Investing and trading is only and always about probabilities. The probability of a severe correction in global equity markets had a window to occur. The probability for markets to take this window is passing as resistances are overcome and capital sustains her march out of cash and into assets. Central banks are determined to flush all and every element of cash into risk.
Negative interest rates are in the process of going global and are moving ever further along the yield curve and risk curve, even at the 5yr on German Bunds now and approaching zero even on the Swiss 10 year! Could high quality corporate bonds be next in line for negative interest rates? Very possibly in my view. Note Apple’s treasury department are already taking advantage of close to zero interest rates for AAA corporate debt in CHFs by issuing her latest credit paper in CHFs and paying 0.25% for a fixed 10yr issuance. As the stock yields more I guess they will buy back with the excess capital raised? As i say zero across all asset classes beckons it seems and on that basis equities can go to the moon (and beyond) theoretically.
Central bankers and policy makers alike are forcing global capital over a metaphoric cliff. They are perpetually blind to bubbles created by their actions. I’m reminded here of Greenspan’s now infamous 2002 quote that capture their coordinated blindness:
Its “very difficult to definitively identify a bubble until after the fact”.
As I’ve commented before we are in a race globally to zero and beyond. Zero across all investment asset classes. And consider this question please: when we have zero or negative interest rates across cash, bonds, stocks how attractive does gold become? In my view, on a relative basis, incredibly attractive as you cannot impose negative interest rates nor counter party risks on gold holdings. If there is an ultimate end game to this cycle of monetary debasement it appears to this, in my view.
I attach two reports here below which cover either side of the argument of where next or rather which cyclical model are we following here? I would also make the point very clearly that black gold, (oil), is not gold. (I would also make the side point here than shale gas is not light sweet crude! and neither is it even LPG until that infrastructure is in place).
As a holder of bullion I see the breakdown in oil as a very positive development for bullion in fact. Active correlation traders will know that although oil has a long term positive correlation to bullion on the short term the two often traded as in inverse hedge to monetary (US$) debasement. To see oil come off in this way shatters the algo trade US$ debasement equals long oil. The trade for US$ debasement (in fact all fx debasement on the long term) equals gold.
As some of you know, I’m traveling at present across Asia. As I travel across Dubai, Hong Kong, Vietnam, Cambodia the US$ strength or rather yen and euro weakness is killing the Asian economies and this is very clear. This cannot sustain for long. The dollar pegs must go soon or the US$ must weaken again soon. (Note if/when their dollar pegs are removed their local equities will surge upward in value. A good macro trade imo).
Germany is likely to see inflation ahead of most economies if this sustains. Wage growth in Germany is at a real term score of 4 to 5% for this fiscal year and much of these number forecasts are pre the debasement of the euro. Germany is on fire to the upside for obvious reasons. Her fiscal surpluses on trade and current account will boom to the upside.I must remind that currency debasement games are a negative sum game globally as industrial company’s are forced to either hedge or reverse investment flows to the new monetary landscape.Once again this games assist mega caps who produce and source globally. The trend of the mega caps and consolidation continues thanks to our “great” policy maker and central bankster games.
Without delay here Fitzpatrick at CB with much discussion on oil and the cyclical roadmap:
And here the swiss team’s interim update release:
More comments to come as soon as i have time as price developments are making me ‘sit up’ so to speak. A parabolic price phase threatens here thanks to the central bank’s actions, especially if Yellen hesitates.
All the best
Rich