News: Axios Markets: A new low in the war on savers

Tuesday, January 5, 2021

Axios Markets: A new low in the war on savers

Presented By Monogram Orthopedics

Axios Markets

By Dion Rabouin ·Jan 05, 2021

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🚨 Situational awareness: Investors will be watching the outcome of today's runoff elections in Georgia, which will decide the makeup of the U.S. Senate.

🎙"Those comrades who judge by appearances alone naturally feel pessimistic. But if we judge by essentials, it is quite another story. Here we can apply the old Chinese saying, 'A single spark can start a prairie fire.' In other words, our forces, although small at present, will grow very rapidly." - See who said it and why it matters at the bottom.

1 big thing: A new low in the war on savers

Data: St. Louis Fed; Chart: Axios Visuals

The real yield on the U.S. 10-year Treasury note fell to its lowest level on record Monday, declining to -1.11%, meaning that, after accounting for expected inflation, holding a 10-year U.S. Treasury bond to maturity will mean losing more than 1%.

Why it matters: It's the latest entreaty in the war on savers. Central bank policy is rewarding risk-taking and punishing saving at a record level even as inflation expectations continue to rise.

What it means: The negative real yield on government debt encourages investors to move their money into risky assets like stocks in order to earn a return.

Real yields have consistently declined despite inflation expectations rising, an unusual phenomenon.
On Monday, the expected breakeven inflation rate on 5-year, 10-year and 30-year Treasuries all rose above 2%, the Fed's longtime inflation target, and their highest levels in more than two years.

Yes, but: Despite the unprecedented environment, uncertainty and fear have kept most Americans piling into bonds and savings accounts.

U.S. companies and municipalities issued a record amount of debt last year at record low rates, and investors bought $183 billion worth of bond funds between January and November. They also held $4.3 trillion in money market funds, according to data from the Investment Company Institute.
ICI data showed investors also sold $569 billion worth of equity funds during that time.

One level deeper: The U.S. personal savings rate has declined from a record 33.7% in April but was still at the highest rate since 1981 in November, even though the average interest rate on a retail savings account was 0.05% in November, according to the FDIC.

Watch this space: U.S. government debt pays significantly more than comparable European bonds on a nominal basis, thanks to the European Central Bank taking interest rates to -0.5%. But when inflation is factored in, U.S. Treasuries now pay — or cost — effectively the same as their European counterparts, Kathy Jones, chief fixed income strategist at Schwab, tells Axios.

"It's a natural outgrowth of Fed policy. They didn't want to lower nominal yields at the short end [below 0%], so what's happened is real yields have gone into negative territory," she says.
"It's a way for the Fed to do negative policy without negative yields."

Between the lines: Breakeven rates rose and real yields sank to new lows despite a down day for U.S. equity prices and minimal movement from the dollar — two assets that have largely moved in line with breakeven inflation expectations.

Bonus quote: A warning on inflation

"Income and wealth inequality has been a growing problem for decades and the pandemic served as the exclamation point for this well-established trend. QE exacerbated the problem but now fiscal policy will attempt to level the playing field."

"This is more inflationary than many seem to acknowledge and could sneak up on investors quickly this year as the economy fully reopens. Today, that inflationary pressure can be found in many goods and asset prices but has yet to find its way to long-term interest rates."

"The adjustment in rates is only a matter of time and it's likely to happen quickly and without warning. This is the biggest risk and opportunity for 2021 in our view."

— Michael J. Wilson, equity strategist, writes in a Morgan Stanley Research piece

2. Catch up quick

Americans who collected unemployment benefits last year will see much smaller tax refunds this year because of a tax law quirk that counts unemployment as taxable income, which could weigh on spending and the economy. (Axios)

The NYSE announced late Monday it no longer plans to delist three Chinese companies after earlier saying it would suspend trading action for China Mobile, China Telecom and China Unicom Hong Kong following a U.S. executive order. (Axios)

The stretched valuations of the S&P 500 (trading at nearly 30 times profits) and Nasdaq (40 times profits, the highest since the 2000 dot-com bubble burst), increased volatility and the fact that U.S. companies sold $368 billion in new stock last year has a growing chorus of investors warning of a bubble in equities. (Bloomberg)

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3. FuboTV stock has had a rough week

Data: FactSet; Chart: Axios Visuals

After getting the coveted Rabouin bump following an interview with CEO David Gandler on the "Voices of Wall Street" podcast, fuboTV's stock has tumbled, dropping from a high of $62.00 on Dec. 22 to $24.24 on Monday.

By the numbers: The 61% share price decline has happened over just seven trading sessions during which the stock fell by an average of 8.8% a day, including three drops of at least 15%.

Shares fell 13.4% on Monday, but remain 142% higher than where they were in January 2020.

What's happening: After a surge of 596% from the start of the year through Dec. 22, the end of a lockup period on Dec. 30 released about 88 million shares — more than triple the previous float — allowing a number of new investors to take profits on the stock's gains, Deadline reported.

Further, after largely positive reviews from Wall Street analysts, BMO recently downgraded the company to "market perform," saying the stock price had little room to increase after its spectacular gains.

4. Business leaders urge GOP to drop election challenges

Axios' Laurin-Whitney Gottbrath writes: U.S. business leaders are urging Republicans to drop their plans to object to certifying the 2020 election results, saying such efforts "run counter to the essential tenets of our democracy."

Driving the news: Several Republican senators, led by Ted Cruz (R-Texas), as well as a group of House members say they will oppose certifying Joe Biden's win, despite the fact that nearly all lawsuits brought by President Trump, his allies and his legal team to challenge the election results have been dismissed.

What they're saying:

1. A letter signed by more than 170 business leaders, including the CEOs of Pfizer, Lyft, Microsoft, Mastercard, the National Basketball Association, Goldman Sachs, BlackRock, The Carlyle Group, and PwC, said that attempts "to thwart or delay this process run counter to the essential tenets of our democracy."

"The incoming Biden administration faces the urgent tasks of defeating COVID-19 and restoring the livelihoods of millions of Americans who have lost jobs and businesses during the pandemic," the letter added.
"Our duly elected leaders deserve the respect and bipartisan support of all Americans at a moment when we are dealing with the worst health and economic crises in modern history."

2. U.S. Chamber of Commerce CEO Thomas Donohue said in a statement Monday that the Republicans' plan "undermines our democracy and the rule of law and will only result in further division across our nation."

"We urge Congress to fulfill its responsibility in counting the electoral votes, the Trump administration to facilitate an orderly transition for the incoming Biden administration, and all of our elected officials to devote their energies to combatting the pandemic and supporting our economic recovery," Donohue added.

3. National Association of Manufacturers president and CEO Jay Timmons said in a statement Monday that "manufacturers stand with members of Congress who intend to uphold their constitutional responsibility and vote to certify the Electoral College tallies that resulted from free, fair and legal elections in the states."

"In every election, many Americans are disappointed by the results. But disappointment does not justify harming our democracy or undermining faith in our elections based on unproven charges and conspiracy theories," he added.

A message from Monogram Orthopedics

Invest in the future of joint reconstruction

Invest in Monogram only on StartEngine.

Thanks for reading!

Quote: "Those comrades who judge by appearances alone naturally feel pessimistic. But if we judge by essentials, it is quite another story. Here we can apply the old Chinese saying, 'A single spark can start a prairie fire.' In other words, our forces, although small at present, will grow very rapidly."

Why it matters: On Jan. 5, 1930, Mao Zedong, founder of the People's Republic of China, wrote a series of essays advocating for a Communist regime in China, including "A single spark can start a prairie fire," one of the most well known.

Of note: The quote is just a quote. Don't @ me.

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