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The Bear Market Catalysts
As we showed earlier, at this point any debate whether or not the S&P500 is driven purely by the "outside money" injected by the Fed, is over: financial markets are now down since the end of QE3, while cash is the only asset that is rising because the Fed is no longer actively debasing the US currency (it will again, but not right now). Feel free to ignore and/or mock any so-called expert who still idiotically argues it is anything but money printing.
But while we know what happened in the past, what everyone wants to know is what will happen, and whether the recent correction will morph into a far more serious bear market (such as the one that just slammed the recently bubbly biotech sector).
Here, according to BofA's Michael Hartnett, are the key bear market catalysts that everyone should be watching.
1. Peak in liquidity
QE & zero rates reflated financial assets significantly. The only assets that QE did not reflate were cash, volatility, the US dollar and banks. Cash, volatility, the US dollar are all outperforming big-time in 2015, which tells you markets have been forced to discount peak of global liquidity/higher Fed funds. Frequent flash cashes (oil, UST, CHF, bunds, SPX) tell the same story. Peak in liquidity = peak of excess returns = trough in volatility.
2. Deflationary recovery
The QE loser that has remained a loser is the bank sector. The banks have underperformed in 2015 because the economy has disappointed and the recovery has remained exceptionally deflationary. The bank recovery in 2013/14 therefore has not been validated by a move higher in bond yields (Chart 4)
3. Manufacturing recession
More recently, investors have witnessed weak manufacturing activity and profits, led most visibly by negative growth in Chinese exports (which partly caused the Chinese devaluation). Investor hopes of a much-awaited handoff from a (storming) liquiditydriven bull market to a (calmer) EPS-driven market have been dashed, and fears of a global manufacturing recession are on the rise.
4. Capitulation of the "strong $" & "TINA" trades
Fear of US/global EPS recession & thus abject “Quantitative Failure” after 601 rate cuts and zero/negative rates and $15trn of asset purchases and a multitude of currency devaluations…have caused a big recent reversal of two of the most stubborn trades of 2015:
- The “strong $ trade”…investors have been forced to reduce longs in Europe & Japan
- The “TINA trade”…investors have been forced to reduce longs in Equities, Discretionary, Tech, Banks).
Indeed, despite the fact that EM/commodities/resources continue to visibly discount a “deflationary bust”, the “longs” revealed in the Sept FMS have actually underperformed the “shorts” (Chart 6) in the recent crash. The “longs” are down 8.0% since Aug 19th, while the “shorts” are down 5.4%.
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End of day rally....
Must...
Get....
S&P....
....to Green!!
GET DAOUWN!!!
*stocks go up"
GET DAOUWN AGAIN!!!
/ Arnold
When the market raises rates and the Fed's hand is forced so it seems like their in control. Hold on to your butts and gold.
There is no rate raise.. forgetaboutit....
Real bear market catalysts in Laymans Terms
1) You can't buy demand by printing.
2) You can only hide the complete collapse/ destruction of the global middle class for so long. They were the true growth engine.
3) we are out of ideas, no internet or cell phones to push and stimulate spending
4) Stock buybacks, the engine for EPS growth are comming to an end due to corporate debt levels.
So, to anyone willing to tender a response (most posters here know more than I do about finance for sure) -
let's say you have a friend sitting on a little pile of money, nothing crazy, 15/20k - but refuse to entertain buying physical gold...
As the primary idea I have is just helping her at least preserve it, it represents years and years of work... what's the best course - Treasuries? I mean... that's easy to sell to her.
What about a CD? And in fact, why isn't a CD better?
http://www.nerdwallet.com/rates/cds/best-cd-rates
pretty sure its about as liquid/dollar-equiv {but open to correction}
Not really serious, but I recommend SERTA.
Or HUNTER
https://en.wikipedia.org/wiki/Hunter_Marine
(one of the most 'livable' holes in the water I've been on)
I'd suggest putting it in cash while doing a whole lotta thinking about it. I mean, a whole lot - and even then a very well thought out, rational decision might not work out with how f*cked up everything is.
+1 If things really do go to pot - Cash/FRNs will be king. Why else do you think there is so much talk of getting rid of cash all-together? There really isn't any "safe" asset or investment when a "market" is as manipulated as ours (I'm assuming you are in US).
Why?
Because you can't have NIRP if people have access to NIRP-free cash, that's why!
Kill her and steal it put in PM's .... act like your own central bank
The Pope is in the house, ya you asshole.
I opened (but have not funded yet) a Treasury Direct Account.
I followed the advice of someone else, who wrote the remarks below:
If you have hard surplus at this point, look at Treasury Direct as a short term strategy. Move your money in and roll it on a 30 day cycle. That gives you 30 days to walk away. No brokers, no fees.
Stay too long, and you have a new problem.
https://www.treasurydirect.gov/RS/UN-AccountCreate.do
https://www.treasurydirect.gov/indiv/help/TDHelp/faq.htm#PurchasingSavingsBonds
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=billrates
not a bad idea.
Thanks, mate.
See that flat line from the open to 12 noon. That was typical action somewhere around Dow 13,000-13,500. They are back at it again.
Whoever Tyler you are , you give too much credit to the fact that there is anything left but foo- foo liquidity.
You must ask yourself, what is the PPT (name your country) working with.
It has been many years since I got by on my good looks and smooth charm.
Sure, maybe the short term issued bonds may pay at maturity, but likely they will be rolled into something else.
According to Itau BBA:
http://is.gd/XzTkOs
The Big Fear
Thus, Fed announcement day arrived with most equity markets up 5%-10% off the late August lows, commodity prices higher and rates priced for Fed action. The main concern coming into the Fed meeting was not that the Fed would hike; it seemed quite clear that it would not go against virtually the entire global economic policymaking community and raise rates. No, the concern was that the Fed would stand pat and stocks, rather than rally, would sell off.
Lo and behold, that is exactly what happened, and that is why we need to be very, very concerned about how things move from here. It remains unclear whether the equity market reaction to the Fed decision was (hopefully) just a classic case of buy the rumor (no hike) and sell the news, or something much worse, namely that investors might be starting to price in policymakers? loss of control – The Big Fear.
The Big Fear of policymakers losing control has been lurking underneath the global equity market for years, underpinned as markets have been by central bank support. Think of it this way: there are two global growth drivers: China and the US. Recently, the competence of the policymaking community in both countries has been called into question, suggesting a possible loss of faith in policymakers, which if true is very worrisome, thus the Big Fear concept.
Why is the Big Fear so worrisome? It’s simple. If investors lose faith in policymakers and decide that cash or bonds are a better place for their money, then stocks are likely to sell off much further. How much further? One never knows, but maybe asking a few questions might help. First, at what level does the S&P need to be for the Fed to engage in QE 4? Second, what S&P level will be considered cheap (keep in mind 2016 E estimates need to come in sharply)? I don’t know the answer to either question, but it seems reasonable to expect that the S&P would need to go much lower than the 1870 level it bottomed at in late August or the 1830 level of a year ago.
The economic implications of such a sell-off would likely be a US and global recession. Such an environment could create a negative feedback loop between financial markets and the real economy, which policymakers would find very difficult to break.
It seems clear that the Fed will not raise rates this year, neither next month when they meet again nor in December, which is the last meeting of the year. Will they raise rates in 2016? From this armchair, the odds are against it, as the forces of recession gather while the forces of reflation stagnate. On this front, one has to question the Fed's 2016 inflation forecast of 1.6%, up from 0.4% this year. The Fed’s crystal ball has been mighty cloudy for years, but this forecast takes the cake.
A look at the global economy helps explain why. Four factors stick out: excess debt, an absence of inflation, insufficient demand and excess supply of raw materials and manufactured goods. None of this is new – what is new is how the various hopes and remedies have fallen short while the problems deepen. The toxic combo of excess debt and disinflation is one powerful reason why the Fed did not move, and excess supply in commodities and manufactured items (look at the PPIs around the world) is another. The global economy needs demand-creation or production shut-ins, and to date both have been lacking.
There are small signs that the commodity complex is starting to finally adjust, with closures, dividend cuts and stock issuance in the mining sector and talks about talks in the world oil market. However, the manufacturing segment of the world economy is quite far behind the commodity segment, suggesting that China's need to shift excess production will ensure manufactured-goods disinflation for the foreseeable future.
One can wish for inflation and for the Fed to be able to hike, but one also needs to be focused on the realities of the current global economy. Where is the demand going to come from? Who is going to shut in production? Let?s look at the three main economic regions: Asia, Europe and the Americas. Asia is likely to be a source of manufactured-goods disinflation as it seeks to rebalance itself to a China that is a competitor first, a customer second. Japan's recovery is sputtering; it will continue QE while a fiscal stimulus package seems quite likely in the months ahead. Europe remains quite weak, and with the refugee issue now occupying policymakers, ECB-led QE seems the only game in town.
The Americas is a concern. South America is in a deep funk, whether it is Mexico's subpar growth rate, Brazil's political and economic travails, Andean copper dependency or the impact of weak oil on countries such as Colombia or Venezuela. All this is pretty well known.
The US is most worrisome because of its combination of still-high equity prices and a very bare policy toolbox to confront any economic weakness. How bare? Well, monetary policy is on hold, and the bar to QE4 is likely a much lower S&P. What about US fiscal policy, one might ask? Great question. Here is the only thing one needs to know about the US presidential election process: it takes fiscal policy flexibility away and locks it in the freezer until late 2017, two whole years from now. In other words, at a time when the US economic expansion is close to seven years old, with the Fed on hold, incomes flat, debt levels high, a strong dollar and absolutely no inflation, fiscal policy is locked away for the next two years at least!
By the way, the UK confronts similar issues and could possibly be a canary in the coalmine for US monetary policy – QE for the people on BOTH sides of the Atlantic perhaps? The UK's negative rate discussion is likely to move across the pond over the next quarter or so. One other way of thinking about it is this: which comes first, the end of ECB QE or QE4 in America? I would go with the latter.
How does one vanquish the Big Fear? With aggressive policy action on the demand-and-supply side. What is the likelihood of that? Exactly. Seen in this light, it makes perfect sense for investors to worry that policymakers no longer have their back, and thus they take some money off the table. One analogy is that the US economy is like a ship that has engine trouble, is drifting towards the rocks and is left to hope that the wind shifts and takes it away from the reef…. not exactly a bull-market, high-valuation tableau. Hope is not a strategy.
PEAK MARGIN DEBT
PEAK BUYBACKS
PEAK FED BAL SHEET = S IS HITTING FAN one blade at a time
deflationary recovery....i like the sound of that