Global stock (and bond and real estate) markets have been on a tear this year, apparently in anticipation of three big events. And last week they got them all, sort of:
The US and China announced a “trade deal” that is flimsy but a deal nonetheless; the Fed promised to refrain from raising rates until (official) inflation bursts through the 2% target and stays there – which might be a really long time; and Britain handed its pro-Brexit Conservatives a massive parliamentary majority, pretty much guaranteeing that departure from the EU is finally imminent.
The effect of all this closure is to remove what the markets see as the main outstanding risks, thus clearing the way for financial asset prices to rocket to the moon in 2020.
In other words we’re witnessing a classic “buy the rumor, sell the news” setup, because the trade war, Brexit and the Fed weren’t the real risks. Nor was their expected resolution the real reason stock prices have been hitting records.
What is the real reason? Insane levels of credit creation in the third quarter of 2019. Here are some of the highlights, culled from Doug Noland’s latest Credit Bubble Bulletin:
• Total US credit (financial and non-financial) jumped by $1.075 trillion in Q3, the strongest quarterly gain since Q4 2007’s $1.159 trillion, ending September at $74.862 trillion (348% of GDP).
• Non-financial debt surged $835 billion – double Q2’s growth — to a record 250% of GDP, up from previous cycle peaks of 226% at year-end ‘07 and 183% to end 1999.
• Federal government borrowings rose at a 10.4% pace.
• U.S. Mortgage Lending increased $185 billion, the strongest quarterly gain since Q4 2007.
• M2 money supply surged an unprecedented $1.044 trillion over the past year, or 7.3%.
This tsunami of newly created currency had to go somewhere, and the path of least resistance was financial assets. Year to date:
The S&P500 has returned 28.9%.
The Nasdaq Composite is up 31.6%.
The Semiconductors (SOX) index is up 55.5%.
The Nasdaq computer Index up 45.8%.
Banks (BKX) gained 31.3%.
Treasury bonds (TLT) returned 16.9%.
Investment-grade corporates (LQD) returned 17.5%.
Junk bonds (HYG) returned 13.3%.
So either this debt binge continues or liquidity dries up and financial assets get sold. Which means chaos of one kind or another is heading our way.
6 thoughts on "Time To Sell The News?"
trump is going to win…sorry, everyone hates the demoncrats!!!!!!!!!!!!!!!!! so get your money out of the system befor they take it from you one way or another…………… GET OUT NOW
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I can’t remember the last time I correctly predicted a financial
event. So, that said, take this for what its worth: the credit party
will continue for years longer.
I know it seems like there has to be a limit to all the central bank interventions, but
considering they literally “have” an unlimited amount of money I don’t
see why they can’t bail out anything and everything to keep the balls in
the air.
However, THAT may be true – that they can do whatever – but that doesn’t mean they will. I’ve asked rhetorically for years why they’ve enabled the Trump Presidency when so many hate him, and the answer could be that the entrenched expected that he would have been
nullified by now. At this point they may stop enabling the Trump Presidency and crash the markets as a last resort. The only problem with that theory is i feel confident that the markets would have crashed had Clinton won the Presidency (as a final nail in the coffin for the US et al, and the ushering in of a global reset), so why wouldn’t they have done the same when Trump won? Therefore, I think the agenda is just to keep things going as long as possible by any means necessary, hence my prediction that the credit party will go on for years longer.
Now you know what WON’T happen. Your welcome.