Some Stuff To Think About When Thinking About the Yield Curve

From Barron's, July 24:

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...1. The yield curve may not be signaling a weakening U.S. economy. While the short-end of the curve is mainly driven by Fed policy that reflects domestic economic strength, the long-term yields are increasingly influenced by the global bond market, explains Jonathan Golub, U.S. equity strategist at Credit Suisse. The near-zero yields on 10-year German bunds and Japanese JGBs, for example, make the U.S. 10-year Treasury look much more attractive on the international market and therefore lead to the rising price and lowering yields on the long end of the curve.



At the same time, the U.S. Treasury is issuing fewer long-term notes and bonds than it used to in favor of short-term bills, writes Vincent Deluard at INTL FCStone Financial. Higher issuance means more supply, lower price, and higher yields for the short-term Treasuries. The narrowing yield spread might just be a result of the supply imbalance in the bond market rather than expectations about the economy, Deluard says.



2. There are no other signs of a looming recession. Historically, an inverted yield curve has always been accompanied by a group of other ominous signals before the economic downturn. But we are not seeing those yet this time. The year-over-year growth of the Leading Economic Index (LEI), which includes 10 major economic indicators such as unemployment claims, consumer confidence, manufacturers’ new orders, and stock price, has turned negative before every recession since the 1970s. The index is up by 5.8% compared to 12 months ago and certainly isn't sounding a recession alarm.



3. The Fed can keep the curve from inverting if it wants to. Traditionally, the long-end of the curve—the 10-year Treasury and out—is thought to indicate bond investors' long-term vision of the market, free from manipulation by central banks. That might not be the case any longer, writes INTL FCStone's Deluard. He argues that the slope of yield curve nowadays can be easily controlled by central banks' policy such as the Operation Twist and isn't the organic market indicator it once was. "The yield curve is no longer the careful judgment of wise long-term investors, but the Frankenstein-like creation of central bankers," Deluard explains....

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"Rural Mainstreet Economy Declines for July: More Than 3 of 5 Bankers Report Negatives from Trade Skirmishes"

From Creighton University:

July Survey Results at a Glance:

* For a sixth straight month the overall index rose above growth neutral.

* Almost one-third of bank CEOs recommended that the Federal Reserve leave short-term interest rates at their current levels for the rest of the year.

* More than three of five, or 78 percent, of bank CEOs reported that current trade skirmishes and rising tariffs have had a negative impact on their local economy.

* Approximately 75.6 percent of bankers reported negative impacts of trade rifts and tariffs on grain farmers in their area.

* Economic confidence plummeted among bankers for the month.

OMAHA, Neb. (July 19, 2018) – The Creighton University Rural Mainstreet Index climbed above growth neutral in July for a sixth straight month, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. This is the first time since the July 2014 survey that the overall index has risen above growth neutral for six straight months.

Overall: The overall index slid to 53.8 from 56.1 in June. The index ranges between 0 and 100 with 50.0 representing growth neutral.



“Surveys over the past several months indicate the Rural Mainstreet economy is solid but with less positive economic growth. However, the negative impacts of recent trade skirmishes have begun to surface with the weakening of already anemic grain prices,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.



Pete Haddeland, CEO of the First National Bank in Mahnomen, Minnesota, said, “Grain prices are at, in some cases, 10-year lows. Not good.”



According to Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Illinois, “The trade issues/tariffs have been devastating on our local dairy industry when tacked on top of already below cost or breakeven milk prices.”



Farming and ranching: The farmland and ranchland-price index for June rose to a weak 44.7 from June’s 42.7. This is the 56th straight month the index has fallen below growth neutral 50.0.



The July farm equipment-sales index increased to 38.8 from June’s 36.3. This marks the 59th consecutive month the reading has moved below growth neutral 50.0.



Many bankers reported good, or above average rainfall, with crop production off to a good start. Furthermore, in portions of the region, the recreation industry was boosting the economy.



Banking: Borrowing by farmers expanded for July as the loan-volume index rose slightly to 76.9 from 76.3 in June. The checking-deposit index slumped to 37.8 from June’s 41.7, while the index for certificates of deposit and other savings instruments slid to 43.9 from 47.6 in June.



This month bankers were asked, “How many times should the Federal Reserve raise interest rates for the rest of 2018?”



“Almost one-third, or 30 percent of bank CEOs recommended keeping rates at their current level, 45 percent suggested one additional interest rate increase, 20 percent supported two additional rate hikes and 5 percent recommended three more rate increases for 2018,” said Goss....MUCH MORE

"GRAINS-U.S. wheat futures jump as global harvest expectations fall"

Following on yesterday's "As wheat harvest heads to parched north, Europe braces for more losses".

FinViz

 543.00 up 32.60 (+6.39% )



From Reuters via Successful Farming:

CHICAGO, July 25 (Reuters) - U.S. wheat futures surged to eight-week highs on Wednesday, supported by concerns about crop shortfalls in key production areas around the globe, traders said.

The strength in wheat lifted corn futures to their highest in more than three weeks. Corn also received support from concerns about dry conditions limiting harvest yields in parts of the U.S. Midwest.

Soybean futures were slightly lower, with the market technically weak after failing to break through Tuesday's high.



The most-active Chicago Board of Trade soft red winter wheat contract jumped 5.2 percent, on track for its biggest daily percentage gain since July 3, 2017. Prices topped out at $5.39-1/2 a bushel, their highest since May 29.



MGEX spring wheat and K.C. hard red winter wheat futures also posted strong gains.

Consultancy Strategie Grains has again cut its estimate for this year's EU soft wheat crop, which is now expected to be below 130 million. This would be the lowest soft wheat harvest in the 28-member bloc since 2012, analyst Laurine Simon told Reuters.



In Russia, the world's top wheat exporter, yields are around a three-year low, according to agriculture consultancy SovEcon.



In the United States, scouts on annual tour found below average yield prospects for hard red spring wheat in the southern half of North Dakota and adjacent areas of South Dakota.



"That contrasts with crops ratings and USDA's July estimate showing much better yields following last year's drought on the northern Plains," Farm Futures analyst Bryce Knorr said in a note to clients....MORE

Also from Reuters, July 25:



GRAINS-EU wheat prices climb to 3-year high as crop outlook dims



Financial investors increase net long position in Euronext wheat 

"Business students more likely to have a brain parasite spread by cats"

From NewScientist, July 25:

An analysis of students in the US has found that those who have a certain type of brain parasite are more likely to be majoring in business studies.



Toxoplasma gondii is a protozoan parasite carried by cats. It can infect people through contact with cat faeces, poorly cooked meat, or contaminated water, and as many as one-third of the world’s population may be infected. The parasite doesn’t make us feel sick, but it forms cysts in the brain where it can remain for the rest of a person’s life. Some studies have linked infection with the parasite to slower reaction times, schizophrenia, bipolar disorder, suicidal behaviour, and explosive anger.... 

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And from Proceedings of the Royal Society - B:

Risky business: linking Toxoplasma gondii infection and entrepreneurship behaviours across individuals and countries

San Francisco To Vote On Corporate Tax to Help Homeless

Seattle did the same but reversed course on their "head tax" within a month after Amazon started making noises about leaving.



From The San Francisco Business Times:



San Francisco’s corporate tax to tackle homelessness added to November ballot

A homeless encampment under the 101 Freeway overpass.

Todd Johnson | San Francisco Business Times

A measure that would levy taxes on San Francisco’s largest companies to combat the city’s rampant homelessness has landed on the November ballot.



Dubbed the “Homelessness Gross Receipts Tax Ordinance,” Article 28 aims to raise around $300 million from a 0.5 percent gross receipts tax on businesses taking in more than $50 million in annual revenue. The measure would double the city’s annual homelessness budget....MORE

And across the bay, from KGO Radio 810:

Oakland proposes ‘landlord tax’ as homeless crisis solve



What the hell happened to the U.S. west coast?

Ho-hum, Space-X Lands Another Rocket Booster on Drone Ship After Successful Launch of 10 Satellites

From Space.com:



SpaceX Lands Rocket in Harshest Conditions to Date and Attempts to Catch Fairing

SpaceX launched 10 Iridium satellites today (July 25) in the seventh and penultimate launch required to complete the communications company's new constellation.



The Falcon 9 rocket carrying the satellites took off from California's Vandenberg Air Force Base at 7:39 a.m. EDT (1139 GMT, 4:39 a.m. local time). The launch had a 1-second window because of the precision needed for the satellite insertion, company spokesperson John Insprucker said during the launch broadcast. The launch went smoothly, even though fog obscured the view of the rocket until after liftoff.



SpaceX hoped to complete two separate marine tasks in addition to the launch itself: landing the first stage of the rocket on the drone ship "Just Read the Instructions" and catching the rocket's fairing with a second boat, which, to date, no launch has accomplished. The company knew both boat maneuvers would be tricky today. "The weather in the Pacific is bad," Insprucker said. "We have choppy seas."



"[The conditions are] the worst that we've ever had for trying to get a first stage on the drone ship," he said later in the broadcast. Nevertheless, the company soon confirmed in a tweet that the rocket successfully landed on the drone ship — despite some initial confusion due to a lack of lighting on the landing platform....MUCH MORE, including pics and vids.

Regarding the attempt to recover the fairings:

Spectators had hoped the company would attempt to catch the rocket's fairing with "Mr. Steven," a boat equipped with a giant net. Earlier in July, the company tweeted photos of the boat with an upgraded net four times larger than the previous version and stated that it was targeting another recovery attempt for later in the month, and today's launch was the company's last of the month.

Mr. Steven—now with more net. SpaceX’s fairing recovery vessel has been fitted with a 4x larger net ahead of its next recovery attempt targeted for later this month. https://t.co/cjXvzg1H70 pic.twitter.com/AdAwPP30OU

— SpaceX (@SpaceX) July 13, 2018

SpaceX was not able to specify at launch when it would know whether Mr. Steven was successful, but a later update confirmed the weather was too harsh for the maneuver. "They did see the payload fairing coming down, but they were not able to catch it in the net," Insprucker announced shortly after 8:30 a.m. EDT (1230 GMT).

"U.S. open to lifting sanctions off aluminum giant Rusal - Mnuchin"

This is very odd, I though the current U.S. administration loathed Deripaska. I know the oligarch gave up control but he still has "control", if you know what I mean.

From Reuters, July 20:

The U.S. Treasury is open to removing Russian aluminum producer Rusal from a U.S. sanctions list, Treasury Secretary Steven Mnuchin said on Friday, adding the objective was “not to put Rusal out of business.”



Mnuchin’s comment was the latest indication the Trump administration was trying to aid sanctions-hit Rusal, which has taken a series of steps to try to appease the U.S. government and get the restrictions lifted. 



The U.S. Treasury in April imposed sanctions against billionaire Oleg Deripaska and the eight companies in which he is a large shareholder, including Rusal, in response to what it called “malign activities” by Russia. But the sanctions caused havoc in the global aluminum market, prompting several countries and companies to successfully lobby Treasury for a softening of the terms on Rusal....MORE