On Feb. 5, the s & p 500 tumbled 4.1% in one day, and the JVIX jumped from 15:00 to 40, and u.s. stocks have had frequent ups and downs for more than two months. On Friday, the yield on ten-year u.s. bonds was close to 3%, making traders nervous again. After nearly 10 years of growth, what stage has the US stock market reached now? Should we be optimistic or cautious?
1. Decoupling financial assets from the real economy
In a sense, the price of financial assets is nothing more than the discount of the future cash flow of financial assets. So when asset prices grow faster than profits, this means that underlying valuations have deteriorated. Asset prices are the sum of stocks, bonds and real estate.When asset prices are high relative to GDP, you may encounter some high price-to-earnings ratios and high real estate prices to household income or rents.Since the 2008 financial crisis, US assets have been decoupled from the real economy under the Fed's policy of quantitative easing.
2. 10-year Treasury yields continue to rise
Us Treasuries have been sold off violently over the past three trading days, with the yield on 10-year Treasuries approaching 3 per cent again. This has made traders nervous again.
On Friday, the yield on 10-year Treasuries rose 4.6 basis points, hitting a daily high of 2.96%, the highest level since January 2014.Previously, the new bond king Jeffrey Gundlach and others regarded the 3 per cent yield as a "red line" and warned that once the breakthrough was broken, the stock market would turn downwards.
Source: Yingwei Financial Information Investing.com
3. Interest rate spread is upside down
If the Fed raises interest rates to push up short-term Treasury yields faster than 10-year yields, it will happen: spreads are upside down. The simple understanding is that the interest on a 10-year deposit is not as good as that on a 2-year deposit.
In this case, the term premium will evaporate as long-term and short-term interest rates converge.For almost all financial intermediaries, this is an obviously bad result, because banks, insurance, mortgage REIT, etc., are based on the use of short-term financing to finance long-term loans. This will lead to the reluctance of institutions such as banks to lend and higher financing costs for companies.
In history, there have been many upside-down interest rate spreads in the US dollar, accompanied by financial crises.
4. The proportion of corporate debt and GDP has reached the level of historical financial crisis.
The picture above shows the corporate debt and loans of non-financial companies as a percentage of America's nominal gross domestic product (GDP). The cost of cheap capital has doubled corporate leverage since QE.
5. Hedge fund leverage plummeted for the first time since the financial crisis
Morgan Stanley previously published a research report saying that it appeared for the first time since the financial crisis.Many/Total leverage ratio of short strategy hedge fundsThe slump.
In November 2017, the International Organization of Securities Regulatory Commission (IOSCO) released the IOSCO's fourth international hedge fund survey report. According to the survey data, long / short stocks (equity long/short) are the most widely used investment strategies for hedge funds, followed by global macro strategy (global macro) and fixed income arbitrage strategy (fixed incomearbitrage).
Not only does the chart above show the fastest deleveraging of long / short hedge funds in history, but what is even weirder is that it is similar to what happened in 2007: leverage levels accelerated for a short time and then plunged sharply. This was followed by the global financial crisis in 2007.
Legendary investor Jim Rogers said on Monday that while the stock market continued to rise, such a good day would not last, and warned that the "worst correction of his life" was just around the corner. In addition, Rogers is also optimistic about the trend of long-term gold prices, and gold prices are expected to soar.
Of course, there are always many short parties in the market, and you have to think independently about investment, but under the current circumstances, it seems better to be cautious.
