Swamponomics: Ultra-Low Interest Rates Here to Stay, For a While

Please respect our republishing guidelines - Click Here It was a busy week for three of the world’s biggest central banks: the Federal Reserve, the Bank of England (BoE), and the Bank of Japan (BoJ). Despite these institutions presiding in three different continents, they showed their love for low interest rates. So, what happened during their September policy meetings? America, England, and Japan Walk into a Bar The U.S. central bank completed its two-day Federal Open Market Committee (FOMC) powwow, and the results were not too surprising. Fed Chair Jerome Powell and his merry band of central bankers agreed to keep its benchmark fed funds rate unchanged in the 0% to 0.25% target range. The Eccles Building revealed that it intends to leave rates where they are until 2023, or until inflation runs higher than the 2% target rate. It also modified its economic projections slightly higher: the Fed expects 4% GDP growth in 2021, 3% in 2022, and 2.5% in 2023. The most significant development from the meeting was its new inflation approach that would see the Fed allow inflation to rise without hiking rates to support the economic recovery. Yoshihide Suga Soon after Prime Minister Yoshihide Suga was elected by the National Diet to succeed Shinzo Abe, the BoJ convened its meeting. The central bank also left its benchmark rate the same at –0.1%, while maintaining its aggressive bond-buying program. Governor Haruhiko Kuroda and his associates said they would keep its 10-year government bond’s yield at 0%. The BoJ confirmed that it plans to coordinate with Suga on fiscal and monetary policy. Will the United Kingdom say pip, pip, cheerio to above-zero interest rates? The nine-member Monetary Policy Committee voted to maintain its historically low rate of 0.1%. But the minutes were the real headliner from the meeting as the institution noted that it is looking into “the effectiveness of negative policy rates.” It has long been speculated that the BoE would adopt subzero rates, something that the central bank routinely downplayed. Now it looks like the NIRP is coming. So, Britons, keep a stiff upper lip and all that. Could the U.S. become the next nation to institute a NIRP? The Fed has said that it does not plan to bring rates below zero, but if it fails to resuscitate the economy and maintain the impressive stock market recovery, it may have no other choice but to fire this unconventional weapon. It is comparable to buying stocks. The central bank has been scooping up corporate bonds, so why would it refrain from acquiring shares in Apple, Walmart, or General Electric, should the equities arena tank? Is Soybean the Comeback Kid? What an impressive few years it has been for U.S. soybeans. While prices are still below their record high of $17.43 a bushel from 2012, they have topped $10 for the first time since 2018. The crop had been one of the casualties in President Donald Trump’s trade war with China. Still, it has also been one of the chief beneficiaries of his phase one deal with Beijing as the world’s second-largest economy enhances its purchases of the agricultural commodity. How much longer can this bull run survive? That might depend on Brazil and China. The former has seen its harvest surge to record highs this past summer, and the latter is continuing to boost demand to add to its domestic inventories. Argentina may play a factor, while foreign exchange rates will also linger in the background. Whatever the case, this is good news for American growers since they can take advantage of higher prices, a weaker U.S. dollar, and government subsidies. IPO Like It’s 1999, Baby! Do you even IPO, bro? The initial public offering market is booming, despite the U.S. economy in the middle of a pandemic and uncertainty in the broader financial market. Nothing seems to be stopping the IPO industry from partying like it is 1999. Snowflake, a cloud-based database platform, had a monumental opening, raising close to $4 billion before selling a single stake to Salesforce and Berkshire Hathaway. It was a wild ride. The company initially proposed a price range of $75 to $85 per share, but then raised it to around $100. The shares were finally offered for $120. The stock then opened at more than $200 during the September 16 trading session. Shares slumped nearly 20% since. Still, this was the largest valuation of a firm to double its price in a market debut. When Warren Buffett gets in on the IPO frenzy, you pay attention. JFrog Ltd., a service that allows businesses to release their software upgrades to all their users and employees quickly, had a similar story. JFrog shares debuted at $77 before falling 10% by the end of the September 17 session. Indeed, there are many similarities between the IPO mania of the 1990s and today. Simultaneously, there are still plenty of differences to potentially lend credence to the popular Wall Street phrase: “It’s different this time.” The chief fact is that today’s tech firms have a lot more revenues than young internet companies during the dot-com bubble. They might not be profitable, which is prevalent in the IPO market, but they generate revenues. That said, with cheap money laying around like face masks littering city streets, courtesy of the Fed, it is more than likely that the IPO mania will expand for the remainder of 2020 and into next year. What are you going to do? Buy a low-yielding Treasury? You have no choice if you want to grow your money. ~ Read more from Andrew Moran.

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Germany, France, U.K. Rebuke Beijing Over South China Sea

The United Kingdom, France and Germany have signed a joint note denouncing China’s claims in the South China Sea, in a sign of growing European interest in the maritime disputes there and China’s militarization of occupied islets. The three countries together sent a note Wednesday to the United Nations, following in the footsteps of Malaysia, Australia, Indonesia, Vietnam, the Philippines, and the United States. Over the past year, those governments have issued diplomatic rebukes, complaints, and rejections of China’s expansive maritime claims in the South China Sea, all through the U.N. Commission on the Limits of the Continental Shelf. “France, Germany and the United Kingdom underline the importance of unhampered exercise of the freedom of the high seas, in particular the freedom of navigation and overflight, and of the right of innocent passage enshrined in the [United Nations Convention on the Law of the Sea], including in the South China Sea,” the note says. The three countries also emphasized that “‘historic rights’ over the South China Sea waters do not comply with international law,” and “recall that the arbitral award in the Philippines v. China case dating to 12 July 2016 clearly confirms this point.” The arbitral award mentioned was a landmark case brought before The Hague-based Permanent Court of Arbitration by the Philippines. That tribunal ultimately struck down virtually all of China’s claims in the South China Sea as unlawful and without basis under the U.N. Convention on the Law of the Sea, or UNCLOS. The note rejects other parts of China’s stance over the disputed waters. It states that artificial islands, such as those created by China in the South China Sea through land reclamation and sand dredging, cannot generate maritime entitlements such as exclusive economic zones under UNCLOS. And it also clarifies that France, Germany and the U.K. don’t recognize China’s grouping of rocks and islets in the Paracels into an archipelago that would generate “straight baselines.” Baselines are imaginary lines connecting the outermost points of the features of archipelago that are meant to circumscribe – and effectively maximize – the territory that belongs to it. The Paracels are a cluster of rocks and islets in the northern part of the South China Sea and are disputed between China, Vietnam, and Taiwan. The United Kingdom already did not recognize China’s attempt to draw “straight baselines” around its occupied features in the area and performed a freedom of navigation exercise there in 2018. However, this is the first time France and Germany have explicitly rebuked China’s baselines, as well as China’s “historic rights” position that it insists grants it sovereignty over the waters and rocks spread out over nearly all the South China Sea. Both of those European nations have recently pushed for further involvement in the Pacific. France held a high-level trilateral meeting with Australia and India on Sept. 9, and has signed logistics agreement with both countries that allow its forces to access facilities on their island territories, and vice versa. On Sept. 1, Germany published its first ‘Guideline on the Indo-Pacific,’ updating its policy to reflect growing economic ties to the region and concern over militarized tensions there. “The Malacca Strait may seem a long way away. But our prosperity and our geopolitical influence in the coming decades will depend not least on how we work together with the countries of the Indo-Pacific region. That, more than anywhere else, is where the shape of the international order of tomorrow will be decided,” Germany’s Foreign Minister Heiko Maas said in a press release earlier this month. “We want to help shape that order – so that it is based on rules and international cooperation, not on the law of the strong.” The Malacca Strait refers to a critical waterway connecting the South China Sea to the Bay of Bengal, in the Indian Ocean. About a quarter of the world’s traded goods and oil passes through the Strait. China has come under growing international criticism, particularly from the U.S. government, over its conduct in the South China Sea, and but it has continued to send military and government-controlled civilian vessels into the territory of its Southeast Asian neighbors. Indonesia, one country astride the Malacca Strait, castigated China for sending a China Coast Guard (CCG) ship into its waters over the weekend. At the same time, ship tracking data shows China has sent survey vessels into areas claimed by the Philippines and even into the Philippine exclusive economic zone. The Hai Yang 4 survey vessel operated around Philippine-claimed Macclesfield Bank from Aug. 24 to Sept. 15, and the Dong Fang Hong 3 has been surveying the same area since Sept. 12. Both are operated directly by the Chinese government. The Jia Geng, another Chinese survey vessel owned by Xiamen University, has been sailing within 150 nautical miles of the Philippine coast since Sept. 13. Benar News, an RFA-affiliated online news service, reached out to the Philippine government on Tuesday for comment and was told the Department of National Defense would “validate this report.” It was not immediately clear if they had done so. The U.S. renewed its criticism of China on Thursday. Assistant Secretary of State David Stilwell – Washington’s top diplomat for East Asia – accused Beijing of “destabilizing territorial revisionism” when he addressed a hearing of the Senate Foreign Relations Committee. Meanwhile, the Chinese Embassy in Manila took aim at recent U.S. criticism in a statement, although it did not explicitly name the United States. “[A] certain country outside the region is bent on interfering in the disputes in the South China Sea and the COC [Code of Conduct] consultations to serve is own geopolitical agenda. How to resist the interference is crucial for pushing forward the future consultations of COC,” the statement said, referring to negotiations between China and the Southeast Asian bloc on a code that would regulate conduct at sea.

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UK and EU agree three negotiating rounds for post-Brexit deal

Continue Reading UK and EU agree three negotiating rounds for post-Brexit deal

UK will refuse if EU asks for Coronavirus Brexit extension

Continue Reading UK will refuse if EU asks for Coronavirus Brexit extension