Category Archives: debt and equity

20/8/20: All Markets are Now Monetized

 

While the economy burns, the stock markets are literally going bonkers. Here are the main implied volatility options:

Which are symmetric, in so far as they treat volatility as symmetrically-valued to the upside and downside. And here is another way of looking at the same concept via repricing speed, or the rate of change in actual P/E ratios of S&P500 over longer time horizons, in this case: 20 weeks running P/E ratios change:

Source of the chart is @longvieweconomics. What does the above show? We have S&P500 at an all-time high. S&P500's PE ratio (PER) is only slightly below the 2000 peak. And, we have the fastest rate of S&P over-valuation increase in history - full 85 percentage points trough to peak. Both, the fundamentals and the momentum of their deterioration are absolutely out of control. Of course, this is just the stocks. One must never mention the massive bubble blown up by the Fed in the bonds markets. 

The 20-weeks moving change in weekly yields for Aaa-rated bonds maxed out at historical high of -44.06% (remember, lower yields = higher prices) in the week of July 31st this year. Top three historically highest rates of change took place in the three weeks of July 24th-August 7 this year. Overall range of bonds repricing is in the range of 60 percentage points in the current cycle:

This is plain horrendous: there is nothing in the macro and micro fundamentals that can warrant these changes. Except for the expectation of continued monetary accommodation of the Wall Street into the infinitely long future. 


1/10/15: Emerging Markets Debt v Equity


Debt, not equity, is the real China Fault Line, even if tremors are rocking its stock markets:


What we have in the above is a record of debt/equity in corporate valuations across the EMs and China. While debt pile relative to equity valuations has grown in the EMs ex-China (though it still sits below parity), in China, growth in debt has been exponential. Inly in 2007 did Chinese debt/equity ratio come close to parity (albeit from above 1) and ever since, debt growth outpaced expansion in equity valuations.

Bad enough. Except when one considers an even more dangerous side to this markets: debt growth likely led equity valuations. Which implies, if confirmed, that Chinese markets investors have simply ignored debt valuations in their balancesheet pricing of Chinese companies. In other words, straight out of Krugmanite book (for countries), 'debt doesn't matter'.

Good luck with that...