Turning Points: Currency Wars, Growing Signs of a Credit Bubble
The most important job in the global economy is set to change hands soon as Janet Yellen will be taking over for Ben Bernanke as chairman of the Federal Reserve System.
There continue to be growing signs of a credit bubble manifesting around the globe. In the United States, it appears that credit quality is starting to slip as banks are becoming more friendly to lower credit borrows. In private equity, Blackstone sees an “epic” credit bubble. Real estate in China appears to be frothy. And, with the Federal Reserve presently unable to unwind easing, these bubbles could and should grow in magnitude materially.
Here’s a wrap-up of key issues affecting global markets for fundamental investors.
Currencies
- Jim Rickards discusses currencies in “Currency War III: How Will It Play Out?” (CFA Institute)
- Rajan defends rupee as concerns resurface. (Financial Times)
- Rajan is promising a sea change in India’s credit markets. This could be a huge, transformative event (Financial Times)
- Introducing the “fragile five”: Brazil, Turkey, Indonesia, India, and South Africa. (China Daily)
Commodities
- “Chinese Iron Ore Futures Drop as Supply Exceeds Demand” (Mineweb)
- Freeport McMoran sees increasing copper demand. (BN America)
- Farmland price bubble? (MarketWatch)
China’s Direction
- “China’s Overheated Property Market: Clampdown Ahead?” (Businessweek)
- “China Major Cities Home Prices Jump, Fanning Bubble Concerns” (Bloomberg)
- “China’s Banks Bad Loans Point to Trouble Ahead” (Financial Times)
Credit Markets
- It’s ba-ack. Credit markets are getting frothy — from PIK toggle bonds to covenant lite to CLOs. (Financial Times)
- It appears US banks are trading out of US Treasuries and ramping up cash reserves quite a bit. (Federal Reserve Bulletin)
- Three wonderful graphs of mortgage applications plotted against 30-year mortgage rates. Check out the sensitivity to rates. (Mortgage News Daily)
- US lenders are easing credit standards. (Washington Post)
Derivatives
- “Japan Credit Risk Drops to More Than Two-Month Low, Swaps Show” (Bloomberg)
- “CDS Spreads Widen Under Central Clearing Obligation” (Deutche Bank)
Energy
- China car demand growth makes OPEC bullish on oil demand. (Wall Street Journal)
- Surge in US shale Oil may be forcing Middle East producers to delay investment. (Wall Street Journal)
- The deal between the United States and Iran could unleash more global supply over next two years, pushing prices downward. (Telegraph)
Euro Crisis
- The French private sector contracted sharply. (Financial Times)
- “One Year Later, Has the German Bubble Grown?” (CFA Institute)
- “Swiss Real Estate Bubble Index — 3Q 2013” (UBS, PDF)
Hedge Fund Money
- Ray Dalio says there is no more alpha. (CNBC, video)
- Hugh Hendry capitulates and throws in the towel. (Zero Hedge)
- Einhorn transcript from CNBC interview. (CNBC)
Interest Rates and Central Banks
- Bernanke has no clue how to taper QE without tanking the market. (Forbes)
- “Yellen Says Stronger Job Growth Is a Fed Imperative” (Reuters)
Japanese Debt and Inflation
- An alternative to Abenomics. (Forbes)
- Japanese growth cut in half in 3rd quarter. (Financial Times)
- “Land Prices Rise in Japan’s Cities” (Wall Street Journal)
Stock Market
- “US Stock Market Makes First Corrective Turn” (Forbes)
US Real Estate Bubble 2.0?
- Shiller says that US housing is not in another bubble. (Dallas News)
- Fed Survey finds little easing of credit standards. (National Mortgage News)
Time Capsule
- Bridgewater Associates does a first-class job of describing their perspective on the market and economic cycles. On page 115 is a really top-notch discussion of the German hyperinflation of the 1920s. They have sorted through and assembled data that is very difficult to acquire and did a superb job of describing these events.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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