| Thursday's Headlines 1. US markets rise for fourth-straight day on trade news 2. Twitter joins the silly stock spike season 3. China agrees to halve tariffs on some US farm goods 4. Inflation versus equity prices Markets Closed
 photo: Getty Images
Markets Today Make that four days in a row for U.S. markets charging higher in the face of a global health emergency. The DJIA notched another all-time high as industrial stocks led the way. Even Boeing (BA) managed to trade 3.5% higher with no real catalyst behind the move. The focus shifted from the coronavirus back to trade as China announced it would cut tariffs on a portion of U.S. agricultural goods. That may be a new signal of cooperation as China needs help keeping its trade deal promises in the midst of this health crisis. With an emboldened U.S. President heading towards his reelection bid this November, concessions may be the smoother road for China at this point.
Shares of Tesla managed to stop the bleeding after yesterday's steep losses, but traders found a new obsession, Twitter. It's wintertime, but money is flying into stocks like bees to honey. Careful not to get stung.
Headlines:
chart courtesy Reuters  China's Promises Face a Tough Reality The Jan. 15 Phase One trade deal signing may seem like a long time ago considering the global health emergency facing China and its neighbors. However, the tariff rollbacks promised as part of it will kick in on Feb. 14.
Today the Chinese government said that the extra 10% and 5% tariffs introduced on a list of American products in September 2019 will be halved. The tariffs, meant to target Trump's base, were on products like soybeans, pork, beef, chicken, wheat, sorghum, cotton, and crude oil. China's Ministry of Finance said the move was in response to the U.S. halving the 15% additional tariffs it placed on Chinese goods. It added, "further adjustment will mainly depend on future development in the economic and trade relations between the two countries," and that work on tax exemptions for U.S. imports will continue.
The chart above shows U.S. farm exports to China going back to 2000. China has promised to buy U.S. agricultural worth $200 billion by the end of 2021. This is more than quadruple its current rate of purchases, so that may be a hard field to till.  The Central Bank Dilemma We've written a lot lately about the dislocation between stock prices and consumer prices, but this chart really puts it into perspective. We know that the equity market and the economy dance to different beats, but it increasingly looks like stocks are actually doing the dancing while consumer prices - measured by inflation - are just standing still and watching. That's what Fed Chairman Powell and the Federal Reserve keep complaining about. Growth in wages and consumer goods prices is muted, yet global markets continue to race higher. Christine Lagarde is facing a similar problem in her new post as ECB President in Europe.
Central banks have been slashing interest rates for more than a year to resuscitate their moribund economies. They've also been buying their own treasury bills and injecting money into their banking system via the repo markets to make sure there is enough liquidity for interbank lending. They've produced the asset bubbles they fear in order to breathe oxygen into their economies to maintain growth. It's not a recipe for long term success, but it's working for the time being.
This chart, which shows how the world's central banks have taken the sword to interest rates, always gets my attention.
chart courtesy Charlie Bilello 
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(chart courtesy YCHARTS)  Twitter rose today after reporting significantly higher-than-expected user growth. Mobile game maker Zynga, newspaper publisher New York Times Co., and healthcare services company Cardinal Health all also rose after reporting better-than-expected earnings.  Medical device company Becton, Dickinson fell despite reporting strong earnings, after it cut guidance for next year. Wrestling promoter WWE was further smacked down by investors after saying there was "considerable uncertainty" about its outlook. Word of the Day A bubble is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate.  Image Source: Getty Images
Today in History Feb. 6, 1959 Today in 1959, Texas Instruments filed a patent for the first integrated circuit, which revolutionized computing. An integrated circuit, or as they're more often called, computer chips, are a series of electrical components, such as transistors, all built out of a single silicon crystal. This allowed computer circuits to be made much smaller than when they had to be made out of different interconnected pieces. The first working model was made by Jack Kilby in September 1958, though Robert Noyce, working at Fairchild Semiconductor, independently had the same idea in January 1959. Noyce also filed a patent for the integrated circuit, and because Noyce's was significantly more detailed, it was analyzed first, and he received the patent.
Source: https://www.pbs.org/transistor/background1/events/icinv.html
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Thursday, February 6, 2020
Easy Money
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