Busy Going Nowhere?

If we step back a little from the day to day gyrations of the main stock-indices, one can observe that, aside of Japan’s Nikkei, they have been busy going nowhere for the past six months or so. Furthermore, whilst the Nikkei looks good in local currency terms, that is more to do with the Japanese authorities debasing the YEN, with the return over this period in Dollar terms similar to that of the S&P 500, more like 4%.

12 March 2015 Blog 1

The main factor behind the heady rise of the past few years hasn’t been so much about corporate profits, but been more to do with financial engineering such as share-buy-backs and leveraged balance sheets, just as we saw in the lead up to the 2007 bust and that of Japan way back in 1989. Our October 2014  Buy-Back Bubble expanded on this for the US, which is still the most important economy and stock-market in the world.

The clues to the ongoing slow-down of economic growth, aside of the lead given by the markets in real-terms, have been the growing DE-flationary forces, which are winning, despite the $US30,000,000,000,000 effort by the world’s main central banks to RE-flate the global economy. One glance at the commodities complex confirms this:

12 March 2015 Blog 2

Whilst the media has commented on the slump of the Oil price of late, there has been scant comment on the other bellwethers as to the strength or otherwise of global economic growth, Copper and Silver.

 This has fed through to ever lower “official” inflation readings, aka CPI, within all of the major economies,where the US has now entered into “negative CPI,” as have 23 of the 28 EU member states, with the UK and China perilously close to it.

 This means of course that the cost of servicing the aforementioned increased massive debt loads, be they Government, corporate or personal, are increasing in real terms and due to the interest rate cycle which has turned higher, despite what central banks and forecasters would have you believe:

12 March 2015 Blog 3

Euro-Zone rates had a one-week reprieve as ECB boss Draghi announced his long awaited QE plan (to no effect.)

So there we have it, far larger debt loads than pre-2007, encouraged by policy-makers who frankly should know better, with de-flation and higher interest rates compounding the real cost in servicing these debts.

Financial assets are in fact “busy going somewhere,” but it’s a place that very few can imagine.

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