One of the themes that we have been highlighting this year is the growing bubble in corporate bonds. It is pointless in the first instance to discuss whether super easy monetary policy that has fueled this bubble is appropriate or not. The main thing for investors to countenance is that the current monetary policy regime is having unintended consequences through the formation of a bubble in increasingly scarce liquid fixed income instruments.
Our real narrow money index continues to decline and is sending an increasingly bearish cyclical signal for the global economy and commodity prices. Our real narrow money index has now declined for 4 months running and is now tracking below 7% for the first time since October 2010.
The economy and financial markets remain in the grips of the most easiest monetary policy the world has ever seen. The balance sheets at the Fed and the BOJ continue to expand at record pace and global real rates have been negative for over 3 years now. Negative real rates create tremendous incentives for borrowers to lever up and often create asset bubbles in debt, equity and property.
The notion of a perfect storm is a tired cliché but in Portugal’s case, its use has rarely been more apt. Our view is that the market is underestimating the risks surrounding Portuguese debt roll-over and planned exit from the…
Data in the UK have taken an unequivocally positive turn. PMIs for services, construction and manufacturing are at 3 year highs. Furthermore, the underlying picture is healthy, with the new orders to inventory ratio for manufacturing surging to 1.4. This has resulted in growth forecasts being upgraded, including the OECD, which now sees annualized growth in 2H13 of 3.5%, compared to the BoE’s last estimate of 2.8%.
One concrete example where the recent sharp drawdown in the FX rate may herald better times ahead is in Brazil. As in most other emerging markets, a weaker currency is a double – edged sword. If it happens too quickly it can cause a run on FX reserves and add to inflation risks.
The headline above is not a mistake; aggregate debt to GDP is now growing again in the US . This is evident if we look at the broadest measure of credit in the US which rose to a new high of $57 trillion USD in the first quarter of 2013.
Industrial production in the G7 has edged up further and this is in accordance with the OECD LEI diffusion index. G7 industrial production is now growing again and based on the upturn in the OECD LEIs observed since late last year we would expect economic activity to be well supported in the next 3 months.
Since tapering discussions pushed up yields in the US, this has led to a steepening of yield curves across the developed world. The US has seen the greatest steepening, which argues for higher growth in the US ahead. However, the…
No-one ever said that investing was easy, but when textbook correlations start to break down it can be outright painful. Such of course has been the environment in recent couple of months with stocks and bonds falling in unison. It won’t last forever, but it may persist for a while longer.