Here is a look at equities that are expected to be highly sensitive to global trade negotiation developments between China and the US per a recent Goldman Sachs report via CNBC. First, some names with high revenue exposure to Greater China (mainland, Taiwan, Hong Kong): Second, some names with the least amount of direct China exposure whose revenues are resoundingly […]
US Nominal GDP Is Burning Rubber at a 7.4% Annual Clip: The Public Will Get the Inflation It Thinks It Wants
Our thesis was driven by fiscal math gravity facing government budgets and game theory analysis for how central planners would react to it.
Total return on US investment grade (IG) corporate bonds has been negative all year. Half of IG bonds are rated BBB, which is one notch above junk. Deteriorating corporate credit conditions and upside inflation surprises suggest a poor risk/reward for incremental capital allocated to US IG bonds. This chart can be found here:
The metropolitan area with the fastest appreciating real estate market in the world has a central bank operating depressionary depths-of-crisis monetary policy.
The IHS Markit Retail PMI report released today for June highlighted broadening divergence among the three largest components of the shared currency’s GDP – Germany, France, and Italy. The index ticked slightly higher to 51.8 from 51.7 the prior month due to a strong enough rebound in retail sector strength in Germany to make up for weakness in France and […]
A less ugly house on Fiat Avenue. According to the IMF via Deutsche Bank, USD is currently gaining ground as a global reserve currency as it approaches reserve levels not seen since the early 2000’s. While other sources tend to vary a bit in this calculation, USD is now at least 62% of global reserves according to most estimates. This […]
Emerging market currencies as a group are on the verge of testing lows not seen since late 2016 when the “Trump trade” was fueling expectations for a surge in multi-pronged fiscal stimulus and inflation. As it turns out, reflation expectations weren’t so far off the mark. Higher interest rates in the US are pulling capital away from emerging markets as […]
Hong Kong needs to mimic the US in raising short-term interest rates in order to maintain the currency peg with USD. This is causing strain on the Hong Kong economy as exemplified by 3m HIBOR climbing more briskly than it would independent of the peg. Some of the world’s most sky-high real estate prices are rolling over. This will accelerate […]
US from a year ago: – Export Price Index: 4.9% – Import Price Index: 4.3% – Shelter: 3.5% – Fuel oil: 25.3% – Transportation Services: 3.8% – Case Shiller Home Price Index: 6.8% – Retail Sales: 6% – Real Average Hourly Earnings: 0% (would be negative with a “less adjusted” index) Fed’s “preferred” PCE Index: still below 2%. Thank goodness […]
Cryptocurrencies are not going to eliminate old, inefficient middlemen and change the world for the better by requiring new centralized middlemen in order to facilitate their existence.
Safe-haven sovereign bonds are experiencing a counter-trend snapback rally as the focus has shifted to a slew of troubling yet still mostly second-tier geopolitical events. The incoming populist Italian Five Star Movement/right-wing League political coalition is pursuing a shift away from painful austerity back toward the type of popular but damaging heavy borrowing and spending regime that led to Italy […]
A perfect three-pronged storm is brewing: oil, the labor market, and fiscal policy in the US will soon propel inflation notably higher than appreciated by overly complacent economists and analysts stuck in a delusion of “low-flation” recency bias. Just this past Friday afternoon–Friday afternoons being the most notorious time to quietly dump toxic news sludge into the market–Saudi Arabia went […]
Emerging Market Credit Risks Could Fuel a Temporary Rush of Capital into USD as the Receding Tide Exposes Naked Swimmers
Risks are increasing for a rapid rush of capital out of low-quality EM and this could temporarily reverse or complicate the longer term trajectory of a weaker USD.
Synchronized global growth heading into early 2018 has become more complicated. Global divergences are forming in growth and inflation. US Treasuries are not coming off the hinges just yet but an increased risk of (too) sharp of a rise in interest rates is clearly in the back of investors’ minds. China and Europe are decelerating somewhat but from elevated levels. […]
Why Equity Market Gains Fueled in Part by a Weak Currency Just Aren’t the Same: Here is the S&P500 in Euro Terms
If foreign investors don’t expect the dollar pendulum to swing back anytime soon, they will demand much higher interest rates to compensate for the currency and inflation risk. Additional UST damage won’t do risk assets any favors and neither will trillion+ dollar deficits as far as the eye can see. Watch long end bonds.
An influx of new fixed income supply over the coming four plus years is going to have a difficult time finding enough increased marginal demand to fill the void left by central banks gradually winding down their balance sheets.