We have been warning clients in the past few months that volatility was set to rise towards the middle of the year. We have been flagging the almost parabolic increase in margin debt as well as our leading indicator for equity volatility.
The underlying outlook for inflation in the US continues to point to upside risks in the coming years. Endless discussions between hyperinflationists and deflationists are boring and unproductive. We prefer to look at the data and the data is pretty clear.
Last week’s BoJ meeting did not meet expectations of trying to soothe the Japanese bond market. Yields have shot up, with 10y yields 50% higher in May as of this morning, largely a consequence of the BoJ succeeding in raising…
The developed world remains mired in the debt crisis that roiled the global economy in 2008. Growth is low, and deleveraging is an ongoing process. However, the response by policymakers has been strong, and free money is leading to bubbles, the misallocation of capital and excess leverage. In this note, we lay out a framework and road map for investors to look at the rise and inevitable bursting of the bubble in global corporate bonds. The Fed and the rest of the G4 central banks have created a bubble in the corporate bond market.
Volatility in general is still falling, with both equity and commodity volatility lower than their 2005/06 trough. However, we are seeing signs of life in interest rate volatility. US rate volatility has recently pipped up, and this has been led…
Employment in the US is closely watched, especially as the Fed has marked it out as an important factor in how it will judge its stance in monetary policy. Payrolls have improved and the unemployment rate has declined, but structural issues stubbornly remain. The Fed will be alert to these issues, and thus the bar for the removal of stimulus is very high, despite repeated murmurings of ‘tapering’ and a tightening in monetary conditions.
In the short run, it is difficult to see what can stop equities at this point. Low inflation, central bank support and relatively robust economic data have created a Goldilocks scenario for equities. However, perhaps as a result it is worthwhile looking at what could go wrong. One of the more important intermediate indicators on the equity market is derived from the stock of US margin debt at the NYSE.
Follow this link to watch from the beginning of the interview, or skip to minute 34 on the video below.