Manic Monday – Nowhere To Go But Up?

WOW!!!

That’s all I can say about the action this morning.  There’s a Global currency-manipulation scandal, China had an alarming drop in exports, a decline in manufacturing and expanding inflation at home, Japan’s GDP has been revised down, Global debt has now passed $100,000,000,000,000, and an airplane is “missing” (possibly terrorism), yet the US Futures have already rallied back from a half-point deficit to flatten out an hour before the open.  

 The Russian thing is still going on, France’s economy is showing no sign of improvement but none of this seems to matter to equity buyers and, in fact, Goldman Sachs looked at the recent action and put out a note to BUY Chinese stocks:

“Given how share prices have corrected and given where the valuations are, from a risk-reward standpoint we still think we can make a positive case on Chinese equities,” Kinger Lau, a strategist at Goldman Sachs, said in an interview in Hong Kong on March 4. He predicts the Hang Seng China Enterprises Index (HSCEI) will climb to 12,000 in the next 12 months, a 24 percent advance from last week’s close, versus the brokerage’s December forecast for the measure to reach 13,600 by the end of 2014.

As you can see from the chart above (good article here, thanks Sibe) China’s money-creating stimulus puts the rest of the World to shame but that $100Tn total Global Debt should bother someone, shouldn’t it?  

Seth Klarman calls it a “Truman Show Economy” and that’s an excellent description of what’s going on.  This weekend he updated his outlook, noting:

From “born bulls” to “worry genes” and from Bitcoin to flash-mob-speculation, “there is a growing gap between the financial markets and the real economy…and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks… as every ‘Truman’ under Bernanke’s dome knows the environment is phony.”

A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla. The overall picture is one of growing risk and inadequate potential return almost everywhere one looks.