From BlackRock's blog:
Rick Rieder and Russ Brownback highlight the
investment themes that they think will drive markets and dominate
debate within the investment community over the next several months and
beyond.
Over recent weeks, we have been vocal about five “big themes” for markets that will likely dominate the second half of 2019. These themes take stock of a collection of secular and cyclical factors that have combined to create an unprecedented macro backdrop. Specifically, over recent quarters excessively tight global monetary policy and contracting global liquidity have conspired with ongoing secular disinflationary forces and velocity-dampening trade friction such that while global real economy performance has been okay this year, it is far from optimal. Still, we think the market influence of these encumbrances is poised to abate over coming weeks and we are adjusting positioning accordingly.
Dearth of yield availability supports income-producing markets
Our first theme is quickly becoming common refrain; quite simply, there is not enough investment income available in the world today relative to the aging population that desperately needs it. As a case in point, nearly 30% of developed market (DM) global government bond debt is negative yielding today, while almost 80% of it yields less than 2%. Moreover, yields across credit sectors are similarly scarce, as issuance from traditional “yieldy” entities is plummeting due to dwindling global demand for traditional debt-financed corporate capital expenditure.
A similar decline in net new debt issuance is likely across less traditional sectors as well, including municipals, and commercial and residential mortgage backed securities. Simultaneously, downward pressure on interest rates is exacerbating the deficits associated with universally unfunded liabilities (pension funds, etc.) that are already suffering from this shortage of yield issuance. We believe that this technical influence is structural in nature and will therefore be firmly entrenched for the foreseeable future (see graph). Accordingly, we are endeavoring to sensibly purchase income and cash flow where possible, while steering clear of lower-quality assets, and being sensitive to the liquidity-premium in some assets today.
A growth conundrum haunts EuropeWhich of course reminded me of one of the greatest financial innovations of all time.
Our second theme pertains to the inefficiencies associated with the relative pricing across the European asset stack, system wide. In fact, the cost of European debt capital is unprecedentedly low, so much so that it is actually dampening the very velocity that its policy-induced pricing is meant to facilitate. At the same time, European equity capital is punitively expensive to use as a funding source, alongside of other structural headwinds that continue to dampen investors’ Euro-area growth expectations. All else equal, companies will invest in growth-enhancing initiatives if their expected return on assets exceeds their weighted-average cost of capital.....MUCH MORE
I'm not sure if it says anything about our readers but the most popular links we've ever had were
"UPDATED--'The Karl Marx Credit Card – When You’re Short of Kapital'":
Is it a tragedy? Is it a farce? In the land once called East Germany, in a town once called Karl-Marx-Stadt, a bank called Sparkasse Chemnitz ran an online poll letting customers vote for images to place on their credit cards. And the hands-down winner was Karl Marx, an ironic pick given that … well, you don’t need me to explain why.
In response to this selection, Planet Money has encouraged readers to post a tagline for the card on Twitter, using the hashtag #marxcard. Here are a few of our favorites so far:
- There are Some Things Money Can’t Buy. Especially If You Abolish All Private Property.
- From each according to their ability, to each according to his need. For everything else, there’s
#Marxcard.- The Marx Card – Because Credit is the Opiate of the Masses.
- The Karl Marx MasterCard – When You’re Short of Kapital
And
Okay, The Second Time Is Farce: Some Additional Taglines for the Karl Marx Credit Card
It's Everywhere You Want To Be But Can't Go Due To Internal Travel Restrictions #marxcard
A spectre is haunting Europe - the spectre of cash back and low, low interest rates. #marxcard...MORE
