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Tag Archives: balance sheet

The Dollar is Sold through CNY7.0 as Chinese Equities Continue to Rally

Overview:   Investors continue to clamor into risk assets.  Led by Chinese shares, the MSCI Asia Pacific Index pushed higher for the third session this week to new five-month highs.  Europe's Dow Jones Stoxx 600 is trying to snap a two-day decline with the help of better than expected revenues for its largest tech company.  US shares are little changed after yesterday's 0.8% rally in the S&P 500 and new record high close in the NASDAQ.  Bonds are sidelined.  Asia Pacific yields...

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Fed Moves Back to Center Stage as Transmission Mechanism is Challenged

The Federal Reserve moves to center stage next week.  Outside of the US and Chinese inflation measures, it looks to be a relatively light week in terms of high-frequency economic data. Investors are still ruminating over the surprising jobs report (gain of 2.5 mln jobs vs. forecasts for 7.5 mln loss).  Yes, there were classification problems, and a lower participation rate dampened the unemployment rate. But, the unexpected 290k rise in Canadian jobs seems to lend credibility to the...

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Earnings Lies & Why Munger Says “EBITDA is Bull S***”

Earnings Worse Than You Think Just like the hit series “House Of Cards,” Wall Street earnings season has become rife with manipulation, deceit and obfuscation that could rival the dark corners of Washington, D.C. What is most fascinating is that so many individuals invest hard earned capital based on these manipulated numbers. The failure to understand the “quality” of earnings, rather than the “quantity,” has always led to disappointing outcomes at some point in the future.  As Drew...

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China’s Next Warning

Chinese monetary authorities announced today what will be for some of its banks a seventh round of “stimulus.” For the largest institutions, it will “only” be their sixth and the first one since January 2019. The PBOC has decided it is time for more RRR cuts. Effective September 16, the ratio all banks are required to hold of reserves will be reduced by 50 bps; applying to certain city banks, the decrease will be 100 bps. It sounds like a flood of stimulus, enabling China’s...

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Clocking What Isn’t Chinese Stimulus

One of the very few central pillars supporting the hopes for a second half rebound was China’s “stimulus.” Since we’ve been conditioned to just accept whatever a central bank does as equal to it, throughout the last thirteen months since the first RRR cut was initiated that one as well as the four which followed (five for smaller and medium banks) have been described this way. The US President has even tweeted along these lines. China is adding great stimulus to its economy while at the...

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China’s Big Stimulus

Earlier this month, the People’s Bank of China (PBOC) reduced the percentage of liquid reserves some banks are required to hold. Effective May 15, the Chinese central bank estimated that the policy change would release about RMB 280 billion into the system. This RRR discount, however, was only applied to small and medium-sized banks. The reserve rate for large banks has been the same since late January when the PBOC allowed for two reductions (on top of three others before them). Monetary...

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China Doves

A little less than three weeks ago, the overnight unsecured money market rate for Chinese renminbi (RMB), SHIBOR, had fallen sharply to 1.417%. This was among the lowest in history, though it has been happening more frequently since last summer. That sounds like a good thing, only the low rates don’t ever last. Instead, over the next eight market sessions O/N SHIBOR skyrocketed to just about 3%. Fixed at 2.998% last week on the 17th, it was the highest in four years going all the way back to...

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QE – Then, Now, & Why It May Not Work

Since the beginning of the year, the market has rallied sharply. That rally has been fueled by commentary from both the Trump Administration and the Federal Reserve of the removal of obstacles which plagued stocks in 2018. The chart below is an abbreviated, and a bit sarcastic, version of events. While the resolution of the trade war is certainly beneficial to the economy, as it removes an additional tax on consumers, the biggest support for the market has been the assumption the Fed...

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The Fed Doesn’t Target The Market?

Earlier this month, I penned an article asking if we “really shouldn’t worry about the Fed’s balance sheet?” The question arose from a specific statement made by previous New York Federal Reserve President Bill Dudley: “Financial types have long had a preoccupation: What will the Federal Reserve do with all the fixed income securities it purchased to help the U.S. economy recover from the last recession? The Fed’s efforts to shrink its holdings have been blamed for various ills, including...

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The Fed Conundrum – Data Or Markets?

Following the Fed’s last meeting, we published for our RIA PRO subscribers (use code PRO30 for a 30-day free trial) a simple question: “What does the Fed know?” Of course, this meeting followed the stock market plunge at the end of 2018 where their tone that turned from “hawkish” to “dovish” in the span of just a few weeks. Seemingly, despite the previous commentary about concerns over rising inflationary pressures, it was pressure from Wall Street and the White House that quickly “realigned”...

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