CEO Of Goldman Sachs Hints At Further Brexit Move

The CEO of Goldman Sachs has hinted the banking giant could be sending more jobs from London to Frankfurt following Britain’s exit from the European.

Lloyd Blankfein tweeted on Thursday that Germany’s financial hub may be gaining more of his attention. He wrote, “Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit.”

Goldman Sachs employs around 5,500 people in London and has said its 200-strong employee base in Frankfurt could double as part of its Brexit contingency plans.

Many international banks with EU headquarters in London are considering moving some operations elsewhere in the EU amid the pending divorce from the 28-nation EU. They want to safeguard the right to keep working in all EU countries.

Talk Of ‘No Deal’ Brexit Rises As Divorce Negotiations Stall

As Brexit negotiations between Britain and the European Union stutter and stall, one question looms larger and larger: What if there is no deal?

It’s an increasingly plausible prospect that stirs fear in many U.K. politicians and businesses — and hope in the hearts of staunch Brexit supporters.

Divorce talks have limped through five rounds without a breakthrough, and Britain is due to leave the EU in less than 18 months, on March 29, 2019. When it does, thousands of laws, agreements and regulations covering everything from trade to crime-fighting to aviation will cease to apply. Unless a new deal is struck, the U.K. will crash out of the EU single market and trade with the bloc on World Trade Organization terms, which would mean tariffs on goods and uncertainty for services.

The OECD economic think-tank forecast this week that switching to WTO rules would cut U.K. growth by 1.5 percentage points in the first year, push down the already-devalued pound, deter investment and trigger a downgrade to Britain’s credit rating.

“Only fantasists and fanatics talk up no deal,” U.K. Labour Party Brexit spokesman Keir Starmer said Tuesday.

But committed euroskeptics like John Longworth of pro-Brexit lobby group Leave Means Leave believe such talk is merely defeatism.

“The U.K. has been far too weak in the negotiations, far too accommodating,” said Longworth, a former head of the British Chambers of Commerce.

“I think that the EU will string out the negotiations as long as they possibly can in order to extract the maximum of benefit for them. In which case the best possible option for the U.K. is to go to World Trade Organization rules from March 2019 — and declare it now.”

Both Britain and the EU downplay, though don’t rule out, the possibility of a no-deal Brexit. U.K. Brexit Secretary David Davis said this week that “we are straining every sinew” to reach an amicable divorce, followed by a new free trade deal.

A deal — at least on the divorce terms and a two-year transition period Britain is seeking — would have to be clinched months before the March 2019 deadline to give individual EU national parliaments time to ratify it.

The impact of failure could be profound. The flow of goods could be disrupted, imperiling thousands of jobs. Three million EU citizens living in Britain and a million Britons elsewhere in the bloc would be in limbo. British finance minister Philip Hammond has said it’s even conceivable air traffic will be grounds — though he insisted such an outcome is highly unlikely.

Even the milder forecasts predict major economic fallout. About half of Britain’s trade is with the EU, and research by economic think-tank the Resolution Foundation and the University of Sussex said a “no deal” Brexit would mean price increases for food, clothing and vehicles costing the average family 260 pounds ($342) a year, and could put hundreds of thousands of jobs at risk.

Longworth dismisses such gloomy forecasts. He believes Britain can thrive by rejecting the EU’s myriad economic regulations and becoming more like Singapore, with “a lower tax, lower regulation, lower tariff, more enterprise-friendly economy.”

Meanwhile, a battle between proponents of “hard” and “soft” Brexit is raging within the British government. Prime Minister Theresa May, weakened after losing her parliamentary majority in a June election, is trying to reconcile Cabinet ministers like Hammond who want compromise and conciliation to soften the impact of Brexit, and gung-ho leavers including Foreign Secretary Boris Johnson and Trade Secretary Liam Fox.

This frustrates EU officials, who wonder whether May has the authority to strike and deliver on a deal. European Parliament president Antonio Tajani said divisions within the British government are “not good for good work in the next months.”

Most economists and politicians believe it in the interests of both Britain and the EU to make a deal. Failure would hurt both sides, though Britain would suffer more because its economy is smaller.

But the longer talks drag on, the more likely failure becomes.

Leaders of EU nations meet in Brussels on Thursday and Friday, and are likely to say there has not been enough progress on divorce terms to begin discussing future trade relations and thetwo-year transition period Britain is seeking.

The main roadblock is money. The EU estimates Britain must pay something over 60 billion euros ($70 billion) to settle its financial commitments to the bloc. Britain thinks that is too much, and won’t commit to any figure until the EU agrees to move talks on to future relations.

Those hoping for a breakthrough are now looking to another EU summit in December.

Jonathan Portes, a professor of economics at Kings College London, said the impasse means there could be “a pause, a hiatus or indeed a complete breakdown in negotiations over the next couple of months.”

Portes doesn’t think such a breakdown would necessarily be final. He says that in the long run, a deal remains likely — though not certain.

“I still think that it is clearly in the interests of both sides to have a deal, and that there is not a majority in the U.K. Parliament or the country for a really destructive, chaotic ‘no deal,'” he said. “But politics is strange.”

S&P 500 is poised to make uncanny stock-market history—for doing almost nothing

How quiet is this record-setting stock market? By at least one measure, the S&P 500 index is on pace to register is lengthiest period of quiescence in more than two decades—and perhaps ever.

The broad-market benchmark hasn’t experienced a decline of at least 3% since Nov. 7, 2016. That 234-day span registers as the second-longest period without a single-session drop of that magnitude since the 241 days from Jan. 26, 1995 to Jan. 9, 1996, according to Pension Partners’ Charles Bilello (see table below):

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Just eight more trading sessions sans a 3% daily drop—a fairly normal occurrence even in a bull market—and the S&P 500 SPX, +0.10%  will mark history.

An unnatural stretch of placid markets comes as the S&P 500, the Dow Jones Industrial DJIA, +0.14%  and the Nasdaq Composite Index COMP, +0.21%  have embarked upon one of the most resilient climbs to all-time highs. Neither a parade of hurricanes, earthquakes in Mexico, the threat of nuclear war in the Korean Peninsula, equity valuations seen as too rich, nor anxieties about the White House have disrupted this bull market rally that has entered its ninth year.

On Wednesday, all three main benchmarks finished at records. Thursday, however, features a bit of a pullback though equity benchmarks remain well within striking distance of ringing up more history.

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Moreover, the S&P 500 is up about 14% so far this year, the Dow is on track for a nearly 16% year-to-date climb, while the Nasdaq Composite is eyeing a 23% gain thus far in 2017.

And every major equity index that matters is at or near historic highs, with strategists pointing to what appears to be the first synchronized global economic uptrend ever as one of the underpinnings for investor optimism.

Meanwhile, volatility is declining, with the CBOE Volatility Index VIX, -0.81% a measure of expected volatility in the U.S. stock market, recently plumbed levels last seen in 1993 and is hovering around those lows.

So, does that mean that happy days are here to stay? Bilello cautions against being lulled into a false sense of security:

“The absence of risk does not mean the elimination of risk, just as the absence of rain does not mean there will never be another storm.”

Stock record ride ‘has reached epic proportions,’ Morgan Stanley says

Wall Street isn’t just in a bull market, it’s in an “epic” one.

That is according to Morgan Stanley, which on Tuesday wrote that the equity market rally “has reached epic proportions.”

“We say this not as hyperbole, but based on a quantitative perspective,” the investment bank explained. “Dispersions in valuations and growth rates are among the lowest in the last 40 years; stocks are at their most idiosyncratic since 2001; and equity hedge fund beta is at its highest since March 2008.”

Simply from the perspective of price moves, the “epicness” of recent trading activity should come as no surprise to investors. The Dow DJIA, +0.31% S&P 500SPX, +0.23% Nasdaq COMP, +0.11% and Russell 2000 RUT, +0.30%  have all hit repeated records this year alone, notching dozens of all-time highs. Those gains have been widespread and “perpetual,” to use Morgan Stanley’s description. Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months. Volatility is near record lows. Beta refers to a measure of an assets tendency to fluctuate compared against a benchmark like the S&P 500.

Other regions have also reported strong gains: European equities are up more than 20% this year, as are emerging markets. Basically every country—as gauged by the most popular single-country exchange-traded funds—is positive on the year.

The move higher hasn’t been without controversy, given concerns over valuations, the pace of global economic growth, political uncertainty, and questions over the effect of the Federal Reserve’s effort to unwind its balance sheet and increase the cost of borrowing.

However, the relentless march higher has defied bears, who argue that the too-lofty valuations aren’t supported by fundamentals, and emboldened bulls.

“While investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing,” Morgan Stanley wrote.

The investment bank noted that cyclical sectors, which are more closely correlated to the pace of economic growth, have been outperforming defensive ones, just as small-capitalization stocks have outperforming larger companies.

“Momentum is now strongly correlated with high beta globally, and the presence of this cohort of investors could produce continued risk-seeking behavior,” wrote the team of analysts, led by Brian Hayes, an equity strategist.

Spain Warns It Will Act If Catalonia Declares Independence

Spanish Prime Minister Mariano Rajoy warned anew Monday that Spain will not be divided by a declaration of independence from Catalonia and said the government is ready to respond to any such attempt.

Catalan regional President Carles Puigdemont plans to address the Catalan parliament on Tuesday evening to debate the current political situation. Separatist politicians say there will be a declaration of independence for the northeastern region of 7.5 million during that session, although some ruling coalition lawmakers say the move could be simply “symbolic.”

Still, Rajoy was being as explicit as possible in warning that the national government in Madrid would not stand for such a declaration.

“Spain will not be divided and the national unity will be preserved. We will do everything that legislation allows us to ensure this,” Rajoy told the German newspaper Die Welt. “We will prevent this independence from taking place.”

Secession-minded authorities in Catalonia have vowed to break away from Spain after claiming victory in a disputed independence referendum earlier this month. The Oct. 1 vote has been followed by mass protests of Catalans angered by police violence as authorities tried to stop the vote and, more recently, by others in Catalonia and Madrid urging the unity of Spain.

Yet politicians supporting Puigdemont’s minority government and civil society groups backing independence say they will not accept anything less than a full declaration of independence.

“Credibility and dignity suggest making the declaration of independence tomorrow,” Jordi Sanchez, the head of the civil group National Catalonia Assembly, said Monday.

A lawmaker with the Catalan CUP party told the Associated Press that the the far-left separatists won’t accept anything short of a declaration of secession.

“It’s very clear to me that those who I represent won’t accept any other scenario,” Benet Salellas said during an interview at the regional parliament.

Puigdemont has not clarified what his intentions are.

Rajoy’s deputy, Soraya Saenz de Santamaria, also warned that Spain would act decisively if there was any independence declaration.

“If they declare independence, there will be decisions to restore the law and democracy,” she said on Monday during a radio interview.

She called for members of the Catalan government “who still respect democracy and freedom to refrain from jumping into the void.”

Catalonia’s top judicial official, meanwhile, ordered additional Spanish police protection for the headquarters of the regional judiciary.

The regional Mossos d’Esquadra police force, whose hierarchy reports to the Catalan government, had been in charge until now of guarding the palace in central Barcelona that hosts the judiciary.

But the High Judiciary in Catalonia says its president, Jesus Barrientos, has asked the chief of the National Police force in the region to join in the protection of the building. The statement says a declaration of independence, even if illegal under Spanish laws, could trigger the suspension of the judiciary and the ouster of its president.

On Sunday, a massive protest in Barcelona showed the strength of Spanish unionists in Catalonia, as thousands marched with the Spanish national flag that had been absent until now in the regional debate.

They chanted “Don’t be fooled, Catalonia is Spain” and called for Puigdemont to go to prison for holding the banned referendum.

Catalan authorities say the “Yes” side won the referendum with 90 percent of the vote, although only 43 percent of the region’s 5.3 million eligible voters turned out in polling that was marred by police raids of polling stations.

Rajoy has said the central government could take control of the governance of the Catalan region.

“The ideal situation would be that I don’t have to find drastic solutions, but for that to happen there will have to be some rectifications (by Catalan leaders),” Rajoy said this weekend.

Rajoy’s government had repeatedly refused to grant Catalonia permission to hold a referendum on grounds that it is unconstitutional, since it would only poll a portion of Spain’s 46 million residents.

Catalonia’s separatist camp has grown in recent years, strengthened by Spain’s recent economic crisis and by Madrid’s rejection of attempts to increase self-rule in the region.

EU Says Rift Over British Payments To EU Still Key In Talks

The European Union says not enough progress has been made in Brexit discussions with Britain, particularly over what London has to pay as part of its departure, to allow discussions to move onto future trade arrangements.

EU Commission President Jean-Claude Juncker told a session at the European parliament that more needs to be done on the withdrawal issues for EU nations to agree moving to the next phase of future relations later this month.

Financial issues appear to be a key stumbling block to an orderly British withdrawal from the EU.

Juncker said “the taxpayers in the EU 27 should not pay for the British decision” to leave while the bloc’s chief negotiator Michel Barnier said “serious differences remain.”

Jim Rogers: Investing In Russia

Jim Rogers noted recently that investors are starting to invest in Russia again (the Russian stock ETF (Market Vector Russia ETF Trust (RSX)) is the worst performing country ETF in 2017):
“We have seen some people starting to invest in Russia again. This is just the continuation of the same process. It is happening, more will happen, but it will not be so fast.”
Jim Rogers also does not expect the rating agencies (S&P and Moody’s) to raise Russia’s ratings due to political pressures:
“I wouldn’t think it could be soon. They have a lot of geopolitical pressure than they admit and most people realize.”