Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
“...we are living in unprecedented times of geopolitical and social uncertainties. For investors, it is really hard to quantify those risks.. In this age of monetary policy uber alles, every setback somehow gets sold as a buying opportunity. There are no long-term ramifications ascribed to anything,” So what will it take for risk appetite to shift?
"Is the S&P 500 cheap or expensive" - In trying to answer that question, BofA does the right thing and instead of giving a blanket statement, it looks at the 20 most important valuation measures, and finds that the market is overvalued, in some cases dramatically, according to 18 of of the 20 most popular metrics.
“Cash On The Sidelines.” is the age old excuse why the current “bull market” rally is set to continue into the indefinite future. The ongoing belief is that at any moment investors are suddenly going to empty bank accounts and pour it into the markets. However, the reality is if they haven’t done it by now after 3-consecutive rounds of Q.E. in the U.S., a 200% advance in the markets, and now global Q.E., exactly what will that catalyst be? However, Clifford Asness summed up the problem with this myth the best and is worth repeating...
...Instead of punishing the shares of a company with declining sales and profits, huge write-offs, and a sky-high P/E ratio, markets simply continue to drive the stock higher, no matter what. Other stocks experience the same thing. This earnings season, more than ever, is turning into the Theater of the Absurd.
Having flirted with recession and escaped that fate, the mainstream assumes that 'it' is all over and that prior expectations should only resume. This binary arrangement has clearly colored recent analysis, and as such it has led to really unhinged commentary...but "abundance of strong U.S. economic data" is pushing very close to wishful blindness.
Following the previously noted fireworks from Kuroda, who in a BBC interview said that there is "no possibility" of helicopter money (which however the WSJ quickly added was based on an interview conducted in mid-June which supposedly means there is possibility now) In under an hour the market will turn its attention to the ECB's latest statement, where as SocGen's Anatoli Annenkov writes, it is "time to send another dovish signal."
In a surprising rejection of Ben Bernanke, BOJ governor Haruhiko Kuroda said that there will be no helicopter money in Japan, amid increasing speculation over monetary and fiscal policy in the world’s third-largest economy. Given the current institutional setting, there is "no need and no possibility for helicopter money," Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates."
SocGen has become the latest in a long and illustrious line of (so far wrong) forecasters, to predict that the 30-year-old bond rally is finally over. Using a new and improved "model", the French bank says that there’s less than a 1 percent chance U.S. 10-year yields fall below 1.1% especially as the Federal Reserve moves to raise interest rates. "Our analysis shows a roughly an adjusted fair value for the 10yT of 1.95%." Here's why.
As we laid out over a year ago,, this simple combination of productivity and demographic trends reveals that U.S. trend GDP growth is converging toward 1%. This is reminiscent of Japan during its "lost decades." Expanding this analysis to the rest of the G7, we find that every economy is effectively becoming Japan, and the sharpest slowdowns are happening outside North America.
"A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe. These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions (a ’crexit’ scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis.”
Debt is future consumption brought forward. Once debt is incurred, consumption that might have happened in the future won’t happen. And it should come as no surprise that at a certain debt level, growth and income begin to diminish. That is exactly what we are seeing in the real world.