Nearly the entire Brexit decline has been taken back except for moves in the British pound and European bank shares.
Bonds staged a massive rally globally. Switzerland hit a New Financial Milestone: Negative Yield on 50-Year Bonds and the Entire Swiss Yield Curve.
Everyone a Winner
Bloomberg went so far as to claim Everyone’s a Winner in Brexit Aftermath as Doves Rescue Market.
One week after Brexit, the lesson investors are taking away is that there’s no problem central banks can’t fix.
Just days after the U.K.’s vote to leave the European Union roiled financial markets around the world, stocks and bonds surged in tandem this week as policy makers once again rode to the rescue, dropping hints of further stimulus and suggesting they’ll keep interest rates lower for longer.
With almost $12 trillion of government bonds globally paying less than zero, a rush into Treasuries Friday pushed yields to record lows, even as encouraging economic data helped propel U.S. stocks toward all-time highs.
“This may be the new normal,” said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets, one of 23 primary dealers that trade with Fed. “If you flood the markets with liquidity, and you have the anticipation that the central banks are going to be dovish — either adding to quantitative easing or becoming less hawkish, as the case may be for the U.S. Fed — any assets that aren’t impaired or encumbered are going to do very well.”
The S&P 500 Index has rallied 5.2 percent in four days, all but erasing the post-Brexit swoon. The index recorded its best week since November after capping a third quarterly advance.
Some of the snapback in stocks came as investors unwound bearish bets put on ahead of the referendum and during its immediate aftermath. A Goldman Sachs Group Inc. index of the most shorted stocks in the Russell 3000 Index rose on Wednesday by the most in more than six years.
Even as equities rally, few signs point to a reversal for Treasury yields. Since the Brexit vote, strategists have slashed their U.S. yield forecasts for this year and next, and futures traders virtually erased bets on a Fed rate hike in 2016. A lower-for-longer scenario encourages investors to buy Treasuries that mature in decades.
The tally of negative-yielding sovereign debt worldwide means investors are effectively paying to own government bonds. Japanese benchmark yields extended their push below zero this week as some economists predicted the central bank will add to its record stimulus program. Benchmark German yields fell below zero last month, while yields have turned negative for Swiss debt for all maturities out to 50 years.
How much longer this can go on is anyone’s guess but stocks are likely to decline for years when the party does end.
Meanwhile, I have a fitting musical tribute.
Jim Dandy to the Rescue
Mike “Mish” Shedlock
Works good in practice, not in theory.
source: Goofball economics … ‘We run the world’
not you. Thinking of Bernanke.
Pension funds with large fixed income positions are screwed. No way to make the 7.5 return they all claim to get. Taxpayers will pay.
Mish, I would have thought the fitting musical tribute would be from Hot Chocolate (“Every 1’s a Winner, Baby”).
Here’s the link to my musical tribute!
So I saw this boom ramping up as far back as 2003 while hunting in North Dakota. What I’ve never seen is having the boom translate into actual data (oil and natural gas production, a housing boom,a super dollar, 3 d printing, all electric cars, a boom on Wall Street, a boom in debt issuance and low rates, a boom in skyscraper construction, a boom the Government spending, etc etc etc) in the form of an economic growth boom ala the 1920’s. The data actually says not only has there been no recovery since the snap back rally off of the 2008 panic lows but in fact we’re falling back into a recession. Someone smarter than me will to figure that one out because I sure can’t.
“One week after Brexit, the lesson investors are taking away is that there’s no problem central banks can’t fix.”
Yeah, and in 2005 the meme was “Housing NEVER goes down.” I have learned a different lesson: As soon as people start to think NO, NEVER or the like, that attitude GUARANTEES what cannot happen will happen. It’s comparable to people saying the “Titanic is unsinkable.” When complacency sets in and caution is thrown to the wind, risk becomes invisible and failure is assured.
We truly are the smartest people to have ever lived.
Prosperity not from hard, savings and productivity but from endless printing of money.
It is amazing no one else has ever thought to do this before…
“Endless printing of money”
It is not endless. The Fed does not print money. They buy bonds to suppress interest rates. The low rates spur new loan origination, which is how most of the money printing is done. When the installment payments on those loans cannot be paid, it will end, and asset prices will crash.
This is the same boom/bust cycle we’ve had for the past 50 years, except this time it will be different. Before, we’ve had the advantage of lowering rates to spur the next wave of debt growth. But now, interest rates cannot go significantly lower, and therefore, the next crash we will experience will be a hard landing. And asset prices will not likely go up unless we have a significant change in Fiscal policy, which at the moment does not look realistic.
So how does the Fed pay for the bonds? Whether the funds come from the Treasury or the Fed is semantics now. “Money” is created to purchase assets in the open market, which creates an artificial bid and suppresses yields.
The only question I have and that NO central bank has spoken to, is what’s the endgame? Currently yields are so distorted that if they backed up 150 bps on 30 year UST debt the losses would run over 30%. It would be a disaster.
The intended endgame is the same as always: “Shared” sacrifice. Whereby the 1% who stole all the wealth via debasement, will have to sacrifice X dollars for the “common good.” And the 49% still barely hanging on by a thread after having been robbed for decades, will have to sacrifice the same amount of absolute dollars. The Man on TV will call that fair.
While the 50% who are downright indigent, and on the brink of starvation, will be promised just enough bread crumbs to last them past next election, as long as they vote for this fair way to “save the system.” That’s the way Chavez did it. And he is a progressive hero, after all. That’s what The Man on Venezuelan TV says. And, as progressives all “know”, The Man on TV is an Expert.
Yeah, I seen that guy on TV too . He got some kind of inside prescription from above where they just know what’s gonna happen and it does and their there for you man waiting in the gutter to help you out man . Un-real, like they know , they know it and aren’t fraid to tell everyone or nothing .
Now you know why it was so important to suspend the rules of accounting. They still are suspended you know.
https://m.youtube.com/watch?v=JDZaiM8oAOU
“… any assets that aren’t impaired or encumbered are going to do very well.”
Until the CEO’s impair them with Fed incentives.
I guess when your predictions don’t come true, you can weasel out of it by saying “stocks are likely to decline for years on end when the party does end”. And when those don’t come true, you will be distracting the masses with weaseling out of something else.
Look up previous crises like the October 1987 crash, Russian and Asian problems in 1997, 9/11 attacks, Pearl Harbor, 2008. Within a few years, there were big gains in the stock market
@Rufus — I have shares available for you: Roman Colosseum, South Sea Company (French), Spanish Galleon Shipping Line, International Harvester, Penn Central Railroad, … many others. Send in your bids. Cash only, no receipts, exchanges only in dark alleys.
Think you meant to say the INDEX goes up after a few years… usually with different companies.
Government Electric was the only company around for Pearl Harbor — the rest of DJIA and S&P are new. And now that GE failed and needed rescue, technically there are zero survivors.
…. take a look at how long the stock market took to recover from the ’29 crash….. does that count as years? The Nikkei is a good example – it went down for 20 years!
What do you predict?
Prices can only go up nominally over the long term. That is because the dollar must be continuously devalued in this system. Adjusted for inflation? As Greenspan said, paraphrased, ‘I can guarantee enough money to keep it all going,,,,just not it’s purchasing power.’
At this point, with these interest rates, only Real Estate and Equities make any sense. Where else would one invest? Other than starting one’s own business, that is?
For sure, shorting is a fools game unless one can figure out what the Fed wants hammered down,,,like real money, maybe?
Was going to chip that in to Rufus above , if you extend this
http://3.bp.blogspot.com/-vIBPZVo3wbo/UE-pRIPgG4I/AAAAAAAAId8/PVembRfTatY/s1600/01+mega-bear-2000-real.gif
to current using
http://www.multpl.com/inflation-adjusted-s-p-500
Either the SP 500 is level with year 2000 and has just about beat the bear to nowhere so far , or is ready to crash .
What else makes sense? Maybe what they’re desperately trying to hold down, silver and gold.
There is no place to hide. Real estate will be taxed and is already overbid. Stocks are using debt to buy back shares so balance sheets are kaput plus price to earnings is sky high.
Like it or not, government debt is our debt and dollar devaluation is our devaluation. There is no escape from that, that is not worse than what we now have. We are trapped and while some will do better than others, we will all “pay” for it.
“One week after Brexit, the lesson investors are taking away is that there’s no problem central banks can’t fix.”
That would be an illusion.
“…policy makers once again rode to the rescue, dropping hints of further stimulus and suggesting they’ll keep interest rates lower for longer.”
But it is all talk. Hinting at stimulus is not the same as stimulus. The FED talks out both sides of its mouth every other week. One month Bullard says one thing, the next something else. The FED is always speaking with forked tongue.
“This may be the new normal,” said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets”
Something is extremely wrong when abnormal is the normal.
The Fed might be forced to raise rates actually. If oil prices really start moving higher and silver roars back to fifty bucks an ounce you could get a lot of liquidity squeezes all over the place as folks keep scrambling into the dollar and treasuries. Interest rates could really move higher on muni debt…especially after so much industry has been off shored to Mexico.
I really fail to see the value of buying ANY debt save for Treasuries and maybe Bank of North Dakota bonds. Brazil, Russia, China, Taiwan, Great Britain, Europe, Canada, Mexico? No thanks.
Australia maybe.
The Eleventh Commandment. “Thou shalt BTFD”.
Early is still wrong.
Not sure why my comment won’t post, so somehow if it’s a double, I apologize.
Mish, the most appropriate musical tribute would seem to be from Hot Chocolate (“Everyone’s a Winner Baby”). It’s just not a party until there’s a Hot Chocolate reference!
A negative yield is safer than money in a German bank.
“A negative yield is safer than money in a German bank.”
Multiply that by the G20 banks. They all changed the rules for depositors.
Awesome!
If France or Spain or another core EU country threatens to Exit —- that is the time to go long everything.
Bad news = Good news!
The DAX (Germany) index is still down 5% since the pre-Brexit high. The FTSE (London) index is up about 3.8% from the pre-Brexit ‘high’. Haven’t calculated the Forex effect but Britain certainly will be no worse off outside the EU than in it.
The fact that investors rotated into the USD and US treasuries immediately after Brexit, but did NOT rotate out once equities jumped higher indicates there is still a net growth of fear in the markets.