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"Macro" Musings


giofranchi

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What does everyone think of what is happening in the bond markets? Could this be the beginning of the bond bubble busting?

 

As other's and Roubini recently have commented there is a mismatch in bond ETF's - liquidity - could this lead to things getting out of the central banks control?

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This just depends on your view of inflation. With so much debt around the world i can just not see long term inflation picking up, maybe for a year or so dependend on currency movements. But i am a little biased by Prem Watsas view, so maybe something else is going on. Who knows? :)

But i am pretty sure that the low in german bonds is behind us, because negative 10 year yields just make no sense. But i doubt that shorting bonds is a wise idea either.

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http://photos.caixin.com/2015-06-08/100816899.html

 

http://photos.caixin.com/2015-06-08/100816899_4.html

 

Figure this topic is as good a place to post these as any. 

 

It's interesting. Yeah, this type of behavior is concerning. But at the same time, the Shanghai Composite Index has been flat to negative since '09, until the recent spike. All while the economy has been growing at a fairly decent clip. If the price chart went up in a slow and gradual fashion to reach the same price, like the S&P, I don't think alarm bells would be going off on threads like this one. In fact with the spike, it's roughly inline with the S&P over a 5 year time period. And as an aside, the Hang Seng is much lower than the S&P over the last 5 years.

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I have long ago decided that I don't have a good handle on the Chinese market.  I just thought these pictures are good for a chuckle.  Don't know if you paid attention, but in the second picture, there is a Buffet picture.  The Chinese next to the picture says the "Buffet Analytical System".  And to the left of the picture, it says "100RMB, Understand it in one minute, Learn it in one minute". 

 

 

 

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This just depends on your view of inflation. With so much debt around the world i can just not see long term inflation picking up, maybe for a year or so dependend on currency movements. But i am a little biased by Prem Watsas view, so maybe something else is going on. Who knows? :)

But i am pretty sure that the low in german bonds is behind us, because negative 10 year yields just make no sense. But i doubt that shorting bonds is a wise idea either.

 

 

Dr. Lacy Hunt On The Six Characteristics Of Over-Indebted Economies

Posted By: VW StaffPosted date: May 29, 2015 07:53:28 AMIn: Videos

 

http://www.valuewalk.com/2015/05/dr-lacy-hunt-on-the-six-characteristics-of-over-indebted-economies/

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Pointless to look at P/E ratios, there is no correlation between P/E ratio and next year or next 3-5 year returns. Shiller P/E has a small correlation.

The risk is in earnings going down/margins contracting, not necessarily in P/E ratios contracting.

 

Depends what you're doing. He's not trying to predict all things that can go wrong (such as margins contracting) or forecasting returns, he's taking a back of the envelope look at current valuation, and P/E is a measure of valuation (as flawed as it can be).

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China-deflation has pretty much played out by now.

 

What makes you say that?  If assets start deflating in China, there'll be another leg, no?

 

Even if assets deflate in China, I don't expect Chinese salaries to deflate with the assets. So, no, there won't be another leg of goods-around-the-world-deflating-because-of-cheap-Chinese-labor.

 

Perhaps, I was too succinct when I said "China-deflation". Please substitute with "goods-around-the-world-deflating-because-of-cheap-Chinese-labor"

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China-deflation has pretty much played out by now.

 

What makes you say that?  If assets start deflating in China, there'll be another leg, no?

 

Even if assets deflate in China, I don't expect Chinese salaries to deflate with the assets. So, no, there won't be another leg of goods-around-the-world-deflating-because-of-cheap-Chinese-labor.

 

Perhaps, I was too succinct when I said "China-deflation". Please substitute with "goods-around-the-world-deflating-because-of-cheap-Chinese-labor"

 

Yes, I see the distinction.  Thanks.  Although I wonder; asset deflation would put  lot of pressure on asset-owning, debt-owing businesses.  I think real-terms wages might well fall if asset deflation set in.

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The question is: Does the market have to reach bubble proportions before it tanks?  The tone today seems to be a relatively new way of thinking about market levels and threats of downturns that I don't recall encountering in the late 70s, or the 80s and 90s.

 

I don't think it does, and I don't think that's what the author is saying. I think he's merely responding to the general calls of bubbles that we've been seeing from some people for years.

 

If people talk of bubbles, it's not weird to look around for them and see what we find, no?

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  • 1 month later...

At best,the European Empire has stalled. At worst, it will start to shrink in a way that will jeopardize Ricardian growth across the continent. All else being equal, this will mean slower growth in the use of the euro, which now has surely become a structurally weak currency (see the chart below). In the long run, people do not like to save in the structurally weak currency of a shrinking empire, a reality which means that European bonds are likely to underperform those of other, non-shrinking, empires—the US and China—for the

foreseeable future.

--Louis Gave

 

 

Gio

The-End-Of-An-Empire-July172015.pd.pdf

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Icahn:

When [high yield] gets killed and there is a run, there is nobody to buy that stuff. There is nobody to buy that trillion bucks. I don't know what ramification that can have, but it sure killed the market in '08 when the housing blew up.

 

http://www.valuewalk.com/2015/07/icahn-blackrock/

 

Surely, most of you have seen Icahn's rant by now. I think he is right and find it very interesting to think about the implications. It's not only corporate high yield but also sovereign EM debt that could cause a financial crisis. The problem, as always, is liquidity.  Bond ETFs are supposed to be liquid, much more so than the underlying securities. When everybody wants to sell at once it's like a huge hall full of people squeezing through one small exit in the event of a fire.

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