Don't Ever Underestimate What Central Bankers & Government Will Do.
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Falling Progits and Weakening Markets
The full report explores falling corporate profits, slowing cash-flow
levels and weakening market breadth.
Liquidity Again a Problem
We have been witnessing the disturbing trend of falling Fund Flows and
slowing Private Credit growth.
The rolling 3 month asset purchases by the global central banks gives us
some insight into another development going on below the surface. Having
become addicted to liquidity injections by the central banks in the post
financial crisis period, the liquidity growth decline (since the US TAPER
program was implemented) is clearly being felt globally. Particularly so in
the Emerging Markets. The forced selling by the Emerging Markets due to
negative current account balances and currency pressures has significantly
aggravating a tenuous situation. Richard Duncan at Macro Watch does a stellar
and unique job of analyzing global liquidity pressures (shown to the right).
Credit Cycle Has Turned
Falling Cash Flows and EBITDA coupled with high corporate debt levels, are
a central reason for the recent credit cycle reversal. This trend reversal is
not about to be reversed as credit cycle reversals are normally infrequent
and can be expected to take years to reverse again. It is a process that is
about resetting debt to manageable and serviceable levels. It normally forces
out the mal-investment created by easy credit. It is extremely worrisome in
this particular credit cycle reversal because of the size of debt &
mal-investment, leverage outstanding and the degree of collateral impairment
underpinning the debt pyramid.
Reduced corporate dividend payouts are a sure sign that the credit cycle
has reversed which we are now witnessing. The number of dividend reductions
has now far surpassed 2008. It is almost 100 more than at the outset of the
Great Recession, a time when the implosion of Lehman caused equity markets to
plummet in the later stages of the third quarter.
We see reduced corporate cash-flows as a central driver in the current
environment - an Energy & Commodity Collapse with attendant soaring
global risk and "Risk Off" as the
new approach to hedging because of the current degree of high market
correlation.
What We Expect
We are watching closely the 200-400 DMA Death Cross for confirmation of an
Intermediate term top and of lower lows ahead.
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