The Federal Reserve has pursued the unprecedented monetary policy of lowering rates to zero and increasing their portfolio from 500 billion to over 4 trillion. But as the Fed reminds us, there is a cost.
With the Trumpflation rally fizzling with every passing day, the only question asked by traders is "Is it time to sell the market?" According to Bank of America, the answer, at least for now, is no. Here are the seven rules and indicators Bank of America uses to make that determination.
"If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline. It is still unclear whether it will happen but at the very least we expect that US trade policy will put downward pressure on global growth. When this becomes apparent commodities will correct meaningfully and we will reinvest in inflation beneficiaries."
"We continue to see obvious re-risking in the form of “buy everything” price-action, as investors push further out onto the risk curve against a shift away from the 5+ year narrative of “secular stagnation” towards positioning that allows capture of “reflation animal spirits.”
"...we're at a phase in this UST / developed sovereign bond trade where previously acceptable conditioning (‘buy dips’; ‘get long-er duration because it just keeps working’; ‘never-ending bond inflows will always pause selloffs’ etc) are all being reset in real-time, and this behavioral shift is painful."
The market continues to “buy into” growing long-term narrative that CBs are shifting from notional “flow” of QE purchases to yield targeting / curve steepening goals and desire for more fiscal policy. To anybody being intellectually honest, this should be interpreted in the long-term as “a path to tightening.” Long-end weakens, curves steepen.
After Wednesday’s policy statements by the Fed and Bank of Japan, a harsh light is being shined on the incredible nature of their communications. It would be wise in the current environment to structure investment portfolios with a pro-volatility bias.
One week after RealVision brought us the latest Jeff Gundlach interview, in which the DoubleLine bond king explained why he is now "100% net short", on Friday Grant Williams interviewed Jim Rogers, in which George Soros' former partner (the two co-founded the Quantum Fund in 1973), is about as gloomy, warning "the next time the world comes to an end, it's going to be a bigger shock than we expect."
The economy is pointing downward with alarms ringing in a wider and broader variety of important economic accounts. From this view, it is no wonder the FOMC overreacted to the May payroll report; that’s all that is left as it is more and more isolated.
"I'd like to think that logic and reality will prevail; that distaste for being told how great the world is has become sufficiently revolting and obviously false to stir the world’s populace to end the imbalances. But that, again, will take time, perhaps a good deal of time; until then, whenever it hopefully is, central banks continue to operate with impunity even though the risks of their intemperance rise exponentially..."
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.
"My fear is that central banks are now taking this too far through negative interest rates in particular and that they’re going to literally destroy their own banking systems. If they’re actually successful in generating higher inflation, then they’re going to destroy their own bond markets... our government officials, and I will include the Federal Reserve in that, have failed the American people."
First there were seventeen. At length, there was one. Donald Trump’s wildly improbable capture of the GOP nomination, therefore, is the most significant upheaval in American politics since Ronald Reagan. And the proximate cause is essentially the same. Like back then, an era of drastic bipartisan mis-governance has finally generated an electoral impulse to sweep out the stables.
According to the National Bureau of Economic Research (NBER), the official recession arbiter, the US economy is currently at its fourth longest expansion in history. By the sheer nature of a capitalistic society with its inherent cyclicality it is a safe bet that a new economic recession will hit in the not too distant future. We have argued since June last year that the next recession is imminent and we now feel increasingly confident that our prediction will come true before November’s Presidential Election. Even mainstream forecasters seem to jump on the increasingly likely recession-bandwagon.
Eventually the prospect of recession that can’t be cured by the central bank printing presses will ignite sheer panic in the casino. Then the monetary fools running them will be reviled to the ends of the earth. But not before the lunatic 100X valuations of the FANGs implode like those of all the high flyers which have gone before. For the third time this century it is time to sell the bubble. Yes, do back up the trucks!