The Fed Is Going Schizophrenic, Jekyll Highlighted but Hyde Ignored
Yesterday’s Federal Reserve blurb that was picked up by the markets causing a sharp spike upward had to do with Chair Jay Powell’s remarks on current interest rates being “just below neutral.” Meaning that Powell for the first time has acknowledged the possibility that the current rate-hiking cycle may soon come to an end, whenever the Fed decides that the “neutral” rate of interest has been hit. However, what the mainstream media and short term traders conveniently forgot to pick up on was a report released by the same Fed that warned of a collapse in stock prices. “An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general,” the report said. “The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels.” Futures are down after the pop yesterday.
Deutsche Bank In Serious Legal Trouble After Already Being in Serious Market Trouble
Deutsche Bank Aktiengesellschaft (NYSE:DB), the perennially struggling German bank that has been declining for over 10 years and keeps hitting new all time lows, is down 4% in premarket trading this morning on news that its headquarters in Frankfurt just got raided by German police in a money-laundering probe. The investigation stems from the Panama Papers, which were released back in 2016, which implicated Deutsche in a scheme to set up offshore accounts for its clients to avoid paying taxes. The bank is also suspected of accepting money obtained illegally without reporting suspicions to the government.
Altria in Talks to Buy E-Cig firm Juul
No deal has been finalized, but there are reports that Altria (NYSE:MO), the tobacco giant, is in talks with e-cigarette firm Juul for a deal that could be in the tens of billions of dollars. Juul had $1.8B in sales for the fiscal year ended last November. Juul is a private company but valued at around $16 billion. It appears people aren’t tiring of tobacco after all.
Yield Curve Gets Smushed as 10Y Rates collapse to 3%
Yesterday’s rally in stocks took a hammer to bond yields especially on the long end of the curve. 10Y treasury yields are now at 3.02% and the spread between the 10Y and the 2Y is now down to 23 basis points. The especially magnified effect on treasuries was a result of bond speculators trying to front a Fed move to stop its interest rate hiking cycle, though the move to signal such by the Fed may end up counterproductively accelerating the decline in equities because it brings the yield curve closer to negative territory. (NYSEARCA:TLT)
Oil Falls Below $50 in Eerie Sign Reminiscent of 2008, 2014
Oil is down again, now suffering the biggest monthly slide since 2008, losing 23% in November alone. The fall yesterday came despite a fall in the dollar and a rise in equities, indicating particular weakness or maybe even a washout of speculators. We are still a ways away from the lows of 2016 at around $26 a barrel but if we get closer to that point we’ll start seeing many more bankruptcies in US shale firms once again. Saudi Arabia, which has indicated that it will not cut output on its own, will have less of a hard time adjusting because its costs of producing per barrel are significantly lower than in the US. (NYSEARCA:USO)