KITCO NEWS/Neils Christensen
Gold sees short term boost as ECB’s Lagarde reiterates ‘highly accommodative’ monetary policy
December 12, 2019
“The gold market found some short-term momentum, hitting a five-week high after the European Central Bank (ECB) maintains its ‘highly accommodative’ monetary policy in a continued attempt to push inflation higher. The latest ECB meeting and decision was a historic moment as Christine Lagarde took the reins as the central bank’s first female president. In Lagarde’s debut opening statement, she highlighted that although conditions have improved, the risks still tilt to the downside.
‘Let’s face it; it’s weak growth. Economic growth is not at its potential,’ Lagarde said during the question-and-answer portion of her press conference. The central bank’s latest economic projections points to meek growth through 2022 and shows inflation will remain subdued. The ECB sees the eurozone economy growing 1.2% in 2020, up a tick from September’s estimate of 1.1%. Economic growth is expected to rise to 1.4% in 2021 and 2022 … The latest comments from Lagarde helped to push gold prices to a five-week high and back within striking distance of $1,500 an ounce. However, after the initial pop, the market has given back some of those gains.”
MARKET WATCH/Jeffry Bartash
Jobless claims soar to 2-year high of 252,000 in wake of Thanksgiving
December 12, 2019
“The number of Americans who applied for unemployment benefits in early December soared to highest level in more than two years, but the spike was likely tied to a later than usual Thanksgiving holiday instead of rising layoffs. Initial jobless claims jumped 49,000 to a seasonally adjusted 252,000 in the first week of December., the government said Thursday. That’s the highest level since September 2017. Economists polled by MarketWatch estimated new claims would total 220,000 in the seven days ended Dec. 7.
Raw or unadjusted jobless claims show unusually large increases in a number of states, including California, New York, Texas, Pennsylvania, Georgia and Minnesota. Jobless claims often gyrate during the long holiday season that starts after Thanksgiving. Laid-off workers wait longer to file claims, unemployment offices are closed more often and companies add and drop temporary workers. Poor weather can also skew the numbers.”
Don’t Expect the Roaring ’10s for Stocks to Repeat in the ’20s
December 12, 2019
“As the 2010s come to a close, it’s safe to say that the decade has been an enchanted one for U.S. stocks. The hard question is what lies in the decade ahead, and the data suggests that investors shouldn’t expect a repeat performance…. Earnings are extraordinarily volatile, even more unstable than stock prices by some measures. The volatility of yearly changes in earnings per share has been nearly three times greater than that of stock prices since 1871, as measured by annualized standard deviation — a whopping 52% for earnings compared with 19% for stock prices. And lest you’re tempted to conclude that much of that earnings volatility is a relic of the ancient past, consider that two of the three most severe earnings recessions on record were the previous two around the dot-com and housing busts. The only one that rivaled them was the 1920-21 recession (no, not even the Great Depression).”
“Given that volatility, it’s unlikely that the last decade’s record earnings growth will spill into the next one. Unfortunately, investors can’t expect much more from the other two sources of stock returns. The dividend yield is likely to remain around 2%, which is roughly where it’s been for decades. And the 12-month trailing P/E ratio is roughly 24, which is 50% higher than its long-term average of 16, so future changes in the market’s valuation are more likely to eat into returns than enhance them. Those sobering figures explain why most Wall Street firms expect U.S. stocks to deliver more muted returns during the next decade. It’s a good reminder that what appears in the rearview mirror is no indication of the road ahead.”
THE NEW YORK TIMES/Alexandra Stevenson
China’s Companies Binged on Debt. Now They Can’t Pay the Bill.
December 12, 2019
“China’s companies racked up some towering bills as they expanded, and the world’s investors and lenders rushed to offer them even more money. Now the bills are coming due, and a growing number of Chinese companies can’t pay up, in a sign that the world’s No. 2 economy is feeling the stress from its worst slowdown in nearly three decades. Two high-profile companies — a giant government-run trading firm and a conglomerate backed by China’s most distinguished university — are the latest to join a long list of Chinese businesses that have run short of cash when it was time to pay back their debts. Chinese corporate borrowers have defaulted on nearly $20 billion in loans this year.
The amount is small compared with China’s overall economy, but the toll is rising. Chinese companies owe hundreds of billions of dollars in debt that is coming due over the next two years, including more than $200 billion owed to lenders and investors around the globe. China now faces the difficult task of figuring out which of these companies it will allow to fail. The central government in Beijing keeps a tight grip on the Chinese financial system and often rescues companies to preserve jobs. But Beijing has shown a greater willingness to let companies go insolvent to teach them a lesson about borrowing too much, and many local governments now lack the funds to help their hometown champions.”
THE WALL STREET JOURNAL/Nina Trentmann
CFOs Brace for Potential Recession in 2020
December 11, 2019
“Chief financial officers are bracing for a recession, cutting costs and hoarding cash to ride out an expected downturn ahead of next year’s presidential election, new research indicates. Fifty-six percent of CFOs at U.S. companies said they are preparing for a recession, which economists define as two consecutive quarters of declining performance across an economy, according to a survey conducted by Duke University’s Fuqua School of Business. More than half of all finance chiefs expect the U.S. to be in a recession by the end of 2020, according to the survey.
‘Companies are worried about the big picture,’ said John Graham, a Duke University professor who oversees the survey. ‘At the same time, their orders are still coming in reasonably strong right now, so for their own company’s circumstances and plans, things look good in the short run.’ CFOs say they are pursuing cost-reduction efforts, paying down debt, extending maturity schedules of their debt and locking in low interest rates to prepare for a potential downturn, Mr. Graham said. Wednesday’s survey echoed sentiment in a recent Association of International Certified Professional Accountants report, in which finance executives indicated lower expectations for revenue and profit growth, as well as caution around capital spending. U.S. business investment and corporate profits fell in the third quarter, even though gross domestic product grew at a stronger than expected 2.1% annual rate.”
MARKET WATCH/Shawn Langlois
Beware of the ‘toxic concoction’ that could finally crush the U.S. economy
December 11, 2019
“President George W. Bush famously uttered those words a decade ago as the U.S. government was scrambling to restore liquidity and calm panicky markets during the upheaval of the financial crisis. A few years after that, Berkshire Hathaway’s Warren Buffett hailed Bush’s comment as ‘the greatest economic statement of all time.’ At the time, Buffett said Berkshire always has at least $20 billion in cash. ‘Some day in the next 100 years when the world stops again, we will be ready,’ he explained to a group of M.B.A. students in 2013. ‘There will be some incident, it could be tomorrow — at that time, you need cash. Cash at that time is like oxygen.’
Fast forward to this week, and that day could soon be upon us, according to Charles Hugh Smith of the Of Two Minds blog, who warned that this ‘sucker is finally going down’ and no amount of ‘loose money’ will be able to stop it. ‘We live in a bizarre world dominated by magical-thinking,’ he wrote in his latest post, ‘a world in which the Federal Reserve creating more dollars out of thin air is supposedly the solution to everything.’ But that’s clearly not the case. There are several ‘knotty structural problems’ that he says can’t be helped by an accommodative monetary policy, including unsupportable pensions, mounting consumer debt, a health-care system that’s bankrupting the country, outrageous student loan debt, funding unwinnable wars, etc. The ‘loose money’ approach is actually ‘metastasizing’ a new set of problems that will ultimately ‘bring this sucker down.’ … It all adds up to what Smith sees as the same ‘toxic concoction’ that has led to the destruction of economies throughout history.”