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Friday, 15 July 2016

Seven Charts With Economic And Monetary Message

7 Economic And Monetary Charts That Make You Go Hmm...

U.S. stock markets are hitting new highs. One could argue that stocks, at least in the U.S., are climbing a wall of worry, which probably makes sense. But arguing that there is anything to worry about does not make any sense at all.
Behind the scenes, we see too many indicators flashing red, and prudent investors should not ignore those data points.
In this article, we present 7 charts which reflect the concerning state of economic, financial and monetary conditions. Chart courtesy: Saxo Bank.
The Financial Stress Index by the Federal Reserve Bank of Cleveland is an indicator of financial stability. The index is composed by credit indicators, forex and equity data, as well as interbanking spreads and rates. This indicator is in a strong uptrend, testing its 2011 highs, and moving towards  2008 crash levels. Note how this indicator peaked way before the stock market crash in 2008/9.

The complexities of options are not well understood by most of the retail trading world. Nevertheless, they’re highly attractive because of their limited downside, unlimited upside, and embedded leverage. Who hasn’t thought about buying that call option on the hot biotech stock that returns 1000%? Or the way out-of-the money put on the SPY that triples a trading account in a nasty crash? We all visualize that outcome and crave it.

At these prices, you didn’t need gold prices to climb to make money. All you would need is for the selling to stop. And then the natural demand from smart money investors, who sniff out these panic situations to make massive amounts of money fast, would drive prices up. That’s the scenario I laid out.

Helicopter money is basically unlimited global liquidity intended to head off a liquidity crunch and keep the game going as long as possible—this is the next and ultimate stage in the fiat endgame. The starting point for this is Japan, but it will quickly become global, and legal constraints can simply be brushed aside—if laws prohibit it, they can be changed.
We have been caught flat footed by this rally, and the best course of action is thought to be to unload any broad market short positions.

China GDP grows 6.7% in second quarter on boost from property  

China’s economy grew 6.7 per cent in the second quarter, unchanged from the previous three-month period, as a buoyant property market and government stimulus boosted demand for factory output. The latest quarterly real growth figure is slightly ahead of the 6.6 per cent pace that economists expected, according to a Reuters poll. China’s legislature approved a full-year growth target of 6.5 to 7 per cent for 2016. China’s economy grew 6.9 per cent in 2015.   Yet downward pressure on the economy remains significant. Fixed-asset investment — which includes both infrastructure and manufacturing investment — grew at 9 per cent, its slowest pace since 2000 in the first six months and down from 9.6 per cent in the year to May.  “Growth has stabilised, and we also see that the structure is improving. Investment growth is coming down, which is a correction for the over-investment of the past seven years,” said Zhu Haibin, chief China economist at JPMorgan in Hong Kong. “But investment growth is much stronger in new sectors such as high tech and infrastructure. In the overcapacity sectors like steel and coal mining, we see negative growth.” 

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