Dear Friends and Clients,
February was a very volatile month in the markets where a negative feedback loop persisted in the first half of the month. The 10 year treasury bond fell below 1.60% as flight to safety and deflationary pressures were top of mind. WTI crude hit a 12 year low closing at almost $26 on February 12th and rebounded to almost $34 by end of the month on the heels of talks by Russia and Saudi Arabia reducing oil output. Chesapeake and Linn Energy fell 40% and 50% respectively early in the month on fears of bankruptcy. The 10 year Japanese treasury bond went negative while the German 10 year bond came very close to going negative as well. In fact, there’s over $7 Trillion (yes Trillion!) worth of government bonds globally that have negative yields. Negative rates was the talk of the month and there was even a satirical cartoon highlighted in Bloomberg which you can read here. In fact, the odds of negative interest rates in the US is now at 13% by the end of next year. And, despite the recent rally in the markets, corporate earnings have actually been falling, not rising year over year. And while 2+ consecutive quarters of declining corporate profits haven’t always signaled recession, such occurrences have always signaled stock market crashes over at least 20% in the S&P 500 in the subsequent year. See the chart below by HedgeEye which highlights. I have been hearing positive calls on emerging markets and that now is the time to buy. Although, Kyle Bass has suggested banks in China will see 4 times the losses the US saw during our last crisis (read that story and interview here).
CEO & Founder