17 October 2016

MacroView: Gradually and Then Suddenly, How Markets & Companies Fail

MacroView | © DomainMondo.com
Domain Mondo's weekly review of  macro economic and investing news:

MacroView Feature  •  Sometimes you don’t exactly notice how bad things really are. It’s not always as apparent as it would seem.--Sarah Dunn

Gradually and Then Suddenly: In Ernest Hemingway’s The Sun Also Rises, one character asks another how he went bust. The response is a classic: “Two ways, gradually and then suddenly." That's how companies, governments, pension funds, and individuals often fail:
"And it’s how conditions in complex markets shift as well. The underlying circumstances that shape the environment in which you operate can evolve at a snail’s pace, and then shift quickly, either as new actions are introduced, or as the agglomeration of changes reaching a tipping point."--strategy-business.com
Wilbur Ross: U.S. Recession Likely in Next 18 Months:

Video above published on Oct 14, 2016: Billionaire distressed-debt investor Wilbur Ross, chairman of WL Ross & Co., comments on U.S. financial markets and the possibility of a recession. He speaks during an interview with Bloomberg's Matt Miller and Scarlet Fu on "Bloomberg Markets."

Gradually and then suddenly?
•  Goldman Sachs Sees Shock Potential for U.S., European Stocks | Bloomberg.com"Political risks, exacerbated by a weak economy in Europe and high stock prices in the U.S., make those markets vulnerable to declines in the next three months. The firm projects that the S&P 500 Index and the Stoxx Europe 600 Index will each drop by about 2 percent by December." See also Goldman Tells Clients To Go To Cash As "Growth Shocks" Are Coming | ZeroHedge.com.

•  Next European bank bombshell: DoubleLine’s Jeffrey Gundlach dropped a new name to worry about on the European bank front. He says if “push comes to shove,” the German government will support Deutsche Bank. “But what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”--MarketWatch.com. Italy’s Intesa Sanpaolo is matching Credit Suisse’s year-to-date losses. Spain’s Banco Popular is down 60% year-to-date. Gundlach has also said the ECB’s negative-interest-rate policy is running the risk of bankrupting its lenders, and Deutsche is a poster child for this: “You cannot save your faltering economy by killing your financial system.”

•  Rail Freight Gets Clocked from all Sides in this Economy | Wolf Street: "Total US freight rail traffic, as measured in carloads and intermodal units, fell 6.1% in the week ended October 8, from the same week last year, the Association of American Railroads reported today. It was down 10% from the same week two years ago." See also: Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession | Wolf Street.

•  ‘Bulletproof’ Public Pensions | NYTimes.com"The California Public Employees’ Retirement System, or Calpers, said Loyalton had 30 days to hand over $1.6 million, more than its entire annual budget, to fund the pensions of its four retirees. Otherwise, Loyalton stood to become the first place in California — perhaps in the nation — where a powerful state retirement system cut retirees’ pensions because their town was a deadbeat." See also The state government pension crisis: You will be made to care | Washington Examiner.

•  Sheila Bair called the financial crisis but her new nightmare is student loans"The problem is much worse," Bair replied. "The percentage of [former] students in distress on their student loans is significantly higher than we saw during the subprime crisis."--Bloomberg.com

•  Chinese Property Owners are in for a Very Rude Awakening, but the Damage Will Reverberate around Globe --WolfStreet.com: "The biggest bubble in history." See also: Wall St. Tumbles After China Trade Report Disappoints | NYTimes.com 13 Oct 2016: "Data showed that China’s exports last month fell 10 percent from a year earlier in dollar terms, compared with a 2.8 percent fall in August."

•  Starbucks held $1.2 billion in customer funds loaded onto Starbucks cards and its app as of Q1 2016, according to MarketWatch.com based on data from S&P Global Market Intelligence. Starbucks holds more money than some banks hold in deposits. But Starbucks doesn't have to worry about the most powerful man in banking, Fed governor Daniel Tarullo, who heads the Fed’s Committee on Bank Supervision. Tarullo took office at the Fed in 2009 at a moment of broad public support for a more aggressive tack and has pressed that advantage ever since. His influence ranges over everything from corporate strategy to how many billions of dollars banks must maintain in capital. Through the stress tests he championed to evaluate how banks might fare in another market shock, the Fed wields control over whether banks can raise the dividends they pay to shareholders--WSJ.com. See also: “All organizations with sales goals are going to be susceptible to falsified sales records,” said Kane, who worked at Wells Fargo in the 1980s and ’90s before founding Kane Bank Services, which focuses on bank sales practices.--LATimes.com

•  Canada’s Big Bet on Fiscal Stimulus Drawing Global Attention: "Trudeau’s move to lean on infrastructure spending to boost growth is regaining currency"--WSJ.com

•  Week ahead: U.S. presidential candidates Hillary Clinton and Donald Trump hold their final debate in Las Vegas on October 19, 2016, 9:00-10:30 pm EDT. The moderator is Fox News anchor Chris Wallace, who will question each nominee. Watch LIVE online here. See also: Glenn Greenwald: WikiLeaks Emails Clearly Show Serious Media Impropriety | Mediaite.com and In the Democratic Echo Chamber, Inconvenient Truths Are Recast as Putin Plots | TheIntercept.com by Glenn Greenwald: "... The tactics they [Democrats] are now embracing will endure past the election, making them worthy of scrutiny. Those tactics now most prominently include dismissing away any facts or documents that reflect negatively on their leaders as fake, and strongly insinuating that anyone who questions or opposes those leaders is a stooge or agent of the Kremlin, tasked with a subversive and dangerously un-American mission on behalf of hostile actors in Moscow. To see how extreme and damaging this behavior has become, let’s just quickly examine two utterly false claims that Democrats over the past four days — led by party-loyal journalists — have disseminated and induced thousands of people, if not more, to believe ..." See also: It’s Official: This Election Is Driving Americans Nuts | Bloomberg.com and Most "news" is misinformation | DomainMondo.com.

One more reading recommendation:
•  "In order for investors to beat the performance of an index fund they must have a view that is different than the crowd and they must be right about that different view."--A Half Dozen Things I’ve Learned from Robert Cialdini’s book “Influence” | 25iq/com

-- John Poole, Editor, Domain Mondo 

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