After Friday's epic melt-up brought last week to a positive conclusion, traders on Monday though the diea of higher asset prices a good one, so pushed stocks to even higher all-time highs, a trend that could easily accelerate as the holiday season of irrational goodness begins.
At the bottom of rising equity valuations is the need to keep economies afloat for as long as humanly possible. By enhancing the price of stocks, asset values create the perception of wealth, though the main beneficiaries of higher asset values happen to be the top 10% of the income spread, mostly focused in the top one percent, who own the majority of equities. For the bottom 90% of the population, the effect of increased stock prices is negligible at best.
A corollary to stock market gains being the only game in town (or, There Is No Alternative, TINA) is the pain felt by savers, both individual and institutional. Pension funds have been under stress to keep assets growing. As employees retire and become not contributors, but receivers as pensioners, funds need to increase their asset base, a task made more difficult by lower and negative interest rates.
Funds have charters that require they purchase certain types of investments, making their job even more difficult, as they are forced into negative-yielding government bonds, especially in Europe, but also in the US, where the pain has yet to be felt in any real way outside of places like Detroit, which cut pension benefits massively in order to rebalance the city's finances.
Europe is already in the throes of a crisis, the latest victims being Dutch pensioners in the Netherlands, where cuts are planned or already in the works. Europe's fascination with negative interest rates have wreaked havoc in the pension universe.
A one percentage point fall in long-term interest rates will increase liabilities of a typical pension scheme by around 20 per cent, but the value of their assets would only go up by about 10 per cent, estimates Ros Altmann, a former UK pensions minister.
The current condition is nothing compared to what is coming if the ECB and member nations of the EU don't reverse course on interest rates. They are clearly having more negative consequences than anticipated when the Dutch first entertained negative yields in 2009, to be followed quickly by Japan and a slew of other European nations.
Pension problems haven't happened overnight. Money Daily was warning about them as early as 2006, and conditions have deteriorated exceedingly since then.
Don't expect the politicians and bankers to change their tune, however. As Money Daily has repeatedly noted, negative interest rates are currency killers, and they are quickly becoming much more of a destructive force than initially imagined.
As investing and economies become more and more intertwined, complex and convoluted, don't look for concrete solutions from politicians, bankers, or financial advisors. They created these problems and should not be relied upon to provide solutions. They will offer blankets for the cold, soup for the hungry, and limited shelter for the homeless. In other words, they will only be able to limit the suffering, not eliminate it.
To accentuate the level of madness permeating through the financial class consider this:
“In 20 years we may find ourselves with a real global crisis where we haven’t saved enough money for retirement,” says Calstrs’ Mr Ailman. “Returns can fluctuate, but longevity has been extended dramatically . . . We just have to explain to millennials that their parents might have to move back in with them.”
Somebody needs to point out to Mr. Ailman that many millennials are already living in their parents' basements!
At the Close, Monday, November 18, 2019:
Dow Jones Industrial Average: 28,036.22, +31.33 (+0.11%)
NASDAQ: 8,549.94, +9.11 (+0.11%)
S&P 500: 3,122.03, +1.57 (+0.05%)
NYSE Composite: 13,483.81, -9.15 (-0.07%)
It was an oddly calm week on Wall Street, as stocks barely budged Monday through Thursday.
Not to disappoint, however, Friday saw the three major indices break through the doldrums and reach all-time record closing highs. Huzzah!
Friday's ramp was due to one thing and one thing only: the promise (again) of a US-China trade deal. There wasn't one. There was the promise of one, and that's all it took to send stocks soaring again.
Being skeptical of the one-day wonder of new highs in the stock market is not a crime. It takes a rational person to recognize that stocks are overvalued, and have been for maybe the past six years. The Fed keeps pumping fresh cash into the system, the corporations continue buying back their own stock and the media continues to promote the breakthrough in trade negotiations between the United State and China.
Presto! New highs.
Without the assistance of Friday's gains, for the week, the Dow would have been up 100 points, but, the NASDAQ would have gained less than four points, the S&P would have been up three points and change, and the NYSE Composite would actually have registered a loss of 15 points. TGIF, indeed.
At the Close, Friday, November 15, 2019:
Dow 30: 28,004.89, +222.93 (+0.80%)
NASDAQ: 8,540.83, +61.81 (+0.73%)
S&P 500: 3,120.46, +23.83 (+0.77%)
NYSE Composite: 13,492.96, +100.96 (+0.75%)
For the Week:
Dow 30: +323.65 (+1.17%)
NASDAQ: +65.52 (+0.77%)
S&P 500: +27.38 (+0.89)
NYSE Composite: +85.16 (+0.64%)
It's not enough that banks and credit card companies charge what were once considered usurious interest rates to their customers. No, their 18, 22.5, 26.75 percent interest rates are not enough. They need to offer zero percent interest Special Financing Purchases, of which Money Daily discussed at length last week - to lure consumers into even more debt with these offers. Of the most egregious and widespread is the offer of zero percent interest for six months if the purchase is paid in full, a device employed by PayPal Credit through Synchony Financial, which handles the details online.
Such offers are widespread on eBay and offered via emails to PayPal Credit account holders. These are bona fide offers and they are good, but, as explained in the prior article, they do not fully disclose the details, one of which is actually encoded into law, specifically, by the Consumer Financial Protection Bureau (CFPB), the agency created in the aftermath of the Great Financial Crisis (GFC) of 2008, via the Dodd–Frank Wall Street Reform and Consumer Protection Act, which handed rule-making, incorporated in the 1968 Truth in Lending Act (TILA) over to the CFPB. 12 CFR 1026 Truth in Lending (Regulation Z, section 1026.53(b)(1)(i) and (ii)
(Editor's Note: Yes, we have far too many laws. "The more corrupt the state, the more numerous the laws." - Tacitus, 56 AD - 117 AD)
Naturally, providing a link to the regulation is not required under the disclosure rules, so the banks don't provide such a link, because doing so might cause consumers to take a moment to consider just what they're getting themselves into. Specifically, the passage does indeed spell out, succinctly, that the lender is not required to allocate payments that are beyond the required minimum payments except in the final two cycles immediately preceding the expiration of the deferred interest offer or Special Financing Purchase.
Here it is, in all its deeply-buried glory:
(b) Special rules —
(1) Accounts with balances subject to deferred interest or similar program. When a balance on a credit card account under an open-end (not home-secured) consumer credit plan is subject to a deferred interest or similar program that provides that a consumer will not be obligated to pay interest that accrues on the balance if the balance is paid in full prior to the expiration of a specified period of time:
(i) Last two billing cycles. The card issuer must allocate any amount paid by the consumer in excess of the required minimum periodic payment consistent with paragraph (a) of this section, except that, during the two billing cycles immediately preceding expiration of the specified period, the excess amount must be allocated first to the balance subject to the deferred interest or similar program and any remaining portion allocated to any other balances consistent with paragraph (a) of this section; or
(ii) Consumer request. The card issuer may at its option allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances on the account in the manner requested by the consumer.
Money Daily had reached out to various individuals expressing concern over the banking practices regarding allocation of payments. One of the people who was kind enough to respond was the media representative for Synchrony Financial, Lisa Lanspery, who responded thus:
Rick – After reading your piece entitled “Scam Alert: PayPal Credit, Synchrony Bank Playing Hide and Seek with Special Financing Purchase Offers,” I wanted to address the misleading premise of your piece.
Synchrony is committed to transparency and consumer protection. Our advertising, applications, and billing statements provide clear, concise, and comprehensive education around the consumer’s financing options, including popular promotional financing options.
On payments to a PayPal Credit account, our process is to apply any overpayments beyond the required minimum payment due to the highest interest bearing balance -- therefore excess payments are typically applied first to non-promotional balances as required by applicable law to help the customer avoid paying interest. However, if an accountholder prefers the additional payments be allocated across their bill in a different manner, they may contact customer service to do that.
For background, here is the specific language that account holders on payment allocation.
PAYMENT ALLOCATION
We will use each payment in the amount of the minimum payment due or less, first to pay billed monthly plan payments on any Easy Payments purchases, then billed interest, then billed fees, then the principal balance, and then any other amounts due.
However, if you have a balance on a deferred interest purchase, during both the billing cycle preceding its expiration date and the billing cycle in which such deferred interest purchase expires, we may use the payment, after the amount to pay billed monthly plan payments on any Easy Payments purchases, to pay the balance on such deferred interest purchase(s).
We will use any amount in excess of the minimum payment due to pay the balances with the highest interest rate, then the next highest interest rate, and so forth. However, during both the billing cycle preceding the expiration date and the billing cycle in which a deferred interest purchase expires, we may use payments first to pay the balance on such deferred interest purchase(s).
Thanks for your interest in Synchrony and getting the facts correct.
Regards,
Lisa
Lisa Lanspery
SVP, Public Relations
Synchrony
...to which Money Daily responds, "thanks Lisa, for getting the law right. You could have just directed us to Regulation Z, which you did upon request for the specific law, but may I point out that your "background" on payment allocations is incorrect. Please read the following carefully and note the words emboldened:"
during the two billing cycles immediately preceding expiration of the specified period, the excess amount must be allocated first to the balance subject to the deferred interest or similar program and any remaining portion allocated to any other balances consistent with paragraph (a) of this section
While you are correct that the credit issuer is not required, for the most part, to allocate excess payments to the "deferred interest" offering, you are incorrect about the timing of the last two cycles. They are the two cycles immediately preceding expiration of the specified period of deferred interest financing, not "both the billing cycle preceding its expiration date and the billing cycle in which such deferred interest purchase expires..." as you stated in your email correspondence.
If this is indeed the practice by which Synchrony is allocating payments, then Synchrony is in violation of the law. If, however, you simply made a misstatement of Synchrony's policy, then let's just all apologize to one another (Money Daily for being alarmist, Synchrony Financial for being a credit issuer, and you, for making a small error), sit around the campfire and sing kumbaya.
The final point is that banks and credit companies have the consumers over various barrels when it comes to financing, disclosure, rules, and, especially, lawmaking, most likely because most of the laws are written for congressional representatives - who don't understand even a third of what's contained in the laws on which they vote ("we have to pass it to see what's in it" comes to mind) - by lobbyists or lawyers for the corporate interests involved, in this case banking. They write the laws to benefit their clients, the banks, not consumers.
Whew! That's more than enough for a Sunday morning. If any readers have chosen the TL;DR option, that is completely understandable.
Please enjoy the entire 10-minute video of the late, great George Carlin, uncovering, near the end, some truth about America.
Rather, this is what happens when humans make poor decisions, over and over again, allowing computers to do most of the decision-making on trading. Now you're stuck between a rock and a hard place.
The rock: China's refusal to concede on many points in a trade deal.
The hard place: US insistence that a deal is "close."
This has been going on for months, about 16 to be precise, and stocks have been whipsawed in either direction depending on what the algos are going to interpret as good and/or bad news.
The latest, by presidential economic advisor and former financial talk show host, Larry Kudlow, has futures pointing higher prior to Friday's opening bell. But, we've seen this picture before. By he end of the day, there won't be a deal, and the Chinese will issue forth a press announcement that they don't agree to this or that or anything, maybe, and stocks will erase the gains they've made.
Count on it.
Judging by the figures below for Thursday's session, markets - outside of bonds - were essentially flat for the fourth consecutive day. Money Daily's headline yesterday, that this was about a dull a market as has ever been, was confirmed on Thursday.
Will Friday be any different, and, does it matter?
The chances that Friday will be different, and that stocks will find some direction, are good. It's an options expiration day, which usually adds some volatility, and it's the end of the week, so the market has those things going for it. On the other hand, there's nothing really new or different upon which to base trades.
As for the bond market, specifically treasuries, a rally is well underway. The selloff that saw yield on the 10-year note go from 1.54% on October 4 to 1.94% on November 8, is reversing course. The benchmark closed out yesterday at 1.82% and appears to have momentum heading into the holiday season. A slow-moving equity market at or near all-time highs (the S&P set another closing high yesterday) isn't helping inspire confidence, so there are many seeking the safety of government bonds.
As we head toward the opening bell in what can only be described as the welcome end to a week of insignificance, it's worth noting that even the phony impeachment hearings on Capitol Hill aren't even making headlines. That speaks volumes about how poorly the news media is perceived and even more about how loathsome our political leaders have become.
OK, you can go back to sleep now...
At the Close, Thursday, November 14, 2019:
Dow Jones Industrial Average: 27,781.96, -1.63 (-0.01%)
NASDAQ: 8,479.02, -3.08 (-0.04%)
S&P 500: 3,096.63, +2.59 (+0.08%)
NYSE Composite: 13,392.00, +6.94 (+0.05%)
"How slow is it," the crowd chants, Johnny Carson style.
Well, the Dow is up 102 points as of Wednesday's close. That's the good news, and it's about as good as it gets. The NASDAQ, in three sessions, has gained six points, the S&P just under one point, and the NYSE Composite is down 22.75 points.
That's how slow it is.
As for the causes, anybody's guess will do, but the most likely candidates are uncertainty over just about everything, from impeachment hearings in the House of Representatives, to ongoing and increasingly-violent protests in Hong Kong, to backtracking in US-China trade relations, to just plain old vanilla market overbought conditions. It's not like the economy is booming (1.9% 3rd quarter GDP), or that most of the fuel has been courtesy of the Federal Reserve (another $200 billion added to their balance sheet in just the past two months), or that stock buybacks have been responsible for more than 60% of the gains over the past five years (maybe).
There are ample reasons for people to take a look-and-see stance. Just in case nobody's noticed, it's almost the end of 2019, allocations have already been made and funds are sitting on their hands, lest they get burned hitting the BUY button before year end.
If the New York stock exchange shut down for a day or two, or even a week or two, would it matter to anybody but the ultra-wealthy? Probably not, and, since the ultra-wealthy are, ahem, ultra-wealthy, why should they be buying stocks at nosebleed levels anyhow? They're waiting for the next greater fool, so they can sell some of their holdings at nice profits.
Thus, it's a simple assumption to make that if there are few buyers, and ample sellers who are holding out for the best prices, not much is going to happen, and that's why this week has been so slow. Whether that translates into a major downdraft, as many have been predicting once new highs were made last week, or another step up the ladder of success depends largely on news flow, and that hasn't been particularly encouraging of late (see above).
There's an old adage that reads something like, "never short a dull market," which falls a bit short in the logic department. If a market is dull, it obviously is in need of a catalyst to move ahead, move quicker, move at all. Will selling short bring out buyers? Maybe that's the idea, but there's no proof that a dull market is any more prone to melt up than a volatile market. If things are hot, people are buying and selling, brokers are making commissions (well, that's how it used to be), and stocks are going somewhere, up or down, that would seem to be a more dangerous place into which to sell.
There will be short sellers, but, at the present, there doesn't seem to be many eager buyers out there.
This is what happens when nothing happens. You have to write about nothing happening as if there is actually something happening.
Nothing is happening.
At the Close, Wednesday, November 13, 2019:
Dow Jones Industrial Average: 27,783.59, +92.10 (+0.33%)
NASDAQ: 8,482.10, -3.99 (-0.05%)
S&P 500: 3,094.04, +2.20 (+0.07%)
NYSE Composite: 13,385.05, -2.57 (-0.02%)
After President Donald J. Trump's speech before the Economic Club of New York, stocks retreated, wiping out gains made earlier in the session. Trump spoke during the noon hour, maintaining a hard line on negotiations with China and the European Union.
The president reiterated the need for fair and reciprocal trade, addressing the unfairness in trading with China and praising his administration for raising tariffs on Chinese imports. As is his style, the president called out the Chinese for stealing intellectual property, subsidizing their own industries at the expense of the US, and dumping products on our shores at under-competitive prices.
Critical of the president's tough approach with the Chinese, the media produced enough negative headlines to send the algorithms into a spasmodic tailspin, selling stocks with abandon. The Dow was up nearly 80 points in early trading, but sold off in the afternoon, eventually finishing unchanged.
It was the first time the Dow had closed unchanged since 2014, and the third time since 2000. According to the Motley Fool, the chance that the Dow Jones Industrial Average would close unchanged for a single day became more difficult when the index adopted decimalization in 2001. Prior to that, advances and declines were measured in eights of a point, a much larger denominator than today's, which is one cent. The article points out that the Dow finished unchanged ten times in the 1990s and four times in just one year: 1979.
With the Dow flattened out for the day along with the other major indices, interest turned to global markets which uniformly reacted with negativity. All Asian markets were lower overnight and European exchanges were also showing declines, though the losses were less than spectacular. Other than Hong Kong's Hang Seng Index - which is a separate case altogether due to the ongoing protests and disruptions - none of the major indices were down more than one percent.
As daylight broke over America's Eastern shores, stock futures were pointing to a negative open. Dow futures were off more than 100 points.
At the Close, Tuesday, November 12, 2019:
Dow Jones Industrial Average: 27,691.49, 0.00 (0.00%)
NASDAQ: 8,486.09, +21.81 (+0.26%)
S&P 500: 3,091.84, +4.83 (+0.16%)
NYSE Composite: 13,387.62, -0.49 (-0.00%)
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