- Central banks are now totally impotent, and we are seeing the end of c.bank planning
- This week could go down in financial history as the week c.bank planning died
- It's either that or a deep crisis leading to another round of pretend-and-extend
- Economic conditions are getting worse despite lower energy and rates, higher wages
- I'm getting more negative sentiment readings than at any time since Lehman
- Risk is now 60/40 skewed to the downside as c.banks seem out of ammunition
- Don’t be complacent on risk
"Don't get complacent about risk." Photo: iStock
By Steen Jakobsen
My conclusions:
Things have been bad, and they got even worse today. Here is selection of charts that show why we need to increase our alertness and reduce risk tolerance.
We are witnessing the end of central bank planning.
Central banks are now totally impotent. Yes, the European Central Bank can buy bonds, but it will only deflate the whole thing more.
This week may go down in financial history as the week when central bank planning died – the 2016 version of the fall of the Berlin Wall. It sounds worse than it is, as this was always coming.
The Fed, the Bank of Japan, the ECB – all have been dovish, but to no avail.
This is either the end of the debt cycle (and central bank planning) or a deep crisis leading to one more round of pretend-and-extend. Either way, there will be major illiquidity where FX pegs, such as Saudi Arabia's and Hong Kong's, are likely to go. Emerging market stocks could lose another 25% easily, and oil could drop to $20/barrel if not $15.
This means that a credit event will happen. Danske Bank today has a higher market cap than Deutsche Bank. Go figure.
Portugal's 10-year yield is now higher than during the Troika time (>4.5%). Italy had 400 billion euros worth of non-performing loans before this mini-crisis and a bond market owned by pensioners.
Comment: 4.5% is higher than the IMF charged.
Comment: Italy and Portugal trade above recent highs.
Comment: Financial stress is now getting into early “Lehman territory.”
Comment: Every day a new credit event occurs in the energy sector, and a spillover into the banking sector is imminent.
Comment: One day in heaven – now NEW highs… spreads.
Rates on more than 50% of all debt in the G-7 are now below zero. Sign of immunity to lower rates.
Comment: Macroeconomic conditions are getting worse, not better, despite lower energy costs and rates as well as rising salaries.
Comment: This chart is important.
USDJPY did lead yesterday into today. Most of the gain in USDJPY since the big Bazooka in October 2014 has now evaporated.
Finally, let's take a look at the US stock market...
Comment: Let’s “hope” that 1,800 points in the S&P 500 holds this week, otherwise we will revisit the 2007 high of 1,580/1,600.
I don’t know where market goes from here. But I am getting more calls, more negative sentiment readings than at any time since the Lehman collapse.
Since 2007 global debt has expanded by $57,000 billion, and 70% of all liquidity creation by central banks is used to service old debt.
Everything that happens right now makes rates go even more negative, and banks cannotmake money with negative rates.
Wall Street and Main Street have been following different paths since 2009, now they meet again.
Alertness is a mode of preference. Price action rules, and risk is now 60/40 skewed to the downside as central banks seem out of ammunition and even out of ideas.
Do not despair. I don’t have the "keys" to the market. But there are huge and fundamental values everywhere in the market right now. Don’t be complacent on risk from here. There will be attempts to “save the market” clearly. What I fear is the market action behind that desperate attempt. So prepare for a long spring.
Steen
"Central banks are out of ammunition." Photo: iStock
– Edited by John Acher
Central banks are impotent
