REUTERS/Karthika Suresh Namboothiri

Gold eases as hopes of U.S.-China trade progress lift risk appetite

November 12, 2019

“Gold prices eased on Tuesday as expectations of positive trade talks between the United States and China bolstered risk appetite, while investors booked profits.  Spot gold slipped 0.2% to $1,453.46 per ounce as of 1211 GMT, extending declines into a fourth straight session. U.S. gold futures also dropped 0.2%, to $1,454.20 per ounce. World markets edged higher on Tuesday as investors awaited a speech by U.S. President Donald Trump on trade policy, following news he will probably delay a decision on whether to slap tariffs on European autos.

EU officials said Trump was expected to announce this week he was delaying the tariff decision on cars and auto parts imported from the European Union likely for another six months, also boosting expectations about the president’s speech later in the day about the long-drawn trade war with China.

‘(The trade talks are) probably going to end in a truce, but that could change with a tweet. So, we will continue to have that nervousness in the background,’ said ABN Amro analyst Georgette Boele, adding that gold’s dip was largely due to profit-taking. ‘We are close to quite an important level. From a technical point of view, $1,450 was a breakout level.’ Last week, officials from China and the United States said they had a deal to roll back tariffs, only for Trump to deny any pact had been agreed.”

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KITCO NEWS/Interview – News Desk

Gold prices to skyrocket on overdue volatility in 2020

November 12, 2019

Gold 2020“From a macroeconomic perspective, several of the longer-term problems that would be bullish for gold will likely manifest in 2020, including a recession and an escalation of the trade wars tensions with China, this according to Peter Hug, global trading director of Kitco Metals.  ‘From a physical perspective, if you’re an investor from a medium to longer term perspective, you just stay with this market and if your holdings are under your percentage allocation that you were looking to apply to your portfolio from the perspective of gold, then you just add to the position at these levels because I think 2020 is going to be a very, very volatile year and I think it’s going to be very positive for the metals,’ Hug told Kitco News.

Hug noted that the recent pressure on precious metals can be attributed to selling action from institutional investors following this summer’s rally up to the $1,500 an ounce level. ‘Most of the large funds and the ETFs were positioned long…it would be logical that they would sell and take their profits and that’s why you’re seeing this weakness in the market,’ he said.”

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World economy headed for a recession. China won’t be there to save it this time

November 12, 2019

World Economy“A decade after the global financial crisis, with the world’s leading economies still addicted to the near-zero interest rates of the emergency response of quantitative easing, it seems the global economy remains on life support, with our experts still flummoxed about how to restore economic health. Trade across the world is stalling. Most leading economies are reporting near-zero economic growth. Investment is in decline. Most expert organisations, including the International Monetary Fund, the UN Department of Economic and Social Affairs, the Organisation for Economic Cooperation and Development and the World Trade Organisation, are predicting worse to come.

And this takes no account of the ‘stupid stuff’ that is gratuitously making matters worse – like Trump’s tariff war, Johnson’s Brexit and economic conflict between Japan and South Korea. After fending off the threat of a massive recession a decade ago, our leaders have retained an unsated urge to inflict self-harm as we teeter on the brink of a fresh recession. And after using so much of our monetary ammunition to fight off a recession in 2009, there are worrying questions about where the resources can be found to fight off a new recession. Government and corporate debt sit at record levels, with most central banks warning political leaders the monetary armoury is empty. They are calling for fiscal stimulus – like building infrastructure and cutting taxes – when most governments are staring at deep budget deficits and under pressure to cut, rather than increase, spending.”

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More than half of the world’s richest investors see a big market drop in 2020

November 12, 2019

World Investors“A majority of the most wealthy investors around the world are bracing for a big sell-off next year, according to a UBS survey. Fifty-five percent of more than 3,400 high net worth investors surveyed by UBS expect a significant drop in the markets at some point in 2020. Amid intensifying geopolitical risks, the super-rich have increased their cash holding to 25% of their average assets, the survey showed. ‘Investors see reasons to be cautious in the new year,’ said UBS Global Wealth Management’s client strategy office in a note on Tuesday. ‘Two in three global investors believe markets now are driven more by geopolitical events than business fundamentals such as profitability, revenue and growth potential.’

The ultra-wealthy’s top geopolitical concerns include the U.S.-China trade war and 2020 U.S. presidential election, UBS said. Stocks hit record highs last week, lifted by rising optimism on a trade resolution between the U.S. and China. The Dow and S&P 500 are both up more than 3% in the past month. However, the two sides are still finalizing the so-called ‘phase one’ deal and they seem to disagree on if the existing tariffs would be lifted. As the presidential election gets closer, Wall Street started to watch closely at the ascent of Elizabeth Warren. Notable investors including Paul Tudor Jones and Leon Cooperman have warned of a market correction on a Warren presidency.

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THE NEW YORK TIMES/Alexandra Stevenson and Cao Li

How Bad Is China’s Debt? A City Hospital Is Asking Nurses for Loans

November 10, 2019

China debt“When the call came for local doctors and nurses to step up for their troubled community, the emergency wasn’t medical. It was financial. Ruzhou, a city of one million people in central China, urgently needed a new hospital, their bosses said. To pay for it, the administrators were asking health care workers for loans. If employees didn’t have the money, they were pointed to banks where they could borrow it and then turn it over to the hospital. China’s doctors and nurses are paid a small fraction of what medical professionals make in the United States. On message boards online and in the local media, many complained that they felt pressured to pony up thousands of dollars they could not afford to give.

‘It’s like adding insult to injury,’ a message posted to an online government forum said. Others, speaking to state and local media, asked why money from lowly employees was needed to build big-ticket government projects. Ruzhou is a city with a borrowing problem — and an emblem of the trillions of dollars in debt threatening the Chinese economy. Local governments borrowed for years to create jobs and keep factories humming. Now China’s economy is slowing to its weakest pace in nearly three decades, but Beijing has kept the lending spigots tight to quell its debt problems. In response, a growing number of Chinese cities are raising money using hospitals, schools and other institutions. Often, they use complicated financial arrangements, like lease agreements or trusts, that stay a step ahead of regulators in Beijing.”?

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FORTUNE/Erik Sherman

The Pain from WeWork’s Failed IPO Deepens as Bondholders Stuck Underwater

November 12, 2019

We Work“How badly did WeWork crash after it bombed out of the IPO process?  Big backer SoftBank took a $9.2 billion write-down. That’s after putting $10.3 billion into the company through both common and preferred stock. But shareholders aren’t the only ones licking their wounds after a skeptical market tanked WeWork’s plans for an IPO. Anyone still holding the company’s bonds are likely facing an extended period of being underwater. Just three months ago in August 2019, the bonds hit a high of 103.21 (100 being par, or the face value of the bond) on secondary markets. They now sit at a flat 85. Yields, which move in the opposite direction of a bond’s price and are a measure of the risk level of a security, were 7.875% at issuance and are now at 11.66%.

In the bond world, this is called a disaster. And a lot of big-name financial services firms have millions tied up in these bonds, with the top holder at almost $199.7 million. When WeWork had a presumed valuation of $47 billion, the skeptic might have wondered on what foundation it was built. After all, International Workplace Group, the largest name in subleasing office space, currently has a market value of about $4.4 billion. IWG has notched an annual revenue of about $3.2 billion on 3,334 locations. It is profitable. WeWork, in comparison, has lost billions of dollars on 600 locations with a valuation that—at least in the not-too-distant past—was almost 15 times higher. The $47 billion WeWork valuation the company reached in early 2019 now of course seems downright crazy.”

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