Tag: risk

Economic and market themes: 2014-05-23 Credit excesses everywhere

Economic and market themes: 2014-05-23 Credit excesses everywhere

There are widespread signs of credit market froth. This is a telltale sign of top of the cycle or near top of the cycle excess. Think 2005, 2006 or 2007. The key bit here is that credit markets transmit distress in a way that equity markets do not because when the credit writedowns are forced onto banks, the knock-on effects are severe. Let me go through some of these signs of excess with you. As I do so, let’s be clear that the froth is largely due to investors reaching for yield due to excessively low nominal and negative real interest rates. Financial repression has consequences.

Iran real beneficiary of Russia-China gas deal and more on overheated markets

Iran real beneficiary of Russia-China gas deal and more on overheated markets

The big news today is the Gazprom deal in China. This is a $400 billion gas deal to supply gas from Russia to China for 30 years that has been in the works for over a decade. But the changing geopolitical atmosphere has given it urgency. Overall, from a macroeconomic perspective I am positive. But risk has really increased. And the Russell 2000 is one of the areas where you see the biggest overvaluation. We see it in high yield as well.

US and European recoveries continue as China decelerates

US and European recoveries continue as China decelerates

The monthly employment situation summary for April 2014 was released by the US Bureau of Labor Statistics. And the headline numbers were terrific. The unemployment rate measured by the household survey fell to a cyclical low of 6.3%, below the Evans Rule threshold. Meanwhile, the establishment survey showed a net addition of 288,000 works to non-farm payrolls. The fact that […]

The permanent crisis in the global economy

The permanent crisis in the global economy

Since 2007, the global economy has been in a near permanent sate of semi-crisis. Forget about Jamie Dimon’s quip to his daughter that a crisis is something that occurs every five years. Start thinking of the global economy as being in a permanent state of crisis. I have some thoughts on what this means for the economy and for investors and why I am couching the situation from this vantage point.

Policy-induced market overvaluation is building, will end badly

Policy-induced market overvaluation is building, will end badly

It is now patently clear that US equity and corporate bond markets are overvalued. Much of the overvaluation has to do with low discount rates and the risk-on signal easy Fed policy has sent investors for over five years. Yet again, signs of weakness like falling profit growth are mounting. But the Fed is tightening as opposed to adding more stimulus as in prior lapses during this economic cycle. Therefore, a sharp market downturn at this cycle trough is increasingly likely.

Week Ahead: Re-Escalation of Tensions to Aid Greenback

Week Ahead: Re-Escalation of Tensions to Aid Greenback

By Marc Chandler – This week, investors should brace for a re-escalation of tensions in Crimea and China – There are four sources of heightened tensions with the Crimean crisis – Weekend news from China played on fears that the yuan is over-valued and that economic slowdown is more pronounced – Otherwise, in terms of economic reports from the US […]

On Fed tapering, policy co-ordination and emerging market risk

On Fed tapering, policy co-ordination and emerging market risk

I am concerned about what is happening in the emerging markets but not alarmed. Fed tapering was a proximate trigger but not a cause. All indications are that the crisis is hitting only the most exposed and vulnerable markets and that this doesn’t have to boomerang onto other markets. The worry has to be that contagion causes the locus of stress to spread to economic agents that should be less vulnerable, causing the crisis to metastisize and spiral out of control. Policy co-ordination in foreign exchange will be key if this occurs.

On high yield and high risk investing in EM and junk debt

On high yield and high risk investing in EM and junk debt

Right now, everyone is talking about an emerging markets crisis due to the simultaneous turmoil in several emerging markets. I am not concerned about this being a full-blown crisis yet. At the same time, I do want to use this as a launchpad for a discussion about high yield and high risk investments, whether they be leveraged loans and junk bonds in the US, sovereign debt in Greece or investments in emerging markets. Some of these are investments doing well, others are not. And this points to the ‘crisis’ as not being merely about risk-off.