January 28, 2015
Riskelia’s bubble indicator characterizes bullish or bearish herding behavior on every asset quoted on a daily basis. It is exclusively based on market prices and scores the regularity of the price moves on various time frames.
A review of the most significant bubbles enables to us to identify the investment themes where the exaggeration [...]
On Thursday morning 15th January 2015, a surplus country, Switzerland, has decided on its own to exit from the peg vs. the euro. In short it has existed voluntarily from the euro zone in a snap of fingers. Surplus countries (Germany, Netherlands, Finland, Austria…) which could consider exiting from the euro zone have learned how [...]
In a context of generalized decrease of medium and long term yields (figures 1 and 2), US bonds currently present the most attractive 5-years yields among all bonds of developed countries. The spread between 5 years US and Germany’s yields (figure 3) provides a clear illustration of the attractiveness of these US bonds. Its level [...]
Each year, economists and money managers provide their economic and financial forecasts. In 2014, the consensus anticipated a rebound of European growth, a lift in global rates and an outperformance of euro zone equities. What has been the final outcome? Bonds market in Europe have experienced a rise of more than 15% as euro zone [...]
Many bubbles are currently unfolding according to Riskelia’s Radar. The Bubble Indicator reflects bullish or bearish herding behavior. It is only based on market prices and scores the regularity of price moves on various time frames.
Figure 1 highlights that bubbles are actually focused on three investment themes:
Positive bubbles on sovereign debt, particularly in the Eurozone,
Financial integration is on the rise again. From the lowest point of diversification achieved since 2004, financial markets have started to correlate to each other as illustrated by figure 1. It is particularly true in commodities markets where the crash of the oil market (-35% in just three months) spread to other cyclical commodities (iron [...]
The commodities selloff has deepened, putting at risk not only oil but also gold, copper, soybeans and almost all commodities except some base metals (zinc, aluminum). This dynamic has started since August 2014 and oil is the leader of a self-fulfilling negative trend spreading to all commodities and commodity-related assets (currencies, equities of commodities’ producers). [...]
As G10 governments are faced with the need to deleverage their economies, they have no choice but to maintain yields below nominal growths for an extended period of time. This is a state of financial repression in which passive bond holders incur an implicit tax on capital.
In turn, low rates and Central Banks liquidity injections [...]
In a context of vulnerable emerging markets and depressed commodities (figure 1), bonds with high expectations of rates increase offer compelling protections to equities’ selloff. Figure 2 illustrates that US and UK bonds have displayed the most negative correlations to global equities last year. On the contrary, Italian bonds are positively correlated to European equities [...]
Equities long term trends have recently become very different. The gap between buoyant US and Japan, lackluster emerging and bearish Eurozone has never been so wide. As illustrated in figure 1, Japan, US and defensive equities in Europe (Switzerland) are well rated whereas euro zone equities and several key cyclical emerging markets are in sharp [...]