20/8/20: All Markets are Now Monetized

 

While the economy burns, the stock markets are literally going bonkers. Here are the main implied volatility options:

Which are symmetric, in so far as they treat volatility as symmetrically-valued to the upside and downside. And here is another way of looking at the same concept via repricing speed, or the rate of change in actual P/E ratios of S&P500 over longer time horizons, in this case: 20 weeks running P/E ratios change:

Source of the chart is @longvieweconomics. What does the above show? We have S&P500 at an all-time high. S&P500's PE ratio (PER) is only slightly below the 2000 peak. And, we have the fastest rate of S&P over-valuation increase in history - full 85 percentage points trough to peak. Both, the fundamentals and the momentum of their deterioration are absolutely out of control. Of course, this is just the stocks. One must never mention the massive bubble blown up by the Fed in the bonds markets. 

The 20-weeks moving change in weekly yields for Aaa-rated bonds maxed out at historical high of -44.06% (remember, lower yields = higher prices) in the week of July 31st this year. Top three historically highest rates of change took place in the three weeks of July 24th-August 7 this year. Overall range of bonds repricing is in the range of 60 percentage points in the current cycle:

This is plain horrendous: there is nothing in the macro and micro fundamentals that can warrant these changes. Except for the expectation of continued monetary accommodation of the Wall Street into the infinitely long future. 

23/2/20: The 'Fundamentals' of the Financial Markets Are Hardly Changed by the COVID2019, So Far...

An informative chart via Holger Zschaepitz @Schuldensuehner on the Global equity markets impact of the continuously evolving threat of the nCov-2019 or #COVID2019 virus epidemic:

Looks not quite as dire as it might sound, folks.

• Global equities lost some $470 billion worth of market value this week. 
• Which is 0.537% of the market cap at the start of the week 
• The market is still up more than 3 percent year to date
• The market is massively up on 2020 to date lowest point (+3.7 percent)
• Most of the effect is in Asia Pacific - not to discount it, but it is material since AP region has much more capacity for a rebound (higher savings, investment and potential growth rates) from the crisis effects than slower moving advanced economies.

Looking at longer terms within the advanced economies, here is a summary of the major indices cumulative moves over the 1 week - 6 months time horizon in percent:

So far, no panic, but last week really does look ugly, unless one seriously thinks about the degree to which market pricing is divorced from economic fundamentals, as exemplified by the 6 months changes: 22.26 percent upside in Nasdaq? 15 percent in Germany? 13.43 percent in Japan?.. 

So let's ask two questions: Q1: Does anyone believe there are long term economic or socio-economic fundamentals behind the above numbers? and Q2: If the markets are pricing in monetary sugar buzz of Kiddies at Halloween  Bucket of Sweets proportion on the upside, how on earth can the same markets price some serious fundamentals on the downside? 

The markets gyrations are only tangentially - and only in the short run - relate to tangible news flows, like nCov-2019 statistics. And they sure a hell do not relate linearly to any data on GDP impacts of the epidemic. Because markets have not reacted to GDP figures since well-before the Global Financial Crisis hit. Worse, there is no logic that can explain why markets are reacting to nCov2019 promise of dropping interests rates and priming the global QE pump in an opposite direction to the markets reactions to all previous slowdowns in global growth. 

We are still dealing with the same 'clueless and buzzed' crowd of 'investors' who value Tesla at inverse of the company's manipulated core statistics, and Netflix at inverse of company's manipulated profitability metrics, and Apple at inverse of company's forward growth potential. We are still dealing with the same 'jittery herd' that slushes from one 'not QE' to another 'Abenomics breakthrough' to the fiscal policy moaning of the ECB, while stopping to slam some shots at the occasional 'take profit' Wild West saloon.  

Forget one week to next markets gyrations. The real impact of nCov epidemic won't be seen until we have the monetary policy reactions at an aggregate level. So watch this chart instead:

When this line heads North above 3-4 percent mark, the real markets data will come in. Indications are: https://www.marketwatch.com/story/all-star-economists-urge-fed-to-use-qe-and-new-tools-to-fight-next-recession-just-move-sooner-and-go-bigger-than-crisis-2020-02-21?mod=the-fed. 

9/9/18: Populism, Middle Class and Asset Bubbles

The range of total returns (unadjusted for differential FX rates) for some key assets categories since 2009 via Goldman Sachs Research:

The above highlights the pivot toward financial assets inflation under the tidal wave of Quantitative Easing programmes by the major Central Banks. The financial sector repression is taking the bite out of the consumer / household finances through widening profit margins, reflective of the economy's move toward higher financial intensity of output. Put differently, the CPI gap to corporate costs inflation is widening, and with it, the asset price inflation is drifting toward financial assets:

This is the 'beggar-thy-household' economy, folks. Not surprisingly, while the proportion of total population classifiable as middle-class might be stabilising (after a massive decline from the 1970s and 1980s levels):

 Incomes of the middle class are stagnant (and for lower earners, falling):

And post-QE squeeze (higher interest rates and higher cost of credit intermediation) is coming for the already stretched households. Any wonder that political populism/opportunism is also on the rise?