GDP

Expect Nasty Volatility & Shocks This Summer

Expect Nasty Volatility & Shocks This Summer

With the stock market heading no where for the last 4 months of this year, it is high time we took a step back and view things from a systematic angle. As we approach the "sell in May and go away" phase of the year, equity returns are looking more vunulrable to adverse shocks, and flares in volatility.

YTD, the S&P 500 is almost unchanged, down marginally. Bonds (quality) and commodities (short USD) have been the best performers for the last 4 months. Vol of vol (VVIX) has remained elevated but is not yet deemed to be at alarming levels. What's in store for us may be a surprise. Or actually maybe not.

When we piece this puzzle back in a way BofAML calls the "3P's of Positioning, Policy & Profits", we can come to the conclusion that the risks are skewed south, and things could turn uglier very promptly. Therefore, it may be wise to expect very moderate returns from equities. One may wish to overweight cash, bonds, and gold while avoiding equities and non-IG corporate credit.

Bill Gross: About Helicopter Money

Bill Gross: About Helicopter Money

Technology and mass robotization are probably the single biggest threats to our jobs. Jobs of both the blue and white collars are gradually being replaced by robots that are much more cost efficient and productive. Plus, robots have no want for minimum wages, or hold strikes in protest for what is now a huge skill deficiency in the labor force across the world.

So will politicians and central planners dabble with the risk of upsetting the status quo for a potential change in direction? Unlikely.

Rather, Janus Capital's Bill Gross believes central planners will stick to what they have always been best at: Printing money (QE), lowering interest rates or bringing them sub zero as we've seen recently, and fiscally stimulating economies with debt funded programs thereby creating a false impression of prosperity when there isn't.

Bill Gross: Careful Of What You Wish For With Negative Rates

Bill Gross: Careful Of What You Wish For With Negative Rates

"30-40% of developed bond markets now have negative yields and 75% of Japanese JGB’s do" is how Bill Gross likes to drop some perspective onto the world that has become so numb to the new age central banking tool known as NRIP, or negative interest rate policy. It's absolutely perverse, and it's everywhere like how Vampire Squid has its tentacles all over political campaigns in America.

Business cycles have become so influenced by asset price inflation, or in some cases deflation, that they have lost a good deal of traction with the more traditional Keneysian theory of aggregate demand and aggregate supply.

Gross ultimately warns that if global economies continue to merely drift on stagnant waters, failing to see a breakaway renaissance in output growth, we might be in for a rude awakening when the chickens come home to roost. Eventually they shall.

Here's Why Dumping Risk & Buying Cash Might Be The Smartest Move This Year

Here's Why Dumping Risk & Buying Cash Might Be The Smartest Move This Year

It's been an extremely busy first week of 2016 for Business Of Finance. Global markets are in a state of frenzied chaos, much like a chicken running around without its head.Only this time every risk asset has been sold with reckless abandon while liquidity is conversely bid to the moon. Anyone who shorted risk, went long volatility, and stayed in cash since Christmas week would be gleefully grinning at the poor folks who are trapped in 2015's outdated ideologue 

While we are hard pressed for time, we feel we need to put this piece out to give readers a first glance of what 2016 might be like for the markets all across the world. We have a feeling 2016 may be markedly different from the past 5 years where cash might actually be the best performing asset. Yes, being in cash is a position in and of itself.

In layman's speak, you ether go big or go home in 2016. At least that's what we think. You could make a hack a lot of profits or loose your shirt in the kind of markets we've been greeted with so far. So buckle up, sit tight, sell risk and buy cash.

Guest Post: China Is Not What It Seems

Guest Post: China Is Not What It Seems

On June 12, we saw carnage in the Chinese stock markets. The Shanghai composite has since tumbled in just three weeks, 30% from its seven-year high, wiping out more than $3 trillion worth of wealth.

What is even more curious is the stock market boom starting in June 2014, which saw the index surging up 110% to a seven-year high of 5166 points in June 2015, just before the crash.

Does this irrational exuberance in the Chinese stock markets make sense, especially with arguably ugly economic figures?

The fear of losing out in the great bull run has caused many young Chinese investors to employing excessive leverage. Over the past few months, margin finance has risen from a mere 1 trillion yuan to 1.46 trillion yuan in march 2015. 

And there we have it. The equation explaining the bull run in the Chinese market: Increase in retail investor participation + increase in leveraged stock trading.

 

Grexit, U.S. & Canada Contraction

Grexit, U.S. & Canada Contraction

Greece is now back in recession while a €1.5bn IMF payment looms just 2 days away. Greece, now led ever deeper astray by a stubbornly defiant Government, is undeniably the champions when it comes to perpetually kicking the can down the road.

Tuesday's data showed that inflation in the currency union warmed to 0.3% YoY from 0.2% in April - yet another sign that Greece is being left far in the wake of a ship that has long set sail.

The toil of staying in the Eurozone, being in a constant and never ending tug of war, and having to cede to the demands of its creditors whom will ultimately have their way just adds fodder to the chimeric spirit of a once independent and free Greece.

All these indicates to us that the risk of a Grexit (Greek Exit) has never been greater, although it might not seem so on the surface.The impetus to leave the Euro and write off just about all of its external liabilities looks to be the path of least resistance to us. The upside risks of a Grexit is undervalued and which probabilities are overly discounted.