An article (cnbc.com) to drive discussion.
_________________________________________________________________
Loony libs may try to blame the trade war Trump is waging against China for future recession woes, but it has little impact compared to much more fundamental issues that are increasing global risk. It doesn't help, but it's not the catalyst or the primary problems.
Here's a rundown for those out of the loop:
The Eurozone sovereign debt crisis of 2011/2012 has never been solved. We just got negative interest rates and lots of liquidity injections by the ECB over the past five years, which kicked the can down the road. Now they're running out of ammo with almost the entire European bond market yielding negative returns... which is batshit insane.
China's credit bubble has expanded every year while their GDP growth has been slowing down. I won't delve into detail here since it can become its own large thread, but China's financial problems by themselves could plunge the world into a major depression in my opinion. While being an extreme comment that's putting my neck out on a limb by saying as such, but I don't see any other way around it if the house of cards collapses. China is directly affected by the trade war issues, but they were seeing severe financial strain before trade war issues ratcheted up the pressure. A lot of it has been hidden in fake shell companies, construction of ghost cities, and overseas investments that would be withdrawn in catastrophic collapse.
Brexit is still a thing, and the "worst case" no deal solutions once believed an afterthought is now becoming accepted as the most likely scenario. It will have massive ramifications since London is a financial capital.
US assets are generally very expensive, with software and growth stocks doing their best to mimic dotcom era valuations. Meanwhile, a lot of hot money escaping Europe and Asia's problems has flowed into the USA, which likely caused a big role in fueling these extraordinary valuations. Even "value" stocks have become rather expensive. Multiples have compressed some ever since the height of the 2018 blowoff top, but this is largely just a product of money sloshing into fixed income and safe havens more than anything else.
This same flow issue is providing an extraordinary bidding environment for anything providing yield, as foreign pension funds , insurance companies, and banks are starved for yielding assets considering they can't purchase their own sovereign bonds for positive yield. This has forced foreign financial institutions way out on the risk curve, and even with that in mind, they're still not getting much back in terms of yield. Japanese, Taiwanese, and other foreign institutions are at severe risk if and when credit gets downgraded, or when currency starts to move against them (which it likely has already started). It can't be understated how much of a risk this is systematically.
- Sure, instruments like CLO's by themselves aren't an enormous issue, but when you realize that CLO's are just one subset of the "anything producing yield" bubble (junk bonds, investment grade debt, em sovereign debt, etc), you start to seeing the bigger picture. The bond market blowup of Argentina (bloomberg.com) recently is a good example of the risk some institutions may take pushing way out on the risk curve in search for a small bit of extra yield. Thankfully, this wasn't a major market and it's not where most money is being placed, but it's a small warning of what can happen here.
There is over 12 trillion dollars in emerging market debt denominated in USD, and the dollar just keeps rising. The more we see financial issues in Europe, Asia, etc, the more this just squeezes the US dollar higher, putting even more strain on the global financial system since it gets even more difficult to repay these USD-denominated debts. This is especially negative for all EM countries, and there isn't a long term solution. There have been attempts to kick the can down the road, but most of those just involved more borrowing, which just make the problems worse in the long run.
Many municipalities in Europe are completely overwhelmed by migrants seeking welfare. Most in Sweden are expected to be in the red next year. Obviously negative yield rates and an exploding tax expenditure burden are a recipe for disaster. None of it is sustainable, and it's clearly insane. All of you here should already be aware that this is the goal of the Cloward-piven strategy.
In summary, Systematic risk in China, Europe, and broader Asia, helped cause highly stretched valuations in the USA. It all goes hand in hand, it ought to be clear that this is bull run doesn't have too much longer. While there is a lot of nuance, a lot of other issues I didn't address, and there are also some positives I haven't covered. The point is that people should pull their heads out of their ass and quit paying attention to all the trade war garbage. It's an issue, but it's a scapegoat rather than being the actual problem.
An [article](https://www.cnbc.com/2019/08/14/stock-markets-wall-street-in-focus-amid-earnings-economic-data.html) to drive discussion.
_________________________________________________________________
Loony libs may try to blame the trade war Trump is waging against China for future recession woes, but it has little impact compared to much more fundamental issues that are increasing global risk. It doesn't help, but it's not the catalyst or the primary problems.
Here's a rundown for those out of the loop:
- The Eurozone sovereign debt crisis of 2011/2012 has never been solved. We just got negative interest rates and lots of liquidity injections by the ECB over the past five years, which kicked the can down the road. Now they're running out of ammo with almost the entire European bond market yielding negative returns... which is batshit insane.
- China's credit bubble has expanded every year while their GDP growth has been slowing down. I won't delve into detail here since it can become its own large thread, but China's financial problems by themselves could plunge the world into a major depression in my opinion. While being an extreme comment that's putting my neck out on a limb by saying as such, but I don't see any other way around it if the house of cards collapses. China is directly affected by the trade war issues, but they were seeing severe financial strain before trade war issues ratcheted up the pressure. A lot of it has been hidden in fake shell companies, construction of ghost cities, and overseas investments that would be withdrawn in catastrophic collapse.
- Brexit is still a thing, and the "worst case" no deal solutions once believed an afterthought is now becoming accepted as the most likely scenario. It will have massive ramifications since London is a financial capital.
- US assets are generally very expensive, with software and growth stocks doing their best to mimic dotcom era valuations. Meanwhile, a lot of hot money escaping Europe and Asia's problems has flowed into the USA, which likely caused a big role in fueling these extraordinary valuations. Even "value" stocks have become rather expensive. Multiples have compressed some ever since the height of the 2018 blowoff top, but this is largely just a product of money sloshing into fixed income and safe havens more than anything else.
- This same flow issue is providing an extraordinary bidding environment for anything providing yield, as foreign pension funds , insurance companies, and banks are starved for yielding assets considering they can't purchase their own sovereign bonds for positive yield. This has forced foreign financial institutions way out on the risk curve, and even with that in mind, they're still not getting much back in terms of yield. Japanese, Taiwanese, and other foreign institutions are at severe risk if and when credit gets downgraded, or when currency starts to move against them (which it likely has already started). It can't be understated how much of a risk this is systematically.
- - Sure, instruments like CLO's by themselves aren't an enormous issue, but when you realize that CLO's are just one subset of the "anything producing yield" bubble (junk bonds, investment grade debt, em sovereign debt, etc), you start to seeing the bigger picture. [The bond market blowup of Argentina](https://www.bloomberg.com/news/articles/2019-08-14/pimco-s-bet-on-argentine-bond-paying-75-rate-flops-on-peso-rout) recently is a good example of the risk some institutions may take pushing way out on the risk curve in search for a small bit of extra yield. Thankfully, this wasn't a major market and it's not where most money is being placed, but it's a small warning of what can happen here.
- There is over 12 trillion dollars in emerging market debt denominated in USD, and the dollar just keeps rising. The more we see financial issues in Europe, Asia, etc, the more this just squeezes the US dollar higher, putting even more strain on the global financial system since it gets even more difficult to repay these USD-denominated debts. This is especially negative for all EM countries, and there isn't a long term solution. There have been attempts to kick the can down the road, but most of those just involved more borrowing, which just make the problems worse in the long run.
- Many municipalities in Europe are completely overwhelmed by migrants seeking welfare. Most in Sweden are expected to be in the red next year. Obviously negative yield rates and an exploding tax expenditure burden are a recipe for disaster. None of it is sustainable, and it's clearly insane. All of you here should already be aware that this is the goal of the Cloward-piven strategy.
In summary, Systematic risk in China, Europe, and broader Asia, helped cause highly stretched valuations in the USA. It all goes hand in hand, it ought to be clear that this is bull run doesn't have too much longer. While there is a lot of nuance, a lot of other issues I didn't address, and there are also some positives I haven't covered. The point is that people should pull their heads out of their ass and quit paying attention to all the trade war garbage. It's an issue, but it's a scapegoat rather than being the actual problem.
(post is archived)