Tapering All Talk No Action, Expensive Valuations, Duration Risk
Here are some of the charts I found interesting. Comments are mine. The order changed from
I picked up the Hartford link from Jonathan Tepper who made this Tweet: “Now that we have extraordinarily low yields across the world, we have the highest duration risk ever. Nice.”
The US has among the most expensive valuations in the developed world. Blue highlights mine.
US Valuations vs Japan
Highlight mine. Japan is attractive. The primary issue is whether to be yen hedged or not. A balanced approach is to be partially hedged to yen exposure. I have a position in Japanese equities.
Japan is Unloved
It does not pay, on average, to chase rich valuations. Those who have, feel good, for now.
Tighter Conditions in China
A financial accident of some sort has been on deck in China for a long time. It will spill over into world growth when it hits.
ECB Tapering All Talk But No Action
ECB QE has thrown a lifeline to European Zombie corporations. The QE is also keeping the Italian bond market from blowing up. Links below.
THis is the best news in the bunch.
Some claim that debt-to-GDP is not a problem citing 1938-1942 as proof. Excuse me but they fail to mention demographics, a baby boom, and rapidly increasing productivity. Now we debt, very poor growth prospects, asset bubbles, and an aging population to take care of.
Interest Rates May Stay Low
The best reason to expect rates to stay low is the preceding chart. Inflation? Please consider Steen Jakobsen on the Next 30 Years: “Everything is Deflationary” Thirty years is arguably too long a timeframe. The next ten years isn’t.
What Happens if The Fed Hikes?
In the unlikely event the Fed hikes another 1%, look at the left side of the chart for what is likely to happen. Look at the right side of the chart if you think the Fed will cut.
Global risks are high and rising. Ignoring asset bubbles, the worst spots for risk are the EU banking system and the unsustainable growth balancing act in China
Mike “Mish” Shedlock