Today we examine our volatility model. It is simplistic in nature and by design, but nevertheless, it has proven accurate. If history is any indicator as to what we are likely to witness over the remainder of 2019, it’s that volatility is on its way. This is especially true for the DOW and the S&P 500 and to a lesser extent for the Nasdaq and the Russell 2000. However, nothing is written in stone and while volatility tends to coincide with moves to the downside, given the fact that central banks the world over are priming their printing presses and some central governments are looking to deploy fiscal stimulus measures, the melt-up scenario is still possible. The Kapital News, however, at this juncture continues to put more weight on the downside risks given the overall economic environment. Stay vigilant and have a plan.
Back in February when this podcast started, we discussed the 30 market risks of 2019. A list that was put together by Deutsche Bank. Of course one of the points they conveniently forgot to add was their own failure. The Kapital News was sure to make sure that this banks potential failure was point number 31. We have been discussing recently the “restructuring” of DB, and now we have learned that the bank is set to cut 18,000 jobs through 2022. This is not a good sign as the bank has and continues to struggle to be profitable. History does not repeat, but it does rhyme, and should DB fail, this will be a global systemic event that will mimic the collapse of Lehman Brothers back in 2008. The interconnectedness of the global financial system is a myriad of fraud, abuse, corruption, tricky accounting methods, and unknown counter-parties – to mention a few. Yet, ironically, despite this, the system operates off of “trust and confidence.” Hard to believe that the greater society is supposed to place their trust and confidence in an industry that routinely breaks the law (i.e. money laundering, manipulating markets, charging customers with erroneous fees, etc…) and of course, not a single banker goes to jail. Furthermore, citing the last crisis in 2008-2009, these are the same people and corporations that get bailed-out. What happens to and with Deutsche Bank is a shot across the bow – we must pay attention.
The S&P 500 set a record high close at 2,965 points. This is of course on the heels of the US/China trade “truce.” There wasn’t much news here, but the markets are driven by headlines and a truce is better than a further escalation so the markets took a big sigh of relief. Now we know that neither side is in any hurry – so it’s anyone’s guess as to how long this trade war/truce will last. What we must be mindful of as The Kapital News has been stating for some time now, is if and when the Chinese start to become more vocal in the media about the progress or lack thereof regarding trade negotiations. If the President of the United States and his White House make positive remarks, like they have over the course of the last several months, but are now countered by Chinese rhetoric, whom will the markets believe? This is a serious question and as we have predicted, the Chinese are starting to make comments. Check out this episode!
A conclusion to the G-20 meeting in Japan over the weekend has left the globe with a trade truce between the US and China. This time, however, there is no deadline as to when a deal must be struck. This is in contrast to the 90-day deadline that was established following the trade talks during the G-20 meeting in Argentina in 2018. This still leaves a tremendous amount of uncertainty, which is likely to translate into businesses still remaining skittish when it comes to making new plans. The Kapital News is of the opinion that since we are now in a trade truce, as was expected from the markets – what will the markets turn to next? If it’s fundamental economic data – the markets might not like what they see. On another note, the Federal Reserve released their findings from their bank stress tests and guess what? – everybody passed! Even Deutsche Bank passed, which just recently stated that they want to spin-off 50 billion euros worth of bad loans into a “bad bank” as well as lay-off an additional 20,000 employees. Have we stated that this is the financial world of Oz?
The G-20 meeting in Osaka, Japan has concluded and with it the talks between Presidents Trump and Xi. The world is now left with an indefinite trade truce. Neither side is increasing or decreasing their respective tariffs, but talks are set to continue. Last time these two leaders met from their G-20 meeting in Argentina, a 90-day deadline was established to get a deal struck before further tariffs would be levied from the US side. This time, however, there is no new deadline. While President Trump has stated that the meetings went better than expected, the Chinese media was reporting that there is a long road ahead before reaching a deal. If we enter into a war of the words between the US and China – who will the world and the markets believe? On a domestic front, Senator Kamala Harris went after former VP Joe Biden in round two of the debates and has received some praise and some criticisms. Regardless, it remains the opinion of The Kapital News that Senator Harris is going to be a formidable candidate on the Democratic side – the subsequent media coverage of Senator Harris is further evidence in our corner.
The G-20 meeting in Japan is underway and all eyes and ears are awaiting the conclusion of the trade talks between Presidents Trump and Xi. It has been reported today that President Xi will present his case for what the USA needs to do to reach a trade truce at this juncture. These bullet points highlight the divide between the two nations and it will be near next to impossible for President Trump to acquiesce to these demands. They are centered around removing the ban that the US has placed on Chinese tech firm, Huawei. This company has been and is considered a national security threat to the US – so how can Trump simply put this aside? Next, China wants all punitive tariffs removed – again, same question as above considering how “effective” President Trump claims they have been for the US. It must also be considered that a major sticking point from the US side is that the Trump administration wants an enforceable deal – wouldn’t this imply that tariffs will remain in tact to some degree until the Chinese make good on the agreement? Lastly, President Xi is expected to tell President Trump that the US needs to remove the demand that China needs/has to buy more US goods and services. This will be another challenge to President Trump as he has promised farmers and ranchers a great deal with China, thus increasing the sales of their crops and livestock. So the question remains – is the trade war ending this weekend, or just getting started?
At the G-20 meeting in Japan later this week, global leaders from the world’s largest economies are set to make headlines. Front and center will be the get-together between President Trump and President Xi. In the midst of an escalating trade war, the two leaders are finally set to meet to size each other up. What will transpire is anyone’s guess, but the markets are hoping for good news so that stock prices can continue to rally. The Kapital News isn’t so certain of any good-to-great news other than President Trump likely tweeting or commenting that things are “great.” Well, we’ve heard this song and seen this dance before, so forgive us if we don’t take the President at his word on this one anymore. Both nations have much to gain and much to lose. However, we are talking about two world leaders that like to exude a “strong-man” figure, so it’s unlikely that either will cave-in to the other’s demands easily. Escalation? Truce? Or deal? We’ll soon find out – stay tuned to The Kapital News.
Stocks were up and yields were down in the US and European markets. This comes on the back of ECB President Mario Draghi’s statement that the ECB is ready to cut interest rates and will go further if needed. In addition, we had a tweet from President Trump claiming that he had a phone conversation with President Xi and that the two world leaders are scheduled to meet at the G-20 meeting at the end of June to hold “extended discussions.” The markets loved the news and rocketed upward with major US and European indices gaining 1-2%. Meanwhile, negative yielding debt is nearing the $12 trillion mark and rates are being even further suppressed due to the global dovish tone from world central bankers. Tomorrow the FOMC concludes their two-day meeting and we shall see what the Fed does and says. You can be sure that the markets are waiting on pins and needles.
We discuss the $10 trillion plus market of global negative yielding debt. If you want to understand why we’re in the financial world of Oz – well, here it is! What does this mean and will it be coming to a theater near you? We also have the President tweeting that if the Dems win the White House in 2020, the markets will crash like never seen before. Is this a threat or just a statement again exhibiting the President’s fascination with the stock market?
We have strongmen the world over in Iran, North Korea, China, and the USA all playing a game of poker. Who has the cards and who is bluffing? I believe we’re about to find out soon because a lot is taking place and these players are going to have to turn over their hands. We have sabre rattling in Iran and Iran responding in kind. We have President Xi set to meet with Kim Jong-Un of North Korea, and we have the upcoming G-20 meeting in Japan – will Trump and Xi meet? There have been a lot of threats thrown out from all sides – who will blink first and can the world afford these strongman tactics? We’re going to find out shortly.
