"For investors, buying gold is similar to casting a no-confidence vote," saidItsuo Toshima, 68, an investment adviser and former regional manager for the World Gold Council in Tokyo. "Gold is the unprintable currency, unlike the yen. The yen’s appreciation in spite of the adoption of the negative-rate policy has kindled skepticism about the policy’s benefits. It’s also led to investors seeking to protect their assets in case Abenomics fails.”
When we first heard this past Thursday that private blogger and Citadel employee Ben Bernanke was going to "secretly" meet with both the BOJ's Haruhiko Kuroda and Japan PM Abe, we warned readers that "something big was coming." Two trading days later, with the USDJPY higher by 200 pips and soaring after something big indeed came overnight from Japan: nothing less than the first "lite" instance of helicopter money .
As rates and growth converge at low levels, legacy investments modelled on more optimistic assumptions struggle. Many fail. The pressure on incumbent profit margins from these newcomers simply exacerbates their troubles. “So that feedback process of interest rates below a certain level becomes quite destructive to the existing base of capital,” explained Lithium. “That’s the simplest answer.”
As noted here Wednesday, June 29th we had orders in the equity futures markets to sell the S&P at 2045; to sell the EURO STOXX 50 at 2837 and to sell the Nikkei at 15,800…two thirds of a unit for each so that we’ll be short of two units in total now that all are filled. As of this morning, the S&P is 2127 (-4.0% against us)... We have had quite enough; we want out now… losing 1.6% on average. Cover these positions immediately… or sooner.
S&P 500 futures are set to open at new all time highs, with global stocks rallying as the yen weakened and the Nikkei soared on speculation Japan is about to unveil the first instance of "helicopter money"-lite, as well as due to a continuation of better-than-expected U.S. jobs data. Further speculation that Italy's (and Europe's) insolvent banks will be bailed out has further boosted sentiment.
The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion.
There is now $13 trillion of global negative-yielding debt. And, as the WSJ writes, even a small increase in interest rates could inflict hefty losses on investors. With the 2013 "taper tantrum" the Fed sparked a selloff as it discussed ending its bond-buying program known as quantitative easing. A repeat "would be very painful for a lot of people" said J.P. Morgan. This is just how painful.
The current labor/productivity gap implies that over the next 4 quarters, the cumulative slowdown in labor input growth should be 4.5 percent. This implies that aggregate hours (which most recently have been expanding at a 1.6 percent annual rate) would average just 0.5 percent (1.6 – 4.5 / 4). Expressed in terms of new jobs, this means that unless firms cut back on employee hours, monthly job creation would average close to 60K next year, a substantial drop from the 200K average of the past 12 months.
"People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500."
According to Summers, with this low growth and low interest context, government debt levels no longer matter. In other words, federal governments have free reign to massively increase deficit spending and run-up federal debts, because, on balance, the fiscal stimulus will pay for itself. But who are we to question Summers’ unique qualifications - for example, unlike Summers, we’ve never lost $1.8 billion of other people’s money.
Risk-on assets (stocks) rising at the same time as safe-haven assets is akin to dogs marrying cats and living happily ever after. What the heck is going on? Why is the market acting so schizophrenic? What’s changed?