31/7/19: Fed rate cut won't move the needle on 'Losing Globally' Trade Wars impacts

Dear investors, welcome to the Trump Trade Wars, where 'winning bigly' is really about 'losing globally':

As the chart above, via FactSet, indicates, companies in the S&P500 with global trading exposures are carrying the hefty cost of the Trump wars. In 2Q 2019, expected earnings for those S&P500 firms with more than 50% revenues exposure to global (ex-US markets) are expected to fall a massive 13.6 percent. Revenue declines for these companies are forecast at 2.4%.

This is hardly surprising. U.S. companies trading abroad are facing the following headwinds:

1. Trump tariffs on inputs into production are resulting in slower deflation in imports costs by the U.S. producers than for other economies (as indicated by this evidence: https://trueeconomics.blogspot.com/2019/07/22719-what-import-price-indices-do-not.html).
2. At the same time, countries' retaliatory measures against the U.S. exporters are hurting U.S. exports (U.S. exports are down 2.7 percent in June).
3. U.S. dollar is up against major currencies, further reducing exporters' room for price adjustments.

Three sectors are driving S&P500 earnings and revenues divergence for globally-trading companies:

• Industrials,
• Information Technology,
• Materials, and 
• Energy.

What is harder to price in, yet is probably material to these trends, is the adverse reputational / demand effects of the Trump Administration policies on the ability of American companies to market their goods and services abroad. The Fed rate cut today is a bit of plaster on the gaping wound inflicted onto U.S. internationally exporting companies by the Trump Trade Wars. If the likes of ECB, BoJ and PBOC counter this move with their own easing of monetary conditions, the trend toward continued concentration of the U.S. corporate earnings and revenues in the U.S. domestic markets will persist. 

5/9/2014: ECB, Zero Rates, Negative Yields and Debt... The Glorious Debt...

As I noted yesterday on twitter, the ECB policy rate change might be accommodative of the upcoming September TLTROs (by lowering the gross cost of using TLTROs to raise funds), but in reality all it is doing is continuing to push more debt accommodation for the already heavily-accommodated sovereigns. I also noted yesterday that this accommodation of banks and sovereigns has done preciously little to improve lending conditions for the real economy (http://trueeconomics.blogspot.ie/2014/09/492014-ecb-little-done-loads-more-to-be.html).

So here is a neat summary table showing the extent and spread of negative rates on 3 year government bonds - the table is courtesy of @Schuldensuehner (click on the image to enlarge):

In simple terms, if you want to lend money to Austrian, German, Belgian, French, Finnish, Dutch and Slovak Governments, you now have to pay for the privilege. It is as if there is a panic dumping of cash going on out there, under some grave threat of eminent expropriation or a meltdown of the entire financial system.

You betcha the Euro needs a traditional QE at this stage, because Belgium borrowing at negative rates is just not good enough, more debt is needed to fund more debt needs so the governments can spend more to stimulate tax revenues to sustain higher demand for debt yet... This, in a nutshell, the modern monetary policy, then.

And meanwhile, having crossed into the negative territory, bond yields opened up a new horizon for price appreciation for Government paper: higher debt supply, must equal higher price, inverting everything - from fundamentals to bounds on price appreciation. If you ever needed a sight of a bubble wobbling in the sun from the internal perturbations of hot air, give it another look... before it pops one day...