Before we get going today, we thought we’d just share this snippet of US equity market commentary over the weekend from Sovereign Man’s, Simon Black.
• “For example, a full 60% of corporate debt issued by companies in the Russell 2000 (US small company index) is rated as JUNK.
• How is this possible, an all-time equity high and all time high junk debt rating, AT THE SAME TIME???
• It’s like investors saying, well there is very little chance these companies will be able to pay their debts, so we’ll pay a record price for their stock.
• In larger companies in the land of the free, The S&P500, are now at their second highest CAPE (cyclically adjusted price/earnings ratio) ever. This is what investors are willing to pay for the shares, relative to long term average earnings.
• Right now, this is 33 x earnings.
• The mean, dating back to the 1800s, is about 15.6.
• The only other time it’s been higher was just before the 2000, “dotcom crash”.
Glad we got that off the chest.
Economically, this week (like the last) will all be about the US dollar and specifically, the pressures the rising dollar and overall tightening liquidity is having on emerging markets.
Does emerging market debt, in USD, matter?? We might be about to find out. It’s like, if you had a $1M loan and it became 25% larger and 25% more to service, in a short period of time, what would you think?
See chart below for those involved.
As you view the chart below, let’s table an important possibility!! The possibility that this very issue produces an entry opportunity, for those underweight, and thinking to invest in, China. It’s what Andrew Clifford, of Platinum Asset Management, called in his most recent commentary, “we see China as the investment opportunity of a generation, even though tighter credit availability and trade tensions have weigh heavily in recent times”.
Anyway, back to that currency effect.
The “currency” effect of the recent USD strength looks like this in Turkish Lira, worse in Venezuelan and South African confetti.
Which is why some in banking circles worry about this:
And if you worry about that then you’ll soon have to worry about this:
And if you worry about that, then you should consider this:
At the same time as this, may be nothing:
As might be this:
But this all may be:
AN EXTRAORDINARY OPPORTUNITY FOR CONTRARIANS
The bonfire of currencies has succeeded in distracting investors away from more important topics that underpin our bullish thesis on gold, namely, the escalating global trade war, rising geopolitical tensions and spiralling debt and budget deficits in the United States. Bearish sentiment towards precious metals has reached a climactic phase. If past is prologue, the current shorting frenzy in gold and silver futures will likely be followed by an intense short-covering rally.
The “when” is the biggest question.
Get it? Got it? Good.
PS: and then there’s this, unrelated as it is…
“A hamburger could cost a million dollars before this market crashes again” piped a wise guy from the cheap seats at a recent fund manager briefing we attended.
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