MacroView | Trump Effect: Breaking The Curse, A New Paradigm

Domain Mondo's weekly review of  macro economic and investing news:
 
MacroView Feature • Trump Effect--Breaking the Curse, A New Paradigm--"the 'Curse of Correlation' has lifted, for now ..."--Convergex.com

The “Risk On, Risk Off” markets of 2010–2015, responded to macro news, everything depended on market perception of central bank interest rate policy. Since the election of Donald Trump, investors have been identifying new macro trends (e.g., higher interest rates) and unlock potential winners--financials, industrials, materials, healthcare--and sell losers (tech, utilities). Correlation data, post-election, indicates this time is different from any point since the Financial Crisis. Get Ready for Dow 20,000 | Barrons.com: "... the Dow is outpacing both the S&P 500 and the Nasdaq. It could continue to outperform in the year ahead ..."

Dow Jones Industrial Average (DJIA) UP 7.77% since Nov 8 (source: google.com)

• Fed expected to raise rates

Video above published Dec 9, 2016, by FT.com: Sam Fleming talks to Donald Kohn and Joseph Gagnon about the prospect of higher interest rates and Donald Trump's proposed tax cuts. The Fed Open Market Committee (FOMC) meets December 13-14. 

Why the Fed will no longer be the big deal when it meets this week: The Federal Reserve Open Market Committee on Wednesday (Dec. 14) is expected to announce an interest rate hike — its second in a year, and also the second in 10 years. However, a 25 basis point increase in the Fed funds target rate has become anticlimactic because there's a new game in town for investors — the Trump Effect:

"The surprise of the Republican sweep of Congress along with the Trump administration has really changed consensus expectations almost 180 degrees. We really are focusing in on some of the impacts that some of the policy changes could have. We may be shaking up the economic world in terms of what we've been waiting for, what the Fed has even been saying — we need Congress and fiscal policy to do some of the heavy lifting here. I guess in some cases the Fed isn't really leading the story as much as they had in the past, and in some ways the Fed is really following the market right now in terms of raising rates," said Scott Anderson, Chief Economist for Bank of the West.--CNBC.com

Why Trump's Fiscal Plans Won't Blow Up the Budget: Factor in the extent to which animal spirits will be unleashed--analysts cite a Trump proposal that could turbocharge corporate spending--Trump's business plan allows manufacturing companies to immediately expense their capital investments, while the deductibility of interest expenses on future loans would be eliminated, significantly increasing the net present value of a given investment project, and encouraging companies to ramp up spending.--Bloomberg.com.

• China forex reserves drop $70bn

Video above published Dec 8, 2016, by FT.com: China’s foreign exchange reserves fell nearly $70bn last month as the country’s central bank burnt through more of its war chest in its battle to defend the renminbi from greater depreciation on the back of accelerating capital outflows.

•  Watch the yuan: The attitude of emerging-market policy makers to greater financial liberalization will be key in driving the next stage of global entanglement. China is, therefore, the elephant in the room. Beijing wishes to promote the global use of the yuan for trade and financial transactions, and permit two-way capital flows. But it faces a challenging balancing act, amid capital outflows and yuan-depreciation expectations. Outflows since the summer have ticked up since this year's low of $37.5 billion in February, rising to $69 billion in October, slightly up from $67 billion in September, according to Bloomberg Intelligence.--Bloomberg.com

•  Trump to name Exxon CEO Tillerson as Secretary of State: source | Reuters.com.

•  Tim Cook, Larry Page, Sheryl Sandberg ... are going to Trump’s tech summit next week | Recode.net: also attending Microsoft CEO Satya Nadella; Cisco CEO Chuck Robbins; IBM CEO Ginni Rometty; Intel CEO Brian Krzanich; Oracle CEO Safra Catz and even Jeff Bezos of Amazon.com Inc. The meeting will take place Wednesday (Dec. 14) in New York:

“I plan to tell the President-elect that we are with him and will help in any way we can. If he can reform the tax code, reduce regulation and negotiate better trade deals, the U.S. technology industry will be stronger and more competitive than ever.”--Safra Catz

•  Japan’s Pivot from Obama to Trump | NewYorker.com: "Abe’s visit to Trump Tower in November went against the wishes of Obama’s White House, according to a Japanese media report, which cited an unnamed diplomatic source who said that it would be “unprecedented” because, “Mr. Trump is not yet the president.” But Richard Samuels, who heads the Center for International Studies at M.I.T., told me that Abe’s team “did what they had to do, quickly and well.” ... Ironically, Trump’s tough talk may help Abe achieve what Obama’s pivot never could: broad support from the Japanese public for revising Japan’s constitution." See also: Is Donald Trump already the President? | WashingtonExaminer.com: The era of Trump has already begun.

•  Democrats the "real threat" to the First Amendment: Time Warner CEO Jeff Bewkes told Business Insider's Henry Blodget that the "real threat" to the First Amendment did not come from President-elect Donald Trump during the campaign, but rather from the Democratic Party."--BusinessInsider.com.

•  One more thing: More #FakeNews from the WashingtonPost.com and NYTimes.com--see Anonymous Leaks to the WashPost About the CIA’s Russia Beliefs Are No Substitute for Evidence | TheIntercept.com by Glenn Greenwald; and also Kellyanne Conway calls [purported via anonymous sources] CIA report on Russian election meddling ‘laughable and ridiculous’ | WashingtonPost.com:

No rational person should blindly believe anonymous claims of this sort – even if it is pleasing to believe them. https://t.co/ea4QxdyP3c

— The Intercept (@theintercept) December 10, 2016

Unfortunately, as we found out on 9/11 and afterwards re: WMD in Iraq, the worst "intelligence" failures in U.S. history, "U.S. intelligence" claims or beliefs (particularly those of the Central Intelligence Agency a/k/a CIA) are often wrong and not credible. But at least the Russians are getting a good laugh out of all of this: Obama orders ‘full review’ of election hacks, results not to be made public | RT.com. See also: How To INSTANTLY Tell If Russia Hacked the Election | washingtonsblog.com.

-- John Poole, Editor, Domain Mondo


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Will the Chinese Yuan Lose 30% of its Value? Investing in China (video)

Shanghai Composite Index (source: google.com) 

UPDATE Feb 25, 2016: Lunar New Year post-holiday blues for the Shanghai Composite: the index dropped today 6.4% (see chart above), extending its decline this year to 22%. According to Seeking Alpha: surging money-market rates signal tighter liquidity and the offshore yuan has weakened for a fifth day, while China's vice finance minister warned of pressure on exports, and world leaders gather for a G20 meeting in Shanghai. Current market turmoil and a global economic slowdown are expected to be key topics of discussion.
    

Above: Real Trade Weighted U.S. Dollar Index: Major Currencies (source: stlouisfed.org)

Cash is King! Except when it isn't. The U.S. Dollar (USD) -- the "least dirty shirt" -- has a 38.5% gain in relation to other major currencies since 2011 (see chart above). The decline in the prices of commodities such as oil (which is priced in USD per barrel on major markets), has to be considered in context of the rise in the USD indexed against other major currencies.

How about the Chinese Yuan? China has a major bad-debt problem: "The debt problem in China has already reached the proportions of the U.S. subprime mortgage debacle." --China's Subprime Crisis Is Here - Bloomberg Gadfly (Feb 16, 2016).

Of Two Minds - The Chart of Doom: When Private Credit Stops Expanding... (Feb 5, 2016): "... the sole prop under the global "recovery" since 2008-09 has been private credit growth in China. From $4 trillion to over $21 trillion in seven years--no wonder bubbles have been inflated globally. Combine this expansion of private credit in China with the expansion of local government and other state-sector debt (state-owned enterprises, SOEs, etc.) and you have the makings of a global bubble machine."

"... From roughly 1989 to 2014--25 years--the "sure bet" in the global economy was to invest in China by moving production to China. This flood of capital into China only gained momentum as the yuan appreciated in value against the USD once Chinese authorities loosened the peg from 8.3 to 6.6 and then all the way down to 6 to the dollar. Every dollar transferred to China and converted to yuan gained as much as 25% over the years of yuan appreciation. Those hefty returns on cash sitting in yuan sparked a veritable tsunami of capital into China. Now that the tide of capital has reversed, nobody wants yuan: not foreign firms, not FX punters and not the Chinese holding massive quantities of depreciating yuan. This is why "housewives" from China are buying homes in Vancouver B.C. for $3 million. That $3 million could fall to $2 million as the yuan devalues to the old peg around 8.3 to the USD ... But that doesn't mean the devaluation of the yuan has to stop at 8.3: just as the dollar's recent strength is simply Stage One of a multi-stage liftoff, the yuan's devaluation to 8 to the USD is only the first stage of a multi-year devaluation."--Of Two Minds -Feb 17, 2016- Why the Chinese Yuan Will Lose 30% of its Value:

Meanwhile here's a video from Barron's--"Eric Chow on Investing in the Year of the Monkey" (Feb 3, 2016)--

Value Partners' hedge fund manager Eric Chow discusses with Barron's Asia Isabella Zhong his outlook for China's economy and why a Hong Kong property developer is one of his favorite picks. (2/3/2016)

Value Partners domain name: valuepartners.com.hk

Caveat Emptor!


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News Review: ISIS at Marrakech, ICANN Plan Delayed, Verisign 10-K

Busy week!--here's the Domain Mondo news review of the past week--

More ISIS (Daesh) terrorist cells discovered inside Morocco this week, in addition to the cell of seven suspected jihadists active in Marrakech, Laayoune and Boujdour, uncovered earlier this month. Marrakech is the location of ICANN55 which meets March 5-10, 2016. Morroco now claims to have dismantled 152 militant cells since 2002, including 31 since 2013 that were linked to armed terrorist groups fighting in Syria and Iraq. Read more, including updates, at: DomainMondo.com: ICANN 55, Marrakech, Morocco: Travel Warnings, Threat of Terrorist Acts.

ICANN Accountability WS1 Proposal (part of the IANA stewardship transition) delayed. The CCWG-Accountability Final Report was scheduled to be published and distributed to the Chartering Organizations on Friday, but has been delayed due to "concerns" of the ICANN Board of Directors expressed by its Chairman, Steve Crocker, in a posting to the CCWG-Accountability mail list on Friday--read more (including updates) at DomainMondo.com: IANA Stewardship Transition, New ICANN CCWG Accountability Timeline.

The Q4 2015 financial reporting period concluded this week with results reported by:

• Rightside $NAME on February 16th
• GoDaddy $GDDY on February 17th

Find links to all this season's Q4 2015 reports on Domain Mondo at the Stock Links page.

Most popular articles at DomainMondo.com this past week (highest number of pageviews):

1. ICANN Damaged a Competitive Domain Name Market With Its New gTLDs (includes Web.com $WEB Q4 2015 results)
2. IANA Stewardship Transition, New ICANN CCWG Accountability Timeline
3. ICANN 55, Marrakech, Morocco: Travel Warnings, Threat of Terrorist Acts
4. Rightside $NAME Q4 2015 Financial Results, LIVE Webcast Replay
5. GoDaddy $GDDY Q4 2015 Financial Results, LIVE Webcast Replay

Looking ahead to this coming week on Domain Mondo:

• Will the ICANN Board's "concerns" with the CCWG's ICANN Accountability WS1 Final Proposal be resolved? 
• Mobile World Congress--MWC2016--(90,000+ expected attendance) meets this week in Barcelona, 22-25 Feb 2016 (Mobile World LIVE videos).
• Investing in China? Will the Chinese Yuan Lose 30% of its Value? 

Final Note: Don't miss Domain Mondo's earlier post today: Verisign Form 10-K for 2015, Domain Name Industry 'Must Read'.

Have a great week!

-- John Poole, Editor, Domain Mondo


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China: Yuan, Markets, Economy, 'Don't Worry, Everything Is Under Control'

China: Yuan, Markets, Economy--'Don't Worry, Everything Is Under Control'--

PIMCO's Crescenzi: No One Knows What China Will Do Next - PIMCO's Anthony Crescenzi discusses his outlook for China and market volatility. He spoke on "Bloomberg Markets" on January 15, 2016 (video above). 

The yuan and the markets | The Economist: "... China is not normal. It is caught in a dangerous no-man’s-land between the market and state control. And the yuan is the prime example ... because a stronger [U.S.] dollar has been dragging up the yuan, the People’s Bank of China (PBOC) has tried to abandon its loose peg against the greenback since August; but it is still targeting a basket of currencies. A gradual loosening of capital controls means savers have plenty of ways to get their money out. A weakening economy, a quasi-fixed exchange rate and more porous capital controls are a volatile combination. Looser monetary policy would boost demand. But it would also weaken the currency; and that prospect is already prompting savers to shovel their money offshore. In the last six months of 2015 capital left China at an annualised rate of about $1 trillion. The persistent gap between the official value of the yuan and its price in offshore markets suggests investors expect the government to allow the currency to fall even further in [the] future ... The government has reacted by trying to rig markets. The PBOC has squeezed the fledgling offshore market in Hong Kong by buying up yuan so zealously that the overnight interest rate spiked on January 12th at 67%. Likewise, in the stockmarket it has instructed the “national team” of state funds to stick to the policy of buying and holding shares ..." (emphasis added, read more at the link above)

1-year chart of the Shanghai Composite Index (source: google.com)

Twitter feed--Shanghai Composite Index--
Tweets about Shanghai Composite Index

See also: Xi’s new model army | The Economist: "... Late in 2014 President Xi Jinping went to Gutian, a small town in the south where, 85 years before, Mao had first laid down the doctrine that the People’s Liberation Army (PLA) is the armed force not of the government or the country but of the Communist Party. Mr Xi stressed the same law to the assembled brass: the PLA is still the party’s army; it must uphold its “revolutionary traditions” and maintain absolute loyalty to its political masters. His words were a prelude to sweeping reforms in the PLA that have unfolded in the past month, touching almost every military institution. The aim of these changes is twofold—to strengthen Mr Xi’s grip on the 2.3m-strong armed forces, which are embarrassingly corrupt at the highest level, and to make the PLA a more effective fighting force ..."

See on Domain Mondo:

• After Wuzhen, Should ICANN President & CEO Fadi Chehade Be Fired?
• What Domain Mondo Will Be Watching For in 2016
• China, ICANN, Domain Names, Lies, Facts, Hype, Truth (video)

Caveat Emptor!

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Race to the Bottom: Chinese Stocks Crash, China Lowers Interest Rates

S&P 500 Index 1-day chart 25 Aug 2015 (source: google.com)

UPDATE August 25, 2015: Rally in US stocks failed in final hours today--Relief Rally Evaporates in U.S. Stocks as China Anxiety Bubbles - Bloomberg Business: "A rebound that took the Dow Jones Industrial Average up more than 440 points disappeared as traders said trepidation over what will happen in China’s market made holding on to stocks too risky for most investors. The 30-stock index slid 1.3 percent to 15,665.77 at 4 p.m. in New York, down 4 percent from its highest point. The peak-to-trough retreat matched Monday’s selloff, when concern about global growth ignited the worst selloff in four years. The Standard & Poor’s 500 Index went from up 2.9 percent to down 1.4 percent, with most of the selling concentrated in the final two hours of trading."

--end of update--

Chinese stocks crashed again today, 25 Aug 2015,--biggest plunge since 1996--and China's government, desperate for answers after devaluing its Yuan currency and imposing controls on China's stock markets, lowered interest rates and reduced cash requirements for its banks.

How bad is the situation, really, in China? How desperate are Chinese leaders? Answers below.

China to Flood Economy With Cash as Global Markets Lose Faith - WSJ: "...“Views about China’s economic prospects appear to be shifting from serious concern to near panic,” said Eswar Prasad, a Cornell University professor and former China head for the International Monetary Fund ... some big-name Chinese technology companies are reporting softening markets. Electronics maker Lenovo Group Ltd. [domain name: lenovo.com] called the past quarter “perhaps the toughest market environment in recent years.” Phone maker Xiaomi Corp. [domain name: mi.com], which had ridden the wave of first-time smartphone buying in China to rack up triple-digit growth in recent years, now has to look for such growth elsewhere. For the first time in six years, China’s smartphone sales are declining."

Chinese Stocks Crash Again to Extend Biggest Plunge Since 1996 - Bloomberg Business: "The Shanghai Composite Index tumbled 7.6 percent [Tuesday, August 25, 2015] to 2,964.97 at the close, sinking below the 3,000 level for the first time in eight months. The gauge has dropped 22 percent in four days since Aug. 19. More than 700 stocks fell by the 10 percent daily limit in Shanghai on Tuesday, including PetroChina Co., the nation’s biggest company by value."

China's interest rate move is its fifth cut this year, after a long period of stability http://t.co/ke1kXAAoEE pic.twitter.com/zLlYpMJtaL

— Bloomberg Business (@business) August 25, 2015

China’s managed markets... how they're steering through a slowdown http://t.co/8gAOi2o3Dt pic.twitter.com/f8lYwrLDhU

— Bloomberg Business (@business) August 25, 2015

Expect a bounce in today's US and European markets, but will it last?

What do they call that on Wall Street? Oh yeah, a dead cat bounce.

See also: China's stock market crash, explained in charts - Vox, and note #11: Chinese trusts are making highly leveraged bets--This practice of making investments with borrowed money is known as leverage, and it's not just individual Chinese investors who are doing it. Trusts are a bit like American investment banks or private equity funds: They provide investment opportunities for wealthy clients. And in recent years, they've become a popular way for those clients to evade limits on buying stocks with borrowed funds. This (use of "high leverage") never ends well.


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Wealthy Chinese Investors Flee China's Stock Markets (video)

Chinese stocks tumbled the most in three weeks as traders reduced stimulus bets and speculated the government will pare back efforts to prop up equities. Data Tuesday showed home-price gains are spreading, with new-home prices rising in 31 cities of the 70 the government monitors, from 27 the previous month, according to data released by the National Bureau of Statistics on Tuesday, August 18, 2015.

Bloomberg quote: SHCOMP:IND

"The wealthiest investors in China’s equity market are heading for the exits. The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency... The median stock on mainland bourses traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg ... “Wealthy investors, who have been through bear markets, are better at exiting,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology... investors are finding alternatives in Chinese real estate and overseas markets... The yuan’s retreat to the weakest level since 2011 is increasing the allure of assets denominated in foreign currencies, according to Steve Wang, the chief China economist at Reorient Financial Markets Ltd. in Hong Kong. Yuan positions at China’s central bank and financial institutions fell by the most on record last month, a sign that investors are moving money out of the country. “China’s capital outflow in July coincided with big investors selling shares,” Wang said. “Small players have been drawn in by government measures to support the market, while wealthy investors cut their stakes.” source: Bloomberg Business, August 18, 2015 (emphasis added)

China’s richest traders are fleeing stocks http://t.co/hOBrQgaCmj pic.twitter.com/UY6WU6PIc7

— Bloomberg Business (@business) August 19, 2015

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