As stocks do things they have never done before (in terms of gains and complacency), despite the "inexplicable" collapse in the yield curve (and slump in earnigs expectations), some, like former fund manager Richard Breslow, are growing frustrated with the farce.
2017 is on track to be the first 'perfect year' with 12 consecutive monthly total return gains for the S&P 500
But the yield curve is collapsing?
And so have earnings expectations...
Is it any wonder, frustration is boiling over?
I’m assured that if I want to understand what will happen next year I should look East. Growth and trade will boom, systemic financial threats and over-leverage will be banished, happiness and cooperation will blossom and inflation begin to gently but firmly burgeon. Rate hikes will come and be as seamlessly painless as the Fed’s have been. Currency wars a blurry memory. All is beautiful.
Asia will join Europe and the U.S. in a world that will resemble Lake Wobegon.
Reading all of these assurances dressed up as forecasts makes me wonder if it is really more like a trailer for Westworld, where, as we all know, “Nothing can possibly go wrong...go wrong...go wrong.”
- Was it only a few weeks ago that China’s debt overhang and other imbalances were the talk of every ideas lunch?
- That the likelihood of a policy mistake from the PBOC’s macroprudential crack-down threatened us all.
- North Korea had everyone rushing to buy yen. Presumably so they would have some cheapies to spend on the rebuilding effort.
- Collapsing commodity prices was signaling risks all over the place.
Look at the Nikkei, and if you ask nicely, I may be able to track down someone who will be willing to sell you some of it.
After the horror of the financial crisis, people had a very hard time emotionally accepting that things were getting better. That’s a statement that applies globally. Now that it is undeniable that the numbers are not only better but in many cases outright good, there’s an expectation that it can’t help but continue. Until, of course, it all crashes and burns, but that’s a trade ticket to be written another day.
The tax changes in the U.S., recently the subject of criticism and concern in financial capitals around the world, are now seen not only a domestic tour de force, largely because the stock market adores what this may do for year-end optics and high water marks, but will spread growth, spur trade and stoke stubbornly low inflation everywhere.
No one can credibly explain how this legislation will help the U.S. middle-class but suddenly everyone is sure it will have them dancing in the streets of South East Asia.
Given this amazingly rosy global outlook being concocted, it must, by extension, be huge for everything emerging market. And hurrah, Asia is full of less developed countries: what good luck for them. It’s going to be the out-performance zone.
Forget all that dollar denominated debt because the dollar will cooperate by staying benignly quiet and growth will conquer all.
Fed rate hikes are now all good because they no longer are ill-advised, rather portend a rising tide that will lift all boats.
The yield curve steepened yesterday, so this story line must be right. Just don’t look today.
Breslow concludes with his usual perfectly-posioned sarcasm:
"There is a curious admixture of commentators both traumatized by past events and yet unable to learn very many lessons from them.
But taking the latest price action and wish-list and extrapolating them as if they represent an obvious path forward has wrecked more trading careers over the last years than any hunting trips looking for black swans."