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Being Prepared Isn't Such a Bad Idea

Being Prepared Isn't Such a Bad Idea
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Monday, 19 October 2015 07:42 AM Current | Bio | Archive

China’s official GDP growth numbers confirmed, as expected, the global “mediocre” growth environment.

China’s gross domestic product of the third quarter of 2015 came in at +1.8 percent on a quarter-on-quarter basis and at +6.9 percent on a yearly basis, which was its lowest level since mid-2009.

Industrial production rose by 5.7 percent y/y, which was down from 6.1 percent previously and below the expected 6.0 percent.

Retail sales accelerated to 10.9 percent y/y beating expectations of 10.8 percent while fixed asset investment rose by 10.3 percent y/y, which was five tenths below the expected 10.8 percent.

China's Premier Li Keqiang said that with the global economic recovery losing steam, achieving domestic growth of around 7 percent was not easy adding, “as long as employment remains adequate, the people's income grows, and the environment continuously improves, GDP a little higher or lower than 7 percent is acceptable.”

Also, data released separately show that government-spending rose by nearly 27 percent year-on-year (y/y), which apparently was not enough to reverse China’s downward growth path.

That said, and after the recent comments of various people of the Fed, the Chicago Mercantile Exchange (CME) 30-day federal funds futures now points to a first rate hike in March 2016, which demonstrates markets seem to accept the “Yellen-put.”

Trying to get somewhat of an idea where markets could be headed for during these final months of the year and thereafter, we all must admit the continuous “emergency settings” of monetary policies, not only in the U.S., but practically throughout the developed world have made investors to a high degree insensitive to what we could call the very-real-non-financial risks that remain out there and do not fade away.

Examples are the indifference to:

  • the “take-over” by Russia of the Crimea;
  • what’s going on in the Middle East and the Levant, which is an approximate historical geographical term referring to a large area in the eastern Mediterranean;
  • what’s going on in the South-China Sea, etc…
What has also been interesting is the fact that investors, at least apparently, have become greatly insensitive to “major financial risks” like the risks that implied the situation with Greece during the first half of the year and when the ECB was obliged to “firewall” the whole situation with its huge emergency-QE-program, that, it must be said, has worked so far, but unfortunately, it must also be said, the whole story isn’t over yet.

Then we have of course the still slowing growth scenario in China that really hasn’t caused strong and long-term risk-averse sentiments in the markets. In fact, markets sentiments became only risk-averse for a short while when in August China devalued “surprisingly” its currency with only a small 2 percent, but that was seen as a significant policy u-turn by the People’s Bank of China (PBoC).

The decline in commodity prices since the summer of 2014 has, at least in my opinion, more to do with a spike in demand for U.S. dollars, which pushed the dollar higher, after the ECB introduced a negative deposit rate as of June 11, 2014.

Finally, we have seen the phenomenon taking roots of “bad news is good news” for investors as bad economic news has been seen as a prolonged probability of further postponement of the first Fed tightening, which, of course, has favored risk-on sentiments in the markets. 

All of this points to a bubble situation that will burst one day, while in the mean time nobody really knows when that day will be.

I wouldn’t be surprised we could see something similar taking place from hereon to what we’ve experienced in the fourth quarter of 1998 when overall positive risk sentiment was the driving force for the markets and that lasted until into 2000.

As an investor, I’d take the first Fed rate hike with all the seriousness it deserves as it could, I’m not saying it will, be a major market risk-off event all over the globe.

Of course, there are other still unknown events that could bring the whole positive risk sentiment situation down with one single strike.

Being prepared isn't such a bad idea.

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HansParisis
Being Prepared Could Be Not Such a Bad Idea
investors, market, stocks, china
687
2015-42-19
Monday, 19 October 2015 07:42 AM
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