Janet Yellen pulls trigger to reverse QE but we're now in uncharted waters

Thrugelmir

Finally unwinding of QE commences. Though going to be like paint drying apparently. Going to be interesting times.

'Elephant in the room'
The combined $US14.4 trillion accumulation by the big central banks has played havoc with asset valuations. The Shiller (CAPE) price earnings ratio for the S&P 500 index is currently at 30.68, higher than the peak in 1929.
The Bank for International Settlements warned this week that the use of global margin debt used to buy equities is now more extreme than during the dotcom bubble in 2000.
"Leveraged loans" have jumped to an unprecedented $US1 trillion, three quarters on "covenant-lite" terms. As the BIS says, this is only sustainable as long as central banks keep bond yields pinned to the floor.
"The persistent elephant in the room remains the risk that bond markets are underestimating the pace of Fed tightening ahead," says the Institute of International Finance.
"Yet credit spreads still reflect little concern, while stock market valuations continue to soar as earnings revisions lag price gains. Current market pricing can thus be seen as a game of chicken."

'Debt trap'
Eight years of leaked liquidity from the West has destabilised the East, although China needed no encouragement.
The world's debt ratio was already at a record 276 per cent of GDP just before the Lehman crisis. It has since jumped to 327 per cent. Nothing like this has ever been seen before.
What nobody knows - including Fed officials - is how much monetary tightening it will take to detonate this combustible material.

https://www.brisbanetimes.com.au/business/the-economy/janet-yellen-pulls-trigger-to-reverse-qe-but-were-now-in-uncharted-waters-20170921-gylss6.html

michaels

ok so if bond yields can only rise and equities fall and inflation is rising and property is way overvalued, where should we put our money?

And please dont suggest any thing hard and shiny....

kinger101

michaels wrote: »

ok so if bond yields can only rise and equities fall and inflation is rising and property is way overvalued, where should we put our money?

And please dont suggest any thing hard and shiny....

cryptotulips

Thrugelmir

michaels wrote: »

ok so if bond yields can only rise and equities fall and inflation is rising and property is way overvalued, where should we put our money?

That's a broad generalisation you've made. Like panning for gold. You'll need to work hard to identify the opportunities rather than sit back back and simply watch the money roll in. Start a business yourself is an alternative.

The-Joker

michaels wrote: »

ok so if bond yields can only rise and equities fall and inflation is rising and property is way overvalued, where should we put our money?

And please dont suggest any thing hard and shiny....

Why not? Silver is better than gold, as it is now more rare which has never happened before in history.

there are 3.6 million tons of gold available above ground

silver is now down 0.4 million tons available because its all being sed up in cell phones nd electronics.

If you want to invest in a tech stock, buy a bar of silver.

economic

the smart money can only go to equities - it is liquid, private and yields a return. watch stock markets more or less double from here before the next bear market comes.

Thrugelmir

The-Joker wrote: »

If you want to invest in a tech stock, buy a bar of silver.

If tech firms are dependent on silver. Then time to sell isn't it.

michaels

uk long gilts...lets hope the gradual descent to junk rating is not really a trend

Thrugelmir

ilovehouses wrote: »

I'd suggest that very few can identify opportunities no matter how hard they work. No shame in it - I'm not one of them and, with respect, it's unlikely you are either.

Hence my reference to panning for gold. In addition one can at least improve ones chances by avoiding the crud. With risk comes reward. There's no such thing as a free lunch. Unlike a fund manager I'm only looking to invest a relatively small amount. Being nimble has it's advantages too.

Thrugelmir

ilovehouses wrote: »

I'm guaranteed to get the investment back plus a monthly coupon.

Aren't you currently paying above par value for the stock though?

michaels

ilovehouses wrote: »

The gilts are purely to offset the equity investment risk.

If I knew the price of gilts would rise or fall I'd bet on that instead and make a bomb. I don't really have a view on the price of gilts which is why I buy them according to when I need the money. I'm guaranteed to get the investment back plus a monthly coupon. That's all I'm after.

It is that guarenteed bit that worries me with an evens chance of a corbyn govt within the next 5 years....

I have done well in mostly equities mostly outside the uk over the last 2 years but am happy to admit it is luck rather than judgement and I am almost certainly overexposed to a recovery in sterling. However it is for my pension which seems to be far away and receeding so without any edge I am happy to play the long term averages rather than trying to time or out guess the markets.