Friday, August 26, 2016

Extra Links

Today's quote:  "Data from JPMorgan shows that the top 50 central banks around the world have cut rates 672 times between them since the collapse of Lehman Brothers, a figure that translates to an average of one interest rate cut every three trading days. This has also been combined with $24 trillion worth of asset purchases." CNBC

1--Investors pull out of European stocks in record outflow streak, pile into bonds

European equities posted a record 29 straight weeks of outflows with a drawdown of $2.0 billion, according to EPFR Global data cited by Bank of America Merrill Lynch in a Thursday report. Meanwhile, investors poured $6.6 billion into bonds, marking the 19th week out of the past 21 weeks of inflows, the data showed

2--Richard Koo’s chart to explain the past 200 years (and the need for fiscal stimulus)

3--QE leads to asset bubbles and inequality, but doesn't help the real economy

Alberto Gallo, head of macro strategies and manager of the Algebris Macro Credit Fund, describes this paradox as "QE infinity," whereby low rates and seemingly endless rounds of bond-buying programs encourage cheap borrowing, and investment in financial markets -- but not in the real economy. "The problem is rising debt and monetary easing comes with many collateral effects. One is the distortion of asset prices, leading to asset bubbles," Gallo explained on his website.

"Asset price distortion also has a ripple effect on wealth distribution, increasing inequality by benefitting the already-wealthy who are more likely to hold financial assets. Over time, low rates and QE can also encourage misallocation of resources to leverage-sensitive sectors, including real estate and construction."...

(What price signals?)

"QEs have distorted the fixed income market. By continuously pushing asset prices higher and yields lower, economies and markets have become increasingly reliant on these accommodative measures," Morgane DelleDone – Associate Director, Fixed Income Strategist at ETF Securities told CNBC via email

4--Japan July consumer prices post biggest annual fall in three yrs (Increasing the wrong policy will not fix the economy"

Japan's consumer prices fell in July by the most in more than three years as more firms delayed price hikes due to weak consumption, keeping the central bank under pressure to expand an already massive stimulus program....

The nationwide core consumer price index, which excludes volatile fresh food prices but includes oil products, fell 0.5 percent in July from a year earlier, the fifth straight month of declines, data showed on Friday. It exceeded a median forecast for a 0.4 percent decline and June's 0.4 percent drop.....

Despite three years of heavy money printing by the BOJ, weak household spending and a strong yen pushing down import costs have kept inflation distant from the bank's 2 percent target

5--What to Learn From the ECB’s Great European Corporate Bond Squeeze-- The European corporate bond market heads into ever more extraordinary territory

(ECB touches off a feeding frenzy but its effects on the economy are nowhere to be seen)

Since the ECB’s announcement of corporate debt purchases in March, yields on euro-denominated nonfinancial bonds have dropped precipitately, to the lowest on record. Investment-grade debt now yields just 0.52%, according to Bank of America Merrill Lynch index data, down from 1.28% before the policy was unveiled. While the total corporate purchases of €17.8 billion ($20.06 billion) so far are tiny next to the €980 billion of government bonds the ECB has bought, they have been bigger than many in the market expected.

But the relentless rally in corporate bonds has slowed in August.

6-- Why US corporate debt has become a magnet for yield-hungry investors

Global investors are flocking to the US debt market primarily due to negative yields in Europe and Japan. With the recent interest rate cut and bond-buying program in the United Kingdom, this trend is likely to accelerate

Even though the United Kingdom’s bond-buying program is limited to debt issued by UK companies, it will have a direct or indirect impact on the US bond market.
Andrew Brenner, broker-dealer with National Alliance Securities, said in an interview with CNBC on August 4, “If you have a U.K. pension manager and as corporate bonds there get ridiculously expensive, he’s going to sell those and buy U.S. corporates — the Microsofts, the Apples.” He added, “Corporate spreads are going to stay tight.”

7--ECB's corporate bond purchases have been a bust

While the ECB’s own corporate QE initially lured companies to the bond market — €50bn was sold in March, the month after the policy was announced, supply has since waned and the bond buying is yet to spur either capital investment or even bond sales to fund dividend payments, stock buybacks or mergers.

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