Thanks to Dent Research, here we have our weekly information roundup ending the week. We hope this information will help you separate the noise from the news. We start with what you hear in the news and finish with what that information means.
Three-Month Treasury Bills Priced at 0.00%...
These short-term bonds sell at a discount, like $99.80 per $100 of value, and then mature at $100. The difference represents the interest earned. In the latest auction, the bills sold at $100, so investors earn exactly zero on the investment.
What it means – OK, the yield in earlier auctions wasn’t going to make anyone rich. Recently the bills sold at 0.01%. The highest yield in the last several months was around 0.10% in August. But still, zero? Investors are putting their money where their mouths are. They don’t see the Fed raising rates anytime soon. Threemonth Treasurys are a great place to park a lot of cash if you think rates are going to remain flat and equities are going to tank.
Former Fed Chair Bernanke States He Could Not Save Lehman…One of the biggest lingering questions from the financial crisis is why the Fed and the U.S. Treasury did not save Lehman Brothers. In the Wall Street Journal, Former Chair Bernanke noted they didn’t have the resources, but didn’t want anyone to know it.
What it means – Amazing. Bernanke points out that he and then-Treasury Secretary Paulson agreed to be purposefully vague on their decision to let Lehman go under. Bernanke wrote that if people knew they didn’t have the resources to save the investment bank it could have started a panic and led to a meltdown of the financial system. So, they lied. He didn’t say “lie,” of course, because no one wants to say such a thing. Now he wants people to know the truth so that history books don’t talk about the Lehman decision as a choice. Hmmm. I’ve got a question. Is he lying now, as he claims to have lied then? How would we know? Nothing will come of this discussion, but it’s infuriating nonetheless.
Fed Minutes Show All But One Member Voted Conditions Not Right For Rate Hike…
The minutes of the September meeting revealed that only one member of the Fed wanted to raise rates, even after many speeches hinting at a rate hike.
What it means – The meeting happened weeks before the September payroll number. Investors took the minutes of the meeting and the jobs report as major indicators that rates won’t go up this year, which fed an immediate rally in the markets. It’s ironic that surprisingly weak economic growth in the U.S., coupled with weak growth in other countries, drove the equity markets higher. We’re not sure how long this Bizarro world can last.
Volkswagen Diesel Car Buyers Received $51 million in Tax Credits…
Because their cars reached certain thresholds of mileage and emissions, buyers of these vehicles were able to claim $1,300 tax credits in the year they purchased.
What it means – The IRS isn’t fond of fraudulent claims like the Volkswagen tax credits. It might seem logical that the company would repay the IRS but, technically, they can’t. Volkswagen was not involved in the tax credit application and didn’t receive the funds. That was strictly between taxpayers and the IRS.
To follow the law, the IRS should send all filers who claimed this credit a notice that they will have to refile for the years in question and pay the appropriate tax with any applicable interest or penalty. Then the taxpayers would have to sue Volkswagen for reimbursement.
But that’s just the law, which often gets bent, broken, ignored, or otherwise cast aside when inconvenient.
IMF Expects Slowest Growth Since 2009…
Citing the commodities bust and slowing growth in China, the IMF warned of a global recession and downgraded its outlook for the next two years.
What it means – And in other news, the world is round. Seriously, though, the IMF is late to the party. Falling commodity prices and slumping economic activity in China aren’t new. What’s interesting is that things are so bad even the IMF is responding. Although, this is the same organization that bowed out of the latest Greek bailout, noting there was little chance of the debtor nation paying off. Maybe the IMF is taking a more realistic view of the world these days.
German Industrial Production and Manufacturer’s Orders Both Fall…
Industrial production was down 1.2% in August while manufacturer’s orders fell 1.8%. Both were still up for the year, 2.5% and 2.2%, respectively.
What it means – The declines were broad-based, reflecting weakness across many sectors of the economy, and domestic as well as foreign demand. The strong man of Europe is slowing down. German government officials shrugged off the news, stating that the country is in a great position to grow in the months and years ahead.
That’s nice, but their own estimate is GDP growth under 2%, which isn’t exactly stellar. China buys 6.5% of German exports. If the Chinese slowdown intensifies, the Volkswagen debacle gets bigger, Germany’s European neighbors suffer setbacks, or the immigration wave overwhelms the nation… well, you get the picture.
There are many reasons to be skeptical of accelerating growth in Germany. We expect the country’s economy to turn down.
Chinese Yuan Surpasses Japanese Yen as Most-Used Currency in the World for Cross-Border Payments…
Rising from almost zero five years ago, the Chinese currency is now behind the U.S. dollar, the euro, and the British Pound Sterling in payment for trade.
What it means – It’s a great headline – the yuan skyrocketed to fourth! But the underlying numbers are much less impressive. The U.S. dollar accounts for 44.72% of trade settlement, while the euro covers 27.20% and the British Pound 8.45%. The yuan trails a bit at 2.79%, just ahead of the yen at 2.76%. Yes, the yuan is technically fourth, but it’s not exactly running up on the leaders.
Still, the increase is notable, and is one more reason the yuan should be included in the Strategic Drawing Rights (SDRs) at the IMF. The point of SDRs is to smooth trade when member countries have currency shocks. Giving members access to yuan for settling trade with China makes sense.
Oil Might Not Reach $70 by Year End…
Legendary oilman T. Boone Pickens explained that when making his call for oil to rebound by the end of the year, he misjudged what Saudi Arabia and other Middle East producers would do. Their increased production has held down prices even as U.S. companies slowed production.
What it means – A year ago, Mr. Pickens told CNBC that oil prices wouldn’t bottom out before the rig count in the U.S. dropped by 50%. There were more than 1,600 rigs back then. There are fewer than 700 today. Oil isn’t at its recent low, but it’s not zooming to the moon either. As he explained, even though U.S. production is down by 500,000 barrels a day, several OPEC members have opened the taps even more, increasing their supply by one million barrels per day. When Iran joins the fray after the West lifts sanctions on the country, prices could drop again. But all is not well in the Middle East. Beyond increasing geopolitical tensions and the civil war in Syria, Saudi Arabia is feeling the pain of low oil prices. The country just declared a spending freeze, hoping to staunch some of the flow of red ink in its national budget. The race for market share at any price has been very expensive.
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