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Water Cooler / Re: Longest Shutdown Ever
« on: January 14, 2019, 10:44:59 AM »
The pension liabilities issue was only enhanced by QE, which drove down bond yields & forced pension plans out into riskier investments. Now that they are engaging in QT they are sucking liquidity out of the system, which should generally have the opposite impact on asset prices. Many companies which trade at rather low P/E ratios like AT&T also have massive amounts of debt. AT&T's current debt load is about 80% of their stock's current market cap, so multiply the P/E by 1.8 for a starting point & then of course there are all the various adjustments made to earnings.
https://www.barrons.com/articles/barrons-2019-investment-roundtable-part-1-51547262307
https://www.barrons.com/articles/barrons-2019-investment-roundtable-part-1-51547262307
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the Federal Reserve has engaged in quantitative tightening, or shrinking its balance sheet, to the tune of $50 billion per month. We are talking about the creation of an ocean of debt, while the Fed has raised rates nine times in the current cycle, in addition to quantitative tightening, which, according to some studies, equates to about two more rate hikes. The Fed wants to raise rates two more times this year, based on its dot plot [individual rate projections by the members of its policy-setting committee]. This is a problem for the stock market. U.S. manufacturing data has deteriorated. Mortgage applications are near an 18-year low. ... Backing off on quantitative tightening would be a big help to the markets, but it won’t happen with the S&P down less than 20%. Stocks would have to fall 30% from their peak for the U.S. central bank to consider this.the impact of the central bank money printing has had an even bigger impact on emerging markets because they grew debts faster than developed markets.
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I’m negative on emerging markets and have been for the past decade, during which they significantly underperformed developed markets. Emerging markets benefit most from quantitative easing. As interest rates collapsed, they became prolific borrowers on both a country and corporate basis. Second, liquidity risk in these markets is significant. A lot of money is chasing very few stocks and bidding up allocations, even if EM allocations haven’t gone up. There are very good companies in, say, India, but I own none because they don’t compete from an investment standpoint.I think China has been responsible for something like 40% of the global credit growth since the Great Recession & about 22% of their housing units sit empty.