Risky assets have recently been helped by the US macro situation continuing to improve and a very strong Q2 reporting season. However, behind the surface there has been some interesting developments that might indicate that investors are becoming slightly more risk averse. The rest of the world has fared worse than the US, with the MSCI World excluding the US actually falling slightly since the first issue of Nordea View in mid-May. Also, during 2018 credit spreads have widened and emerging markets underperformed, and over summer defensives have outperformed cyclicals, low-risk stocks strongly outperformed riskier ones and small caps lost out to large caps.
The most crucial macro development for risky assets during the coming months will, in our view, be if US leading indicators, such as ISM, starts falling or not. We believe they will fall and drag stock markets down in the process.
We stick to our negative stance towards risky assets, due to the global manufacturing slowdown that is already upon us, our expectation that leading US indicators should drop, and the worsening central bank liquidity conditions. In light of this and rising wage pressure, we find profit margin expectations for 2019 too high.
Chart1. Valuations are stretched
Chart 2. ISM should drop the coming six months
Super Mario är inte speciellt återhållsam med ECBs balansräkning som nu uppgår till 41,3% av EUs BNP
In case you missed it! #ECB Balance sheet has hit fresh life-time high at 4,619.4 as Draghi keeps printing press rumbling. Total assets now equals to 41.3% of Eurozone GDP exactly twice the Fed's 20.7%.
The S&P 500 Median Price To Free Cash Flow Ratio Is Now 34.66
The S&P 500 median Price to Free Cash Flow ratio is now 34.66.
Investors buying US stocks at current prices are valuing the typical large-cap company at almost 35 years worth of free cash flow - from now until the year 2053.
Many savvy and experienced investors consider the Price to Free Cash Flow metric to be a superior equivalent of the Price to Earnings ratio.
By this measure, we may be a lot closer to year 2000 style bubble valuation levels than most people in the market believe.
Essentially, the entire stock market is being valued as if they are all booming growth stocks.
The delinquency rate on credit-card loan balances at commercial banks other than the largest 100 – so at the nearly 5,000 smaller banks in the US – rose to 6.2% in the second quarter. This exceeds the peak during the Financial Crisis by a full percentage point and was up from 4.0% a year ago.
But for the largest 100 banks – which carry the majority of the credit-card loan balances – the delinquency rate was 2.4% (seasonally adjusted), the Federal Reserve Board of Governors reported Tuesday afternoon. So what is going on here?
The “Sound Advice Risk Indicator” is a different story. This indicator, the brainchild of Gray Cardiff, editor of the Sound Advice newsletter, is derived from the ratio of the S&P 500 SPX, +0.21% to the median price of a new U.S. house. For the first time since the late 1990s, and for only the sixth time since 1895, this indicator has risen above the 2.0 level that represents a major sell signal for equities. (See accompanying chart.)
This chart from Meridian Macro Research shows the combined short positions of Speculators in Comex gold, 10-year U.S. treasury bonds and the stock market volatility index called the VIX. To be short any of these three would indicate that the Speculators expect:
• falling gold prices
• rising interest rates
• quiet volatility and, by extension, rising equity prices.
Check, too, this chart of positioning in the Dollar Index. Note that the Speculators are once again building a massive long position while The Commercials are moving short:
Managed Money är rekord korta i COMEX papper guld vilket är historiskt mycket positivt för guld priset
The reality is that asset prices are always, in the final analysis, driven by fundamental factors. Undervalued assets eventually go up in price, and overvalued assets eventually go down in price. The Venezuelan bolivar was overvalued and crashed, just like is now happening to the Turkish lira. Look at this chart of gold priced in liras.
Gold Skyrocketing In Price In Turkish Lira
Argentina höjer räntan till 45% för att försvara valutan som har smittats av Turkiska valutan som är i fritt fall
The chart below shows the progression of consumer debt since 2006. After the seasonal hangover in Q1, following the spend-and-borrow party in Q4, consumer debt set a new record in Q2:
COT rapporten för guld börjar nu visa på mycket stora chanser för ett riktigt lyft när det gäller priset
They’re now about as close to neutral as they’ve ever been. Based on the history of the past decade this is hugely bullish, since speculators tend to be wrong when they’re fully convinced they’re right.
For the commercials – the banks and fabricators who take the other side of speculators’ positions — it’s a mirror image: They’ve been getting less and less short for several months and in the past week took a giant step towards neutral, something that is also historically very bullish.
Yet some things never change and Doug Ramsey, chief investment officer at Leuthold Group, has been on a mini-campaign highlighting the parallels between 2000 and 2018.
Among the numerous similarities is the elevated valuation of the S&P 500 then and now, which Ramsey illustrates in a chart that he has dubbed as the “scariest chart in our database.”
Det handlar om skulderna som växer och dom måste ned betydligt och det kommer precis som under depressionen under av 30-talet i USA
- “The USA’s financial crisis is not over, because the level of private debt has remained high.”