This is how insane things have become as the world monetary system edges closer to disaster.
But first, King World News had a large delay in publishing today due to technical issues that have now been resolved. We apologize for the delay and we hope you read this important piece carefully because it was well worth the wait.
Expect More Inflation
By Peter Boockvar, author of the Boock Report
March 14 (King World News) – Here is what Peter Boockvar wrote as the world awaits the next round of monetary madness: At the annual ECB conference today Mario Draghi only reinforced the policy path they are on:
“We currently see inflation converging toward our aim over the medium term, and we are more confident than in the past this convergence will come to pass. But we still need to see further evidence that inflation dynamics are moving in the right direction.”
He reiterated that there will be no surprises:
“Adjustments to our policy will remain predictable, and they will proceed at a measured pace that is most appropriate for inflation convergence to consolidate.”
The ECB seems to want to continue with the current pace of QE thru September and then taper it down to nothing by year end. The euro is down a touch because Draghi also talked about the strengthened euro and its influence on inflation but European bond yields are up slightly while European stocks are bouncing somewhat from yesterday’s selloff.
Will All Of This Have Been Worth It?
Bottom line, the ECB has actually had price stability now for years at the core CPI level but we know that is not the definition of the arbitrary desire for 2% inflation. If there is one safe bet out there, it is that when all this is said and done, when QE is over, when negative interest rates no longer exist, the German 10 yr yield won’t be at .62%. The French 10 yr yield won’t be at .87%. The Italian 10 yr yield won’t be at 2%. European junk bonds won’t be yielding 2.89%. All will certainly be much higher and then what to their 2% inflation goal? What then for European economic growth with rates much higher? Will all of this monetary largess have been worth it?
The Running Of The Bulls
Coincident with the stock market gains over the past week, particularly on Friday, the Bulls are back according to Investors Intelligence. Bulls rose 6.3 pts to 54.9% but in an interesting development, just about all of them came from the Correction side which fell to a 6 week low. Bears remain in hiding but they actually rose by .2 pts to 15.7%, still a lonely level. The extreme in this data set came at the end of January when Bulls got to 66% and Bears hit 12.6%, both at levels last seen 32 years ago and that of course came with the top in the market this year. That was the peak in euphoria.
While the NASDAQ hit a new record high and the S&P 500 retraced about 75% of its selloff, most stocks have only retraced about half their losses. Here is a chart of the percentage of NYSE stocks trading above its 200 day moving average as of Monday’s close and not including yesterday’s action.
Percentage Of NYSE Stocks Trading Above 200-Day Moving Average
Rush To Lock In Mortgage Applications
With US mortgage rates hitting a fresh 4 year high at 4.69%, up almost 70 bps in just the last 6 months, there was a rush to lock in as mortgage applications to buy a home rose 3.4% w/o/w and are up 2.5% y/o/y. Refi’s, which are typically negatively influenced by changes in rates immediately, fell 2.2% w/o/w and are lower by 18% y/o/y. Buyers of homes that have gone up in price by 5-6% per year over the last few years now face a higher cost of financing. Hopefully home price gains slow for these buyers, particularly younger ones who have struggled to save up for a down payment because of a lack of savings and student debt.
Meanwhile In China…
China reported some key February economic data and relative to expectations they were mixed. Retail sales rose 9.7% y/o/y ytd (smoothing out Lunar New Year noise) and that was one tenth below the estimate and down from a 10.2% pace seen in December. Industrial production picked up its rate of growth to 7.2% from 6.6% in December and that was above the forecast of 6.2%. I don’t know what to make of IP data in China because sometimes its influenced by forced action on capacity by Chinese authorities. Fixed asset investment, the key driver of Chinese growth, was up by 7.9% y/o/y ytd, an increase from 7.2% at the end of last year and higher than the expectation of a 7% increase.
Bottom line, the Chinese economy continues to balance the desire to slow credit growth, close inefficient and excessive industrial capacity, keep the property market from overheating and shift more to services from fixed asset investment while all maintaining at least 6.5% economic growth. I’m a China bull long term but this is a lot to juggle and managing the huge debt side is the biggest challenge. Chinese stocks closed red as did almost all of Asia. We’ll be in particular watching for the new tit for tat on trade policy between the 2 largest economies.
Land Of The Rising Sun
The always volatile Japanese machine orders surprised to the upside in January but the number is so all over the place that I don’t think any market ever responds to it. For example, it was up 5.5% m/o/m in November, down 9.3% in December and higher by 8.2% in January.
Kuroda was speaking last night in Parliament, again having to defend himself on this policy trap he’s created for himself. He repeated that they are “distant from its price target” but then went on to discuss the different ways then can eventually exit from the path they are on by shrinking their balance sheet which is about 100% of GDP and raising rates. Good luck with that. Draghi and Kuroda have certainly created quite a daunting challenge for themselves.
In something stunning to see, the BoJ has so overwhelmed the JGB market by owning 40% of it, NOT ONE SINGLE 10 YR JGB BOND TRADED ON AN EXCHANGE ON TUESDAY. The BoJ has killed the bond market.
King World News note: The bottom line is that this is all part of the Grand Monetary Experiment that is guaranteed to end in disaster. When it all comes unglued, it will be about wealth preservation as well as the largest transfer of wealth in history.
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