July Rate Hike off the Table?
Posted by Eddy Elfenbein on June 15th, 2016 at 5:34 pm

Today’s Fed Statement
Posted by Eddy Elfenbein on June 15th, 2016 at 2:01 pm

No change in rates:

Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.

Here are the current projections.

Morning News: June 15, 2016
Posted by Eddy Elfenbein on June 15th, 2016 at 7:30 am

Stock Selloff Deepens as Investors Seek Safety

Fed Faces Battle to Escape World’s Low Interest Rate Grip

China’s Bank Lending Rebounds; Good for Growth, Bad for Risk

Iran Said to Have Deal With Boeing to Buy Passenger Planes

India’s Government Approves New Civil Aviation Policy

Fund Managers Are Stockpiling Cash

Retail Sales Rise More Than Forecast as U.S. Consumers Spend

The 60/40 Portfolio Is Dead… And It’s Not Coming Back

MSCI Slaps China in the Face With Index Decision

Why Billions in Proven Shale Oil Reserves Suddenly Became Unproven

Microsoft – Wide Awake In Seattle

JP Morgan Says Brexit Lead For Leave Bigger After Removing Hoax Poll

The Deepest Money Pit Atlantic City Has Ever Seen Re-Opens This Week

Howard Lindzon: Nobody and No Entity is Bigger than The Markets…2016 Edition

Jeff Carter: Getting to No

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Join Me on Thursday
Posted by Eddy Elfenbein on June 14th, 2016 at 9:32 am

Join me this Thursday at 4 p.m. Eastern Time. I’ll be the guest on AdvisorShares’ weekly live “Alpha Call.” You can join the call and ask me a question.

Here are the call-in details:

Dial 1.310.372.7549 (or 1.800.356.8278) and enter access code 176071.

Morning News: June 14, 2016
Posted by Eddy Elfenbein on June 14th, 2016 at 7:18 am

Central Banks And Markets On Accommodative Juice – Commodities To Rally

Brexit’s First 100 Days Promise Chaos, Fear, Damage Limitation

IEA Sees Oil Market Balance in 2016, Surplus to Re-Emerge Next Year

Microsoft Buys LinkedIn for $26.2 BIllion

Why Big Profits On Gun Stocks May Be In the Past

McDonald’s Return to Chicago Defies City’s Financial Troubles

New Valeant CEO Meets Investors as Doubts Grow About Drug Company

Alibaba’s Jack Ma: Better-Than-Ever Fakes Worsen Piracy War

NXP Semiconductors to Sell Standard Products Unit for $2.75 Billion

EU Set to Clear Unconditionally Marriott, Starwood Deal

Quicken Founder and Warren Buffett Have Ties Beyond Yahoo Deal

Josh Brown: Brexit “Remain” Vote as Market Catalyst

Roger Nusbaum: Rate Hike This Week Off The Table (Probably…)

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John Oliver on Retirement Plans
Posted by Eddy Elfenbein on June 13th, 2016 at 6:02 pm

Microsoft to Buy LinkedIn
Posted by Eddy Elfenbein on June 13th, 2016 at 11:19 am

Microsoft (MSFT) is shelling out $26.2 billion to buy LinkedIn. The deal is all cash, and Microsoft is paying $196 per shares for LNKD. That’s a 50% premium from Friday’s close, but it’s well below LNKD’s high of $276.18 from February 2015.

Microsoft said LinkedIn will “retain its distinct brand, culture and independence,” with Chief Executive Jeff Weiner remaining at the helm, reporting to Microsoft CEO Satya Nadella. The deal, the largest acquisition ever for Microsoft, is expected to close within the year.

The companies see cost savings of about $150 million a year by 2018. LinkedIn would be required to pay a $725 million breakup fee if it backs out of the deal.

Microsoft believes the acquisition will expand the market for both LinkedIn and Microsoft’s Office products. The software giant has made a significant push in the past few years to make its products more connected and wants to use data to make them more intelligent. LinkedIn’s vast network offers data that could help.

Microsoft may find ways to generate revenue from LinkedIn’s professional network that LinkedIn couldn’t independently, said Stifel Nicolaus & Co. analyst Brad Reback.

Shares of Microsoft dropped to $49 this morning but have since rallied to about $50.50.

> Unsubscribe from LinkedIn
> Delete email account
> Sell house, live in woods
>Find bottle in river
> Has note inside
> It's from Microsoft

— Owen Williams ⚡️ (@ow) June 13, 2016

The Fed Debates Knut Wicksell
Posted by Eddy Elfenbein on June 13th, 2016 at 10:37 am

The Federal Reserve is currently debating the natural interest rate, a concept developed by Knut Wicksell, a Swedish economist who died 90 years ago.

In today’s Wall Street Journal, Harriet Torry writes:

While Federal Reserve officials debate when to next raise short-term interest rates, they are also wrestling with the question of how high to lift them in coming years.

Signs point toward the new normal being much lower than in the past, which has broad implications for when the Fed should tighten monetary policy, how quickly, and how far.

Fed officials disagree about their likely end point, in part because they are struggling to understand why another underlying interest rate—the mysterious natural rate—has fallen in recent years. And for that many are turning to the musings of Knut Wicksell, a Swedish expert on the subject who died 90 years ago.

According to the textbooks, this so-called natural rate is the inflation-adjusted rate that’s consistent with the economy operating at its full potential, expanding without overheating. Also known as the equilibrium or neutral rate, it balances savings and investment.

The natural rate can’t be observed directly; the Fed knows it has been reached only by how the economy responds. “It’s like discovering Pluto: you can only see the effect of the gravitational pull,” said Eddy Elfenbein, an investor and blogger at the site Crossing Wall Street, comparing it to the dwarf planet whose existence was inferred from the orbits of Uranus and Neptune.

The Fed meets again this week, and they’ll update their forecasts. Within the forecasts, they’ll provide a long run outlook for interest rates which can be implied, to some degree, as to being the Fed’s estimate for the natural rate.

In March, the Fed saw long-run real rates at 1.25%. That’s below 2% which had been assumed for many years.

Most economists figured the natural rate was around 2% just before the financial crisis. Today, seven years after the recession, most estimates are around or just below zero.

“We’re seeing no pickup, none whatsoever, in the natural rate even as the economy has gotten back to full strength,” John Williams, the San Francisco Fed president who has spent years studying it, said in a recent interview with The Wall Street Journal.

This implies the central bank won’t be moving its benchmark federal-funds rate up much from its current level between 0.25% and 0.50% over the next few years. This, in turn, means lower rates for borrowers and lower returns to savers.

Policy makers are likely to leave their benchmark rate unchanged Wednesday at the conclusion of their two-day policy meeting, and could consider moving in July or September if the economy improves. They also will release Wednesday new projections for where they think the rate will rest in the long term.

No one knows where the natural rate is but we know it’s low. Very low.

“I think the current level of neutral or normal rates is pretty low,” Fed Chairwoman Janet Yellen said in Philadelphia last week. She expects it will rise over time, but said “that is something we’re uncertain about and have to find out over time.”

Economists have offered several theories for why the natural rate has fallen. Former Fed Chairman Ben Bernanke has cited a glut of savings world-wide. Harvard University economist Lawrence Summers blames ‘secular stagnation,’ or a chronic shortfall in investment demand.

Ms. Yellen has said temporary headwinds that have restrained growth since the financial crisis may be responsible, such as economic uncertainty, a strong dollar, and slower growth of productivity and the labor force.

Wicksell has been in vogue lately.

For guidance Fed officials have been revisiting the work of Mr. Wicksell, a famed Swedish economist who did much of the seminal thinking on the subject more than a hundred years ago. Speeches by senior policy makers, including Ms. Yellen, have referenced Mr. Wicksell five times in the past year alone, and Mr. Bernanke has blogged about the Swede’s ideas about the relationship between interest rates, economic growth and inflation.

Mr. Wicksell characterized the natural rate of interest as “a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them.” But the natural rate isn’t observable and depends on “a thousand and one things which determine the current economic position of a community,” and those factors—such as productivity, unemployment, and technological and demographic change—are constantly in flux, he said.

Gun Stocks Soar
Posted by Eddy Elfenbein on June 13th, 2016 at 10:22 am

Strong opens for Smith & Wesson (SWHC), and Sturm Ruger (RGR):

Morning News: June 13, 2016
Posted by Eddy Elfenbein on June 13th, 2016 at 7:29 am

Brexit: Britain Leaving the EU Could Be A Messy Divorce

Will MSCI Hand China a Game Changer?

China Car-Sales Growth Reaches Five-Month High

Fed Decision Makers Wrestle With So-Called Natural Rate

Which Labor Market Data Should You Believe?

There’s a Seismic Change Coming to Money Markets

Treasuries in Best Run Since February as Rate Outlook Shifts

Pew’s Nick Bourke Weighs In on New Payday Loan Regulations

Symantec Splurges $4.6 Billion On Blue Coat

DiDi Chuxing Bags $600 Million From China Life

China Spent $500 Billion to Maintain Confidence in Renminbi

Gas Is Going Up, But Maybe Not Enough

Silicon Valley’s Audacious Plan to Create a New Stock Exchange

Jeff Miller: The Fed, Brexit and the Markets

Cullen Roche: Three Things I Think I Think – Weekend Edition

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