President Obama’s High Command at the Fed has had the luck which Napoleon looked for in his generals. The exercise of two Yellen puts seems to have delayed the late dangerous stage of asset price inflation to beyond 2016 Election Day.
Relative to disposable income, the value of household financial assets now far exceeds the last two bubble peaks. And that has happened in an economic environment which suggests just the opposite. To wit, valuation multiples and cap rates should be falling owing the fact that the productivity and growth capacity of the US economy has been heading south ever since the turn of the century. So here’s the danger...
"Indeed, the Fed is waging an insensible and outrageous war on savers, workers and future taxpayers - even as it pleasures the 1% with fantastic financial windfalls from the Wall Street casino. Now that is a rigged system. And that is a beltway evil that merits the Donald’s unrelenting attack on behalf of the citizens of Flyover America who have been left behind in their tens of millions."
September will be quite a busy month for investors since there are around 30 major central banks meetings scheduled. Since the Bank of England’s last policy announcement, the total monthly amount in global official quantitative easing has reached almost $200 billion, which corresponds, for the purpose of comparison, to Portugal’s annual GDP in 2015. Long-rumoured and oft-discussed, QE infinity is now a reality.
"The trouble is, financial prices cannot be falsified indefinitely. At length, they become the subject of a pure confidence game and the risk of shocks and black swans that even the central banks are unable to off-set. Then the day of reckoning arrives in traumatic and violent aspect."
Global stocks declined broadly, led by European equities which fell for the first time this week while currency markets continued their subdued tone even as the recent 4-day rally in the USD appears to have topped out, as investors took to sidelines ahead of the Jackson Hole meeting which begins tonight. Japanese and Chinese stocks had suffered modest drops in Asia. S&P 500 Index futures slipped 0.2%, continuing yesterday's modest selloff.
Needless to say, the above outlandish graph does not capture capitalism at work. Nor did the speculators who surfed upon this $45 trillion bubble harvest their monumental windfalls owing to investment genius. Instead, it is the perverted fruit of Bubble Finance, and there is no better illustration of this bubble surfer syndrome than the sainted Warren Buffett.
WTI Crude is up over 6% in 24 hours, since yesterday's surprise build (and production cut) as the machines squeeze out an over-exuberant short positioning once again. However, just as we saw last year around this time, Astenbach's infamous oil veteran Andy Hall is warning a "violent reversal higher" looms again amid extreme positioning and potentially improving fundamentals. Exaggerating the move further is the surge in the contango which has once again made sea-storage profitable, sending yield-seeking traders into the carry trade (and squeezing shorts further).
The BoJ launched its mini-ETF-bazooka but disappointed overall, and last night Abe unveiled a disappointing 26th fiscal stimulus plan since 1990 - practically admitting that Abenomics had failed. The worrying thing is that this double whammy of under-delivering appears to have shaken the world's faith in everything Japanese as bonds, stocks, and the JPY carry trade are unwinding in a hurry. While 10Y JGB yields rise back near 0bps, USDJPY just broke back to a 100 handle, near one-month lows...