Macro Digest: Global recycling of capital has come to full stop!

 

 

This morning I will follow up on my theory of US$ leading all cycles, which many people have objected to on Tweeter and understandably so, as it entails actually understanding and educating yourself – something which generation of day traders have happily ignored since the GFC.

 

When productivity is collapsing…. As it is…. Flat for both 2013 and 2014 the only way to keep the massive debt financed is through lower yield or expansion of monetary base…..

 

 

Reference:

 

McKinsey report: Net new debt issued since GFC: 57 trillion US$

 

 

The US$ based/linked economy – where "path of least resistance" remains a weaker US$

 

 

So world is issuing more and debt at lower and lower yield in order to pretend-and-extend – that worked until US$ - the currency denominator got too strong &……..Recycling stopped:

 

Here is the new charts:

 

 

This is Global Reserves (YoY%) vs. S&P-500 (Yoy%) – World reserves has dropped close to 5% - (5% less recycling)

 

Meanwhile the day traders believe more QE as promised by Draghi yesterday will help and save the day, but…. But….

 

 

Pretend-and-extend to infinity => stronger US$ = lower commodity prices = less recycling= higher marginal cost of capital = lower EM growth = less export and more deflation? Don't believe then take a look at these indicators since US started QE!

 

That's the theoretical argument, which few of you accept, or rather like.. but here is facts (which of cause is irrelevant…these days)

 

Central banks' balance expansion incl. Japan and ECB is flat YoY…….w. BOJ + ECB expected to do more later in year….

 

 

 

 

 

Conclusion:

 

The micro structure of capital markets have changed – forever – the combined lower energy prices + China slow-down + lack of productivity + pretend-and-extend + QE and strong US$ have forced the market into higher volatility, less leverage, US$ dependence and lower growth as capital consumption is tax on future growth…..It's time to get a new playbook which is more flexible, accepts two way directions and a move towards investment in productivity and education the only two things which can break the negative circle…

 

Safe travels ,

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

Please visit our website at www.saxobank.com

 

This email may contain confidential and/or privileged information.
If you are not the intended recipient (or have received this email
by mistake), please notify the sender immediately and destroy this
email. Any unauthorised copying, disclosure or distribution of the
material in this email is strictly prohibited.

Email transmission security and error-free status cannot be guaranteed
as information could be intercepted, corrupted, destroyed, delayed,
incomplete, or contain viruses. The sender therefore does not accept
liability for any errors or omissions in the contents of this message
which may arise as a result of email transmission.