'Let’s start with a step back. The global economy clearly hasn’t recovered from the last recession like it did in previous cycles. Yes, the stock market performed well. So has real estate.
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Recall, this follows years of astonishing, amazing, unprecedented, and astronomically huge monetary stimulus by the Federal Reserve, Bank of Japan, European Central Bank, and others. In various and sundry ways, they opened the spigots and left them running full speed for almost a decade.'
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Recession Signs Everywhere, March 29, 2019
'.."..the negative-yielding corporate bond, a phenomenon that turns the idea of credit risk on its head." ..Yet the more egregious the Everything Rally’s speculative run, the more problematic the inevitable reversal. It should be an interesting second quarter and rest of the year.''March 28 – Financial Times (Robert Smith): “The amount of government debt with negative yields rose back above the $10tn mark this week, as central banks abandoned plans to tighten monetary policy. The idea of investing in bonds where you are guaranteed to lose money — if you hold them to maturity — has always seemed paradoxical. But it begins to make sense in a world where you are sure to lose even more money if you stick the cash in a bank. Parking your money in German government bonds, for example, is also safer than trying to stuff millions of euros under your mattress. More puzzling, however, is the negative-yielding corporate bond, a phenomenon that turns the idea of credit risk on its head. Here investors, in effect, pay for the privilege of lending to companies.”
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The quarter began with Chairman Powell’s dramatic January 4th dovish “U-Turn.” After raising rates and holding to cautious rate and balance sheet normalization at the December 19th FOMC meeting (in the face of market instability), such efforts were abruptly abandoned. The Fed will soon be winding down the reduction in its holdings, while markets now assume the next rate move(s) will be lower.
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The dovish turn from the Fed, ECB and BOJ flung the gates of dovishness wide open: The Bank of England, the Reserve Bank of New Zealand, the Swiss National Bank, etc. The tightening cycle in Asia came to rapid conclusion, with central banks in Taiwan, Philippines, and Indonesia (at the minimum) postponing rate increases.
But it wasn’t only central bankers hard at work. Posting an all-time shortfall in February, the fiscal 2019 U.S. federal deficit after five months ($544bn) ran 40% above the year ago level. But this is surely small potatoes compared to the shift in China, where Beijing has largely abandoned its deleveraging efforts in favor of fiscal and monetary stimulus. After an all-time record January, it will most likely be a record quarter for Chinese Credit growth - monetary stimulus that spurred stock market gains while nursing sickly Chinese financial and economic Bubbles.
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..Yet the more egregious the Everything Rally’s speculative run, the more problematic the inevitable reversal. It should be an interesting second quarter and rest of the year.'
- Doug Noland,
Everything Rally, March 30, 2019
Context'..a complete breakdown in discipline - in central banking, in Washington borrowing and spending..'