Russell Napier talks about interesting structural fundamentals. He was right on the way back-up of risk-markets, pointing out that Commodity, Credit and Inflation-linked bonds prices were already improving before the equity markets did. Equities hate deflation and these 3-indicators rise paved the way for his prediction in equities up. He was wrong on calling for 6% US Treasury yields within two years though. But he still has the same call to which I kind of disagree.
Key points that I picked from the video:
- DM is not printing money, but paved the way for EM to print money (credit growth). So, to combat inflation, he believes that creditor tightening, not debtor (DM) tightening, will actually impact global growth. Nominal rates will be ultimately used to slow down activity in EM and bring inflation down as a result.
- The New Normal is actually investors positioned for a further extension of this period of very low nominal rates / negative real interest rates.
- There will be one more deflationary shock coming: I'm not too sure I understood this point.
He mentioned lack of demand for bonds, therefore pushing yields up. But HOW this would happen puzzles me and he didn't say explicitly.
I only see a few ways for this to happen:
1. strong inflation in DM so they tighten: unlikely or still a long way to happen in my opinion.
--- The ECB tightened once.
--- BOE didn't, but 'should', but there's no growth.
--- BOJ: can't. Simply no need to either.
--- Fed: no explicit strong reason yet.
2. fiscal problems in DM: markets would make this happen shunning DM debt. No demand for DM debt.
The mismatch there, in my opinion, is that way before DM tightens EM would have tightened considerably already, thus bringing activity down, then DM activity down and... global bond yields down.
Perhaps my strong view that the developed economies won't need to tighten unless they go through a stagflationary scenario (because they can't grow anyway - ongoing massive deleveraging) blinds me to understanding Mr. Napier.
So the only ways I see DM bond yields rising:
- hyper stag inflation
- debt issues
Both caused by ongoing currency debasement.
So... short USD+EUR+GBP (perhaps the JPY, after it rallies in stress) and long BRL, NOK, SEK, CAD,currency-with-good-balance-sheet-high-pop-growth-ongoing-productivity-gains-good-monetary-policy-makers-and-stable-rule-of-law.
Russell Napier: Historian sees S&P fall to 400
Key points that I picked from the video:
- DM is not printing money, but paved the way for EM to print money (credit growth). So, to combat inflation, he believes that creditor tightening, not debtor (DM) tightening, will actually impact global growth. Nominal rates will be ultimately used to slow down activity in EM and bring inflation down as a result.
- The New Normal is actually investors positioned for a further extension of this period of very low nominal rates / negative real interest rates.
- There will be one more deflationary shock coming: I'm not too sure I understood this point.
He mentioned lack of demand for bonds, therefore pushing yields up. But HOW this would happen puzzles me and he didn't say explicitly.
I only see a few ways for this to happen:
1. strong inflation in DM so they tighten: unlikely or still a long way to happen in my opinion.
--- The ECB tightened once.
--- BOE didn't, but 'should', but there's no growth.
--- BOJ: can't. Simply no need to either.
--- Fed: no explicit strong reason yet.
2. fiscal problems in DM: markets would make this happen shunning DM debt. No demand for DM debt.
The mismatch there, in my opinion, is that way before DM tightens EM would have tightened considerably already, thus bringing activity down, then DM activity down and... global bond yields down.
Perhaps my strong view that the developed economies won't need to tighten unless they go through a stagflationary scenario (because they can't grow anyway - ongoing massive deleveraging) blinds me to understanding Mr. Napier.
So the only ways I see DM bond yields rising:
- hyper stag inflation
- debt issues
Both caused by ongoing currency debasement.
So... short USD+EUR+GBP (perhaps the JPY, after it rallies in stress) and long BRL, NOK, SEK, CAD,currency-with-good-balance-sheet-high-pop-growth-ongoing-productivity-gains-good-monetary-policy-makers-and-stable-rule-of-law.
Russell Napier: Historian sees S&P fall to 400
*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com
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