Major Financial Crisis Brewing, Expecting Another Leg ‘South’
Savvy money management professionals warn after a weak NFPs report that the US stock market as well as other risk markets including high-yield “junk” bonds face more selling pressure, as the storm clouds gather.
“The reason the markets are not going lower is people are holding and hoping,” one top fund manager said. “The market bottoms out when people are selling and sold out – not when they are holding and hoping. I don’t think you’ve seen real selling in risk assets broadly. Markets need buying to go up and they need volume to go up. They can fall just on gravity.”
Participants piled into US government bonds Friday, sending the 10-yr T-Bond yield below 2%, after the US Labor Department said employers hired 142,000 workers last month, way below the 203,000 the consensus expected, and August figures were revised sharply lower to show only 136,000 jobs added.
He said that junk bonds are vulnerable in here, “I’ll think about buying when it stops going down every single day.”
“People are acting like everything is great. Junk bonds are at a 4-year low. Emerging markets are at a 6-year low and commodities are at a multi-year low – same level as in Y 1995 … GDP is not growing at a nominal basis.”
“Clearly what’s happening is people are waking up to the idea that global growth is not what they thought it was.” He added: “There’s going to be another wave down in risk assets and it is happening globally.”
Even International Monetary Fund (IMF) Managing Director Christine Lagarde affirmed this.
“You talk about an important moment – when somebody who is traditionally a cheerleader for a bright future says, ‘I have to downgrade my global growth forecast,’ as Ms. Lagarde did.”
I have maintained since May that the Fed will not raise rates at all this year, as the environment feels similar to 2007’s, when a financial crisis was brewing.
Participants are anxious for the Fed to increase rates, that is because they think it is a signal that everything is OK, crisis over. But it is the other way around. No so, if the Fed raises rates against this scenario, it will make the crisis worse.
Have a terrific week.
Paul Ebeling
HeffX-LTN
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