Connect with us

Economics

Key Events This Holiday-Shortened Week: A Wednesday Data Dump For The Ages

Key Events This Holiday-Shortened Week: A Wednesday Data Dump For The Ages

This week will be heavily compressed given Thanksgiving on Thursday….

Published

on

This article was originally published by Zero Hedge

Key Events This Holiday-Shortened Week: A Wednesday Data Dump For The Ages

This week will be heavily compressed given Thanksgiving on Thursday. The highlight though will be the just announced White House decision to nominate Powell for a second term as Fed Chair with Lael Brainard set to become Fed vice chair (suggesting Rich Clarida is out). Overnight it’s been announced that Biden will give a speech to the American people tomorrow on the economy and prices. Biden will likely discuss hiw decision here and perhaps plans to release oil from the strategic reserve.

Following that, DB’s Jim Reid notes that Wednesday is especially busy as a pre-holiday US data dump descends upon us. We’ll see the minutes of the November 3rd FOMC meeting and earlier that day the core PCE deflator (the Fed’s preferred inflation metric), Durable Goods, the UoM sentiment index (including latest inflation expectations), new home sales and jobless claims amongst a few other releases.

In addition to the abovementioned Fed chair decision, there are also a number of other positions to fill at the Fed in the coming months, with Vice Chair Clarida’s term as an FOMC governor expiring in January, Randal Quarles set to leave the Board by the end of this year, and another vacant post still unfilled. So a significant opportunity for the Biden administration to reshape the top positions at the Fed.

More internationally, covid will be focus, especially in Europe as Austria enters lockdown today after the shock announcement on Friday. Germany is probably the swing factor here for sentiment in Europe so case numbers will be watched closely. Staying with Germany, there’s anticipation that a coalition agreement could be reached in Germany between the SPD, Greens and the FDP, almost two months after their federal election. Otherwise, the flash PMIs for November will be in focus, with the ECB following the Fed and releasing the minutes from their recent meeting on Thursday.

That said, the Fed chair decision is unlikely to have a material impact on the broad policy trajectory. Inflation in 2022 is likely to remain at levels that make most Fed officials uncomfortable, whilst the regional Fed presidents rotating as voters lean more hawkish next year, so there’ll be constraints to how policy could shift in a dovish direction, even if an incoming chair wanted to move things that way.

Another unconfirmed but much anticipated announcement this week could come from Germany, where there’s hope that the centre-left SPD, the Greens and the liberal FDP will finally reach a coalition agreement. The general secretaries of all three parties have recently said that they hope next week will be when a deal is reached, and a deal would pave the way for the SPD’s Olaf Scholz to become chancellor at the head of a 3-party coalition. Nevertheless, there are still some hurdles to clear before then, since an agreement would mark the start of internal party approval processes. The FDP and the SPD are set to hold a party convention, whilst the Greens have announced that their members will vote on the agreement.

On the virus, there is no doubt things are getting worse in Europe but it’s worth putting some of the vaccine numbers in some context. Austria (64% of total population) has a double vaccination rate that is somewhat lower than the likes of Spain (79%), Italy (74%), France (69%), the UK (69%) and Germany (68%). The UK for all its pandemic fighting faults is probably as well placed as any due to it being more advanced on the booster campaign due to an earlier vaccine start date and also due to higher natural infections. It was also a conscious decision back in the summer in the UK to flatten the peak to take load off the winter wave. Europe is a bit behind on boosters versus the UK but perhaps these will accelerate as more people get 6 months from their second jab, albeit a bit too late to stop some kind of winter wave.

There may also be notable divergence within Europe. Countries like Italy and Spain (and to a slightly lesser extent France) that were hit hard in the initial waves have a high vaccination rate so it seems less likely they will suffer the dramatic escalation that Austria has seen. Germany is in the balance as they have had lower infection rates which unfortunately may have encouraged slightly lower vaccination rates. The irony here is that there is some correlation between early success/lower infections and lower subsequent vaccination rates. The opposite is also true – i.e. early bad outcomes but high vaccination rates. The US is another contradiction as it’s vaccination rate of 58% is very low in the developed world but it has had high levels of natural infections and has a higher intolerance for lockdowns. So tough to model all the above.

Elsewhere, in light of the rising caseloads, the November flash PMIs should provide some context for how the global economy has performed into the month. We’ve already seen a deceleration in the composite PMIs for the Euro Area since the summer, so it’ll be interesting to see if that’s maintained. If anything the US data has reaccelerated in Q4 with the Atlanta Fed GDPNow series at 8.2% for the quarter after what will likely be a revised 2.2% print on Wednesday for Q3. Time will tell if Covid temporarily dampens this again. Elsewhere datawise, we’ll also get the Ifo’s latest business climate indicator for Germany on Wednesday, which has experienced a similar deceleration to other European data since the summer. The rest of the week ahead appears as usual in the day-by-day calendar at the end.

Courtesy of DB here is a day-by-day calendar of events

Monday November 22

  • Data: US October Chicago Fed national activity index, existing home sales, Euro Area advance November consumer confidence, Australia flash November manufacturing, services and composite PMIs (22:00UK time)
  • Central Banks: ECB’s Holzmann, Kazaks and Kazimir speak

Tuesday November 23

  • Data: Flash November manufacturing, services and composite PMIs from France, Germany, Euro Area, UK and US, US November Richmond Fed manufacturing index
  • Central Banks: BoE’s Haskel speaks
  • Other: President Biden to speak on economy and prices

Wednesday November 24

  • Data: Japan flash November manufacturing, services and composite PMIs, Germany November Ifo business climate indicator, US weekly initial jobless claims, preliminary October wholesale inventories, durable goods orders, core capital goods orders, October personal income, personal spending, new home sales, final November University of Michigan consumer sentiment index, second estimate Q3 GDP
  • Central Banks: FOMC release meeting minutes, BoE’s Tenreyro speaks

Thursday November 25

  • Central Banks: Bank of Korea monetary policy decision, ECB release meeting minutes, ECB President Lagarde, ECB’s Villeroy, and Elderson, BoE Governor Bailey and BoE’s Haskel speak
  • Other: US markets closed for Thanksgiving holiday

Friday November 26

  • Data: France November consumer confidence, Euro Area October M3 money supply, Italy November consumer confidence index
  • Central Banks: ECB President Lagarde, ECB’s Schnabel, Panetta and Lane, and BoE’s Pill speak

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the second Q3 GDP release, the October durable goods report, and the October core PCE report, all on Wednesday morning. The minutes from the November FOMC meeting will be released on Wednesday. There are no speaking engagements from Fed officials this week due to the Thanksgiving holiday.

Monday, November 22

  • 10:00 AM Existing home sales, October (GS -2.0%, consensus -1.8%, last +7.0%); We estimate that existing home sales declined by 2.0% in October after increasing by 7.0% in September. Existing home sales are an input into the brokers’ commissions component of residential investment in the GDP report.

Tuesday, November 23

  • 09:45 AM Markit Flash US manufacturing PMI, November preliminary (consensus 59.1, last 58.4); Markit Flash US services PMI, November preliminary (consensus 59.0, last 58.7)
  • 10:00 AM Richmond Fed manufacturing index, November (consensus 11, last 10)

Wednesday, November 24

  • 08:30 AM Initial jobless claims, week ended November 20 (GS 245k, consensus 261k, last 268k); Continuing jobless claims, week ended November 13 (consensus 2,052k, last 2,080k); We estimate initial jobless claims declined to 245k in the week ended November 20.
  • 08:30 AM Advance goods trade balance, October (GS -$98.5bn, consensus -$95.0bn, last -$96.3bn); We estimate that the goods trade deficit increased by $3.6bn to $98.5bn in October compared to the final September report, reflecting an increase in imports.
  • 08:30 AM Wholesale inventories, November preliminary (consensus +1.1%., last -0.2%): Retail inventories, November (consensus +0.2%, last +1.4%)
  • 08:30 AM GDP, Q3 second (GS +2.5%, consensus +2.2%, last +2.0%): Personal consumption, Q3 second (GS +2.0%, consensus +1.6%, last +1.6%): We estimate a five-tenths upward revision to Q3 GDP growth to +2.5% (qoq ar). Our forecast reflects the upward revisions to inventory data since the advance Q3 reading, as well as firmer-than-expected services consumption details in Friday’s Census QSS survey.
  • 8:30 AM Durable goods orders, October preliminary (GS -0.5%, consensus +0.2%, last -0.3%): Durable goods orders ex-transportation, October preliminary (GS +0.7%, consensus +0.5%, last +0.5%); Core capital goods orders, October preliminary (GS +1.0%, consensus +0.5%, last +0.6%); Core capital goods shipments, October preliminary (GS +0.7%, consensus +0.5%, last +1.4%); We estimate durable goods declined 0.5% in the preliminary October report, reflecting a pullback in commercial aircraft and defense orders. However, we estimate firm gains in core capital goods orders (+1.0%) and core capital goods shipments (+0.7%), reflecting strong goods demand and higher prices.
  • 08:30 AM Personal income, October (GS flat, consensus +0.2%, last +0.2%); Personal spending, October (GS +1.1%, consensus +1.0%, last +0.6%); PCE price index, October (GS +0.59%, consensus +0.7%, last +0.32%): Core PCE price index, October (GS +0.37%, consensus +0.4%, last +0.21%) PCE price index (yoy), October (GS +4.95%, consensus +5.1%, last +4.38%); Core PCE price index (yoy), October (GS +4.02%, consensus +4.1%, last +3.64%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.37% month-over-month in October, corresponding to a 4.02% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.59% in October, corresponding to a 4.95% increase from a year earlier. We expect that personal income was flat and personal spending increased by 0.2% In October.
  • 10:00 AM University of Michigan consumer sentiment, November Final (GS 67.1, consensus 66.8, last 66.8); We expect the University of Michigan consumer sentiment index increased by 0.3pt to 67.1 in the final November reading.
  • 10:00 AM New home sales, October (GS flat, consensus flat, last +14.0%); We estimate that new home sales were flat in October, reflecting an increase in housing permits offset by expected mean reversion following last month’s sharp increase in sales.
  • 02:00 PM Minutes from the November 2-3 FOMC meeting; The FOMC announced the start of tapering at its November meeting today at a $15bn per month pace. The FOMC statement noted that the Committee is “prepared to adjust the pace of purchases if warranted,” but language like this that expresses flexibility is routine, and we think the hurdle to accelerating the pace is high.

Thursday, November 25

  • Thanksgiving holiday. NYSE closed. SIFMA recommends bond markets also close.

Friday, November 26

  • NYSE will close early at 1:00 PM. SIFMA recommends an early 2:00 PM close to bond markets.

Source: DB, Goldman, BofA

Tyler Durden
Mon, 11/22/2021 – 09:32








Author: Tyler Durden

Precious Metals

Who Was Kondratiev & What Is the Wave Cycle Theory?

Kondratiev concluded that each long wave was driven by technological advances. He identified four distinct phases.
The post Who Was Kondratiev & What…

…Nicholas Kondratiev (1892–1938) was a Russian economist in the Soviet Union who was tasked by Josef Stalin to study long-term capitalist economies (U.S., Britain, and France wholesale prices and interest rates) and concluded that there were peaks and troughs in economic activity that lasted roughly 50–60 years. Other economists did similar work that traced similar cycles back to the Romans and even the Mayans that all supported Kondratiev’s work. (Kondratiev was rewarded for his efforts by being sent to Siberia by Stalin. Stalin didn’t like the fact that his theories also applied to Russia and that the capitalist economies would rise again from their depressions. Kondratiev died in a Siberian labour camp.)

This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) excerpt from an article by David Chapman, for the sake of clarity and brevity to provide you with a fast and easy read. Please note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

Kondratiev concluded that each long wave was driven by technological advances. He identified four distinct phases.

  1. spring—beneficial inflationary growth, stocks rising, commodities and gold weak;
  2. summer—stagflation, recession, stock market weak, commodities and gold booming;
  3. autumn—deflationary growth, stocks booming (bubble?), commodities and gold weak;
  4. winter—deflation, depression, financial crisis, stock market weak, commodities and gold booming.

While Kondratiev’s study is important, we note that many economists do not buy into it. That is, no doubt, the old adage of stick ten economists in a room and you’ll have eleven different opinions.

Our table below on the Kondratiev Wave Cycles is based on generally consensus as the start and end of each wave. The long Kondratiev Wave is measured stock market trough to trough while the phases are measured trough to top, top to trough etc.

Kondratiev Wave Cycles—The Long Wave

Spring (expansion)

Beneficial inflation, economic growth, stocks up, commodities weak

Summer (recession)

Stagflation, weak economic growth, recession, stocks weak, commodities up

Autumn (plateau)

Mild deflationary growth, stocks up, possible bubble, commodities weak

Winter (depression)

Deflationary growth and steep recessions/depression, stocks weak, commodities up

Length of the Long Wave/Technological Drivers of the Long Wave
1784–1800

American Revolution, Indian Wars

1800–1816

War of 1812, Indian Wars, stagflation

 

1816–1835

“Era of Good Feelings,” Indian Wars, booming stock market

1835–1844

Indian Wars, the Hungry Forties, depression

60 years/steam engine, cotton, Industrial Revolution, age of steam and railways
18451858

Mexican American War, Indian Wars

1859–1864

U.S. Civil War, stagflation

1864–1874

reconstruction, Indian Wars, booming stock market

1875–1896

Indian Wars, the Long Depression

51 years/railways, steel, age of steel
18961907

Spanish-American War, Philippine- American War

1907–1920

WW1, Mexican Revolution, Banana Wars, Russian Civil War, stagflation

1921–1929

The Roaring Twenties, booming stock market

1929–1949

Great Depression, WW2, China Civil War

53 Years/electrical engineering, chemistry, age of oil, automobiles, and mass production
1949–1966

Korean War, Vietnam War, Cold War

1966–1982

Vietnam War, Indochina Wars, Cold War, Arab Oil Crisis, stagflation

1982–2000

“The New Economy,”

Gulf War, Yugoslav Wars, booming stock market

2000–2009

dot.dom bubble bust, global financial crisis, Great Recession, War on Terror – Afghanistan, Iraq, Syria, Libya

60 years/ petrochemicals, automobiles, age of information technology, telecommunications
2009-??

War on Terror -Afghanistan, Iraq, Syria, Libya

??/age of post-informational technology, artificial intelligence (AI), renewable energy??

Note how war dominates the Kondratiev cycle. All periods experience war of some nature, whether it be ongoing low-level wars—i.e., Indian wars, War on Terror, etc.—or major wars like World War I and World War II. The last major Kondratiev cycle 1949–2009 saw ongoing wars, opening with the Korean War 1950–1953 and ending with the War on Terror 2001–2021. What war will dominate the next period? NATO/Ukraine/Russia, U.S./China, or something else?

If Kondratiev’s studies showed that the long wave lasted roughly 50–60 years, it appears to have concluded the last wave right on schedule. The last wave started with the end of the Great Depression and World War II in 1949 and, we conclude (our opinion), ended with the Global Financial Crisis of 2008.

  • The winter of the Kondratiev wave was 2000–2009. The period followed a classic pattern as stocks were weak while commodities boomed.
  • While we didn’t have a depression, we had two steep recessions, culminating in what became known as the “Great Recession” of 2007–2009. This was the result of the financial crisis of 2008 that almost collapsed the financial system. If it had not been for the actions of the central banks and governments a depression might have been a possibility. It is no surprise that all might not agree with this analysis.

We come to that conclusion because the next move was the long bull market that got underway in 2009 and economies once again returned to a period of growth driven by low inflation, QE, and ultra-low interest rates.

  • The stock markets eventually moved to new-all-time highs in 2013, signaling that the long period of weak stock markets was over.
  • Gold topped in 2011, oil had already topped in 2008, and
  • the Commodity Research Bureau Index (CRB) topped as well in 2008 with a secondary top in 2011.

Our conclusion is that a new Kondratiev wave cycle got underway in 2009. If the long wave theory continues to hold, the current long wave could end somewhere between 2059 and 2069. As to the current spring phase that has an historical range of 11 to 17 years, average 14.3 years. The current spring phase will have its 13th anniversary in March 2022.

The question now is, are we poised to enter the second phase of the Kondratiev wave—the Kondratiev summer?

  • Given the rise in inflation,
  • the word stagflation now being bandied about, and
  • the recent rise in commodity prices with many of them making multi-year highs

we are seeing some of the prime characteristics of the “summer” of the Kondratiev wave cycle. At this time, we cannot confirm as to whether the stock market has topped. Confirmation could take a year or more.

During the last Kondratiev summer (1966–1982) the stock market topped in 1966. However, confirmation of that top didn’t occur until the stock market failed to make any significant new highs, despite strong rallies in 1968 and 1972–1973. Further rallies in 1976 and 1980 also failed to see any new significant all-time highs. It wasn’t until 1983 that the stock market left the period 1966–1982 behind for good. Gold rallied strongly during the period once the gold standard ended in 1971. Oil prices bubbled higher, thanks to the Arab Oil crisis of 1973 and the Iran hostage crisis in 1979. Other commodities also saw huge moves during this period. Gold did not go into a bubble market until 1976–1980. Commodity prices bottomed in 1968 and topped in 1980, rising some 250%.

We believe the Kondratiev wave cycle can be a useful tool, even though we freely admit the cycles of the Kondratiev wave are usually viewed in retrospect as are many cycles. However, what caught our eye was the resurgent commodity prices (CRB bottomed in March 2020) and the return of inflation that is beginning to look a lot more than just transitory. That, and the word “stagflation” keeps coming up. Stagflation has been a key characteristic of the Kondratiev summer. The period 1966–1982 was a long period of stagflation and ended only when Fed Chair Paul Volker hiked interest rates to unheard-of levels. The result was the very steep recessions of 1980–1982. We have noted that the central banks are trapped following years of ultra-low interest rates. Raising interest rates could spark a steep recession as it could cause problems for the housing market and more. During the last Kondratiev summer 1966–1982 bond prices plummeted (interest rates rose as prices move inversely to interest rates). The U.S. 30-year treasury bond made its final low in September 1981 as the 30-year U.S. treasury bond hit a high yield of 15.1%.

Since the bottom of the pandemic crash in March 2020 record funds have flowed into the stock markets, sparking new all-time highs and what many describe as a bubble. QE and ultra-low interest rates have unleashed a torrent of money printing contributing to the bubble. The pandemic sparked major supply disruptions as economies came back to life. There is the potential for climate change to spark more disruptions. That in turn leads to higher prices and inflation. The resurgence of COVID could also spark more disruptions. We are, we believe, in the early stages of new phase. If we are right, we are on the cusp of the Kondratiev summer and long period of stagflation, recessions, a weak stock market, and booming commodities.

Nothing, however, is coincidental and each component (stocks, bonds, commodities) will top and bottom at different times. The Kondratiev long wave is always measured from stock market trough to trough. However, phases of the long wave are measured from trough to top, then top to trough, etc. Evidence is surfacing that the spring phase of a new Kondratiev wave that got underway with the bottom in 2009 may be coming to an end. The question is, when will we see the final stock market top?

For those interested, there are numerous articles on the Kondratiev wave theory that can be found on the internet. In particular, one we wrote back in June 2006 may be of interest and appears to still be posted. It was titled “Looking Down the Road” and can be found at http://www.321gold.com/editorials/chapman_d/chapman_d_062606.html.

Related Article From the munKNEE Vault:

1. Current Long Wave Kondratieff Winter Snow Storm to End in an Economic Avalanche – Here’s Why (+3K Views) October 13, 2012

There are several variations of Long Wave theory, but the most famous is based on the work of Nicolai Kondratieff, a Russian economist who gave the various stages seasonal names, with summer and autumn denoting the peak of financial speculation and winter the aftermath of the resulting crash. The conditions for a global catastrophic failure are in place. Snow (in the form of trillions of new dollars and euros) is falling. There’s no way to know which dollar (or which external event) will start the avalanche, but without doubt something will. [Let me expand on why I hold that view.] Words: 888

Scroll to very bottom of page & add your comments on this article. We want to share what you have to say!

Thanks for reading! If you want more articles like the one above visit our Facebook page (here) and “Like” any article so you can get future articles automatically delivered to your feed. You can also “Follow the munKNEE” on Twitter or register to receive our FREE twice-weekly newsletter (see sample here , sign up in top right hand corner).

Remember: munKNEE should be in everybody’s inbox and MONEY in everybody’s wallet!

 

 munKNEE.com has joined eResearch.com to provide you with individual company research articles and specific stock recommendations in addition to munKNEE’s more general informative articles on the economy, the markets, and gold, silver and cannabis investing.
Check out eResearch. If you like what you see then…

 

The post Who Was Kondratiev & What Is the Wave Cycle Theory? appeared first on munKNEE.com.
















Author: Lorimer Wilson

Continue Reading

Economics

You Only Die Once As TINA Quietly Leaves The Building

You Only Die Once As TINA Quietly Leaves The Building

It was about a year ago when we first pointed out a remarkable divergence in this broken…

You Only Die Once As TINA Quietly Leaves The Building

It was about a year ago when we first pointed out a remarkable divergence in this broken market: retail investors (as proxied by the 50 most popular retail-held stocks) were outperforming the smart money by a factor of 10 to 1 (and blowing out the S&P500 in the process).

And while retail investors continued to dramatically outperform both the entire hedge fund universe (and to a lesser extent the broader market) for much of the following year, this unprecedented outperformance by stimmy-fueled apes almost came to a screeching halt last week when, as we noted, the universe of retail favorite stocks – mostly low liquidity, low float, high momentum small and mid-cap names as well as a couple of giga-caps such as Apple and Tesla – was on the verge of ending its remarkable streak of steamrolling the rest of the market:

A few days later, it got even uglier, as the “retail basket” of non-profitable, mostly tech, high momentum names continued to slide following Friday’s rout, sending it to the lowest level since May, and back to levels first seen in Jan 2021. And while retail continue to outperform (modestly) the HFRX hedge fund universe, the 50 favorite retail stocks are now trailing the S&P500 by about 50% on a YTD basis.

Picking up on the recent stretch of miserable retail performance, Bloomberg this morning writes that individual investors “are facing a moment of reckoning” adding that “the obsession with risk-on assets – short-handed by the term YOLO for you only live once – was a blessing for amateur traders during the meme-stock craze.” However, as we first showed last week, it has since turned “into a curse as the going got rough in every nook of the stock market last week.” And when looking at our chart of (last) week, today Bloomberg points out that Goldman’s basket of the 50 most-popular stocks among individual investors plunged 7.8% last week, trailing companies most-favored by mutual funds by 5.8 percentage points, the most ever.

Virtually no momentum name was spared: retail investors incurred several big losses last week, from Plug Power Inc., which plunged 17%, Beyond Meat, which lost 16%, and Tesla which shed 6.2%.

This is a problem because the retail crowd, which was among the first to scoop up shares during the 2020 pandemic rout, now appear to be leaving the YOLO mentality behind because, well, YODO.

As confirmation, Bloomberg notes that last week, the daily average premium that small-lot traders – those buying or selling 10 options contracts or less – shelled out for protection jumped to about $786 million, surpassing a January peak for the highest level in recent history, according to a Susquehanna analysis of the latest Options Clearing Corp data.

That premium spent on small-lot put buys is about twice as high as where it was two months ago.

“While the small-lot call premiums continue to outpace those put premiums in absolute terms, we can see that they are trending in different directions,” said Chris Jacobson, a strategist at Susquehanna. That’s “suggesting that retail activity on the put side is in fact ramping up alongside the market weakness.”

Of course, a different – and perhaps more correct – way of analyzing the data is that even retail investors are smart enough to hedge their positions during times of surging market vol… like right now. And if stocks tumble, retail investors will have puts to fall back on. As in, you know, hedging – something that hedge funds used to do once but then completely forgot how to do in centrally-planned markets.

Still, with stocks remaining in deep negative gamma territory and market pain showing no end to its weakness, retail traders whose willingness to stand firm amid prior turmoils, are showing little appetite for risk. Evidence is piling up quickly: SPACs are taking a drubbing. Until today, bitcoin was hovering steps away from a 30% correction from its peak. Off-exchange volume has dropped to near the lowest level since last year’s rout. A gauge of newly minted initial public offerings, measured by the Renaissance IPO exchange-traded fund, lost 11% last week.

A separate analysis from Goldman Sachs showed that last Wednesday some $2.2tn in option were traded in the US, with puts dominating amid a frenzy to hedge downside.

“There must be an issue with either 1) meme stocks losing interest, 2) general profit taking into year end,” said Ben Emons, global macro strategist with Medley Global Advisors LLC.”

To this all we can add say is that i) the data, when massaged enough, can show whatever one wants it to – after all, just last week we also showed that contrary to Bloomberg’s, and Susquehana’s analysis, retail investors were in fact buying the dip furiously and waving in everything that hedge funds had to sell. After all, according to Vanda Research, retail stock purchases rose to a new record on Tuesday of $2.2 billion, after reaching $2.1 billion during Friday’s rout.

That said, until we get evidence to the contrary, it’s probably safe to say – as Bloomberg’s Cormac Mullen did – that for U.S. stock investors TINA has left the building. His thoughts below:

It’s time to look for alternatives to America’s outperforming stock market, especially for global investors with a longer-term horizon.

As any good Irishman will tell you when you ask for directions, you shouldn’t really be starting from here. Anyone seeking to put fresh money into U.S. stocks right now will see them already at a record relative to the rest of the world, with margins at an all-time high, trading at their most expensive since the dotcom bubble.

But history shows the best returns for U.S. stock investors come when they buy at more sensible valuations and that they leave themselves open to losses when they pay up. Here’s a look at 10-year rolling returns for the S&P 500 superimposed with the starting P/E at the beginning of the investment period, which shows a strong inverse relationship since the 1960s.

The relative valuation gap between American shares and global peers is also at a record, with the MSCI AC World ex-U.S. Index on less than 14 times forward earnings compared to the MSCI USA Index on 21 times.

Forget TINA, that suggests there are plenty of opportunities in other markets for investors willing to take a chance: from bets on a rebound in China’s beleaguered shares (12 times earnings), to Japan’s economic reopening (14 times) to a contrarian wager on the U.K. (11 times). The French, Dutch, Austrian, Czech and Vietnamese benchmarks are already set to beat the S&P 500 this year — at least in data through Friday — along with over 20 others.

None are without risk, but U.S. stocks face their own country-specific headwinds from the withdrawal of stimulus to the potential for a policy error to the threat of increased regulation of tech firms to mean-reverting margins. All without a decent valuation buffer.

U.S. shares have been a fantastic investment, with a total return of almost 350% over the last decade compared with 100% for their international peers. But the risk/reward looks less favorable for the next 10 years, suggesting it’s time investors take a more serious look at alternatives.

In conclusion, it is safe to say that all bets are off: after all, this morning Gartman called for a bear market sparking a furious market rebound and short squeeze (just as Goldman predicted would happen as the lows for the year are now in)… 

… and should the extremely oversold rally continue tomorrow, wiping out the sour taste of the post Thanksgiving rout, then retail investors may be one surge higher away from taking the S&P to new all time highs.

Tyler Durden
Mon, 12/06/2021 – 22:20


Author: Tyler Durden

Continue Reading

Economics

China’s RRR Cut Risks A Bond-Leverage Crackdown

China’s RRR Cut Risks A Bond-Leverage Crackdown

By Ye Xie, Bloomberg Markets reported and analyst

RRR Cut Risks a Bond-Leverage Crackdown

Beijing…

China’s RRR Cut Risks A Bond-Leverage Crackdown

By Ye Xie, Bloomberg Markets reported and analyst

RRR Cut Risks a Bond-Leverage Crackdown

Beijing is moving toward putting a floor under the slumping economy. The PBOC cut the reserve requirement ratio for a second time this year, while Beijing signaled some policy fine-tuning in the housing sector. Neither move has changed the overall tone that China is doing the bare minimum to support the economy.

Meanwhile, investors are taking advantage of cheap funding to build up leverage in the bond market, sending the overnight repo volume soaring. The risk is that the PBOC may step in to crack down on the leverage.

Three days after Premier Li Keqiang flagged a cut in the RRR, the PBOC duly followed through. The central bank quickly came out to say that the RRR cut is a routine maneuver, in part to replace the maturing MLF loans that banks borrowed from the central bank. The PBOC said its stable monetary policy hasn’t changed, downplaying the notion this is the start of an easing cycle.

The RRR cut in July did little to arrest the growth slowdown. After all, the economy is faltering not because there’s a lack of loan supply, but because the real-estate deleveraging has dampened the demand for credit. Hence, China’s growth outlook relies on whether the housing market can stabilize and whether investments in other industries can pick up the slack.

There, Beijing also offered a glimpse of hope. The Politburo on Monday promised to provide more affordable housing next year. It indicated Beijing will take more of a supply-side approach, by increasing land and housing supply in the private sector, to address lofty housing prices, as opposed to cool housing demand, which is more economically damaging, Nomura’s economist Lu Ting noted. Still, Lu also pointed out that there has not been a 180-degree change in Beijing’s property curbs yet, suggesting the economic slowdown may continue in coming months.

It’s worth pointing out that the previous RRR cut in July hasn’t lowered overall corporate borrowing costs much, as China Bull Research pointed out. In fact, the weighted average lending rate for corporates rose by 10 bps to 5.3% in the third quarter. In other words, the RRR cut didn’t fully pass through to the economy.

Where did the money go? At least part of the liquidity has been channeled to the bond market, as investors borrowed short-term funds in the interbank market to buy government paper. The daily overnight repo turnover reached 4.7 trillion yuan ($737 billion) Monday, a level last seen in the early stage of the pandemic last year. (The 20-day average actually reached a record last month.)

Banks’ interbank lending to non-bank financial institutions rose to elevated levels last quarter, another sign of financial speculation, according to China Bull Research.

Beijing has been stressing that financial institutions should support the real economy, not speculate. In the past, the PBOC periodically drained liquidity to shake up leverage. The risk is that they do it again.

Tyler Durden
Mon, 12/06/2021 – 22:18





Author: Tyler Durden

Continue Reading

Trending