Market Perspective

Repricing – Financial Markets – Week 6

Posted by on Apr 3, 2018 in Ned Massie, Perspective | 0 comments

Venezuela: This is an amazing economic story receiving very little press coverage. Venezuela has some of the largest oil deposits, some of the most fertile agricultural land in the world, and a hard-working, well-educated population. Yet is is an economic basket case after 20 years of socialism. The average Venezuelan has lost 20% of their body weight over the last year and anyone that can flee the country is doing so. The Cubans are running the Venezuela internal security systems in return for access to some of the oil. But the oil system has been so poorly managed that it is near collapse. Russia and China also have loans secured by Venezuela’s oil. The global price of oil should continue to be in the range of $40 to $60 per barrel for as long as the eye can see. There is just simply too much oil available. Those figures are a fraction of what Venezuela needs as a sales price for their oil in order to balance their budgets. Until complete collapse occurs, there is no relief for Venezuela. Russia, China, and Cuba will sooner or later effectively own Venezuela. None of those countries’ economic systems are viable. When Venezuela collapses, the ripple effects will hurt the global economy. Assets will be repriced....

read more

Repricing – Financial Markets – Week 5

Posted by on Mar 27, 2018 in Ned Massie, Perspective | 0 comments

Japan Quantitative Easing (QE): Although Japan has recently reported some inflation consistent with their stated objective, their Quantitative Easing (QE) has continued unbounded. When The Fed cut back QE in the US the amount of QE provided by the Bank of Japan (BOJ) and the European Central Bank (ECB) increased their QE in order to provide the same total QE to the global economy. Now the ECB has indicated that they are going to start tapering back their QE effective the summer of 2018. Bank of Japan has not made any such statement. Assuming that they do not by themselves increase the QE in the global economy by an amount equal to what the ECB was doing, there will be a significant reduction in the liquidity available to the global economy. While ultimately healthy because some assets are bubbles (Bitcoin anyone?), the reduction in liquidity will be another source of re-pricing of...

read more

Repricing – Financial Markets – Week 4

Posted by on Mar 22, 2018 in Ned Massie, Perspective | 0 comments

Global Markets and China: We continue to be concerned that the Chinese banking system is struggling even though it has just been bailed out for the third time. In fact, the entire Chinese economic system is a bubble waiting to burst. The global economy is so intertwined, it is impossible for one country’s economic activity to not impact the rest of the globe. Especially when the country is a big player like China. Chinese banks have been playing games providing high yielding investment products in a manner that has not been regulated. The bank regulators in China have begun to force their banks to reduce these products. If the bank regulators in China are successful in forcing the banks to pare back some of their “creative” loan products, the normal result will be that those banks will have to (1) raise equity in order to have an additional capital cushion, or (2) they will have to cut back on their loan portfolios, or (3) some combination of the two. Whichever of those three alternatives occurs, this is a significant reduction in the amount of capital available to the second largest economy in the world. The result will impact the global economy and the re-pricing of all assets will...

read more

Repricing – Financial Markets – Week 3

Posted by on Mar 8, 2018 in Ned Massie, Perspective | 0 comments

Economic Growth 2018-2019: Economic growth will continue to increase in 2018 and into 2019. The tax law signed in late December of 2017 assures those facts. Historically, any impact made on the economic system is not fully reflected in it until 9 to 12 months later. That would suggest that we will begin to see the full impact of the new tax law in the fourth quarter of 2018. There will be a significant amount of economic growth momentum going into 2019, perhaps continuing into 2020. Strong economic growth means that The Fed will raise interest rates. It makes no difference whether it is three or four times in 2018 or a total of six times in 2018 and 2019. As The Fed raises interest rates, higher rates will have an impact on mortgage loan rates and consumer loan rates resulting in slower new home sales. The positive news is that high interest rates will benefit savers. Their increase in interest received will offset some of the negative economic impact of the higher interest being charged by banks. There is a point where The Fed will overshoot, and they will not know that they have done that until there is recession. Watch for a repricing of real estate as these trends play...

read more

Repricing – Financial Markets – Week 2

Posted by on Mar 8, 2018 in Ned Massie, Perspective | 0 comments

Inflation Will Come Back The official inflation rate for the month of January 2018 was 0.5% which if continued for the year would be 6%. Inflation rates typically vary greatly from month to month, so the probability of an annual inflation rate of 6% in 2018 is quite small. However, the financial markets recognize that Quantitative Easing (QE) is going to be discontinued thereby removing some growth from the global economy. But the USA could see inflation because of rapid economic growth and a weaker dollar. As a result, US 10-year treasury bonds in mid-February increased to the highest yield set in four years, approximately 2.9%. That interest rate is still amazingly low from a historical perspective. But the change is significant enough to affect the valuations of stocks and put a scare into the financial markets. Expect more volatility as repricing courses throughout the economy and impacts all asset classes....

read more

Repricing – Financial Markets – Week 1

Posted by on Feb 28, 2018 in Ned Massie, Perspective | 0 comments

When QE Stops: Starting in 2011 enormous amounts of money have been pumped into the world economy. The balance sheets of central banks around the world have increased by four times to around $14T. Never before in the economic history of the world have we seen Quantitative Easing (QE) on this scale, much less the removal of QE on this scale. In the past when a country has used QE, one of three things happened when the QE ended: The economy collapsed; That country defaulted on all of its bonds; Or both. This increased risk will eventually be “repriced” into all financial assets....

read more