In dark blue: the S&P 500
In light blue: S&P 500 buybacks
In purple: NYSE Margin debt
In green: inverse US labor participation rate.
And a reminder from our conversation "Cloud Nine":
"If we look at GM and FORD which went into chapter 11 due to the massive burden built due to UAW's size of "unfunded liabilities", they are still suffering from some of the largest pension obligations among US corporations. Both said this week they see a significant improvement in their pension plans liabilities because of rising interest rates used to calculate the future cost of payments. When interest rates rise, the cost of these "promissory notes" fall, which alleviates therefore these pension shortfalls. So, over the long term (we know Keynes said in the long run we are all dead...), it will enable these companies to "reallocate" more spending on their core business and less on retirees. Charles Plosser, the head of Philadelpha Federal Reserve Bank, argued that the Fed should have increased short-term interest rates to 2.5% in 2011 during QE2."
If capital cannot be re-allocated to "productive" endeavors, enabling companies to focus their resources on their core business, how can labor thrive in such a ZIRP environment? Please feel free to explain us how.
In continuation to Soberlook.com's Deutsche Bank reference, from their note from the 20th of September 2013 entitled "Fed's fear of higher rates is overblown", we would like to point out some of their additional comments on the subject of higher rates:
In similar fashion to QE2, QE3 triggered a significant rise in Inflation Expectations, but since the beginning of the "tapering" talks in May, both inflation expectations as illustrated by the evolution of the 10 year US Breakeven and Gold have been sent packing, until the "untaper" time as of July which saw a significant rebound in both - graph source Bloomberg:
Dollar index versus Gold - graph source Bloomberg:
On a final note, in these jitteriness, Japan has continued to shine, and we expect Japan to continue to do so to the benefit of our market scoundrels - graph source Bloomberg:
Helped by lower volatility and has indicated by tighter spreads in the Itraxx Japan - graph source Bloomberg:
For a simple reason: labor cash earnings growth - graph source - Datastream / Fathom Consulting: