Rand Tumbles After S&P Downgrades South Africa To Junk: Full Text

While CDS markets had largely priced in a downgrade (with levels approaching those of Brazl), FX markets seemed surprised when moments ago S&P downgraded South Africa to junk, cutting it from BBB- to BB , in the aftermath of last week’s sacking of finance minister Gordhan by president Zuma. The stated downgrade catalyst: “in our opinion, the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes. We assess that contingent liabilities to the state are rising.”
As UBS warned on Friday, a junking of South Africa could cause up to $10 billion in outflows, UBS said on Friday. Investment outflows at that level would effectively double South Africa’s current account gap, UBS said. President Jacob Zuma’s midnight ouster of finance minister Pravin Gordhan deepened a financial market selloff caused by political uncertainty that had been brewing all week.
The departure of Gordhan threatens to tip South Africa’s higher profile foreign currency credit rating, currently one notch above so-called junk at BBB-/Baa2, into non-investment grade. Moody’s is scheduled to review the rating next Friday.
UBS said however that a bigger danger lay in local currency debt. Rated two notches into investment grade, South Africa is one of the few emerging economies whose local currency bonds are eligible for Citi’s World Government Bond Index (WGBI), a global benchmark tracked by over $3 trillion worldwide.
A two-notch cut to local ratings would exclude the country from the index, UBS noted, estimating WGBI-indexed South African bond holdings at $10 billion – just above the country’s 2016 current account deficit of $9.5 billion, or 22 percent of total foreign holdings of South African debt. WGBI membership hinges on investment grade ratings on local debt from both Moody’s and Standard & Poor’s.

This post was published at Zero Hedge on Apr 3, 2017.

The Best And Worst Performing Assets Of The First Quarter

Welcome to a new financial quarter.
As part of the usual review of last month and Q1 asset performance, it is worth nothing one surprising element of Q1 we showed over the weekend, namely that the VIX index had its lowest average quarter since Q4 2006.
According to Jim Reid, who is perplex by this collapse in equity vol, “data best predicts where equity vol will trade but we’ve been surprised that there hasn’t been the odd spike up given the political uncertainties on both sides of the Atlantic. Data is winning out for now.” We will have more to say on the technical aspects of why equity vol appears to have gone on a permanent sabbatical shortly, but for now, here is a recap of March and Q1 2017 performance:

This post was published at Zero Hedge on Apr 3, 2017.

US Stocks: Set the Bar Low or Look for Value Elsewhere

Gone are the days where investors and savers alike can expect 5-6% real returns on US equities without taking excessive amounts of risk. In fact, many investors might agree that finding value in domestic equity markets has become increasingly difficult. At current valuations, many institutions are lowering their expectations based on the current macroeconomic outlook and it doesn’t look that great for US stocks overall. Below is a chart compiled by Research Affiliates that graphs the next 10-year expected returns on global equities including US equities (in red), emerging markets (in green), and European and far eastern markets (in blue) based on real returns and forward-looking volatility. This chart speaks volumes as to why investors need to rethink their expectations for higher returns over the next 7-10 years and why it may be important to consider searching for value elsewhere going forward.
Although the clear distinction of future expected returns between US equities and emerging markets is quite a revelation unto itself, the chart at first glance is a little noisy. An extra step can be taken in order to understand the relevance of these projections by effectively calculating the risk-adjusted return of all the equities in this graph using the Sharpe ratio. Listed in descending order (see table below), the results are quite eye-opening given that the higher (or lower) the Sharpe ratio, the greater (or lesser) the risk-adjusted return. For those interested in the math, here’s how it is calculated:

This post was published at FinancialSense on 04/03/2017.

The Euro – Up or Down?

The overwhelming view within Europe is that the dollar is about to make a big move to the downside. We warned that the dollar would decline basically to retest the uptrend line. Failing to get through that technical level and bouncing off it, is technically a very bearish signal for the Euro – not the dollar. That technical resistance for this second quarter stands now at 10870 where we reached intraday 10906 last month. Last week provided an outside reversal to the downside. Now a weekly closing below 10493 will warn that the dollar can rise very sharply.
The greatest problem in the traditional analytical world when it comes to currencies is the bulk of these analysts cannot wrap their head around that a currency is not a share price. They talk as if it is a share price and the decline in the dollar would be bearish because Trump is a crazy man and his meeting with China will be a disaster. If the dollar declined, that is what Trump wants because a lower dollar will make selling US products overseas easier.

This post was published at Armstrong Economics on Apr 3, 2017.

‘Soft’ Data Slammed As Manufacturing PMI Plunges To 6-Month Lows: “Bodes Ill For Second Quarter”

Just as we warned was historical precedent, it appears the hope and hype in ‘soft’ survey data is catching back down to ‘hard’ data’s reality.
Markit’s US Manufacturing PMI printed a disappinting 53.3 for March (final) – the lowest since September – as New Orders tumbled and input costs soared to 30 month highs.

This post was published at Zero Hedge on Apr 3, 2017.

Auditing the Fed Is Now More Important than Ever

Last week, the House Committee on Oversight and Government Reform approved a bill submitted by Thomas Massie (R-KY) to allow Congress to audit the Federal Reserve. The bill was originally introduced by Ron Paul in 2009 and was passed in the House twice (2012 and 2014), but failed to pass in the Senate.
The Obama administration, Fed chair Bernanke, and Treasury Secretary Geithner ‘vigorously opposed’ the bill in 2009. Conditions are different today. President Trump tweeted in favor of the move during his campaign and now Republicans have a slight majority in the Senate.
Even in a highly polarized political environment today, the current bill has bipartisan support, as did the previous versions, though support is mainly from Republicans.
Massie explains his support for auditing the Fed in his press release:
‘The American public deserves more insight into the practices of the Federal Reserve,’ Massie said. ‘Behind closed doors, the Fed crafts monetary policy that will continue to devalue our currency, slow economic growth, and make life harder for the poor and middle class…’
‘It is time to force the Federal Reserve to operate by the same standards of transparency and accountability to the taxpayers that we should demand of all government agencies.’

This post was published at Ludwig von Mises Institute on April 4, 2017.

Tesla Shares Hit Record High

In addition to Amazon hitting its now daily all time high, today the tech online retail that recently made Jeff Bezos that second richest man in the world was joined by Tesla, whose shares just hit a new all time high above $292, surging over 5% on the day, following Sunday’s report that first-quarter vehicle deliveries jumped 69% from a year ago to a quarterly record of 25,000 vehicles, bouncing back from delays in the previous quarter.
The company said of the total vehicles delivered, about 13,450 were Model S sedan and about 11,550 were Model X sports utility vehicle. Tesla has said it expects to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, and so far it appears on track even as the rest of March numbers for other OEMs are coming in weaker for the past month.

This post was published at Zero Hedge on Apr 3, 2017.

Why Hasn’t Citigroup’s Banking Charter Been Yanked?

Citigroup was back in the news again last Tuesday when the Consumer Financial Protection Bureau (CFPB) reported that its banking unit, Citibank, was among the three banks with the highest average monthly complaints filed against it alleging credit card abuses. (The other two banks were Capital One and JPMorgan Chase.)
This is the tip of the iceberg when it comes to Citigroup and its haloed Citibank.
On May 20, 2015, Citigroup’s banking division pleaded guilty to a criminal felony charge for foreign currency rigging following a decade of serial charges against the global behemoth. (See rap sheet below.) Instead of putting this incorrigible recidivist out of business, the Federal government has continued to allow its shady proclivities to be perpetuated against an unsuspecting public.
The U. S. central bank, the Federal Reserve, which incompetently oversees Citigroup as it takes on massive derivative risk and continues to fleece the public, saw fit to secretly funnel $2 trillion of loans into Citigroup’s collapsing carcass from 2007 to at least 2010 at almost zero interest rates. During that period, Citigroup was allowed to continue to charge double-digit interest rates on its credit cards and put struggling homeowners out on the street from its tricked-up mortgages. The $2 trillion in secret loans came on top of the publicly announced $45 billion in equity infusions and more than $300 billion in asset guarantees by the Federal government to keep this ethically-challenged institution alive.

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

“A Lot Of News Over The Last 72 Hours But None Having A Dramatic Effect On Trading”

For those just getting to their desks, here is a summary of what you missed in the overnight session, courtesy of JPM’s Adam Crisafulli
There was a lot of news and headlines over the last 72 hours but none of it is having a dramatic effect on trading. Eurozone equities and US futures are both flat-to-up small. Asia generally saw gains overnight (note that a few markets were closed, including mainland China and Taiwan). What happened overnight? The big incremental headlines were the manufacturing PMIs and for the most part they were mixed-to-inline (eco data isn’t surprising on the upside to the extent it did over the last few months although there aren’t signs of a dramatic slowing either).
Tax skepticism remains very high in the press w/a bunch of neg. reports over the last few days (there is doubt around both the scope and timing of a potential bill with the conversation gradually shifting from ‘comprehensive reform’ to instead a small package of ‘cuts’) although markets seem more concerned about missing the upside associated w/a final tax deal than they are about being caught long on a tax disappointment (thus for the time being headlines such as ‘Trump and Ryan discuss taxes’ or ‘tax plan makes progress in Washington’ will help to buoy stocks more than ‘Trump has neither a clear WH tax plan nor adequate staff yet to see through a planned tax reform’ will hurt them).

This post was published at Zero Hedge on Apr 3, 2017.

Key Events In The Coming Busy Week: Payrolls; FOMC Minutes; Trump Meets Xi

The key economic releases in the US this week are ISM manufacturing on Monday, ISM non-manufacturing on Wednesday, and the employment report on Friday. The minutes of the March FOMC meeting will be released on Wednesday. In addition, there are several scheduled speaking engagements by Fed officials this week. Consensus expected 175K jobs to be added at Friday’s US Nonfarm payrolls. Additionally, there will be updates on Eurozone industrial production data, a series of ECB speakers and the French election TV debate. In EM, there are monetary policy meetings in India, Israel, Peru, Poland and Romania as well as a series of rating reviews.
Market participants will also be paying attention to the meeting between Trump and Xi set for Thursday and Friday at Mar-A-Lago.

This post was published at Zero Hedge on Apr 3, 2017.

Record $10 Trillion Paper Gold Trading Market Continues To Depress Price

How do you depress the physical gold price? It’s quite easy… you throw $10 trillion paper dollars at it. Not only did global paper gold trading amount reach a new record in 2016, it surpassed the previous year’s total by nearly 50%.
This is simply amazing when we look around at the staggering amount of insanity taking place in the financial markets. With the economic and financial markets sitting at the edge of the cliff, it would seem prudent for investors to curtail their highly leverage bets in the ‘Paper Gold Casino’ and buckle down by purchasing real physical metal.
Unfortunately, the Mainstream media and the Financial networks have totally lobotomized investors by removing the following vocabulary from the mushy substance between their ears….. Wisdom, Prudent, Long-term, Safe-haven and Gold-Silver.

This post was published at SRSrocco Report on APRIL 2, 2017.

Is This The Greatest ‘Arb’ In The World?

Since it first entered service with the Soviet army in 1948, the AK-47 and its derivatives have become the world’s most widely used assault rifles.
As Statista’s Niall McCarty writes, in his book “AK47: The Story of The People’s Gun”, author Michael Hodges estimates that there are as many as 200 million Kalashnikov rifles in circulation, one for every 35 people on earth. Its popularity among soldiers, criminals and militants is primarily due to its cheap price, durability, reliability and sheer simplicity.
However, while demand may be high, prices vary dramatically… which gave us an idea.

This post was published at Zero Hedge on Apr 3, 2017.

Insider Warns: Sophisticated Investors Are Preparing For Global Implosion: ‘Financial, Social, Geopolitical Turmoil Will Flare Up Like A Tinderbox’

You’d never know it if you only followed mainstream financial pundits, but Russia and China have recently joined forces to bypass the U. S. dollar by establishing their own exchange to facilitate transactions and trade in gold. It seems the whole world, except for Western governments and central banks, understands that we’re facing a crisis unlike anything we’ve ever seen before.
With U. S. financial markets at nearly all-time high valuations, an uncertain interest rate environment and the potential for a serious debt debacle as American politicians set to fight over raising the debt ceiling, Bryan Slusarchuk, President of Kenadyr Mining, warns that there are scores of catalysts that could set the whole tinderbox aflame:
You’ve got a mess in Europe… a really uncertain outlook as to how this Brexit will occur… you’ve got geopolitical turmoil all over the middle east… you’ve got situations like North Korea… there are any number of things… financial, social, political… that can set this tinderbox off.

This post was published at shtfplan on April 2nd, 2017.

Baby boom or bust: Retirement withdrawals now exceed contributions. Since 2008 US public debt up by $10 trillion, nearly the same as the Russell 3000 Index.

You knew it was only a matter of time before baby boomers started taking out their money from retirement accounts in mass. If you think boomers were rebalancing every year carefully, think again. We have now crossed an interesting threshold where retirement withdrawals exceed contributions. Part of this has to do with a younger and more broke generation of Americans. You also have older Americans being stretched financially thin so they need to get additional funds from retirement accounts. This also means that there is likely going to be more forced selling from this massive market. After all, that is the point of a retirement account in that it should throw off income when you retire. But for every sell you need someone willing and ready to buy. The market hasn’t been necessarily tested in this regard with tens of millions now utilizing the sell side of a retirement account.
The baby boom generation is now cashing out
Baby boomers are hitting retirement age in mass on a daily basis. Those fortunate enough to have a retirement account are planning on how to receive their funds into old age. The majority of older Americans are relying on Social Security for their retirement income.

This post was published at MyBudget360 on April 2, 2017.

Breslow: “The Pain Trades Are Giving Traders Headaches”

Richard Breslow, former fund manager who currently writes for Bloomberg, starts of the week with a recap of how traders are reacting to the so-called key pain trades, and refuse to accept a shift in sentiment when it comes to the “dovish yet hawkish” Fed or the “hawkish yet dovish” ECB.
The Pain Trades Are Giving People Headaches
There does come a point when we just can’t seem to resist playing with our heads. It’s bad enough when others try to do it to you. But psyching oneself out is no way to make a living. Especially when you trade for a living.
This week we’re going to be treated to meeting minutes from both the Fed and the ECB. On top of that, enough central bank speeches to more than fill in the time between economic releases. The interesting thing is that traders seem to have already decided what they plan to take away from these events, skipping the part where we actually hear what the officials have to say.

This post was published at Zero Hedge on Apr 3, 2017.

Warning Signs in Precious Metals

Precious metals closed the first quarter with solid gains. Gold gained almost 9% while Silver gained 14%. The miners (GDX and GDXJ) gained the same amounts (9% and 14%) but unlike the metals which closed at their highs of the quarter, ended up losing more than half their gains. Despite a strong quarter, the entire complex remains below the February highs and 200-day moving average (ex Silver) just days after the US Dollar index rebounded strongly from its own 200-day moving average. As the second quarter begins, the warning signs for precious metals are mounting.
It is never a good sign when Gold is the strongest part of the sector and especially while the sector trades below key moving averages. While Silver rests above its 200-day moving average and has recently outperformed Gold on a percentage basis, unlike Gold it has yet to reach its late February highs around $18.50. So in that respect Silver has lagged Gold. Meanwhile, the miners have not even come close to returning to their 200-day moving averages or February highs. They first reached their 200-day moving averages ahead of the metals and also began their correction first.

This post was published at GoldSeek on Monday, 3 April 2017.

Global Stocks, US Futures Rise On First Day Of Q2 As Trump-Xi Meeting Looms

After the best quarter for US stocks since 2015, global equities have started off Q2 on the right foot, despite caution about the upcoming meeting between President Trump and China’s Xi Jinping later this week, and Fed Minutes which are expected to be more hawkish than the FOMC statement.
European shares opened broadly higher, with Europe’s Stoxx 600 rising 0.3% – its 5th day of gains – following a rally in Asian markets on upbeat final PMI data and after a report that Chinese President Xi Jinping will create a new economic zone. S&P futures were modestly in the green, pointing to a higher open for the S&P on the first day of the new quarter.
Mostly positive mfg PMIs out of Asia:
Vietnam 54.6
Philippines 53.8
Japan 52.6
Korea 52.4
Indonesia 50.5
Thailand 50.2
Malaysia 49.5
— David Ingles (@DavidInglesTV) April 3, 2017

This post was published at Zero Hedge on Apr 3, 2017.

Gold and Silver Best Performing Assets In Q1, 2017

– Gold, silver two of the best performing assets in the first quarter of 2017 with gains of 8% and 14% respectively
– Gold outperforms benchmarks – S&P 500 up 6%, MSCI (All Country World Index) up 6.4% (see tables)
– Nasdaq and German DAX rise 11.8% and 7.6%
– Silver best performing currency in quarter
– Five best performing currencies in Q1 are in order – silver, bitcoin, Mexican peso, Russian ruble and gold
– Gold’s biggest quarterly gain since Q1 16, when rose 16%
– Gold has seen gains in 8 of the last 10 first quarters
– Palladium and platinum gain 17.7% and 5.2% respectively
– Uncertainty over Trump’s economic and foreign policies and geo-political risks from Brexit and elections in the EU lead to safe haven demand for gold and silver bullion

This post was published at Gold Core on April 3, 2017.

Civil Unrest Engulfing the World

Everywhere we turn, politicians are abusing their power relentlessly. In Paraguay, the nation’s constitution prohibited the re-election of a president since 1992 after a brutal dictatorship of General Alfredo Stroessner’s 35-year hold on power, which made him South America’s most enduring dictator during the cold war. He eventually died in exile in Brazil after he fell from power in 1989.
Paraguay’s politicians voted after the Senate secretly voted for a constitutional amendment that would allow President Horacio Cartes to run for re-election opening the door to dictatorship once again. Protesters stormed the government building last week and set it on fire.

This post was published at Armstrong Economics on Apr 3, 2017.