Blackrock’s Fink said Thursday that U.S. growth is slowing on concern whether the Trump administration’s agenda will get through Congress. Dimon lamented that “it is clear that something is wrong” with the nation in a letter to investors Tuesday. Both CEOs are part of a group of business leaders that advise President Donald Trump.
Fink expressed chagrin over the pace of changes so far under the new administration. He told CNBC the U.S. economy is slowing as both consumers and businesses wait to see if the new administration can deliver on tax reform and deregulation following the failure of the health-care bill in March.
“There’s a greater worry that these proposed changes are going to be harder and harder to execute,” said Fink, speaking on CNBC Thursday. “You’re seeing a slowing down of our economy.”
Fink said the U.S. may be the slowest-growing economy in the first quarter among the G-7 nations. Japan, Canada and Europe are expanding faster than anticipated six months ago while the U.S. is lagging expectations. Without tax reform and deregulation, he said, the markets will suffer setbacks.
Dimon used his 45-page annual letter to list ways America is stronger than ever — before jumping into a much longer list of problems.
Since the turn of the century, the U.S. has dumped trillions of dollars into wars, piled huge debt onto students and forced legions of foreigners to leave after getting advanced degrees, he said in the letter.
He called for infrastructure investment and reducing corporate taxes to lift the economy.
Fink, the head of the world’s largest asset manager, said the most crowded trade right now is that rates are going to move much higher. Instead, he said, there’s a 51 percent chance that 10-year Treasuries drop below 2 percent.
BlackRock is trying to accelerate its own growth, particularly in its struggling stock-picking business, by relying more on quants to stem the outflows from active funds.
Last week BlackRock announced it’s shifting $6 billion of the $201 billion run by stock pickers into offerings with lower fees where quants play a role.
The firm is also firing more than 30 people in its active-equities group, including five of its 53 fundamental portfolio managers, said a person familiar last month.
Fink said on CNBC that the moves are not a substitution of humans with machines. “It is a reorientation in the large-cap area of U.S. equities,” he said. “It is a recognition there are more sources of information.”
The money manager is doing a lot of research on artificial intelligence, Fink said, but the idea that computers are now able to stock-pick without human input is “more of a myth than a reality.”
In fact, the combination of the above outlook with the lowest unemployment rate in a decade could spell the worst of all worlds for the US economy : Slower growth and higher inflation.
Earning are not painting the picture yet.
Investors seeking hints on first-quarter earnings season are getting little help from companies.
In the past month, only 83 have published profit guidance of any variety, the least at this time of the year since Bloomberg began compiling the data in 1999.
The stretch of quietness comes as banks including JPMorgan Chase & Co. and Citigroup Inc. are set to release results next week.
The silence adds to the air of mystery in U.S. equities, where valuations are high and volatility nonexistent as prices again lock themselves into a range after the four-month Trump bump.
While tight lips contrast with the voluble expressed in fourth-quarter conference calls, it may also betoken confidence.
“The general rule of thumb is bad news gets announced early rather than good,” said Michael Shaoul, chief executive officer of Marketfield Asset Management. “The most obvious thing to assume is that nothing has significantly changed and the trend is improving earnings.”
At the same time, the scarcity reflects a decade-long trend away from guidance that may reflect criticism about a short-term focus among executives. Still, the latest decline is the fastest on record. The number of firms speaking is down 35 percent from a year ago and trails an average of 150 at this time in the past five years.
Coinciding with the quiet has been a stretch of market indecision. After reaching an all-time high on March 1, the S&P 500 Index has been confined to a 55-point band, alternating between gains and losses every week.
The benchmark just posted the lowest realized volatility to start a year since 1965, data from Deutsche Bank AG showed.
Bloomberg data shows firms forecasting that earnings will beat analyst estimates outpaced those predicting results that will fall short by a ratio of 2.1-to-1, the lowest reading in six years heading into any first-quarter earnings season.
Analysts are sticking to their bullish calls, forecasting 9.7 growth in S&P 500 earnings for the March quarter and 12 percent for the full year. That’s a departure from the last two years, when growth estimates shriveled to zero as reporting season drew near.
“Investors have been digging deeply into their hope chests in search of the catalyst that will propel stocks to new highs,” said Sam Stovall, chief investment strategist at CFRA in New York. “Not surprisingly, better-than-expected EPS guidance could offer some near-term optimism,” he said. “Maintaining a double-digit growth for 2017 should go a long way in bolstering confidence.”
A POSITIVE FOR GLOBAL MARKETS WAS THE POSITIVE TONE OF THE XI – TRUMP MEETING
Shortly after dessert on Thursday night, the atmospherics around U.S. President Donald Trump’s first summit with Chinese leader Xi Jinping suddenly changed.
In the run up to the meeting, Trump had warned of a “difficult” conversation over trade and North Korea with an adversary he routinely blasted on the campaign trail. China took a different tone, saying it presented an opportunity for a fresh start between the world’s biggest economies.
Both sides are recalibrating after Trump ordered a missile strike on Syria to punish Bashar al-Assad’s regime for a chemical weapons attack. The news put China in an awkward position over what it says about the strikes, and could take the gloss off Xi’s big moment with Trump.
The episode evokes memories of Xi’s trip to the U.S. in late 2015 where he was overshadowed by an overlapping visit by Pope Francis and his stilted manner drew unfavorable comparisons to another leader in town at the time, Indian Prime Minister Narendra Modi.
Still, some China analysts say it may present the chance to strike favorable deals with a U.S. leader preoccupied by a crisis.
“While Xi would not approve of this, he probably welcomed it as well, as this caused serious distraction on the part of the Trump team, and Assad has taken on the role of the bad guy that Trump is beating,” said Steve Tsang, director of the SOAS China Institute at the University of London. “My bet is that he would choose to handle this very diplomatically and use this to make a grand bargain with Trump.”
China’s foreign ministry took a cautious line on the strikes, urging both the U.S. and Syria to “cool down.” It condemned the use of chemical weapons and called for an investigation, while also recognizing Assad as a legitimate elected leader.
“We call on all the parties to stick to the political settlement and not move away from it,” spokeswoman Hua Chunying said.
China’s official media gave limited coverage to the Syrian news while prominently hailing the first day of Xi’s talks with Trump as a success. None of the Chinese stories on the missile strike mentioned Xi.
“You cannot see any remotely negative information that’d cast Xi Jinping in a bad light for his U.S. trip,” said Qiao Mu, a professor of media studies at Beijing Foreign Studies University.
Heading into the talks, Xi’s government looked to stave off a trade war with Trump and find some way to avoid a clash over North Korea, another international pariah that the billionaire has targeted. Trump had bashed China repeatedly for stealing American manufacturing jobs and failing to do more to stop Kim Jong Un’s regime.
The first day featured photo opportunities, handshakes and laughter between the leaders. A photo making the rounds on Chinese social media showed Trump introducing his grandchildren to Xi and his wife.
“We had a long discussion already and so far I have gotten nothing, absolutely nothing,” Trump joked on Thursday night. “But we have developed a friendship. I can see that.”
Trump accepted Xi’s invitation to visit China, the official Xinhua News Agency reported. Xi told Trump there were “a thousand reasons” to make the China-U.S. relationship work, with “no reason to break it.”
The talks Friday are likely to be more substantive, with the pair holding a series of working sessions. There may also be a stroll around the grounds of the beach-side resort, said administration officials who briefed reporters Tuesday on condition of anonymity.
Still, the Syrian move may have spurred some last-minute tweaking to the approach for Friday’s talks. The missile strike showed that Trump is willing to change positions fast, according to Shi Yinhong, a foreign affairs adviser to China’s cabinet and director of the ‘Center on American Studies at Renmin University in Beijing.
“I don’t have a list of what kind of sweeteners President Xi brought to him, but it’d not be worth our while to give him too much,” Shi said. “Too many gifts would be wasted on Trump.”
Xi is seeking to portray strength and maintain stability in a year that will see key Communist Party leaders replaced at a time economic growth slows the most in decades.
That adds incentives for Xi to strike a deal with Trump, perhaps offering to do more on North Korea in return for him backing off threats to slap on tariffs or label China a currency manipulator, according to Tsang from the SOAS China Institute.
“Xi’s first and foremost concern is to show that he is managing Trump in the run up to the 19th Party Congress,” Tsang said, referring to the Communist Party gathering toward the end of the year. “This is likely to be what will drive his policy towards the Trump administration.”
Another consequence could be a rise in Domestic Chinese stocks ahead of the Congress.
Life seems to have come back to the Chinese domestic equity market that rose 1.5 % last week even as Chinese Hong Kong listed stocks fell.
Japan was once again the big loser as the Japanese Yen hovered around 111, despite very positive news about Japanese consumer’s confidence.
Based on a poll conducted by the Bank of Japan in March, Japanese households are the most upbeat since at least 1998 as the labor market tightens and muted inflation boosts their purchasing power, the survey found.
The index for impression of livelihood rose to -32.4 in March, the highest on record dating to 1998, according to the quarterly survey released Friday.
Sentiment toward income was at the highest on record dating to 2006 and confidence regarding employment stood at the second-highest level since 2006, the survey found.
The data on rising confidence come as the BOJ prepares to convene a policy meeting later this month. It is widely expected to continue with its current aggressive easing program.
Demographics have helped push the jobless rate down to 2.8 percent, though wage growth remains weak.
A Cabinet Office report on Thursday showed consumer confidence at the highest level since September 2013.
“Japan’s economy is likely to continue its recovery,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG. “Low inflation is helping households. So we have to see how their sentiment changes once inflation rises thanks to oil and a weak yen.”
The BOJ survey found that the number of households expecting prices to rise over one year and five years increased for the first time since June 2015. However, they expected prices to rise 2 percent annually over both time periods, the same as in the previous survey.
The BOJ received 2,174 responses to the poll which, was conducted Feb. 8-March 6.
India decided to raise interest rates in a surprise shift this week, leaving us wondering whether a top is in place.
ANOTHER INTERESTING PIECE OF NEWS WAS AMAZON”S ACQUISITION OF A FUEL CELL MANUFACTURER, VALIDATING BOTH OUR VIEW THAT OIL PRICES ARE GOING DOWN AND THAT HYDROGEN POWER CELLS MAY BE THE ENERGY OF THE FUTURE.
Also TESLA shares rose another 8 % last week, propelling its valuation to levels unseen in the Auto sector, Victims of tech hype should be a bit wary of Elon Musk’s dismissal of hydrogen fuel cells as “fool cells.” A figure as iconic in the tech industry,
Amazon founder Jeff Bezos, appears to disagree.
Amazon has acquired the right to buy 23 percent of Plug Power, a Latham, New York-based company that went public back in 1999, has never made a profit, and was until recently a penny stock. Plug Power shares almost doubled in price immediately after the Amazon announcement:
Plug Power makes hydrogen fuel cells. Along with the right to purchase the stake, Amazon is buying the cells to power forklifts at some of its vast warehouses, which will create $70 million of extra revenue for the company this year (it only made $56 million in 2016).
Now, Amazon uses battery-powered forklifts.
Amazon is an obsessive cost-cutter when it comes to logistics. That fuel cells are economically viable for such an operation should give pause to those, who, like Mercedes maker Daimler’s Chief Executive Officer Dieter Zetsche, don’t believe the technology can be more cost-efficient than batteries.
Explaining why his company is not going to make a major investment in fuel cell cars, he has pointed out that battery prices are going down while hydrogen production remains expensive. The fuel costs roughly twice as much per mile as gasoline today.
The cost, however, is not the reason Musk has disparaged fuel cells as “incredibly dumb.” His explanation was technical, an efficiency argument:
Why use energy to produce hydrogen if it can simply be used to charge a battery?
The explanation, of course, is to shorten the recharge time.
A hydrogen-powered car such as a Toyota Mirai can be refueled in about five minutes, much faster than even a Tesla Supercharger can get a battery-powered vehicle back on the road. There’s also the matter of greater predictability where range is concerned.
While on paper, battery-powered vehicles can drive as far on a charge as the average traditional car on a tank of gas, in practice different road conditions and driving styles can produce dismaying results.
The experience of drivers in California, where charging infrastructure exists for both a Tesla and a Mirai, shows that using the hydrogen-powered car is quite similar to ordinary driving — without, of course, the noise. With a Tesla, the driver’s thinking has to be different, if only because of planning for charging times.
That is one reason a fuel cell-powered forklift can make more sense than a battery one.
It can work round the clock, almost without interruption, an important quality in a non-stop business such as Amazon’s. We often think about electric vehicles as just cars — but there are plenty of other wheeled machines for which long charging is not ideal.
For its part, the military is interested in hydrogen technology because of its predictability on long-range missions.
Though Musk and Zetsche aren’t believers, others have recently announced serious hydrogen investments. GM and Honda are building a fuel cell factory in Michigan.
Honda, Hyundai, Toyota, BMW, energy giants Shell and Total and — despite Zetsche’s skepticism — Daimler are involved in a joint project called the Hydrogen Council, which includes investing a combined $10 billion over the next five years in developing hydrogen infrastructure.
The oil companies are jumping on this because their existing gas stations can be upgraded to include hydrogen installations — something that doesn’t quite work with battery-powered cars.
As for the cost of the hydrogen itself, Hyundai and Toyota, which are already selling hydrogen vehicles, are offering the fuel at no cost for three years to boost adoption.
There’s no reason to worry about the environmental cost of producing hydrogen, either: Even the costliest production technology results in lower emissions per mile than electricity generation in most of the developed world.
Battery technology has developed faster than hydrogen; Plug Power’s difficult history is evidence of that.
As a result, batteries are in demand and commanding greater investment.
If they become dominant in the next decade or two, the promise of fuel cells may never be realized on a grand scale, only in some niche applications such as the one for which Amazon likes Plug Power technology.
That would be a shame: Once the internal combustion engine is forced out by ever more stringent environmental regulation, consumers should, at the very least, have a choice of different alternative technologies with their distinct advantages and disadvantages.