Ten Years After
…US-China tariffs back on. Manafort flips. 10y hits 3% – odds on for more rate hikes. Florence crawls to Carolinas. Mangkhut roars through Philippines. 10 years after Lehman.
Financial Review by Sinclair Noe for 09-14-2018
DOW + 8 = 26,154
SPX + 0.80 = 2904
NAS – 3 = 8010
RUT + 7 = 1721
10 Y + .03 = 2.99%
OIL + .39 = 68.98
GOLD – 7.80 = 1194.10
Stocks started the session in positive territory but that didn’t last long. Once again, concerns about trade wars pushed prices lower. A report indicated that Trump still wants to impose tariffs on China despite recent suggestions that tensions between Washington and Beijing were easing. Bloomberg reported that Trump instructed his team to proceed with tariffs on about $200 billion more in Chinese products, despite Treasury Secretary Steven Mnuchin’s recent attempts to restart talks with Chinese officials. But the timing for activating the additional tariffs was unclear. The decision comes one week after Trump said he would be adding tariffs on $200 billion in Chinese goods and had tariffs on another $267 billion in Chinese imports “ready to go on short notice…” A public comment period also ended last week for the $200 billion tariff list, which would hit various technology products and a wide range of consumer goods.
The decline in stock indexes also come even after equity gauges shook off a late-morning report that Paul Manafort, Trump’s former campaign chairman, would plead guilty to two criminal charges on Friday and said he would cooperate in a broad investigation into the 2016 election. Manafort held senior roles in the Trump campaign for five months in 2016. Manafort’s work in Ukraine also put him in the middle of a network of lobbyists and influence brokers who are now under investigation by federal prosecutors in New York. Manafort was not sentenced. For now he will remain in jail, where he has been since June, when prosecutors accused him of witness tampering. The prosecutors dropped five other charges encompassing money laundering and violations of a lobbying disclosure law. Manafort was convicted last month on bank and tax fraud charges after a trial in federal court in Alexandria, Va. The truth has now been powerfully revealed about the integrity and probity of the Mueller investigation. The investigation was never a witch hunt. That big lie has been disproven by the big truth of indictments, plea bargains and cooperation agreements.
It is highly unlikely that Trump will now fire Mueller or interfere with his investigation; any such move would trigger realistic calls for impeachment – much like the Saturday Night Massacre. It is equally unlikely that Trump will pardon Manafort. Again, a pardon would unleash massive backlash. And Manafort could still be forced to testify under oath under penalty of perjury, which would leave Trump in no better position than he is today. A pardon would mean that Manafort could not invoke Fifth Amendment protection. Under the deal, Manafort is required to describe any and all criminal activity he is aware of. He is also required to sit for interviews and briefings with the special counsel’s office, to turn over documents and to testify in other proceedings. Manafort’s guilty plea is an absolute nightmare for Trump and his family.
Stocks ended today’s trading session essentially unchanged, though slight gains were enough to give the S&P 500 its fifth straight positive session, while all three major indexes posted solid weekly gains. For the week, the Dow rose 0.9%, its fourth positive week of the past five. The gains have taken it to its highest level since late January. The S&P 500 rose 1.2%, its ninth positive week of the past 11. The Nasdaq posted a gain of 1.4% for the week, its third positive week of the past four. At current levels, the S&P is 0.4% below its record close set in late August, while both the Dow and the Nasdaq are within 2% of their all-time highs.
The yield on the benchmark 10-year Treasury note topped 3 percent for the first time since Aug. 2, and settled just a smidge below. Yields have been steadily rising since the start of September as expectations for economic growth creep higher. Bond investors have been doubting the Fed will follow through with the two rate hikes it forecasts for this year and three for next year. The futures market had been anticipating a September rate hike, but this week, fed funds futures began to reflect an 80 percent chance of a hike in December, a sharp jump from last week’s expectations of about 60 percent. For next year, the futures now reflect nearly two rate hikes while previously one was barely priced in. Yields moved higher around the globe today after the European Central Bank wrapped up a policy meeting. ECB President Mario Draghi once more signaled an end to the bank’s bond buying program.
The Commerce Department said retail sales edged up 0.1 percent last month, the smallest rise since February. But July’s figures were revised higher to show sales rising 0.7 percent instead of the previously reported 0.5 percent gain.
Meanwhile, the import price index sank 0.6% in August, marking the second straight month and the biggest drop in 2 ½ years for the cost of goods imported into the country, largely reflecting lower oil prices. A Federal Reserve report on industrial production for August showed a rise of 0.4%, representing the third monthly increase. Separately, the confidence of Americans in the U.S. economy and their own well-being rose toward the end of summer and stood near a 14-year high. Business inventories rose 0.6% in July.
Hurricane Florence made landfall this morning in Wrightsville Beach, North Carolina as a Category One hurricane. It has now downgraded to a tropical storm, with sustained wind speeds of 70 mph. At least four people have died. As the hurricane made land, it basically stalled and is now crawling to the southwest along the South Carolina coast. And even though wind speed is greatly reduced, the storm is still very dangerous, especially from flooding. More than 18 trillion gallons of rain are in the forecast, enough to fill Chesapeake Bay. Homes have flooded and trees crashed through rooftops. More than 700,000 customers are without electric power.
In many ways, residents of the Carolinas have been lucky. Super Typhoon Mangkhut is hurtling through the Pacific and made landfall earlier today on the Philippines largest island, Luzon with winds as fast as 180 mph. Nearly 37 million people are estimated to be in the storm’s path, according to the Global Disaster Alert and Coordination System. Mangkhut, which is equivalent to a Category 5 hurricane, has prompted mass evacuations in the Philippines and China.
On September 15, 2008, Lehman Brothers Holdings, a global financial services firm and the fourth largest investment bank in the US, filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of assets by credit rating agencies, largely sparked by Lehman’s involvement in the subprime mortgage crisis, and its exposure to less liquid assets. Lehman’s bankruptcy filing is the largest in US history. The collapse of Lehman just happened to be the defining trigger but the collapse was inevitable – whenever liquidity siphons greater compensation than productivity, the results are not sustainable.
What followed was a near meltdown of the global financial system, or so we’re told. Everything was going to hell in a handbasket. Don’t buy the story that the Fed and the bankers stepped up to fill the breach caused by greedy homebuyers who lied on mortgage apps – that’s like Satan calling a jaywalker evil. The banksters were the cause of the breach and they were the recipients of the bailout. And the bailout was massive. The Special Inspector General of the TARP put the gross government outlay at $4.6 trillion, with over $16 trillion in guarantees. Bloomberg concluded the rescue expenditure was $12.8 trillion. Fortune (which saluted the investment as hugely profitable for America in the end) put the number at $14 trillion. The Levy Institute at Bard College did probably the most extensive study and put the number at $29 trillion.
Some will argue that the banks repaid the bailouts – not exactly. They paid some back, not a difficult chore when you socialize losses and privative profits, and in every imaginable way tilt the filed to your advantage. Not only were the big banks too big to fail, the banksters were too big to jail. The Rule of Law did not apply to them. For the rest of the country, the punishment was harsh: homes were lost, equity dissolved, jobs vanished, wages dropped. In 2008, 861,664 families lost their homes, and homeowners lost a breathtaking $3.3 trillion in home equity. By 2011, nearly 12 million homeowners were underwater on their homes.
And now, 10 years later, the big banks are bigger than ever. Wells Fargo is bigger, Chase is bigger, Bank of America is way bigger. In the next crisis, letting losers lose will be even more unimaginable. One thing we learned is that there are two-tiers of justice in America: merciless punishment for the hoi polloi and get out of jail gift cards for the upper crust, no the really elite upper crust. Bailouts for the few and austerity for the many have caused global debt to rise 40% since 2007. Risk has not been diminished, just taken out of sight and dispersed geographically. And we’re not out of the woods yet, we are ill prepared for another downturn. And most people still carry the scars from the damage caused by that awful deal made 10 years ago.