FEB 4 18 SIT EC y POL
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
Something
strange is going on in the market according to DB's cross-asset desk, and it
could be a recipe for disaster if current trends do not change.
As we further noted, judging by the major correlation
regime shift between stocks and bonds that started on
Monday, this is something considerably more worrisome for investors...
SEE chart:
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"The
next bull market is coming, it just won’t
be in stocks..."
It will be in the U.S. Treasury market which will
coincide with the next recessionary drag in the economy
within the next 12-18 months (at the most).
See chart:
I agree with Albert Edwards:
“Every man,
woman, and child seems to have decided that the US 10y
bond yield has broken out of its long-term downtrend and we are in a bond bear market. Our own excellent Technical Analyst, Stephanie
Aymes, shows that 3% (not 2.6%) is the key long-term breakout yield we should
be watching. But she thinks that 2.64% was also significant
as this means the RSI downtrend has now been broken and a run to 3% is now perfectly
plausible. That
though does not mean the bond bull market is over.”
With yields now closing on 2¾% and
the 30y closing on 3.0%, many see this as a great time to
dump bonds and switch into equities. Really?
Check charts below:
“Well, I expect that the
true extent of how close the US is to actual outright deflation, and hence how
high real yields currently are, will soon be revealed. But before US 10y yields turn negative,
expect them to visit 3% first.“
See chart:
The Next Bull Market
Edwards is correct. There are several important points to
understand about bonds.
- All interest rates are relative. With more than $10-Trillion in debt globally sporting negative interest rates, the assumption that rates in the U.S. are about to spike higher is likely wrong. Higher yields in U.S. debt attracts flows of capital from countries with negative yields which push rates lower in the U.S. Given the current push by Central Banks globally to suppress interest rates to keep nascent economic growth going, an eventual zero-yield on U.S. debt is not unrealistic.
- The coming budget deficit balloon. Given the lack of fiscal policy controls in Washington, and promises of continued largesse in the future, the budget deficit is set to swell back to $1 Trillion or more in the coming years. This will require more government bond issuance to fund future expenditures which will be magnified during the next recessionary spat as tax revenue falls.
- Central Banks will continue to be a buyer of bonds to maintain the current status quo, but will become more aggressive buyers during the next recession. The next QE program by the Fed to offset the next economic recession will likely be $2-4 Trillion which will push the 10-year yield towards zero.
The next bull market is
coming, it just won’t be in stocks.
It will be in the U.S. Treasury market which will coincide with
the next recessionary drag in the economy within the next 12-18 months (at the most).
The chart below goes to my point.
Currently, interest rates are 4-standard deviations above their 1-year moving
average. (For an explanation read this.)
See chart:
How often has this happened going back to 1965?
Never.
Negative events such as the
S&L Crisis, Asian Contagion, Long-Term Capital Management, etc. all drove
money out of stocks and into bonds pushing rates lower, recessionary environments are especially prone
at suppressing rates further. Given the
current low level of interest rates, the next
recessionary bout in the economy will very likely see rates near zero.
Furthermore, given rates are already negative in
many parts of the world, which will likely be even more negative during a
global recessionary environment, zero yields will still remain more attractive
to foreign investors. This will be from both a potential capital
appreciation perspective (expectations of negative rates in the U.S.) and the perceived
safety and liquidity of the U.S. Treasury market.
Over the next several
months, higher interest rates, if they remain elevated for long, will have a deleterious effect on the economy.
Valuations will become problematic.
Summarizing: the safety of bonds
becomes much more attractive when the yield is significantly above the dividend
yield in stocks. (Why take the risk with a sub-2% yield when I
can get 3% in a U.S. Treasury?)
That’s not hard math.
Things are finally
starting to get interesting.
…
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With
the 10y jumping 43bp since the start of the year, investors have begun to
question how much convexity-related selling could result from the extension in
mortgages.
SEE Chart: Bloomberg-Barclays MBS Index Duration -and others-at the source below
.. just as the long-running correlation between
equities and yields finally snapped this week as higher yields are now seen as
a risk to stocks..
See chart:
.. traders are increasingly worried, after the
worst week for stocks since Jan 2016, what further Treasury selling could
mean for equities as a result of a potential violent deleveraging of
risk-parity strategies, which will be forced to significantly reduce
their gross exposure following last week's drubbing.
So what is the potential selling overhang as a
result of recent rate moves?
Based on Barclays' model, at the
start of the year, a 50bp sell-off in rates would have led to a $667bn
extension for the MBS universe expressed in 10y Treasury equivalents (chart
below).
Chart:
Alleviating the risk of a selloff is the fact that a smaller
portion of the MBS universe dynamically hedges its duration exposure than it
did before 2008. In particular, the Federal
Reserve ($1.7trn in MBS holdings), many money managers (~$700bn in MBS
holdings), and several overseas investors (~$800bn in MBS holdings) do not
actively hedge duration in their MBS portfolios.
Part of the reason is that the average
mortgage rate for the universe has continued to decline over the past several
years.
See charts below:
As such, Barclays concludes, at this
point, even a further substantial sell-off in rates would not materially reduce
the percentage of refinanceable borrowers.
In summary, this is good news for those
worried about further self-reinforcing selling at least out of convexity
hedgers. The bad - or at least so far
undetermined - news, is that forced selling by
"everyone else" may be sufficient to tip the overall market,
mostly via vol-sellers, CTAs and risk-parity funds, into
the next correction.
…
Source https://www.zerohedge.com/news/2018-02-04/will-convexity-hedgers-unleash-next-round-treasury-selling
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The man who
predicted the collapse of GM, Fannie, and Freddie says the
next big bankruptcy is going to catch everyone by surprise. Learn more
here.
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POLITICS
Seudo democ y sist
duopolico in US is obsolete; it’s
full of frauds & corruption. Urge cambiarlo
The
US economy is threatened by two
giant problems which cause all others to pale into insignificance...
We are
referring to A ROGUE CENTRAL BANK that has become an absolute
enemy of capitalist prosperity and A FISCAL DOOMSDAY
MACHINE that is hostage to the ceaseless budgetary demands of the Warfare State, the
Welfare State and the Baby Boom's demographic imperatives.
Read more at:
https://www.zerohedge.com/news/2018-02-04/stockman-exposes-two-elephants-room-gop-has-completely-forgotten
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"...the
cockroaches have run out of corners to hide in... Time to put on our
pointy shoes and start kickin’..."
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WORLD ISSUES and M-East
Global depression is on…China, RU, Iran search for State
socialis+K- compet. D rest in limbo
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GLOBAL RESEARCH
Geopolitics & Econ-Pol crisis that leads to more
business-wars: its profiteers US-NATO
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COUNTER PUNCH
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Serge Halimi
The Pentagon’s Useful Idiots
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Ralph Nader
The Paradox of Equal Justice
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Ron Jacobs A History of Resistance
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Mel Gurtov The Middle East Peace Process: A
Cruel Joke
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Jill Richardson
How Colleges are Screwing Both
Teachers and Students
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SPUTNIK and RT SHOWS
Geopolitics & the nasty business of US-NATO-Global-wars
uncovered ..
Obama Should Give Back His Peace Prize and Trump -
His Presidency' – Analyst https://sputniknews.com/analysis/201802041061348614-obama-give-back-peace-prize-trump-presidency/
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The New Nuclear Posture review said Trump wants nuclear weapons more useable
RELATED:
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Cementery S-story-tale: Israel to
Build Settl in West Bank in Resp to Rabbi Murder - Neta
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Affairs
can’t be the excuse alone.. Money plus could be .. Female-pride vs Partner Polit-failure
sums-up all of them. If so, it stands to reason
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RT SHOWS
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NOTICIAS IN SPANISH
Latino America looking for alternatives to neoliberalism to
break with Empire:
50
aniversario Mayo 68: From Viento Sur http://www.vientosur.info/
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Respuesta a Daniel
Cohn-Bendit y Romain Goupil Alain
Krivine
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Kurdos
Ent a Maryam Fathi: “Me sorprende ver part de izq apoy iran
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Keiser Report Masacre
en Davos
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PRESS
TV
Global situation described by Iranian observers..
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