Tesla Investor's General Macroeconomic / Market Discussion

[Auzie]

Europe, China cut rates, diverge from US

China cuts interest rate, lowers bank reserve ratio

PBOC cut interest rates on Friday for the sixth time in less than a year, and it lowered the amount of cash that bank must hold as reserves in a bid to jump-start the economy.

Yuan fell against the US dollar.

Similar monetary easing action was signalled in Europe

Draghi hints at more stimulus later this year

Mario Draghi stated that ECB might further cut deposit rate, as an attempt to boost the economy.

The Euro slid against the US dollar.

Interest rates are at a record low in Europe. The benchmark rate is at a 0.05% and the deposit rate is at minus 0.2%.

It seems that the US FED policy is diverging from the rest of the world. Economists predict that FED will raise interest rates on December 16, the first increase since 2006.

 

[Auzie]

US jobs data smashes forecast and sends $ soaring

Reuters: Robust US jobs report bolsters case for December rate hike


Unemployment rate at 5%, 7.5 years low. This rate is considered by many as full employment

Average hourly earnings rose 9%


$ rallied to a near seven-month high against a basket of currencies

A rate hike is firmly on the table at the Dec FED meeting.

 

[dmunjal]

Reuters: Robust US jobs report bolsters case for December rate hike


Unemployment rate at 5%, 7.5 years low. This rate is considered by many as full employment

Average hourly earnings rose 9%


$ rallied to a near seven-month high against a basket of currencies

A rate hike is firmly on the table at the Dec FED meeting.

Why would the Fed want an even stronger dollar? Even if they do, I think it is one and done.

 

[Auzie]

Why would the Fed want an even stronger dollar? Even if they do, I think it is one and done.

My understanding is that FED has been slowly shifting from easing monetary policy to tightening monetary policy by adjusting the money supply to adequately support / control economic growth and inflation.

Full employment is a sign of an overheating economy. FED policy of tightening money supply takes some heat out of the economy by slowing it down.

The stronger dollar is a way of putting brakes on excessive aggregate demand as the demand for exported goods declines. Domestically, higher rates encourage savings rather than consumption, thus reducing demand.

So far FED has done well in steering US economy giving no reason to lose trust in their policy choices and timings.

Exporters will have to adjust by cutting costs and by stimulating local rather than offshore demand.

 

[AlMc]

My understanding is that FED has been slowly shifting from easing monetary policy to tightening monetary policy by adjusting the money supply to adequately support / control economic growth and inflation.

Full employment is a sign of an overheating economy. FED policy of tightening money supply takes some heat out of the economy by slowing it down.

The stronger dollar is a way of putting brakes on excessive aggregate demand as the demand for exported goods declines. Domestically, higher rates encourage savings rather than consumption, thus reducing demand.

So far FED has done well in steering US economy giving no reason to lose trust in their policy choices and timings.

Exporters will have to adjust by cutting costs and by stimulating local rather than offshore demand.

Agreed. I also believe that the market would almost 'welcome' a rate hike at this point as the anxiety over 'when will it happen' seems to affect the market more than the actual event itself will.

 

[McMuggets]

What do you guys/gals think about the upcoming Paris climate meeting? Do you think this tectonic shift away from fossil fuels on the heals of the VW scandal will do anything to bring awareness around the world to TSLA?

 

[replicant]

What do you guys/gals think about the upcoming Paris climate meeting? Do you think this tectonic shift away from fossil fuels on the heals of the VW scandal will do anything to bring awareness around the world to TSLA?

Do you believe the "tectonic shift away from fossil fuels" is already in motion? I doubt it.

People are slowly realizing that our climate/environment is in real danger and the powerful are just trying not to be held responsible for the worst catastrophe ever. 20% of the cost of the COP21 will be paid by sponsors like Engie (world leader in natgaz) and BNP (€15,6 B invested in coal in past 10y).

 

[MitchJi]

VW diesel emissions investigation widened to include other brands | Business | The Guardian

VW diesel emissions investigation widened to include other brands

German regulators to run tests on possible ‘unusual pollutants emissions’ on other models including BMW, Mercedes and Ford

European authorities are now looking into diesel cars made by BMW, Mini/Daimler Mercedes, Fiat, Chrysler, Ford, Volvo, Opel, GM,
Chevrolet, Honda, Hyundai, Jaguar, Land Rover, Mazda, Mitsubishi, Nissan, Peugeot, Renault, Toyota, and of course VW.

Twenty-three German and foreign car brands will be investigated on suspicion of further manipulation of nitrogen oxides emissions.

German car regulators are expanding their investigation into suspected diesel emissions manipulation beyond Volkswagen to more than 50 models from brands including BMW, Mercedes, Ford, Volvo, Nissan and Jaguar Land Rover.

The Kraftfahrt-Bundesamt (KBA) regulator said on Wednesday it would run tests on models made by 23 German and foreign car brands on suspicion of further manipulation of nitrogen oxides emissions.

KBA said the tests were triggered by Volkswagen’s admission it had rigged such tests but also cited “verified indications from third parties regarding unusual pollutants emissions“.

“Since the end of September, KBA has been investigating whether further manipulation of emissions, of nitrogen oxides in particular, is taking place in the market,” KBA said in a statement.

The watchdog said it has been comparing readings in a test setting with those from portable meters in real-life tests and two-thirds of the measurements had already been taken.

The massive real estate bubble that no one is talking about
I omitted the charts and substantial parts of the text below

The real estate bubble was so 2007.
It burst and a lot of people lost their homes, the banks went bust, and the financial system nearly collapsed, but home prices came down, right?

What if I was to tell you that the real estate bubble has not only been re-inflated, but is now bigger than ever before?
You might find it hard to believe because practically no one in the media is talking about it. Yet the information is out there and readily available.

That's not to say the current property bubble is exactly the same. In fact, there are important, fundamental differences that completely change the dynamics of this bubble and need to be recognized.....


U.S. multifamily-building prices are 33 percent higher than they were at the prior peak in 2007, according to Moody’s Investors Service and Real Capital Analytics Inc., a jump stoked partly by the abundant financing from Fannie Mae and Freddie Mac. That’s raised concerns that a bubble is forming that might pop when interest rates rise, according to Levy, the investment banker. Taxpayers could be on the hook for losses incurred by the mortgage companies if apartment values were to fall sharply.

Multifamily property prices have increased on average of 15% per year since 2010.

For a better clue, let's look at the commercial real estate market. The value of the commercial real estate market is roughly equal to the value of the entire stock market, so this is serious....

It seems bizarre that we can find ourselves in this position just seven years after the last enormous property bubble burst. It's even more bizarre that everyone is pretending it doesn't exist...again.

If I was to guess, this mass delusion stems from the fact that the bubble is being created by the deep-pocketed, cash-flush rich, and the people suffering from it are working poor.....

...So why aren't people calling these homes massively overpriced like they are? Because the way people traditionally measure whether a home is overpriced is by how much you can rent it for, and rental prices are going nuts as well. Nearly 21 million rental household, or about half of all rental households, spent 30% or more of their income on rent in 2013. 11 million households spent at least half of their income on rent and utilities, up 37 percent from 2003.

These cities aren't always very expensive cities. Miami and New Orleans rank near the top in percentage of income going to rent simply because wages are so low....

....The number of U.S. households that spend at least half their income on rent—the "severely cost-burdened," in the lingo of housing experts—could increase 25 percent to 14.8 million over the next decade. More than 1 million households headed by Hispanics and more than 1 million headed by the elderly could pass into those ranks...


...The commercial real estate bubble and the associated mountain of loans and CMBS have reached such proportions that in September Fitch Ratings began to fret about them out loud.

It found that “the average Fitch loan to value (LTV) in 2007 was 110.7% right on top of the 110.3% thus far in 2015.” It worried about “weakening loan characteristics, declining underwriting quality, and concerns about originator, banker, and rating agency competition.” And it warned: “CMBS cannot afford a repeat of the 2008-2009 experience.”

 

[Auzie]

The impact of terrorism on financial markets

Our thoughts and condolences are with the people of France. Awful human tragedy. There is a thread about this event in off topic section, for discussion. My post focuses on the potential market impacts, apologies if anyone finds that distasteful.


The impact of terrorism on financial markets


Dr. Les Coleman, the author of the paper, examined the 9 major bombings since 1998, and analyzed market reaction around the attacks, by using minute by minute tick data, to examine market efficiency after the attacks

Past market performance does not predict future performance.

The major difference with this particular attack in Paris is that it happened in the context of an unprecedented river of refugees flooding Europe, with zero signs of Eu governments getting a handle of the situation.

We are likely to see more barbed wires on various borders, impacted travels and perhaps impacted trades. Such developments feed into a lack of confidence.

Expectations of an escalation of the war against Islamic State and related groups in Syria could also push up oil prices.

Update with ASX reaction so far

Such reaction seems to be in line with the findings of the above research

 

[FluxCap]

Thanks for another great post, Auzie. I too am saddened by the tragic events in Paris, yet somehow it actually feels good to "do what we do" and analyze financial impacts of terrorist attacks from an objective standpoint. It's also encouraging to see that impacts on markets are historically relatively minimal, suggesting that the perpetrators of these crimes may at least find they fail to disrupt commerce and financial markets. It is gratifying to know that terrorists are generally unable to cause lasting disruption of the business of global finance and investing.

 

[Auzie]

Thanks for another great post, Auzie. I too am saddened by the tragic events in Paris, yet somehow it actually feels good to "do what we do" .....

Thanks Flux. It does feel good to see that such acts, no matter how horrendous, are unable to stop the world from spinning and people from carrying on with their lives and businesses

It's also encouraging to see that impacts on markets are historically relatively minimal, suggesting that the perpetrators of these crimes may at least find they fail to disrupt commerce and financial markets. It is gratifying to know that terrorists are generally unable to cause lasting disruption of the business of global finance and investing.

My concerns are mainly about long term effects rather than short term ones. If there are some escalations of war like efforts due to recent events, then it might get worse before it gets better.

 

[AlMc]

Much macro info coming out today: http://finance.yahoo.com/news/wall-street-gears-data-dump-104615682.html

 

[ev-enthusiast]

ECB just increased the negative rate for banks lending the ECB money from -0.2% to -0.3%.
Interest rate remains at 0.05%.

 

[Auzie]

IMF agrees to include China's RMB in benchmark SDR currency basket



Special Drawing Rights (SDR) is an international reserve asset, created by IMF, to supplement the official reserves of member states.


The currency value of SDR is determined by summing the values in the US $, based on market exchange rates, of a basket of major world currencies.


The basket determines the currency mix that countries receive when the IMF disburses the financial aid.


IMF agreed to add Chinese currency yuan to SDR, starting October 2016. This decision reflects a positive evaluation of reforms in China.


SDR is reviewed every 5 years. Here is historic composition:

Who loses when the yuan joins the SDR:

RMB inclusion of 11% in the basket displaces Euro (6.5% less) and pound sterling (3.2% loss) in the basket.



Inclusion in SDR will deepen the expectations that China will let market forces determine yuan rate.

Despite China's slowing economy, yuan's continued link to surging USD put it on a rise of near 13% in the last 18 months. Yuan will come under more downward pressure with coming rate hike in the US and a loosening monetary policy in China. We may see weaker yuan.

Currently, yuan is pegged to USD (wide band) and hence overvalued.

 

[austinEV]

So when is this momentous fed meeting supposed to occur? The 16th? So the theory is that they will raise rates a few bps and the markets may or may not react?

 

[FluxCap]

So when is this momentous fed meeting supposed to occur? The 16th? So the theory is that they will raise rates a few bps and the markets may or may not react?

16th at precisely 2pm EST, the note will be posted and algos will go wild. Or not.

 

[AlMc]

15th at precisely 2pm EST, the note will be posted and algos will go wild. Or not.

I am betting algos do go wild....................but I have been wrong MANY times before:wink:

 

[austinEV]

I am betting algos do go wild....................but I have been wrong MANY times before:wink:

They went wild today. In a slump for a week. Priced in. (I say, like I know anything).

 

[dha]

15th at precisely 2pm EST, the note will be posted and algos will go wild. Or not.

FOMC announcement will be on the 16th, not 15th.

 

[FluxCap]

FOMC announcement will be on the 16th, not 15th.

Ah yes, thank you dha. Corrected.

Incidentally, the market is imploding and the QQQ puts I bought last night as a hedge are up 215%. I wish I could say the same for my stocks.