This page has been archived and commenting is disabled.

What Would Happen "If It Was A Free Market" - Deutsche Bank Explains

Tyler Durden's picture




 

As usual, some shockers of truth and Koolaidlessness from Deutsche Bank's Jim Reid whose Credit Outlook 2015: Plate Spinning is a must read.

Views (about 2015) On A Page

  • If it was a free market and central banks were not allowed to intervene anymore then we would be very bearish as the global financial system is still extremely fragile and not sustainable. Clearly this won't happen but illustrates our default position ex-intervention.
  • Central banks do exist and at a global level will buy more assets in 2015 than they did in 2014. 2015 will be the 9th year of highly unconventional central bank policy and although we're no nearer to finding a sustainable solution, the same policy prescription will be used as better alternatives are currently unrealistic or unpalatable.
  • The ECB will likely start broad based asset purchases in Q1 (probably March) including corporate and government bonds. This will help European credit withstand some risks in the early months, not least from possible pivotal Greece elections. There will also likely be an early year drag from US credit due to the effects of the falling oil price on the US energy sector and fears of a hawkish Fed.
  • By H2 we expect the Fed to be more dovish as still soft global growth and low inflation makes it harder for them to pull the trigger on rate rises. So credit (especially US) may have a better H2 than H1.
  • In a world of strong bond technicals and stretched Government valuations, we don't think credit spreads are too tight. Across EUR, USD and GBP no rating band is within its lowest spread quartile relative to history. We're a long way off the all time tights across the board and this cycle may end nearer these tights if Central banks remain highly accommodative.
  • Within Europe we think 2014's sell-off in HY, especially single-Bs, makes it attractive against IG as technicals from the likely ECB buying spread to more 'yieldy' assets. Our excess return forecast for European HY is around 5% in 2015 while for EUR and GBP IG, excess return expectations range from 1.4%-4.9% across non-fins and fins with GBP outperforming EUR.
  • Our US credit strategists expect the US HY default rate to rise to 3.5% in 2015 from September's cycle lows of 1.7%. This is led by the energy sector. For Europe all of our forward indicators currently point to a 1.5-2% default rate over the course of the year - still incredibly low. The risk is if US energy defaults start to lead to a wider mini credit crunch in global HY.
  • We think EUR credit will outperform in the first part of the year, however as the macro develops valuations may move to a point where we will prefer USD over EUR credit later in the year.
  • Overall Q1 could be a battle between the ECB and the usual positive seasonals on one hand and the Fed, US energy and Greece on the other. We think the former will win out but there could be points where spreads are wider first. The days of blanket US QE and low volatility are over. Expect some challenging conditions en route to tighter spreads by the end of H1 and indeed YE 2015.
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 12/12/2014 - 13:39 | 5544993 Bernoulli
Bernoulli's picture

Bla bla bla.

Fri, 12/12/2014 - 14:22 | 5545227 nope-1004
nope-1004's picture

HAHAHAHAHAHAHA.

 

Wonder what would happen if democracy were ever allowed?  We might vote someone other than have a crony capitalist installed?  Fuck you Douche Bank.

 

Fri, 12/12/2014 - 14:51 | 5545338 Haus-Targaryen
Haus-Targaryen's picture

CAn someone link to this? 

Fri, 12/12/2014 - 14:46 | 5545324 TheRideNeverEnds
TheRideNeverEnds's picture

Well at least they admit it.

 

You'd be daft to think equities can do anything but go higher with a 'market' in which prices are entirely dictated by the central banks.  

 

Sure if they really stepped aside the whole thing would crash and most stocks would go to zero as their companies values went well below zero.  However, that is not going to happen and there is zero chance of that happening so just buy everythign everyday, ideally on any downtick though ultimately it wont mater if you BTFD or BTFATH cause this thing is never ever ever going lower again.  

 

Over the medium and long term equity prices will rise on a nominal basis till the end of fiat or the end of time; whichever occurs first. 

Fri, 12/12/2014 - 15:12 | 5545439 nofluer
nofluer's picture

The only way the central banks can hope to survive the current hole they've dug is to keep on track with the Everything's Coming Up Roses strategy. The US Fed has over 2 TN is MBSs alone! (Acquired during the "You give me your MBSs and I'll give you a number in a computer that you can't do anything with - except pass the stress test we're gong to give you") transaction.

And only God and Satan know how deep they are in the bad debt of other countries (acquired during the "throw dollars all over the world" currency swaps back when the current iteration of megacrash began).

Maybe they're trying to pay off the other countries for all the gold they rehypothecated that is no longer in the vaults under Manhattan and Ft Knox?

Where's Andy Jackson when you REALLY need him?

Fri, 12/12/2014 - 13:42 | 5544999 e_goldstein
e_goldstein's picture

Don't worry, banksters, you're going to get yours, too.

Fri, 12/12/2014 - 13:53 | 5545071 Government need...
Government needs you to pay taxes's picture

Assets or the pointy end of some fast-moving objects?

Fri, 12/12/2014 - 14:37 | 5545301 e_goldstein
e_goldstein's picture

Best to leave that to the banksters' lizard imaginations.

Fri, 12/12/2014 - 13:42 | 5545001 ebworthen
ebworthen's picture

In other words:  "The financial system that we profit from is completely dependent on central banks indebting taxpayers."

Thanks for the honesty Deutschbank, now go hang yourselves.

Fri, 12/12/2014 - 14:09 | 5545162 actionjacksonbrownie
actionjacksonbrownie's picture

In other words: "The financial chaos that we have sown, is entirely dependant upon us to put back in order"

 

If it was a free market, there would be no central banks.

Fri, 12/12/2014 - 16:20 | 5545720 marathonman
marathonman's picture

There will be hangings, but probably just the more honest lower level types that might spill the beans.  The guys that really need the neck stretching have the MIC, police, and private security for protection.

Fri, 12/12/2014 - 18:49 | 5546472 putaipan
putaipan's picture

if there was a free market ..... we'd be insolvent. oops, did i just say that outloud?

Fri, 12/12/2014 - 13:44 | 5545007 FieldingMellish
FieldingMellish's picture

So says the bank whose derivative book is 17 times the GDP of Germany.

Fri, 12/12/2014 - 13:45 | 5545022 Temporalist
Temporalist's picture

Well then those Germans have a lot of manufacturing and purchasing to do to raise that GDP.  Get to work you German nachtschneken!

Fri, 12/12/2014 - 14:00 | 5545092 813kml
813kml's picture

Exactly, time to fire up the Panzer and V-2 factories!

Fri, 12/12/2014 - 13:45 | 5545015 maskone909
maskone909's picture

very bearish for WHO??  all time high food stamps.. near record low home ownership..  wage growth- terrible, full time job growth......

and this is in the context of central bank intervention.

Fri, 12/12/2014 - 13:46 | 5545026 Mrmojorisin515
Mrmojorisin515's picture

actually i think this is a great article, even though it has a rating of one.  This is a mainstream missive here, they are finally admitting, in the mainstream, that central banks are the only thing holding this shithole together.  That is a huge difference then the last eight years of them saying its "growth" and trying to pass it off as organic.  This tells me the central bank narative is at its peak and or perhaps already past it.

Fri, 12/12/2014 - 13:48 | 5545034 Tyler Durden
Tyler Durden's picture

+1

Fri, 12/12/2014 - 13:56 | 5545070 NMFP
NMFP's picture

Tyler Durden + 1,000,000. Thanks for the website

Fri, 12/12/2014 - 14:18 | 5545211 NoDebt
NoDebt's picture

Yeah, I also remember when QE was said to be for the purposes of lowering interest rates to encourage borrowing.  With interest rates staying low on their own, you don't hear that line of rationale much any more.

One thing for sure, until printing money stops working that's what they're going to do.

Fri, 12/12/2014 - 13:54 | 5545072 maskone909
maskone909's picture

the same policy prescription will be used as better alternatives are currently unrealistic or unpalatable.

so at what point will buying everything with an ask price not be the MO? 

Fri, 12/12/2014 - 14:13 | 5545176 SamThomas
SamThomas's picture

Absolutely.  THANK YOU Tyler to you and your team for a one-of-a-kind, irreplaceable resourse.  All your diligent hard work is appreciated by thousands--if not millions. 

Fri, 12/12/2014 - 14:02 | 5545078 813kml
813kml's picture

When all else fails, honesty is the best policy.

Unfortunately, I see that honesty leading to full-on jingoism toward Russia and China when TSHTF.  The children gotta protect at all costs their house of cards from those who don't want to play anymore.

Fri, 12/12/2014 - 14:04 | 5545115 kowalli
kowalli's picture

When all else fails - we will hung banksters

Fri, 12/12/2014 - 14:06 | 5545124 Cangaroo.TNT
Cangaroo.TNT's picture

This article points to something else, as well.  For all those people on ZH that mocking post "I thought ZH said high oil prices are good/bad, so low oil prices must be bad/good" how about this:

Unmanipulated oil prices that are determined by supply and demand discourage rampant speculation, reckless leverage, and malinvestment are good for the economy whether they be relatively high or low.

Fri, 12/12/2014 - 14:07 | 5545132 buzzsaw99
buzzsaw99's picture

yep, reid just said there is no market, there are only the central banks, in his own uber verbose way.

Fri, 12/12/2014 - 14:33 | 5545290 ghostzapper
ghostzapper's picture

Rats scrambling for positions on the "other side" post-Reset or post-Reconstruction or whatever you want to call it. 

Greenscam out pimping for gold come on please we should all see that from a mile away.

OpEds in bankster owned whore rags yapping up USD not being the reserve currency.

Put yourself in the mind of a scumbag, pile of donkey shit politician:  either we get an Armageddon implosion or some type of reset so how can I position myself to take credit for "saving" everyone?

Fri, 12/12/2014 - 13:47 | 5545033 fuu
fuu's picture

"Central banks do exist and at a global level will buy more assets in 2015 than they did in 2014."

Good luck with that.

Fri, 12/12/2014 - 13:49 | 5545041 maskone909
maskone909's picture

yes because we all know that one of the sole purposes of central bank existence is to buy assets!??!  wtf is wrong with these people

 

Fri, 12/12/2014 - 14:06 | 5545130 TheReplacement
TheReplacement's picture

It certainly is if the goal is global consolidation of ownership of everything.

Fri, 12/12/2014 - 14:47 | 5545326 Ruffmuff
Ruffmuff's picture

Yep, they don't give a shit. They print money and buy everything that is not nailed down and then some. 

Just like out right owning your home. But you still have to pay taxes. So, do you really own the place. Well, fuck no is the answer.

Fri, 12/12/2014 - 14:19 | 5545217 swass
swass's picture

Exactly. So Japan will by more in 2015 than 2014?  This is something worth grabbing some popcorn for.

Fri, 12/12/2014 - 13:51 | 5545054 Atomizer
Atomizer's picture

Cutting out the banking middleman is the widespread danger to these institutions.  Been doing it since 2008, never looked back.. Take the priceless FICO score and shove it up your asshole. We don’t need you, you need us..

Fri, 12/12/2014 - 13:51 | 5545062 blaireauhedge
blaireauhedge's picture

The V-shape recovery has begun...

Fri, 12/12/2014 - 14:32 | 5545282 Atomizer
Atomizer's picture

U-shaped recession or L shaped stagnation.

Save the V while eating vegatable soup.

Fri, 12/12/2014 - 13:53 | 5545069 medium giraffe
medium giraffe's picture

"usual positive seasonals"

We'll see...

Fri, 12/12/2014 - 14:24 | 5545174 813kml
813kml's picture

Don't be so pessimistic, the difference between negative and positive is merely a small vertical line.

Fri, 12/12/2014 - 15:55 | 5545623 N2OJoe
N2OJoe's picture

The difference between negative and positive is a healthy dose of fraud. Sometimes called "Seasonal Adjustment."

Fri, 12/12/2014 - 13:55 | 5545075 2muchtax
2muchtax's picture

"extremely fragile and not sustainable" a little bit of truth makes it's way into every lie

Fri, 12/12/2014 - 14:57 | 5545363 Ruffmuff
Ruffmuff's picture

I guess that makes lying more fun and I ain't lying

Fri, 12/12/2014 - 13:54 | 5545079 Fun Facts
Fun Facts's picture

This isn't supposed to work out well for anyone except the CB syndicate and their minions.

Fri, 12/12/2014 - 14:23 | 5545105 SheepDog-One
SheepDog-One's picture

If frogs had wings, then they wouldn't have to worry about bumping their asses hopping.
Gee, thanks Douche Bank.

Fri, 12/12/2014 - 14:08 | 5545157 mattgallis
mattgallis's picture

Long toilet paper!

Fri, 12/12/2014 - 14:09 | 5545160 CoastalCowboy
CoastalCowboy's picture

If it were ever a true free market, none of this would have ever happened at the scale it did.

We can't have a free market though as it's really, really bad for all Banksters, Politicians, and the FSA members.

The free market holds one accountable for one's actions in a completely apolitical manner. We just can't let that happen is my translation of this Bankster tripe.

Fri, 12/12/2014 - 14:28 | 5545268 Anusocracy
Anusocracy's picture

Free markets can't coexist with government.

Fri, 12/12/2014 - 14:49 | 5545333 froze25
froze25's picture

It also rewards the use of resources in the most productive manner possible.  But if we had that human developtment would be through the roof and we can't have that now can we.  You know people able to think for themselves be independent.  Its all about keep you in a possition that you can be controlled in.  Fear is the name of the game and greed is the motivator.

Fri, 12/12/2014 - 14:11 | 5545170 Hamm Jamm
Hamm Jamm's picture

ALL BANKERS SHOULD PAY THE PRICE !

or is DB just the diet coke of evil ??      Not, they are all the same ... just some are at the top of the fraud pyramid

Fri, 12/12/2014 - 14:20 | 5545224 Jameson18
Jameson18's picture

Free markets work very well until a certain group of control freaks F it up. For the last 2000 years the same people screw the system and every 60-70 years they get caught in a manner of speaking. Then they come up with some cock and bull story to cover their asses and run like little rats. Where are you going to go this time little rats?

Fri, 12/12/2014 - 14:26 | 5545247 noben
noben's picture

Free Markets, you say? That sounds suspiciously like Free Love. Bah, humbug!

Arranged Marriages are the way to go... not this "pick your partner" modern nonsense, that's nothing but another bubble.

p.s. It's Friday.

Fri, 12/12/2014 - 14:54 | 5545351 Jack Burton
Jack Burton's picture

Deutschbank, These fucking cunts have derivatives on their books equal to earth's entire GDP. They can't make good on these bets, but bonuses are high for taking and making these bets that sit on their books. Pay someone to build sandcastles, and the beaches will be full of sandcastles, no matter how many the sea washes away. Pay people 81 million to torture people, and a whole lot of people will get tortured.

Pay bankers to engineer financial instruments of dubious worth and legality, and they will fill the banks computer storage with Derivatives!

Fri, 12/12/2014 - 15:07 | 5545423 Atomizer
Atomizer's picture

I can run down to the beach with a bucket to make a sand fort until the tide takes it away.

/LOL

Fri, 12/12/2014 - 15:06 | 5545416 capltd
capltd's picture

A free market is a myth that only exists in the minds of idealogues. If there EVER was a free market it would immediately be corrupted by people like Duetsche Bank and would no longer be a free market. 

Fri, 12/12/2014 - 15:10 | 5545433 Ban KKiller
Ban KKiller's picture

"Our US credit strategists expect the US HY default rate to rise to 3.5% in 2015 from September's cycle lows of 1.7%. This is led by the energy sector."  Not even in the fine print!    HY=Junk=who do I sell to now?

Do NOT follow this link or you will be banned from the site!