It's hard to say that this would be a terrible recession if it happens, but economic stagnation certainly seems to be showing up quickly due to the trade war with China. The odds of a Fed rate hike in 2019 are down to about 10% now and this obviously goes completely against what the Fed said in the last meeting where they were looking at 2 rate hikes in 2019. The year closed with the 1 year treasury yielding nearly 11 basis points more than the 2 year treasury which is the most inverted it has been since 2008 after the govt bailed out AIG. Copper prices are continuing to slump on weak China economic data and there are Chinese economic and deflation risks popping up. They should be able to counter these risks, but it is interesting to note the China PMI came in below 50 at 49.4 in December and this is a recessionary number. The number came in slightly lower than expected as well. https://www.cnbc.com/2018/12/31/chi...ng-activity-contracts-more-than-expected.html The Dallas Fed business survey came out today with a -5.1 which was far lower than the lowest estimate out there. It is a volatile number and not everything in the survey was bad, but it comes on the heels of the Richmond Fed Factory Index last week major disappointment to the downside. It was the lowest reading on record for that index. https://www.fredericksburg.com/busi...cle_d7c50287-2995-50fc-962e-95042db1543b.html The Federal Reserve Bank of Richmond’s manufacturing gauge fell by a record as shipments and new orders weakened. It is the fourth district bank factory index to drop this month and the latest evidence that President Donald Trump’s trade war is becoming a greater headwind for U.S. producers. The Richmond Fed said Wednesday that its measure of factory activity across a swath of the eastern U.S. fell to minus 8, missing all economist estimates in a Bloomberg survey projecting an increase to 15. Levels greater than zero signal growth. The 22 point drop from the prior month was the most in data going back a quarter century. Other recent data showed the Kansas City Fed’s index of manufacturing in the district fell to a two-year low in December. The New York Fed’s Empire State survey and Philadelphia’s report are the lowest in more than 18 months. The survey, which covers Virginia, Maryland, North and South Carolina, Washington, D.C. and most of West Virginia, comes amid rising concern about tariffs from companies. FedEx plunged the most in a decade last week as a dimmer view of shipping services demand outside the U.S. prompted it to slash its profit forecast and pare international air-freight capacity. Caterpillar Inc. and 3M Co. also have warned about higher materials prices. While the Richmond Fed’s main gauge can be volatile from month to month, the component tracking shipments tumbled to its lowest in almost a decade. The measure of new-order volumes slipped to a two-year low, while inventory levels of finished goods and raw goods both rose. In the Fed’s most recent Beige Book compilation of anecdotal accounts from district banks, published Dec. 5, Richmond highlighted that “tariffs were a significant concern noted by manufacturers, as they were believed to raise costs of raw materials, thereby raising prices and lowering demand.” Economists also are projecting a fifth Fed manufacturing index to retreat this month. The Dallas Fed’s Texas Manufacturing Outlook Survey, due for release on Dec. 31, will decline to an 18-month low of 17, according to Bloomberg’s survey, from 17.6 in November.
https://asia.nikkei.com/Opinion/Chinese-deflation-A-risk-for-2019 Chinese deflation? A risk for 2019 Inflation concerns give way to worries about Japanese-style price stagnation William Pesek DECEMBER 13, 2018 07:00 JST What a difference a year makes when you are trading Chinese bonds. Twelve months ago, dealers in China's $2 trillion government debt market braced for a wipeout. Ten-year yields surged above 4% amid worries overly loose monetary policy might fan inflation. That, in turn, fueled fears of a wave of corporate defaults. Now, the opposite risk may be at play: deflation. It is premature to say China is coursing toward a Japan-like falling-prices drama. Yet recent data warrant a moderately sized blip on investor radar screens. In November, consumer prices slid 0.3% from a month earlier, while producer prices fell 0.2%. On a year-on-year-basis, producer prices advanced just 2.7% in November, the weakest reading in two years (consumer prices are up 2.2% from a year ago). Bond traders are taking no chances. Earlier this week, 10-year yields dropped to 3.27%, the lowest in more than 18 months. And, really, they have every reason for gloom considering the headwinds blowing China's way -- and how they may intensify next year. Donald Trump's trade war is the main source of turbulence. Odds are, the U.S. president has just started. His yearslong dream of halting China's rising dominance collides with a White House in crisis -- and desperate to change the subject from seemingly-ubiquitous Trump-linked legal probes. The recent arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada on allegations of flouting U.S. sanctions on Iran hardly smacks of the detente markets crave. Already, China has seen a marked downshift in exports. November's 5.4% increase from a year earlier was half what economists predicted. Fixed-asset investment is slowing. Beijing's official purchasing managers index showed manufacturing activity stalled in November for the first time in the more than two years. It stood at 50. Anything below that reading denotes contraction. Meanwhile, stocks in Shanghai and Shenzhen are sliding, down 20% and 29% this year, respectively. Given the carnage in equities, one would expect a rush into bonds. But the bond rally is curious for other reasons. The supply of new debt issues, for example, is sure to increase as Beijing ramps up fiscal stimulus to support growth. Should President Xi Jinping's government relax its 4% fiscal deficit target for 2019, investors will see more debt on offer. China also is on course for a current-account deficit. Efforts by Xi's team to rebalance the economy toward domestic consumption, away from exports, is beginning to show results. In 2019, Fitch Solutions envisions a current-account deficit of 0.3% of gross domestic product. While minuscule, it could accelerate capital outflows that weaken the yuan and, in turn, bonds. Yet bond traders are focused on waning growth prospects. China's chances of keeping GDP growth anywhere near 2018's 6.5% target are fanciful. Recent steps to cut taxes, ramp up corporate lending and gin up new infrastructure may ease the pain. But China's $14 trillion, trade-reliant economy is vulnerable to Trump tariffs. As demand wanes, so do domestic price pressures. That has some observers pushing Tokyo comparisons that Xi's team must heed. "Similarities between Japan in 1991 and China today have raised concerns that the world's second-largest economy may be entering a Japanese-style lost decade," says Carlos Casanova, Hong Kong-based economist at French trade credit insurer Coface. Is China, like Japan before it, seeing excessive credit growth meant to prop up equities and property? Check. Are public debt levels worrying global markets? Yes -- roughly 260% GDP worth (160% for corporate debt). Is Beijing facing external challenges? Indeed. For Japan, it was the U.S. and other industrialized nations demanding a stronger yen; for China it is an antagonistic White House determined to regain trade advantage. The good news: China's Communist Party-run model has far more control over all economic levers. Xi's government also has the benefit of learning from Tokyo's mistakes, including avoiding a sharp increase in the exchange rate. "But notwithstanding these caveats," Casanova says, "a series of factors are pointing toward China's slide in the direction of a lost decade of its own." Xi's team should take this risk seriously if China is going to beat the so-called middle-income trap. China's per capita income remains below $9,000 in nominal terms. Keeping China on track to top $10,000 requires multiple multitasking. In the short run, Beijing needs an adequate and proportionate monetary and fiscal response to prevent accelerating price drops. An increase in deflation chatter would have a damaging effect on domestic business sentiment and perceptions among global investors. But, at the same time, Xi's team must keep the reform process alive. The reason punters and credit rating companies forgive China's imbalances is faith in Xi's 2013 market-forces pledge. So far, his promise to let them play a "decisive role" in Beijing decision-making has met with mixed results. Still, this is no time to back away from curbing runaway credit, shadow banking activity and weaning the economy off smokestack industries. Any fresh stimulus needs to be targeted and prudent. Even as they work to support growth, regulators must be bolder about reducing excessive leverage. The People's Bank of China should get creative. It has not cut its 4.35% benchmark 1-year lending rate since October 2015. Rather than broad rate cuts, the PBOC has used margin requirement tweaks and other tools to cut borrowing costs. The next steps should be to direct liquidity at struggling sectors, particularly small-to-midsize enterprises. Indications are that the corporate deleveraging imperative the Communist Party spelled out in October is being shelved. That is a mistake. The main take-away from Japan's failings in the 1990s is that the more you delay, the worse things get. That means coming clean fast on bad loans and disposing of them expeditiously. Unfortunately, Beijing's incentive structure can have the opposite effect. The hundreds of billions of dollars Xi's government is lavishing on its "Made in China 2025" project risks solidifying the standing of state-owned enterprises, not creating a vibrant private sector. Sure, China has a busy startup scene, but the vast majority of economic oxygen goes to the giants. To be sure, deflation is not a given. Over the last decade, Chinese officials have proved adept at keeping economic growth strong. Yet the signals coming from bond traders suggest 2019 may see more obsessing over price data than GDP targets.
I've been reading Ray Dalio's Principles, and recently he seems to think it's a matter of When, Not If the next one will be hard hitting. His public predictions on the general market was off this year, but if you watched his interviews mid 3rd quarter, you would've saved a penny or two by doing some profit taking. Corporate bonds might start to shake to the point where people feel it if the Fed continues rate hikes over the year. I'm more pessimistic than optimistic, but I'm currently homeless in socal so this might be a good longterm opportunity if it doesn't all goto ****.
Well I am glad you are not on the streets. With the housing market in California I can see why it would be hard to buy a home. I am not sure how much they cost in the area you live in but I know some of the shows my wife watches where people are being shown multiple homes to buy, the ones I have seen in in California are absolutely ridiculous when compared to Southeast Texas.
Could just be Apple related, but interesting to note. Also the last time Apple gave downside guidance not during quarterly earnings was in June 2002. https://www.marketwatch.com/story/a...ter-cutting-holiday-sales-forecast-2019-01-02 Apple cuts holiday sales forecast on iPhone and China weakness, stock falls 8% Fears of weakness at Apple Inc. proved true Wednesday. The tech giant, which became the only public U.S. company to reach a $1 trillion valuation last year before a fourth-quarter collapse for its shares, confirmed the fears that led to the stock decline by lowering its forecast Wednesday afternoon. In a letter to shareholders, Chief Executive Tim Cook said that Apple will report much lower sales than previously expected, largely due to slowing iPhone sales and pressure in China. “While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote. “In fact, most of our revenue shortfall to our guidance, and over 100% of our year-over-year world-wide revenue decline, occurred in Greater China across iPhone, Mac and iPad.” Cook said that Apple now expects fiscal first-quarter revenue of about $84 billion, after previously stating expectations for sales of $89 billion to $93 billion. Apple shares have been pressured since the company originally gave its revenue forecast for the holiday season, as suppliers have reined in forecasts, causing doubts about the company’s iPhone sales. “Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook said Wednesday in his letter. China is not the only issue with iPhone sales, however, as Cook admitted later in his letter. “While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, U.S. dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.”
Having lived in Houston, Austin, and LA, I'd say it's kind of apples and oranges in terms of COL. They are very different lifestyles and the calculus largely depends upon what matters most to you. I couldn't imagine living in LA and owning a place that could comfortably house a small nuclear family and be within commutable distance to work, but I brought home nearly triple what I do in Austin, had a vastly greater number of better creative sector jobs or freelance gigs to compete for, and lived in a walkable neighborhood. When I came back to the US, my main priority was a yard for my elderly dog. So Texas. I had lots of childhood friends in Austin, and lots of family in Houston, so Austin. The look on my dog's face when he went through the dog door to a backyard with grass and squirrels is what mattered the most to me, and I wouldn't trade the years here for anywhere else, but you know, priorities.
kinda? Wait, you aren't one of those Han supremacists are you? China is 91% Han. You shouldn't feel threatened by people taking down statues of Cao Cao. He lost in the war in 208. That was a long time ago. I know. I saw the movie.
Yield curve has inverted more today with 3 month treasuries now yielding slightly more than 5 year treasuries. Also, the odds of a Fed rate cut in March have perked up slightly to around (edit) 14%. The Fed might be best off to just suck it up and recognize their mistake with the last rate hike and cut now.
there are over 53 ethnic groups in China. ethnic groups such as Viets, Jews, Korean, etc. are included in the Han classification
And we are officially at a 0% chance forecast of a rate hike in 2019 and now pricing in potentially 2 rate cuts over the next 12 months or so.
I would expect the employment report to still be strong on Friday. It could be an interesting setup where a weak jobs report would likely cause some rallying since it means the Fed would have to act sooner than later about cutting rates. https://www.reuters.com/article/us-...-rate-for-first-time-since-2008-idUSKCN1OX1QV Two-year yield dips below key Fed rate for first time since 2008 NEW YORK (Reuters) - The U.S. two-year Treasury note yield US2YT=RR dropped below 2.4 percent on Thursday afternoon, reaching parity with the federal funds effective rate for the first time since 2008. The fed funds effective rate, which was 2.4 percent on Thursday, moves within the Federal Reserve’s key policy range of 2.25 to 2.5 percent. The market move suggests investors believe the U.S. central bank will not be able to continue to tighten monetary policy as its forecast suggests, after having lifted benchmark interest rates four times in 2018. “This is a big deal,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “The market is effectively saying that at some point in the next 24 months, the Fed is going to have to not only stop hiking, but actively start easing.” In late afternoon trade, the three- US3YT=RR and five-year US5YT=RR note yields had also dropped below 2.4 percent. Treasury yields fell on Thursday after data showed a significant drop in U.S. manufacturing activity, extending overnight losses prompted by a revenue warning issued by Apple (AAPL.O) that sent investors fleeing to safe-haven instruments. A report from the Institute of Supply Management showed that U.S. factory activity slowed more than expected in December. The ISM index fell to 54.1 from 59.3 in November, the biggest drop since October 2008. The two-year Treasury yield US2YT=RR fell to its lowest since May 30 and was last down 12 basis points at 2.39 percent. The two-year yield rises with investors’ expectations of rate hikes. The benchmark 10-year government note yield US10YT=RR fell to a session low of 2.55 percent, a more than 50 percent retracement from its 2018 high. It is down 9.5 basis points, falling below 2.6 percent for the first time since January 2018. Weakening iPhone sales in China prompted Apple on Wednesday to cut its quarterly sales forecast. Investors pulled out of equity markets following the announcement, which suggested the economic slowdown in China may be worse than expected, casting a shadow over the outlook for corporate profit growth this year. China’s economy was already a focus of concern after a measure of its manufacturing activity shrank for the first time in 19 months in December, hit by the Chinese-U.S. trade war, with the weakness spilling over to other Asian economies. “Given the ISM print from this morning and what is happening in equities, (the inversion of the two-year yield and the fed funds rate) is not as big of a leap as it would have been had there not been any fundamental backing,” said Lyngen. Friday morning will see the release of the government’s employment report, which will be examined closely for signs of any slowdown in hiring in the U.S. economy.
I don't think this will happen, but the black swan type event is if Trump sees how much the Chinese economy is sucking wind and really digs in hard on trade deals or if some other major espionage thing happens that pisses Trump off. China does have a lot of wiggle room with their rates and they can start actively cutting rates so they can buy time, but Trump is clearly the one dictating things right now since everyone else would be much more happy to get back to the status quo and Trump doesn't care about taking heat if he thinks he can reach some kind of "better" deal (whatever that is) or even something punitive against China since he feels they've taken advantage of us. The black swan aspect would be a progressive tit for tat game that truly starts to hit the US economy with a direct shot rather than this relatively minimal stuff now. Or maybe something random blows up with currency markets or US deficits or something else out of left field from collateral trade damage. All that said, based on other charts I'd have to expect more pain to come for the US equity markets, but we have priced in a lot very quickly. A good twitter thread with some Goldman Sachs data points.
Speak of Cao Cao and Cao Cao arrives ! I linked to my source in the post -- that's not the way it broke down on the wikipedia page.
