China is taking center stage … again. That’s because global policymakers are about to board their jets for Shanghai for a key Group of 20 summit of fiscal and monetary policymakers.
Market Roundup
The want – desperately — to see that Chinese officials have things under control. They want — desperately — to hear that China has no plans to further devalue its yuan currency to gain an edge in the global economy. And they want – desperately — to speak with a unified voice afterward, in order to calm global market jitters.
Or as a Brookings Institution expert told the Wall Street Journal:
“G-20 officials are crossing their fingers and hoping that China can stabilize expectations and prevent a panicky outflow of capital.”
Some economists and outside observers are going so far as to call for a Plaza Accord-style deal. That September 1985 deal, signed at the Plaza Hotel in New York City, involved the governments of France, West Germany, Japan, the U.S. and the U.K.
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| Officials gathering in Shanghai are hoping China can stabilize expectations and prevent a panicky outflow of capital. |
They agreed to weaken the U.S. dollar in order to give a boost to the U.S. economy and reduce the current account deficit. This time around, a “Shanghai Accord” would involve some kind of multinational effort to stabilize currency and other markets. But it’s unclear in what manner it would do so, and the Chinese appear to be talking expectations of significant coordinated action.
Clearly, the market turmoil in January and early February spooked policymakers. I believe that helped spur OPEC and non-OPEC nations to at least try something to stabilize energy prices. It also helped spur talk of some kind of coordinated action to calm things down. Those two catalysts were key reasons for the stock market bounce.
But can policymakers actually deliver something that has a lasting impact? Or is this just a short-covering bounce based on unrealistic hopes, hopes that will soon be dashed in Shanghai?
| “I don’t see what the G-20 can do … to change the current dynamic for more than a few hours or days.” |
I’m leaning toward the latter camp because I don’t see what the G-20 can do or say to change the current dynamic for more than a few hours or days. That’s because different countries are pursuing different monetary policies right now, and they have different goals.
For example, why would the Europeans or Japanese agree to work with the U.S. to weaken the dollar when they’ve spent the better part of the last two years trying to weaken their own currencies? It doesn’t make any sense.
The Chinese also seem intent on pretending everything is going okay, and projecting an image of calm to the world. Freaking out and launching a significant devaluation, or enacting other drastic measures, would run counter to that strategy.
Bottom line? There’s a lot of hope being priced into assets ahead of this meeting. If policymakers deliver a “nothing burger,” that could ignite fresh turmoil in the markets. Stay tuned!
In the meantime, what do you think the G-20 will or won’t accomplish? Is there anything the Chinese can do to calm the markets again? What about the U.S., Europe, and Japan? What kinds of currency moves are you expecting to see next week in the wake of this summit? Are there other investment moves you’re making to get prepared? I want to hear about it below.
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Should the U.K. vote itself out of the European Union, or should it stay put? That was a question the markets were wrestling with yesterday, and several of you also weighed in with your thoughts.
Reader Donald L. said the EU is in serious trouble regardless of what the Brits do. His take: “The EU is the closest thing we will see to a real zombie. Its functions are kept moving, pretty erratically, only by the massive bureaucracy in Brussels. It oppresses with its rules and serves no one save the governments and their minions. An orderly departure would be best, but a departure for certain.”
Reader Anthony D. said: “An orderly departure is what l and many of my friends and business associates shall vote for. Then we will press for the revival and reformation of the EU as a European Free Trade Area, as an association of European nations, each with independent and very strict immigration control.
“As such, there will be no need for draconian Soviet-style multinational control, as presently exercised by the Brussels bureaucracy. It can be done away with, resulting in gigantic cost savings to big contributors like Germany and Great Britain. European security already covered nationally and internationally by NATO shall be strengthened as a European peacekeeping force.”
Reader Craig B. said he thinks the U.K. is cooking up a crisis in order to extract more concessions from Europe: “It’s a ploy for Prime Minister Cameron to negotiate more favorable terms from the EU, and then stay in the end. As with Scotland, Quebec, the Swiss vote to require the Swiss National Bank to own gold assets, and others, it’s only a protest that invariably comes up short each time of the required number of votes necessary to pass.
“Pundits have a field day for a while. But in the end, very little actually changes because the establishment always sells out the people in every country that votes for a proposed change.”
Speaking of Cameron, Reader Gordon offered this take on his latest European adventure: “It looks like David Cameron returned from his European trip with very few gifts in the bag. He is putting on a brave face and pushing his troops to sell the deal. Like most ‘deals,’ I am sure the average Brit will have trouble understanding its substance — much like me reading the fine print in my insurance policies.
“They will blindly place their trust in good old David and say ‘yes’ as he will have the most ground troops, momentum, and horn blowers out there stumping the country to try to sell this pig in a poke. One only needs to look at how NAFTA turned Canada and the U.S. into an industrial wasteland and the TPP will do the same.”
Finally, Reader Howard said: “If the EU was the great success it was forecast to be long ago then there would be no need for this referendum. The issues are many, but the loss of sovereignty and having to take orders while funding Brussels is of great concern.
“Having secure borders is an issue for any country wanting and believing in their rights of self-determination. Free travel between borders for Europeans is being abused, as are some governments who believe in a free ride on the coattails of the working few in more disciplined societies. Get out while the going is good.”
Thanks for sharing these very interesting takes on the latest political machinations in Europe. It’s clear to me that political infighting, out-of-control monetary policy, the migrant crisis, collapsing banks, and other problems have left the Continent in very rough shape – and that European markets are extremely vulnerable as a result. That, in turn, could lead to more market volatility and turmoil here in the U.S. So be sure to keep an eye on what’s going on across the pond (as I am).
Are there other points I didn’t touch on? Any thoughts you have that you didn’t share yet? Then use the comment section below to weigh in.
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Standard Chartered (SCBFF) of the U.K. became the latest European megabank to plunge after it reported its first full-year loss since 1989. Though based in London, the bank has significant operations in emerging markets around the world. Massive restructuring charges, losses on derivatives, goodwill impairments, provisions for bad loans, and other challenges drove its loss to $2.2 billion. That was a huge swing from a year-earlier profit of $2.7 billion.
Auto lenders have been giving loans to anyone with a pulse lately. Now, subprime car borrowers are falling behind on their payments at the highest rates in years.
The delinquency rate on subprime loans that are bundled into so-called Asset Backed Securities (ABS), just hit 4.7%. That’s the highest rate since 2010. The actual default rate hit 12.3%, also the highest in six years.
None of this is good news for a banking industry that’s already facing a variety of financial threats. Who could have seen this coming? You did, as a reader of Money and Markets.
While merger financing has gotten tighter in recent months, some companies are still exploring or conducting transactions. Western Digital (WDC) is going forward with its $15.8 billion offer for chipmaker SanDisk (SNDK) after a separate Chinese bidder dropped out amid fears of U.S. government scrutiny.
Aerospace giants Honeywell International (HON) and United Technologies (UTX) also explored a huge combination. But the talks have stalled because of expected antitrust opposition in the U.S. A merger would have created a company worth $70 billion that employed more than 300,000, per the Wall Street Journal.
Are you as “shocked” as I am to hear that people with bad credit are now defaulting at ever-increasing rates on their subprime auto loans? What do you think of the latest European megabank debacle? And how about the M&A business? Is it doomed? Or do these latest proposals suggest a revival is in the works? Let me know in the discussion section.
Until next time,
Mike Larson
P.S. In case you missed Global Currency Investor’s Inaugural Live Briefing this afternoon, you can view it online now, for just a short time only.
Normally, events like these are for members only.
But Boris and Kathy feel that this information is so critical to your financial survival, they broke all the rules: They allowed a select handful of alarmed investors to join Global Currency Investor members this one time ONLY.
They discuss incredible profit opportunities, but it will be offline soon! Click this link now!
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Hi Mike
Global reserve banks are manipulating lower interest rates for a reason. The talk in Greece at the moment is not so much cutting their unrepayable debt, but extending their maturities at lower rates. QUESTION. Is the rest of the world being forced to pay for these extravagant errors of judgement with manipulation of rates???
It seems to me that we are moving away from free markets and moving towards managed risk by central banks. This building lack of trust by free marketeers in changing monetary policy may account for the larger cash holdings by individuals and trust funds etc.
My thought is simple, We can’t ask everybody else to get their financial houses in order until we get our financial house in order. We will have no power to cause change in the global markets until we set the example.
Sorry Jim
The example train has left the station. The USA would have to climb a 19 trillion dollar mountain of debt and if you include all the states well 200 trillion might be more in order. They would need a front end loader not the sand shovel they are presently using to make even a small dent in it. The party is over and the house is beyond repair. The big money boys will survive they always do. As Rothschild said ” I care not who makes the country’s rules I only wish to control its currency” Fast forward that statement and it looks like you can add technology to the list money and technology and yes the Rothschild family is still flying under the radar and doing well. Their tenacles are everywhere.
THERE COMMUNISTS HA HA !!!!!!!!!!!!!!!!!!!!!
The chickens are finally coming home to roost. The debt has been piling up for years and one day it musty be paid back. The government knowing that if property prices drop so does taxation to cities counties and states. They will do almost anything to keep this golden calf alive, but it’s now sick and getting sicker. The day of finical reckoning is soon to come.
Just like the person that spends more than he makes, the US (hell,most of the rest of the world) will reach a point where it can’t borrow as much as it needs to maintain the status quo. Printing money will be the only way out. But we can’t print enough. The government will then take what it needs from those that have it until there is no more in that pot. Then the blood will run in the streets.
There will be a great deal of glad handing and little progress vis-a-vis the G-20. … The EU is in shambles, Japan is a lost national economy, and the Chinese can not be trusted in any way and will probably be grand standing in their customary fashion. … The USA would be better off meeting with Canada and Mexico to establish real economic policy in North America. After all, the NAFTA agreement could easily be expanded, providing a truly unified economic benefit. As an individual investor, blue chip, large market cap companies offer somewhat of a best position and cash is king.
All the printings $ Trillions went to pay for those senseless wars with no returns, like Ancient Roman Empire.
Regarding: “Are you as “shocked†as I am to hear that people with bad credit are now defaulting at ever-increasing rates on their subprime auto loans?” In the spirit of A Christmas Carol (Charles Dickens)
Shock Past: How could the financial industry be stupid enough to repeat the “mistakes” of the housing bubble with automobiles?!
Shock Present: Despite a looming disaster, other than Money And Markets, no one seems to notice much less prepare.
Shock Future: When the this bubble burst, guess who will have to pay for it again? Hint: not the banks, – can you say bailout? And if that happens before November, say hello to President Sanders!
Frank in one word “Greed”
gordon, in one word, “bottom”.
Mike,
I enjoy your column more and more each day. It is especially refreshing to see your approach of asking the most pertinent questions thst you readers need to make informed decisions. All the “pundits” today have an answer and they all know what will happen next week, month, year in every market on the planet. So,far you are the only one asking readers to think it over, so to speak, by prodding with very good questions. Keep up the fine effort.
Thanks for your advice. Went to 1/3 cash in August and got out of short-term bonds, and added position in gold ETF. With Boris & Kathy’s advice added more gold ETFs while decreasing small cap and overseas. Thanks for sharing with us small investors, because I not hearing this any place else. Just trying to retain my retirement nest egg!
I don’t see how the G-20 could be expected to accomplish anything significant. In fact, I think that there are forces in motion that have taken the fix out of their hands, i.e. a huge amount of unproductive debt worldwide that that can’t lead to anything but turmoil and default.
It will turn into a big lovefest rah rah rah go team go. They will buy a little time markets will shoot up afterwards and then fizzle out its the same old tired dog and pony show. They desperately need some new material. As governments gain more of a stranglehold on what the media tells us get ready for a glowing pile of bile. I see 3 reporters in Japan got handed their walking papers because would not talk from the government manifesto. Media heads are now in bed with the politicians and a simple phone call to them from on high solves all their problems. Yes folks your freedom of speech is slowly being bled away drop by drop
just do the opposite of what you read and everything will be so fine
People defaulting on subprime auto loans. Why is that news? Why wasn’t that expected? It is not something like this has n-e-v-e-r e-v-e-r happened before. Houses now cars. Maybe the way food prices are going subprime grocery loans will be next. And I haven’t forgot the student loans.
the bottom is in. feb 11, 2016. stocks will never be this cheap again.
my bottom is in too – it will never be this clean again
hi jack. or, is it hijack?
it’s cold here. time to go visit my baan on koh phra thong.
LOL
were
I will be marking this on my wish list calendar.
what are you wishing, gordon?
Gold has risen a little in terms of the U.S. Dollar, but the dollar has risen in terms of foreign currencies This means that gold is at an all time high in Canadian Dollars, Russian Rubles, and probably other currencies. If out Dollar begins to collapse, how long before we also must pay all time high prices for the stuff. ‘Might be a good time to get a little bit for ourselves over the next few months… before Larry’s Junetime bottom. Will that signal the onset of high – maybe runaway – inflation here?
Gold is insurance. Jim
gold has a vague correlation with the dollar. gold has been the direct inverse of the s&p. stock go up, gold will go down.
What are the reasons and the meaning as tendency of the continuous ups and downs of gold?
Is it a harbinger of a big leap?
I read that, according to Moody’s Analytics, four U.S. states: Alaska, North Dakota, West Virginia and Wyoming, are officially now in recession. Three states: Louisiana, New Mexico and Oklahoma, are in prolonged declines. All of the first group are big oil or mining states, and those industries are also important in the others. They could be harbingers for many other states or regions – even those with more varied support for their economies.
China might be expecting their currency to fall if they are buying into us assets. And as a “safe haven play”, buying hard assets is better than betting on a muniplated stock market. China investing in the US will help reduce the risk of conflict. Is this a siginal of lost confidence and game over for China’s manufacturing sector? G20 meeting are bribes and back room deals outside of political oversite.
i am looking for stocks with a very low peg, high long term growth rate under 50% D/C, over 4% margin prefer 2=% dividend yield and an ROE of over 20.+ a product that they are a major player in.
My signal that the G20 circus will not go well is from the gold price chart; I see the chart completing a flag tomorrow and then going way up on Friday, 26 February 2016. Fits together with timing of the G20 meeting very nicely.
Sorry, that should be Thursday, 25 February, that I look for gold to go up substantially. Two days from now. Forgot that I am on the other side of the date line. We shall see.
China’s decade long phantom growth based on trillions of miss allocated investment paid for by banks creating money out of then air is now coming unraveled and no amount of currency debasement can pull their fat out of the fire. Further, central banks world wide have failed to keep the credit party going by printing more and more fiat money and ZIRP and they have nothing left except more of the same failed policies. The dark clouds are on the horizon folks, the only question is the exact timing.
Let me give you a short synopsis of what will happen with China at the G20. They China will get on stage and blow their horn of success as will all the other members be gushing with success stories and stock markets will go crazy for a day or 2. It will be the same old tired smoke and mirrors game and novice investors grasping at straws will pump the market up for a day or two. Sound familiar. They China changed their SEC guy and the market went up but the guy is just another puppet on the party string. They are already making 2016 projections to the upside all over the news do they have a crystal ball? China would do Charles Ponzi proud if he were alive today as they have taken his game plan to a whole new level. I have read all these economists reports telling us to hurry and invest in China but in reality who knows anything concrete about China hold your hand up.
Nothing has changed in the world folks especially the world of banking Standard Charter has now joined the likes of Deutsche bank in taking a big hit on profits and I have a feeling this is just the tip of the iceberg. Its becoming a losers club fast. On the other side of the coin the TDCanadatrust in Canada in 2015 laid off a large number of employees and gave their CEO a 10% raise. I often wonder how these guys sleep at night. Yes folks the little guy will continue to bleed while the CEO’s and the money men continue to succeed. Was it Deutsche bank that in a bluster said things are OK and they would buy back some of their stock. Sounds like the band playing on the deck of the Titanic to me.
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HSBC has cut its end-year targets for China stock index by 14-18 percent as earnings forecasts fell. The good news? Stock may still finish higher from current levels. unquote
No wonder HSBC is in trouble. China Voodoo economy and Voodoo forecasts by HSBC and others. The stock market at present is following the same trend. Buy on the bad news sell on the good news. Yes the market may go up if this trend continues
Banking 101 explains why banks are in trouble. Central bank low interest rates are strangling banks. What will banks do pay their depositers zero percent interest. Sorry if they do my money goes under the mattress or straight into gold.
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Negative rates force banks to charge rock-bottom interest rates on loans. This eats into bank revenues, as The Wall Street Journal recently explained.
Very low interest rates hurt the profits banks make on loans, especially when investors believe loose monetary policy is here to stay. Long-term rates at which banks lend then fall to be little more than short-term ones at which banks borrow.
PS on banks
I just heard on the news that some Japanese bank employees for the first time have passed on asking for a raise in their salary. They are afraid to add more stress to the banks problems. So here from another view point workers are now frightened into a badly needed pay increase this in turns puts pressure on consumer spending and so on.
Could be they’re afraid to ask for more. Their CEO might lay them all off so he can get a big bonus or pay raise.
China has changed their policy to become a consumer based economy and a G-20 meeting will not derail this plan. Perhaps with added insight into how China plans to move forward in implementing this policy change will reassure investors enough to cause some stabilization in the financial markets for the time being. In this I am betting on a stronger Yuan. However, the world does not depend on China’s prosperity alone; the massive derivative exposure of Deutsche bank far outweighs the combined GDP of the Euro-zone and China put together. The entire house of cards will come crashing down once that corner card falls. Investor panic and risk aversion will see capital seeking safety in havens.
I have seen very little discussion of what’s going to happen to the Stock and Bond markets if Donald Trump manages to pull off the upset of the century. Whether you like him or not he is running circles around the Establishment Republicans and Democrats and has their Media backers on their heels. He is promising to change the rules of the game and this could have a profound effect on all our investments. For instance, if he imposes tariffs on the Chinese and Japanese what are they going to do with all those U.S. treasuries they hold? What if he changes the IRS rules that encourage corporations not to repatriate their overseas profits? What if he actually attempts to break up the corrupt D.C.-Wall Steet alliance. All this could effect currencies as well. I haven’t really thought this through because I didn’t think he could win. But, what if he does? Jim
To finish my thought. Whoever gets this right could make a LOT of money. Whoever gets it wrong could lose same. Jim
Just to funny for words so I will share it with you. Just went into my online banking and their catch phrase was and get this one a real hoot!! “Borrow now so that your retirement savings may grow” yeah sure. I will pay more in interest than I can earn from them.
Why has the national media blacked out coverage of Operation Northern Thunder, where 350,000 Sunni Muslim troops with 2,000 tanks, 500 attack helicopters and 2,500 fighter/bombers have gathered in the northern desert of Saudi Arabia for a “training exercise” involving forces from 20 nations? Every politician of every stripe has said the U.S. won’t send ground forces to fight ISIS or depose Assad, that is an Arab problem that requires an Arab solution. The Saudis and the Turks say they are ready to go…if the U.S. will lead, so where is the leadership?
I asked much the same question a week or so ago – still no news. Would the Saudis really do it, though? Do they really want to fight Russia?
well there hasn’t been a ounce of leadership coming form the white house since the November 2008 election when Barack Hussein Obama won the presidency THE ONLY THING he has managed to do is double the national debt in little more than 7 yrs . Added huge tax burdens on future generations of americans and push the United States unfunded liabilities in GAAP accounting to over 100 trillion dollars this represents a tax burden of $846,206 DOLLARS to each and every taxpayer but the problem with this debt is tomorrow it will more and every week and every month after that even more I feel we now as a country are getting precariously close to a debt death spiral , just how much more in debt as a country can we go before we tip the balance and end up like the PIIGS nations………………………..
Howard’s comments are right on. Don’t forget that free marketers hold the bulk of the world’s wealth. So when they get scared they dominate markets.
Central bankers, i.e. politicians economic views, are failing to develop growth and in fact are actually delivering reduced growth because the spending or forced risk taking is not what the people want. It’s artificial. It’s going against society’s desires for security of those who hold the money. Most of these people who hold savings are trying to save more they need the money for retirement. Efforts to drive those who hold the money to do what they don’t want is going to cause the opposite effect because obviously governments are trying to confiscate saver’s store of value so they can spend it on those who haven’t saved.
Gentlemen,
I mentioned it before and I’ll say it again: “too much money has become concentrated into too few hands”. Ultimately business needs sales and people need enough discretionary income for a highly integrated advanced economy to function efficiently and maintain a stable balance. The central banks have run up against a debt service limit firewall as real discretionary incomes continue to decline. The world economy is going into financial shock just like the human body would if 80% of its blood circulation went to its head (10% of its weight)instead of the 20% that it requires. QE transfusions only delay and exacerbate the inevitable collapse. Forget the moralizing about inequality: greed is NOT good because it plainly does not work! Any post-collapse paper or electronic* claims for tangible needs and necessary services will have only two possible future uses: toiletting and kindling. *only if first printed out, “poof” otherwise!
The Republicans in the Senate say they won’t hold hearings on any Obama SCOTUS appointment before the election. Maybe they should think twice – the Dems could make that a big election issue. It could maybe get Hilary elected, and who might she appoint?
A B S = ASSET BACKED SECURITIES. Is it just me or is the abbreviation A B S,
which can also stand for ADULT BOOK STORE, mean you’re gonna get screwed,
either way.