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A thoughtful piece from The Reformed Broker: over the entire history of markets, the bulls always prove right, while the bears inevitably get left behind. “Winners and men and women of foresight and ambition do monumental things, pessimists watch them from the sidelines making a list of all the reasons things won’t work out. The losers do get to win sometimes, too. But their victories tend to be Pyrrhic, as every calamity ultimately leads to opportunity when the dust clears.” No one should be perma-anything, he adds. But if you must pick sides, it’s obvious which way you should go.
Check Out China’s Exploding Credit Bubble (FT Alphaville)
Here’s a scary chart from Sanford Bernstein via FT Alphaville: the ratio of China’s non-financial, non-government debt:
Financing costs keep rising, and much of China’s growth now comes in the form of credit. Here’s what happened last time something like this happened, according to the FT: “Non-performing loan ratios of up to 50 per cent and a clutch of zombie banks that kept on lending but created progressively less real economic activity.”
Haircuts Are Inevitable, And They’re Already All Around Us (Bill Gross, PIMCO)
Fiscal and monetary authorities have both been guilty of thinking they can address current crises while sparing bondholders from haircuts, PIMCO’s Bill Gross writes. They’re wrong. Gross: “…even IF QEs and near zero-bound yields are able to refloat global economies and generate a semblance of old normal real growth, they will do so utilising historically tried and true “haircuts” that rather surreptitiously “trim” an asset holder’s money without them really knowing they had entered a barbershop. These haircuts are hidden forms of taxes that reduce an investor’s purchasing power as manipulated interest rates lag inflation. In the process, governments and their central banks theoretically reduce real debt levels as well as the excessive liabilities of levered corporations and households. But they represent a hidden wealth transfer that belies the vaunted phrase ‘good as money.’ “
The ECB Must Look Beyond Rate Cuts (Lorcan Roche Kelly)
The ECB will announce its latest policy moves tomorrow, and odds are they’re going to cut rates as signs of deflation mount. But Lorcan Roche Kelly of TrendMacrolytics says they must do more, like easing credit specifically for small and medium-sized businesses. “An announcement of a rate cut is a likely signal that the ECB is going to do nothing more. Conversely, no rate cut announcement should not necessarily be viewed as a time to sell. The data — especially the inflation data — demands a reaction from the ECB. If it — correctly — chooses not to use the interest rate tool, then anything else it chooses will have more of the “big bang” properties that can give the ongoing rally new legs. On the other hand, if the ECB does nothing at all, we will have the seen the top in the peripheral debt rally, at least until the ECB finally responds.
All This Bad Data, And We Are Still Not Out Of Bullish Territory (Dow Theory)
DT’s Richard Moroney says recent weak prints from everyone you can think of are still not enough to tip the market into bearish territory, at least according to Dow transport and industrial moves. “Stocks have been choppy, with decent March-quarter profits countered by worries about weaker-than-expected sales and signs of a U.S. economic slowdown. Closes above this year’s all-time highs of 14,865.14 in the Dow Industrials and 6,281.24 in the Dow Transports would reconfirm the bullish primary trend. A near-term failure to surpass both those points would set the stage for a pullback, though we would be inclined to view a decline as a secondary correction in an ongoing bull market.”