Another Sign of Rough Sledding Ahead: Dividend Cuts Surpass 2008
Date
2/10/2016 7:06:02 AM
(MENAFN- ProactiveInvestors - UK) Fuller Treacy Money 08:14
Another Sign of Rough Sledding Ahead: Dividend Cuts Surpass 2008
This article by Luke Kawa for Bloomberg may be of interest to subscribers. Here is a section:
Bespoke suggested that spreads in the high-yield debt market could signal whether more companies will be under pressure to cut or eliminate their dividends.
"Based on the trends of the last decade when the credit markets are willing to lend companies have jumped at the opportunity to borrow and increase their payouts" the analysts wrote. "The flipside is what we are seeing now and when the credit markets start to turn off the spigot some companies find they don't have the cashflows to support their payouts."
Eoin Treacy's view
Dividends represent an important component in total return over the long term and with interest rates so low they have been a competitive source of income for yield hungry investors over the last six years. The bond markets dwarf the equity markets in terms of the quantities of money moving around so it makes sense that widening spreads are having an effect on the balance sheets of companies as borrowing costs rise.
Breaking Through the Zero Lower Bound
Thanks to a subscriber for this report by Ruchir Agarwal and Miles Kimball for the IMF which may be of interest to subscribers. Here is a section:
We show here how the combination of (a) using electronic money as the unit of account and (b) a time-varying paper currency deposit fee can be used to eliminate the option to circumvent the negative rates by withdrawing storing and later redepositing paper currency. The key idea is that a negative interest rate can be accompanied by a time-varying deposit fee that ensures the value of paper money and the value of funds in electronic accounts will move in tandem. Such a deposit fee only needs to be imposed at the central bank's cash windowthe facility through which the central bank and commercial banks interact to bring cash in to and out of circulationand not on households firms or banks. Levying the paper currency deposit fee on net deposits of paper currency allows the central bank to create an exchange rate at the cash window between electronic currency and paper currency so that in a negative interest environment the value of paper currency can be caused to depreciate over time relative to electronic money. The objective is a policy at minimum distance from the current monetary system consistent with eliminating the zero lower bound. In particular such a policy requires no extra regulations or quantity constraints. Instead its impact on the economy works entirely through the price system.
Eoin Treacy's view
This is about the best though unintentional argument for owning gold and stocks with reliable dividend growth I've seen. One of the primary arguments used by fundamental analysts to disparage gold is that it does not pay a dividend and as a result cannot be valued. That's does not seem to trouble them when it comes to suggesting that fiat currency should be intentionally debased and eroded by negative interest rates. With $7 Trillion in bonds currently in a negative yield environment gold has a positive carry just by virtue of not paying anything.
Crowd Money now in Mandarin
Eoin Treacy's view
It feels like a long time since the Shanghai University of Finance & Economics Pres bought the Mandarin rights to Crowd Money and I had almost given up on seeing a Mandarin version of the book. However I am pleased to inform you that it is now available on Amazon China. I know some of our Asian subscribers have been waiting on the Mandarin version coming out so I'm happy to relay the news. Mrs. Treacy is also looking forward to seeing the Mandarin version and I will wait on her seal of approval before attesting to the quality of the translation.
Email of the day on units of scale for commodities
Where can I find the "units" that the charts are presented in? e.g. -- LME copper Spot is (fairly obviously) US$/short ton (2000 lbs) -- I think. But what about "Coking Coal China 2nd Grade Spot" -- the numbers range from 2000 down to 800 ... clearly not US$/tonne??
Eoin Treacy's view
Thank you for this question. We do not generally put the units for commodities in the title because this needs to be done manually. However your point is well taken and relevant. The units for Chinese coking coal are Renminbi per tonne and I have updated the title accordingly. We'll also adjust others where the units might not be obvious.