An interesting week saw that Brazilian real get hammered for 4.2%, as Brazil’s stocks sank 6.2%. Venezuela Credit default swap (CDS) prices surged 158 bps to 1,464 bps (lagging Argentina at 1,840!). Turkish stocks were hit for 5.3%, in what Bloomberg called the emerging-market stocks’ “steepest decline in 15 months.” Commodities currencies were also pummeled. The Australian dollar dropped 3.6%, the South African rand 3.0%, the New Zealand dollar 2.1% and the Canadian dollar 1.9%. The Goldman Sachs Commodities Index was hit for 2.4%, trading this week to the lowest level since the tumultuous summer of 2012. Brent crude fell to a two-year low, wheat to a 50-week low and gold to an eight-month low. Spanish yields jumped 30bps, with Italian yields up 20 bps and France’s 17 bps. U.S. junk bond CDS jumped 21 bps this week. In the face of unsettled global risk markets, 10-year Treasuries jumped 15 bps this week.
Market and macro analysis remains extraordinarily challenging. The U.S. economy shows momentum and financial conditions remain ultra-loose. Wall Street strategists are universally bullish. A recent survey (Investors Intelligence) had the smallest reading of bears since 1987. Sentiment is buoyed by the view that it will be years before the Fed raises rates to the point where they would weigh on risk asset prices.
It’s no surprise that I see the greatest financial Bubble in history. I believe asset market inflation and Bubbles have been fueled by speculative leverage exceeding pre-2008 crisis levels. I see global financial and economic imbalances that have been exacerbated by six years of the most extreme monetary policy measures. By now, this type of analysis has been completely discredited. Few will care that I discern acute vulnerabilities.
This post was published at Prudent Bear
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