Net debt growth skyrocketing nearly 30% y/y, while EBITDA has been contracting for the past year. In fact, as SocGen shows below, the difference in the growth rate between these two most critical data series is now over 35% - the biggest deficit in over 20 years.
Update: after widening by 2bps earlier, Malaysia CDS is now +4 at 167bps and starting to move as macro "analysts" finally catch up on the entire story and comprehend the implications.
Malaysian CDS rose to near 3-month highs and the Ringgit has spiked over 300 pips - back near recent lows - after the Malaysian slushfund government investment fund 1MDB is reportedly in default. This is exactly the scenario we laid out last week that initially sent the currency lower and CDS higher, as the Abu Dhabi sovereign wealth fund has by all appearances started a potential waterfall default on Malaysian sovereign debt (due to cross-default triggers at the sovereign).
For those who believe that broad-based stimulus is coming to save the world from China (via RRR cuts or even pure QE) - as opposed to the hole-filling credit pump they just supported - think again. As we warned last year, this is 'western' thinking as the go to policy of the rest of the world's central banks has been - put on pants, print money, paper over cracks, proclaim victory. However, in China there is one big problem with this... stoking inflation... and most crucially the social unrest concerns when suddenly a nation of newly minted equity - and now bond - losers can no longer afford their pork - which is surging to record highs.
The economy’s capital structure remains imbalanced as a result of the enormous amount of monetary pumping since 2008 (total TMS-2 growth since then: approx. 128%). There is a limit to this though, even if it cannot be quantified. What can be stated though is that the greater the boom, the greater the eventual bust usually is. There are now more and more indications that a decisive inflection point may be quite near.
"We expect corporations will purchase $450 billion of US equities in 2016 and will remain the largest source of US equity demand."
"The catalyst for a balance sheet crisis is rarely the affordability of interest rates, so a 25bp rise in Fed rates is neither here nor there. Credit market risk is about assessing the likelihood of getting your money back. As such asset prices (i.e. equity markets) and asset price risk (i.e. equity volatility) are far bigger concerns. So all you need for a balance sheet crisis is declining equity markets, a phenomenon the Fed appears desperate to avoid. Now we know why."
Earlier today, Japan's government spokesman Suga came as close as possible to admitting that there was in fact a tacit "Shanghai Accord" agreement when he said that the Group of 20's agreement to avoid competitive currency devaluation "does not mean Japan cannot intervene in response to one-sided currency moves." It got better: in an interview with Reuters Suga added that Japanese Prime Minister Shinzo Abe's comment to the Wall Street Journal last week that countries should avoid "arbitrary intervention," was misunderstood and does not rule out intervention for Japan, Suga said.
Despite risk assets enjoying a few weeks in the sun our failsafe recession indicator has stopped flashing amber and turned to red. Newly released US whole economy profits data show a gut wrenching slump. Whole economy profits never normally fall this deeply without a recession unfolding. Historically all recessions are effectively caused by slumps in business investment driven by a profits downturn.
"The Fed is increasingly worried about these ever-weaker fundamentals, yet asset markets seem more preoccupied with the omnipresence of the Fed put than downside cyclical risk. This then perhaps points to the bigger underlying concern for investors, the overwhelming build-up of leverage in the system. For in the absence of sensible drivers of returns (i.e. sensible interest rates, EPS growth etc.), investors and corporates resort to leverage.... With miserly rates of return on offer in fixed income markets, investors are leveraging up. The longer the Fed feeds this game, the bigger the mess when the inevitable downswing comes along."
Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash "Gift-Certificate" Money Drop To Young PeopleSubmitted by Tyler Durden on 03/23/2016 20:06 -0400
The Swiss, the Finns, and the Ontarians may get their 'Universal Basic Income' but the Japanese are about to turn the Spinal Tap amplifier of extreme monetary experimentation to 11. Sankei reports, with no sourcing, that the Japanese government plans to unleash "vouchers" or "gift certificates" to low-income young people to stimulate the "conspicuous decline" in consumption among young people. The handouts may not be deposited, thus combining helicopter money (inflationary) and fully electronic currency (implicit capital controls and tracking of spending).
The latest to join in the skepticism rally is none other than Goldman Sachs strategist Christian Mueller-Glissmann who in the latest "Global Opportunity Asset Locator" report, writes that the "relief rally across risky assets might fade over the near term", warns that "sharp declines in oil prices are likely to weigh on risky assets again", suggests to go to "reduce risk allocation", warns against holding US HY bonds as "the risk/reward is least favourable if oil prices reverse course" and "go to cash" ahead of "expected elevated volatility."
Last week it was all about the ECB, which disappointed on hopes of further rate cuts (leading to the Thursday selloff) but delivered on the delayed realization that the ECB is now greenlighting a tsunami in buybacks (leading to the Friday market surge). This week it is once again all about central banks, only this time instead of stimulus, the risk is to the downside, with the BOJ expected to do nothing at all after the January NIRP fiasco, while the "data dependent" Fed will - if anything - hint at further hawkishness now that the S&P is back over 2,000.
"The ECB needs to surprise this week, not because of markets, but because – given the trend in core inflation – the existing policy mix is behind the curve."- Goldman FX strategist Robin Brooks
"There is a refugee crisis; what could the ECB do? There is climate change; oh, the ECB needs to do something. I have the hiccups; oh, the ECB should do something ... it's crazy. I find this completely ridiculous and irresponsible. But we got ourselves into this" - ECB source.
"Yesterday oil ended in the green despite a very large reported crude inventory build, a reflection of how biased to the downside sentiment and positioning already is. Today, crude started in the read and has been mixed from there but moving higher. And both days, the stocks have lead with energy the best performing subsector in the S&P. Now, there is no doubt that the performance today is TOTALLY short-squeeze led. Though it also shows how negative sentiment and positioning is."
Mario Draghi better put up or shut up at the next ECB meeting as the market is more-than-pricing-in a very significant deposit rate cut (deeper into NIRP). In fact, at -56bps, 2Y German bond yields are the most "priced in" since 2011 (and bear in mind he disappointed in December).