The BS Filter: Hedgeye's Take On Today's Financial News

The BS Filter: Hedgeye's Take On Today's Financial News - central banker house of cards

 

Below is a collection of interesting links and insights from today's news with analysis filtered through our macro lens. This installment discusses why the public have stopped paying attention to economists, an update on negative yielding government bonds, the BOJ's latest efforts to prop up their struggling economy, and Italy's plan to help their struggling banks.

 

Enjoy! 

 

Why We've Stopped Paying Attention to Economists

"The predictions from economists about the consequences of Brexit were widely ignored. That shouldn’t be surprising. In recent years the public has lost faith the in the economics profession," economist Mark Thoma writes in The Fiscal Times. Thoma recounts the disagreements among economists, who can't seem to agree on why productivity has fallen, declines in the labor force participation, and what is the cause of inequality.

 

Bottom Line: We are equally skeptical of linear economic forecasters (both at the Fed and on Wall Street). Watch Hedgeye CEO Keith McCullough in the video below, "The 3 Most Overrated Economists in the World." 

 

 

More NIRP...

According to Fitch Ratings, "Investors' flight to safe assets following the UK's EU referendum on June 23 pushed the global total of sovereign debt with negative yields to $11.7 trillion as of June 27, up $1.3 trillion from the end-May total." Japanese government bonds make up a staggering two-thirds of the negative yielding bonds ($7.9 trillion). 

 

The BS Filter: Hedgeye's Take On Today's Financial News - fitch neg yields

 

BOJ Bloviating

Reuters reports that Japanese government and BOJ officials met for a second time post-Brexit in which "Abe urged Bank of Japan (BOJ) Governor Haruhiko Kuroda to ensure the central bank provides ample funds to the market to prevent any credit squeeze."

 

"A sense of uncertainty and worry about risks remain in the markets," Abe told the meeting. Finance Minister Taro Aso is also closely monitoring currency moves and responding flexibly to market developments in coordination with other Group of Seven economies. In other central-planning news, Chinese Premier Li Keqiang won't allow "rollercoaster" markets following Brexit.

 

Bottom Line: Central planners are pulling out all the stops to stem the post-Brexit bleeding. For the time being, investors seem to be buying into all the bloviating.

 

Italy's Troubled Banks 

Apparently, the Italian government is considering injecting as much as 40 billion euros ($44 billion) to some of its banks, according to Bloomberg sources. "The government may support lenders by providing capital or pledging guarantees, said the person. The amount is still under discussion and no final decision has been taken, according to the people."

 

"Italian banks, hurt by 360 billion euros of non-performing loans, sluggish economic growth and record-low interest rates, are under pressure to clean up their balance sheets and restore investor confidence. The country was among the hardest hit by Friday’s market rout that wiped $2.5 trillion from global equity values, with some of Italy’s largest banks dropping more than 20 percent."

 

Bottom Line: With the ECB's negative interest rate policy, don't expect struggling Italian banks to be in the clear anytime soon. Avoid the region, #EuropeSlowing...


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