Global Macro Update: Apart From US Equities, Assets Under Performed
Tiho Brkan | May 29, 2013 08:22AM ET
If you are experiencing a rough financial market environment, you are not the only one. Do not let the media like Bloomberg and CNBC business channels fool you into thinking that this has been a wonderful year for assets.
Chart 1: Apart from US equities, assets have under performed
Now, before you call me crazy, I do admit that US equities (and some other markets around the world like Japan, Indonesia, Thailand and so forth) have managed to achieve wonderful gains. Another bonus for the stock investors in the United States is rising Dollar and somewhat of a recovery in real estate prices.
However, outside of Uncle Ben's and Abe-nomics backyard (yes, believe it or not there is a world outside of US stocks and bonds), global asset classes have not performed all that well. Interestingly, this also includes US government and corporate bonds too, especially on a relative basis to the S&P equities. Global stocks like Emerging Markets and Frontier Markets are down for the year. Furthermore, foreign currencies in many, if not all, of these regions are also down - magnifying those losses even further.
Chart 2: Central banks and accommodative monetary policy
It seems that majority of the blame falls towards the 'China slowdown' story, which is impacting growth around the world. As a response central banks everywhere are now in the full stimulus mode, continuously cutting interest rates and printing money. Deutsche Bank reported this month that "central banks covering 27% of the global GDP have cut rates in May", while Bloomberg recently mentioned that we've witnessed over 510 rate cuts since June 2007 and yet the global growth remains slow.
Chart 3: Managers are extremely underexposed commodities
In the last Short Side of Long newsletter I discussed the overwhelming negative sentiment on commodities (seen in the chart above, thanks to ML Survey) and how continuous easy monetary polices by global central banks will spark a new inflationary trend. After all, historically inflation has always been a byproduct of currency devaluation, while it is very rare that money printing can produce prosperity.
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I know... I know... it is not a very popular view right now, as almost no one expects inflation. But that is precisely when the trend beginnings to emerge, especially as bullish bets on the US Dollar (pro-deflation trade) are approaching record highs.
More global macro discussions can be found in the up-and-coming Short Side of Long Newsletter Issue 6, which should be released sometime in early June. I plan to cover the recent price movements in all major assets from Equities, Bonds, Currencies and Commodities.
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