It’s been a choppy start to the year, but last week’s price action added to the evidence that the bulls have regained control, at least temporarily. The MSCI World and HYG US equity are now about 8% and 5% higher, respectively, from their lows in December, and treasury yields are up across the board. The rebound has been broad-based, but European and EM equity indices have shown particularly promising signs, consistent with the fact that they have, after all, been much cheaper than their U.S. counterparts through the Q4 chaos. These headlines are good news, but at this point, I am not willing to treat them as evidence of anything but a reflexsive rebound in the wake of a horrific Q4. Short-term indicators suggest that a lot of fear already has been priced-out. The put/call ratio on Spoos it peaked at 2.7 SDs above its mean on December 27th, but has since plunged to -1.0 SDs. Normally, this would be a sign of complacency, at least in the very short run, but the put/call ratio looks more balanced on Eurostoxx 50, indicating that the picture for global equities as a whole is more neutral. Other indicators also suggest that the market can run a further. My first chart shows that that the crash in the U.S. stock-to-bond return ratio at the end of 2018 was similar to the plunge during the EZ sovereign debt panic in 2012, and well in excess of the Chinese devaluation scare in 2015/16.Read More
If you just want my views on the increasingly unruly price action in the equity market, scroll down to the bottom of this post, and you will find the link to the PDF. Now that I have your attention, though, allow me to wish you a Merry Christmas and a Happy New Year. Thanks for reading, and for the comments you throw my way on email, on Twitter or over at Seeking Alpha. I am very grateful for this interaction. This has been a good year for me in terms of keeping a steady output here, a tempo I hope to keep up next year. That said, I am, as ever, struggling with too many ideas and too little time. I wouldn’t want it any other way.
I managed to finish one short story in 2018—it will be published soon—which took much longer than it ought to. The main issue is that I have also been working on a novel, which I am now determined to finish before starting any new fiction-projects. I also hope to do more podcasts next year, about other topics than economics and finance, though I must confess that the state of debate about the issues that I want to discuss is in such a dire state that I don’t know where to begin. People don’t seem to be having proper conversations about important issues anymore, though some are if you care to go beyond the beaten track. Instead, they seem to be engaged in a race to the bottom of mutually assured destruction. In any case, this is a discussion for another day.Read More