Bill Blain: "The Market Mood Is Definitely Changed"

His comment is to the point: who will be the last fool buying spread product?

We’re trying to figure exactly how the end of QE distortions and rising/normalised bond yields play out across the credit spectrum. Highest risk will, of course, be US credit starting with high yield. Least volatile will be the SSA credits closest in quality to the proverbial risk-free rate. One big question is Europe where QE (to the tune of €30 bln a month) continues. We doubt European credit will remain entirely immune from the effect of wider US spreads.

More widely, CIOs are trying to figure the consequences of a bond bear market across all asset classes. What are the spillovers into stocks? One factor driving tighter stocks has been stock buybacks and M&A funded and fuelled by ultra-low interest rates. These are no longer going to be such significant drivers. And how about property – where higher rates will impact still cash-strapped under-payed and heavily indebted middle classes? Or in the UK where distortions include the home-builders making off like bandits with the Government’s Help-To-Buy electoral bribes?

So much to think about. How long before we get a headline saying Goldman Sachs are predicting $200 oil? (It happened..) Meanwhile, I think the Norwegians might be on to something as I read their SWF fund is looking to further broaden its remit to include Private Equity and, soon, infrastructure. That’s probably the way to go as the Great Financial Crisis 2017-2023 moves into its next phase: correcting the imbalances caused by 10-years of Financial Asset Inflation and Distortion!

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