New Normal

The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016

The Bank of Japan is set to become the biggest buyer of exchange-traded funds in 2016 for the second straight year. According to data through Thursday, the value of the BOJ's ETF purchases this year has topped 4.3 trillion yen, up 40% from 2015. As a result, the BOJ "will become the largest buyer of ETFs this year," according to Mizuho Securities.

4 Dead, Many Injured After Minibus "Drove Into" Beijing Market

Four people are dead and many more injured after a minibus drive into a market in the northern region of Beijing. While China's traffic safety record is not exactly stellar, with many on edge following the Berlin attack, this event is noteworthy as China has faced a threat from Islamist militants operating in its far western region of Xinjiang who have been blamed for a series of attacks in recent years.

Warnings We'll Wish We'd Heeded...

It’s the same story every time: Imbalances build up during a recovery but most investors ignore them because good times have become the new normal and the uptrend seems bullet-proof. Then things fall apart and everyone wishes they’d paid attention to history.

2016 Year In Review

We started this year with the economy deteriorating and finished it with the second interest rate increase in ten years. There were a lot of ups and downs along the way, but ultimately 2016 was defined by three key story-lines:  1) Brexit 2) The Presidential Election 3) Fed Policy. The first two events were votes that shocked the world. The stock market’s reaction to each was arguably even more shocking. 

Will 2017 See Peak Fragility?

Markets remain more fragile than today’s volatility levels suggest according to BofAML's global equity derivatives group.

Visualizing The "Tectonic Shift" In The Markets' Narrative

"...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."

Trump, OPEC, & Game Theory

The role of the USA has changed sharply in terms of its likely behaviour under a Trump administration as it will no longer be a cooperative player, but a competitive one, where there are drastically different equilibrium conditions. When the dominant player changes its tack to claw back some the shared gains for itself, the game can rapidly change to a zero-sum or even negative-sum one.

One Hedge Fund's Warning: "What’s Good For The US In This Case, Is Not Good For Emerging Markets"

"To be bullish on emerging markets at this stage is to disregard the adverse dollar and interest rate environment, and build your investment thesis on the expectation that China will sustain the largest credit expansion in modern economic history." Most investors viscerally understand this, particularly within China, where capital outflows just hit new highs for the year - weakening the renminbi. "Historically, emerging markets have done well when global growth has been robust. But the world is changing."

"Markets Are Grasping At Trump's Answer To The New Normal"

"Monetary policy is no longer what’s driving these moves. Increasingly, central banks see themselves in a defensive role, reacting rather than dictating trends. The greenback’s rally is already forcing Asian and Latin American central banks to protect their currencies. More such moves may be in the offing if dollar gains continue....  But for now, after growing weary of monetary-led slow growth, markets are grasping at Trump’s answer to the New Normal."

FANG Stocks Lose Over $100 Billion In A Week

In the last week the so-called FANG stocks (FB, AMZN, NFLX, GOOGL) have stumbled. As earnings and outlooks disappointed, shareholders have awoken to the new normal low growth world and wiped over $100 bilion in market capitalization of the four horsemen of the Fed's wealth creation bubble.

Citi: "A Clinton Presidency Will Be Marked By Near-Continuous Investigations, Impeachment Risk"

"Mr Trump ‎may be heading for defeat but the prevalence of low trust, identity politics and demographic divides across the developed world suggests that he will not be the last non-mainstream candidate to come close to power.  Moreover, a Clinton presidency is highly likely to be marked by near-continuous investigations as well as the risk of impeachment." - Citi

The Story Of Durable Goods Is The Story Of The (Global) Economy

Here’s the part that economists, policymakers, and the media (all three largely indistinguishable from each other) miss – lack of true growth is contraction, and the worst kind because it isn’t recession contraction it is depression contraction. In the former, all is forgotten after a time; in the latter where even occasional positive numbers can be and often are highly deceptive, time is the biggest problem.