers on Bloomberg addresses the question of dollar strength this morning: Nothing Will Stop the Dollar from Getting Stronger.

Apples and Apples…

Among the many stocks to prosper yesterday was Apple – showing off a new iPhone 14 and new watch. Fantastic. Tremendous..

Not sure I need this years must-have Apple gimmick: a Satellite SOS System – already got a host of stuff that does that on the boat. Not sure I need information on whether I am ovulating at my age (and gender) either…

My Apple watch stopped working months ago, and Apple shrugged their shoulders and told me it was out of warranty. My iPhone 12 is working fine. I am trying to save some money to help my kids. I am being shouted at by Mrs Blain to switch off lights and save energy. I am not going to rush out and buy one – especially since they are priced at a sub-dollar parity in the UK – it costs more pounds than dollars: £1199 vs $1099! Why? Sounds like a FROAD to UK consumers.

Since my iWatch doesn’t work, I am looking for a health wearable to replace it. Any suggestions?

And that should terrify Apple executives.

If Bill Blain, a self-confessed Apple-holic is about to shake his addiction to New Bright Shinny Things – then how many others are thinking the same? I will have mild Cold Turkey that my Air-pods aren’t the latest version, and my phone is 2 years and 1 day old. But my company provided home computer system is as good as my iMac, and my company laptop does everything my IMac Pro did.

I have sold my Apple position – months ago. It was my largest holding at one point. Big companies stay big – for a while, till the next thing comes along. It’s just a brand.

Tyler Durden Thu, 09/08/2022 - 11:15

Read More

Related Topics:
Continue Reading

International

Fighting the Surveillance State Begins with the Individual

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…

Published

24 hours ago

on

October 23, 2023

By

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole. The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.” In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system. You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in. It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will. There are people, like the creators of The Social Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used. A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market. To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.

Read More

Continue Reading

International

Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next

A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.

Published

24 hours ago

on

October 23, 2023

By

Updated at 11:52 am EDT U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007. Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire. Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack. Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite. Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets. The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases. In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week. Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict. Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel. Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month. A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet  (GOOGL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, retail and cloud computing giant Amazon  (AMZN) - Get Free Report and Facebook owner Meta Platforms  (META) - Get Free Report. "It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley. "How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings." Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%. The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%. In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a  slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
  • Get investment guidance from trusted portfolio managers without the management fees. Sign up for Action Alerts PLUS now.

Read More

Continue Reading

International

iPhone Maker Foxconn Investigated By Chinese Authorities

Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple…

Published

1 day ago

on

October 23, 2023

By

Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple media reports. Foxconn’s business has been searched by Chinese authorities and China’s main tax authority has conducted inspections of Foxconn’s manufacturing operations in the Chinese provinces of Guangdong and Jiangsu. At the same time, China’s natural-resources department has begun onsite investigations into Foxconn’s land use in Henan and Hubei provinces within China. Foxconn has manufacturing facilities focused on Apple products in three of the Chinese provinces where authorities are carrying out searches. While headquartered in Taiwan, Foxconn has a huge manufacturing presence in China and is a large employer in the nation of 1.4 billion people. The investigations suggest that China is ramping up pressure on the company as Foxconn considers major investments in India, and as presidential elections approach in Taiwan. Foxconn founder Terry Gou said in August of this year that he intends to run for the Taiwanese presidency. He has resigned from the company’s board of directors but continues to hold a 12.5% stake in the company. Gou is currently in fourth place in the polls ahead of the election that is scheduled to be held in January 2024. The potential impact on Apple and its iPhone manufacturing comes amid rising political tensions between politicians in Washington, D.C. and Beijing. Apple’s stock has risen 16% over the last 12 months and currently trades at $172.88 U.S. per share.  

Read More

Continue Reading

Trending