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Global Markets commentary and outlook

January 4, 2020

Global Markets commentary and outlook

…..’Cause I’ve had the time of my life..and I owe it all to you..

The original song from Dirty Dancing is one of my all time favourites and somehow reminds me of the Global Markets performance this year.Every conceivable asset class (except cash) posted positive returns ,thanks to the LIQUIDITY provided by global central banks.The Fed is my view moved to implement the “ high pressure economy” regime outlined in former chair Janet Yellen’s 2014 speech at the Boston Fed Reserve bank       https://www.federalreserve.gov/newsevents/speech/yellen20161014a.htm. 

Indirecly this document suggest the US central Bank has returned to the Greenspan approach to bubbles- they will deal with the consequences once it pops.

The chart below explains the LIQUIDITY story.

Gone are the good old days when Earnings used to be tailwind for market valuations.

The polarising performance of US markets.

The two stocks, Apple and Microsoft, each having a market cap of USD 1 trillion have contributed the most to 2019’s total stock-market returns and also hold that position for the entire decade.

The number of Zombie companies continue to rise along with their market caps.

The above charts were examples of distortion created by excess pumping of money.

Jerome Powell raised the bar  for raising rates significantly whereas the bar for lowering rates has gone down. More evidence that Central Bankers will tolerate higher inflation and low or negative real rates.

BOFA has a crystal ball and they see the endgame approaching .

…click on the above link to read the rest of the article…

Utopian Vision

April 7, 2019

Utopian Vision

There is nothing that a human mind can’t conceive. It can shoot for the stars or dive in the ocean which twinkles in the shadows of stars and ascend back with sparkling mind bearing uncanny ambition only to float contended.  

Today, we live in fear of losing wealth, we worry what economic consequences would do to our cash, we look through a microscope and scrutinize every word, every policy, every regulation or find something to put above ‘every’ and list out the glaring negatives with a slight trace of approval. If only one could notice the lens of the microscope, would then one could tell reel and real apart. 

Such is the case of negative interest rates. It is dealt differently by different flock of loaded individuals, generally in ways which would not only prevent losses but essentially gain cash. This flock stands on one side of the transaction contemplating means to win regardless of the loss that still deliberating other doomed flock endures. Well, this is how the world works. It is a Bernoulli trial. But there exists a splash of humble wit folks floating beneath the starry sky delighted by the victory of each one and beaten down none. 

Theory? Without thinking too much, negative rates indicate that the economy is unable to generate sufficient income to service its debt. Almost always, all roads leads us back to debt sustainability levels. In order for an economic system to reduce debt, it requires growth or inflation or currency devaluation. For an economic system to exercise one of the two (growth not included), capital transfer is to be facilitated. This capital movement in negative rates environment is from the savers to the borrowers. Your invested value, the money you gave to borrowers would have a value lower than the face value. Barbaric! Savers should be the winners not the borrowers!

 …click on the above link to read the rest of the article…

No! Falling Crude Oil Prices Are Not Good For Emerging Markets Like India

November 24, 2018

No! Falling Crude Oil Prices Are Not Good For Emerging Markets Like India

Indian media and Portfolio managers always like to spin a bullish story and the current bullishness stems from the collapse in oil price.

After all, rising oil prices for a country which imports almost all of its oil requirement is bad for discretionary consumption and its currency . Conversely, lower oil prices are good for the Indian economy as trade deficit comes down giving stability to the currency,retail oil prices come down giving breathing space to household budgets.

But Nedbank breaks this myth and their strategists, Mehul Daya and Neels Heyneke, write…

“Many market commentators are indicating that it is time to look for a bottom in the relative performance between EMs and DMs.”

History, as a guide, suggests that EM vs DM performance is still way above the 1988 and 1998 lows ( in short the bottom is far off)

  • EMs underperformed in 2011-15, followed by a risk-on period in 2016-17 after the G20 meeting in February 2016 in Shanghai. Hence the interest in the upcoming G20 meeting to see whether the US and China can come to an agreement on global trade and re-engineer another risk on phase. We believe it will be difficult amid the number of headwinds facing the global economy.
  • The underperformance started in 2011, long before the Trump victory; it is not just about trade, but also about $-Liquidity. As long-time readers know, we believe investors are underestimating the role that $-Liquidity (money supply) plays in risk assets.
  • An agreement between the US and China should boost failing global trade, helping dollar creation and increasing $-Liquidity. This would trigger a setback in the value of the dollar (EURUSD targeting 1.18), providing relief for EM assets in the near term.

…click on the above link to read the rest of the article…

Russell Napier – The Solid Ground Fortnightly – The Asian Arms Race and the ‘Weaponization of Finance’ – Hard to Mistake, Harder To Take

October 29, 2018

Russell Napier – The Solid Ground Fortnightly – The Asian Arms Race and the ‘Weaponization of Finance’ – Hard to Mistake, Harder To Take

An important update on market by Russell Napier ( I have highlighted some read portion)

There are those in financial markets who believe that Mike Pence’ s bellicose speech at The Hudson Institute a few weeks ago was merely sabre rattling ahead of the US mid-term elections. Sadly your analyst could not disagree more. That speech, reported in the last Solid Ground newsletter, has now been followed by the United States’ threat to withdraw from the Intermediate-Range Nuclear Forces Treaty (INF) with Russia. For those who still believe this has nothing to do with China, the US President made it clear on October 22nd that the withdrawal from the INF is as much about countering a threat from China as it is about countering a threat from Russia:
“Until people come to their senses, we will build it up…” “It’s a threat to whoever you want and it includes China, and it includes Russia, and it includes anybody else that wants to play that game. You can’t do that. You can’t play that game on me.”
This has huge geo-political implications and clearly huge investment consequences for those countries in Asia supposed to accept the new United States missiles that will stop China ‘playing that game’. Can the United States’ Asian allies accept US missiles and remain free to trade openly with China, invest in China and accept investment from China?Still unconvinced? The following is a lengthy extract from an interview between Nick Robinson of the UK Radio 4 Today Programme and Professor Matthew Kroenig.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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