Stocks Lose Ground As US-China Trade Deal Stalls

Though not quite as quiet as last week, trading on US exchanges has been slow as the year winds down and the holiday season approaches.

What differentiates this week from last is the tenor of the trade, noticeably negative, with all of the major indices lower heading into Friday. The losses have not been significant, but Thursday marked three straight sessions in the red.

Losses have been very limited, however, with the Dow leading the downside, off by 0.81% through Thursday. Even a modest gain on Friday would push the averages back into record territory. The S&P 500 needs a gain of just 20 points to break out to new all-time highs.

There is still abundant interest in US-China trade relations, though the market has grown a bit weary of the on-again, off-again nature of the negotiations and is likely pricing in a positive outcome. This stalemate of sorts could last another year, with the Chinese playing the waiting game.

President Trump is up for re-election in November, 2020, and Chinese leaders are watching political developments in the US with jaded eyes. having Trump out of the way would suit their purposes. Getting back to the monstrous trade deficit imposed upon the US over the years seems to be the ultimate aim for China. Nobody wants to give up on a good thing, and trade relations with the US have been nothing short of spectacular for China over the past 30 years. Trump vowed to put an end to those practices in his election campaign and he's stuck to his guns, dealing the Chinese a hand they thought they'd never have to play.

A negative view of the ongoing feud would be an escalation of tariffs, leading to an overall slowdown and possible military actions. No wonder the market is pricing in a positive conclusion, because the alternative is more disruptive than anybody would ever hope.

At the Close, Thursday, November 21, 2019:
Dow Jones Industrial Average: 27,766.29, -54.80 (-0.20%)
NASDAQ: 8,506.21, -20.52 (-0.24%)
S&P 500: 3,103.54, -4.92 (-0.16%)
NYSE Composite: 13,406.42, -12.89 (-0.10%)

Disturbance in the Force? Stocks Suffer Losses

Dow Components Apple (AAPL) and Home Depot (HD) sent the Dow Industrials lower, dragging the tech sector, NASDAQ and S&P 500 down with it.

With third quarter results not as good as expectations, there's pressure on US stocks, especially now that China has balked again at phase one of the proposed on-again, off-again trade deal between the globe's two largest economies.

Also weighing on equites are repeated stories of recession fears from Europe, especially in the major economies: Germany, France, and Italy. Brexit is still not resolved and there's renewed optimism among remainers that the result of the 2016 referendum might still be overturned. As Europe is one of the major US trading powers, what happens over the pond affects many companies in the US.

Bond yields dipped again, especially at the long end of the treasury curve, with the 10-year note falling to a yield of 1.74%. With the Fed now officially on hold, bond vigilantes may have their day in the sun, pushing yields down to near record levels if the holiday season doesn't produce a bounty of stock buys.

Markets are at an unusual crossroads with many swirling stories that have the potential to send equities flying in either direction. What looks like a sideways trading regimen may hold sway the remainder of the year, though more and more economists and predictors are saying that a recession in the United States is not a foregone conclusion for 2020.

Third quarter results from a plethora of companies are now in the books and though most beat expectations, such were lowered and cannot be counted on to produce a buying frenzy. A repeat of last year's monumental losses in December could reoccur, though the Fed and nefarious forces behind the scenes have the power to deflect losses and turn indices around on various dimes.

Control is in the hands of the algorithms and central bankers. Don't expect much downside as long as hope for a trade deal remains present.

At the Close, Wednesday, November 20, 2019:
Dow Jones Industrial Average: 27,821.09, -112.93 (-0.40%)
NASDAQ: 8,526.73, -43.93 (-0.51%)
S&P 500: 3,108.46, -11.72 (-0.38%)
NYSE Composite: 13,419.30, -47.05 (-0.35%)

Stocks Close Lower

Once again, on the road, another drive-by post...

At the Close, Tuesday, November 19, 2019:
Dow Jones Industrial Average: 27,934.02, -102.20 (-0.36%)
NASDAQ: 8,570.66, +20.72 (+0.24%)
S&P 500: 3,120.18, -1.85 (-0.06%)
NYSE Composite: 13,466.35, -17.46 (-0.13%)

Follow Through for Stocks Beyond New Highs; European Pensions In Deep Trouble

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%)

WEEKEND WRAP: PayPal Credit/Synchrony Update; All About Friday and George Carlin FTW

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%)

On to more stupid banking tricks, such as Money Daily's recent enquiry into the continuing consumer-fleecing practices of the banking industry. This was covered in the post Scam Alert: PayPal Credit and Synchrony Financial Playing Hide and Seek with Special financing Purchase Offers

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)

https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/53/#b

(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.