There’s a curious combination of messages that came from Federal Reserve officials on Tuesday.
Fed Chairwoman Janet Yellen told an audience in London that asset valuations are “somewhat rich.”
Fed Vice Chairman Stanley Fischer told an International Monetary Fund event that price-to-earnings ratios now stand in the top quintiles of their historical distributions.
And San Francisco Fed President John Williams gave the bluntest assessment, telling an Australian television station that the stock market is running on “fumes.”
PG View; Given the Fed’s history of overly-optimistic assessments, I think the real message is that the stock market is vulnerable to a sharp correction.
Extending its overnight decline, Bitcoin is now down almost 15% from last week’s highs, back at its lowest since June 16th…
…all of the largest 30 virtual currencies are deep in the red…
…Catalysts for this most recent drop remain unclear but as we noted last night, chatter is focused on uncertainty surrounding SegWit (another potential fork in the codebase) and some looming large ICOs.
Yahoo Finance/Julia La Roche/06-25-17
Legendary bankruptcy expert Dr. Edward Altman cautioned that this benign credit cycle — characterized by low default rates, low yields, low spreads, and lots of liquidity — could come to an abrupt end.
“It’s been a terrific market for investors for quite a long time and if anything is concerning it’s that we now are more than eight years into a benign credit cycle,” Altman, a professor at NYU Stern School of Business, told Yahoo Finance. “We’ve never had such a long benign cycle. And just that one little fact is something that we should be concerned about because if it comes to one and it could come to an end very dramatically.”
Altman, the creator of the financial-distress sniffing Altman Z-Score, warned in mid-2007 of a “Great Credit Bubble” and that there was going to be trouble in the market. He predicted that a meltdown would stem from corporate defaults. While the primary culprit of the financial crisis turned out to be mortgage-backed securities, investors who heeded Altman’s warning nevertheless avoided a lot of grief.
…Troublingly, Altman sees the reckless behavior of 2007 surfacing again.
FT/Nicole Bullock, Joe Rennison & Robin Wigglesworth/06-22-17
Flows into equity funds fizzled over the past week amid concern by investors about high prices for shares and a hawkish US central bank.
…“The Fed’s move to increase rates and shrink their balance sheet is analogous to someone trying to take off their pants without first removing their shoes,” said Michael Underhill, chief investment officer at Capital Innovations. “I’m not sure why there is a such a hurry to raise rates and shrink the balance sheet in light of how accommodative they have been and the fact that we have a fragile economic recovery.”
PG View: A growing number of investors seem increasingly worried about the Fed ignoring the data.
Oil prices continued to search for a bottom on Tuesday, falling more than 2 percent to fresh seven-month lows on signs of rising production in key parts of the world.
U.S. West Texas Intermediate crude oil futures were last down $1.19, or 2.7 percent, at $43.01. WTI fell on Tuesday to the weakest intraday prices since Nov. 14, when the contract hit $42.20 a barrel.
…Prices took the fresh leg lower on new signs of rising output from Nigeria and Libya, the two OPEC members exempt from a deal to cut production.
PG View: Oil is trading at new 7-month lows, with scope for a move back below $40.
Oil prices sank more than 3 percent to their lowest in more than five weeks on Wednesday following U.S. data showing an unexpectedly large weekly build in U.S. gasoline inventories and International Energy Agency (IEA)data projecting a big increase in non-OPEC output in 2018.
The increase in U.S. gasoline inventories drove down RBOB futures RBc1 by more than 4 percent, tugging Brent and U.S. crude futures lower with them, analysts said.
PG View: Well that’s not going to do anything to boost inflation expectations…
BusinessInsider/Jacqui Frank & Kara Chin/06-09-17
Legendary investor Jim Rogers sat down with Business Insider CEO Henry Blodget on this week’s episode of “The Bottom Line.” Rogers predicts a market crash in the next few years, one that he says will rival anything he has seen in his lifetime.
It’s going to be the biggest in my lifetime and I’m older than you. No, it’s going to be serious stuff. We’ve had financial problems in America — let’s use America — every four to seven years, since the beginning of the republic. Well, it’s been over eight since the last one. This is the longest or second longest in recorded history, so it’s coming. And the next time it comes — you know, in 2008, we had a problem because of debt. Henry, the debt now — that debt is nothing compared to what’s happening now. In 2008, the Chinese had a lot of money saved for a rainy day. It started raining. They started spending the money. Now, even the Chinese have debt and the debt is much higher. The federal reserves, the central bank in America, the balance sheet is up over five times, since 2008. It’s going to be the worst in your lifetime, my lifetime too. Be worried. — Jim Rogers
PG View: Rogers sees this happening “later this year or next.” And while the Fed will attempt a rescue as they did in 2008, “this time it won’t work.”
Bloomberg/John Gittelsohn & Erik Schatzker/06-07-17
U.S. markets are at their highest risk levels since before the 2008 financial crisis because investors are paying a high price for the chances they’re taking, according to Bill Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund.
“Instead of buying low and selling high, you’re buying high and crossing your fingers,” Gross, 73, said Wednesday at the Bloomberg Invest New York summit.
Central bank policies for low-and negative-interest rates are artificially driving up asset prices while creating little growth in the real economy and punishing individual savers, banks and insurance companies, according to Gross.
PG View: At this juncture, if you don’t want to be “buying high and crossing your fingers,” you should consider gold. Even though the yellow metal is up 11% so far this year, it remains 34% off its all-time high.