Fed Chairman Jerome Powell strongly hints a rate cut is coming

Source: CNN

“Federal Reserve Chairman Jerome Powell on Wednesday strongly hinted at a potential rate cut later this month, citing unresolved trade tensions and worries over the weakness of the global outlook. In prepared testimony ahead of his first appearance on Capitol Hill, Powell told House lawmakers that since the Fed’s last interest-rate policy-setting meeting in June, two of the major forces that have the potential to drag down the US economy remain a concern. ‘It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook,’ Powell will say at the hearing, according to his prepared remarks….Powell, the president’s choice to run the world’s most influential central bank, is facing considerable pressure to keep the US economy steady. Concerns are intensifying that Trump’s tariff strategy may end up hurting global growth. Beyond a broader global slowdown, the Fed chair also named in his testimony a number of other risks facing the US economy including muted inflation, ongoing trade tensions and a looming debt ceiling crisis that has yet to be resolved by Congress. ‘We are carefully monitoring these developments,’ said Powell, who noted that the Fed now anticipates that ‘weak inflation will be even more persistent that we currently anticipate.'”

 

Weaker growth will offset a Fed rate cut-so sell stocks, warns Morgan Stanley

Source: Market Watch

“So we start the week with U.S. stock market indexes just a few steps away from all time highs. That is even after Friday’s extra strong jobs data rattled some investors, who worried that the Fed could be deterred from cutting interest rates in a few weeks. But according to CME Group, that cut is happening. Our call of the day though, kicks things off with a warning from Morgan Stanley which is ‘putting our money where our mouth is’ and downgrading global equities to underweight from equal-weight. Here’s why: ‘The most straightforward reason for the shift is simple-we project poor returns,’ said Andrew Sheets and a team of strategists…. Morgan Stanley is expecting a rate cut, but Sheets argues history shows that when central banks cut because growth is weak, it is the weakness that matters more for stocks in the end. ‘If you don’t believe us, we have some European stocks from April 2015, shortly after the European Central Bank’s first QE program was announced, that we’d like to sell you’, he added.”

 

1 Federal Department Now Spending $100 Billion Per Month

Source: CNS News

“For the first time in our nation’s history, there is now a federal department spending an average of more than $100 billion per month….It is the Department of Health and Human Services…As it now stands, HHS runs Medicare for many and Medicaid for more. ‘In 2019, the program will cover an estimated 61 million persons (52 million aged and 9 million disabled),’ the Congressional Research Service said of Medicare in a report published in May…. ‘CBO also estimates that federal Medicare spending (after deduction of beneficiary premiums and other offsetting receipts) will be about $637 billion in 2019, accounting for about 14% of total federal spending and 3% of GDP,’ said CRS….’Two programs – Medicare and Medicaid – are expected to account for 86% of all estimated HHS spending in FY2019,’ it said….Only one other federal agency or department rivals HHS for spending money. It is the Social Security Administration….Medicaid, Medicare and Social Security have one thing in common besides being the primary factors that have driven federal spending above $4 trillion per year: They make people dependent on government.”

 

Investors are fleeing stocks. So why is the market still rising?

Source: The Week

“The stock market is cruising, but investors are playing it safe. Despite the bull market – in which stocks are up almost 20 percent this year – investors around the world have actually yanked over $140 billion out of equity finds so far this year and are shoveling their money into low-risk, low-yield government bonds and money market funds instead. That’s because they fear the market’s potential volatility, Axios reports. ‘People don’t trust the stock market,’ said Emily Roland, head of capital markets research at John Hancock Investment Management….Stocks have remained strong, though, mostly because of company buybacks and low volumes, Axios reported in May. In fact, despite some experts’ concerns, the lack of action from investors is not necessarily a bad thing – because it means that investors aren’t overconfident. The second half of the year could shed more light on the situation, but it looks likely to present the same combination of optimism and pessimism. The labor market is doing well, and markets are expecting more easy monetary policy from central banks. But a slowdown in trade and global growth continues to loom over everyone’s heads.”

 

World Gold Council: Federal Reserve, Central Bank Rate Cuts To Drive Gold Investment In H2

Source: Forbes

“Gold has enjoyed quite a spectacular price run in 2019. Up 11% since the fireworks greeted New Year’s Day, investor demand for bullion has really lit up in the past few weeks amid expectations of central bank rate cuts and the escalating diplomatic and military crisis in the Middle East. Yellow metal values have retraced a little since striking six-year highs around $1,437 per ounce at the start of July, but as I type this article gold is just 10 bucks off those significant peaks. And latest World Gold Council (WGC) comments suggest that the safe-haven metal could be poised to charge again in the second half of the year. Signs of increasingly-doveish monetary policy from central banks across the globe has been a significant driver of bullion of late, that classic hedge against inflationary threats. And the council has predicted that ‘the prospect of lower interest rates should support gold investment demand’ in the latter half of 2019….Rate cuts, though, are not the only possible actions that could emerge in the medium term, the WGC argues. It says that in the event of a recession central banks may also be forced to rely on quantitative easing and ‘new non-traditional measures’ to stimulate the global economy. Naturally this bodes well for gold prices. As the WGC says: ‘our research indicates that the gold price was higher in the 12 months following the end of a tightening cycle.'”

 

Trump has reportedly asked aides to find a way to weaken the US dollar 

Source: CNBC

“President Donald Trump has reportedly asked aides to find a way to weaken the U.S. dollar in an effort to boost the economy ahead of the 2020 presidential election. The president also asked about the greenback while interviewing Federal Reserve Board nominees Judy Shelton and Christopher Waller, people familiar with the matter told Bloomberg News….Trump has often bemoaned the relative strength of the U.S. dollar in foreign exchange markets, blaming other nations for devaluing their currencies and thereby inflating the American trade deficit. Last week, the president said in a tweet that the U.S. should match China and Europe’s ‘currency manipulation game.’ ‘China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,’ Trump said on Twitter. ‘We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!’ A strong dollar tends to give American consumers an advantage when purchasing foreign goods but can hurt domestic exporters as other nations are forced to shell out larger sums for goods produced in the U.S. That’s proven a headache for Trump, who’s made reducing the U.S. trade deficit a priority.”

 

Alphabet’s plans to track people in its ‘smart city’ ring alarm bells

Source: CNN Business

“Alphabet’s plans to develop a Toronto neighborhood could set a dangerous precedent for the future of data-driven cities, according to data governance experts. Last month, Sidewalk Labs, the urban innovation arm of Google’s parent company Alphabet, released a 1,524-page report detailing plans for developing a portion of Toronto’s waterfront. The report, weighing more than 14 pounds, exhaustively detailed the perks of Alphabet’s vision, including streets without traffic congestion and air pollution, as well as inventive ways of dealing with harsh weather. But when it came to discussing the handling of people’s data, Alphabet offered only a handful of pages with few new details. Sidewalk Labs describes the creation of an independent agency to manage data collection agreements with companies and make sure the collection is beneficial for the community. Pedestrians walking in the neighborhood shortly after it launches will likely be tracked as they walk down streets, enter certain stores and spend time in parks. But it’s not just about the data that will be collected about any given visitor on day one. It’s the risks we don’t even know about yet, the ones that may accrue over time as data collection broadens and gets more powerful. Innovations such as self-driving cars and drones will create new ways to collect data. Businesses, including Sidewalk Labs and others, will want even more data, and it’s difficult to predict what all of the new, data-collecting innovations will be. Recent scandals, from the Equifax hack to Facebook’s Cambridge Analytica debacle, have highlighted the importance of protecting data. Sidewalk Labs plans to build a neighborhood ‘from the Internet up.’ adding sensors that will turn streets and sidewalks into a digital space, increasing the opportunity for privacy issues, discriminatory algorithms and data breaches. Sidewalk Labs describes data being collected everywhere from building lobbies and retail stores to ride-hail vehicles, parks and markets, but no way to opt out entirely.”

 

The US government faces a potential default in September, report says

Source:  AP/Business Insider

“Lower than expected tax revenues now mean there is a ‘significant risk’ that the federal government will run out of borrowing authority in the early part of September, according to a new analysis by the Bipartisan Policy Center, a Washington think tank and advocacy group. The report adds urgency to Washington budget and debt talks that have yet to go anywhere. The main culprit is that tax revenues are persistently weaker than anticipated, said Shai Akabas, the group’s economic policy director, growing by 2% to 3% instead of the 5% to 6% anticipated earlier. The group, which has had a good track record in prior estimates, said two months ago that policymakers had until at least October before the threat of default. Also Monday, the Congressional Budget Office estimated that the government posted a budget deficit of $746 billion for the first nine months of fiscal year 2019, on track to approach or top $1 trillion. Revenues were $69 billion higher and federal spending was $208 billion higher over that period…Market analysts warn that defaulting or US obligations could spook investors, slam debt markets and increase borrowing costs for the government and individuals. Mnuchin is using now familiar accounting tools called ‘extraordinary measures’ to stave off default… ‘This new analysis has revealed a dangerous scenario that cannot be ignored. Budget negotiators need to know that time is running short,’ said Akabas.”

 

AP-NORC Poll: Many feeling vulnerable despite economic gains

Source: AP

“Americans are generally satisfied with their personal finances, but many lack confidence in their ability to afford retirement, an emergency expense or even their daily living costs….Their anxiety is among the consequences of the economic expansion, which has benefited the most affluent far more than it has others. The richest Americans now hold a greater share of the nation’s wealth than they did before the Great Recession began in 2007. Housing and college costs have imposed a much heavier strain on today’s young adults than they did on older generations. And four decades of sluggish pay growth have depressed starting salaries for people who are beginning their careers. Nearly four in 10 Americans say they lack confidence in their ability to pay an emergency expense of $1,000. At the same time, only about 1 in 10 say it’s very likely they wouldn’t pay the bill at all, even if it meant taking a loan, relying on a credit card or borrowing money from relatives. Just two in 10 are very confident that they’ll have enough savings for retirement. Nearly half have little to no confidence… The generational wealth gap that emerges from the survey coincides with findings last year by researchers at the St. Louis Federal Reserve. Those researchers studied six groups of families born between 1930s and the 1980s. The youngest group, they concluded, was essentially a ‘lost generation’ for accumulating wealth.”

 

Gold prices could reach $2,000 by the end of the year, strategist says

Source: CNBC

“Gold prices can continue to climb even after they hit a multi-year high last week, a global investment strategist said Monday. In fact, prices are set to ‘reach $2,000 by the end of the year,’ predicted David Roche, president and global strategist at London-based Independent Strategy….Gold prices have been on an upward trend amid recent expectations of a Federal Reserve interest rate cut and heightened geopolitical concerns – conditions that might weigh on the stock market, according to Roche. ‘I actually believe financial markets are now poised to crumble like a sand pile,’ he told CNBC’s ‘Squawk Box’…Despite that, Roche projected gold prices would continue going up, partly because international trade tensions will add to the negative sentiment of stock market investors. ‘I think the trade conflict with the United States is a much far, wider-reaching, global conflict, which will undermine growth expectations in equity markets,’ he said. Given that outlook, Roche recommended investors hold gold in their portfolios, alongside some European fixed income and U.S. Treasurys.”

 

Weaker growth will offset a Fed rate cut-so sell stocks, warns Morgan Stanley

Source: Market Watch

“So we start the week with U.S. stock market indexes just a few steps away from all time highs. That is even after Friday’s extra strong jobs data rattled some investors, who worried that the Fed could be deterred from cutting interest rates in a few weeks. But according to CME Group, that cut is happening. Our call of the day though, kicks things off with a warning from Morgan Stanley which is ‘putting our money where our mouth is’ and downgrading global equities to underweight from equal-weight. Here’s why: ‘The most straightforward reason for the shift is simple-we project poor returns,’ said Andrew Sheets and a team of strategists…. Morgan Stanley is expecting a rate cut, but Sheets argues history shows that when central banks cut because growth is weak, it is the weakness that matters more for stocks in the end. ‘If you don’t believe us, we have some European stocks from April 2015, shortly after the European Central Bank’s first QE program was announced, that we’d like to sell you’, he added”

 

Trump says US should start manipulating the dollar

Source: AP

“President Donald Trump on Wednesday accused China and Europe of playing a ‘big currency manipulation game.’ He said the United States should match that effort, a move that directly contradicts official U.S. policy not to manipulate the dollar’s value to gain trade advantages…..A country manipulates its currency when it drives down the value to make its exports cheaper and foreign imports more expensive….A weaker dollar would boost U.S. exports but could run the risk of causing foreign investors who are helping to finance the federal government’s $22 trillion national debt to move their investments elsewhere to avoid the risk of currency depreciation lowering their returns.”

 

Trump picks another Fed member who believes in the gold standard. This one really means it

Source: CNN Business

“The United States abandoned the gold standard in 1971, and today the majority of economists in America believe reviving it would be disastrous for the US economy. Yet that isn’t stopping President Donald Trump from naming a longtime proponent of returning to the gold standard, conservative scholar Judy Shelton, as his latest pick for a seat on the Federal Reserve Board. Both of Trump’s most recent previous would-be nominees, conservative analyst Stephen Moore and businessman Herman Cain, endorsed returning to the gold standard. But Shelton is far more identified with her advocacy for the idea, which is based on the belief that the price of gold is stable and would make the dollar less susceptible to inflation or other volatility….On Friday, Shelton defended her position on gold. ‘It’s supposed to be a dependable store of value,’ said Shelton in an interview on CNBC. ‘It’s not supposed to be just another government policy instrument to try to engineer outcomes. And what we’ve seen is central banks trying too hard to do just that, and they’ve engineered us right into a negative rate scenario, which completely undermines the idea of having faith in the future.'”




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