Treasury Yield And Dollar Swaps Curve Remain Kinked (So Many Uncertainties, So Little Time)

One day it looks like China and the US are making progress in trade talks, the next day there is no progress. Just like Brexit — on one day, off another. Then there is the Federal Reserve: will they continue raising their target rate and unwinding their balance sheet? Will the Democrats controlled House try to impeach Trump for putting ketchup on his steaks? And “The Wall.” Same old, same old. So many uncertainities.

Hence it is not a surprise that the US Treasury yield and US Dollar Swaps curve remain “kinked”. That is, inverted in the short-end of the respective curves.

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It is difficult to keep one’s head on straight with all the uncertainties in the global markets.

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IMF Downgrades Eurozone Growth To 1.6% (Global Forecast At 3-Year Low)

The International Monetary Fund (IMF) has downgraded economic growth for the Eurozone to 1.6 for 2019. weoupdatejan2019.  But Japan is even worse at a forecast of 1.1% for 2019.

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Russia is also forecast to be sub-2% as 1.6%.

The Eurozone and Japan are drunk as a skunk on global Central Bank zero interest rate policies.

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Student Debt Is a Driver of Low Millennial Homeownership (Combined With Declining Middle Class Wealth)

American homeownership has been on the decline (for millenials), and Federal Reserve researchers point to the high cost of college as one culprit. (Gee. ya think?)

Just 36 percent of household heads between 24 and 32 years old owned homes in 2014, down from 45 percent in 2005. At the same time, average student debt per capita rose to an inflation-adjusted $10,000 from $5,000 in 2005.

About 20 percent of the decline in homeownership among young adults can be attributed to that increase in student loan debt, the authors estimate, making such borrowing an important, but not central, driver of the decline. Some 400,000 more young people would have owned homes in 2014 if debt burdens hadn’t risen.

Average college tuition, fees, room, and board was $4,399 for public colleges in 1995-1996 and $2,081 for community colleges. By 2015-2016, costs were $9,410 and $3,435, respectively, increases of 53 percent and 65 percent. Student aid increases failed to slow down high tuition costs.

Why does this happen? It’s partly because higher student loans early in life leads to lower credit scores later in life, making it harder for former students to take out mortgages.

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But HOW did this happen? It started with President Bill Clinton and his crusade to make college more affordable. Clinton bumped up student financial assistance funding by 20 percent before he left office and introduced direct federal student loans, along with tax credits to further defray costs. Somewhat ironically, Clinton set the stage for student loans to dominate higher education funding.

And since Clinton, college tuition has grown almost exponentially. And then President Obama doubled down on the “make college more affordable” lunacy.

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Despite the fact that middle-class wealth has collapsed since 2007.

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Where do the tuition hikes go? Generally to university administrators, like Presidents, Provosts, Deans (and Deputy, Associate and Assistant Deans). And new non-academic initiatives. 

So where do (overpaid) university adminstrators go after work?  Bump City!

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Golden Ticket? China Relief? Fed Tightening Halt? January Effect? S&P 500 Surges In 2019

Central banks are like Willy Wonka to markets offering golden tickets.

We have the People’s Bank of China wildly expanding their repo purchases to stimulate their economy and have just announced massive investments.


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Then we have Trump administration officials \considering measures to roll back tariffs on Chinese products in order to calm financial markets, the Wall Street Journal reported, a report the Treasury Department quickly denied.

Then we have The Fed taking further rate hikes off the table. It sure looks like it!

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Then there is the January effect (not the January Jones effect) where stocks decline at the end of the year only to rise at the beginning of the next year.

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My bet is on Jerome Powell, The Fed’s own Willy Wonka spreading golden tickets to Wall Street.

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US Treasury Yield, Swaps And 1-Month LIBOR Curves Remain Kinked (All Day And All The Night)

Global uncertainites abound. And with them, the US TReasury yield curve, the US Dollar Swaps curve, and the 1-month LIBOR curves are all kinked.

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These curves are kinked all day and all the night.

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Bubble Trouble? Household Net Worth Rising Faster Than GDP (Debt Bubbles In Canada, Australia And China)

The Federal Reserve’s zero interest rate policy (ZIRP) and quantitative easing (QE) helped to rebuild US household net worth. But it was rebuilt with asset bubbles that invariably burst.

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And courtesy of Kevin Smith at Crescat Capitalm here is a chart of asset bubbles and household/corporate debt as percentage of GDP. The most vulnerable? Canada, China and Australia.

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Canada, Australia and China represent 3 of the lowest 5 countries in terms of % of stocks with negative annua free cash flows.

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Shrimp on the barbie, mate?

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Bye Bye Theresa? Britain’s PM May Loses Brexit Vote By 432 To 202 (Disturbance In The Force)

I detect a disturbance in The Force after Great Britain’s Therese May lost the Brexit vote by a whopping 432-202.

The USD Dollar Swap curve is now even more kinked  and the GBPUSD forward curve looks like it hit a wall.

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It is almost as if the Brexit “fears’ have gone away.

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Is this Bye Bye Theresa?

Meanwhile, Nigel Farage and UKIP are singing “What’s the matter with UK Socialists?”

Oh Canada! 58% Of US Stocks Have Negative Annual Free Cash Flows (82% Of Canadian Stocks)

Typically, a company with negative free cash flow indicates an inability to generate enough cash to support the business. Free cash flow tracks the cash a company has left over after meeting its operating expense.

But when 58% of the United States stockss have negative free cash flows … we got trouble in River City.

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But Canada is even worse at 82%.

Oh Canada!

Slowing! US Framing Lumber Collapses In 2018 As Economy Slows (But Still Above 2%)

Ain’t this a kick in the head!

The US Framing Lumber Composite Index for December collapse. No, it isn’t just a seasonal effect since it hasn’t been happening in recent years. Just in 2018.

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The decline is coinding with a general economic slowdown, although the various Fed Nowcasts are still above 2%.

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Even Nicolas Cage knows it is slowing.

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