Unusually, we had only a 4 day week between the end-of-month update of Tuesday and the end of week on Friday. What is striking is how heavily the valuation of almost all non-US positions was boosted by the impact of the low Friday job gains figures, because of foreign exchange gains. The US stock portfolio did not move anywhere as much.
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Good News, Bad News
Today's markets were roiled by a mixture of good and bad economic news. Unemployment rates fell to 4.75% from 5% and factory orders were up 1.9% from April to May, if marginally below the 2% forecast, despite lower orders from mining and energy companies. That's the good news.
The bad news is that only 38,000 new jobs were added last month and both March and April figures were revised downward. That's a 5-yr low.
The dollar fell along with US stocks after the 8:30 reports came in. Gold rose to the suspiciously cute price level of $1234/oz and Wall Street took a hit.
The Fed now is expected to delay a rise in interest rates at its next monthly meeting, not because of the numbers but to avoid impact on the British election over whether to exit or remain in the European Union, according to The Financial Times today.
More for paid subscribers including more good news-bad news and disaster reports from Britain, India, China, Canada, Israel, Ireland, Colombia, Spain, Canada, and Brazil.
Today all eyes are on Vienna because two big meetings are competing for attention and Sachertorte. OPEC oil producers and the European Central Bank members are both racing round the Ringstrasse and spoiling the quiet pace of local life. Viennese will grumble loudly about how they are being inconvenienced. Frankly, I think it serves them right.
It is lucky that the new president of Austria is the Green rather than the Neo-Fascist, because otherwise all the meetings might have been canceled. Austria needs the money. It still has not settled a devastating bank failure, of Hypo Alpe-Adria Bank of Carinthia and its “bad bank”, Heta Asset Resolution, which still owes money to German counterparties.
Oddly enough it was triggered by another Neo-Fascist, Joerg Haider, who died in a car crash while under the influence.
One of the great myths of the 20th century is that Austria was the first victim of Nazism, because Hitler's Anschluss took over his birth country on behalf of Germany. Actually this was not a hostile invasion. Most Austrians were delighted to merge their rump of the Hapburg Empire with Nazi Germany.
Vienna is a lovely city and now likes to put the stress on its myths: music from Mozart to Mahler (but embarrassed about Johann Strauss); having been the first (and hostile) center of psychoanalysis;being home of the Secession movement and outlaw painter Klimt; the Prater site in The Third Man; the first housing projects for the poor; Sisi and Franz-Joseph.
Vienna's cultural edge was snatched by the innovators by ignoring the philistine Viennese population.
More for paid subscribers today but not much, as the world awaits Viennese date-lined news. We have news from Argentina, Australia, Belgium, Brazil, Britain, Canada, Chile, China, Denmark, Ireland, Israel, The Netherlands and its Antilles, Norway, and a few other places.
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The Beautiful Game
The new trend for young Americans is to play soccer rather than American football, mainly because it is less likely to scramble their brains. The beautiful game is played by girls as well as boys (but in separate teams based on birth sex.) The tournaments are pretty vicious and played hard, I concluded after a weekend watching my two youngest grandsons playing what I was raised to call football.
My father was the goalie of a club made up of Jewish refugee men who played near the Hudson River off Dyckman Street, mostly against other ethnic clubs of Irish, Hispanic, and Greek background. While I also watched lots of baseball, this was the live sport of my childhood.
And now it is becoming more American. The teams I saw this weekend at the Massachusetts finals were from public schools and private teams, with most of the black boys from the latter, including one brilliant goalie whose good work I could recognize thanks to my childhood training as a fan. There was also at least one boy on that team who looked like he was transitioning to becoming a girl, to judge from his 'do.
Too bad the US State Dept is warning us not to go to watch the European soccer championship matches this month and next, mostly in France and Belgium, for fear of becoming the target of terrorists.
Targets are slippery in any case. We are sending our emails from an incomplete hosting site so they do not look the same as before. Rest assured; they are really from me. But in response to my warnings yesterday to look for the “spam” emails resulted in bad news back: two of the websites with which we share idea turn out to have been hacked. “Please don't open anything they sent you” wrote an Irish publisher. And, not too surprisingly, there is hanky-panky also at work in Hong Kong. Such, such, are the joys.
More for paid subscribers follows from Canada, Korea, Pakistan, Britain, the Dutch Antilles, Israel, Australia, and a few other places.
May 25 newsletter: Better Late Than Never
Better Late Than Never
While my old college let itself be gobbled up by Harvard, the former women's annex still managed to fill the news Friday after it awarded a Radcliffe medal to the chair of the Board of Governors of the Federal Reserve, Janet Yellen. She attended the women's annex of Brown, called Pembroke, as an undergraduate. Both annexesno longer exist.
Ms Yellen answered a pointed question from Harvard economics professor Gregory Mankiw by saying that “it's appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate.” Among the reason she cited was that it would be another tool for the central bank to use in the even of “renewed recessionary risk.”
Ms Yellen also sounded negative about the use by the Japanese and European central banks of negative interest rates, and appeared to rule out the Fed using this tactic for fear of unnamed “repercussions.
Ms Yellen noted that inflation levels are lower than the Fed's target but also cited the high dollar (which reduces the cost of imports) and the lower oil price as distorting the data.
The market took her remarks as hinting at a further interest rate rise in June. By responding at all, Chair Yellen reinforced her move toward greater openness at the Fed. “The days of never explain, never excuse, are over.”
My own sense of history was boosted by the event. In my day, although Dean Cohen of the Radcliffe Institute apparently doesn't know this, women were discouraged from majoring in economics in the 1950s and early 1960s. Until 1963 there were no lady economics grads, but then Judy Mitchell (later Guéron) and another woman I did not know broke the ban.
Women were also not admitted to the Harvard Business School in that decade. Those wanting a business career were steered into a course in typing and shorthand that Radcliffe offered them to boost their résumés.
A major event in global investing has just occurred, the creation of a new euro-denominated multinational corporation called Coca Cola European Partners plc which had sales of euros 11 bn last year in Androrra, Belgium, mainland France, Germany, Britain, Luxembourg, Monaco, The Netherlands, Norway, Portugal, Spain, and Sweden. This produced cash flow of about euros 1.8 bn, making newly listed CCE on the NYSE a major consumer goods ADR. Note that our former Coca Cola Hellenic share, which delisted from the Big Board, remains out of the new entity, as its coke is sold in Austria, Switzerland, Italy, Greece, Eastern Europe, and the 'stans. It also trades in London but it is incorporated in Switzerland.
I am considering CCE as a way to play the recovery of consumer discretionary spending in Europe. But first let's wait till the dust settles.
More today from India, Israel, and Canada (important company reports) plus a rundown of news from the long weekend around the world including our first ever note about Kazakhstan, plus Australia, Britain, Brazil Colombia, Switzerland, Panama, South Africa, and China. . Our website is back and running normally but, alas, my computer's external back-up drive has gone agly. It never rains but it pours.
Tech Follies and China
However inconceivable it sounds, google's adsense placement service put up material for global advertisers like IBM, Citigroup, and Microsoft on a Jihadist website run by Indonesian suicide-bomber backer Muhammed Jibril Abdul Rahman, a listed and convicted Islamist terrorist. Subject to US, EU, and UN sanctions, Abdul Rahman was under a worldwide asset freeze, travel ban, and arms embargo, according to the Financial Times today. Read more »
Why Populism Is Rising
Disarray among the cognoscenti over where the oil price is heading took a leap today. Nigerian sabotage of pipelines and an optimistic outlook for demand by former oil bear Goldman Sachs boosted the shortage of oil and its price. Meanwhile Moody's downrated the debt ratings of Saudi Arabia, Bahrain, and Oman because of fear of lower oil receipts. However the trio of Gulf states remain investment grade.
Russell Jones writes for Llewellyn Consulting of London today about “fiscal follies”. “Inappropriate emphasis on tax hikes and cuts in public spending,” he says, have generated “austerity fatigue.” Based in IMF data, Jones argues that government revenues in the Group of 20 and Group of 7 leading economies have recovered to their pre-GEC level of nearly 36%. Meanwhile government spending is much higher than it was before the 2007 global economic crisis, at 39%. And in the euro area, the spending is way higher, at 48% over 2007 levels. The difference shows up in government debt which was 77% before the crisis,, and is likely to hit 114% of gross national product (GNP) this year. It is much higher in the leading 7 economies, at 120%, and an amazing 250% for Japan.
Mr Jones, an Australian economist, then quotes Franklin Roosevelt who said in a 1937 fireside (radio) chat: “Let us unanimously recognize that the federal debt can only be paid if the nation obtains a vastly increased citizen income.”
Jones aruges that “front-loading fiscal consolidation” before the recession is over delays the cut in debt to GNP levels. To really cut debt levels you need steady growth plus modest inflation, missing this time. As for much-vaunted structural reforms to boost growth are lacking. And infrastructure spending to meet pent-up demand, improve education, boost R&D, encourage foreign direct investment, foster labor market flexibility are all being held back. Meanwhile politicians are raising taxes and cutting investment leaving it to monetary policy to sustain growth. And monetary policy is failing to do this.
One result is what Jones calls “the recent upsurge in political populism and social unrest” which he says “is hardly surprising.” “It echoes previous periods of fiscal austerity such as the 1920s and 30s.”
(published by www.llewllyn-consulting.com of London, 44-020 7213 0300, headed by former OECD deputy chief economist John Llewellyn, reprinted with permission.)
Last week Donald Trump was right about currency trends as the US$ recovered from an oversold level against the Mexican peso, the Canadian loony, and other currencies in the trade-weighted index. Today it rose further against the Japanese yen and the Swissie franc. But these trends boost the US trade deficit and keep Wall Street from being great.
More for paid subscribers from Brazil, Colombia, Vietnam, Bangladesh, Britain, the Dutch Antilles, Israel, India, Switzerland, and northern Virginia.