The financial world today is now an island on its own – separated from the real economy, as can be seen by the paradox of record high valuation in the stock market coinciding with record low inflation, employment , productivity and no hope. There is asset inflation, but deflation in the real economy. When the world has been this long at the zero-bound, the misallocation, the inability to reform, and a toolbox without new tools creates a mandate for change. "I expect stocks to trade sideways for the balance of 2015 and have now sold all my fixed income, increased my gold exposure, and I’m looking to buy mining companies and overall to increase my exposure to commodities beyond the normal allocation."
The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.
There is a tremendous denial by analysts and economists currently of the deteriorating economic underpinnings.
“No stock-market crash announced bad times. The depression rather made its presence felt with the serial crashes of dozens of commodity markets. To the affected producers and consumers, the declines were immediate and newsworthy, but they failed to seize the national attention. Certainly, they made no deep impression at the Federal Reserve.” - 1921 or 2015?
Can the US economy ignore or even benefit from the winds of deflation blowing from offshore? With a current CAPE (Cyclically Adjusted PE) in excess of 27X, the US market is clearly answering this question in the affirmative. It is worth pausing to ponder just how much this optimism for a US de-coupling has already been reflected in prices. The Solid Ground was very bullish on global equities from 1Q 2009 to 1Q 2011, but then turned bearish, believing that QE was insufficient to prevent deflation. The failure of QE to generate ever higher inflation is now a matter of record, but very clearly US equities cheered this failure and the need for continual QE from 2011 to 2014.
2014 may go down as the year when gold and silver conspiracy “theories” became conspiracy “facts” as banks globally were found to have conspired to rig the prices of gold, silver, currency and many other markets.
A bull market in the US Dollar is underway and its magnitude and duration are likely to catch everyone by surprise
On one hand, global growth is slowing down. And on the other, the cost of living is rising. That’s a bad combination, but we’ll make it. While you’re waiting for QE4 to see how it all goes down, remember to hold on to your assets… if you have any.
Overview of the capital markets as if they were not managed by an evil cabal.
Following investors who came to prominence together with Kyle Bass after shorting the sub-prime market in 2007
No heavy ideological axe to griind or conspiracy theories to propound, just a simple look at the price action in the capital markets.
What if there was some degrees of freedom in the centrally planned capital markets that rational, non-emotional and non-ideologically-laden thinking could shed light on ? Here is such an attempt
The may be secret agreements and a grand conspiracy to manipulate the capital markets and commodities, but they are still largely understandable through rational analysis. Not being privy to such secret deals, here is one man's view of the near-term technical outlook for the foreign exchange market, bond, commodities and stocks.
Yes the US does not practice laissez faire capitalism. It never did. It manipulates sets intersest rates. The fx market is still understandable and the dollar is moving higher.
There may be one great conspiracy dictating the course of the capital market, but if there is not, what is the near-term outlook for the dollar?