Thursday, November 28, 2019

The BSP’s Signals an Interest Rate U-Turn as National Government’s October Revenues and Spending Slow!



It doesn’t matter whether it comes in one year or four. If you don’t start preparing now, you will maybe do better while the economy continues to do okay, but whatever gain you get from that will be overwhelmed by problems with your investments in the downturn—Jeffrey Gundlach


In this Issue
The BSP’s Signals an Interest Rate U-Turn as National Government’s October Revenues and Spending Slow!
-Suddenly, The BSP’s Signals an Interest Rate U-Turn, Why?
-In Brief: the NG’s Fiscal Standings in October
-Despite Tax Hikes, Softening Revenues Reflect Economic Health
-National Government Restrained Spending in October: What Happened to Build, Build, and Build?
-Fiscal Conditions Provides Evidence of Economic Centralization (Neo Socialism) as -NG Debts and Cash Holdings Soars to Record!

The BSP’s Signals an Interest Rate U-Turn as National Government’s October Revenues and Spending Slow!

Suddenly, The BSP’s Signals an Interest Rate U-Turn, Why?

Just early this month, the BSP ruled out further easing this year or declared an end to the easing streak (Inquirer, November 14): “Diokno said the Monetary Board “believes that prevailing monetary policy settings remain appropriate.”…The shutoff of the cash valve, he said, would give previous monetary easing decisions, like a 75 basis point reduction in rates and a cut in bank reserve requirements, time to “work their way into the economy.”

Then, in the next two weeks, comes a fantastic change of heart as another easing may be at work said BSP Governor’s Diokno (BusinessWorld November 26, 2019): “The BSP will always be data-dependent so we will evaluate… every time we have a policy meeting,” he told reporters on the sidelines of the Financial Education Stakeholders Expo at SMX Convention Center in Pasay City… After this year’s 400 bp reduction, the RRR starting next month will be 14% for universal and commercial lenders as well as non-bank financial institutions with quasi-banking functions, and four percent for thrift banks, while the requirement for rural banks will remain at three percent. At the same time, Mr. Diokno said monetary authorities will avoid “drastic” policy adjustments since they do not want to be misinterpreted by the market as being “desperate”… He had also said late last week that monetary authorities would want to watch previous policy moves take root in the market, since it takes up to nine months for the impact to be evident. (italics mine)

And this comes right after, the BSP redefined deposit substitutes, which according to this BusinessWorld November 27 report, releases about Php 28 billion in liquidity since they wouldn’t be subjected to reserve requirements: Ang implication ’nun (Its implication) is I think we released about P28 billion into the financial system,” Mr. Diokno told reporters on the sidelines of the Financial Education Stakeholders’ Expo held at SMX Convention Center in Pasay on Monday. “Again, we will see how the financial market will respond to that,” he added.” (italics original)

As a data-dependent institution, what has prompted the BSP’s stunning volte-face? Have banks not been reporting impressive multi-year highs in the growth rates of its revenues and profits this year? Which particular data set has the BSP been responding to?

Could it be about the sustained sluggishness in October’s banking credit and domestic liquidity conditions? The BSP will publish the sector’s data this weekend and the banking sector's Financial Statements (FS) in the 2nd week of December. Could it be about the fiscal conditions of the National Government? Or, could it have been both?

If the BSP does not want to be misinterpreted by the market as being “desperate”, then why such "drastic policy adjustments", which they said they would want to avoid?

Until a cut in policy rates have materialized, the BSP’s signaling backslide may be construed as a trial balloon to see how the market reacts.

In Brief: the NG’s Fiscal Standings in October

This outlook probes on the National Government’s (NG) fiscal account in October.

It deals with the October deficit from lower revenues than from expanded spending. After a spending orgy in September, surprisingly, the NG pulled back in October, suggesting lesser activities in “build, build and build”.
Figure 1

And with 2-months left, October’s deficit of Php 348.25 billion represents a 45% shortfall from the annual target of Php 631.5 billion or 3.2% of the GDP. Either the NG will ramp up spending in the last two months of 2019, or there has been a deliberate effort to restrain it for unstated reasons.

Finally, in spite of the seeming moratorium in spending growth, the NG continues to raise substantial funding from the capital markets at historic levels. As such, the NG’s cash position continues to balloon to unprecedented levels too.

Because of the casual interdependence of the economy, the banking system, and the NG’s fiscal operations, their current conditions explain the BSP's recent U-turn.

Despite Tax Hikes, Softening Revenues Reflect Economic Health

In the first month of the last quarter, NG collections from all segments fared unremarkably to weigh on the 10-month performance.  

Total revenues in October grew by only 6.0% to Php 261 billion. The growth of BIR collections, which accounted for 68% of the total revenues, was up 8.09% to Php 178.12 billion.

However, the Bureau of Customs (BoC) and Non-tax revenues endured a greater ordeal. Most likely reflecting on the continued lethargic merchandise trade, the BoC underperformed to post a meager increase of only 3.04% to Php 57.7 billion, while non-tax revenues even decreased by 1.4% to Php 25.05 billion. 

To buoy the GDP to over 6% in the 4Q, the CPI would have to register less than 1%, should the subdued growth in nominal revenues be sustained through the next two months.
Figure 2
And as a consequence of the lackluster October collection performance, 10-month revenues registered a 9.8% growth to Php 2.589 trillion. Tax revenue posted a 9.93% increase to Php 2.328 trillion, consisting of the BIR’s 10.7% to Php 1.781 trillion, and the BoC’s 7.6% to Php 528 billion.

Since 2011, the growth rate of tax revenues and BIR collections have been on a downtrend. (Figure 2, upmost)

And the Duterte administration’s tax reform, TRAIN 1.0, has, so far, only juiced up NG’s top line in 2018.  Unfortunately, signs of strains have surfaced, demonstrating the diminishing returns from its incipient stimulative effects.

Furthermore, the tapering growth of money supply conditions, manifesting the slowdown in bank loans, has also been correlated with changes in tax revenues.  (Figure 2, middle window)

That said, aside from changes in policy and administration, tax revenues are determined mostly by real economic conditions. (figure 2, lowest window) Thereby, the moderating growth in tax revenues exhibits the deceleration of the real economy as a consequence of tightened liquidity conditions. Not only will the tax revenues be affected, but its feedback loop would aggravate the liquidity squeeze in the financial system.

The about-face by the BSP may be explained by this dynamic. Under this scenario, a weak topline, instead of a political spending binge, would incite the widening of fiscal deficits.

The BIR even admitted to the Php 150 billion collection shortfall, coming from the “failure to meet targets in collection of excise on fuel and sugary drinks”, reported the Inquirer (November 26). As the old economic saw goes, When you tax something, you get less of it, hence, the diminishing returns from higher tax rates!

Sadly, popular politics eschews the fundamental rule of economics. As the great author Professor Thomas Sowell wrote: The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

To extend this line of thinking, has the mainstream ever ruminated or debated the crowding-out effects of taxes on productive investments on the economy? Or should the quintessence of political redistribution's 1 – 1 = 2 be accepted blindly as an incontrovertible fact? Or does political spending only have net beneficial effects?

In this world of fiat money inflationism, short-termism or immediate gratification has reoriented people’s sense of priorities.

National Government Restrained Spending in October: What Happened to Build, Build, and Build?
Figure 3
As earlier noted, as revenue growth relapsed, political spending has similarly and unexpectedly regressed. Despite the media and political blaring of “build, build, and build”, public expenditures had barely been higher, up 1.37% in October to Php 311 billion from September’s milestone of Php 415.1 billion. (Figure 3, upmost pane)

The resounding drop in October’s spending from September’s record ramp sapped the 10-month to Php 2.938 trillion.

Although allotment to the local government jumped 20.73% YoY to Php 53.85 billion, the 4.23% decrease in NG’s disbursements to Php 226.9 billion caused the slack in the Yoy % and nominal peso change. (Figure 3, middle pane)

NG disbursements accounted for 73% share of October expenditures and 65.03% of the 10-month aggregate.

Interestingly, while subsidies zoomed 367% YoY, in nominal peso, spending plunged to Php 7.24 billion from a record Php 54.7 billion in September. Subsidies to the three of the biggest recipients, namely, National Irrigation Administration, Philhealth, and Landbank, had been substantially reduced. Strikingly too, despite record borrowings, interest expenditures fell 13.7% to Php 20.724 billion in October, which also was lower by almost half from Php 43.1 billion in September.  

To be sure, the budget earmarks haven’t been the issue. The National Government has deliberately withheld spending last October.

Fiscal Conditions Provides Evidence of Economic Centralization (Neo Socialism) as NG Debts and Cash Holdings Soars to Record!

Figure 4

As earlier stated, instead of spending, October’s deficit of Php 49.26 billion had been a product of soft revenues. And the accrued 10-month deficit of Php 348.25 billion or 2.35% of the GDP remains 45% shy of the Php 631.5 billion or the 3.2% deficit-to-GDP annual target.  

Again, spending activities, in the last two months, would have to accelerate, otherwise, the NG will fall short of attaining its target. That is, of course, unless revenues will drop sharply.
The other aspect is that this spending slowdown is a deliberate undertaking designed to increase the government’s cash reserves.

For one thing, in spite of the spending restraint last October, what is clear has been the centralization dynamic of financing and resources. (Figure 4, upmost window) Even with a 2.35% deficit to GDP ratio, the 10-month expenditure-to-GDP rose to 19.83%, an all-time! With political projects vacuuming or corralling more and more resources and financing, which come at the expense of productive investments, the rate of capital consumption accelerates.

And expenditure-to-GDP measures the direct spending, but how about the indirect, or the PPPs or private sector spending on political projects?

And because expenditures are supposed to represent facts while GDP is an estimate, an inflated GDP translates to an even higher ratio!

The opposition’s criticism over the failure of “build, build and build” has been misplaced. The benchmark should not be the number of projects. Such assumes the NG obtains revenues from productive undertakings.  Rather, the spotlight should focus on the opportunity costs from the diversion of resources to the NG through (current) taxation (aside from future taxes through debt and the inflation tax).

Or how these projects (1) divert resources to the politically connected elites that widens economic inequality, (2) may end up being white elephants, and (3) the increasing burden from the mounting carrying cost of debt over their assumed economic and financial viability.

If the poster child of infrastructure is the more than Php 6 billion SEA games, then the future certainly looks bleak.  From the South China Morning Post (November 26): “A half-painted stadium with few working toilets and a “media centre” resembling a barely lit warehouse; bad roads leading to unfinished venues; teams waiting hours for transport and then being forced to sleep on hotel floors. The official theme the Philippines has chosen for the 2019 Southeast Asian Games is “We Win As One”, but in the lead-up to their November 30 start there is an unofficial one that has become all too evident: “We are not ready.” This unpreparedness is on display in everything from crudely written signs to poorly organised accommodation and strained logistics. One Filipino reporter covering the games, speaking on condition of anonymity, said from what he had gathered so far this is “the worst games – before this it was the [2017 edition] in Malaysia”.

And for those expecting a boost from the Chinese government’s promises, the South China Morning Post pours cold water on such popular impression (October 25). “Beijing in 2016 pledged to fund an array of major construction jobs for the Philippine president’s signature Build, Build, Build programme. But three years on, many projects remain on the drawing board, leaving Duterte with little to show for his much-touted policy pivot to China China and the Philippines signed six deals last week that boosted Beijing’s funding for the Southeast Asian nation to a total of US$924 million, but the amount is a long way from the US$9 billion pledged in 2016.”

So in spite of the restrained spending, the NG continues to frantically borrow money at an unprecedented scale to amass record amounts of cash in its coffers. (figure 4 lower window) Whether such intensive cash build-up is about next year’s aggressive spending or about the current attempt to influence bond yields lower, or as contingent for emergency purposes or a combination of, the future will tell.

Nevertheless, the BSP’s interest rate signaling turnabout represents an attempt to ease the financing onus of the National Government and the banking system.


Monday, November 25, 2019

In 3Q and 9M Non-Bank PSYEi firms Borrowed Php 4.75 to Generate a Peso of Income; More Bailout: BSP Redefines Deposit Substitutes!


The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane—Marcus Aurelius [Marcus Aurelius Antoninus Augustus] (121-180) Roman emperor (161-180)

In this issue…

In 3Q and 9M Non-Bank PSYEi firms Borrowed Php 4.75 to Generate a Peso of Income; More Bailout: BSP Redefines Deposit Substitutes!
-Non-Bank PSYEi firms Borrowed Php 4.75 to Generate a Peso of Income!
-The Inequality from Access to Bank Credit, Dennis Uy’s Phoenix Petroleum the Next San Miguel?
-Lower 3Q Revenues and Net Income Exposes Statistical Inflation of 3Q’s 6.2% GDP!
-While Banks Powered Revenue and Income Growth, the BSP Launches Another Regulatory Bailout by Redefining Deposit Substitutes!
-Revenues and Net Income Must Be Lower Outside Banks and Accounting Charade

In 3Q and 9M Non-Bank PSYEi firms Borrowed Php 4.75 to Generate a Peso of Income; More Bailout: BSP Redefines Deposit Substitutes!

Non-Bank PSYEi firms Borrowed Php 4.75 to Generate a Peso of Income!

Let us cut to the chase.

Non-bank members of the composite index borrowed Php 4.75 for every peso it generated in the 9-months of 2019.  While non-banks earned Php 55.6 billion, the increase in marginal borrowings over the same period amounted to Php 263.7 billion. And though lower than the previous quarter’s 6.15% debt immersion, it reveals the developmental economic growth mechanism of the Philippines: a debt-dependent model.
Table 1

And so the BSP shouldn’t be surprised that interest expense has expanded and should continue to increase an accelerated clip. And because there is no free lunch, higher levels of debt translate to the rising cost of debt servicing, which should contribute to LOWER earnings and an INCREASE in credit risks.

Again from the BSP’s 2018 Financial Stability Report: “Philippine Stock Exchange (PSE)-listed non-financial corporations (NFCs), the growth of interest expense (IE) has outpaced the rise of earnings before interest and taxes (EBIT) …The same companies have also reported lower profitability with respect to return on assets.”

And because companies may resort to the bloating of revenues and earnings, published debt indicators may have even been understated.  And remember, there are many other forms of liabilities other than the debt, which may be used to conceal, through reclassification or the use of off-balance-sheet, their actual conditions.

At the end of September, holding firms and the property sector had the registered the largest % increase borrowings, aside from having the most % share of the total.

Remember, credit expansion activities of banks had supposedly been southbound. While the sector’s lending grew 10.4% in September, the 9-month growth rate of PSYEi was lower at 6.6%.

Yet, in perspective, the PSEi’s aggregate non-bank borrowing of Php 4.727 trillion accounted for 50.4% share of the BSP’s total credit data in September amounting to Php 8.471 trillion! And that’s only the elite 30.

The magnitude of borrowing by composite members of the PSYEi reveals the degree of concentration in access to bank financing. A few but privileged, mostly politically connected entities have been benefiting from this limited access to formal credit.

In plain English, to the extent that borrowing represents additional and frontloaded spending, then the GDP has been skewed to these few entities.

Inequality, anyone?

The Inequality from Access to Bank Credit, Dennis Uy’s Phoenix Petroleum the Next San Miguel?

Table 2

Expanding the coverage to those with borrowings of more than Php 10 billion, aside from members of the Composite Index and their subsidiaries, four issues made it to the list: namely, property issue Sta. Lucia Land, Senator Villar’s Vista Land, Administration’s favorite chummy Dennis Uy’s Phoenix Petroleum (PNX), and contractor and airport operator Megawide Construction.

Interestingly, while PNX’s 9-month revenue grew 12% to Php 73.169 billion or by Php 8.206 billion, its net income eked out only Php 918.3 million. PNX has a market cap of Php 15.7 billion, as of November 25. Yet, the company guzzled a stunning Php 18.4 billion in 9M 2019, more than twice the marginal revenue growth and over 100% of the company’s market cap! 2019’s 9M borrowing represented 39% of its aggregate debt!

PNX appears to be the next San Miguel. Oh, by the way, San Miguel’s debt ballooned to a staggering Php 831.6 BILLION in 9M 2019 which is over TWICE the firm's market cap, and equivalent to 3.8% of the total resources of the Philippine financial system as of September!

Lower 3Q Revenues and Net Income Exposes Statistical Inflation of 3Q’s 6.2% GDP!

Let us then move on to revenues and earnings.
Table 3

Firms of the composite index reportedly generated 13.14% in net income growth in the 3Q and 15.05% in 9-months. In the context of revenues, the same members declared a revenue growth of 6.98% in the 3Q lower than the 8.97% in 9-months.

In aggregate, lower revenues and income in the 3Q weighed on the 9-month performance, which in the perspective of the GDP, reveals the vast overstatement of the 3Q’s 6.2% GDP!

Keep in mind, the aggregate revenues of the headline index have accounted for 30.36% of the nominal GDP in the 3Q and 30.6% in 9-months. Of course, this comparison is apples-to-oranges, for the simple reason that published financial statements are supposed to represent ACTUAL performance, while the GDP is an ESTIMATED figure derived from econometric models, which inputs are collated mostly from surveys.

While Banks Powered Revenue and Income Growth, the BSP Launches Another Regulatory Bailout by Redefining Deposit Substitutes!

Philippine banks, hands down, delivered the substance of income and revenue growth covering the 3Q and the 9-months. Revenues expanded 22.42% in the 3Q, lower than 29.33% in 9-months. Meanwhile, net income spiked 39.3% in the 3Q to heave 9M growth rate to 33%. As a result of the Treasury boom, banks registered a spike in published earnings in spite of lower revenues.

And yet, the banking system may be inflating both their revenues and earnings. Why then, would a Php 400 billion injection of funds be required through the BSP's lowering of reserve requirement ratio? The answer is to alleviate the industry’s liquidity quagmire.

And yet more evidence of problems than a boom.

The BSP announced another regulatory bailout of the banking system this week.  Deposit substitutes, a component of M3, has been redefined.

From the BSP: “This means that borrowings from banks, quasi-banks and other financial intermediaries are no longer considered as deposit substitutes which are subject to reserve requirements.  Examples of these borrowings include interbank borrowings, repurchase agreements with financial counterparties as well as bonds issued to financial intermediaries. The exclusion of these types of borrowings from the reserve base of banks and quasi-banks will result in freed-up liquidity for lending or investment activities.”

Why would the BSP send an avalanche of the liquidity to the banks, if they’ve been growing revenues and profits?*


Revenues and Net Income Must Be Lower Outside Banks and Accounting Charade

However, if we exclude the banks, the non-financial revenue and income growth would have been lower: specifically, 5.85% in 3Q pulled lower 9M's revenues to 7.54%. Revenues spilled over to net income, which increased by 9.03% in the 3Q to weigh on 9M net income growth to 12.5%. Seen in the context of GDP, lower revenues and income exposes the padding of the 3Q's 6.2%.

And speaking of net income growth, many firms have applied accounting prestidigitation or have been bolstered by one-off /non-recurring transactions. For instance, despite stagnant revenues, accounting add-backs ballooned a holding company’s net income growth. The sale of a subsidiary energized the net income growth of another.

That said, with a good account of published numbers having been inflated, this explains why the PSYEi 30 companies remedy their liquidity shortfalls with massive borrowings.

Please find the revenue and net income breakdown of the components of the PSYEi below. Pls. note FGEN and ICT numbers which are quoted in USD have been converted using the 9M USD peso averages published by the BSP.

Net income… 

Table 4
Revenues…
Table 5
...

Sunday, November 24, 2019

Stunning! Led by SM, 5-Issues Now Controls 48% of the PhiSYx; The US 4% S&P 500 Market Cap Share

Stunning! Led by SM, 5-Issues Now Controls 48% of the PhiSYx; The US 4% S&P 500 Market Cap Share

Thanks to the First Metro Investment’s ETF, the floating market cap or the official weight distribution of the headline index can be publicly viewed.


The updated distribution numbers are staggering! As of November 22, based on the free-float market cap, SM Investments controls a 15.8% share of the headline index!

In the week ending February 22 or the last date before the Philippine Stock Exchange unpublished this data, that number was only 13.34%. That would signify a big leap!

In the context of the full market cap weight, SM has 13.15% and is the king of listed issues. Full market cap = market price x outstanding shares.

Nevertheless, three of the Sy owned companies have a commanding 31.65% share of the full market cap index, and most importantly, 32.8% of the headline index.

That is to say, the MOST authoritative influence has been the SY group of companies!

In the meantime, based on the headline index, the top 5 companies control a whopping 48.4% of the index that's against the full market cap, where its share is at 44.16%! Sy group PLUS two other issues Ayala Land and Ayala Corp continues to snare a bigger role of the index. Lesser weighted issues become increasingly less relevant.

The irony is that the public refers to the index as the market. Just how valid is this popular notion when only 5 issues comprise nearly half share of the index?

The next question is how did it get here?

Since the genuine boom backed by huge volume climaxed in 2013, the index has increasingly has become dependent on the sustained cosmetic facelifting from unidentified managers after.

 
These mark-the-close actions benefited mostly the Sy group of companies, hence the skewed distribution that has brought about the widening gap in share weights against the rest of the field.

For example, the index closed down by 1.37% this week, but the decline could have been bigger had it not been to the 71.06 points or .9% end session pumps, with again, SM as a prime beneficiary.

 

And with mounting concentration, the increased dependency on SM and the SY group renders the index more susceptible to any adverse development on them.
In the US, the significant benchmark appears to be the 4% share weight of an issue relative to the S&P 500. In the past, when a company goes beyond this watershed number, a top in either the US markets or for that stock has been signaled.

Will the same apply to the Philippines?
And finally, in the Black Swan Theory, iconoclast Nassim Taleb’s offers the Turkey Problem to analogize the risk of ruin.

"A turkey is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to the statement. But on day 1,001 there will be a surprise for the turkey..."

That Turkey problem was in action last week. After soaring 3,800%, Hong Kong-listed Artgo Holdings collapsed 98%, after being rejected by the MSCI in the China index, in a single day! 

Past performance does not guarantee future results!

...

The Great Dichotomy: Global Economy at the Precipice; in Panic, Central Banks Flood World with Liquidity, Global Stocks Soar!

The Great Dichotomy: Global Economy at the Precipice; in Panic, Central Banks Flood World with Liquidity, Global Stocks Soar!

We are at a threshold of something unseen in history. Aside from negative policy rates, the record volume of negative-yielding securities, previously inverted yield curves, record repos, central bank balance sheets, and many more, the great dichotomy has been the record-setting global stock markets in the face of a sharply decelerating global economy.

 
If you haven’t been tuned in, inspired by the recent melt-up of US equity markets, the MSCI World Index hit an all-time high last week.

In the US, the participation rate hasn’t been 100% for the major benchmarks. While the NYSE Composite (NYA) is at its record resistance, the Dow Jones Transportation Average (TRAN), the small scale Russell 2000 (RUT) and its counterpart the S&P 600 (SML), and the mid-cap S&P 600 (MID) remains distant from their previous respective apexes.

Meanwhile, developed markets have outperformed as MSCI Asia, emerging markets and the UK have lagged. (Yardeni.com)

What’s striking has been the path deviation between the path between stock prices and the real economy as shown by the Global ISM index.

 
And stocks are soaring despite OECD’s leading indicators and world trade activities have been flashing red!
 
Interestingly, even the S&P 500 seems to have deviated ridiculously from its fundamentals: falling revenue growth and contracting income that has reflected on the general corporate profits after tax (excluding inventory valuation adjustments and Corporate Consumption adjustments). The aberration has spread to even Perma-bull Ed Yardeni’s favorite boom-bust indicator (CRB Raw Industrial prices divided by initial unemployment claims)!

And along with the ongoing strains in the repo market, which has prompted the US Federal Reserve to reactivate its $60 billion (not QE) T-bill purchases, global central banks have embarked on a joint campaign to ease by cutting rates: (from Charlie Bilello) Rate Cuts in 2019... Fed: -75 bps ECB: -10 bps Denmark: -10 bps Australia: -75 bps Brazil: -150 bps Russia: -125 bps India: -135 bps China: -16 bps Korea: -50 bps Mexico: -75 bps Indonesia: -100 bps Philippines: -75 bps Thailand: -50 bps Chile: -100 bps Turkey: -1000 bps

As such, the Fed’s balance sheet has spiked, which helped stoke its money supply growth.
 
Over half of the global central banks have eased. The FED’s $ 286 billion balance sheet expansion (as of November 13) surely fired up the S&P 500.

And the easing measures undertaken by global central banks have had divergent effects; liquidity in developed markets have bounced while emerging markets have yet to respond.

Nonetheless, the global money supply has been ramped along with the MSCI world index, even as the soft indicator, the economic surprise index continues to tumble!

In spite of these collaborative measures by activist central banks to prevent a downturn, the astonishing escalating deviation between financial assets and the real economy should highlight the speculative blowoff phase of the current market cycle.
 
Higher asset prices, it is held, generates liquidity that may push exposing imbalances down the road. However, with global debt rocketing to top $255 trillion, credit markets haven’t been as convinced as the stock markets that flooding the world with liquidity would suffice.

However, US Junk bond’s widening spreads seem to signal growing investor aversion towards risky credit.

Instead, such distinction reveals the extent of the erosion of real savings with the continuing buildup of excess capacity, debt saturation, expanding Ponzi finance or zombie companies, the conspicuous lack of investments, and the excessive fixation on chasing yields as symptoms.

Diminishing returns from the sweet spot from such joint interventions by central banks would arrive earlier than most expect, trade war or not.