Markets have been rising in tandem lately. Everything is up, and it is all good. It doesn’t matter if it is equities, gold or oil, as long as it is up. What about the future thought? Some insight from Hussman Funds on the unusual drawdown risk.
In order to estimate likely returns and risks in the financial markets, our general approach is to identify a set of historical instances that match current conditions on a broad range of important dimensions (in practice, using an “ensemble approach” that randomizes over scores of subsets of historical data). We then look at various features of that cluster, including the average return that followed over various horizons, the deepest loss over various horizons, and the overall spread of those outcomes. In general, the clusters include a mix of both positive and negative outcomes, resulting in moderate estimates of expected return and moderate estimates of risk. In some cases, the average return across the cluster of instances is very positive, and the individual instances show few negative outcomes at all. That sort of condition justifies a very aggressive investment position. In contrast, since the late-1990′s, the average returns of the clusters have been quite poor, with a preponderance of negative outcomes in historical instances having similar characteristics.
As by now everybody should know, the LTRO helped fuel the latest rally. The question is what will happen if these cheap drugs come off the market? How sustainable is the rally without ECB flooding the system? Nobody really knows, but one thing is sure. Over the past days we have heard many new bulls joining the party. An increasing number of market “pros” are now seeing valuations as cheap, and we hear of green shoots and goldilocks. Let’s see how the market reacts to less (h)opium from the ECB. From 4 traders;
Powerful members of the central bank’s 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last.
Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.
The ECB first offered banks low cost three-year money in December to stave off a freeze in interbank lending that threatened to make the region’s debt crisis much worse.
Banks flocked to take advantage of the offer, filling their coffers, and ECB President Mario Draghi said “a major, major credit crunch” had been averted. (Full article here).
We have had multiple questions regarding the Greek “deal” today and what is going on in Europe. Still, the best informative video out there, answers majority of questions. “The deal” is just another bad idea that sounds nice. Review the below video for details shown on The Trader earlier.
The Greek “Deal” shouldn’t be viewed as a deal. It has flaws, it is not a deal, and Greece should default instead of prolonging this agony. This so called deal is full of loose ends and is impossible to grasp. Nobody wants signing this no deal anyway, so one can but wonder, why can’t anybody just do the right thing, let Greece default, and stop throwing good money after bad money? Don’t be surprised to see this deal blown off sooner than later. Some insight from Spiegel today;
Greece is bankrupt and will need a 100 percent debt cut to get back on its feet. The bailout package about to be agreed by the euro finance ministers will help Greece’s creditors more than the country itself. EU leaders should channel the aid into rebuilding the economy rather than rewarding financial speculators for their high-risk deals.
It used to be better times in Greece. The latest proposals from Troika & Co, should be humiliating to the once Lord of the World, Greece. The country used to rule the World, and will now be supervised by Euro politicians, while the people are getting accustomed to living in austerity. What’s next, fire sales of cheap islands to the Chinese and Alexander the Great proclaimed to belong to Macedonia? Great reading below by Felix Salmon of Reuters;
Greece is now officially a ward of the international community. It has no real independence when it comes to fiscal policy any more, and if everything goes according to plan, it’s not going to have any independence for many, many years to come. Here, for instance, is a little of the official Eurogroup statement: