For some months now, we have been warning of the stresses building in China’s credit structure and warning that, if unaddressed, they would lead to pain in asset markets and potentially to weakness out in the real economy. Here, we lay out the arguments in detail.
Are equities ‘overpriced’ and if so, by how much? What about bonds or that largely forgotten asset-class, commodities? How do the three of them inter-relate and can we take advantage of such behaviour in order to build a better, more macro-resilient portfolio?
We take a detailed look, here, in the presentation found by clicking on the link:
Some readers may be interested in putting a voice – and even a face – to the author. Below are links to three recent audio-visual publications in which I discuss US & Chinese macro as well as the interrelations between the three great asset classes of stocks, bonds, an commodities. Following on is a wider sampling of my views. Continue reading …
Birmingham statistician and financial forecaster Arthur H. Gibson’s so-called ‘paradox’ came about from his detailed empirical findings that the level of bond yields (as measured by the price of British Consols) tended to follow – with a lag of around a year – the price of wholesale commodities (a measure he adopted, as he himself explained, as a proxy for what he thought was the real crux of the issue, the cost of consumable necessities for which no comparable data existed). Argument has abounded as to the phenomenon’s true explanation, ever since.
‘Dollar makes worst start to the year since 1985,’ screamed the headlines a few weeks ago in a classic click-bait attempt to get people to read about what they already should know by using a somewhat artificial statistic – after all, since when did the world revolve around what happened specifically between Dec 31st and July 31st?
In an earlier Monitor, we alluded to a possible monetary reason for suspecting that the past year’s spectacular (and inflationary) bounce in Chinese revenues and earnings might have reached its high-water mark.
Here we take a more detailed look at the situation in the Middle Kingdom:-
In her recent set-piece testimony before Congress, Janet Yellen made clear that she is determined to repeat the sort of ‘gradualism’ in raising rates that proved so disastrous after the Tech bust. In other words, that she will not so much boil the frog slowly as encourage him to go out and make a further raft of foredoomed, highly-leveraged investment decisions before he realises he’s been cooked.
The more our would-be Philosopher Kings attempt to display the awesome panoply of their intellectual armour, the more we think, not of the Greek sage from whom they seem to draw inspiration, but of Mickey Mouse’s dopey canine friend.
In bonds, the Bears are mounting another one of their forlorn hope charges against the central bank ramparts which is, in turn, rendering equities a little more expensive in relative, as well as absolute, terms. Commodities, meanwhile, are firmly rooted in mean reversion mode.
No, Mario is NOT about to give up – whatever! China monetary trends might mean the industrial earnings cycle has peaked. US debt levels are still OK, but the low cost is promoting slightly worrisome growth – nor are Tech balance sheets entirely without blemish. Commodities – clueless and friendless.