Authored by Constantin Gurdgiev via True Economics blog,
One chart that really says it all when it comes to the fortunes of the Euro area economy:
And, courtesy of these monetary acrobatics, we now have private corporates issuing debt at negative yields, nominal yields…
The train wreck of monetarist absurdity is now so far out on the wobbly bridge of economic systems devoid of productivity growth, consumer demand growth and capex demand that even the vultures have taken into the skies in anticipation of some juicy carrion. With $16 trillion (at the end of August) in sovereign debt yielding negative and with corporates now being paid to borrow, the idea of the savings-investment link – the fundamental basis of the economy – makes about as much sense today as voodoo does in medicine. Even WSJ noted as much.
As I recently quipped to an asset manager I used to work with:
"A mudslide off this mountain of debt will have to happen in order to correct the excesses built up in recent years. There is too much liquidity mass built into the markets devoid of investment demand, and too weak of an economy holding it. Everywhere. By fundamental metrics of value-added growth and organic demand expansion potential, every economy is simply sick.
There is no productivity growth. There is no EPS growth, even with declining S down to waves of buy-outs. There is debt growth, with no capex & no EPS growth to underwrite that debt. There is a global banking system running totally on fumes pumped into it at an ever increasing rate by the Central Banks through direct monetary policies and by indirect means (regulatory shenanigans of ever-shifting capital and assets quality revisions). There is no trade growth. There is no market growth for trade. Neither supply side, nor demand side can hold much more, and countries, like the U.S., have run out of ability to find new lines of credit to inflate their economies. Students – kids! – are now so deep in debt before they even start working, they can't afford rents, let alone homes. Housing shortages & rents inflation are out of control. GenZ and GenY cannot afford renting and paying for groceries, and everyone is pretending that the ‘shared economy’ is a form of salvation when it really is a sign that people can’t pay for that second bedroom and need roommates to cover basic bills. Amidst all of that: 1% is riding high and dragging with it 10% that are public sector ‘heroes’ while bribing the 15% that are the elderly and don't give a damn about the future as long as they can afford their prescriptions.
Take kids out of the equation, and the outright net recipients of subsidies and supports, and you have 25-30% of the total population who are carrying all the burden for the rest and are being crushed under debt, taxes and jobs markets that provide shit-for-wages careers. Happy times! Buy S&P. Buy penny stocks. Buy bonds. Buy sovereign debt. Buy risk-free Treasuries… Buy, Buy, Buy we hear from the sell-side. Because if you do not 'buy' you will miss the 'ladder'… Sounds familiar, folks? Right on… just as 2007 battle cry 'Buy Anglo shares' or 2005 call to 'Buy Romanian apartments' because, you know… who wants to miss 'The Ladder'?.."
Which brings us to the simple point of action: don't buy bonds. Don't buy stocks. Hold defensive assets in stable proportions: gold, silver, land, fishing rights… anything other than the fundamentals-free paper.
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