REUTERS/ K. Sathya Narayanan

Gold steadies after U.S.-China deal, palladium jumps over 5%

January 16, 2020

“Gold prices were little changed on Thursday, but still holding above the key $1,550 level as the signing of a preliminary trade deal between the United States and China failed to address concerns about tariffs and other core issues.  Record-setting palladium, on the other hand, soared more than 5%, while platinum jumped to its highest level in almost three years.  Spot gold slipped 0.1% to $1,554.86 per ounce as of 1046 GMT. U.S. gold futures gained 0.1% to $1,555.10.  The much-awaited Phase 1 trade deal was signed by U.S. President Donald Trump and Chinese Vice Premier Liu He on Wednesday, defusing an 18-month-long row that has roiled global markets.

‘From many people’s perspective the deal looks quite underwhelming, there is still a lot which needs to be resolved… that is one of the reasons why gold has upheld the level of $1,550,’ OANDA analyst Craig Erlam said. ‘The fact that the tariffs are still in place gives more hope that the phase two is being taken more seriously.’ Analysts noted the Phase 1 deal fails to address structural economic issues that led to the conflict, doesn’t fully eliminate the tariffs, and sets hard-to-achieve purchase targets, leaving a number of sore spots unresolved.”

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ABC NEWS/Miriam Khan

Senate to accept articles Thursday as Trump impeachment trial set to begin

January 16, 2020

“The Senate is set to formally accept the articles of impeachment Thursday, after they were handed off by key members of the House late Wednesday, officially triggering the third presidential impeachment trial in presidential history.  House managers, who were officially revealed will read the articles of impeachment against President Donald Trump in the Senate chamber sometime in the afternoon, with House Intelligence Committee Chairman Adam Schiff taking a lead role. After the articles are ‘exhibited’ it is expected that Chief Justice John Roberts will be sworn in to preside over the Senate impeachment trial.

“‘This is a very important day for us,’ Pelosi said Wednesday.  ‘Time has been our friend in all this,’ she added, noting what she called the new ‘incriminating’ evidence that has surfaced in the month since the House impeachment vote on Dec. 18. Schiff said the new evidence, revealed by the House just Tuesday night, must be considered by the Senate. It’s undecided if the Senate will hear from witnesses or consider new evidence during the trial.”

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CNN BUSINESS/Jill Disis and Charles Riley

A world trade war is brewing. The US-China deal won’t stop it

January 16, 2020

“The United States has signed a partial trade agreement with China. But that doesn’t mean simmering conflicts and uncertainty over trade won’t drag down the global economy this year. Tensions between the world’s two biggest economies are likely to persist in 2020 as Beijing and Washington enter a second round of trade talks that are expected to be more difficult than the ‘phase one’ process that culminated in a deal Wednesday. The European Union is also locked in its own trade dispute with the United States that has strained ties. And the U.K.’s looming break with Europe brings a slew of challenges as the country attempts to forge a new relationship with its largest export market.

President Trump has heralded the ‘phase one’ US-China trade deal as a significant breakthrough. US officials said the agreement will reduce some tariffs and allow Beijing to avoid additional taxes on almost $160 billion of the country’s goods. The Trump administration also said it received commitments from China to purchase billions worth of agricultural goods and crack down on intellectual property theft …  But more specific details about the text of the agreement have been elusive … ‘The deal as outlined harvests all the low-hanging fruit,’ analysts at Capital Economics wrote in a research note last month. The initial deal ‘does not mark the end of tensions between the US and China,’ they added.”

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MARKET WATCH/Shawn Langlois

The last time this ‘clear danger sign’ flashed in the stock market was in 1999, and we all know what happened next

January 15, 2020

“‘When pigs squeal, feed them.’ Brad Lamensdorf, portfolio manager for AdvisorShares Ranger Equity Bear ETF, used that expression to describe what he sees in his ‘Chart of the Week,’ which, he says, should give investors cause for concern.  The chart, pulled from a recent Wall Street Journal story, essentially shows how much red ink is spilling in the IPO market. As you can see, the last time this ‘clear danger sign’ popped up was on the brink of the dot-com implosion in 1999.  As the Journal pointed out, 42% of these money-losers come from the health-care sector, where investors look to make a killing on smaller biotech stocks with big upside. Another 17% come from the technology sector.

‘Over-priced IPOs usually occur toward the end of a long bull run when stocks in general become very overpriced,’ Lamensdorf wrote. ‘Why does this happen? Generally, because investors have lost their sense of reality. They are willing to buy stocks on hyped stories instead of the facts.’ In other words, investment bankers, he explained, pounce on the opportunity to stuff the stock market — or, as the expression goes, feed the pigs — with overpriced companies as long as the public has an appetite for risk. Investors showed some risk appetite in Wednesday’s trading session, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all moving nicely higher.”

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THE WALL STREET JOURNAL/Greg Ip

The Era of Fed Power Is Over. Prepare for a More Perilous Road Ahead.

January 15, 2020

“The Federal Reserve and other central banks have long been the unchallenged drivers of financial markets and the business cycle. ‘Don’t fight the Fed,’ goes one Wall Street adage. That era is drawing to a close. In many countries, interest rates are so low, even negative, that central banks can’t lower them further. Tepid economic growth and low inflation mean they can’t raise rates, either. Since World War II, every recovery was ushered in with lower rates as the Fed moved to stimulate growth. Every recession was preceded by higher interest rates as the Fed sought to contain inflation.

But with interest rates now stuck around zero, central banks are left without their principal lever over the business cycle. The eurozone economy is stalling, but the European Central Bank, having cut rates below zero, can’t or won’t do more. Since 2008, Japan has had three recessions with the Bank of Japan, having set rates around zero, largely confined to the sidelines. The U.S. might not be far behind. ‘We are one recession away from joining Europe and Japan in the monetary black hole of zero rates and no prospect of escape,’ said Harvard University economist Larry Summers. The Fed typically cuts short-term interest rates by 5 percentage points in a recession, he said, yet that is impossible now with rates below 2%. Workers, companies, investors and politicians might need to prepare for a world where the business cycle rises and falls largely without the influence of central banks.”

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THE MOTLEY FOOL/Sean Williams

The Hidden Recession That Everyone Is Overlooking

January 16, 2020

“To say that the stock market has some big shoes to fill in 2020 would be quite the understatement. In 2019, the benchmark S&P 500 gained approximately 29% (approximately 32% after adding dividends), which is more than four times higher than its historic annual average return of 7%, which includes dividend reinvestment and adjustments for inflation. Patient, long-term investors were handsomely rewarded. But at the same time, worries continue to manifest about the potential for a U.S. or global recession. We’re in the midst of the longest economic expansion in U.S. history, suggesting we’re more likely to be in the late innings of this expansion than the middle.

There is, however, one indicator that’s already pushed into recession territory and is the real story that investors should be discussing. According to the latest ‘Earnings Insight’ report from FactSet Research Systems on S&P 500 companies, fourth-quarter earnings for the benchmark index are expected to have declined by 2% from the prior-year period. This follows year-over-year (YOY) earnings per share (EPS) declines in Q1, Q2, and Q3, and would mark the first time that the S&P 500 has delivered four consecutive quarters of YOY EPS declines since Q3 2015 through Q2 2016. Since a ‘recession’ is officially defined as two consecutive quarters of GDP contraction, four consecutive quarters of YOY earnings contraction certainly fits the bill … This weakness is particularly noticeable with the energy, consumer discretionary, and materials sectors, which are expected to see earnings growth slow by 36.8%, 13.5%, and 10.4%, respectively.”

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