WorldoutofWhack

Ben hunt writes in Epsilon Theory

Financialization is the zombiefication of an economy and the oligarchification of a society.

Here’s the foundational chart for these strong words.

This is a 30-year chart of total S&P 500 earnings divided by total S&P 500 sales. It’s how many pennies of earnings S&P 500 companies get from a dollar of sales … earnings margin, essentially, at a high level of aggregation. So at the lows of 1991, $1 in sales generated a bit more than $0.03 in earnings for the S&P 500. Today in 2019, we are at an all-time high of a bit more than $0.11 in earnings from $1 in sales.

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Russell Napier writes for Solid Ground…

‘Of all the recording devices that can reveal to an historian the fundamental movements of an economy, monetary phenomena are without doubt the most sensitive. But to recognize their importance merely as symptoms would do them less than full justice. They have been and are, in their turn, causes. They are something like a seismograph, which not only measures the movements of the earth but sometimes provokes them.’

Marc Bloch: “Le Probleme de l’or au Moyen Age”; Annales d’Histoire Economique et Sociale; 1953 Across the world many key government bond yields have fallen below both their 2009 and 2016 lows. In 2009 the market thought the world financial system was collapsing and a deflationary depression was imminent. Unless of course one had read Anatomy of The Bear: Lessons From Wall Street’s Four Great Bottoms! In 2016 the market thought that China was about to devalue its exchange rate and key, large commodity producing companies were on the verge of bankruptcy. These were both dark times but not so dark as to push key global bond yields to current levels.

As a financial analyst one is often asked, “Where do you see financial bubbles today?” When risk-free rates are this low it is easy to see them everywhere, but of course the biggest bubble must be in those so-called ‘risk free rates’ themselves. Remember these are the ‘risk-free’ assets many financial institutions are forced to hold to reduce their balance sheet risk! In the remainder of this newsletter we will look at what such low rates are telling us, why commodity prices will now move sharply lower, why Australia is heading for big trouble, and why US Treasuries are a buy.

Russell explains beautifully the importance of Australia’s low bond yield and its implication for rest of the world

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https://www.eri-c.com/news/234

Gwen Preston writes for investing.com….

There’s a reason gold stocks move so much in a bull market: the market is tiny. The global gold market has a combined capitalization of about U$225 billion – the entire gold business is smaller than a single company in the S&P’s top 30.

That means when generalist capital rotates in, there aren’t a lot of places for it to go. And so a lot of dollars pile into a few places.

Where are those places?

To start, generalist capital interested in gold goes to gold-backed ETFs and the biggest of the major miners.

That’s clearly underway already. Recently, the SPDR Gold Shares (NYSE:GLD) ETF, which is the biggest of the gold-backed funds, saw $1.6 billion in inflows, including the biggest one-day haul since the fund started in 2004.

Miners are also moving. In the last month the NYSE Arca Gold Miners Index is up 25%; half of those gains happened since the Fed meeting on June 19.

Gold-backed ETFs and major gold miners remain preferred destinations throughout a gold bull market. But other kinds of companies soon get attention, too.

Next in line are mid-tier miners, single asset operators, developers, and optionality plays. Those are all self explanatory aside from the last category.

Optionality plays are companies with large assets that would not make a lot of sense to mine at low gold prices but that make tonnes of sense once gold rises. That move – from not economic to economic – is a game changer for the asset and therefore for the company.

As such these stocks outperform in a rising gold market. They’re called ‘optionality’ plays because they are like buying options – they are a call on a higher gold price.

The Banker writes….

Indian banks once again feature prominently in the NPL table. In the 2019 ranking 11 lenders from the country feature, up from the nine that were present in the 2018 edition. This is a testament to the difficulties facing the Indian banking sector as it attempts to address pressing asset quality issues that stem from a credit boom experienced between 2006 and 2011. The highest placed Indian lender in the 2019 NPL ranking is IDBI, in position nine, with NPLs to total loans of 27.4%. It is followed by UCO Bank in 11th with NPLs of 25%. The remaining Indian banks occupy positions 15 and 17, while also rounding out the table from places 19 to 25.

Looking to the worst profit performance, Indian lenders once again feature heavily. IDBI tops the table with a loss of $3.28bn. In second position is Germany’s Norddeutsche Landesbank. The remaining banks, from positions three to 10, with the exception of Portugal’s Novo Banco in ninth place, also hail from India. The country’s public sector banks, in particular, have seen their profitability hit in recent times as they have been forced to onboard loan loss provisions.

https://www.thebanker.com/Top-1000-World-Banks/Top-1000-World-Banks-Indian-lenders-dominate-NPL-and-worst-profits-lists