DoubleLine Round Table 2021
Section 1 Global Macroeconomy: State of Play and Outlook Part 1 and Part 2
Section 2: Financial Markets Part 1 and Part 2
Section 3: Best Ideas
David Fuller and Eoin Treacy's Comment of the Day
Category - Fixed Income
World's Most Vaccinated Nation Struggles With Virus Variants
This article by Gwen Ackerman for Bloomberg may be of interest to subscribers. Here is a section:
The variant first identified in the U.K., 50% more infectious and possibly more virulent than the original virus, is to blame for the inability so far of the vaccination campaign and the lockdown to curb the spread, Israeli health ministry officials said.
Although the vaccine is believed to work against the variant, the mutation’s more contagious nature means higher infections and hence more hospitalizations. The health ministry’s main goal now is to bring down the numbers of the seriously ill who are overwhelming hospital wards and exhausting medical teams.
The rate of infections in Israel has declined to just over 9% from 10.2% earlier this month, and people seriously or critically ill has stabilized at about 1,100. But the number of patients on respirators has hit a record, Corona Commissioner Nachman Ash has said. More than 4,600 people in Israel have died from the virus, and more than 7,600 people are being diagnosed with it daily.
Balicer said it would likely take another 10 days before the country sees critical cases decline, allowing the economy to begin to return to normal.
Is there a bubble in financial markets?
Thanks to a subscriber for this chartbook from Deutsche Bank which may be of interest.
No doubt that in aggregate US equity valuations are at, or close to, all-time-highs.
Sunak's Tax Choices to Fix U.K. Debt Range From Wealth to Fuel
This article from Bloomberg may be of interest to subscribers. Here is a section:
A more innovative and potentially hugely controversial option that could seek to address growing U.K. inequality would be a wealth tax. Last year, the independent Wealth Tax Commission said the
U.K. could raise more than 260 billion pounds with an annual charge of 1% lasting five years on individual assets above 500,000 pounds. About 8 million residents would be affected.
Wait and See
Sunak could also decide that it’s too early to raise taxes, choosing to tolerate a higher debt load until the U.K.’s recovery is assured. That tactic was mooted last week by a Treasury minister who suggested hikes could be avoided should the economy stage a strong rebound.
“It’s not absolutely obvious therefore that there may be any future need for consolidation, depending on the view you take for taxes,” Financial Secretary to the Treasury Jesse Norman told the House of Commons Treasury Committee. That approach, which removes the risk of premature tightening that could choke off growth, could be achievable after Bank of England bond purchases to stimulate the economy drove U.K. debt-servicing costs below pre-pandemic levels, despite the borrowing splurge.
Email of the day - on money printing
As an American investor, it has occurred to me that as we enter an era of money printing the likes of which we probably have never experienced, I really don't have a good handle on the potential risk. It is virtually impossible to allocate one's assets appropriately without a good understanding of a "best case/worst case" scenario. I watch as those in charge in Washington salivate at the prospect of writing checks, checks, checks, and assume that the currency will depreciate, but wonder: how bad might this possibly get? With a pistol to your head, if you had to take a guess at it, what do you see as the range of possibilities here? Might we be another Greece? Thanks for all you do for us - day in and day out.
Don't Bank On the Glut of Savings Being Spent
This article by Gary Shilling may be of interest to subscribers. Here is a section:
From a broader perspective, inflation results from demand exceeding supply, but since globalization commenced three decades ago, it’s been an excess supply world. Asian countries are big producers of exports they send to the West, but they’re weak consumers. China’s consumer spending is just 43% of GDP, compared with 68% for the U.S. So the resulting Asian saving glut generates price-depressing excess supply. Barring a tariff wall that seals off imports from Asia, any revival of U.S. consumer spending wouldn’t be big enough to eliminate global excess supply. And President Joe Biden is less zealous on the trade war with China than former President Donald Trump.
Finally, note that some investors aren’t anticipating surging inflation and interest rates. Technology-related and other growth stocks have low earnings yields, the inverse of price-to-earnings ratios, which are justified by low interest rates. The theory is that their present stock values equal the discounted value of future earnings, so the lower that discounting interest rate, the more their equities are worth
today.
Earnings of $10 in 10 years hence is worth $9.05 today with a 1% discounting rate, but only $5.58 at 6%. So if investors expected a leap in inflation and interest rates, they’d probably be dumping growth stocks now.
Short-Seller Citron 'Walks Away' After 'Angry Mob' Tried to Silence Him on GameStop (GME), Turning Info Over to Feds
This article from StreetInsider may be of interest to subscribers. Here is a section:
GameStop (NYSE: GME) short-seller Andrew Left of Citron Research says an "angry mob" that owns the stock spent the last 48 hours committing multiple crimes against him and his family that he will turn over to the FBI, SEC, and other government agencies.
He said what he experienced is nothing short of "shameful and a sad commentary on the state of the investment community" and he will no longer be commenting on GameStop.
Left said this was not just name-calling and hacking but "serious crimes such as harassment of minor children."
Left said they are "investors who put the safety of family first and when we believe this has been compromised, it is our duty to walk away from a stock."
WHO Information Notice for IVD Users 2020/05
This information notice from the WHO may be of interest to subscribers. Here is a section:
WHO guidance Diagnostic testing for SARS-CoV-2 states that careful interpretation of weak positive results is needed (1). The cycle threshold (Ct) needed to detect virus is inversely proportional to the patient’s viral load. Where test results do not correspond with the clinical presentation, a new specimen should be taken and retested using the same or different NAT technology.
WHO reminds IVD users that disease prevalence alters the predictive value of test results; as disease prevalence decreases, the risk of false positive increases (2). This means that the probability that a person who has a positive result (SARS-CoV-2 detected) is truly infected with SARS-CoV-2 decreases as prevalence decreases, irrespective of the claimed specificity.
Most PCR assays are indicated as an aid for diagnosis, therefore, health care providers must consider any result in combination with timing of sampling, specimen type, assay specifics, clinical observations, patient history, confirmed status of any contacts, and epidemiological information.
Deflation Threatens to Push Yen Higher on Japan Real Yield Gain
This article by Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:
“Japan’s real yields are high and are rising with deflation underway,” said Tohru Sasaki, head of Japan markets research at JPMorgan Chase & Co. “The real yield gap widening in the negative is very significant. It may eventually drag the yen higher.”
Consumer price growth in Japan excluding fresh food -- a measure closely watched by the country’s central bank -- has been negative or zero since April. Expectations for future inflation -- derived from 5-year breakeven rates -- sit at minus 0.12%. Equivalent U.S. breakevens are at 2.16%, up over 60 basis points and rising since November, as investors bet further stimulus under new President Joe Biden will help reflate the American economy.
Yen at 100
The result is a higher real yield in Japan, where 5-year inflation-protected notes trade around zero versus minus 1.73% in the U.S., increasing the relative attractiveness of the country’s bonds and its currency.
Weekly Warm-up: More Stimulus May Mean Less for Markets
Thanks to a subscriber for this report from Mike Wilson at Morgan Stanley which may be of interest. Here is a section: