Four charts to illustrate the “pain” of the market:
The macro backdrop story is this:
The CREDIT CAKE – the credit impulse + nominal debt issuance is collapsing – since the GFC the world monetary growth (main debt) has risen more than nominal growth ie: World Monetary Growth / World Nominal Growth > 1 (8-10%/4-6%) – now however world monetary growth is 2-2.5% against 5-6% world growth meaning significantly below 1!!!! We have, Chris Dembik, specially, again-and-again documented the collapse in the credit impulse (the change of change in credit) which leads world by 9-12 monthøs-
Furthermore Federal Reserve insists on “normalization” of policy rates which means rest-of-world, (read: Emerging Markets) is getting less credit at a much higher prices, meanwhile in the US – this liquidity short-fall is neutralized by tax reform, which has meant US companies has taken money home increasing the liquidity for on-shore US markets, add to this the most aggressive buy-back, dividend and M&A in history to the tune of 1.200 billions-ish and you have reason US market has been and could outperform short-term………
IS contagion happening? Too early to tell, but with today’s likely announce of additional 200 billion worth of tariffs and the market break-down shown below, the risk is rising..
We are still net looking to buy Emerging Market risk, but post-today’s announcement. Failure to take out recent EM lows will make us dip our toes – failure and we will wait..
Next two days of trading is critical for overall RISK On / Risk Off – we will keep you posted…
Comment: Tencent is the most widely owned stocks and the biggest weight in Emerging Market funds globally… Trend been down since March but now it’s broken recent low plus low-end of channel….
Comment: Alibaba Earnings were ok – but stock just broke lower – Omen of bad things to come?
In US Social Media + TSLA having a tough time – TSLA Junk Bond now trading @ 8% and default risk is rising fast….. Elon Musk personal life is increasingly becoming a risk to the company itself….. Musk + Trump show is not pretty and I don’t see any good exits/solutions for either of them..
Finally, India and its currency is spinning out of control – the high energy prices is increasing its deficit & FX
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