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  • Writer's pictureMike V.

June Synopsis

Reuters: Overstock Unit tZERO to Launch Digital Currency Wallet, Exchange App

Overstock subsidiary tZERO said it has launched a digital wallet and exchange app for cryptocurrencies. Investors who want to participate in the global cryptocurrency market will be able to buy, sell and hold these digital assets directly through the tZERO Crypto App on their mobile phone, rather than using more vulnerable, third-party exchanges for custody. tZERO is focused on the development and commercialization of blockchain, the technology that underpins bitcoin and cryptocurrencies in general. Blockchain is a shared database that is maintained by a network of computers connected to the internet. Cryptocurrencies are back in the spotlight amid a scorching price rally this year, led by bitcoin, which has soared more than 270% so far in 2019. “One of my goals since I joined the company is to provide an intuitive user experience on both mobile and the web to trade all digital assets, including cryptocurrencies,” tZERO Chief Executive Officer Saum Noursalehi. “The new app will become the foundation of trading all digital assets for tZERO, whether it’s art, real estate, or private companies,” Noursalehi said. The initial release of the app will support bitcoin and ethereum purchases. tZERO said it committed to compliance and safety and will utilize biometric authentication for added security and ease of use. Investors will also have access to tZERO’s private key recovery system to restore their funds and cryptocurrencies in the event that they lose their private keys or mobile phone. “As you know, exchanges have gotten hacked before,” Noursalehi said. “What’s different in our case is that the tokens will be stored on your phones with your private keys, which we think is more secure.”

Bloomberg: VW Board Puts Ford Alliance on Agenda for July Meeting

Volkswagen AG’s supervisory board plans to discuss and possibly approve the next steps toward expanding an alliance with Ford Motor Co. when it meets in two weeks, according to people familiar with the matter. An agreement announced in January to cooperate on vans and pickup trucks with Ford could be firmed up at the July 11 board meeting, with the alliance potentially extending to include joint work on self-driving and electric-car technology, according to the people, who asked not to be identified because the meetings are private.

VW Chief Executive Officer Herbert Diess earlier this month told 500 top executives in Wolfsburg, Germany, that talks with Ford are “progressing well” and are close to being finalized, according to prepared remarks seen by Bloomberg. The pact is part of VW’s plan to share costs amid record expenses required to develop new technologies. VW’s tie-up with Ford is likely to include an investment in the U.S. company’s autonomous affiliate Argo AI, and a deal could be announced as early as July, people familiar with the talks said earlier this month. Such a partnership could rival

Alphabet Inc.’s Waymo and General Motors Co.’s Cruise unit in ambition and scope, one of the people said.

Reuters: European Car Lobby Cuts 2019 Sales Forecast to 1% Fall

Europe’s automotive lobby cut its forecast for passenger car registrations this year to a 1% fall from a 1% rise, blaming slower growth and business concerns over Britain’s impending exit from the European Union. The European Automobile Manufacturers’ Association (ACEA) said it now expected car sales in the European Union to just exceed 15 million this year.

“It goes without saying that any additional barriers, costs or delays as a result of Brexit will pose a serious threat to jobs and growth in the auto industry, both in the UK as well as in the EU,” ACEA Secretary General Erik Jonnaert. “Aside from the uncertainty due to Brexit and changing macroeconomic conditions, this represents a natural stabilization of the market.”

Barron’s: Reasons the Gold Rally Is Unlikely to Reverse Soon

The price of the precious metal broke above $1,400 per ounce last week, hitting its highest level in at least six years. Gains in gold—trading around $1,412 per ounce—have been driven by fears of a slowing global economy and increased geopolitical uncertainty. “If gold holds above the $1,400/oz trading level over the course of this week, we believe there is a very good chance that this could mark the beginning of a new gold bull market,” wrote VanEck portfolio manager Joe Foster. “In any case, it appears gold has entered a higher trading range.” Although stock markets are still in record territory—fueled by the faith that Federal Reserve policy can keep the U.S. economy running for longer—the current level is very vulnerable, according to VanEck’s Foster.

Low-Yielding Bonds

The Federal Reserve reduced its inflation expectations last week and signaled that further rate cuts are possible if the economic outlook continues to weaken. The European Central Bank has also suggested rate cuts are on the table in Europe. Lower rates could lead investors to favor gold over bonds. Both are considered safe investments when uncertainties rise, but fixed-income assets are now offering less yield.

Many government bonds in the developed world—or the considered “safe” jurisdiction—are already generating negative interest, including Germany, Switzerland, Japan, and the Netherlands. It means when these countries borrow, they are able actually to charge their lenders instead of paying them. While the yields on U.S. Treasury bonds are still positive, they’ve been declining at an accelerating rate.

“We believe if this downward trend in 10-year yields continues, and the probability of negative rates in the U.S. increases, the price of gold will continue to rise,” wrote Chris Mancini of G Research, “The market will likely trade gold higher as it begins to anticipate the potential for substantial physical gold demand from savers around the world who want to preserve their wealth without having to pay to do so.”

Inflation Won’t Be Low Forever

Inflation has been low for a long time, but it won’t last forever, especially as rates keep going down, Charles Gave. A possible rise in inflation would give investors another reason to bet on gold instead of bonds, whose value will be eroded simply because of the dollar’s lower buying power. “The current fall in long-term yields might be the last bubble of the bull market in bonds which started in September 1981,” wrote Gave. History shows that collapses in inflation expectations have often come at times when investors should actually be selling long-term bonds, such as the end of 2008 and early 2016, he added.

Bloomberg: US Pending Home Sales Rebounded in May as Mortgage Rates Fell

Contract signings to purchase previously owned U.S. homes increased in May, indicating Americans may be responding to declining mortgage rates. The index of pending home sales rose 1.1% from the previous month, in line with economist estimates for a 1% increase, according to data out Thursday from the National Association of Realtors in Washington. Contract signings were down 0.8% from May of last year on an unadjusted basis.

Reuters: China hacked eight major computer services firms in years-long attack

Hackers working for China’s Ministry of State Security broke into networks of eight of the world’s biggest technology service providers to steal commercial secrets from their clients, according to sources familiar with the attacks. A U.S. indictment in December outlined an elaborate operation to steal Western intellectual property in order to advance China’s economic interests but stopped short of naming victim companies. A Reuters report at the time identified two: Hewlett Packard Enterprise and IBM. Reuters has found that at least six other technology service providers were compromised: Fujitsu, Tata Consultancy Services, NTT Data, Dimension Data, Computer Sciences Corporation and DXC Technology, HPE’s spun-off services arm. Reuters has also identified more than a dozen victims who were clients of the service providers. That list includes Swedish telecoms giant Ericsson, U.S. Navy shipbuilder Huntington Ingalls Industries and travel reservation system Sabre.

A Wall Street Firm Surveyed 134 Big Investors About the Economy and Stock Market.

Their Responses Paint a Scary Picture for the Future.

The stock market bears are coming back.

RBC Capital Markets released its June 2019 RBC US Equity Investor Survey, which polls 134 equity-focused institutional investors on their outlook for the market over the next six to 12 months. And it isn't pretty.

The June survey saw a resurgence in bearish outlooks. According to the report, 40% of respondents said they were either bearish or very bearish, up from 24% in March.

"Views on the economy, valuations, margins and resolution of the China trade war all deteriorated in a sudden and significant way," Lori Calvasina, the head of US equity strategy at RBC. Investors heads are in a bad place again and there's no single silver bullet, no one issue that can get resolved, to fix that."

The economy

Investors were also asked about their views on the overall economy.

Consistent with RBC's March poll, 68% of respondents said they expect the next recession to begin in either 2020 or 2021. More specifically, 31% of respondents said they expect a recession in 2020, while 37% pointed to 2021.

"Pessimistic views on the economy are at the highest level we've seen since we started tracking the data in early 2018," Calvasina said. "This is the first time we've seen the economic pessimists outnumber the economic optimists in our survey."

Stock valuations

RBC's study also found that investors are even more skeptical about company valuations than they were in the fourth quarter of 2018. Respondents who said they found current stock prices appealing dropped to 14% in the June survey. According to the report, money managers' views on valuations started souring in the first-quarter survey.

Meanwhile, the S&P 500 hit a record high on Thursday after the Federal Reserve suggested it could cut rates as soon as next month.

"Valuation concerns among equity investors is clearly one of the reasons that bearishness on the overall market has spiked." Calvasina said in the report.

15% of those surveyed expect the US to secure a trade deal with China within the second or third quarter of 2019. The report noted that most of their survey responses were recorded before Trump tweeted on Tuesday that he would be meeting with Chinese President Xi Jinping at the Group of 20 Summit in Japan.

What was also really revealing to me was what investors told us they wanted to buy, leaning into value, defensives and quality. Those are things investors buy when they are worried about the market these days, not excited." Calvasina said.

Bloomberg: BMW Steps Up E-Car Target to 700,000 by 2025 as Fines Loom

BMW plans to increase sales of electric and plug-in hybrids by 30% every year until 2025 to help meet incoming stringent emission regulation in the European Union, prompting the carmaker to accelerate the rollout of battery models. The German manufacturer moved up a goal for a lineup of 25 electric and plug-in hybrid models by two years to 2023, following plans by other carmakers like Volkswagen AG to keep up with tightening regulation. This puts BMW on a trajectory to sell roughly 700,000 electrified vehicles by 2025. The quicker ramp up on electric cars will put the world’s second-biggest luxury carmaker on a trajectory to meet EU regulation by 2021 on CO2 and avoid fines. “We will achieve them from my perspective, no doubt,’’ Peter said. Rather than falling, automakers’ CO2 emissions have been going up for the past two years due to demand for larger sport utility vehicles and consumers buying fewer diesel cars. Diesels emit about a fifth less CO2 than equivalent gasoline vehicles.

Bloomberg: Two Groups of Stocks Are About to Send Crisis-Era Signals on the Economy

Small caps, transportation shares tumble relative to S&P 500. The S&P 500 is at a record, but areas of the stock market with a reputation for economic prescience are sending warning signals that hearken to the global financial crisis. It’s small caps and transportation stocks, whose performance has deteriorated at a much faster clip than other parts of the market. Relative to the S&P 500, each group is on the brink of hitting its lowest point since 2009. For investors, the decline is another example of the growth debate churning underneath the market’s surface. “There’s still uncertainty as to what direction this market should go. It’s anybody’s guess,” said Jeff Carbone, managing partner at Cornerstone Wealth, which has about $1.3 billion in assets under management. “I just don’t know if we’re out of the woods yet.” Bears say the weakness in shipping and rail companies that rise and fall with the broader economy and small caps that depend on domestic demand for the bulk of their revenue is a warning not to be ignored. The losses in economically-sensitive stocks reinforce the signal from falling bond yields that suggests all is not well with the economy. Data Monday added to concern, when an unexpectedly weak factory output from the Dallas Fed was the third such gauge to miss estimates. While the S&P 500 only slipped 0.2%, the Russell 2000 Index sank 1.3%, while the Dow Jones Transportation Average tumbled 1.5%. For transports, the sell-off added to its worst performance versus the S&P 500 since 2012. Another day like Monday, and the ratio could drop to the lowest in a decade. FedEx

Corp., one of the largest components of the transportation average, reports earnings Tuesday and analysts have warned that trouble looms. Meanwhile, weakness in the Russell 2000 has taken it to the lowest level versus the S&P 500 since 2016, and it sits precariously close to the lowest level since 2009. Weakness in small caps has preceded broader sell-offs in the past. Most recently, the gauge peaked against the S&P 500 in June of last year, foreshadowing the fourth-quarter rout that almost ended the bull market. “You normally think of small caps as that’s where the dynamic growth of the economy is coming from,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments. “So to see the overall market doing well while they’re being left behind, it suggests that people are a little bit concerned about growth prospects.” For Morgan Stanley’s Mike Wilson, a continuation of soft economic data could lay the groundwork for a correction in the third quarter. As the Fed continues to make the case for data-dependency, the stock market will soon catch on, he said. And if the data continues to worsen, that could mean record highs won’t last long.

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