The news is filled with the everyday zigzags of those competing against each other for the Democrat and Republican Party nominations to run for the presidency of the United States. But one of the most important issues receiving little or no attention in this circus of political power lusting is the long-term danger from the huge and rising Federal government debt.
"The Fed doesn't have a clue!" - We allege that not only because the Fed appears to admit as much, but also because our own analysis leads to no other conclusion. With Fed communication in what we believe is disarray, we expect the market to continue to cascade lower - think what happened in 2000. To understand what's unfolding we need to understand how the Fed is looking at the markets, and how the markets are looking at the Fed.
JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to minus 4.5%. In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%. Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%.
Fed Chair Yellen will be presenting her semi-annual monetary policy testimony - sometimes called the "Humphrey-Hawkins" testimony - today (House Financial Services Committee) and tomorrow (Senate Banking Committee). Her prepared remarks offered little new information over the January FOMC Statement but the Q&A will likely be the most market-moving as politicians likely demand she "get back to work" for the good of the nation's shareholders.
Broad equity indexes have declined significantly since July 2015, and forward price-to-earnings ratios have fallen to a level closer to their averages of the past three decades. Leverage [among speculative-grade and unrated firms] firms has risen to historical highs, especially among those in the oil industry, a development that points to somewhat elevated risks of distress for some business borrowers.
"A weakening of the global economy accompanied by further appreciation in an already strong dollar could also have "significant consequences." I read that as saying we're acknowledging that things have happened in financial markets and in the flow of the economic data that may be in the process of altering the outlook for growth and the risk to the outlook for growth going forward."
"Cash had a pretty good run for 4,000 years or so. These days, though, notes and coins increasingly seem declasse: They're dirty and dangerous, unwieldy and expensive, antiquated and so very analog.... Much depends on the details, of course. But this is a welcome trend. In theory, digital legal tender could combine the inventiveness of private virtual currencies with the stability of a government mint."
“The global inequality crisis is reaching new extremes. The richest 1% now have more wealth than the rest of the world combined. Power and privilege is being used to skew the economic system to increase the gap between the richest and the rest," Oxfam asserts, adding that "the current system did not come about by accident, humanity can do better than this."
While prices in China's Tier 1 cities are soaring, let's put the country's vacant housing problem in context: China has some 13 million homes vacant - enough to house the families of several small countries . Actually, it's worse: Zhu Min, deputy managing director at the International Monetary Fund, recently admitted that China’s real estate bubble now manifests itself in 10. 7 billion square feet (1 billion square meters) of unused housing! Min added that many housing stock go unused, and the market may see a significant price correction in the future, wiping out vast household wealth.
With the lifting of Iran sanctions, the Tenge has crashed5% to record lows at 377/USD (extending the currencies collapse since the USD-peg was scrapped in August). Furthermore, oil production is entering a new year of decline this year in Kazakhstan - a dismal omen for a country so heavily reliant on energy exports.