Stock market gyrations, Google’s China fire

What is going on in the stock market?

The volatility and price swings of shares just does not ring true to this veteran market watcher. The year-end market moves this year defy logic. As many economic reports — while always questionable, but the only barometer used by the Street — show things are still better than the numbers from the Obama era economic malaise, they seem to fall on deaf ears.

This type of volatility has to be coming from institutional investors since the gyrations are so violent and sudden. I don’t think the incoming Democratic-controlled House is the root, since markets prefer divided government as they’re less likely to get any meaningful regulations through Congress.

Fed chairman Jay Powell needs to step aside and let his previous rate hike work through the economy and see where we stand in six months. Since there are words to that effect the Fed will more likely raise rates next week and that is baked into the market, but the language in the press conference will have greater impact.

One theory I believe is that the black box computer trading programs may have reach a critical level where the algorithms control far more shares than human decision makers, which gives you markets swing back and forth with more than 500 points in less than an hour on very little news.

Many market pros have their own interpretations, which are rooted in the past, but I think this market is being honed to towards more non-traditional sources of “news”. While veteran market makers would here rumors that could create price swings but there was discretion. Now these algorithms may take “rumors” or fake news with more seriously without discernment.


Does anyone else find it odd that hours after Google CEO Sundar Pichai testified in front of the House Judiciary Committee on a host of issues including the search giant developing a censored product for China a fire develops in its offices there.

Breaking: Fire breaks out in Raycom Info Tech Park, which houses Google’s office, in the Zhongguancun technology hub in Beijing, China.

https://twitter.com/PMBreakingNews/status/1072705722746585088📁

Was the order given to cover tracks on the program called Dragonfly, which was a government-approved search engine for the Chinese market, which is heavily censored by Google for access to the market.

On Tuesday Pichai was questioned numerous times during his testimony of censored search. Each time he answered with a variation of “We have no plans at this time to launch in China.”

Perhaps that comment is now true since the fire has pushed back the launch of any product.

 

 

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Connecting the dots on global arrests

The global arrests of seemingly disparate individuals and international probes of banking corporations have been adding up over the last two weeks to show a more common thread.

Deutsche Bank and Danske Bank have been at the center of these financial probes with investigators seizing hordes of documents.

A global money laundering operation appears to be investigators’ focus. Illegal dealing with Iran and Russia outfits — despite sanctions existing to bar the banks from doing business with these rogue actors — is the initial reason for these probes.

Now it appears the individuals on the other side of the dealings are very well-known American and European billionaires working at the urging of once powerful political leaders from the EU and US.

We will have to wait until Dec. 13 for US Attorney John Huber’s congressional update of his Clinton Foundation investigation. His testimony was pushed back due to the funeral of ex-president George HW Bush.

On Wednesday Sabrina Meng, CFO and daughter of the founder of Huawei, the Chinese telecommunications giant, was arrested in Vancouver at the urging of the US Justice Department. The feds allege Huawei was dealing with Iran violating the sanctions.

That’s the initial charges, but it probably goes much deeper.

We also have Saudi leader Prince Mohammed bin Salman’s troubles appear to be wrapped up in this global financial upheaval. Whether he gave the order to kill Jamal Khashoggi as the initial charges have been made, will probably never be prosecuted and if charged will not be prosecuted.

Look at the fear and loathing in the stock market. The Dow plunges 800 points on Tuesday and appears to be looking at shedding another 500 points on Thursday’s open.

I am not buying the China tariff war as the culprit for this sell off. It appears that large selling by institutional investors, which cater to moneyed individuals. There appears to be a great need to be liquid at this time. The economic numbers being put out by the feds do not warrant a fear or panic in the market.

With great change, comes some pain and we may be at the beginning of something huge about to break.

Stocks up, wages up, unemployment down. How could the Midterms be close?

As a financial writer in real life, I find it odd that the economy is not being ballyhooed by the Republicans more during this Midterm election. Or should I say not mentioned in the media more.

Stocks, as measured by the Dow Jones industrial average, are up 25% since President Trump was elected.

No the only focus the stock markets get nowadays is the recent gyrations in October, which also overshadowed the latest wage data showing a pay raise of more than 3% according toLabor Department data released Wednesday. The wage gains make sense since there is now a decades-low unemployment rate.

An argument could be made that the recent stock pullback story has much to do with a concern that the Democrats could possibly win the House of Representatives.

Certainly Wall Street has a growing concern that Rep. Maxine Waters could take over the leadership of the House Banking Committee. The same Maxine Waters who told protestors to go after Administration members of Republican members of Congress if you see them in a restaurant or the movie theater.

It’s not a question of impeachment, because that will never be in the cards, since the Democrats will never have enough votes to get charges brought and passed onto the Senate. No the real question is what do the Democrats stand for economically?

There’s very little evidence of any economic platform or any platform except being anti-Trump. But no one calls them out on this.

A perfect example of this is in San Francisco, where the Democratic Mayor and city council want to raise real estate and business taxes to stem the tide of growing homeless people defecating in the streets among other quality-of-life issues.

Left-leaning Silicon Valley firms like Google and Amazon among others are squawking over having to pay more taxes. Threatening to move out of the city if they are forced to pony up cash to alleviate a problem they caused by moving in and distorting the cost of housing in the Bay Area.

So where is the left’s economic thought? Clearly tax and spend doesn’t resonate with its biggest boosters — California tech companies.

And I would say it does not sit well with many institutional investors as well.

A US economic snapshot in the middle of 2018 — not all is well

Let’s take a quick look at the US economy and where it may be headed in the near term.

While unemployment is said to be very low, the rate is still artificially low due to the uncounted Americans no longer in the workforce because of chronic joblessness.

Producer and consumer pricing are rising — not because of tariffs as the left will cite — due to the excessive capital washing out of the stock and bond market. The stock price run up over the last three years was engineered by the Federal Reserve’s quantitative easing capital finding safe haven in stocks and bonds.

Now that capital is exiting the security markets and finding better treatment with private equity firms that are buying out manufacturing and consumer brand companies, which drives up prices in order for the new owner — the PE firm — to make money from the investment through putting the brands deeper into debt to make special payments to them.

So this capital is not from the average American, but the repercussions are being felt by these average Americans through higher prices. Look at the biggest PE firms raising record amounts for new funds.

Taking a quick look at the US bond market to see where the real problems are. The difference in return rates between lending Uncle Sam money over 2 years versus 30 years.

The 2-year return is 2.61%, the 30-year interest rate is 2.96%. The delta between these two 0.35 percentage points return over 28 years. This is what is called a flat yield curve, since the interest curve is very shallow.

In the environment of the bond market capital is not treated well at all with artificially low returns, so this is pushing additional big money out of the public capital markets and into the private funding markets.

What is the down side of this move? Look at the number of bankruptcies in the retailing sector over the last year. These stores: Toys R US and a dozen or so women’s apparel stores are all closed or limping along because these companies were so leveraged up on debt that they could not pay off their huge debt levels imposed on them by their private equity owners.

But don’t worry about these PE firms because they took their money upfront and more than likely owed some of the companies bonds, which were paid off in the bankruptcy.

Will we get a clue on June’s jobs number?

On Friday we get the monthly employment report from the government for June and be able to access the first six months of 2018.

Last month well before the 8:30am release time President Trump tweeted “Look forward to seeing the employment numbers at 8:30 this morning.” The tweet moved the market leading many to say he should not have done so.

Wall Street is expecting gains of 191,000 jobs for June, with the unemployment rate to remain at 3.8 percent. In May the jobs number was 223,000, which resulted in Trump’s tweet.

So if there is no tweet on Friday morning, then the Street may sell of prior to the release. This is the reason for not breaking the embargo by hinting a good number is about to come out.