Emerging Markets??

by Michael J. Howell21. June 2013 07:48
Emerging Marets are in the eye of the storm. This not a surprise but it is important to understand why, not least because investors currently have relatively low exposure. Our long standing mantra is that every EM crisis is first-and-foremost a currency crisis. EM have suffered this year from a lack of capital inflow. Tensions have been worsened by a tight Chinese monetary stance that shows few signs of abating, and the collapse in the Yen. Traditionally (pre-mid 1990s) the Yen was the key driven of the Asian business cycle. This troubling backdrop has forced EM policy-makers to tighten their own policies to protect currencies, but in the process they are causing significant domestic economic slowdowns, that in turn add further downward pressure on currencies. Viz Turkey and Brazil. Liquidity levels on our indexes are very low, circa 35 index level (0-100 'normal' range). They need to jump before we recommend returning. This probable influx of Central Bank cash will further weaken EM currencies and trouble EM bonds, and the sell-off in EM credits may spread out into Eurozone credit markets which also look highly exposed. The second half year 2013 looks a better time to re-enter EM assuming currencies have adjusted, since by then there should be strong signs of cyclical rebound in the US and Japan.

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Global Liquidity Index (GLI) Latest

by Michael J. Howell17. June 2013 15:10

Latest Global Liquidity Index (GLI) data from CrossBorder Capital show the headline GLI hitting 73.8 (normal range 0-100). The distribution od World liquidity is dangerously skewed. Moreover, levels of liquidity above 70 on our index are associated with average VIX levels above 28.1%. For more information please contact us.

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Japan's Sell-Off

by Michael J. Howell30. May 2013 19:58

A 15% drop in just a few days focuses the mind. Is Tokyo's rally bust already? Not a chance, in our view. Nerves have been twanged by the sharp jump in JGB yields and associated steepening of the Japanese yield curve. But a steep yield curve is exactly what QE and liquidity policies should deliver. America since 2008 is a clear case in point, but the evidence is overwhelming and true throughout history and across geographies. In fact, this is how bond markets work. Forget all the talk that Central Banks push down yields by buying bonds. In a micro sense they do, but economics and finance are more about macro events. A steeper yield curve reflects fatter risk premia and fatter risk premia on bonds are the very reverse of slimmer risk premia on stocks, or should be if the monetary stimulus works. In short, bonds always sell off and enjoy these fatter risk premia when investors expect a return to 'better times'. Therefore, a steep yield in Japan, as in the US and Europe, signals coming economic recovery. Sell bonds, buy stocks. This is an unexpected opportunity for equities.

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Global Liquidity Climbs A Peak

by Michael J. Howell17. May 2013 11:01

 

Global Liquidity rose again in April 2013 to a GLI reading of 65.2 ('normal range' 0-100), or the highest since October 2009. Of more interest, is the fact that without the drag from a tight Eurozone and sluggish EM, the Global Liquidity Index (GLI) would probably be over 75.

 

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Gold: There is No Conspiracy!

by Michael J. Howell19. April 2013 14:02

The recent plunge in the US dollar gold price is unsettling but it reflects no dark forces and no sinister conspiracy by Central Bankers. The reason is the strong US dollar, and this strength maybe unusual for this stage of the business cycle, but it is driven by underlying liquidity forces. Specifically, when our PSL index exceeds the Fed CBL index the dollar soars. This is true now, with a strong Fed outpaced by even stronger private sector flows underscored by corporate revenues, household recovery, renewed shadow bank lending and shale oil cash. In short, its economics not politics that is the problem for gold.

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Latest GLI March 2013

by Michael J. Howell19. April 2013 13:57

Our Global Liquidity Index (GLI) jumped to 64.5 in March 2013 (normal range 0-100). A large increase in Japan Central Bank liquidity and continued gains in US private sector liquidity more than offset another slide in Eurozone liquidity. EM liquidity remained low, although cross-border inflows into EM picked up a tad. Our data story still supports a strong US$. It also warns of Eurozone Crisis.

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Japanese QE is Fifty Fifty

by Michael J. Howell19. April 2013 13:53

We are big fans of the new BoJ QE policy. Latest weekly data confirm things are happening. Our measure of net liquidity provision jumped to Y57.7 trillion and the annualised growth in the Monetary Base leapt ahead by 54.3% at an annualised 3-month rate. Fifty and fifty is not an bad start.

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New Report: Japan's Great Experiment

by Michael J. Howell18. April 2013 12:22

Report published April 15th 'Japan's Great Experiment' analyses the effects of huge injections of cash into a banking system that is uniquely able to re-lever and can already satisfy Basel III capital requirements. The outlook remains very bullish for Japanese risk assets.

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New Global View Published "The End of Emerging Markets???"

by Michael J. Howell4. April 2013 18:28
Special report looks at the three important headwinds facing EM in 2013-14 - (1) China (2) Japan and (3) the US. Does this explain the loss of momentum in EM capital inflows and the tailing-off in domestic monetization?

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New Globl View Published "Eurozone: Shuffling Towards the Abyss"

by Michael J. Howell4. April 2013 18:21
Special report on skidding Eurozone liquidity and the Target2 imbalances suggests that ECB are getting it wrong again. Lower Euro ahead!

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