Market Morning: Bernanke Goes Negative, Apple App Bonanza, Tesla To the Stratosphere


Ben Bernanke Recommends ‘Constructive Ambiguity’ on Negative Rates

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Ben Bernanke, former Chair of the Federal Reserve who never saw the Great Financial Crisis coming until it was already in full swing, still thinks he knows how to solve economic problems. He has unleashed the negative interest rate genie from the bottle, saying that the Fed should consider using negative interest rates during the next downturn. Nevermind that real interest rates in the United States are already negative, which makes no fundamental economic sense, they should go even lower. What this could do to commodity markets is something that perhaps he may not be thinking about too deeply. He added that the Fed can also pretend that maybe it will force negative rates and see how markets react to that. “The Fed should also consider maintaining constructive ambiguity about the future use of negative short-term rates,” Bernanke said. Another way of describing “constructive ambiguity” on negative interest rates could be “playing chicken with the monetary system.“

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“Categorically ruling out negative rates is probably unwise,” he wrote in an accompanying paper, hedging his words, “as future situations in which the extra policy space provided by negative rates could be useful are certainly possible.”

But he went even further, recommending the use of even more quantitative easing, which is already in force, at least in the overnight repo markets.

Apple Scores Blockbuster App Christmas

Boy do people love them apps. Apple (NASDAQ:AAPL) made $1.42 billion in revenue from a worldwide splurge on apps between Christmas Eve and New Year’s Eve. This is a 16% increase from 2018 according to Apple’s figures. Perhaps even more impressive is the $386 million figure spent on just December 31. Total income for app developers has been $155 billion since the App Store opened 12 years ago, or in today’s terms, as much money as the Federal Reserve prints in repos for the banking system about every 36 hours these days. Except Apple actually produces something in exchange for its money.

The most popular paid apps were Facetune, HotSchedules, and DarkSky for weather forecasting. The most popular games were “Mario Kart Tour” and “Call of Duty: Mobile”. “Consumers are spending more in general in apps,” said Randy Nelson, head of mobile insights at Sensor Tower. “More apps are discovering the ability to monetize more effectively, which is bolstering the stores’ bottom lines.” Could this be a frenzy epidemic?

China’s Pork Problem Persists

High “inflation” in China, says the media, because of pork prices. Though technically, this is an issue of supply, not inflation, which is a monetary phenomenon according to Milton Friedman at least. Inflation though does exacerbate price gains caused by supply crunches. The inflation rate in China remained at a 7-year high as pork prices stayed elevated despite government efforts to alleviate the shortage. Chinese pork prices are up 97% since last year despite increased imports and Beijing opening the strategic pork reserve. Seriously, they have one of those in China.

The inflation rate was last measured at 4.5% for December, above the 3% target of the People’s Communist Party.  China produces about 66% of the world’s pork. Beijing has already lifted tariffs on US pork and soybeans in an effort to stabilize prices, but it’s going to take time for China’s pork production numbers to return to normal. By the time they do, Impossible Foods, which is working on plant-based pork, may render the industry obsolete, but don’t count on it.

Tesla’s Market Cap above that of Ford and GM combined

Tesla (NASDAQ:TSLA) is now more valuable than Ford (NYSE:F) and General Motors (NYSE:GM) combined, which maybe makes sense, given that Tesla is a perpetual money-losing company and Ford and GM actually make money sometimes. The stock is pushing $500 a share now, way beyond the price that CEO Elon Musk had quoted as a target for taking the company private for which he got in hot water with the SEC. No need to drop twitter bombs anymore. Everything is going up on its own anyway. The stock is up 166% since May. Tesla has lost $4.44 billion over the past 4 years, has lost $6.2 billion since inception, pays no dividend unlike GM and Ford, and holds $11.3 billion in debt besides. That doesn’t look like much considering its market cap of $85 billion, admittedly.

European Union Doubtful At Trade Deal With Britain By 2021

Is a no-deal Brexit back in the table? Make no mistake about it: Maybe. It will be on the table off the table under the table over the table and levitating way above the table for as long as negotiations continue. The European Union is still trying to pressure United Kingdom Prime Minister Boris Johnson into giving more time to sort out a trade deal during the transition period set to expire December 31, though Johnson is likely to ignore this nudging and pass legislation in the House of Commons mandating that negotiations be concluded by the end of the year, come what may, or rather come what December 31 deal or no deal. If he succeeds in doing this, which looks likely considering his massive majority and popularity in Great Britain, the EU won’t have much wiggle room to pressure him that much. On this front, Johnson is conducting concurrent negotiations with the United States for a separate trade deal, making it known that there is an alternative if the EU doesn’t play ball.


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