All the signs are that the world economy is in trouble, Brexit or not. This is from the FT today:
The primary measure of the US yield curve watched by the Federal Reserve has fallen to its lowest level since 2007, after a policy shift by the central bank has raised fears over the outlook for the US economy.
Benchmark 10-year Treasury yields sank to 2.52 per cent on Thursday and short-dated, three-month yields marched higher to 2.47 per cent.
Why does this matter? Three reasons.
First when short term interest rates are near enough the same as long term ones then banks cannot make money. Their logic is to borrow short to lend long. In this scenario there is no margin in that. Using the logic of what they think their business model is they cannot make money in this scenario.
Second, the implication is clear: markets think current risks are so high that they are as significant as long term unknowns. They are saying current uncertainty is at least as serious as what might happen over a ten year period. Current risk has to be high for that to be true.
Third, this always presages financial downturn. Markets are apt to get this right. And with sharply declining rates (it is not long since they hit 3%) that is all the more likely.
It's not looking good.
Especially if there is a tipping point. Bring on Brexit.
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May I paraphrase Boris and say ‘F**k the markets’?
And amongst the trends you are talking about, there will be vultures betting against this and that ready to make a killing at everyone’s expense.
They will just move money around to less deserving causes as per usual.
A flat yield curve may also be saying the markets have a “benign” view of inflation, why else would Pension Funds & insurance companies etc own treasuries & gilts (over and above what they are obligated to hold through regulation). Also markets may be discounting further central bank bond buying further down the line.
Equity markets are volatile, that is their nature as share prices are effectively trying to discount not only what’s happening now but what may happen in the future. Investors should be there for the longer term and most are. Any significant price weakness should be seen as a buying opportunity, this was provided most recently in December. As a generalisation the FTSE100 is on a forward yield of over 5%, that hardly makes it expensive where interest rates are at. More UK centric businesses are obviously miles cheaper as investors discount the risk we crash out of Brexit.
My experience tells me that it is impossible to predict market downturns. I have lost track of the number of warnings i have heard over the years from all kinds of commentators. When one of their forecast eventually proves correct, the forecasters will no doubt ignore the gains i have made by ignoring their advice. And these gains will be in excess of the mark – market losses in a downturn. I was around in 1987 as a junior fund manager and i saw the hype at the start of the year when people were been sucked into all sorts then the markets falling 25% in one day.Look at a chart longer term this was a blip as have the many crisis since. If investors back good managers, are diversified and have cash in reserve to buy on the dips then they will be fine.
It sounds as if you want stock markets to crash?
I am sure they will
Desire does not come into it
Out of interest, why are you so convinced Stockmarket’s will crash and are you referring to global or just the UK (because of brexit)
Both
And I am far from alone
Read Wolf and many others as well
Of course lots of people believe prices will fall but for different reasons. There is 1000s of negative articles every day. Some believe markets will fall on valuation grounds, others that earnings will fall, others that interest rates will have to rise due to capacity constraints and wage pressure. i was interested if you had a specific rationale.
Yes
Assets are overpriced
QE is largely to blame
And Oli assets are especially over priced
So you think interest rates will rise? And we have seen the end of QE.. it’s possible.
Value is always a relative definition. If equities are expensive it is to the return you forgo elsewhere so cash, bonds, commodities etc.. unless you think interest rates are going up then equities are good value v bonds and cash. If you believe rates are going up and sharply then that’s something different.
I hardly own any oil stocks, particularly exploration. Oil is just a sub sector of equity markets. In fact falling oil prices or benefits most corporates.
Same with a flat yield. It might hurt the banks but so what. Most corporates are making more profit through cheaper financing costs.
So low rates for the banks or a view on oil bears no real relation to equity markets in general. They offer good value unless you think interest rates are going up sharply. In that case investors have to hold cash or short duration bonds. In fact under that scenario one of the biggest losers will be long dated gilts.
I am staggered
I was unaware that such crass analysis still existed, wholly unaware of any macro context
Clearly it does
No wonder investors lose so often so badly
Crass analysis?? Was simply responding to your analysis that’s equities are going to crash because of QE and the oil sector.. that’s what you said. Oh and you reading a Martin Wolf article. Hardly thought out is it?
Just go and read all I have written
This might surprise you, but I don’t readily repeat it on demand for trolls
The markets seem to be made up of two groups.
Those who think they know what is going on and want to jump on board.
And those who really know what is going on (and often act as catalysts) and usually clean up nicely afterwards.
When markets fail, there are usually such winners. Markets always seem to work for them, no matter what harm comes to the rest of us.
Isn’t this a situation deliberately created by our so-called elites, collapsing the economy by removing benefits, sabotaging SMEs using banking and regulatory and government corruption? Aren’t local councils in danger of being bankrupted by the same crew? Isn’t this, then, the ‘Killing the Host’ suggested by Michael Hudson in his book of the same name? Do the perpetrators properly realise the consequences or the damage they’ll do to themselves, I wonder? I’m for the most part content to let them destroy themselves. They need us more than we need them. In fact, we don’t need them at all. Let it come down!
That Bill is exactly what I am getting at.
What is portrayed as a market fall or failure is actually modern markets working properly (market success) by those ‘invisible hands’ who create destruction in order grab assets cheaply or place bets and win.
That is why we need more oversight and regulation.
But whenever I see a market failure, I know that someone is benefitting somewhere.