February 21, 2021
A financial professional, Chuck (Atsushi) Kawakami (pictured) reported recently regarding the global stock and commodities markets. MIRUPLUS introduce his analysis as follows;
Stock prices are in the highest range in all markets, including the United States. Crude oil price is finally $ 60 / barrel, copper price is $ 4 / pound, about 20% during the pandemic shock in March last year, and CCC-rated corporate bond yield of 7.2%, which was in the 11-12% range in normal times just before the pandemic shock in March with a 20% rate record. This situation is much lower than before the pandemic, that means there are no credit problems in financial markets.
In terms of government bonds, the US 10-year government bond has dropped from the bottom 0.5% of the pandemic shock to around 1.35% most recently, which is a level that incorporates a rosy boom rather than a severe recovery of the world economy. However, yields on 2-year and 5-year bonds remain in the bottom range, and the yield curve is distorted. Judging from this, I cannot agree with the explanation that expected inflation is rising.
As for stock prices, the S & P 500's expected profit is only slightly above the same level at the end of 2019 (about 4-5%). Crude oil is also above the break-even point for shale oil, which averages $ 45 / barrel (WTI equivalent), and it is clear that supply will increase over time from the restart of dormant rigs. If crude oil falls, the yields of the above junk bonds will rise.
It is undeniable that China’s economy is doing well, but the fact that copper prices are rising rapidly along with stock prices and real estate prices suggests that money power is still prevailing.
There is no doubt that monetary easing has a bubbly effect on all markets. With the real economy not returning to 2019 levels overall, the situation is slow for the time being and it is unlikely that real inflation will rise early.
The current situation is just ahead of the expectations of some market participants. Therefore, the scenario of the bursting of the bubble from the interest rate side is not in the near future.
After all, I think that some adjustments will occur when the market reaffirms the gap between the virtual image of the world economy and the real image that we are currently weaving. The Chicago Fed's Financial Condition Index, which measures the effects of monetary easing, also shows that the easing is gradually diminishing.
At any rate, it seems that the energy of recoil is gradually accumulating in the rush of movement at present. However, isn't the full-scale bubble burst after the time when the "post-corona" state became steady?
Chuck (Atsushi) Kawakami
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