The Mess That Greenspan Made - Part 19

Stocks or Bonds: Which Has It Right?

Much has been made about the rather disturbing trend this year for the price of just about every asset class to go up. As shown below, stocks and bonds normally go in opposite directions over long stretches of time, however, that’s not been the case this year.

In fact, 2014 has, so far, proved to be quite the outlier in many respects for how stock and bond prices have moved for reasons that should be clear below.


Friday Morning Links

Ukraine border guards to inspect Russian aid convoy – BBC
Islamic State Said to Challenge Al-Qaeda for Leadership – Bloomberg
End of the Wirtschaftswunder? Germany’s sudden slowdown – Reuters
Policing Protests Like Soldiers Makes Everyone Less Safe–Even Police – Atlantic
American Consumer Debt Declines for First Time In a Year – Bloomberg
Study Finds Americans Plagued by Outstanding Debt – Fiscal Times
Will subprime auto loans ignite another credit crisis? – MyBudget360
Why China Might Begin Dumping Its $1.3 Trillion Hoard Of US Treasuries – ContraCorner
What Happened During Previous Reserve Currency Transition? – Economic Reason
70 Years Later – Warren Buffett’s Dad Is Proved Right – Zero Hedge
Warren Buffett stock tops $200,000 a share – CNN/Money
The Forever Slump – Krugman, NY Times
Robin Williams Had Parkinson’s – Daily Beast

Futures up; consumers may be in better mood – MarketWatch
Why Are The Bulls Regaining Momentum? – Short Takes
Commodity Prices, Bond Yields Send Warnings Signals – Fiscal Times
Investors Pour $680 Million Into U.S. Junk Bonds in Latest Week – WSJ
China Mobile leads Hong Kong to highest close in years – MarketWatch
Treasuries Advance as Manufacturing Data Drop More Than Forecast – Bloomberg
Gold prices turn lower as European stocks climb – Reuters
Russia may become World No. 2 gold miner this year – Mineweb
Paulson holds onto gold ETF, Soros adds gold miners in quarter – Reuters
Iron Ore Prices Tumble as Four Large Producers Ramp up Production – Caixin Online
To prosper, gold needs China and India more than fear: Russell – Reuters

30-yr Treasury Yield: “The Economy Is Collapsing” – IRD
ECB under pressure to boost growth, analysts say – BBC
Is the eurozone being dragged into deadly spiral of deflation? – Telegraph
U.K. Keeps Momentum in Second Quarter With 0.8% GDP Growth – Businessweek
Argentina’s blue dollar market hits 60% premium to official rate – Sober Look
Modi Promises Bank Accounts for All Families in India – NY Times
Worries over China growth as July lending plunges – Channel News Asia
Canadian economy added 42K jobs in July, not 200 as originally reported – FP
Winners and losers in Canada’s housing market – Globe & Mail
US homeowners stay unemployed for longer – Lindau Nobel
More quantitative easing to come? – MarketWatch
Asian Eyes on Jackson Hole – WSJ


One More Thing to Worry About

The innocuous looking graphic below from this WSJ story ($) has more than a few people worrying a little more today than they did yesterday about what might go wrong in the financial system as we bear down on the worst two months of the year for equities.

According to the report,  the repo market is “a critical part of the plumbing that keeps money flowing”, enabling “hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight” and has recently seen some lenders pull back due to new regulations.

A less sanguine take can be found in this item at Quartz that characterizes repos thusly:

The bottom line is that repos are leverage. They are a way for banks to use borrowed money, instead of their own, to take positions in the market. When times are good this works pretty well. But in a crisis, things get bad quickly.

Just in case you needed it, that’s one more thing you can worry about.

Thursday Morning Links

Enough is enough in Ferguson – Vox
Eurozone growth slows to a halt – BBC
German GDP signals stalling euro-zone recovery – MarketWatch
Italy’s Renzi must bring back the lira to end depression – Telegraph
Charting Nouri al-Maliki’s turbulent eight-year tenure as Iraq’s prime minister – Quartz
JPMorgan Joins Goldman in Designing Derivatives for a New Generation – Bloomberg
Cisco Terminates 8% Of Workforce While Buying Back $1.5 Billion In Stock – Zero Hedge
Brown Signs $7.5 Billion Plan to Ease California Drought – Bloomberg
Canadian dollar nears 92¢ again (but hold that thought) – Globe & Mail
Richer, But Not Happier: Hong Kong’s Quality of Life Drops – WSJ
These guys used to issue the world’s reserve currency too – Sovereign Man
The oil spike that wasn’t: Prices defy global turmoil – CNBC
I’m 57 and owe $152,000 in student loans – CNN/Money

Here’s why stocks can keep going higher – CNBC
30 reasons not to worry about a stock market crash – MarketWatch
Junk Bonds Gain Favor as Europe’s Banks Reduce Lending – NY Times
Blackrock Examines The High-Yield Bond ETF Exodus – Barron’s
German bond yields drop below 1% for first time – MarketWatch
U.S. 30-Year Bonds Outperform Stocks in 2014 Before Sale Today – Bloomberg
Gold down as Putin comments help shares; soft data, dollar limit losses – Reuters
Total Gold Demand Falls 16% Year-Over-Year To 963.8 Tons In Q2 – Kitco
Global gold demand returning to positive long term trends – Mineweb
India Gold Imports Seen Dropping as Rajan Protects Rupee – Bloomberg
London gold fix lawsuits to be consolidated in New York – Reuters
U.S. gold stocks jump to highest since March 2013 as demand wanes – Reuters

It Really Is Deflating – Alhambra Partners
The Middle Class Is A Power Behind Wage Inequality – Forbes
What should the European Central Bank actually do? – Marginal Revolution
China’s retail sales maintain steady growth in July – xinhuanet
Chinese Buyers Are Driving a Boom in Australian Real Estate – WSJ
Stated income loans make comeback as mortgage lenders seek clients – Reuters
Levine on Wall Street: Repo Fails and Defaulted Mortgages – Bloomberg
Boston Fed Chief Warns of Dangers to Repo Market – NY Times
One of the biggest cracks in the financial system still isn’t fixed – Quartz
How The Fed Turned A Flood Of Treasuries Into A Scarcity Of Repo Collateral – Contra Corner
Uh-oh: Trouble is brewing again in the repo market – CNBC

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