• Tag Archives Morgan Stanley
  • Morgan Stanley: Here Comes “The Three-Headed Policy Monster”

    One month ago, Morgan Stanley’s chief cross-asset strategist looked at the current state of the market – “the S&P 500, Russell 2000 and NASDAQ have hit all-time highs. Volatility has plunged back down near all-time lows. Credit is tighter and yields have been stable” – and asked “what rattles this market. What breaks the egg?”
    His answer was five-fold, including valuations, inflation, geopolitics and China, but the biggest concern was what is coming in just one month on the US legislative docket:
    The debt ceiling worries us most, given that action may need to be taken within as little as seven weeks.
    It was “seven weeks” four weeks ago, which means that the D(debt)-day for the US government – now expected ti hit in the first days of October – is ever closer, even as the domestic political situation in the U. S. gets progressively worse.

    This post was published at Zero Hedge on Aug 20, 2017.

  • ‘Inconvenient’ Fact: Morgan Stanley Says Electric Cars Create More CO2 Than They Save

    For all the funds out there looking to fill their portfolio with “environmentally conscious” companies working diligently to avert an inevitable global warming catastrophe that will result in the extinction of the human race, we guess in lieu of their actual fiduciary duties to simply make money for their investors, Morgan Stanley has compiled a list of how you can get the most ‘environmental healing’ per dollar invested.
    As MarketWatch points out, it’s not terribly surprising that of the 39 publicly-traded stocks analyzed, the solar and wind generation companies landed at the very top of Morgan Stanley’s environmentally friendly the list.
    Morgan Stanley identified 39 stocks that generate at least half their revenue ‘from the provision of solutions to climate change,’ something it said was a central component of investing to make a difference, as opposed to just a making a buck. ‘In our view, impact investing needs to begin with companies whose products and services have a notable positive environmental or social impact,’ wrote Jessica Alsford, an equity strategist at the investment bank.
    Not surprisingly, alternative-energy companies ranked the highest in terms of their positive impact, and the ‘top five climate-change impact stocks’ were all manufacturers of solar and wind energy: Canadian Solar, China High Speed Transmission, GCL-Poly, Daqo New Energy, and Jinko Solar.

    This post was published at Zero Hedge on Aug 18, 2017.

  • Margin Debt Sets Four New Peaks This Year – a Red Flag with a New Twist

    According to the latest data from the New York Stock Exchange, margin debt has hit new peaks four times this year, starting with a new record of $513 billion in January; $528 billion in February; $536.9 billion in March; and reaching a whopping $549 billion in April. The most recent reading for June shows a decline to $539 billion – but that is still an increase of 64 percent from the margin level of January 2008, the year of the epic financial crash on Wall Street.
    Spiraling margin debt, where investors pledge securities at their brokerage firm to obtain a loan, typically to buy more securities, is frequently associated with stock market crashes. The dot.com bust followed a margin buying binge in 1999 and early 2000. Margin debt exploded from $153 billion in January 1999 to $278.5 billion by March of 2000, according to data from the New York Stock Exchange archives.
    Loans using securities as collateral may be even more dangerous this time around. According to an enforcement action filed by the Massachusetts Securities Division on October 3, 2016, brokerage firms may be pushing securities based loans on their clients for purposes of mortgage funding, tax liabilities, weddings, and graduations. The enforcement action was brought against Morgan Stanley, the behemoth brokerage firm that gobbled up Smith Barney brokers, but the charges include an interesting statement from a former Morgan Stanley broker that suggests that another giant brokerage firm, Merrill Lynch, is offering similar loans. The statement from the broker reads:
    ‘Morgan Stanley told our office during the end of February [2015] and beginning of March to pitch this product to all its customers. Management said they were doing this to keep up with its major competitor, Merrill Lynch, who was already offering express credit lines. They told us that there was big money to be made by having our customers take out credit since the variable interest rate was profitable to the company and they could just sell out of the customers positions if the customer failed to make the payment. They told us to call our customers to tell them that they could use the credit line to buy a house, pay for a home improvement project, buy a car and/or pay for school, etc. They asked us regularly how many people we had put in these products and used measurement tools to compare us amongst our peers. I did not feel comfortable recommending every customer establish a credit line because I felt that my role as a Financial Advisor and Fiduciary was to help customers save and make money and not go into bad debt.’

    This post was published at Wall Street On Parade on August 14, 2017.

  • Shocking Admission From Global Head Of Strategy: “Our Clients Have Given Up On Valuation As A Metric”

    For all the recent concerns about an “imminent” nuclear war with North Korea (not happening, according to the head of the CIA), which prompted a stunned reaction from Morgan Stanley which earlier today observed the “70% rise in the VIX index over three days, 2% drop in global equities, and more than a few holidays disrupted”, leading it to conclude “Well, That Escalated Quickly“, the market continues to ignore the real risk: the upcoming central bank balance sheet taper which will have a dire and drastic impact on markets according to Citi’s global head of credit product strategy, Matt King:
    Markets seem optimistic that central bank plans to modestly reduce their support for markets in coming months can be achieved without disruption. We are not convinced.
    Borrowing an analogy from developmental psychology, King compares the relationship between the Fed and the market to that between a (failed) parent and a child obsessed with their cell phone.
    When other people’s children behave badly, the temptation is to presume it’s something to do with the parents. But then one day, even if you managed to avoid the terrible twos, your very own adolescent comes downstairs to breakfast with a look that could curdle the milk in its carton, fails even to grunt a response to your cheery good morning, and makes straight for their mobile phone. It shortly becomes clear that the mere fact of your breathing is something they find deeply offensive. Nothing in their previous twelve-or-so years of almost uninterrupted sweetness gave any hint of this. Where on earth did you go wrong?

    This post was published at Zero Hedge on Aug 13, 2017.

  • Morgan Stanley: “Well, That Escalated Quickly”

    “Well, that escalated quickly.”
    That’s how Morgan Stanley’s chief cross-asset strategist Andrew Sheets summarizes events in the last week in his latest Sunday Start note, in which he describes how following one of the calmest stretches for stocks since the 1960s, an escalating war of words with North Korea hit late summer markets priced for relatively little vol with the result sharp and sudden: a 70% rise in the VIX index over three days, a 2% drop in global equities, and more than a few holidays disrupted. Fear not, though, because according to Morgan Stanley, whose outlook on the S&P is one of the most bullish on Wall Street, views last week’s events “as a standard equity correction within an ongoing bull market.” With volatility bearing the brunt of the repricing over the last several days, that’s where some of the most interesting changes lie.
    And while Sheets lays out his reasons why the bank’s advice to clients is just to BTFD – or in the context of N. Korea, BTFAONW – Morgan Stanley does caution that things could get serious if the one scenario many – most recently Jeff Gundlach – have been dreading, namely the rise in volatility, becomes self-fulfilling, with investors selling as volatility rises and markets move lower, driving more of both. As Sheets writes, “for this risk, I’d be watching if new lows in the S&P 500 are confirmed by new highs in the VIX. This scenario is also scarier if realised volatility can stay near implied (if it doesn’t, implied volatility can fall, reversing the cycle). As of noon Friday, 3m S&P 500 was priced for a daily move of 0.8% and EuroStoxx was priced for a daily move of 0.9%.”
    Finally, while the bank remains optimistic on equities, it adds that there is an exception: “we would not ‘buy the dip’ in US credit, where [we] see more risks, given weaker fundamentals, expensive pricing and limited upside in exchange for swimming against the recent tide.”

    This post was published at Zero Hedge on Aug 13, 2017.

  • Look Out Manhattan – Chinese Foreign Real-Estate Spending Plunges 82%

    Earlier this month, Morgan Stanley warned that commercial real estate prices in New York City, Sydney and London would likely take a hit over the next two years as Chinese investors pull out of foreign property markets.
    The pullback, they said, would be driven by China’s latest crackdown on capital outflows and corporate leverage, which they argued would lead to an 84% drop in overseas property investment by Chinese corporations during 2017, and another 18% in 2018.
    Sure enough, official data released by China’s Ministry of Commerce have proven the first part of Morgan Stanley’s thesis correct. Data showed that outbound investment in real estate was particularly hard hit during the first half of the year, plunging 82%.
    ‘According to official data, outbound investment by China’s real estate sector fell 82% year-on-year in the first half, to comprise just 2% of all outbound investment for the period.’ Overall, outbound direct investment to 145 countries declined to $48.19 billion, an annualized drop of 45.8%, according to China Banking News.

    This post was published at Zero Hedge on Aug 11, 2017.

  • SNAP Stock Just SNAPPED: Down 29% From Its March IPO

    SNAP just reported earnings and plunged after hours after missing everything. It burned through $288 million in cash. The more it spends, the more it loses. An operational Ponzi scheme of sorts.
    The SNAP IPO was led by Morgan Stanley, Goldman Sachs, JP Morgan, Deutsche Bank, Barclays, Credit Suisse and Allen & Company. All the usual criminal cartel banks aside from Allen & Company. Allen & Company is a financial ‘advisor’ – i.e. sleazy stock broker – driven firm based in Florida. I don’t know how Allen & Co. was put on as an underwriting manager other than it’s likely that one of SNAP’s co-founders is buddies with one of the owners at Allen & Co.

    This post was published at Investment Research Dynamics on August 10, 2017.

  • As VIX Explodes, A Painful Warning: The Vega Of VIX ETFs Has Never Been Higher

    With the VIX soaring, from single digits yesterday to over 15, risk is suddenly breaking out above the crucial Kolanovic redline level…
    And Nasdaq is tumbling.
    … it is worth reminding readers just how coiled the short-vol sector is, something we described two weeks ago in “If The VIX Goes Bananas” This Is What It Will Look Like” and in which a Morgan Stanley trader detailed how a devastating short vol unwind might develop:
    A violent rise in volatility could be driven by just a 3% to 4% one-day S&P 500 selloff. Right now the risk is greatest in the VIX complex, and demand for VIX futures from three main sources could result in 100,000 contracts ($100mm vega) to buy in a down 3.5% SPX move. For context VIX futures ADV over the last year is 230,000 (although has risen to as high as 700,000 in big selloffs).

    This post was published at Zero Hedge on Aug 10, 2017.

  • This Hits the Wheezing Commercial Real Estate Bubble at Worst Possible Time

    The last big enthusiastic buyer, China, is leaving the party. Commercial real estate, such as office and apartment towers, in trophy cities in the US and Europe has been among the favorite items on the long and eclectic shopping lists of Chinese companies. At the forefront are the vast, immensely indebted, opaquely structured conglomerates HNA, Dalian Wanda, Anbang Insurance, and Fosun International. In terms of commercial real estate, the party kicked off seriously in 2013. Over the two years in the US alone, according to Morgan Stanley, cited by Bloomberg, Chinese firms have acquired $17 billion worth of commercial properties.
    In the second quarter in Manhattan, Chinese entities accounted for half of the commercial real estate purchases. This includes the $2.2 billion purchase in May of the 45-story office tower at 245 Park Avenue, the sixth largest transaction ever in Manhattan. At $1,282 per square foot, the price was also among the highest ever paid for this type of property.
    Most of HNA’s funding for this deal – one of its 30 major acquisitions since the beginning of 2016 – was borrowed from China’s state-owned banks. But HNA also borrowed $508 million from JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale. This has been the hallmark for all Chinese acquirers: a lot of borrowing from China and some funding from offshore sources.

    This post was published at Wolf Street on Aug 8, 2017.

  • Morgan Stanley Asks At What Point Will EURUSD “Breathlessness Turn Into Outright Altitude Sickness”

    In Morgan Stanley’s “Sunday Start” note, the bank’s chief European economist, Elga Bartsch, looks at the recently surging EUR, where net spec positioning remains near the most bullish level in the past 6 years…

    … notes that according to the bank’s currency expects, the “bull case of 1.28 for EURUSD looks increasingly likely”, but wonder “at what point a bit of breathlessness could turn into outright altitude sickness.”
    Here is MS’ latest take on “what’s next in global macro” with a focus on the common currency.
    Climbing Mountains or Walking Hills
    You don’t have to climb one of the mountain peaks in the Alps to feel a bit breathless this summer. Watching the euro climb further might already suffice if you are an investor. And we might not be near the peak yet. According to our currency experts, their bull case of 1.28 for EURUSD looks increasingly likely, even with Friday’s relatively solid US employment report. Investors will therefore be wondering at what point a bit of breathlessness could turn into outright altitude sickness. For now, the ECB seems unconcerned about the strength of the euro, largely because it is reflecting stronger economic fundamentals and better prospects for political reforms. While it is clear that the euro area economy has shifted into higher gear, it remains to be seen whether reforms will able to make a quantum leap.

    This post was published at Zero Hedge on Aug 6, 2017.

  • Here’s The Most Alarming Sign Yet That Manhattan Real Estate Is Heading For A Crash

    The Chinese government’s latest crackdown on capital outflows and corporate leverage is intensifying, and that’s bad news for Manhattan’s property market.
    According to a report by Morgan Stanley cited by Bloomberg, new restrictions being imposed on the most acquisitive Chinese companies will likely lead to an 84% drop in Chinese overseas property investment this year, and a further 18 percent drop in 2018.
    The markets most vulnerable to this slowdown, according to MS, are the US, UK, Hong Kong and Australia, with commercial properties the most vulnerable.
    Manhattan commercial real-estate prices could fall sharply.
    ‘Manhattan is a particular worry, with about 30 percent of transactions in the borough that’s home to Wall Street involving Chinese parties in 2017. In Australia, China is the largest foreign real estate investor, accounting for as much as 25 percent of office property transactions in the last two to three years, according to Morgan Stanley.’ As we reported on Tuesday, the Chinese government is pushing Chinse insurance company Anbang – the company that was in talks with Jared Kushner to buy his company’s stake in 666 Fifth Ave. – to liquidate most of its overseas holdings and repatriate the proceeds of the sale. The company, whose chairman was detained by Chinese authorities in June, responded by saying it has no plans to comply…but we think the Communist Party will find a way to convince the company’s executives that deleveraging is in their best interest.

    This post was published at Zero Hedge on Aug 2, 2017.

  • “This Time Will Be Different”: A Bullish Morgan Stanley Says “2017 Is Unlike 2012-2016”

    Following a flood of warnings in the past week about both the precarious state of markets and the global economy, most recently from the otherwise stoic Howard Marks warning about bubble-like condition in the market (especially when it comes to passive investors), as well as Robert Shiller who explained what “keeps him up at night”, we were due for some good news. It came over the weekend courtesy of Morgan Stanley’s co-head of economics, Chetan Ahya, who writes in his Sunday Start weekly piece that “2017 is unlike 2012-2016” – a period characterized by an economy that rebounded on several occasions, prompting several narratives of “false starts”, only to see the global recovery fade and keep central banks stuck in printing mode.
    In other words, this time – Morgan Stanley predicts – will be different. We are not so confident.
    Here is Morgan Stanley’s explanation why this time the handoff from central banks to the private sector should work out:
    Why 2017 is unlike 2012-16
    Over the last five years, the global economy has been through a number of wobbles. Initially, DMs faced unprecedented deleveraging headwinds. Subsequently, China and other EMs underwent a period of deep adjustment. The outcome was a global expansion that was un-synchronous and heavily dependent on policy stimulus, which has been reflected in years of below-par growth. From 2012 to 2016, global GDP growth has averaged just 3.3%Y and more recently, since 2Q14, global GDP growth has averaged just 3.2%Y, well below the long-term average of 3.5%Y.

    This post was published at Zero Hedge on Jul 30, 2017.

  • Electric Vehicles No Threat To Oil Prices Anytime Soon

    Hardly a day goes by without another media report about the impending demise of the Internal Combustion Engine(ICE) as petroleum powered cars and trucks are replaced by uber-clean Electric Vehicles (EV). It is just a matter of time before EVs start to materially reduce global oil demand thereby capping a meaningful oil price recovery now and creating an ever-shrinking industry in the future. EVs are yet another reason why the decline of petroleum production and consumption is inevitable.
    Except it isn’t true. Your writer read dozens of articles and attended a conference on the future of EVs. The evidence overwhelming proves they pose no threat to oil prices anytime soon. Following is a summary of the major points.
    The forecasts for EV growth are all over the map. Late last year investment research outfit Morningstar figured EVs will be 10% of new vehicle sales by 2025 (only 8 years from now!) compared to 1% in 2015. Washington’s Energy Information Administration (EIA) predicted in January cumulative sales of EVs (cars and light trucks) would push 1.4 million by 2025. Last month Morgan Stanley predicted 1 billion EVs would be sold by 2050 and 70% of European vehicles would be electric. Bloomberg New Energy Finance wrote a glowing report on EVs in early July titled The Electric Car Revolution is Accelerating stating ‘…adoption of emission-free vehicles will happen more quickly than previously estimated because the cost of building cars is falling so fast. The seismic shift will see cars with a plug account a third of the global auto fleet by 2040 and displace about 8 million barrels a day of oil production. In just eight years, electric cars will be as cheap as gasoline vehicles, pushing the global fleet to 550 million by 2050’. When Volvo recently announced it will only produce vehicles with electric motors of some sort – pure EV or hybrid – in a couple of years made global headlines.

    This post was published at Zero Hedge on Jul 28, 2017.

  • Markets Relax Merrily on a Powerful Time Bomb

    Magnitude unknown but huge. Brokerages push it to new heights.
    Stock and bond market leverage is everywhere. Some of it is transparent, such as NYSE margin debt which was $539 billion as of the June report. But the hottest form of stock and bond market leverage is opaque, offered by financial firms that usually don’t disclose the totals: securities-based loans (SBLs) – or ‘shadow margin’ because no one knows how much of it there is. But it’s a lot. And it’s booming.
    These loans can be used for anything – pay for tuition, fix up that kitchen, or fund a vacation. The money is spent, the loan remains. When security prices fall, the problems begin.
    Finra, the regulator for brokerages, doesn’t track this shadow margin, nor does the SEC. Both, however, have been warning about the risks. No one knows the overall amount of this shadow margin, but some details have been reported:
    Morgan Stanley had $36 billion of these loans on its balance sheet as of the end of 2016, up 26% from 2016, and more than twice the amount in 2013. Bank of America Merrill Lynch had $40 billion in SBLs on the balance sheet at the end of 2016, up 140% from 2010;

    This post was published at Wolf Street on Jul 27, 2017.

  • What If The Debt Ceiling Turns Ugly: How To Trade A Fall Spike In Volatility

    As we first showed last week, while the equity market has remained completely oblivious to what the upcoming debt ceiling fight, which Morgan Stanley admitted over the weekend “worries us most” of all upcoming catalysts, the same can not be said of the T-Bill market, where 3M-6M yields have inverted the most on record on concerns about a potential selloff (or worse) in 3M bills which mature just after the time the US Tsy is expected to run out of cash, should the debt ceiling debate fail to result in a satisfactory outcome.

    And while it is a gamble to suggest that stocks will ever again respond to any negative news or still have any capacity to discount any future event or outcome, Bank of America dares to go there, and advises clients that between seasonality, and the already record low VIX, the debt ceiling is a sufficiently risky event to expect that equity volatility will finally wake up, and that “seasonality + catalysts suggest record low vol likely unsustainable through the fall.” Here’s the big picture from Nitin Saksena and team:
    While VIX has been making headlines for the most consecutive closes in history below 10 (now 8 days), medium-term VIX futures have quietly fallen to ~10-year lows, breaking the previous record from summer 2014. However, we think volatility is unlikely to sustain these extreme lows in the fall and like selling Oct VIX puts as (i) seasonal patterns suggest the VIX troughs in Jul and peaks in Sep/Oct, (ii) the VIX has ‘settled’ below 12 in only two of the past 27 Octobers, and (iii) fundamentally, the threat of debt ceiling brinkmanship in Sep/Oct, which has already spooked the T-bill market, should help support equity volatility. For example, we like selling the VIX Oct 12 put vs. the 14/19 call spread for zero-cost upfront (Oct futures ref 13.35).

    This post was published at Zero Hedge on Jul 25, 2017.

  • “If The VIX Goes Bananas”, Morgan Stanley Shows What It Would Look Like

    It’s easy to become numb to the low volatility environment and the risks it presents. While trying to pick a trough in vol has been a fool’s errand, focusing on the risks resulting from vol being so low is not. Low volatility has produced a regime where the risks are asymmetric and negatively convex, so being prepared for an unwind is critical. This is not a call that vol is about to spike, but you need a plan if it does.
    This note details how a short vol unwind might develop. A violent rise in volatility could be driven by just a 3% to 4% one-day S&P 500 selloff. Right now the risk is greatest in the VIX complex, and demand for VIX futures from three main sources could result in 100,000 contracts ($100mm vega) to buy in a down 3.5% SPX move. For context VIX futures ADV over the last year is 230,000 (although has risen to as high as 700,000 in big selloffs).

    This post was published at Zero Hedge on Jul 25, 2017.

  • 3-Month Treasury-Bill Auction Prices At Highest Yield Since Lehman On Debt-Ceiling Concerns

    It seems Morgan Stanley was right when they said “the debt ceiling worries us most,” as today’s 3-month T-Bill auction surprised the market with its highest yield since the fall of 2008, as investors continue to price concerns that the U. S. government will exhaust its borrowing authority around mid-October.
    As SMRA details:
    The 3-month bill auction stopped at 1.180%, with a 67.70% allocation at the high yield. The 3-month auction bid/cover ratio was 2.87. The average 3-month bid/cover over the past three months was 3.13. The WI was last trading at 1.165% at 11:30 AM. Indirect bidders took down 38.44% of the 3-month bill auction and Direct bidders took down 5.61%.

    This post was published at Zero Hedge on Jul 24, 2017.

  • Doug Noland: Yellen on Inflation

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    Global Markets rallied sharply this week. The DJIA rose 223 points to a record 21,638. The S&P500 gained 1.4% to a new all-time high. The Nasdaq100 (NDX) surged 3.2%, increasing 2017 gains to 20.0%. The Morgan Stanley High Tech Index rose 3.4% (up 24.6% y-t-d), and the Semiconductors surged 4.7% (up 21.8%).
    Emerging markets were notably strong. Equities rallied 5.0% in Brazil, 5.5% in Hong Kong, 5.1% in Turkey, 2.5% in Russia, 2.2% in Mexico and 2.1% in India. The Brazilian real gained 3.2%, the Mexican peso 3.0%, the South African rand 2.7% and the Turkish lira 2.3%. Global bond markets also rallied. Yields (local currency) dropped 27 bps in Brazil, 18 bps in South Africa, 16 bps in Turkey and 22 bps in Argentina. Here at home, five-year Treasury yields dropped eight bps (to 1.87%). U. S. corporate Credit also enjoyed solid gains. Across global markets, it appeared that short positions were under pressure.
    Markets reacted with elation to Janet Yellen’s Washington testimony – widely perceived as dovish. In particular, the chair’s timely comments on inflation were cheered throughout global securities markets. A headline from the Financial Times: ‘Fed Chair Yellen’s Inflation Concern Buoys Markets.’ And Friday afternoon from Bloomberg: ‘S&P 500 Hits Record as Inflation View Turns Iffy’.

    This post was published at Wall Street Examiner by Doug Noland ‘ July 15, 2017.

  • Morgan Stanley Slashes SNAP Price Target To $16 From $28 After Sub-IPO Plunge

    Just hours after Snap(chat), or rather its shareholders, were gravely injured when the stock tumbled below its IPO price, one of the company’s IPO underwriters Morgan Stanley decided to add some insult, when its analyst Brian Nowak downgraded the social network, or photo app, or whatever it is these days, to equal-weight, cutting its price target to $16 from $28 on ad product and competition concerns. Shares promptly tumbled another 2.7% to $16.50 in pre-market trading on the downgrade .
    According to the MS analyst, the company’s ad products are taking longer to improve and evolve than previously expected, noting “our latest industry conversations indicate many advertisers are struggling to develop SNAP ad units with sufficient completion rates and consistent return on investment.” He also cited increasing competition from Instagram, which appears to be giving advisers sponsored lenses for free, according to checks. Nowak calls this troubling as he estimates sponsored lenses and similar products accounting for ~50% of SNAP’s ad revenue.
    MS alslo listed 4 larger than expected challenges:

    This post was published at Zero Hedge on Jul 11, 2017.

  • “Who Moved My Punch Bowl?”- Morgan Stanley Says A Repricing Of The “Central Bank Put” Is Imminent

    Some potentially displeasing “Sunday Start” thoughts to market bulls, from Chetan Ahya, Morgan Stanley’s global co-head of economics, who warns that in light of the recent “hawkish tilt” by central banks, the message is clear: “central banks are more watchful of financial stability risks: It is in this context that central banks now appear to be keen to lean against easy financial conditions so as to pre-empt the rise of financial stability risks. To assess financial stability risks, Fed Vice-Chair Fischer had recently highlighted the Fed’s framework in a recent speech in which he highlighted the ‘four broad cyclical vulnerabilities: (1) financial sector leverage, (2) non-financial sector borrowing, (3) liquidity and maturity transformation, and (4) asset valuation pressures’.”
    As a result, “financial stability risks will hold the key: In the 2004-07 episode, as inflation was well-behaved, the pace of monetary tightening by central banks was slower than warranted, which resulted in a build-up of financial stability risks as financial conditions stayed easy, private sector leverage in both the non-financial and financial sector rose sharply and asset markets were buoyant.”
    All of which means that “markets will therefore have to deal with the repricing of the central bank put – a key feature of the post-crisis world: Whether policy-makers are tightening via rates or balance sheet actions, or imposing more macro-prudential norms, the message is clear – the global monetary policy stance has taken a hawkish turn and will continue to do so.”

    This post was published at Zero Hedge on Jul 9, 2017.