Stocks lost ground on Tuesday in what was, all things considered, a quiet day on Wall Street in what is a calm week for markets and economics news after last week’s big jobs report and next week’s Federal Reserve announcement.
First, the scoreboard:
- Dow: 16,972, -102, (-0.6%)
- S&P 500: 1,980, -21, (-1.1%)
- Nasdaq: 4,650, -58, (-1.2%)
- WTI crude oil: $36.20, -4.4%
The yield on 30-year Japanese government bonds hit a new record low overnight on Tuesday, ticking as low as 0.485% following an auction that issued bonds with a 0.765% coupon, also a record low.
The effective yield on bonds falls as the premium investors are willing to pay for this debt increases.
And so consider this the latest leg of the “widowmaker” trade that has puzzled markets over the last couple decades as many investors have called time and again for interest rates to go higher given Japan’s massive government debt load, only to be wrong every time.
“Japan is experiencing another ‘crisis of confidence’ and it is reverberating in bond markets around the world,” Russ Certo, a rates strategist at Brean Capital, wrote in an email on Tuesday.
“With the economy slowing and the yen strengthening the BoJ will most likely favour doing what has been doing for the past 10 years − buy government bonds. The feedback loop between economic expectations and the JGB market was on full display last night with a 4x oversubscribed 30-Yr JGB auction that resulted in a 22 bps drop in the Japanese long end that took Treasuries along for the ride.”
In a note Tuesday morning, Deutsche Bank said that 80% of long-dated JGBs are being bought up by the Bank of Japan under its massive quantitative easing program, and with demand for Japanese paper that yields literally anything — 10-year JGBs, for example, traded to negative yields on Tuesday — we are seeing 30-year JGB yields push perilously close to 0%.
What does this mean? Well, it depends. Of course, interest rates in Japan are negative. This seems like a bad option.
So perhaps your portfolio requires certain safe assets and you need yield so you buy JGBs no matter what. Buy JGBs.
Or, you simply throw up your hands and say, “I’m going to lend Japan money for 30 years and get a less than 1% return on that? That is insane.” Also fine! Just don’t short them?
Shake Shack shares fell more than 10% on Tuesday after the burger chain reported earnings and gave guidance Monday night that disappointed.
In the first quarter, same-Shack sales should rise about 2.5%-3%, slightly less than the 3.1% that was expected by economists. The company also said it expects labour costs to rise in 2016.
I think that in New York we’re a little more obsessed with Shake Shack than we should because it is a New York brand. But also, look, the food is good.
The flagship Shake Shack isn’t far from the Business Insider office, there is a location at JFK Airport, Citi Field, and several peppered around the city. Additionally, we’re not in Los Angeles where every corner has a burger joint and, inside the sort of equity research bubble we play in on BI: Markets, the “better burger” category is exciting.
Also, the food is good.
But for the market., Shake Shack represents another initial public offering that was hyped up and then, after some time in the market, became a dud.
Shake Shack shares are down about 15% from where they closed their first day of trading.
China has a demographic problem.
Its population is ageing and, as an outgrowth of the long-running one-child policy, the number of working-age citizens relative to dependents is set to continue falling. The old saying in markets would be that this is a “Japanification” of China’s economy (see the JGB yield above for how that plays out in financial markets). Of course, that comparison is not entirely fair, as tends to be the case with comparisons.
But in a note to clients, HSBC’s Frederic Neumann argued that an “enormous reservoir” of workers in the country — as in, the rural part of the country — and huge educational improvements will slow the negative impacts to China’s economy from this demographic shift. So a better-educated, increasingly urban workforce is good.
Now, as Elena Holodny noted, Chinese workers have been moving from the country to the city for decades and the migrant population declined by almost 5.7 million in 2015. Additionally, some people are staying in the country to care for elderly parents. Which is sort of the whole problem.
And as this chart from Deutsche Bank’s Torsten Slok highlights, this migration is effectively done.
Speaking with Variety, Facebook’s vice president of partnerships Dan Rose all but confirmed that the company is in talks with the league to stream its Thursday night package, for which the NFL has been seeking an online partner for some time.
Amazon and Verizon are reportedly also in the bidding, but the prospect of this game coming to Facebook is one that is particularly intriguing.
Facebook is basically going to be the next TV. And by TV I mean, “Place you go to passively get news and video content.”
When I turn on my TV I don’t need to really do anything but flip through the guide to find something. And while it sort of seems like I go out and find things, really, the content finds me. Whatever is on TV has been placed there strategically, as have the ads and everything else.
This is basically the Facebook feed. Some news, some personal updates, some videos, some ads, and so on.
Eventually, these two things — passive vehicles through which I content of all kinds — will be the same thing. Now, you might ask why I don’t think Netflix is the next TV, and that’s because Netflix is Netflix.
Netflix, at this point, is a verb not a noun, and so calling Netflix the next TV is almost insulting to what the company has accomplished. You go to Netflix to watch what they tell you to watch and then you watch more and more stuff because what you were recommended is good and keeps you watching.
Facebook, then, will be TV in the sense that it has so much stuff and needs a curation process in order for the value to be unlocked. Right now, TV curation is a mess. Which is why the next TV — in my view — will have originally been a place for college students to flirt.
Disruption and all that.
Whitney Tilson shorting more Lumber Liquidators. Shares fell about 14% on Tuesday.
San Francisco wants a tech bust. Sort of.
Business Insider Emails & Alerts
Site highlights each day to your inbox.