Global Risk has clearly truned up according to the GMTP's Aggregate Risk Level Index. Widening EU CDS (Credit Default Spreads) along with a rising TED Spread suggest lenders are increasing nervous.
Global Event Risk in Greece and a Chinese Market Crash may be the obvious reason for the nervousness, but the GMTP sees it to be much broader based. Credit problems in Puerto Rico are shaking the Monoline Muni Insurers as it did when it preceeded the 2008 Financial Crisis, Slowing Global Trade and plunging Commodity prices are impacting Emerging Economies, Liqudity worries in the global bond markets have institutional inverstors worried and increasingly taking protective positions. Unfortunately, the list goes on.
Equity markets are clearly showing signs of rolling over. The central bankers can see all of this and we believe are prepared. When the markets finally react to the multipicity of clear distortions, expect the central bankers to unleash unprecedented new policies aimed at guaranteeing plunging collateral values. Starting with the September Quadruple Witch, expect heightened volatility & nervousness to shift to worry and possibly worse.
MORE>> EXPANDED COVERAGE INCLUDING AUDIO & MONTHLY UPDATE SUMMARY
VALUE VORTEX - Why Value is Getting Harder To Find?
When a family lives beyond its means by consuming more than it produces we all know what happens.
Bankruptcy, repossession of assets by creditors destroyed credit and more. What is important is to understand is that it is actually different for sovereign nations. That is because they control the currency or money.
Similarly to any family caught in a position of not being able to meet its obligations sovereign governments are forced to make choices it has avoided through irresponsibility.
Governments choices are different however. They almost always adopt policies of unsound money through Monetary & Fiscal Policy frameworks. We won’t talk here about the fiscal games such as “Cash-for-Clunkers” or “HAMP” etc. Instead from a monetary perspective we have what has been labeled as Monetary experiments such as ZIRP, Quantitative Easing (QE), Operation Twist etc.
All of these policies keep the cost of the debt obligations by the government at ridiculously low levels under the cover of “stimulating” the economy. By doing this it is robbing savers and pensioners of the income on their savings to allow the government to maintain its prolific and irresponsible spending.
It is also destroying the very fabric of how capitalism works in delivering more for less. Instead we get less for more!
Consumer, Investor and Trader Sentiment has shifted and Global Consumer Confidence is showing clear signs of deteriorating. Market Internals and Market Breadth can be best described as increasingly troublesome!
We have Event Risk in Greece, China, Brazil, Puerto Rico ... and the list goes on. We have Q2 earnings down 1.3% Y-o-Y and markets over-valued according to MATA research measures by 80.4%.
So if none of this is sufficient to de-rail this historic "central bank" bull market, what will? Alan Greenspan in his Humphrey-Hawking testimony as Federal Reserve Governor and global central bank leader was often heard to say that the thing that worried him the most, and the one thing he was unable to predict, was the inevitable and cyclical shifts in public sentiment and confidence.
LIke a thief in the night, major shifts in confidence and sentiment arrive unexpectedly and leave the unsuspecting and unprepared violated and in shock.
This months MATA reports lays out endless warnings, concerns and troubling historic annomalies which need to be thoughtfully heeded. Though we believe the central banks fully expect troubles (and have prepared for it), there is likely some scary moments to come in the fall.
It is highly likely that the next market scare will usher in the central banks last great "hurrah' and potentially the final market top for this great Bull Market in 2016.
MORE>> EXPANDED COVERAGE INCLUDING AUDIO & EXECUTIVE BRIEF
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Macro Watch is a video newsletter published quarterly by Richard Duncan. It analyzes trends in credit growth, liquidity and government policy in order to anticipate their impact on economic activity and asset prices.
In this new age of fiat money, credit growth drives economic growth, liquidity determines the direction of asset prices and the government controls both through aggressive policy intervention.
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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.
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