Nov 22 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
It gets serious. Margin calls?
No one knows what the total leverage in
the stock market is. But we know
it’s huge and has surged in past years...
The only form
of stock market leverage that is reported monthly is “margin
debt” – the amount individual and institutional
investors borrow from their brokers against their portfolios. Margin debt is subject to well-rehearsed margin calls. And
apparently, they have kicked off.
In
the ugliest stock-market October anyone can remember, margin debt plunged by
$40.5 billion, FINRA (Financial
Industry Regulatory Authority) reported this morning – the
biggest plunge since November 2008, weeks after Lehman Brothers had filed for
bankruptcy:
See Chart: Margin Debt plunges the most
since Lehman moment
During the stock market boom since the
Financial Crisis, this measure of margin debt has surged from high to high,
reaching a peak in May 2018 of $669 billion, up 60% from the pre-Financial
Crisis peak in July 2007, and up 117% since January 2012. Since the peak in May, margin debt
has dropped by $62 billion (-9.2%). Note the $40.5-billion plunge in October:
See Chart:
Hangover after the party
In
the two-decade scheme of things, the relationship between stock market surges
and crashes and margin debt becomes obvious.
When it was
over by October 2002, the Nasdaq had plunged 78%. Over
the same period, margin debt plunged 54%. A similar scenario played out during
the Financial Crisis crash. And now we have the
“Everything Bubble” to deal with:
See Chart: Margin Dept and Market crushes
October’s plunge in margin debt was just the
beginning, a little dimple in the overall chart. Unwinding such a huge pile of
margin debt and overall stock-market leverage takes time, years, and they’ll be
interrupted with some brief increases that’ll make everyone feel better for a
moment.
It gets costly
when the entire market depends on a handful of over-hyped mega-caps. Read… FANGMAN
Stocks Plunge 4.4% Today, Down $905 Billion, or 20%, since Aug. 31
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SOURCE: https://www.zerohedge.com/news/2018-11-22/us-stock-market-margin-debt-plunges-most-lehman-moment
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...when you incorporate the quantitative easing
suspension, this tightening cycle
is much longer in the tooth.
The Stock Board Asset Macro Research’s
Alastair Williamson tweeted the following chart with the accompanying comment, “The
entire world is burning, and America is holding on by a thread.“
See Chart:
Equities and Bonds Total Return Index, USD
So what gives? Why the terrible year for financial markets?
It’s easy - the Fed.
Many market commentators
mistakenly believed the U.S. economy impervious to this monetary tightening. Some
others argued the higher real rates attracted capital and caused a counter
intuitive pro-economic response.
Well, I don’t buy any of that for one second.
The reality is that the
world (including the U.S.) has never been so indebted. Reducing liquidity
through tighter monetary policy of the global reserve currency will have
an outsized economic and market reaction due to this large
amount of debt.
So when I look at Alastair’s table, I think it is easy to explain. The
Federal Reserve has caused both a global economic slowdown along with a bear
market in most financial assets.
One of my favourite pundits, The Long View @ HayekAndKeynes recently
reminded market participants that when you
incorporate the quantitative easing suspension, this tightening cycle is much
longer in the tooth.
See Chart:
Degree of Monetary Tightening 1960-2018
It is clear to me the Federal Reserve was intent on
raising rates until something broke, and that last week enough things “broke” that
they finally blinked.
I am not sure about the final trigger. It might have been the collapse
in crude oil prices (along with the decline of inflation expectations):
See Chart:
Or it might have been the widening of
credit-spreads (led by that old stalwart - General Electric):
See Chart:
Or maybe, even though they are loathe to admit it, President Trump’s
haranguing finally kicked in?
Read this:
What’s
amazing is how quickly the market has shifted from the Fed “raising rates every
other meeting” forever to “the Federal Reserve is done.”
Let’s look at the 3-month Eurodollar
futures contract spread between December 2018 and December 2020. Although
Eurodollar interest rate futures do not track fed funds perfectly, they are
close enough for our purpose. This spread represents the total amount of rate
rises between December 2018 and two years later.
See Chart:
So
let’s recap.
The Federal Reserve had previously been
plugging their ears and telling the global financial community nah-nah-nah-we-can’t-hear-you-we’re-going-to-keep-raising-come-hell-or-high-water,
but the economic and financial market weakness that was previously confined to
the rest of the world, has finally come to America. The Federal Reserve is now
very close to being on hold for the indefinite future. Sure, they will probably
raise once more this December, but it’s most likely a one-and-done. Or at very least, much more a one-and-we-will-see.
What
does this mean for the market?
Tons. Whereas before investors were
hiding in American stocks and shooting every other asset class, it’s probably
time to do the opposite. Buy emerging markets. Sell U.S. dollars. Play for a
steepener in the American yield curve. Buy commodities.
Now
maybe it’s too early. Maybe there is more pain to come before the Fed truly
panics. That could be. We will have to watch the Fed carefully for clues.
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It is now widely accepted that the next credit crisis
will start when the coming flood of "fallen angel" credits, those
names about to be downgraded to junk, finally hits. But when?
To be sure, there is more than enough dry
powder to start said crisis: as the following Deutsche Bank chart shows, the BBB-rated
debt cohort has seen a massive increase in the past decade, with low-IG rated
companies generously issuing debt to fund trillions in stock buybacks, or to
acquire other companies, and
now BBB debt accounts for nearly 60% of the entire $6.4 trillion US investment
grade space, with a similar portion for Europe.
See Chart:
BBB as % of
TOTAL IG
The market "expects to see a flood of troubled credits
topping $1 trillion as rising interest rates overwhelm low-quality loans and
bonds", the one question left is how much of this BBB paper is likely to be
downgraded?
Or, as one might say, that is the 6.4 trillion dollar
question (the size of the US investment grade corporate bond sector).
To answer that question, Deutsche Bank
credit strategist Nick Burns looked at the historical record to assess the
normal attrition rate for BBBs to HY. The chart below
looks at the proportion of BBBs that have been downgraded each year, and
while this has fallen towards historically low levels in recent years, this is
unlikely to be sustainable, particularly if the global
economy slows down as it will starting in 2019 and likely careening into a
recession in 2020 as is now the prevailing consensus.
See Chart:
Annual %of BBBs Downgraded by
HY
Finally, for those who are curious for
other, less obvious "fallen angle" shorts, we leave you with what
Horseman Capital said one
year ago:
To find a potential fallen angel, I looked through the holdings of investment grade
bond ETFs to find large BBB bond issuers. The biggest of the BBB issuers
happened to be the large telecommunication companies. The sector has over
USD300bn of BBB rated debt compared to a high-yield market of USD 1tn. I
am not a debt specialist, but I have noticed that falling share prices tend to
be good lead indicators on debt downgrades.... US debt markets look in trouble to me, whether that
has any effect on broader equity markets remains to be seen.
In retrospect, after the biggest market
rout since the financial crisis, it did.
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The
dollar is weaker this morning (cable higher), Treasury futures are unchanged,
butUS equity futures are extending
their late-Wednesday tumble with Nasdaq leading the plunge...
See Chart:
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... the number of turkeys raised in the U.S. has
declined by 2.5 million year-over-year...the lowest level recorded since 1987.
See Chart:
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RELATED:
"Thanksgiving is, foundationally speaking, acelebration of the ongoing genocide against
native peoples and cultures across the globe..."
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US DOMESTIC POLITICS
Seudo democ duopolico in US is obsolete;
it’s full of frauds & corruption. Urge cambio
Will they respect American Freedom? .. If
don’t.. what we have to do?
Google will have enough data to create a corporate profile on the human and
even their family...
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YES, don’t say THANKS..
just pay the DEBT
to natives who gave you turkey & in return you Kill them and almost
exterminate.
"Washington didn’t
intend Thanksgiving to be a day for offering up glib platitudes that require no
thought, no effort and no sacrifice. He wanted it to be a day of contemplation,
frankly assessing our shortcomings, and resolving to be a better, more
peaceable nation in the year to come."
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"WHAT IF..."
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US-WW ISSUES (Geo Econ, Geo Pol
& global Wars)
Global depression is on…China, RU, Iran
search for State socialis+K-, D rest in limbo
Are we getting
peace with China? It will be good the
defeat of trade war!
"We
are absorbing a significant part of the tariff to help make our cars more
affordable for customers in China."
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Mexican sovereignty violated.. with the consent of AMLO?. Trump idiocy is very naive: he
manufacture weapons and wars abroad with clear intention of paving the road to WW3.. that will ERASE
ALL BORDERS.. but his anti-latino racism
goes 1st in opposite dir
"The
whole border. I mean the whole border. And Mexico will not be able to send US cars
into the United States where they make so great benefit to them, not at great
benefit to Mx."
[[Las ensambladoras de carros USA en Mx pagan en pesos (min-wage) al labor
mexicano. Dan trabajo, es cierto, pero quien se beneficia más es el empres US.
Decir la inverso solo sirve para cubrir el chantaje anti-migra de Trump.
Quieren esclavos allá, en Mx, no aquí, pues quitan trabajo al labor US, es su
false logic. Quien se encarga de destruir esa falsa lógica son los mismo
rancheros US que si ingresan ese labor
barato con diminuto INFO que les permiten ir y salir del US]]
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No creo en los turcos: invaden Syria y hoy compran armas rusas –quiza
para revenderl al US y contra RU, no Siria. Quizá por eso lo sacaron al Min Ruso de
Intelig.. Anulará Putin esa venta de armas a los Turcos?. Nadie lo sabe hoy.. quizá mañana se sepa. Si
creo que Putin juega buen ajedrez y sabrá crear un jaque doble a la inversa. Veremos
After prolonged
hibernation, the Astana Process on Syrian peace is kinetic, with the troika of
‘guarantor’ states – Russia,
Turkey and Iran – set to hold a round of talks in the Kazakh
capital on November 28-29...
[[ La geo-política es
un verdadero ajedrez y solo 1 vez un Amer le gano a 1 RU. Si ese Amer aún vive
y sabe de geo-pol, habría que preguntarle que haría hoy ]]
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When we are going to defeat the bullish
of inside clowns?
The script
is getting old.
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IMF is fine recycling the USD… Cryptos
and single basket of mayor currencies
will make the IMF disappear.. Soon or later the world won’t need this
type of IMF.
"...the shift into crypto was not at all a 'revolution' against the
globalists, but a con designed by the globalists in part to get
liberty proponents to become
unwitting salesmen for the next phase of the economic control grid. But
how do they intend this end game to play out?"
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SPUTNIK and RT SHOWS
GEO-POL n GEO-ECO ..Focus on neoliberal expansion via wars
& danger of WW3
Xenophobia-CIA get suicidal
.. It may be hurt to know that China beat US in trade-war
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RT SHOWS
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NOTICIAS IN SPANISH
Lat Am search f alternatives to
neo-fascist regimes & terrorist imperial chaos
REBELION
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ALAI NET
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RT EN ESPAÑOL
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Keiser Report "No solo el Gob de US puede
acceder a nuestros datos más íntimos; ahora también Amazon"
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COUNTER PUNCH
Analysis on US Politics & Geopolitics
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GLOBAL RESEARCH
Geopolitics & Econ-Pol crisis that
leads to more business-wars from US-NATO
allies
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DEMOCRACY NOW
ND denounce Global-neoliberal debacle y
propone State-Social + Capit-compet in Econ
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PRESS TV
Resume of Global News described by
Iranian observers..
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